Item 1. Business
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 or limited liability companies ("Local Limited Partnerships") which own multifamily housing complexes that are eligible for low-income housing federal and, in some cases, California income tax credits (the "Low Income Housing Credit").
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"). Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding stock of Associates. John B. Lester, Jr. was the original limited partner of the Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding stock of Associates. Wilfred N. Cooper, Jr., President of Associates, owns 2.1% 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.
Pursuant to a registration statement filed with the Securities and Exchange Commission on October 20, 1993, in July 1994 the Partnership commenced a public offering of 20,000 Units of Limited Partnership Interests ("Units"), at a price of $1,000 per Unit. As of the close of the public offering in July 1995, a total of 15,600 Units representing approximately $15,241,000 had been sold. Holders of Limited Partnership Interests are referred to herein as "Limited Partners."
Sempra Energy Financial, a California corporation, which is not an affiliate of the Partnership or General Partner, has purchased 4,000 Units, which represents 25.6% of the Units outstanding for the Partnership. Sempra Energy Financial invested $3,641,000. A discount of $359,000 was allowed due to a volume discount. See Item 12(a) in this 10-K.
Description of Business
The Partnership's principal business objective is to provide its Limited Partners with Low Income Housing Credits. The Partnership's principal business therefore consists of investing as a limited partner or non-managing member in Local Limited Partnerships each of which will own and operate a multi-family housing complex (the "Housing Complex") which will qualify for the Low Income Housing Credit. In general, under Section 42 of the Internal Revenue Code, an owner of low-income housing can receive the Low Income Housing Credit to be used to reduce Federal taxes otherwise due in each year of a ten-year period. In general, under Section 17058 of the California Revenue and Taxation Code, an owner of low-income housing can receive the Low Income Housing Credit to be used against California taxes otherwise due in each year of a four-year period. The Housing Complex is subject to a fifteen-year compliance period (the "Compliance Period"), and under state law may have to be maintained as low income housing for 30 or more years.
In general, in order to avoid recapture of Low Income Housing Credits, the Partnership does not expect that it will dispose of its interests in Local Limited Partnerships ("Local Limited Partnership Interests") or approve the sale by any Local Limited Partnership of its Housing Complex prior to the end of the applicable Compliance Period. Because of (i) the nature of the Housing Complexes, (ii) the difficulty of predicting the resale market for low-income housing 15 or more years in the future, and (iii) the ability of government lenders to disapprove of transfer, it is not possible at this time to predict whether the liquidation of the Partnership's assets and the disposition of the proceeds, if any, in accordance with the Partnership's Agreement of Limited Partnership, as amended by Supplements to the Prospectus thereto (the "Partnership Agreement"), will be able to be accomplished promptly at the end of the 15-year period. If a Local Limited Partnership is unable to sell its Housing Complex, it is anticipated that the local general partner ("Local General Partner") will either continue to operate such Housing Complex or take such other actions as the Local General Partner believes to be in the best interest
of the Local Limited Partnership. Notwithstanding the preceding, circumstances beyond the control of the General Partner or the Local General Partners may occur during the Compliance Period, which would require the Partnership to approve the disposition of a Housing Complex prior to the end thereof, possibly resulting in recapture of Low Income Housing Credits.
As of March 31, 2000, the Partnership had invested in twenty-two Local Limited Partnerships. Each of these Local Limited Partnerships owns a Housing Complex that is eligible for the federal Low Income Housing Credit. Certain Local Limited Partnerships may also benefit from government programs promoting low- or moderate-income housing.
The Partnership's investments in Local Limited Partnerships are subject to the risks incident to the management and ownership of low-income housing and to the management and ownership of multi-unit residential real estate. Some of these risks are that the Low Income Housing Credit could be recaptured and that neither the Partnership's investments nor the Housing Complexes owned by the Local Limited Partnerships will be 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 Local Limited Partnership Interests; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. The Housing Complexes are subject to mortgage indebtedness. If a Local Limited Partnership does not makes its mortgage payments, the lender could foreclose resulting in a loss of the Housing Complex and Low Income Housing Credits. As a limited partner or non-managing member of the Local Limited Partnerships, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships, and will rely totally on the general partners or managing members of the Local Limited Partnerships for management of the Local Limited Partnerships. The value of the Partnership's investments will be subject to changes in national and local economic conditions, including unemployment conditions, which could adversely impact vacancy levels, rental payment defaults and operating expenses. This, in turn, could substantially increase the risk of operating losses for the Housing Complexes and the Partnership. In addition, each Local Limited Partnership is subject to risks relating to environmental hazards and natural disasters, which might be uninsurable. Because the Partnership's operations will depend on these and other factors beyond the control of the General Partner and the Local General Partners, there can be no assurance that the anticipated Low Income Housing Credits will be available to Limited Partners.
In addition, Limited Partners are subject to risks in that the rules governing the Low Income Housing Credit are complicated, and the use of credits can be limited. The only material benefit from an investment in Units may be the Low Income Housing Credits. There are limits on the transferability of Units, and it is unlikely that a market for Units will develop. All Partnership management decisions are made by the General Partner.
As a limited partner or non-managing member, the Partnership's liability for obligations of each Local Limited Partnership is limited to its investment. The Local General Partners of each Local Limited Partnership retain responsibility for developing, constructing, maintaining, operating and managing the Housing Complexes.
Item 2.
Item 2. Properties
Through its investment in Local Limited Partnerships the Partnership holds limited partnership interests in Housing Complexes. The following table reflects the status of the twenty-two Housing Complexes as of the dates and for the periods indicated:
Item 3.
Item 3. Legal Proceedings
During the year, Associates identified a potential problem with a developer who, at the time, was the local general partner in six Local Limited Partnerships. The Partnership has a 99% limited partnership interest in two of those six Local Limited Partnerships. Those investments are Broken Bow Apartments I, and Sidney Apartments I. All of the properties continue to experience operating deficits. The local general partner ceased funding the operating deficits, which placed the Local Limited Partnerships in jeopardy of foreclosure. Consequently, Associates voted to remove the local general partner and the management company from the Local Limited Partnerships. After the local general partner contested its removal, Associates commenced legal action on behalf of the Local Limited Partnerships and was successful in getting a receiver appointed to manage the Local Limited Partnerships and an unaffiliated entity appointed as property manager. Associates was subsequently successful in attaining a summary judgment to confirm the removal of the local general partner, the receiver was discharged and Associates now controls all six of the Local Limited Partnerships.
The six Local Limited Partnerships (hereinafter referred to as "Defendants") are now defendants in a separate lawsuit. The lawsuit has been filed by eight other partnerships in which the local general partner of the Local Limited Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that the local general partner accepted funds from the Plaintiffs and improperly loaned these funds to the Defendants. Discovery in this lawsuit is ongoing and Associates will continue to pursue an aggressive defense on behalf of the Defendants.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
NONE.
PART II.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 5a.
(a) The Units are not traded on a public exchange but were sold through a public offering. It is not anticipated that any public market will develop for the purchase and sale of any Unit and none exists. Units can be assigned only if certain requirements in the Partnership Agreement are satisfied.
(b) At March 31, 2000, there were 845 Limited Partners.
(c) The Partnership was not designed to provide cash distributions to Limited Partners in circumstances other than refinancing or disposition of its investments in Local Limited Partnerships.
(d) No unregistered securities were sold by the Partnership during the year ended March 31, 2000.
Item 5b.
NOT APPLICABLE
Item 6.
Item 6. Selected Financial Data
Selected balance sheet information for the Partnership is as follows:
Note 1 - Loss from operations include a charge for impairment losses on investments in limited partnerships of $766,559. (See Note 2 to the audited financial statements.)
Item 7.
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, "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, our future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the low income housing tax credit property market and the economy in general, as well as legal proceedings. Historical results are not necessarily indicative of the operating results for any future period.
Subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by cautionary statements in this Form 10-K and in other reports we filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this filing.
Uncertainty with Respect to Investment in Broken Bow and Sidney
The Partnership has two investments accounted for under the equity method, consisting of 99% limited partnership interests in each of Broken Bow Apartments I, Limited Partnership ("Broken Bow"), and Sidney Apartments I, Limited Partnership ("Sidney").
The independent auditors engaged to perform an audit of Broken Bow and Sidney's financial statements as of and for the year ended December 31, 1999, were unable to form an opinion on those financial statements. This was due to the inability to obtain from the former local general partner certain general ledger information for a period of approximately three months and reliable confirmations of advances to/notes receivable from the former local general partner. Further, the independent auditors were unable to obtain management representation letters from the former property management company, which is an affiliate of the former local general partner. As a result, the Partnership has not included the financial information of Broken Bow and Sidney in the combined condensed financial statements presented in Note 3 to the financial statements. The combined condensed financial information presented in Note 3 for prior periods has been restated to exclude the accounts of Broken Bow and Sidney. The Partnership has reflected equity in the net losses of Broken Bow and Sidney totaling $156,823 ($(10.05) per limited partnership unit) for the year ended March 31, 2000, based on nine months of reported results provided by Broken Bow and Sidney and on three months of results estimated by Associates. Such estimates may be materially misstated due to the lack of corroborative financial information.
Broken Bow and Sidney continue to experience negative cash flows from operations. During the year ended March 31, 2000, the Partnership advanced $120,906 in cash to Broken Bow and Sidney for operating expenses, including legal fees relating to certain litigation involving these and other properties as outlined in Note 8, as well as another $30,753 in cash since year end. Associates is currently negotiating for a restructuring of the related bank loans, which would increase cash flow from operations. Associates may not be successful in the restructuring of these loans. If the loans are not restructured, the Partnership may be unable to support these properties. Consequently, the Partnership may be forced to sell all or a portion of its interests in these properties. Further, the lender may attempt to foreclose on the Broken Bow and Sidney properties.
As a result of the foregoing, Associates has performed an evaluation of the Partnership's remaining investment balances in Broken Bow and Sidney, including the cash advances noted above and other anticipated costs. It has been determined that an impairment adjustment is necessary and an impairment loss of $766,559 has been recognized at March 31, 2000. This impairment loss includes $558,688 in remaining book value of the Partnership's investments in Broken Bow and Sidney after the write off of $107,283 due to Broken Bow and Sidney, the $120,906 and $30,753 cash advances, a $37,670 accrual for anticipated legal costs, and $18,542 of estimated accounting and other related costs.
As a result of the aforementioned operating difficulties and the litigation as discussed in Item 3, Legal Proceedings, there is uncertainty as to whether the Partnership will ultimately retain its interests in Broken Bow and Sidney. If the investments are sold or otherwise not retained, the Partnership could be subject to recapture of tax credits and certain prior tax deductions. There is further uncertainty as to costs that the Partnership may ultimately incur in connection with its investments in Broken Bow and Sidney. The Partnership's financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Financial Condition
The Partnership's assets at March 31, 2000 consisted primarily of $180,000 in cash and aggregate investments in the twenty-two Local Limited Partnerships of $8,311,000. Liabilities at March 31, 2000 primarily consisted of $87,000 of accrued expenses and $73,000 due to General Partner or affiliates for advances.
Results of Operations
Year Ended March 31, 2000 Compared to Year Ended December 31, 1998. The Partnerships net loss for the year ended March 31, 2000 was $(1,862,000), reflecting an increase of $(1,153,000) from the net loss experienced for the year ended December 31, 1998 of $(709,000). The increase in net loss is due to the impairment loss recorded in connection with two of the limited partnership investments totaling $(767,000), a reduction in income of $(29,000) and an increase in the equity in losses of limited partnerships of $(333,000).
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998. The Partnership's net loss for the three months ended March 31, 1999 was $187,000 reflecting a decrease of $6,000 from the net loss experienced for the three months ended March 31, 1998. The decline in net loss is primarily due to equity in losses of limited partnerships which declined by $27,000 to $(165,000) for the three months ended March 31, 1999 from $(192,000) for the three months ended March 31, 1998. The reduction in equity losses recognized was partially offset by an increase in loss from operations of $21,000 to $(22,000) for the three months ended March 31, 1999 from $(1,000) for the three months ended March 31, 1998, due to a comparable increase in operating expense allocations and a decrease in interest income.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. The Partnership's net loss for 1998 was $(709,000), reflecting a decrease of $60,000 from the net loss experienced in 1997. The decline in net loss is primarily due to equity in losses from limited partnerships which declined to $(659,000) in 1998 from $(737,000) in 1997 and a decrease in amortization expense of $9,000, partially offset by a decrease in interest income of $27,000.
Cash Flows
Year Ended March 31, 2000 Compared to Year Ended December 31, 1998. Net decrease in for the year ended March 31, 2000 was $(372,000) compared to a net decrease in cash for the year ended December 31, 1998 of $(742,000). The change was due primarily to a decrease in investments in limited partnerships of $787,000 offset by an increase of $(121,000) in cash advances paid to limited partnerships and a decrease in loans collected from limited partnerships of $(259,000). * * * *
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998. Net cash used during the three months ended March 31, 1999 was $(186,000), compared to net cash used during the three months ended March 31, 1998 of $(98,000). The change was due primarily to an increase in investments in limited partnerships of $72,000 and an increase in cash used for operating activities of $20,000, partially offset by an increase in distributions from limited partnerships of $4,000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. Net cash used in 1998 was $(742,000), compared to net cash used in 1997 of $(891,000). The change was due primarily to a decrease in cash used for investments in limited partnerships of $164,000, a refund of offering expenses received in 1998 of $5,000, and a decrease in cash paid to the General Partner and or affiliates of $17,000, partially offset by a decrease in interest income received of $35,000, and a decline in distributions from Local Limited Partnerships of $2,000.
During the year ended March 31, 2000 and the three months ended March 31, 1999 accrued payables, which consist primarily of related party management fees due to the General Partner, increased by $130,000 and $2,000, respectively. 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.
The Partnership expects its future cash flows, together with its net available assets at March 31, 2000, to be sufficient to meet all currently foreseeable future cash requirements.
IMPACT OF YEAR 2000
WNC & Associates, Inc.
Status of Readiness
Information Technology (IT) Systems. The Partnership relies on the IT systems of WNC, its general partner. IT systems include computer hardware and software used to produce financial reports and tax return information. This information is then used to generate reports to investors and regulatory agencies, including the Internal Revenue Service and the Securities and Exchange Commission. The IT systems of WNC are year 2000 compliant.
Non-IT Systems. The Partnership also relies on the non-IT systems of WNC. Non-IT systems include machinery and equipment such as telephones, voice mail and electronic postage equipment. The non-IT systems of WNC are year 2000 compliant.
Service Providers. WNC also relies on the IT and non-IT systems of service providers. Service providers include utility companies, financial institutions, telecommunications carriers, municipalities, and other outside vendors. WNC has obtained verbal assurances from its material service providers (electrical power provider, financial institutions and telecommunications carriers) that their IT and non-IT systems are year 2000 compliant. To date, WNC has not encountered significant year 2000 issues or business disruptions from its service providers.
Costs to Address Year 2000 Issues
The cost to address year 2000 issues for WNC has been less than $25,000.
Risk of Year 2000 Issues
Although WNC has encountered no significant year 2000 issues to date, the most reasonable and likely result from non-year 2000 compliance of systems of the service providers noted above would be the disruption of normal business operations for WNC. This disruption could, in turn, lead to delays in performing reporting and fiduciary responsibilities on behalf of the Partnership. The worst case scenario would be the replacement of a service provider. These delays would likely be temporary and would likely not have a material effect on the Partnership or WNC.
Local Limited Partnerships
Status of Readiness
To date, WNC and the Partnership have encountered no significant year 2000 issues with respect to the Local Limited Partnerships.
Costs to Address Year 2000 Issues
There has been and will be no cost to the Partnership as a result of assessing year 2000 issues for the Local Limited Partnerships. Although no significant year 2000 issues have been encountered to date, the cost to deal with potential year 2000 issues of the Local Limited Partnerships cannot be estimated at this time.
Risk of Year 2000 Issues
Although no significant year 2000 issues have been encountered to date, there can be no assurance that the Partnership will be unaffected by year 2000 issues. The most reasonable and likely result from non-year 2000 compliance will be the disruption of normal business operations for the Local Limited Partnerships, including but not limited to the possible failure to properly collect rents and meet their obligations in a timely manner. This disruption would, in turn, lead to delays by the Local Limited Partnerships in performing reporting and fiduciary responsibilities on behalf of the Partnership. The worst-case scenario would include the initiation of foreclosure proceedings on the property by mortgage debt holders. Under these circumstances, WNC or its affiliates will take actions necessary to minimize the risk of foreclosure, including the removal and replacement of a Local General Partner by the Partnership. These delays would likely be temporary and would likely not have a material effect on the Partnership or WNC.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NOT APPLICABLE
Item 8.
Item 8. Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants
To the Partners WNC Housing Tax Credit Fund IV, L.P., Series 2
We have audited the accompanying balance sheets of WNC Housing Tax Credit Fund IV, L.P., Series 2 (a California Limited Partnership) (the "Partnership") as of March 31, 2000 and 1999, and December 31, 1998, and the related statements of operations, partners' equity (deficit) and cash flows for the year ended March 31, 2000, the three months ended March 31, 1999 and the year ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. A significant portion of the financial statements of the limited partnerships in which the Partnership is a limited partner were audited by other auditors whose reports have been furnished to us. As discussed in Note 3 to the financial statements, the Partnership accounts for its investments in limited partnerships using the equity method. The portion of the Partnership's investments in limited partnerships audited by other auditors represented 81%, 75% and 72% of the total assets of the Partnership at March 31, 2000 and 1999 and December 31, 1998, respectively. Our opinion, insofar as it relates to the amounts included in the financial statements for the limited partnerships which were audited by others, is based solely on the reports of the other auditors.
Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
As more thoroughly discussed in Note 2 to the financial statements, the independent auditors engaged to perform the audits of the financial statements as of and for the year ended December 31, 1999 for Broken Bow Apartments I, L.P. ("Broken Bow") and Sidney Apartments I, L.P. ("Sidney"), were unable to express an opinion on those financial statements. The Partnership has reflected equity in the net losses of Broken Bow and Sidney totaling $156,823 ($(10.05) per limited partnership unit) for the year ended March 31, 2000. The Partnership has also recorded an impairment of its investment in the two limited partnerships totaling $766,559 ($(49.14) per limited partnership unit) for the year ended March 31, 2000.
In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had the independent auditors been able to form an opinion on Broken Bow and Sidneys' financial statements, the financial statements referred to above present fairly, in all material respects, the financial position of WNC Housing Tax Credit Fund V, L.P., Series 3 (a California Limited Partnership) as of March 31, 2000 and 1999, and December 31, 1998, and the results of its operations and its cash flows for the year ended March 31, 2000, the three months ended March 31, 1999 and the year ended December 31, 1998, in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP
Orange County, California August 16, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners WNC Housing Tax Credit Fund IV, L.P., Series 2
We have audited the statements of operations, partners' equity (deficit) and cash flows of WNC Housing Tax Credit Fund IV, L.P., Series 2 ( a California Limited Partnership) (the "Partnership") for the year ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the limited partnerships in which WNC Housing Tax Credit Fund IV, L.P., Series 2 is a limited partner. These investments, as discussed in Note 2 to the financial statements, are accounted for by the equity method. The investment in these limited partnerships represented 85% of the total assets of WNC Housing Tax Credit Fund IV, L.P., Series 2 at December 31, 1997. Substantially all of the financial statements of the limited partnerships were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of WNC Housing Tax Credit Fund IV, L.P., Series 2 (a California Limited Partnership), for the year ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ CORBIN & WERTZ CORBIN & WERTZ
Irvine, California April 23, 1998
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
BALANCE SHEETS
See independent auditors' report and accompanying notes to financial statements.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
STATEMENTS OF OPERATIONS
See independent auditors' report and accompanying notes to financial statements.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For The Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
See independent auditors' report and accompanying notes to financial statements.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Continued
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
See independent auditors' report and accompanying notes to financial statements.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") was formed on September 27, 1993 under the laws of the state of California and commenced operations on July 18, 1994. The Partnership was formed to invest primarily in other limited partnerships (the "Local Limited Partnerships") which own and operate multi-family housing complexes (the "Housing Complex") that are eligible for low income housing credits. The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex.
The general partner is WNC Tax Credit Partners, IV, L.P. (the "General Partner"), a California limited partnership. WNC & Associates, Inc. ("WNC") is the general partner of the General Partner. Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding stock of WNC. John B. Lester, Jr. was the original limited partner of the Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding stock of WNC. Wilfred N. Cooper, Jr., President of WNC, owns 2.1% of the outstanding stock of WNC.
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 20,000 units at $1,000 per unit ("Units"). The offering of Units concluded in July 1995 at which time 15,600 Units representing subscriptions, net of discounts for volume purchases of more than 100 units, in the amount of $15,241,000 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 tax credits. The limited partners will be allocated the remaining 99% of these items in proportion to their respective investments.
After the limited partners have received proceeds from sale or refinancing equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner has received proceeds equal to its capital contributions and a subordinated disposition fee (as described in Note 4) 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.
Change in Reporting Year End
In 1999, the Partnership elected to change its year end for financial reporting purposes from December 31 to March 31. All financial information reflected in the financial statements and related footnotes has been adjusted for this change in year end except for the combined condensed financial information relating to the Local Limited Partnerships included in Note 3.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Risks and Uncertainties
The Partnership's investments in Local Limited Partnerships are subject to the risks incident to the management and ownership of low-income housing and to the management and ownership of multi-unit residential real estate. Some of these risks are that the low income housing credit could be recaptured and that neither the Partnership's investments nor the Housing Complexes owned by the Local Limited Partnerships will be 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 Local Limited Partnership Interests; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. The Housing Complexes are or will be subject to mortgage indebtedness. If a Local Limited Partnership does not make its mortgage payments, the lender could foreclose resulting in a loss of the Housing Complex and low income housing credits. As a limited partner of the Local Limited Partnerships, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships, and will rely totally on the Local General Partners of the Local Limited Partnerships for management of the Local Limited Partnerships. The value of the Partnership's investments will be subject to changes in national and local economic conditions, including unemployment conditions, which could adversely impact vacancy levels, rental payment defaults and operating expenses. This, in turn, could substantially increase the risk of operating losses for the Housing Complexes and the Partnership. In addition, each Local Limited Partnership is subject to risks relating to environmental hazards and natural disasters which might be uninsurable. Because the Partnership's operations will depend on these and other factors beyond the control of the General Partner and the Local General Partners, there can be no assurance that the anticipated low income housing credits will be available to Limited Partners.
In addition, Limited Partners are subject to risks in that the rules governing the low income housing credit are complicated, and the use of credits can be limited. The only material benefit from an investment in Units may be the low income housing credits. There are limits on the transferability of Units, and it is unlikely that a market for Units will develop. All management decisions will be made by the General Partner.
Method of Accounting For Investments in Limited Partnerships
The Partnership accounts for its investments in limited partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnership's results of operations and for any distributions received. The accounting policies of the Local Limited Partnership are consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and are being amortized over 30 years (see Note 3).
Losses from Local Limited Partnerships for the years ended December 31, 1998 and 1997 have been recorded by the Partnership based on reported results provided by the Local Limited Partnerships. Losses from Local Limited Partnerships for the three months ended March 31, 1999 have been estimated by management of the Partnership. Losses from limited partnerships for the year ended March 31, 2000 have been recorded by the Partnership based on nine months of reported results provided by the Local Limited Partnerships and on three months of results estimated by management of the Partnership. Losses from the limited partnerships allocated to the Partnership will not be recognized to the extent that the investment balance would be adjusted below zero.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Offering Expenses
Offering expenses consist of underwriting commissions, legal fees, printing, filing and recordation fees, and other costs incurred with selling limited partnership interests in the Partnership. The General Partner is obligated to pay all offering and organization costs in excess of 15% (including sales commissions) of the total offering proceeds. Offering expenses are reflected as a reduction of partners' capital and amounted to $970,717 as of March 31, 1999 and December 31, 1998, and $975,333 as of December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 highly liquid investments with maturities of three months or less when purchased to be cash equivalents. As of March 31, 2000 and 1999, and December 31, 1998, the Partnership had no cash equivalents.
Concentration of Credit Risk
At March 31, 2000, the Partnership maintained a cash balance at a certain financial institution in excess of the maximum federally insured amounts.
Net Loss Per Limited Partner Unit
Net loss per limited partnership unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit includes no dilution and is computed by dividing loss available to limited partners by the weighted average number of units outstanding during the period. Calculation of diluted net income per unit is not required.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of Partners' equity and bypass net income. The Partnership adopted the provisions of this statement in 1998. For the periods presented, the Partnership has no elements of other comprehensive income, as defined by SFAS No. 130.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2000 presentation.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENTS IN BROKEN BOW AND SIDNEY: IMPAIRMENT OF INVESTMENTS
The Partnership has three investments accounted for under the equity method, consisting of 99% limited partnership interests in each of Broken Bow Apartments I, Limited Partnership ("Broken Bow") and Sidney Apartments I, Limited Partnership ("Sidney").
The independent auditors engaged to perform an audit of Broken Bow and Sidneys' financial statements as of and for the year ended December 31, 1999, were unable to form an opinion on those financial statements. This was due to the inability to obtain from the former local general partner certain general ledger information for a period of approximately three months and reliable confirmations of advances to/notes receivable from the former local general partner. Further, the independent auditors were unable to obtain management representation letters from the former property management company, which is an affiliate of the former local general partner. As a result, the Partnership has not included the financial information of Broken Bow and Sidney in the combined condensed financial statements presented in Note 3 to the financial statements. The combined condensed financial information presented in Note 3 for prior periods has been restated to exclude the accounts of Broken Bow and Sidney. The Partnership has reflected equity in the net losses of Broken Bow and Sidney totaling $156,823 ($(10.05) per limited partnership unit) for the year ended March 31, 2000, based on nine months of reported results provided by Broken Bow and Sidney and on three months of results estimated by WNC. Such estimates may be materially misstated due to the lack of corroborative financial information.
Broken Bow and Sidney continue to experience negative cash flows from operations. During the year ended March 31, 2000, the Partnership advanced $120,906 in cash to Broken Bow and Sidney for operating expenses, including legal fees relating to certain litigation involving these and other properties as outlined in Note 8, as well as another $30,753 in cash since year end. WNC is currently negotiating for a restructuring of the related bank loans, which would increase cash flow from operations. WNC may not be successful in the restructuring of these loans. If the loans are not restructured, the Partnership may be unable to support these properties. Consequently, the Partnership may be forced to sell all or a portion of its interests in these properties. Further, the lender may attempt to foreclose on the Broken Bow and Sidney properties.
As a result of the foregoing, WNC has performed an evaluation of the Partnership's remaining investment balances in Broken Bow and Sidney, including the cash advances noted above and other anticipated costs. It has been determined that an impairment adjustment is necessary and an impairment loss of $766,559 has been recognized at March 31, 2000. This impairment loss includes $558,688 in remaining book value of the Partnership's investments in Broken Bow and Sidney; the $120,906 and $30,753 cash advances, a $37,670 accrual for anticipated legal costs, and $18,542 of estimated accounting and other related costs.
As a result of the aforementioned operating difficulties and the litigation as discussed in Note 7, there is uncertainty as to whether the Partnership will ultimately retain its interests in Broken Bow and Sidney. If the investments are sold or otherwise not retained, the Partnership could be subject to recapture of tax credits and certain prior tax deductions. There is further uncertainty as to costs that the Partnership may ultimately incur in connection with its investments in Broken Bow and Sidney. The Partnership's financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of the periods presented, the Partnership had acquired limited partnership interests in twenty-two Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate of 892 apartment units. As of March 31, 1999, construction or rehabilitation of all but one of the apartment complexes had been completed. The respective 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 entitled to 96% to 99%, as specified in the partnership agreements, of the operating profits and losses, taxable income and losses and tax credits of the Limited Partnerships.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS-continued
The Partnership's investments in Local Limited Partnerships as shown in the balance sheets at March 31, 2000 and 1999 are approximately $876,000 and $2,170,000, respectively, greater than the Partnership's equity at the preceding December 31 as shown in the Local Limited Partnerships' combined financial statements. This difference is primarily due to unrecorded losses, as discussed below, acquisition, selection and other costs related to the acquisition of the investments which have been capitalized in the Partnership's investment account and to capital contributions payable to the limited partnerships which were netted against partner capital in the Local Limited Partnership's financial statements. The Partnership's investment is also lower than the Partnership's equity as shown in the Local Limited Partnership's combined financial statements due to the losses recorded by the Partnership for the three month period ended March 31. Lastly, the difference is due to the exclusion of the financial statements of Sidney and Broken Bow from the combined condensed financial information presented below. See Note 2 for discussion.
Equity in losses of Local Limited Partnerships is recognized in the financial statements until the related investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended.
Distributions received by limited partners are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as income. At March 31,2000 the investment account in one of the Local Limited Partnerships had reached a zero balance. Consequently a portion of the Partnership's estimate of it's share of losses for the year ended March 31, 2000 amounting to approximately $9,000 has not been recognized by the Partnership as of March 31, 2000.
Following is a summary of the equity method activity of the investments in limited partnerships for the periods presented:
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 3 - INVESTMENTS IN 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 financial information for Broken Bow and Sidney have been excluded from the presentation below. See Note 2 for further discussion):
COMBINED CONDENSED BALANCE SHEETS
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
COMBINED CONDENSED STATEMENTS OF OPERATIONS
Certain Local Limited Partnerships have incurred significant operating losses and have working capital deficiencies. In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership and/or the Local General Partner may be required to sustain the operations of such Local Limited Partnerships. If additional capital contributions are not made when they are required, the Partnership's investment in certain of such Local Limited Partnerships could be impaired and the loss and recapture of the related tax credits could occur.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the Partnership is obligated to the General Partner or its affiliates for the following items:
Acquisition fees of up to 8% of the gross proceeds from the sale of Units as compensation for services rendered in connection with the acquisition of Local Limited Partnerships. At the end of all periods presented, the Partnership incurred acquisition fees of $1,058,950. Accumulated amortization of these capitalized costs was $166,925, $131,629 and $124,017 as of March 31, 2000 and 1999 and December 31, 1998, respectively.
Reimbursement of costs incurred by the General Partner in connection with the acquisition of Local Limited Partnerships. These reimbursements have not exceeded 1.2% of the gross proceeds. As of March 31, 2000 and 1999 and December 31, 1998, the Partnership incurred acquisition costs of $169,103, for all periods presented, which have been included in investments in limited partnerships. Accumulated amortization was $25,117, $19,478 and $16,859 as of March 31, 2000 and 1999 and December 31, 1998, respectively.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 4 - RELATED PARTY TRANSACTIONS, continued
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 Local Limited Partnerships, including the Partnership's allocable share of the mortgages. Management fees of $42,900 and $10,725 were incurred during the year ended March 31, 2000 and the three months ended March 31, 1999, respectively, and $42,900 and $42,900 were incurred for the years ended December 31, 1998 and 1997, respectively, of which $3,750 and $5,950 were paid during the year ended March 31, 2000 and the three months ended March 31, 1999 and $4,616 and $6,000 were paid during the years ended December 31, 1998 and 1997, respectively.
A subordinated disposition fee in 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.
The accrued fees and expenses due to General Partner and affiliates consist of the following:
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.
NOTE 5 - PAYABLES TO LIMITED PARTNERSHIPS
Payables to limited partnerships represent amounts which are due at various times based on conditions specified in the limited partnership agreements. These contributions are payable in installments and are due upon the limited partnerships achieving certain operating and development benchmarks (generally within two years of the Partnership's initial investment).
NOTE 6 - INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial statements as any liability for income taxes is the obligation of the partners of the Partnership.
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended March 31, 2000, For The Three Months Ended March 31, 1999 and For The Years Ended December 31, 1998 and 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES
During the year, WNC identified a potential problem with a developer who, at the time, was the local general partner in six Local Limited Partnerships. The Partnership has a 99% limited partnership interest in two of those six Local Limited Partnerships. Those investments are Broken Bow Apartments I, and Sidney Apartments I. All the properties continue to experience operating deficits. The local general partner ceased funding the operating deficits, which placed the Local Limited Partnerships in jeopardy of foreclosure. Consequently, WNC voted to remove the local general partner and the management company from the Local Limited Partnerships. After the local general partner contested its removal, WNC commenced legal action on behalf of the Local Limited Partnerships and was successful in getting a receiver appointed to manage the Local Limited Partnerships and an unaffiliated entity appointed as property manager. WNC was subsequently successful in attaining a summary judgment to confirm the removal of the local general partner, the receiver was discharged and WNC now controls all six of the Local Limited Partnerships.
The six Local Limited Partnerships (hereinafter referred to as "Defendants") are now defendants in a separate lawsuit. The lawsuit has been filed by eight other partnerships in which the local general partner of the Local Limited Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that the local general partner accepted funds from the Plaintiffs and improperly loaned these funds to the Defendants. Discovery in this lawsuit is ongoing and WNC will continue to pursue an aggressive defense on behalf of the Defendants.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
NOT APPLICABLE
PART III.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers of its own. The following biographical information is presented for the directors and executive officers of Associates which has principal responsibility for the Partnership's affairs.
Directors and Executive Officers of WNC & Associates, Inc
The directors of WNC & Associates, Inc. are Wilfred N. Cooper, Sr., who serves as Chairman of the Board, John B. Lester, Jr., David N. Shafer, Wilfred N. Cooper, Jr. and Kay L. Cooper. The principal shareholders of WNC & Associates, Inc. are trusts established by Wilfred N. Cooper, Sr. and John B. Lester, Jr.
Wilfred N. Cooper, Sr., age 69, is the founder, Chairman, Chief Executive Officer, and a Director of WNC & Associates, Inc., a Director of WNC Capital Corporation, and a general partner in some of the programs previously sponsored by the Sponsor. Mr. Cooper has been involved in real estate investment and acquisition activities since 1968. Previously, during 1970 and 1971, he was founder and 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 prior to 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. Mr. Cooper is a Director of the National Association of Home Builders (NAHB) and a National Trustee for NAHB's Political Action Committee, a Director of the National Housing Conference (NHC) and a member of NHC's Executive Committee and a Director of the National Multi-Housing Council (NMHC). Mr. Cooper graduated from Pomona College in 1956 with a Bachelor of Arts degree.
John B. Lester, Jr., age 66, is Vice-Chairman, a Director, Secretary and a member of the Acquisition Committee of WNC & Associates, Inc., and a Director of WNC Capital Corporation. Mr. Lester has 27 years of experience in engineering and construction and has been involved in real estate investment and acquisition activities since 1986 when he joined the Sponsor. Previously, he was Chairman of the Board and Vice President or President of E & L Associates, Inc., a provider of engineering and construction services to the oil refinery and petrochemical industries, which he co-founded in 1973. Mr. Lester graduated from the University of Southern California in 1956 with a Bachelor of Science degree in Mechanical Engineering.
Wilfred N. Cooper, Jr., age 37, is Executive Vice President, Chief Operating Officer, a Director and a member of the Acquisition Committee of WNC & Associates, Inc. He is President of, and a registered principal with, WNC Capital Corporation, a member firm of the NASD, and is a Director of WNC Management, Inc. He has been involved in investment and acquisition activities with respect to real estate since he joined the Sponsor in 1988. Prior to this, he served as Government Affairs Assistant with Honda North America in Washington, D.C. Mr. Cooper is a member of the Advisory Board for LIHC Monthly Report, a Director of NMHC and an Alternate Director of NAHB. He graduated from The American University in 1985 with a Bachelor of Arts degree.
David N. Shafer, age 48, is Executive Vice President, a Director, General Counsel, and a member of the Acquisition Committee of WNC & Associates, Inc., and a Director and Secretary of WNC Management, Inc. Mr. Shafer has been involved in real estate investment and acquisition activities since 1984. Prior to joining the Sponsor in 1990, he was practicing law with a specialty in real estate and taxation. Mr. Shafer is a Director and President of the California Council of Affordable Housing and a member of the State Bar of California. Mr. Shafer graduated from the University of California at Santa Barbara in 1978 with a Bachelor of Arts degree, from the New England School of Law in 1983 with a Juris Doctor degree (cum laude) and from the University of San Diego in 1986 with a Master of Law degree in Taxation.
Michael L. Dickenson, age 43, is Vice President and Chief Financial Officer, and a member of the Acquisition Committee of WNC & Associates, Inc., and Chief Financial Officer of WNC Management, Inc. He has been involved with acquisition and investment activities with respect to real estate since 1985. Prior to joining the Sponsor in March 1999, he was the Director of Financial Services at TrizecHahn Centers Inc., a developer and operator of commercial real estate, from 1995 to 1999, a Senior Manager with E&Y Kenneth Leventhal Real Estate Group, Ernst & Young, LLP, from 1988 to 1995, and Vice President of Finance with Great Southwest Companies, a commercial and residential real estate developer, from 1985 to 1988. Mr. Dickenson is a member of the Financial Accounting Standards Committee for the National Association of Real Estate Companies and the American Institute of Certified Public Accountants, and a Director of HomeAid Southern California, a charitable organization affiliated with the building industry. He graduated from Texas Tech University in 1978 with a Bachelor of Business Administration - Accounting degree, and is a Certified Public Accountant in California and Texas.
Thomas J. Riha, age 45, is Vice President - Asset Management and a member of the Acquisition Committee of WNC & Associates, Inc. and a Director and Chief Executive Officer of WNC Management, Inc. Mr. Riha has been involved in acquisition and investment activities with respect to real estate since 1979. Prior to joining the Sponsor in 1994, Mr. Riha was employed by Trust Realty Advisor, a real estate acquisition and management company, last serving as Vice President - Operations. Mr. Riha graduated from the California State University, Fullerton in 1977 with a Bachelor of Arts degree (cum laude) in Business Administration with a concentration in Accounting and is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
Sy P. Garban, age 54, is Vice President - National Sales of WNC & Associates, Inc. and has been employed by the Sponsor since 1989. Mr. Garban has been involved in real estate investment activities since 1978. Prior to joining the Sponsor he served as Executive Vice President of MRW, Inc., a real estate development and management firm. Mr. Garban is a member of the International Association of Financial Planners. He graduated from Michigan State University in 1967 with a Bachelor of Science degree in Business Administration.
N. Paul Buckland, age 37, is Vice President - Acquisitions and a member of the Acquisition Committee of WNC & Associates, Inc. He has been involved in real estate acquisitions and investments since 1986 and has been employed with WNC & Associates, Inc. since 1994. Prior to that, he served on the development team of the Bixby Ranch that constructed apartment units and Class A office space in California and neighboring states, and as a land acquisition coordinator with Lincoln Property Company where he identified and analyzed multi-family developments. Mr. Buckland graduated from California State University, Fullerton in 1992 with a Bachelor of Science degree in Business Finance.
David Turek, age 45, is Vice President - Originations of WNC & Associates, Inc. He has been involved with real estate investment and finance activities since 1976 and has been employed by WNC & Associates, Inc. since 1996. From 1995 to 1996, Mr. Turek served as a consultant for a national Tax Credit sponsor where he was responsible for on-site feasibility studies and due diligence analyses of Tax Credit properties. From 1990 to 1995, he was involved in the development of conventional and tax credit multi-family housing. He is a Director with the Texas Council for Affordable Rural Housing and graduated from Southern Methodist University in 1976 with a Bachelor of Business Administration degree.
Kay L. Cooper, age 63, is a Director of WNC & Associates, Inc. Mrs. Cooper was the founder and sole proprietor of Agate 108, a manufacturer and retailer of home accessory products, from 1975 until 1998. She is the wife of Wilfred N. Cooper, Sr., the mother of Wilfred N. Cooper, Jr. and the sister of John B. Lester, Jr. Ms. Cooper graduated from the University of Southern California in 1958 with a Bachelor of Science degree.
Item 11.
Item 11. Executive Compensation
The Partnership has no officers, employees, or directors. However, under the terms of the Partnership Agreement the Partnership is obligated to the General Partner or Associates for the following fees:
(a) Annual Asset Management Fee. An annual asset management fee of the greater of (i) $2,000 per multi-family housing complex or (ii) 0.275% of Gross Proceeds. The base fee amount will be adjusted annually based on changes in the Consumer Price Index, however in no event will the annual asset management fee exceed 0.2% of Invested Assets. "Invested Assets" means the sum of the Partnership's investment in Local Limited Partnerships and the Partnership's allocable share of the amount of indebtedness related to the Housing Complexes. Fees of $43,000, $11,000 and $43,000 were incurred during the year ended March 31, 2000 and the three months ended March 31, 1999 and the year ended December 31, 1998, respectively. The Partnership paid the General Partner or its affiliates $4,000, $6,000 and $5,000 of those fees during the year ended March 31, 2000, the three months ended March 31, 1999 and the year ended December 31, 1998, respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount equal to 1% of the sale price received in connection with the sale or disposition of a Housing Complex. Subordinated disposition fees will be subordinated to the prior return of the Limited Partners' capital contributions and payment of the Return on Investment to the Limited Partners. "Return on Investment" means an annual, cumulative but not compounded, "return" to the Limited Partners (including Low Income Housing Credits) as a class on their adjusted capital contributions commencing for each Limited Partner on the last day of the calendar quarter during which the Limited Partner's capital contribution is received by the Partnership, calculated at the following rates: (i) 16% through December 31, 2003, and (ii) 6% for the balance of the Partnership's term. No disposition fees have been paid.
(c) Operating Expense. The Partnership reimbursed the General Partner or its affiliates for operating expenses of approximately $31,000, $11,000 and $6,000 during the year ended March 31, 2000, the three months ended March 31, 1999 and the year ended December 31, 1998, respectively.
(d) Interest in Partnership. The General Partners receive 1% of the Partnership's allocated Low Income Housing Credits, which approximated $20,000 and $20,000 for the General Partner for the years ended March 31, 2000 and December 31, 1998. The General Partner is also entitled to receive 1% of cash distributions. There were no distributions of cash to the General Partner during the year ended March 31, 2000, the three months ended March 31, 1999 or the year ended December 31, 1998.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
(a) Security Ownership of Certain Beneficial Owners
The following is the only limited partner known to the General Partner to own beneficially in excess of 5% of the outstanding Units.
(b) Security Ownership of Management
Neither the General Partner, its affiliates, nor any of the officers or directors of the General Partner or its affiliates own directly or beneficially any Units in the Partnership.
(c) Changes in Control
The management and control of the General Partner may be changed at any time in accordance with its 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 Partner 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 Partner of the Partnership and elect a successor General Partner.
Item 13.
Item 13. Certain Relationships and Related Transactions
The General Partner manages all of the Partnership's affairs. The transactions with the General Partner are primarily in the form of fees paid by the Partnership for services rendered to the Partnership and the General Partner's interests in the Partnership, as discussed in Item 11 and in the notes to the Partnership's financial statements.
PART IV.
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
(a)(1) Financial statements included in Part II hereof:
Report of Independent Certified Public Accountants Independent Auditors' Report Balance Sheets, March 31, 2000 and 1999 and December 31, 1998 Statements of Operations for the year and three months ended March 31, 2000 and 1999 and for the years ended December 31, 1998 and 1997 Statements of Partners' Equity (Deficit) for the three months ended March 31, 2000 and 1999 and for the years ended December 31, 1998 and Statements of Cash Flows for the year and three months ended March 31, 2000 and 1999 and for the years ended December 31, 1998 and 1997 Notes to Financial Statements
(a)(2) Financial statement schedules included in Part IV hereof:
Report of Independent Certified Public Accountants on Financial State- ment Schedules Schedule III - Real Estate Owned by Local Limited Partnerships
(b) Reports on Form 8-K
1. A Form 8-K dated May 13, 1999 was filed on May 14, 1999 reporting the dismissal of the Partnership's former auditors and the engagement of new auditors. No financial statements were included.
(c) Exhibits
3.1 Articles of incorporation and by-laws: The registrant is not incorporated. The Partnership Agreement is included as Exhibit B to the Prospectus which is included in Post-Effective No 11 to Registration Statement on Form S-11 dated May 24, 1995 incorporated herein by reference as Exhibit 3.
10.1 Amended and Restated Agreement of Limited Partnership of Chadwick Limited Partnership filed as exhibit 10.1 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.1.
10.2 Second Amended and Restated Agreement of Limited Partnership of Garland Street Limited Partnership filed as exhibit 10.2 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.2
10.3 Amended and Restated Agreement of Limited Partnership of Lamesa Seniors Community, Ltd. filed as exhibit 10.3 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.3.
10.4 Amended and Restated Agreement of Limited Partnership of Palestine Seniors Community, Ltd. filed as exhibit 10.4 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.4.
10.5 Second Amended and Restated Agreement of Limited Partnership of Southcove Associates filed as exhibit 10.1 to Form 8-K dated August 8, 1994 is hereby incorporated herein by reference as exhibit 10.5.
10.6 Third Amended and Restated Agreement of Limited Partnership of Southcove Associates filed as exhibit 10.2 to Form 8-K dated August 8, 1994 is hereby incorporated herein by reference as exhibit 10.6.
10.7 Amended and Restated Agreement of Limited Partnership of Comanche Retirement Village, Ltd. filed as exhibit 10.1 to Form 8-K dated August 31, 1994 is hereby incorporated herein by reference as exhibit 10.7.
10.8 Amended and Restated Agreement of Limited Partnership of Mountainview Apartments Limited Partnership filed as exhibit 10.1 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.8.
10.9 Second Amendment to Amended and Restated Agreement of Limited Partnership of Mountainview Apartments Limited Partnership filed as exhibit 10.2 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.9.
10.10 Amended and Restated Agreement of Limited Partnership of Pecan Grove Limited Partnership filed as exhibit 10.3 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.10.
10.11 Second Amendment to Amended and Restated Agreement of Limited Partnership of Pecan Grove Limited Partnership filed as exhibit 10.4 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.11.
10.12 Second Amendment to and Entire Restatement of the Agreement of Limited Partnership of Autumn Trace Associates, Ltd. filed as exhibit 10.1 to Form 8-K dated October 31, 1994 is hereby incorporated herein by reference as exhibit 10.12.
10.13 Amended and Restated Agreement of Limited Partnership of EW , a Wisconsin Limited Partnership filed as exhibit 10.2 to Form 8-K dated October 31, 1994 is hereby incorporated herein by reference as exhibit 10.13.
10.14 Agreement of Limited Partnership of Klimpel Manor, Ltd. filed as exhibit 10.3 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.14.
10.15 Amended and Restated Agreement of Limited Partnership of Hickory Lane Associates Limited filed as exhibit 10.15 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.15.
10.16 Amended and Restated Agreement of Limited Partnership of Honeysuckle Court Associates, Ltd. filed as exhibit 10.16 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.16.
10.17 Amended and Restated Agreement of Limited Partnership of Walnut Turn Associates, Ltd. filed as exhibit 10.17 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.17.
10.18 Amended and Restated Agreement of Limited Partnership of Pioneer Street Associates, a California limited partnership filed as exhibit 10.1 to Form 8-K dated July 5, 1995 is hereby incorporated herein by reference as exhibit 10.18.
10.19 Certified financial statements of Pioneer Street Associates, a Cali- fornia Limited Partnership as of and for the year ended December 31, 1999.
(d) Financial statement schedules follow, as set forth in subsection (a)(2) hereof.
Report of Independent Certified Public Accountants on Financial Statement Schedules
To the Partners WNC Housing Tax Credit Fund IV, L.P., Series 2
The audits referred to in our report dated August 16, 2000, relating to the 2000, 1999 and 1998 financial statements of WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership"), which is contained in Item 8 of this Form 10-K, included the audit of the accompanying financial statement schedules. The financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audits. The opinion to the financial statements contains an audit scope limitation paragraph describing the inability of the auditors to express an opinion on the financial statements of a limited partnership.
In our opinion, such financial statement schedules present fairly, in all material respects, the financial information set forth therein.
/s/ BDO SEIDMAN, LLP BDO SEIDMAN, LLP
Orange County, California August 16, 2000
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2000
* Results of Broken Bow Apartments I, L.P. and Sidney Apartments I, L.P. have not been audited and thus have been excluded. See Note 2 to the financial statements and report of certified public accountants.
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2000
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2000
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2000
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships December 31, 1999
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 1999
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 1999
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 1999
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships December 31, 1998
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships December 31, 1998
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships December 31, 1998
WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships December 31, 1998
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WNC HOUSING TAX CREDIT FUND IV, L.P., Series 2
By: WNC & Associates, Inc. General Partner
By: /s/ Wilfred N. Cooper, Sr. Wilfred N. Cooper, Sr., Chairman and Chief Executive Officer of WNC & Associates, Inc.
Date: September 28, 2000
By: /s/ Michael L. Dickenson Michael L. Dickenson, Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: September 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Wilfred N. Cooper, Jr. Wilfred N. Cooper, Jr., Director of WNC & Associates, Inc.
Date: September 28, 2000
By: /s/ John B. Lester, Jr. John B. Lester, Jr., Director of WNC & Associates, Inc.
Date: September 28, 2000
By: /s/ David N. Shafer David N Shafer, Director of WNC & Associates, Inc.
Date: September 28, 2000