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EX-32.2 - EXHIBIT 32.2 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex32-2.htm
EX-32.1 - EXHIBIT 32.1 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex32-1.htm
EX-31.2 - EXHIBIT 31.2 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex31-2.htm
EX-31.1 - EXHIBIT 31.1 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex31-1.htm

 

 

 

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 fiscal year ended March 31, 2014

 

OR

 

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to _____________

 

Commission file number: 0-23908

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(Exact name of registrant as specified in its charter)

 

California 33-0531301
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
17782 Sky Park Circle
Irvine, CA 92614-6404
(Address of principal executive offices) (Zip Code)

 

(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]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  [  ]  Accelerated filer  [  ]  Non-accelerated filer  [X]  Smaller 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

 

 

  

 
 

 

TABLE OF CONTENTS

 

      Page
       
Part I
Item 1. Business   3
Item 1A. Risk Factors   6
Item 1B. Unresolved Staff Comments   13
Item 2. Properties   13
Item 3. Legal Proceedings   18
Item 4. Mining Safety Disclosure   18
 
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   18
Item 6. Selected Financial Data   19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   25
Item 8. Financial Statements and Supplementary Data   26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   27
Item 9A. Controls and Procedures   27
Item 9B. Other Information   28
 
Part III
Item 10. Directors, Executive Officers and Corporate Governance   29
Item 11. Executive Compensation   32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   34
Item 13. Certain Relationships and Related Transactions, and Director Independence   34
Item 14. Principal Accounting Fees and Services   34
 
Part IV
Item 15. Exhibits and Financial Statement Schedules   35
Signatures   42

 

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 or senior 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 Complex. Each Local Limited Partnership is governed by its agreement of limited partnership or operating agreement (the “Local Limited Partnership Agreement”).

 

The general partner of the Partnership is WNC California Tax Credits 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 (“SEC”), 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. As of March 31, 2014, a total of 17,917 Partnership Units remain outstanding. 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 was to provide its Limited Partners with Low Income Housing Tax Credits. The Partnership’s principal business therefore consisted of investing as a limited partner or non-managing member in Local Limited Partnerships each of which owned and operated a Housing Complex which qualified 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.

 

3
 

 

As a consequence of the provisions of tax law in effect for dispositions of buildings prior to August 2008, in order to avoid recapture of Low Income Housing Tax Credits, the Partnership expected that it would not 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. That provision of law was amended in 2008 (i) to provide that there would be no recapture on sale of a Low Income Housing Tax Credit building during the Compliance Period if it were reasonable to expect at the time of sale that the building would continue to be operated as qualified low income housing (see “Exit Strategy” below) and (ii) to eliminate the possibility of posting a bond against potential recapture. The Partnership is seeking to sell its Local Limited Partnership Interests. Nonetheless, because of (i) the nature of the Housing Complexes and the Local Limited Partnership Interests, (ii) the difficulty of predicting the resale market for low income housing, (iii) the current economy, and (iv) the ability of 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 October 5, 1992 (the “Partnership Agreement”), will be accomplished in the near term. Furthermore, the codification of the economic substance doctrine as part of 2010 legislation has created some uncertainty about the deductibility of losses from low income housing that is not generating Low Income Housing Tax Credits, and this could have an adverse effect on the resale market for Housing Complexes and Local Limited Partnership Interests. If a Local Limited Partnership Interest or the related Housing Complex is not sold, it is anticipated that the Local General Partner would continue to operate such Housing Complex.

 

The Partnership originally invested in eighteen Local Limited Partnerships, seventeen of which have been sold or otherwise disposed of as of March 31, 2014. Each of these Local Limited Partnerships owns or owned a Housing Complex all of which were eligible for the Federal Low Income Housing Tax Credit and eight of them were eligible for the 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 have completed their Compliance Periods.

 

Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. The Compliance Period has ended for each of the Partnership’s remaining Housing Complexes as of March 31, 2014.

 

With that in mind, the General Partner is continuing its review of the Housing Complexes. 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, Partnership cash flow, 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 re-syndication, the Partnership expects to proceed with efforts to liquidate them or the applicable Local Limited Partnership Interests. The objective is to wind down the Partnership as Low Income Housing Tax Credits are no longer available. Local Limited Partnership Interests may be disposed of at any time by the General Partner in its discretion. While liquidation of the Housing Complexes or the applicable Local Limited Partnership Interests continues to be evaluated, the dissolution of the Partnership was not imminent as of March 31, 2014.

 

The proceeds from the disposition of any Housing Complex will be used first to pay debts and other obligations per the applicable Local Limited Partnership Agreement. Any remaining proceeds will then be paid to the partners of the Local Limited Partnership, including the Partnership, in accordance with the terms of the applicable Local Limited Partnership Agreement.

 

4
 

 

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 amounts of cash will be distributed to the Limited Partners, as the proceeds first would be used to pay Partnership obligations and to fund reserves. Similarly, there can be no assurance that the Partnership will be able to sell its Local Limited Partnership Interests, or that cash therefrom would be available for distribution to the Limited Partners.

 

As of March 31, 2013, the Partnership sold its Local Limited Partnership Interest in Rosewood Apartments L.P., Venus Retirement Village, Ltd, Winters Investment Group, Parlier Garden Apartments, L.P., Tahoe Pines Apartments, L.P., Candleridge Apartments of Perry L.P. II, Nueva Sierra Vista Associates, L.P., Walnut – Pixley, L.P., Orosi Apartments, Ltd., Memory Lane, L.P., Sun Manor, L.P., Almond Garden Apartment Associates, Buccaneer Villas, Limited, Dallas County Housing, Ltd. and Old Fort Limited Partnership.

 

The following table reflects the 2 Local Limited Partnership interests that were sold during the year ended March 31, 2014. No distributions were made to the Limited Partners as a result of these dispositions. Each of the Local Limited Partnerships had completed its Compliance Period so there is no risk of recapture to the investors in the Partnership.

 

Local Limited Partnership  Debt at 12/31 prior to sale date   Appraisal Value   Date of Sale   Sales Proceeds   Actual Sale Related Expenses   Gain (loss) on sale 
Almond View Apartments, Limited  $1,617,000   $295,000    7/31/2013   $2,500   $2,080   $420 
La Paloma del Sol, Phase II, L.P.   1,336,000    810,000    8/31/2013    10,000    2,011    7,989 

 

The following table represents the use of the cash proceeds from the dispositions of the Local Limited Partnership interests that were disposed of during the year ended March 31, 2014:

 

Local Limited Partnership  Cash Proceeds   Reimburse GP or affiliates for expenses   Payment of accrued asset management fees   Remaining cash to remain in reserves for future expenses   Cash distribution to investors 
Almond View Apartments, Limited  $2,500   $-   $-   $2,500   $- 
La Paloma del Sol, Phase II, L.P.   10,000    2,441    -    7,559    - 

 

As of March 31, 2014 the Local Limited Partnership Interest in Colonial Village Roseville was identified to be sold. Colonial Village Roseville was appraised for $2,590,000 and had a mortgage note balance of $1,408,000 as of December 31, 2013. The Partnership’s investment balance is zero. The Compliance Period has been completed therefore there is no risk of recapture and investor approval is not required. The sale of the Local Limited Partnership is expected to close by June 30, 2014. The sales price has yet been determined.

 

5
 

 

Item 1A. Risk Factors

 

Set forth below are the risks the Partnership believes are the most significant 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

 

Sales of Housing Complexes 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 amount of cash will be distributed to the Limited Partners. The Partnership would first use sale proceeds to pay obligations of the Partnership. 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.

 

As part of the recently enacted health care legislation, Congress has codified the economic substance doctrine. Because of its recent enactment, the full reach of this provision is unclear. Inasmuch as Housing Complexes might offer no benefit to a purchaser other than tax benefits, it is possible that the economic substance doctrine could be interpreted to limit deduction of tax losses from Housing Complexes, which would be expected to have a significant adverse effect on the sale value of the Housing Complexes and the Local Limited Partnership Interests.

 

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, or impairment of value will have a significant impact upon the Partnership as a whole.

 

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. 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.

 

6
 

 

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:

 

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.
   
Obtaining rent increases. In many cases rents can only be increased with the prior approval of the subsidizing agency.
   
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.
   
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 lender or state allocating agency. The lender or state allocating agency may withhold such approval in the discretion of the lender or state allocating agency. 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.
   
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 lender or state allocating agency. The lender or state allocating agency may withhold such approval in the discretion of the lender or state allocating agency. Approval may be subject to conditions.
   
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 lender or state allocating authority. Regulations may prohibit the removal of a Local General Partner or permit removal only with the prior approval of the lender. 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.
   
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.
   
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.
   
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 at the Local Limited Partnership and Partnerships levels which must be paid at such time. If that happens, a Limited Partner’s return would be derived only from the Low Income Housing Tax Credits and tax losses. Similar risks apply to sales of Local Limited Partnership Interests.

 

7
 

 

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 Low Income Housing Tax Credits could be recaptured and future Low Income Housing Tax Credits could be lost if the Housing Complex were not restored within a reasonable period of time. Any 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 Compliance Period 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, at the time of the Partnership’s investment, each Local General Partner demonstrated a net worth which the General Partner believed was 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 equal to or less than 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.

 

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:

 

the general and local job market,
   
the availability and cost of mortgage financing,
   
monetary inflation,
   
tax, environmental, land use and zoning policies,
   
the supply of and demand for similar properties,
   
neighborhood conditions,
   
the availability and cost of utilities and water.

 

8
 

 

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:

 

the determination of which depends on future factual circumstances,
   
which are peculiar to individual Limited Partners, or
   
which are not customarily the subject of an opinion.

 

The more significant of these matters include:

 

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,
   
characterizing expenses and payments made to or by the Partnership or a Local Limited Partnership,
   
identifying the portion of the costs of any Housing Complex which qualify for historic and other tax credits, and
   
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
   
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:

 

the amount of cash the Limited Partner invests in the Partnership, and
   
the Limited Partner’s share of Partnership qualified nonrecourse financing.

 

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.

 

9
 

 

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:

 

the sales proceeds plus the amount of indebtedness secured by the Housing Complex, and
   
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:

 

the sales proceeds plus the Partnership’s share of the amount of indebtedness secured by the Housing Complex, and
   
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.

 

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:

 

between the Limited Partners and the General Partner,
   
among the Limited Partners, or
   
between the Partnership and a Local General Partner.

 

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.

 

10
 

 

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:

 

unused passive losses from the Partnership or other investments, or
   
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:

 

should be deductible over a longer period of time or in a later year,
   
are excessive and may not be capitalized or deducted in full,
   
should be capitalized and not deducted, or
   
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:

 

the eligible basis of a Housing Complex used to compute Low Income Housing Tax Credits,
   
the adjusted basis of a Housing Complex used to compute depreciation,
   
the correct deduction of fees,
   
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.

 

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.

 

11
 

 

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. There is no public market for the purchase and sale of Partnership Units, and it is unlikely that one will develop. 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:

 

remove the General Partner and elect a replacement general partner,
   
amend the Partnership Agreement,
   
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 its affiliates is subject to limitations. The Partnership Agreement limits the liability of the General Partner and its affiliates to the Limited Partners. The General Partner and its 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.

 

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.

 

12
 

 

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 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 asset management fees payable increased (decreased) by approximately $19,000, $(87,000), and $(337,000), for the years ended March 31, 2014, 2013 and 2012, respectively. The Partnership’s future contractual cash obligations consist solely of its obligations to pay future annual asset management fees. These will equal approximately $25,000 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 June 30, 2015.

 

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 one Housing Complex for which the Partnership had ownership during the year, as of the dates or for the periods indicated:

 

13
 

 

WNC California Housing Tax Credits III, L.P.

 

         As of March 31, 2014   As of December 31, 2013 
Local Limited
Partnership Name
  Location  General Partner Name  Partnership’s Total Investment in Local Limited Partnerships   Amount of Investment Paid to Date   Number of Units   Estimated
Aggregate
Low Income Housing Tax Credits
   Mortgage Balances of Local Limited Partnerships 
                           
Colonial Village Roseville (1)  Roseville, California  S.P. Thomas Company of Northern California Inc. and Project Go, Inc.  $2,811,000   $2,811,000    56   $5,872,000   $1,408,000 
                                
         $2,811,000   $2,811,000    56   $5,872,000   $1,408,000 

  

(1)The Local Limited Partnership interest has been identified for sale as of March 31, 2014.

 

14
 

 

WNC California Housing Tax Credits III, L.P.

 

   For the year ended December 31, 2013
Local Limited
Partnership Name
  Rental Income   Net Loss   Low Income
Housing Tax Credits
Allocated to
Partnership
            
Colonial Village Roseville (1)  $584,000   $(90,000)  N/A
              
   $584,000   $(90,000)   

 

N/A – All of the Low Income Housing Tax Credits have been allocated to the Partnership and there are no future Low Income Housing Tax Credits expected to be received.

 

(1)The Local Limited Partnership interest has been identified for sale as of March 31, 2014.

 

15
 

 

WNC California Housing Tax Credits III, L.P.

March 31, 2014

 

         Occupancy Rates 
         As of December 31, 
Local Limited
Partnership Name
  Location  General Partner Name  2013   2012   2011   2010   2009 
                           
Almond Garden Apartment Associates  Delhi, California  Anthony Donovan   N/A    N/A    97%   97%   100%
                                
Almond View Apartments, Ltd.  Stockton, California  Daniel C. Logue and Cyrus Youssefi   N/A    96%   90%   88%   85%
                                
Buccaneer Associates, Limited  Fernandia Beach, Florida  Clifford E. Olsen   N/A    N/A    98%   92%   96%
                                
Candleridge Apartments of Perry L.P. II  Perry, Iowa  Eric A. Sheldahl   N/A    N/A    N/A    N/A    92%
                                
Colonial Village Roseville  Roseville, California  S.P. Thomas Company of Northern California Inc. and Project Go, Inc.   93%   93%   98%   100%   93%
                                
Dallas County Housing, Ltd.  Orrville, Alabama  Thomas H. Cooksey and Apartment Developers, Inc.   N/A    N/A    84%   84%   84%
                                
La Paloma del Sol Limited Partnership  Deming, New Mexico  Dean Greenwalt   N/A    92%   100%   97%   100%
                                
Memory Lane Limited Partnership  Yankton, South Dakota  Skogen - Peterson, Inc.   N/A    N/A    N/A    100%   100%
                                
Nueva Sierra Vista Associates  Richgrove, California  Self-Help Enterprises, Inc. and Nueva Sierra Vista Corporation   N/A    N/A    N/A    N/A    91%

 

16
 

 

WNC California Housing Tax Credits III, L.P.

March 31, 2014

 

         Occupancy Rates 
         As of December 31, 
Local Limited
Partnership Name
  Location  General Partner Name  2013   2012   2011   2010   2009 
                           
Old Fort Limited Partnership  Hidalgo, Texas  Alan Deke Noftsker and ABO Corporation   N/A    N/A    100%   93%   100%
                                
Orosi Apartments, Ltd.  Orosi, California  Douglas W. Young   N/A    N/A    N/A    93%   93%
                                
Parlier Garden Apts.  Parlier, California  David J. Micheal and Professional Apartment Management, Inc.   N/A    N/A    N/A    N/A    100%
                                
Rosewood Apartments Limited Partnership  Superior, Wisconsin  Duffy Development Company, Inc.   N/A    N/A    N/A    

 

N/A

    N/A 
                                
Sun Manor, L.P.  Itta Bena, Mississippi  Glenn D. Miller   N/A    N/A    100%   100%   100%
                                
Tahoe Pines Apartments  South Lake Tahoe, California  David J. Michael, Bucky Fong, Dean Pearson, Coy Elvis and Dr. Patricia Hatton   N/A    N/A    N/A    N/A    86%
                                
Venus Retirement Village, Ltd.  Venus, Texas  W. Joseph Chamy   N/A    N/A    N/A    N/A    N/A 
                                
Walnut - Pixley, L.P.  Orange, California  Walnut - Pixley, Inc.   N/A    N/A    N/A    91%   91%
                                
Winters Investment Group  Winters, California  John P. Casper   N/A    N/A    N/A    N/A    N/A 
      Weighted Average   93%   94%   96%   94%   94%

 

N/A - The Partnership sold its interest in the Local Limited Partnership prior to the respective year end.

 

17
 

 

Item 3. Legal Proceedings

 

NONE

 

Item 4. Mine Safety Disclosures

 

NOT APPLICABLE

 

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, 2014, there were 900 Limited Partners and 0 assignees of Partnership Units who were not admitted as Limited Partners.
  
(c)The Partnership was not designed to provide operating cash distributions to Limited Partners. It is possible that the Partnership could make distributions from sale proceeds, if the Partnership is able to sell its Local Limited Partnership Interests or Housing Complexes for more than the related closing costs and any then accrued obligations of the Partnership. There can be no assurance in this regard. Any distributions would be made in accordance with the terms of the Partnership Agreement. During the years ended March 31, 2014, 2013, and 2012 the Partnership did not make any cash distributions to the Limited Partners.
  
(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, 2014.

 

Item 5b. Use of Proceeds

 

NOT APPLICABLE

 

Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

NONE

 

18
 

 

Item 6. Selected Financial Data

 

Selected balance sheet information for the Partnership is as follows:

 

   March 31, 
   2014   2013   2012   2011   2010 
                     
ASSETS                         
Cash  $5,698   $17,070   $107,982   $173,114   $180,321 
Other assets   60,756    890    18,550    -    - 
Investments in Local Limited Partnerships, net   -    -    -    -    - 
                          
Total Assets  $66,454   $17,960   $126,532   $173,114   $180,321 
                          
LIABILITIES                         
Accrued fees and expenses due to General Partner and affiliates  $1,717,344   $1,602,638   $1,728,917   $2,029,485   $2,008,509 
                          
PARTNERS’ DEFICIT   (1,650,890)   (1,584,678)   (1,602,385)   (1,856,371)   (1,828,188)
                          
Total Liabilities and Partners’ Deficit  $66,454   $17,960   $126,532   $173,114   $180,321 

 

Selected results of operations, cash flows and other information for the Partnership are as follows:

 

   For the Years Ended March 31, 
   2014   2013   2012   2011   2010 
                     
Loss from operations  $(74,622)  $(104,062)  $(128,034)  $(86,012)  $(215,733)
Gain on sale of Local Limited Partnerships   8,409    121,751    381,961    57,600    98,423 
Interest income   1    18    59    229    251 
Net income (loss)  $(66,212)  $17,707   $253,986   $(28,183)  $(117,059)
                          
Net income (loss) allocated to:                         
General Partner  $(662)  $177   $2,540   $(282)  $(1,171)
                          
Limited Partners  $(65,550)  $17,530   $251,446   $(27,901)  $(115,888)
                          
Net income (loss) per Partnership Unit  $(3.66)  $.98   $13.97   $(1.55)  $(6.44)
Outstanding weighted Partnership Units   17,917    17,957    18,000    18,000    18,000 

 

19
 

 

   For the Years Ended March 31, 
   2014   2013   2012   2011   2010 
Net cash provided by (used in):                         
Operating activities  $(19,781)  $(168,213)  $(447,093)  $(64,807)  $(152,733)
Investing activities   8,409    77,301    381,961    57,600    98,423 
                          
Net change in cash   (11,372)   (90,912)   (65,132)   (7,207)   (54,310)
                          
Cash, beginning of year   17,070    107,982    173,114    180,321    234,631 
                          
Cash, end of year  $5,698   $17,070   $107,982   $173,114   $180,321 

 

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 Partnership’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, changes in law rules and regulations, and 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.

 

20
 

 

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 at least annually or 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 were being amortized over 27.5 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 the twelve months of reported results provided by the Local Limited Partnerships for each year ended December 31. 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. 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.

 

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.

 

In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.

 

Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership’s interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership’s balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership’s exposure to loss on these 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 guarantee against credit recapture to the investors in the Partnership.

 

21
 

 

Income Taxes

 

The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2010 remain open.

 

Impact of Recent Accounting Pronouncements

 

In May 2011, the FASB issued an update to existing guidance related to fair value measurements on how to measure fair value and what disclosures to provide about fair value measurements. For fair value measurements categorized as level 3, a reporting entity should disclose quantitative information of the unobservable inputs and assumptions, a description of the valuation processes and narrative description of the sensitivity of the fair value to changes in unobservable inputs. This update is effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not materially affect 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 Tax 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 all Local Limited Partnerships have completed the Compliance Period, risks exist for potential recapture of prior Low Income Housing Tax Credits.

 

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.

 

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, 2014 consisted of $6,000 in cash and $61,000 in other assets. Liabilities at March 31, 2014 consisted of $1,717,000 in accrued fees and expenses due to the General Partner and affiliates. (See “Future Contractual Cash Obligations” below).

 

22
 

 

Results of Operations

 

Year Ended March 31, 2014 Compared to Year Ended March 31, 2013 The Partnership’s net loss for the year ended March 31, 2014 was $(66,000), reflecting a decrease of $(84,000) from the net income of $18,000 for the year ended March 31, 2013. During the year ended March 31, 2014 the Partnership recognized an $8,000 gain on sale of Local Limited Partnerships compared to a gain of $122,000 recorded during the year ended March 31, 2013. The gain recorded by the Partnership can vary depending on the sales prices and values of the Housing Complexes that are sold. The reporting fees decreased by $(1,000) and the distribution income increased by $13,000 from the year ended March 31, 2013. Local Limited Partnerships pay the reporting fees and distribution income to the Partnership when the Local Limited Partnerships’ cash flow will allow for the payment. The accounting and legal fees increased by $(4,000) for the year ended March 31, 2014 due to the timing of the accounting work performed. The asset management fees decreased by $24,000 for the year ended March 31, 2014 due to the fact that the fees are calculated based on the value of the invested assets, which decreased as a result of the sales of Local Limited Partnerships. The outsourcing expenses increased by $(1,000) for the year ended March 31, 2014 due to the fact that the Partnership outsourced a portion of the data entry management to increase efficiency. The mailing expenses decreased by $2,000 for the year ended March 31, 2014 due to the decrease in proxy mailings related to the dispositions as compared to the prior year. Write off of other assets decreased by $7,000 during the year ended March 31, 2014. Capitalized costs from the potential disposition of Local Limited Partnerships were expensed due to the amount of time taken to sell the property. Other expenses increased by $(10,000) primarily due to proxy and other SEC filing related printing expenses.

 

Year Ended March 31, 2013 Compared to Year Ended March 31, 2012 The Partnership’s net income for the year ended March 31, 2013 was $18,000, reflecting a decrease of $(236,000) from the net income of $254,000 for the year ended March 31, 2012. During the year ended March 31, 2013 the Partnership experienced a $122,000 gain on sale of Local Limited Partnerships compared to a gain of $382,000 recorded during the year ended March 31, 2012. The gain recorded by the Partnership can vary depending on the sales prices and values of the Housing Complexes that are sold. The reporting fees decreased by $(4,000) and the distribution income decreased by $(15,000) from the year ended March 31, 2013. Local Limited Partnerships pay the reporting fees and distribution income to the Partnership when the Local Limited Partnerships’ cash flow will allow for the payment. The accounting and legal fees decreased by $11,000 for the year ended March 31, 2013 due to the timing of the accounting work performed. The asset management fees decreased by $35,000 for the year ended March 31, 2013 due to the fact that the fees are calculated based on the value of the invested assets, which decreased as a result of the sales of Local Limited Partnerships. The outsourcing expenses increased by $(1,000) for the year ended March 31, 2013 due to the fact that the Partnership outsourced a portion of the data entry management to increase efficiency. The mailing expenses decreased by $1,000 for the year ended March 31, 2013 due to the decrease in proxy mailings related to the dispositions as compared to the prior year. Write off of other assets increased by $(7,000) during the year ended March 31, 2013. Capitalized costs from the potential disposition of Local Limited Partnerships were expensed due to the amount of time taken to sell the property.

 

Liquidity and Capital Resources

 

Year Ended March 31, 2014 Compared to Year Ended March 31, 2013 The net decrease in cash during the year ended March 31, 2014 was $(11,000) compared to a net decrease in cash for the year ended March 31, 2013 of $(91,000). There was a decrease of $(69,000) in net proceeds from sale of Local Limited Partnerships during the year ended March 31, 2014. The sales proceeds received from the sales of the Local Limited Partnerships will vary depending on the value of the underlying Housing Complex compared to the outstanding debt owed on the Housing Complex. During the year ended March 31, 2014, distribution income increased by $13,000 and reporting fees decreased by $(1,000), as described above. The Partnership reimbursed the General Partner or an affiliate $(22,000) of operating expenses that were paid on the Partnership’s behalf compared to $(57,000) reimbursed during the year ended March 31, 2013. The Partnership paid $(15,000) during the year ended March 31, 2014 in accrued asset management fees compared to $(145,000) reimbursed during the year ended March 31, 2013. The reimbursement of operating expenses and accrued asset management fees are paid after management reviews the cash position of the Partnership.

 

23
 

 

Year Ended March 31, 2013 Compared to Year Ended March 31, 2012 The net decrease in cash during the year ended March 31, 2013 was $(91,000) compared to a net decrease in cash for the year ended March 31, 2012 of $(65,000). There was a decrease of $(305,000) in net proceeds from sale of Local Limited Partnerships during the year ended March 31, 2013. The sales proceeds received from the sales of the Local Limited Partnerships will vary depending on the value of the underlying Housing Complex compared to the outstanding debt owed on the Housing Complex. The Partnership received no prepaid proceeds received during the year ended March 31, 2013 compared to $25,000 received during the year ended March 31, 2012 related to the sale of one of the Local Limited Partnerships, which occurred subsequent to March 31, 2012. During the year ended March 31, 2013, distributions and reporting fees decreased by $(15,000) and $(4,000), respectively, as described above. The Partnership reimbursed the General Partner or an affiliate $(57,000) of operating expenses that were paid on the Partnership’s behalf compared to $(71,000) reimbursed during the year ended March 31, 2012. The Partnership also paid the General Partner or an affiliate $(145,000) in accrued asset management fees during the year ended March 31, 2013 compared to $(430,000) paid during the year ended March 31, 2012.

 

Accrued payables, which consist primarily of related party management fees due to the General Partner, increased (decreased) by approximately $115,000, $(101,000), and $(326,000) for the years ended March 31, 2014, 2013, and 2012, 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 June 30, 2015.

 

Future Contractual Cash Obligations

 

The following table summarizes the Partnership’s future contractual cash obligations as of March 31, 2013:

 

   2015   2016   2017   2018   2019   Thereafter   Total 
                             
Asset management fees (1)  $1,742,432   $25,000   $25,000   $25,000   $25,000   $775,000   $2,617,432 
Total contractual cash obligations  $1,742,432   $25,000   $25,000   $25,000   $25,000   $775,000   $2,617,432 

 

(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 owned at March 31, 2014. Amounts due to the General Partner as of March 31, 2014 have been included in the 2015 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.

 

24
 

 

Off-Balance Sheet Arrangements

 

The Partnerships has no off-balance sheet arrangements.

 

Exit Strategy

 

See Item 1 for information in this regard.

 

Impact of Recent Accounting Pronouncements

 

See footnote 1 to the financial statements.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

NOT APPLICABLE

 

25
 

 

Item 8. Financial Statements and Supplementary Data

 

Index to Financial Statements

 

    PAGE
     
Reports of Independent Registered Public Accounting Firms   F-1
     
Balance Sheets as of March 31, 2014 and 2013   F-3
     
Statements of Operations for the years ended March 31, 2014, 2013 and 2012   F-4
     
Statements of Partners’ Deficit for the years ended March 31, 2014, 2013 and 2012   F-5
     
Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012   F-6
     
Notes to Financial Statements   F-7

  

26
 

 

Reports of Independent Registered Public Accounting Firms

 

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. (the “Partnership”) as of March 31, 2014 and 2013, and the related statements of operations, partners’ deficit, and cash flows for the years then ended. 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 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 also 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 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 WNC California Housing Tax Credits III, L.P. as of March 31, 2014 and 2013 and the results of its operations and its cash flows for the years then ended 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 schedule listed under Item 15(a)(2) in the index related to the years ended March 31, 2014 and 2013 is presented for the purpose of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied to the audits of the basic financial statements and, in our opinion, fairly states 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/ CohnReznick LLP  
   
Bethesda, Maryland  
June 3, 2014  

 

F-1
 

 

 

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

 

To the Partners

WNC California Housing Tax Credits III, L.P.

 

We have audited the accompanying statements of operations, partners’ deficit and cash flows of WNC California Housing Tax Credits III, L.P. (the Partnership) for the year ended March 31, 2012. The Partnership’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public 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 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 also 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 audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, WNC California Housing Tax Credits III, L.P.’s results of its operations and its cash flows for the year ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

 

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 15(a)(2) in the index related to year 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 audit 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  
June 14, 2012  

 

F-2
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

BALANCE SHEETS

 

   March 31 
   2014   2013 
ASSETS          
           
Cash  $5,698   $17,070 
Investments in Local Limited Partnerships, net   -    - 
Other assets   60,756    890 
           
Total Assets  $66,454   $17,960 
           
LIABILITIES AND PARTNERS’ DEFICIT          
           
Liabilities:          
Accrued fees and expenses due to General Partner  and affiliates (Note 3)  $1,717,344   $1,602,638 
           
Total Liabilities   1,717,344    1,602,638 
           
Partners’ deficit:          
General Partner   (186,641)   (185,979)
Limited Partners (30,000 Partnership Units authorized; 17,917 and 17,957, respectively, Partnership Units issued and outstanding)   (1,464,249)   (1,398,699)
           
Total Partners’ Deficit   (1,650,890)   (1,584,678)
           
Total Liabilities and Partners’ Deficit  $66,454   $17,960 

 

See accompanying notes to financial statements

 

F-3
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

STATEMENTS OF OPERATIONS

For the years ended March 31, 2014, 2013 and 2012

 

   For the Years Ended
March 31
 
   2014   2013   2012 
Income               
Reporting fees  $-   $1,200   $5,288 
Distribution income   13,130    -    14,641 
                
Total income   13,130    1,200    19,929 
                
Operating expenses:               
Asset management fees (Note 3)   34,405    58,046    92,738 
Accounting and legal fees   34,359    30,178    41,263 
Outsourcing expenses   5,700    5,048    4,120 
Mailing expense   108    1,977    2,766 
Write off of other assets   -    6,838    - 
Other   13,180    3,175    7,076 
                
Total operating expenses   87,752    105,262    147,963 
                
Loss from operations   (74,622)   (104,062)   (128,034)
                
Gain on sale of Local Limited Partnerships   8,409    121,751    381,961 
                
Interest income   1    18    59 
                
Net income (loss)  $(66,212)  $17,707   $253,986 
                
Net income (loss) allocated to:               
General Partner  $(662)  $177   $2,540 
                
Limited Partners  $(65,550)  $17,530   $251,446 
                
Net income (loss) per Partnership Unit  $(3.66)  $.98   $13.97 
                
Outstanding weighted Partnership Units   17,917    17,957    18,000 

 

See accompanying notes to financial statements

 

F-4
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

STATEMENTS OF PARTNERS’ DEFICIT

For the years ended March 31, 2014, 2013 and 2012

 

   General Partner   Limited Partners   Total 
             
Partners’ deficit at March 31, 2011  $(188,696)  $(1,667,675)  $(1,856,371)
                
Net income   2,540    251,446    253,986 
                
Partners’ deficit at March 31, 2012   (186,156)   (1,416,229)   (1,602,385)
                
Net income   177    17,530    17,707 
                
Partners’ deficit at March 31, 2013   (185,979)   (1,398,699)   (1,584,678)
                
Net loss   (662)   (65,550)   (66,212)
                
Partners’ deficit at March 31, 2014  $(186,641)  $(1,464,249)  $(1,650,890)

 

See accompanying notes to financial statements

 

F-5
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

STATEMENTS OF CASH FLOWS

For the Years Ended March 31, 2014, 2013 and 2012

 

   For the Years Ended March 31 
   2014   2013   2012 
             
Cash flows from operating activities:            
Net income (loss)  $(66,212)  $17,707   $253,986 
Adjustments to reconcile net income (loss) to net cash used in operating activities:               
Gain on sale of Local Limited Partnerships   (8,409)   (121,751)   (381,961)
Increase in prepaid disposition proceeds   -    -    25,000 
(Increase) decrease in other assets   (59,866)   17,660    (18,550)
Increase (decrease) in accrued fees and expenses due to General Partner and affiliates   114,706    (81,829)   (325,568)
                
Net cash used in operating activities   (19,781)   (168,213)   (447,093)
                
Cash flows from investing activities:               
Net proceeds from sale of Local Limited Partnerships   8,409    77,301    381,961 
                
Net cash provided by investing activities   8,409    77,301    381,961 
                
Net decrease in cash   (11,372)   (90,912)   (65,132)
                
Cash, beginning of year   17,070    107,982    173,114 
                
Cash, end of year  $5,698   $17,070   $107,982 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:               
                
Taxes paid  $-   $-   $800 
                
NON-CASH INVESTING AND FINANCING ACTIVITIES               
Gain on sale of Local Limited Partnerships was increased and accrued fees and expenses due to the General Partner and affiliates was decreased for sales proceeds paid directly to Associates.  $-   $19,450   $- 

 

See accompanying notes to financial statements

 

F-6
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS

 

For the years ended March 31, 2014, 2013 and 2012

 

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. The Partnership was formed to acquire limited partnership interests in other limited partnerships (“Local Limited Partnerships”) which own multi-family or senior 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 Complex. Each Local Limited Partnership is governed by its agreement of limited partnership or operating agreement (the “Local Limited Partnership Agreement”).

 

The general partner of the Partnership is WNC California Housing Tax Credits 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. As of March 31, 2014, a total of 17,917 Partnership Units remain outstanding. 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 Partner 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.

 

F-7
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

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 any Low Income Housing Tax Credits from the Local Limited Partnerships in the future.

 

F-8
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

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.

 

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 May 31, 2015.

 

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 have completed their Compliance Periods.

 

Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. All Local Limited Partnerships have completed their 15-year Compliance Period.

 

With that in mind, the General Partner is continuing its review of the Housing Complexes. 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 re-syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to wind down the Partnership as Low Income Housing Tax Credits are no longer available. 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, 2014.

 

The proceeds from the disposition of any of the Housing Complexes 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 partners of the Local Limited Partnership, including the Partnership, in accordance with the terms of the particular Local Limited Partnership Agreement. 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, as the proceeds first would be used to pay Partnership obligations and funding of reserves.

 

F-9
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

As of March 31, 2013, the Partnership sold its Local Limited Partnership Interest in Rosewood Apartments L.P., Venus Retirement Village, Ltd, Winters Investment Group, Parlier Garden Apartments, L.P., Tahoe Pines Apartments, L.P., Candleridge Apartments of Perry L.P. II, Nueva Sierra Vista Associates, L.P., Walnut – Pixley, L.P., Orosi Apartments, Ltd., Memory Lane, L.P., Sun Manor, L.P., Almond Garden Apartment Associates, Buccaneer Villas, Limited, Dallas County Housing, Ltd. and Old Fort Limited Partnership.

 

The following table reflects the 2 Local Limited Partnership interests that were sold during the year ended March 31, 2014. No distributions were made to the Limited Partners as a result of these dispositions. Each of the Local Limited Partnerships had completed its Compliance Period so there is no risk of recapture to the investors in the Partnership.

 

Local Limited Partnership  Debt at 12/31 prior to sale date   Appraisal Value   Date of Sale   Sales Proceeds   Actual Sale Related Expenses   Gain (loss) on sale 
Almond View Apartments, Limited  $1,617,000   $295,000    7/31/2013   $2,500   $2,080   $420 
La Paloma del Sol, Phase II, L.P.   1,336,000    810,000    8/31/2013    10,000    2,011    7,989 

 

The following table represents the use of the cash proceeds from the dispositions of the Local Limited Partnerships that were disposed of during the year ended March 31, 2014:

 

Local Limited Partnership  Cash Proceeds   Reimburse GP or affiliates for expenses   Payment of accrued asset management fees   Remaining cash to remain in reserves for future expenses   Cash distribution to investors 
Almond View Apartments, Limited  $2,500   $-   $-   $2,500   $- 
La Paloma del Sol, Phase II, L.P.   10,000    2,441    -    7,559    - 

 

As of March 31, 2014, the Local Limited Partnership Interest in Colonial Village Roseville was identified to be sold. Colonial Village Roseville was appraised for $2,590,000 and had a mortgage note balance of $1,408,000 as of December 31, 2013. The Partnership’s investment balance is zero. The Compliance Period has been completed therefore there is no risk of recapture and investor approval is not required. The sale of the Local Limited Partnership is expected to close by June 30, 2014. The sales price has yet to be determined.

 

F-10
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

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 at least annually or 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 were being amortized over 27.5 years. (See Notes 2 and 3)

 

“Equity in losses of Local Limited Partnerships” for each year ended March 31 has been recorded by the Partnership based on the twelve months of reported results provided by the Local Limited Partnerships for each year ended December 31. 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. 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.

 

In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.

 

Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership’s interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership’s balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership’s exposure to loss on these 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 guarantee against credit recapture to the investors in the Partnership.

 

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.

 

F-11
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

 

Cash and Cash Equivalents

 

The Partnership considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. As of March 31, 2014 and 2013, the Partnership had no cash equivalents.

 

Reporting Comprehensive Income

 

The Partnership had no items of other comprehensive income for the periods presented.

 

Net Income (Loss) Per Partnership Unit

 

Net income (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

 

The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2010 remain open.

 

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.

 

F-12
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Impact of Recent Accounting Pronouncements

 

In May 2011, the FASB issued an update to existing guidance related to fair value measurements on how to measure fair value and what disclosures to provide about fair value measurements. For fair value measurements categorized as level 3, a reporting entity should disclose quantitative information of the unobservable inputs and assumptions, a description of the valuation processes and narrative description of the sensitivity of the fair value to changes in unobservable inputs. This update is effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not materially affect the Partnership’s financial statements.

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS

 

As of March 31, 2014 and 2013, the Partnership owns Local Limited Partnership interests in 1 and 3 Local Limited Partnerships, respectively. As of March 31, 2014 and 2013, these Local Limited Partnerships each own one Housing Complex consisting of an aggregate of 56 and 166 apartment units, respectively. 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.

 

The Partnership’s investments in Local Limited Partnerships as shown in the balance sheets at March 31, 2014 and 2013, are approximately $(1,066,000) and $1,182,000, respectively, greater (less) 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, 2014 and 2013, the investment accounts in all of Local Limited Partnerships have reached a zero balance. Consequently, all of the Partnership’s estimated share of losses for the years ended March 31, 2014, 2013 and 2012, amounting to approximately $89,000, $288,000, and $487,000, respectively, have not been recognized. As of March 31, 2014, the aggregate share of net losses not recognized by the Partnership amounted to $341,000.

 

F-13
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

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

 

   2013   2012 
ASSETS          
           
Buildings and improvements, net of accumulated depreciation as of December 31, 2013 and 2012 of $3,544,000 and $6,525,000 respectively.  $1,583,000   $3,902,000 
Land   316,000    527,000 
Other assets   235,000    523,000 
           
Total Assets  $2,134,000   $4,952,000 
           
LIABILITIES          
           
Mortgage loans payable  $1,408,000   $4,438,000 
Due to related parties   15,000    858,000 
Other liabilities   35,000    1,464,000 
           
 Total Liabilities   1,458,000    6,760,000 
           
PARTNERS’ EQUITY (DEFICIT)          
           
WNC California Housing Tax Credits III, L.P.   1,066,000    (1,182,000)
Other partners   (390,000)   (626,000)
           
 Total Partners’ Equity (Deficit)   676,000    (1,808,000)
           
 Total Liabilities and Partners’ Equity (Deficit)  $2,134,000   $4,952,000 

 

F-14
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued

 

COMBINED CONDENSED STATEMENTS OF OPERATIONS

 

   2013   2012   2011 
             
Revenues  $601,000   $1,124,000   $2,273,000 
                
Expenses:               
Operating expenses   405,000    798,000    1,717,000 
Interest expense   100,000    248,000    418,000 
Depreciation and amortization   186,000    369,000    629,000 
                
Total expenses   691,000    1,415,000    2,764,000 
                
Net loss  $(90,000)  $(291,000)  $(491,000)
                
Net loss allocable to the Partnership  $(89,000)  $(288,000)  $(487,000)
                
Net loss recorded by the Partnership  $-   $-   $- 

 

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.

 

NOTE 3 - RELATED PARTY TRANSACTIONS

 

Under the terms of the Partnership Agreement, the Partnership has paid or is obligated to the General Partners or its 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 had incurred acquisition fees of $1,620,000. As of all periods presented, the capitalized costs were fully amortized.
   
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. As of all periods presented, the acquisition costs were fully amortized.

 

F-15
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

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. Asset management fees of $34,405, $58,046, and $92,738 were incurred during the years ended March 31, 2014, 2013, and 2012, respectively, of which $15,000, $144,903, and $429,628, was paid during the years ended March 31, 2014, 2013 and 2012, 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 paid were approximately $22,000, $57,000, and $71,000 during the years ended March 31, 2014, 2013 and 2012, respectively. The unpaid operating expenses reimbursable to the General Partner or its affiliates were $95,301, $0, and $14,422 for the years ended March 31, 2014, 2013 and 2012, respectively.

 

The accrued fees and expenses due to the General Partner and affiliates consist of the following at:

 

   March 31, 
   2014   2013 
         
Expenses paid by the General Partner or an affiliate on behalf of the Partnership  $95,301   $- 
           
Asset management fee payable   1,622,043    1,602,638 
           
Total  $1,717,344   $1,602,638 

 

The General Partner 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. 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 May 31, 2015.

 

F-16
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 4 – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

 

The following is a summary of the quarterly operations for the years ended March 31 (rounded):

 

   June 30   September 30   December 31   March 31 
                 
2014                
                 
Income  $1,000   $12,000   $-   $- 
                     
Operating expenses   21,000    28,000    15,000    24,000 
                     
Loss from operations   (20,000)   (16,000)   (15,000)   (24,000)
                     
Gain on sale of Local Limited Partnerships   -    8,000    -    - 
                     
Net loss   (20,000)   (8,000)   (15,000)   (24,000)
                     
Net loss available to Limited Partners   (20,000)   (7,000)   (15,000)   (24,000)
                     
Net loss per Partnership Unit   (1)   (1)   (1)   (1)

 

   June 30   September 30   December 31   March 31 
                 
2013                
                 
Income  $-   $-   $-   $1,000 
                     
Operating expenses   39,000    27,000    18,000    21,000 
                     
Loss from operations   (39,000)   (27,000)   (18,000)   (20,000)
                     
Gain on sale of Local Limited Partnerships   81,000    41,000    -    - 
                     
Net income (loss)   42,000    14,000    (18,000)   (20,000)
                     
Net income (loss) available to Limited Partners   41,000    14,000    (18,000)   (19,000)
                     
Net income (loss) per Partnership Unit   2    1    (1)   (1)

 

F-17
 

 

WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS - CONTINUED

 

For the Years Ended March 31, 2014, 2013 and 2012

 

NOTE 4 – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED, continued

 

   June 30   September 30   December 31   March 31 
                 
2012                
                 
Income  $16,000   $2,000   $-   $2,000 
                     
Operating expenses   54,000    35,000    22,000    37,000 
                     
Loss from operations   (38,000)   (33,000)   (22,000)   (35,000)
                     
Gain on sale of Local Limited Partnerships   356,000    -    26,000    - 
                     
Net income (loss)   318,000    (33,000)   4,000    (35,000)
                     
Net income (loss) available to Limited Partners   315,000    (33,000)   4,000    (35,000)
                     
Net income (loss) per Partnership Unit   17    (2)   -    (2)

 

F-18
 

  

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

NONE

 

Item 9A. Controls and Procedures

 

(a)Evaluation of disclosure controls and procedures

 

As of the end of the periods 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 Rules 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 of 1934 Rules 13a-15(f) and 15d-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2014. 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.

 

27
 

 

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, 2014.

 

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 “Evaluation of 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, 2014 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

Item 9B. Other Information

 

NONE

 

28
 

 

PART III.

 

Item 10. Directors, Executive Officers and Corporate Governance

 

(a)Identification of Directors, (b) Identification of Executive Officers, (c) Identification of Certain Significant Employees, (d) Family Relationships, and (e) Business Experience

 

The Partnership has no directors, 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, Chief Executive Officer and Secretary
Michael J. Gaber   Executive Vice President and Chief Operating Officer
David N. Shafer, Esq.   Executive Vice President
Melanie R. Wenk, CPA   Vice President – Chief Financial Officer
Darrick Metz   Senior Vice President – Originations
Christine A. Cormier   Senior Vice President – Investor Relations
Kelly Henderson   Senior Vice President – Legal Affairs
Anand Kannan   Senior Vice President – Development
Gregory S. Hand   Senior Vice President – Underwriting
Anil Advani   Senior Vice President – Private Label Funds

 

In addition to Wilfred N. Cooper, Sr., the directors of WNC & Associates, Inc. are Wilfred N. Cooper, Jr., Kay L. Cooper and Jennifer E. Cooper.

 

Wilfred N. Cooper, Sr. is the founder and Chairman of the Board of Directors of WNC & Associates, Inc., a Director of WNC Capital Corporation, and a general partner in some of the partnerships previously sponsored by WNC & Associates, Inc. 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 WNC & Associates, Inc., 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 (“NAHB”), a National Trustee for NAHB’s Political Action Committee, and a past Chairman of NAHB’s Multifamily Council. He is a Life Trustee of the National Housing Conference, and a co-founder and Director Emeritus 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 College in 1956 with a Bachelor of Arts degree.

 

Wilfred N. Cooper, Jr. is President, Chief Executive Officer, Secretary, a Director, and a member of the Investment Committee, of WNC & Associates, Inc. He is President and a Director of, and a registered principal with, WNC Capital Corporation. He has been involved in real estate investment and acquisition activities since 1988 when he joined WNC & Associates, Inc. Previously, he served as a Government Affairs Assistant with Honda North America in Washington, D.C. Mr. Cooper serves on the Orange County Advisory Board of U.S. Bank, the Board of Trustees of NHC, the Editorial Advisory Board of Tax Credit Advisor, and the Tax Policy Council of the National Trust for Historic Preservation. He is a member of the Urban Land Institute and of Vistage 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.

 

29
 

 

Michael J. Gaber is an Executive Vice President, Chief Operating Officer, chair of the Investment Committee, and oversees the Property Acquisition and Investment Management groups, of WNC & Associates, Inc. Mr. Gaber has been involved in real estate acquisition, valuation and investment activities since 1989 and has been associated with WNC & Associates, Inc. since 1997. Prior to joining WNC & Associates, Inc., he was involved in the valuation and classification of major assets, restructuring of debt and analysis of real estate taxes with a large financial institution. Mr. Gaber is a member of the Housing Credit Group of NAHB and of National Housing and Rehabilitation Association (“NH&RA”). Mr. Gaber graduated from the California State University, Fullerton in 1991 with a Bachelor of Science degree in business administration – finance.

 

David N. Shafer is an Executive Vice President, a member of the Investment Committee, and oversees the New Markets Tax Credit group, of WNC & Associates, Inc. He is a registered representative with WNC Capital Corporation. Mr. Shafer has been active in the real estate industry since 1984. Before joining WNC & Associates, Inc. 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, a Director of the Council for Affordable and Rural 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 Laws degree in taxation.

 

Melanie R. Wenk is Vice President – Chief Financial Officer of WNC & Associates, Inc. She oversees WNC’s corporate and partnership accounting group, which is responsible for SEC reporting and New Markets Tax Credit compliance. Prior to joining WNC in 2003, Ms. Wenk was associated as a public accountant with BDO Seidman, LLP. She graduated from the California Polytechnic State University, Pomona in 1999 with a Bachelor of Science degree in accounting.

 

Darrick Metz is Senior Vice President – Originations of WNC & Associates, Inc. He has been involved in multifamily property underwriting, acquisition and investment activities since 1991. Prior to joining WNC in 1999, he was employed by a Minnesota development company specializing in tax credit and market rate multifamily projects. Mr. Metz also worked with the Minnesota Housing Finance Agency (“MHFA”), where he held the position of Senior Housing Development Officer. While at MHFA, he was responsible for the allocation of tax credits, HOME funds and state loan products. Mr. Metz is active in the Qualified Allocation Plan Tax Credit Advisory Committee for the Wisconsin Housing and Economic Development Authority, a member of MHFA’s Multifamily Technical Assistance and a board member of NH&RA. He graduated from St. Cloud State University in 1993 with a Bachelor of Science degree in finance/economics.

 

Christine A. Cormier is Senior Vice President – Investor Relations of WNC & Associates, Inc. and oversees multi-investor fund equity raising and closings as well as the marketing group. She is a registered representative with WNC Capital Corporation. Ms. Cormier has been active in the real estate industry since 1985. Prior to joining WNC in 2008, Ms. Cormier was with another major tax credit syndicator for over 12 years where she was the Managing Director of investor relations. Ms. Cormier graduated from Bentley University in 1982 with a Bachelor of Science degree (summa cum laude) in accounting and computer science.

 

Kelly Henderson is Senior Vice President – Legal Affairs of WNC & Associates, Inc. She is responsible for structuring local limited partnership letters of understanding and local limited partnership agreements, coordinating closings with outside counsel and reviewing local limited partnership loan documents. Prior to joining WNC in 2006, she was Vice President – Acquisitions and Senior Counsel with a national tax credit syndicator. Ms. Henderson has been underwriting tax credit properties since 1999. She graduated from the State University of New York at Geneseo in 1993 with a Bachelor of Arts degree in political science and from the New England School of Law in 1996 with a Juris Doctor degree. She is licensed to practice law in the States of New York and Massachusetts.

 

30
 

 

Anand Kannan is Senior Vice President – Development of WNC & Associates, Inc. and leads the preservation and development teams for Community Preservation Partners, LLC. Prior to joining WNC in 2011, Mr. Kannan served as Associate Director at Vitus Group (previously Pacific Housing Advisors, Inc.), where he developed or consulted on affordable housing projects across the country. His expertise is in the acquisition and rehabilitation of existing low-income housing projects that are or will be financed by tax-exempt bonds, tax credits, and other government subsidies. Prior to his tenure at Vitus Group, Mr. Kannan was associated with Novogradac & Company LLP. Mr. Kannan graduated from the University of California at Berkeley in 2002 with a Bachelor of Arts degree in economics with an emphasis in accounting.

 

Gregory S. Hand is Senior Vice President – Underwriting of WNC & Associates, Inc. and oversees the property underwriting activities. Mr. Hand has been involved in real estate analysis, development and management since 1987. Prior to joining WNC 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.

 

Anil Advani is Senior Vice President – Private Label Funds of WNC & Associates, Inc. He oversees all activities pertaining to private label funds, including structuring, originations, underwriting and acquisitions. Mr. Advani has 16 years of experience in affordable housing. Prior to joining WNC in 2011 and rejoining WNC in 2013, he worked for major tax credit syndicators where he was involved in the originations, structuring, and placement to institutional investors of local limited partnership investments. Prior to that, he was associated with a major accounting firm performing due diligence reviews of tax credit investments on behalf of institutional investors. Mr. Advani graduated from the University of Texas at Austin in 1993 with a Bachelor of Arts degree in economics and from The American University – Washington College of Law in 1996 with a Juris Doctor degree.

 

(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 Partner, has an audit committee.

 

(j)Changes to Nominating Procedures

 

Inapplicable.

 

(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.

 

31
 

 

Item 11. Executive Compensation

 

The General Partner and its affiliates are not permitted under Section 5.6 of the Partnership Agreement 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 and paid during the periods covered by this report or that could be paid in future periods are summarized below.

 

(a)Compensation for Services

 

For services rendered by the General Partner or an Affiliate of the General Partner in connection with the administration of the affairs of the Partnership, the General Partner or any such Affiliate may receive an annual asset management fee in an amount equal to 0.5% of the Partnership’s 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 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. Asset management fees of approximately $34,000, $58,000, and $93,000, were incurred during the years ended March 31, 2014, 2013 and 2012, respectively. The Partnership paid the General Partner and or its affiliates approximately $15,000, $145,000, and $430,000, of those fees during the years ended March 31, 2014, 2013 and 2012, 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 the General Partner or any of its Affiliates of Operating Cash Expenses is subject to specific restrictions in Section 5.3.4 of the Partnership Agreement of Limited. 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 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.”

 

32
 

 

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 approximately $95,000, $0, and $14,000 for the years ended March 31, 2014, 2013 and 2012, respectively. The Partnership reimbursed the General Partner or its affiliates for operating expenses of approximately $22,000, $57,000, and $71,000, during the years ended March 31, 2014, 2013 and 2012, respectively.

 

(c)Interest in Partnership

 

The General Partner receives 1% of the Partnership’s allocated Low Income Housing Tax Credits, which were $0 for Associates and $0 for the General Partner in the aggregate for the tax years (calendar years) ended December 31, 2013, 2012 and 2011. The General Partner is also entitled to receive 1% of the Partnership’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, 2014, 2013 and 2012. The General Partner has an interest in sale or refinancing proceeds as follows: after the Limited Partners have received a return of their 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 1% and the Limited Partners 99% of any remaining proceeds. There were no such distributions to the General Partner during the years ended March 31, 2014, 2013 or 2012.

 

(d)Subordinated Disposition Fee

 

The General Partner may receive a subordinated disposition fee in an amount equal to 1% of the sale price of real estate sold by the Local Limited Partnerships. Payment of this fee is subordinated to the Limited Partners receiving distributions equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and is payable only if services are rendered in the sales effort. No such fee was incurred for all periods presented.

 

(e)Compensation Committee Interlocks and Insider Participation

 

The Partnership has no compensation committee.

 

(f)Compensation Committee Report

 

The Partnership has no compensation committee.

 

33
 

 

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, and Director Independence

 

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.

 

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:

 

   2013   2012 
         
Audit Fees  $22,050   $21,285 
Audit-related Fees   -    - 
Tax Fees   -    - 
All Other Fees   -    - 
TOTAL  $22,050   $21,285 

 

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.

 

34
 

 

PART IV.

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)(1)   List of Financial statements included in Part II hereof:
     
    The Reports of Independent Registered Public Accounting Firms
    Balance Sheets, March 31, 2014 and 2013
    Statements of Operations for the years ended March 31, 2014, 2013 and 2012
    Statements of Partners’ Deficit for the years ended March 31, 2014, 2013 and 2012
    Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012
    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 or 15d-14. (filed herewith)
     
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14 or 15d-14. (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)
     
101.   Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets at March 31, 2014 and 2013, (ii) the Statements of Operations for the years ended March 31, 2014, 2013 and 2012, (iii) the Statements of Partners’ Deficit for the years ended March 31, 2014, 2013, and 2012, (iv) the Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012, and (v) the Notes to Financial Statements

 

Exhibits 32.1, 32.2 and 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.

 

35
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2014

 

       As of March 31, 2013   As of December 31, 2013
Local Limited Partnership Name  Location   Total Investment in Local Limited Partnerships   Amount of Investment Paid to Date   Mortgage Balances of Local Limited Partnerships   Land   Buildings and Equipment   Accumulated Depreciation   Net Book Value 
                                 
Colonial Village Roseville (1)   Roseville, California   $2,811,000   $2,811,000   $1,408,000   $316,000   $5,127,000   $(3,544,000)  $1,899,000 
                                         
      $2,811,000   $2,811,000   $1,408,000   $316,000   $5,127,000  $(3,544,000)  $1,899,000 

 

(1) The Local Limited Partnership interest has been identified for sale as of March 31, 2014.

 

36
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2014

 

   For the year ended December 31, 2013 
Local Limited Partnership Name  Rental Income   Net Loss   Year Investment Acquired   Status   Estimated Useful Life (Years) 
                     
Colonial Village Roseville (1)  $584,000   $(90,000)   1993    Completed    27.5 
                          
   $584,000   $(90,000)               

 

(1) The Local Limited Partnership interest has been identified for sale as of March 31, 2014.

 

37
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2013

 

      As of March 31, 2013   As of December 31, 2012 
Local Limited Partnership Name  Location  Total Investment in Local Limited Partnerships   Amount of Investment Paid to Date   Mortgage Balances of Local Limited Partnerships   Land   Buildings and Equipment   Accumulated Depreciation   Net Book Value 
                                
Almond View Apartments, Ltd.(1)  Stockton, California  $1,639,000   $1,639,000   $1,617,000   $110,000   $3,424,000   $(2,273,000)  $1,261,000 
                                       
Colonial Village Roseville  Roseville, California   2,811,000    2,811,000    1,485,000    316,000    5,127,000    (3,359,000)   2,084,000 
                                       
La Paloma del Sol Limited Partnership  Deming, New Mexico   254,000    254,000    1,336,000    101,000    1,876,000    (893,000)   1,084,000 
                                       
      $4,704,000   $4,704,000   $4,438,000   $527,000   $10,427,000   $(6,525,000)  $4,429,000 

 

(1) The Local Limited Partnership has been identified for sale as of March 31, 2013.

 

38
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2013

 

   For the year ended December 31, 2012 
Local Limited Partnership Name  Rental Income   Net Loss   Year Investment Acquired   Status   Estimated Useful Life (Years) 
                     
Almond View Apartments, Ltd.(1)  $296,000   $(222,000)   1994    Completed    27.5 
                          
Colonial Village Roseville   578,000    (66,000)   1993    Completed    27.5 
                          
La Paloma del Sol Limited Partnership   217,000    (3,000)   1993    Completed    40 
                          
   $1,091,000   $(291,000)               

 

(1) The Local Limited Partnership has been identified for sale as of March 31, 2013.

 

39
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2012

 

      As of March 31, 2012  As of December 31, 2011 
Local Limited Partnership Name  Location  Total Investment in Local Limited Partnerships   Amount of Investment Paid to Date   Mortgage Balances of Local Limited Partnerships   Land   Buildings and Equipment   Accumulated Depreciation   Net Book Value 
                                
Almond Garden Apartment Associates (1)  Delhi, California  $391,000   $391,000   $1,300,000   $93,000   $1,850,000   $(1,159,000)  $784,000 
                                       
Almond View Apartments, Ltd.(2)  Stockton, California   1,639,000    1,639,000    1,634,000    110,000    3,424,000    (2,152,000)   1,382,000 
                                       
Buccaneer Associates, Limited (2)  Fernandia Beach, Florida   365,000    365,000    1,379,000    60,000    2,158,000    (999,000)   1,219,000 
                                       
Colonial Village Roseville  Roseville, California   2,811,000    2,811,000    1,557,000    316,000    5,126,000    (3,176,000)   2,266,000 
                                       
Dallas County Housing, Ltd.  Orrville, Alabama   130,000    130,000    580,000    35,000    774,000    (397,000)   412,000 
                                       
La Paloma del Sol Limited Partnership  Deming, New Mexico   254,000    254,000    1,347,000    101,000    1,846,000    (832,000)   1,115,000 
                                       
Old Fort Highway Limited Partnership  Hidalgo, Texas   249,000    249,000    1,201,000    78,000    1,760,000    (806,000)   1,032,000 
                                       
Sun Manor, L.P. (1)  Itta Bena, Mississippi   230,000    230,000    1,000,000    40,000    1,385,000    (881,000)   544,000 
                                       
      $6,069,000   $6,069,000   $9,998,000   $833,000   $18,323,000   $(10,402,000)  $8,754,000 

 

(1) The Local Limited Partnership has been identified for sale as of March 31, 2012 and was sold subsequent thereto.

(2) The Local Limited Partnership has been identified for sale as of March 31, 2012.

 

40
 

 

WNC California Housing Tax Credits III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2012

 

   For the year ended December 31, 2011 
Local Limited Partnership Name  Rental Income   Net Income (Loss)   Year Investment Acquired   Status