Attached files
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark
One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2016
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: 000-28370
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
California
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33-0596399
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification
No.)
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|
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17782
Sky Park Circle, Irvine, CA 92614
(
Address of principle executive offices )
(714)
622-5565
(
Telephone Number )
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, 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 ☑ No ☐
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 the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one):
Large
accelerated filer ☐ Accelerated filer
☐ Non-accelerated filer
☑ 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
☑
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended September 30, 2016
PART I. FINANCIAL INFORMATION
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Item 1.
Financial Statements
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3
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Condensed Balance
Sheets
As of September 30, 2016 and March 31,
2016
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3
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Condensed
Statements of Operations
For the Three and Six Months Ended
September 30, 2016 and 2015
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4
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Condensed Statement
of Partners' Equity (Deficit) For the Six Months Ended September 30,
2016
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5
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Condensed
Statements of Cash Flows
For the Six Months Ended September 30,
2016 and 2015
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6
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Notes
to Condensed Financial Statements
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7
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Item 2.
Management's Discussion and Analysis of
Financial
Condition and Results of Operations
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16
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Item 3.
Quantitative and Qualitative
Disclosures about Market Risks
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18
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Item 4.
Controls and
Procedures
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18
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PART
II. OTHER INFORMATION
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Item 1.
Legal Proceedings
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19
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Item
1A. Risk Factors
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19
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Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
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19
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Item 3.
Defaults Upon Senior Securities
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19
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Item 4.
Mine Safety Disclosures
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19
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Item 5.
Other Information
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19
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Item 6.
Exhibits
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19
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Signatures
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20
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2
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
CONDENSED BALANCE SHEETS
(Unaudited)
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September 30,
2016
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March 31,
2016
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ASSETS
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Cash
and cash equivalents
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$203,179
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$242,810
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Investments
in Local Limited Partnerships, net (Note 2)
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-
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-
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Other
assets
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1,260
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1,850
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Total
Assets
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$204,439
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$244,660
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LIABILITIES AND PARTNERS’ EQUITY (DEFICIT)
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Liabilities:
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Accrued
fees and expenses due to General Partner and affiliates (Note
3)
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$41,757
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$51,973
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Total
Liabilities
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41,757
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51,973
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Partners’
Equity (Deficit):
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General
Partner
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86,899
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87,199
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Limited
Partners (20,000 Partnership Units authorized;
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15,513
and 15,543 Partnership Units, respectively, issued and
outstanding)
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75,783
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105,488
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Total
Partners’ Equity (Deficit)
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162,682
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192,687
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Total
Liabilities and Partners’ Equity (Deficit)
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$204,439
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$244,660
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See
accompanying notes to condensed financial
statements
3
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2016 and
2015
(Unaudited)
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2016
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2015
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Three Months
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Six
Months
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Three Months
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Six
Months
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Operating
income:
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Reporting
fees
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$2,000
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2,000
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$-
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$2,000
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Total
operating income
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2,000
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2,000
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-
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2,000
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Operating
expenses:
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Asset
management fees (Note 3)
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2,298
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4,596
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2,298
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5,270
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Legal
and accounting fees
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15,810
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20,141
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17,700
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21,700
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Outsourcing
expenses
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-
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4,449
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736
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1,061
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Write
off of other assets
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600
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1,850
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-
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-
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Other
expenses
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698
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1,002
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418
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1,006
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Total
operating expenses
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19,406
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32,038
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21,152
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29,037
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Loss from
operations
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(17,406)
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(30,038)
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(21,152)
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(27,037)
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Gain (loss) on sale
of Local Limited Partnerships
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-
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-
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(360)
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623,345
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Interest
income
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15
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33
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11
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12
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Net income
(loss)
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$(17,391)
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$(30,005)
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$(21,501)
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$596,320
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Net income (loss)
allocated to:
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General
Partner
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$(174)
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$(300)
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$(215)
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$5,963
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Limited
Partners
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$(17,217)
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$(29,705)
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$(21,286)
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$590,357
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Net income (loss)
per Partnership Unit
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$(1)
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$(2)
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$(1)
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$38
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Outstanding
weighted Partnership Units
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15,513
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15,513
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15,543
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15,543
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See
accompanying notes to condensed financial
statements
4
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
CONDENSED STATEMENT OF PARTNERS’ EQUITY
(DEFICIT)
For the Six Months Ended September 30, 2016
(Unaudited)
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General
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Limited
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Partner
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Partners
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Total
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Partners’
equity at March 31, 2016
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$87,199
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$105,488
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$192,687
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Net
loss
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(300)
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(29,705)
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(30,005)
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Partners’
equity at September 30, 2016
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$86,899
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$75,783
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$162,682
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See
accompanying notes to condensed financial
statements
5
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2016 and 2015
(Unaudited)
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2016
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2015
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Cash
flows from operating activities:
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Net
income (loss)
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$(30,005)
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$596,320
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Adjustments
to reconcile net income (loss) to net
cash used in operating activities:
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Decrease
in other assets
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590
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52,206
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Decrease
in accrued fees and expenses due to General
Partner and affiliates
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(10,216)
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(336,422)
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Gain
on sale of Local Limited Partnerships
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-
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(623,345)
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Net
cash used in operating activities
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(39,631)
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(311,241)
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Cash
flows from investing activities:
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Net
proceeds from sale of Local Limited Partnerships
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-
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623,345
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Net
cash provided by investing activities
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-
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623,345
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Cash
flows from financing activities:
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Return
of capital
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-
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(81,890)
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Net
cash used in financing activities
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-
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(81,890)
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Net
increase (decrease) in cash and cash equivalents
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(39,631)
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230,214
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Cash
and cash equivalents, beginning of period
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242,810
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12,559
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Cash
and cash equivalents, end of period
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$203,179
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$242,773
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SUPPLEMENTAL
DISCLOSURE OF
CASH FLOW INFORMATION:
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Taxes
paid
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$-
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$-
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See
accompanying notes to condensed financial
statements
6
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The
accompanying condensed unaudited financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of
1934. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in
the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended
September 30, 2016 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 2017. For
further information, refer to the financial statements and
footnotes thereto included in the Partnership's annual report on
Form 10-K for the fiscal year ended March 31, 2016.
Organization
WNC
Housing Tax Credit Fund IV, L.P., Series 2 (the
“Partnership”) is a California Limited Partnership
formed under the laws of the State of California on September 27,
1993. The Partnership was formed to acquire limited partnership
interests in other limited partnerships ("Local Limited
Partnerships") which own multi-family housing complexes
(“Housing Complexes”) that are eligible for Federal low
income housing tax credits (“Low Income Housing Tax
Credits”). The local general partners (the “Local
General Partners”) of each Local Limited Partnership retain
responsibility for maintaining, operating and managing the Housing
Complex. Each Local Limited Partnership is governed by its
agreement of limited partnership (the “Local Limited
Partnership Agreement”).
The
general partner of the Partnership is WNC Tax Credit Partners IV,
L.P. (the “General Partner”). The general partner of
the General Partner is WNC & Associates, Inc.
(“Associates”). The chairman and the president of
Associates own all of the outstanding stock of Associates. The
business of the Partnership is conducted primarily through the
General Partner, as the Partnership has no employees of its
own.
The
Partnership shall continue 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.
The
Partnership Agreement authorized the sale of up to 20,000 units of
limited partnership interest (“Partnership Units”) at
$1,000 per Partnership Unit. The offering of Partnership Units has
concluded, and 15,600 Partnership Units representing subscriptions
in the amount of $15,241,000, net of volume discounts of $359,000,
had been accepted. The General Partner has a 1% interest in
operating profits and losses, taxable income and losses, cash
available for distribution from the Partnership and Low Income
Housing Tax Credits of the Partnership. The investors (the
“Limited Partners”) in the Partnership will be
allocated the remaining 99% of these items in proportion to their
respective investments. As of September 30, 2016 and March 31,
2016, a total of 15,513 and 15,543 Partnership Units, respectively,
remain outstanding.
7
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The
proceeds from the disposition of any of the Local Limited
Partnership 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
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.
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 Credits 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
“Compliance Period”), 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 a 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 Housing Complexes, and neighborhood conditions, among
others.
8
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
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 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.
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. A sale prior to the end of the
Compliance Period could result in recapture if certain conditions
are not met. The Compliance Period has ended for all remaining
Local Limited Partnerships as of September 30, 2016.
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.
9
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Upon
identifying those Housing Complexes with the highest potential for
a successful sale, refinancing or syndication, the Partnership
expects to proceed with efforts to liquidate them. The objective is
to 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 September 30, 2016.
Upon management of the Partnership identifying a Local Limited
Partnership for disposition, costs incurred by the Partnership in
preparation for the disposition are deferred. Upon the sale of the
Local Limited Partnership interest, the Partnership nets the costs
that had been deferred against the proceeds from the sale in
determining the gain or loss on sale of the Local Limited
Partnership. Deferred disposition costs are included in other
assets on the condensed balance sheets.
On
February 24, 2012, the Partnership filed preliminary consent
solicitation materials with the Securities and Exchange Commission
(“SEC”) regarding the adoption of a plan of
liquidation. Definitive materials were filed with the SEC and
disseminated to Limited Partners on March 12, 2012. The Partnership
sought approval to have a formal plan of liquidation of selling its
limited partnership interests or selling the underlying Housing
Complexes of each of the Local Limited Partnerships. On
May 8, 2012, the
Partnership received the majority vote in favor of the plan for
dissolution. Therefore, the Partnership is engaging third party
appraisers to appraise several or all of the Local Limited
Partnerships in this Partnership. The appraisal is one of the
preliminary steps that need to be completed in order to move
forward with the approved liquidation plan. The expense incurred
for the appraisals, or any other disposition related expenses the
Partnership incurs, are being capitalized and will remain on the
condensed balance sheets until the respective Local Limited
Partnership is sold. At the time of disposition the capitalized
costs will be netted with any cash proceeds that are received in
order to calculate the gain or loss on the
disposition.
As of
March 31, 2016, the Partnership sold its Local Limited Partnership
Interest in E.W., Crossing II Limited Dividend Housing Association
LP, Comanche Retirement Village Ltd, Candleridge Apartment of
Waukee L.P. II, Mountainview Apartments, LP, Chadwick Limited
Partnership, Broken Bow Apartments I, LP, Sidney Apartments I, LP,
Autumn Trace Associates, Hickory Lane Associates, Honeysuckle Court
Associates, Walnut Turn Associates, Ltd, Southcove Associates,
Hereford Seniors Community, Ltd, Palestine Seniors Community, Ltd,
Garland Street, LP, Pecan Grove, LP, Lamesa Seniors Community, Ltd,
Laredo Heights Apartments, Apartment Housing of E. Brewton, Ltd.
and Klimpel Manor, Ltd.
10
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
As of
September 30, 2016 the Partnership has identified Pioneer Street
Associates for disposition. The Compliance Period for the Local
Limited Partnership has expired so there is no risk of recapture to
the investors in the Partnership.
Local Limited Partnership
|
|
Debt at 12/31/15
|
|
Appraisal value
|
|
Discounted cash flow analysis value (*)
|
|
Estimated sales price
|
|
Estimated sale expenses
|
|
Estimated sale date
|
Pioneer Street Associates
|
|
$1,134,518
|
|
$1,600,000
|
|
$697,000-$758,300
|
|
$700,000
|
|
$1,260
|
|
11/30/2016
|
(*) The
Limited Partnership Agreement with Pioneer Street Associates gives
the Partnership limited force rights for disposition. Therefore it
appears reasonable to base a sale price for the Limited Partnership
interest on a discounted cash flow analysis. This analysis utilizes
an 8% cap rate for the anticipated year of disposition, which was
assumed to be 2020. The range of $697,000 to $758,300 represents a
discount of 20% to 18%, respectively.
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.
11
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - 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
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 amortized over 30 years (see Note
2).
“Equity
in losses of Local Limited Partnerships” for the periods
ended September 30, 2016 and 2015 has been recorded by the
Partnership. Management’s estimate for the three and
six-month periods is based on either actual unaudited results
reported by the Local Limited Partnerships or historical trends in
the operations of the Local Limited Partnerships. Equity in losses
of Local Limited Partnerships allocated to the Partnership are 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 (see Note 2).
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.
12
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Distributions
received by the Partnership are accounted for as a reduction of the
investment balance. Distributions received after the investment has
reached zero are recognized as income. As of September 30, 2016 and
March 31, 2016, all of the investment balances had reached
zero.
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 September 30, 2016 and March 31, 2016, the
Partnership had cash equivalents of $203,179 and $242,810,
respectively.
Reporting Comprehensive Income
The
Partnership had no items of other comprehensive income for all
periods presented.
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 2013 remain open.
Net Income (Loss) Per Partnership Unit
Net
income (loss) per Partnership Unit includes no dilution and is
computed by dividing income (loss) allocated to Limited Partners by
the weighted average number of Partnership Units outstanding during
the period. Calculation of diluted net income (loss) per
Partnership Unit is not required.
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.
13
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
As of
September 30, 2016 and March 31, 2016, the Partnership owns Local
Limited Partnership interests in 1 Local Limited Partnerships,
which owns one Housing Complex consisting of an aggregate of 112
apartment units, respectively. The 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 governing agreements, of the operating
profits and losses, taxable income and losses, and Low Income
Housing Tax Credits of the Local Limited Partnerships.
Selected
financial information for the six months ended September 30, 2016
and 2015 from the unaudited combined condensed financial statements
of the Local Limited Partnerships in which the partnership has
invested is as follows:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
|
||
|
|
|
|
|
2015
|
|
|
|
Revenue
|
$398,000
|
$381,000
|
Expenses:
|
|
|
Interest
expense
|
42,000
|
44,000
|
Depreciation
and amortization
|
75,000
|
78,000
|
Operating
expenses
|
267,000
|
235,000
|
|
|
|
Total
expenses
|
384,000
|
357,000
|
|
|
|
Net
income
|
$14,000
|
$24,000
|
|
|
|
Net
income allocable to the Partnership
|
$14,000
|
$24,000
|
|
|
|
Net
income (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 may be
require to sustain operations of such Local Limited
Partnerships.
14
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
(A
California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2016
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS
Under
the terms of the Partnership Agreement, the Partnership has paid or
is obligated to the General Partner or its affiliates for the
following items:
(a)
An annual asset
management fee equal to the greater amount of (i) $2,000 for each
apartment complex, or (ii) 0.275% of gross proceeds. In either
case, the fee will be decreased or increased annually based on
changes to the Consumer Price Index. However, in no event will the
maximum amount exceed 0.2% 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 debt related to the Housing
Complexes owned by such Local Limited Partnerships. Fees of $4,596
and $5,270 were incurred during the six months ended September 30,
2016 and 2015, respectively. The Partnership paid the General
Partner and its affiliates $0 and $248,210 of those fees during the
six months ended September 30, 2016 and 2015,
respectively.
(b)
Subordinated
Disposition Fee. A subordinated disposition fee is an amount equal
to 1% of the sales price of real estate sold. Payment of this fee
is subordinated to the Limited Partners receiving a preferred
return of 16% through December 31, 2003 and 6% thereafter (as
defined in the Partnership Agreement) and is payable only if the
General Partner or its affiliates render services in the sales
effort. No such fees were earned during the periods
presented.
(c)
The Partnership
reimburses the General Partner or its affiliates for operating
expenses incurred by the Partnership and paid for by the General
Partner or its affiliates on behalf of the Partnership. Operating
expense reimbursements were $41,664 and $122,510 during the six
months ended September 30, 2016 and 2015,
respectively.
The
accrued fees and expenses due to the General Partner and affiliates
consist of the following at:
|
September 30,
2016
|
March 31,
2016
|
|
|
|
Expenses paid by
the General Partner or affiliates on behalf of the
Partnership
|
$22,974
|
$37,786
|
Asset management
fee payable
|
18,783
|
14,187
|
Total
|
$41,757
|
$51,973
|
|
|
|
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 future foreseeable working capital requirements of the
Partnership.
15
Item 2. 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-Q 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 Credit property
market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating
results for any future period.
Subsequent
written and oral forward looking statements attributable to the
Partnership or persons acting on its behalf are expressly qualified
in their entirety by cautionary statements in this Form 10-Q and in
other reports filed with the SEC.
The
following discussion and analysis compares the results of
operations for the three and six months ended September 30, 2016
and 2015, and should be read in conjunction with the condensed
unaudited financial statements and accompanying notes included
within this report.
Financial Condition
The
Partnership’s assets at September 30, 2016 consisted of
$203,000 in cash and cash equivalents and $1,000 in other assets.
Liabilities at September 30, 2016 consisted of $42,000 of accrued
fees and expenses due to General Partner and
affiliates.
Results of Operations
Three Months Ended September 30, 2016 Compared to Three Months
Ended September 30, 2015. The Partnership’s net loss
for the three months ended September 30, 2016 was $17,000,
reflecting a decrease of $5,000 from the $22,000 net loss for the
three months ended September 30, 2015. The change was partly due to an
increase of $2,000 in reporting fees. Local Limited Partnerships
pay reporting fees to the Partnership when the Local Limited
Partnerships’ cash flows will allow for the payment. The
legal and accounting expenses decreased by $2,000 for the three
months ended September 30, 2016 due to the timing of the work
performed. Outsourcing expenses decreased by $1,000 during the
three months ended September 30, 2016 compared to the three months
ended September 30, 2015, partly due to outsourcing of data
management/outsourcing data entry services for the three months
ended September 30, 2015. Write off of other assets increased by
$1,000 during the three months ended September 30,
2016. Capitalized costs
from potential disposition of Local Limited Partnerships were
expensed due to the length of time it has taken to dispose of the
properties.
Six Months Ended September 30, 2016 Compared to Six Months Ended
September 30, 2015. The Partnership’s net loss for the
six months ended September 30, 2016 was $30,000, reflecting a
decrease of $626,000 from the $596,000 net income for the six
months ended September 30, 2015. The change was largely due to gain on
sale of a Local Limited Partnership of $623,000 for the six months
ended September 30, 2015 compared to no gain on sale for the six
months ended September 30, 2016. The gain was recorded by the
Partnership can vary depending on the sale prices and the values of
the Housing Complexes that are sold. The legal and accounting
expenses decreased by $2,000 for the six months ended September 30,
2016 due to the timing of the work performed. Outsourcing expenses
increased by $3,000 for the six months ended September 30, 2016.
The change was largely due to the consulting service performed
during the six months ended September 30, 2016. Write off of other
assets increased by $2,000 during the six months ended September
30, 2016. Capitalized
costs from potential disposition of Local Limited Partnerships were
expensed due to the length of time it has taken to dispose of the
properties.
16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Liquidity and Capital Resources
Six Months Ended September 30, 2016 Compared to Six Months Ended
September 30, 2015. The net cash and cash equivalents used
during the six months ended September 30, 2016 was $40,000 compared
to net cash and cash equivalents provided during the six months
ended September 30, 2015 of $230,000. During the six months ended
September 30, 2016 the Partnership paid $0 and $42,000 to the
General Partner or an affiliate for accrued asset management fees
and reimbursement of operating expenses paid on behalf of the
Partnership, respectively, compared to $248,000 and $123,000,
respectively, paid during the six months ended September 30, 2015.
Each quarter the Partnership evaluates the cash position and
determines how much of the accrued asset management fees and
operating expenses reimbursements will be paid to the General
Partner or an affiliates. The Partnership received $623,000 from
the disposition of a Local Limited Partnership during the six
months ended September 30, 2015 compared to no disposition proceeds
received during the six months ended September 30, 2016. Proceeds
received from disposition may vary from period to period, as
discussed above. During the six months
ended September 30, 2015, using sale proceeds from the disposition
of its Local Limited Partnerships, the Partnership reimbursed
$81,890 to the General Partner for the repayment of the previously
written off advances.
During
the six months ended September 30, 2016 accrued payables, which
consist primarily of asset management fees to the General Partner
or affiliates, decreased by $10,000. The General Partner does not
anticipate that these accrued fees will be paid in full until such
time as capital reserves are in excess of future foreseeable
working capital requirements of the Partnership.
Recent Accounting Changes
In
January 2014, the FASB issued an amendment to the accounting and
disclosure requirements for investments in qualified affordable
housing projects. The amendments provide guidance on accounting for
investments by a reporting entity in flow-through limited liability
entities that manage or invest in affordable housing projects that
qualify for the low-income housing tax credit. The amendments
permit reporting entities to make an accounting policy election to
account for their investments in qualified affordable housing
projects using the proportional amortization method if certain
conditions are met. Under the proportional amortization method, an
entity amortizes the initial cost of the investment in proportion
to the tax credits and other tax benefits received, and recognizes
the net investment performance in the income statement as a
component of income tax expense (benefit). The amendments are
effective for interim and annual periods beginning after December
15, 2014 and should be applied retrospectively to all periods
presented. Early adoption is permitted. The adoption of this update
did not materially affect the Partnership’s financial
statements.
In
February 2015, the FASB issued ASU No. 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis”. This will improve certain areas of consolidation
guidance for reporting organizations that are required to evaluate
whether to consolidate certain legal entities such as limited
partnerships, limited liability corporations and securitization
structures. ASU 2015-02 simplifies and improves GAAP by:
eliminating the presumption that a general partner should
consolidate a limited partnership, eliminating the indefinite
deferral of FASB Statement No. 167, thereby reducing the number of
Variable Interest Entity (VIE) consolidation models from four to
two (including the limited partnership consolidation model) and
clarifying when fees paid to a decision maker should be a factor to
include in the consolidation of VIEs. ASU 2015-02 is effective for
periods beginning after December 15, 2015. The adoption of this
update did not materially affect the Partnership’s financial
statements.
17
Item 3. Quantitative and Qualitative Disclosures About Market
Risks
NOT
APPLICABLE
Item 4. Controls and Procedures
(a)
Disclosure controls and procedures
As of
the end of the period covered by this report, the
Partnership’s General Partner, under the supervision and with
the participation of the Chief Executive Officer and Chief
Financial Officer of Associates, carried out an evaluation of the
effectiveness of the Partnership’s “disclosure controls
and procedures” as defined in Securities Exchange Act of 1934
Rule 13a-15 and 15d-15. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that,
as of the end of the period covered by this report, the
Partnership’s disclosure controls and procedures were not
effective to ensure that material information required to be
disclosed in the Partnership’s periodic report filings with
SEC is recorded, processed, summarized and reported within the time
period specified by the SEC’s rules and forms, consistent
with the definition of “disclosure controls and
procedures” under the Securities Exchange Act of
1934.
The
Partnership must rely on the Local Limited Partnerships to provide
the Partnership with certain information necessary to the timely
filing of the Partnership’s periodic reports. Factors in the
accounting at the Local Limited Partnerships have caused delays in
the provision of such information during past reporting periods,
and resulted in the Partnership’s inability to file its
periodic reports in a timely manner.
Once
the Partnership has received the necessary information from the
Local Limited Partnerships, the Chief Executive Officer and the
Chief Financial Officer of Associates believe that the material
information required to be disclosed in the Partnership’s
periodic report filings with SEC is effectively recorded,
processed, summarized and reported, albeit not in a timely manner.
Going forward, the Partnership will use the means reasonably within
its power to impose procedures designed to obtain from the Local
Limited Partnerships the information necessary to the timely filing
of the Partnership’s periodic reports.
(b)
Changes in internal controls
There
were no changes in the Partnership’s internal control over
financial reporting that occurred during the quarter ended
September 30, 2016 that materially affected, or are reasonably
likely to materially affect, the Partnership’s internal
control over financial reporting.
18
Part II.
Other Information
Item 1.
Legal Proceedings
NONE
Item 1A.
Risk Factors
No
material changes in risk factors as previously disclosed in the
Partnership’s Form 10-K.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
NONE
Item 3
Defaults Upon Senior Securities
NONE
Item 4.
Mine Safety Disclosures
NOT
APPLICABLE
Item 5
Other Information
NONE
Item 6.
Exhibits
Exhibit
No.
|
|
Description
|
|
|
|
|
Certification of
the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14,
as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002. (filed herewith)
|
|
|
|
|
|
Certification of
the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14,
as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002. (filed herewith)
|
|
|
|
|
|
Section 1350
Certification of the Chief Executive Officer. (filed
herewith)
|
|
|
|
|
|
Section 1350
Certification of the Chief Financial Officer. (filed
herewith)
|
|
|
|
|
101
|
|
Interactive data
files pursuant to Rule 405 of Regulation S-T: (i) the Condensed
Balance Sheets at September 30, 2016 and March 31, 2016, (ii) the
Condensed Statements of Operations for the three and six months
ended September 30, 2016 and September 30, 2015, (iii) the
Condensed Statement of Partners’ Equity (Deficit) for the six
months ended September 30, 2016 (iv) the Condensed Statements of
Cash Flows for the six months ended September 30, 2016 and
September 30, 2015 and (v) the Notes to Condensed 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.
19
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WNC
HOUSING TAX CREDIT FUND IV, L.P., SERIES 2
By: WNC
Tax Credit Partners IV, L.P. General Partner
By:
/s/ Wilfred N. Cooper,
Jr.
Wilfred
N. Cooper, Jr.
President
and Chief Executive Officer of WNC & Associates,
Inc.
Date:
November 14, 2016
By:
/s/ Melanie R.
Wenk
Melanie
R. Wenk
Senior
Vice President - Chief Financial Officer of WNC & Associates,
Inc.
Date:
November 14, 2016
20