<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1997
Commission File Number 33-27658
NATIONAL TAX CREDIT PARTNERS, L.P.
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-4205231
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1997 and December 31, 1996.........1
Statements of Operations
Nine and Three Months Ended September 30, 1997 and 1996........2
Statement of Partners' Equity (Deficiency)
Nine Months Ended September 30, 1997...........................3
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996..................4
Notes to Financial Statements ...................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................18
Item 6. Exhibits and Reports on Form 8-K................................19
Signatures...............................................................20
</TABLE>
2
<PAGE> 3
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $15,547,304 $17,721,398
CASH AND CASH EQUIVALENTS (Note 1) 715,567 149,927
RESTRICTED CASH (Note 3) 75,000 75,000
----------- -----------
TOTAL ASSETS $16,337,871 $17,946,325
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 4,544,846 $ 3,996,221
Capital contributions payable (Note 4) 392,300 392,300
Accounts payable and accrued expenses 382,594 270,354
----------- -----------
5,319,740 4,658,875
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' EQUITY 11,018,131 13,287,450
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $16,337,871 $17,946,325
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 10,683 $ 2,865 $ 15,219 $ 4,665
--------------- -------------- -------------- --------------
OPERATING EXPENSES:
Management fees - partners (Note 5) 519,717 173,239 519,717 173,239
Legal and accounting 152,145 82,595 59,528 (34,766)
General and administrative (Note 5) 114,520 49,471 105,226 41,051
--------------- -------------- -------------- --------------
Total operating expenses 786,382 305,305 684,471 179,524
--------------- -------------- -------------- --------------
LOSS FROM PARTNERSHIP OPERATIONS (775,699) (302,440) (669,252) (174,859)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 18,380 1,666 37,532 --
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,512,000) (504,000) (4,162,000) (2,654,000)
--------------- -------------- -------------- --------------
NET LOSS $ (2,269,319) $ (804,774) $ (4,793,720) $ (2,828,859)
=============== ============== ============== ==============
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (95) $ (34) $ (201) $ (118)
=============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Special
Limited General Limited
Partners Partners Partners Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PARTNERSHIP INTERESTS,
September 30, 1997 23,899
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1997 $ 1,000 $ (385,949) $ 13,672,399 $ 13,287,450
Net loss for the nine months
ended September 30, 1997 -- (22,693) (2,246,626) (2,269,319)
------------ ------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
September 30, 1997 $ 1,000 $ (408,642) $ 11,425,773 $ 11,018,131
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,269,319) $(4,793,720)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 1,512,000 4,162,000
Increase (decrease) in:
Accrued fees and expenses due to partners 548,625 546,193
Accounts payable and accrued expenses 112,240 (64,406)
----------- -----------
Net cash used in operating activities (96,454) (149,933)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital (contributions) recoveries 554,875 (116,930)
Capitalized acquisition costs recovered 305 --
Decrease capital contributions payable -- (49,000)
Distributions recognized as a return of capital 106,914 86,852
----------- -----------
Net cash provided by (used in) investing activities 662,094 (79,078)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 565,640 (229,011)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 149,927 500,282
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 715,567 $ 271,271
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements. Accordingly, the financial statements
included herein should be reviewed in conjunction with the audited
financial statements and related notes thereto contained in the
National Tax Credit Partners, L.P. (the "Partnership") annual report
for the year ended December 31, 1996. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at
year end. The results of operations for the interim periods presented
are not necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of September 30, 1997 and the results of operations for the nine and
three months then ended and changes in cash flows for the nine months
then ended.
ORGANIZATION
The Partnership, formed under the California Revised Limited
Partnership Act, was organized on March 7, 1989. The Partnership was
formed to invest primarily in other limited partnerships which own or
lease and operate multifamily housing complexes that are eligible for
low-income housing tax credits or, in certain cases, historic
rehabilitation tax credits ("Tax Credits"). The general partner of the
Partnership (the "General Partner") is National Partnership Investments
Corp. ("NAPICO"), a California corporation. The special limited partner
of the Partnership (the "Special Limited Partner") is PaineWebber T.C.,
Inc., a Delaware corporation.
The Partnership originally registered 14,000 units, consisting of
28,000 Limited Partnership Interests ("LPI"), and warrants to purchase
a maximum of 14,000 Additional Limited Partnership Interests ("ALPI").
The term of the offering expired in September 1990, at which date the
Partnership raised $59,749,000 from the sale of 16,336 LPI and warrants
representing 7,563 ALPI.
The General Partner has a one percent interest in operating profits and
losses of the Partnership. The limited partners will be allocated the
remaining 99 percent interest in proportion to their respective
investments.
The Partnership shall continue in full force and effect until December
31, 2029, unless terminated prior to that, pursuant to the partnership
agreement or law.
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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
7
<PAGE> 8
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investments in limited partnerships are accounted for using the
equity method. Acquisition, selection and other costs related to the
acquisition of the projects acquired are capitalized as part of the
investment accounts and are being amortized on a straight line basis
over the estimated lives of the underlying assets, which is 30 years.
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the
limited partners' share of net loss by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests outstanding was 23,899 for the periods
presented.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
Partnership has its cash and cash equivalents on deposit primarily with
one high credit quality financial institution. Such cash and cash
equivalents are in excess of the FDIC insurance limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of the
individual partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Accounting for the Improvement of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a
significant effect on its financial statements. The Partnership reviews
long-lived assets to determine if there has been any permanent
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If the sum of
the expected future cash flows is less than the carrying amount of the
assets, the Partnership recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership currently holds limited partnership interests in 31
local limited partnerships ("Local Partnerships"). As a limited partner
of the Local Partnerships, the Partnership does not have authority over
day-to-day management of the Local Partnerships or their properties
(the "Apartment Complexes"). The general partners responsible for
management of the Local Partnerships (the "Local Operating General
Partners") are not affiliated with the General Partner of the
Partnership, except as discussed below.
8
<PAGE> 9
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At September 30, 1997, the Local Partnership's own residential projects
consisted of 2,788 apartment units.
The Partnership, as a limited partner in each Local Partnership, is
generally entitled to 99 percent of the operating profits and losses of
the Local Partnerships. National Tax Credit, Inc. ("NTC"), an affiliate
of the General Partner, serves either as a special limited partner or
non-managing administrative general partner in which case it receives
.01 percent of operating profits and losses of the Local Partnership,
or as the Local Operating General Partner of the Local Partnership in
which case it is entitled to .09 percent of operating profits and
losses of the Local Partnership. The Partnership is also generally
entitled to receive 50 percent of the net cash flow generated by the
Apartment Complexes, subject to repayment of any loans made to the
Local Partnerships (including loans provided by NTC or an affiliate),
repayment for funding of development deficit and operating deficit
guarantees by the Local Operating General Partners or their affiliates
(excluding NTC and its affiliates), and certain priority payments to
the Local Operating General Partners other than NTC or its affiliates.
The Partnership's allocable share of losses from Local Partnerships are
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.
Distributions from the Local Partnerships are accounted for as a return
of capital until the investment balance is reduced to zero. Subsequent
distributions received will be recognized as income.
The following is a summary of the investment in Local Partnerships for
the nine months ended September 30, 1997:
<TABLE>
<S> <C>
Balance, beginning of period $ 17,721,398
Capital contributions (recoveries) (554,875)
Capitalized acquisition costs recovered (305)
Equity in losses of limited partnerships (1,413,000)
Amortization of capitalized acquisition costs (99,000)
Distributions recognized as a return of capital (106,914)
------------
Balance, end of period $ 15,547,304
============
</TABLE>
Victorian Park
Victorian Park Associates, which owns a 336-unit Apartment Complex
located in Illinois, defaulted on its mortgage in July 1991 principally
because the unaffiliated Local Operating General Partners failed to pay
$800,000 of real property taxes required under their guarantees. On
March 25, 1992, the Partnership commenced litigation against the Local
Operating General Partners to enforce its rights. On November 13, 1992
the Partnership was advised that a Chapter 11 petition in bankruptcy
was filed by the Local Operating General Partners on behalf of the
Local Partnership and that the lender, Patrician Mortgage
("Patrician"), had accelerated its mortgage. The Local Operating
General Partners' Seventh Amended Plan of Reorganization (the "Plan")
was confirmed by the Court and is being implemented. Pursuant to the
Plan, the
9
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Partnership retained its interest in the Local Partnership. As of
September 30, 1997 and December 31, 1996, the Partnership's carrying
value of the investment in the Victorian Local Partnership (which
represents approximately 5.7 percent of the Partnership's total equity
initially invested in Local Partnerships) was zero.
Summit I, II and III
The general contractor for three related Local Partnerships, Summit I,
Summit II and Summit III, initiated a lawsuit in December 1992 against
the Local Partnerships and the Partnership seeking damages in the
amount of approximately $600,000 allegedly due pursuant to the
respective general contracts plus damages for alleged
misrepresentations and punitive damages. The Partnership believes that
the general contractor's claims are barred and/or subject to offset and
it has filed responsive pleadings. The Partnership has not accrued any
liability in the accompanying financial statements as of September 30,
1997. The lawsuit has been dormant for more than two years. Although
occupancy levels at the three related Local Partnerships, Summit I, II,
and III (Wallace, Bergdoll, and Chandler School located in
Philadelphia) were stabilized at 88 percent, 100 percent, and 88
percent, respectively, the properties operated at deficits during 1996.
The Summit I and III properties have approximately $150,000 in
outstanding property taxes (a portion of which could result in liens on
the properties), utility bills, and other trade payables. The local
general partner is currently attempting to negotiate discounted
payments and/or payment plans for these items which, if unsuccessful,
could result in foreclosure proceedings on all three properties. NTCP
has settled its litigation with the lender on Summit I and III. As part
of the settlement, the lender dismissed its foreclosure actions and
converted its mortgages to mortgages requiring debt service payments
out of available cash flow only. In return, NTCP intends to (i) admit
the lender into all three of the local partnerships if certain
conditions are satisfied, and (ii) to assign a portion of NTCP's
interests in each local partnership, including an allocation of
approximately $100,000 in remaining tax credits. In 1996, the aggregate
carrying value of the investments in Summit I, Summit II and Summit III
of approximately $2,290,000 was written off. Summits I, II and III
represent 3.2 percent, 1.4 percent and 4.6 percent, respectively, of
NTCP's original portfolio investment.
Meadows
The Meadows Apartments (the "Local Partnership") is a 119-unit building
located in Ypsilanti, Michigan. The first mortgage loan matured on May
15, 1996. A plan of reorganization for the Local Partnership (the
"Plan") was approved by the bankruptcy court on December 16, 1996.
Pursuant to the Plan, NTCP paid the following amounts out of reserves
(i) 1996 delinquent property taxes of $35,317, (ii) legal fees of
$10,000, (iii) unsecured creditors of $18,590, and (iv) payment of
$171,093 in April 1997, which satisfied the 1993 delinquent real estate
taxes. The Plan also outlines a partial payment schedule for the 1994
and 1995 delinquent real estate taxes which would be paid out of the
property's operations.
10
<PAGE> 11
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Under the Plan, the existing loan in the principal amount of
$2,890,000, at an interest rate of 10 percent, was reduced to
$2,100,000 with an interest rate of 9 percent. In exchange, the lender
received one-third of NTCP's local partnership interest, including
anticipated allocations of housing tax credits in the amount of
approximately $488,500. The property operated at an occupancy level of
98 percent as of September 30, 1997. As of September 30, 1997 and
December 31, 1996, the Partnership's carrying value of the investment
in the Meadows Apartments was zero.
Glenark
Pursuant to the terms of a workout, dated January 11, 1995 (the
"Workout") agreed between the parties relating to the resolution of an
existing default under the first mortgage loan encumbering Glenark
Landing, an annual payment of $30,000 was due in March 1997 to the
Rhode Island Housing and Mortgage Finance Corporation (the "Lender")
and paid in August 1997. The Workout provides for additional payments
of $42,800 per year, for a five year term, totaling $214,000. The
property incurred significant accounts payable due to necessary
repairs, consequently the property has accrued payables in the amount
of $70,000. In addition, the General Partner is requesting a release of
available replacement reserves from the Lender to bring the accounts
payable current. The Partnership's investment in Glenark at September
30, 1997 and December 31, 1996 was zero.
Countryview
A loan modification with Federal Home Loan Mortgage Corporation, the
lender on Countryview Apartments, was completed October 9, 1996 with,
among other things as part of the modification, NTCP is required to pay
to the lender $15,677, on a monthly basis (commencing November 1, 1996)
for the first six months and $10,910 for an additional two months for a
total of $115,882 which has now been completely funded. In connection
with the modification, the interest rate was reduced from 11.515
percent to 8 percent. As of September 1997 the property attained 97
percent occupancy. The Partnership's investment in Countryview
Apartments at September 30, 1997 was approximately $1,621,000. In an
effort to raise cash to fund the restructurings and other obligations
discussed herein, NTCP sold substantially all of the Countryview's
remaining housing tax credits, retaining a 5% limited partnership
interest. In the aggregate, the Partnership sold $1,687,159 of the
housing tax credits remaining, raising $1,036,727. After closing costs,
which included obligations under the Countryview loan workout, $609,904
was the net amount deposited into NTCP's reserves in September 1997.
Holden Village & Ticino Apartments
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of approximately 100 percent and 91
percent, respectively, and both are still experiencing operating
deficits for the nine months ended September 30, 1997. The high cost of
servicing the debt is the largest contributing factor associated with
the deficit operations. The effort to improve the performance of the
properties, the local general partner, an affiliate of the General
Partner, removed the existing management agent in June 1996.
11
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The new management agent has attempted to reduce operating expenses and
increase occupancy levels, but has been generally unsuccessful. NTCP is
currently negotiating an interest rate reduction and write down of the
existing debt with the lender for each of the properties in an effort
to improve the cash flow. In exchange, it is expected that NTCP will be
required to pay down each loan in the aggregate amount of $350,000.
Currently, both mortgages are in default. However, if the loan
modifications are successful the operating performance of each property
is expected to improve substantially. The Partnership's total
investment in Holden Village and Ticino Apartments at September 30,
1997 was approximately $945,000.
Dynes Village
The property was audited by the IRS with respect to tenant
qualifications performed by the prior local operating general partner
in 1989, 1990 and 1991 which audit resulted in the following closing
agreement which was executed in November 1997: for tax years 1989
through 1996 there will be no adjustment to the credit already claimed;
for tax years 1997 through 1999, the Dynes Local Partnership agrees
that it will not claim the credit on the tax returns. This means that
the $1,333,369 (74%) of credit already claimed from 1989 through 1996
will stand but the Dynes Local Partnership will give up the $467,671
(26%) of credit for 1997 through 1999. The property is budgeted to
operate at a $10,000 deficit during 1997. The Partnership's investment
in Dynes Village was approximately $630,000 at September 30, 1997.
Blue Lake
Pursuant to the terms of a loan workout, dated March 25, 1995 (the
"Workout"), NTCP is required to contribute an additional $541,300 to
the local partnership over a ten year period. In exchange, the debt
service on the property is payable out of net cash flow. During 1996
and 1995, approximately $49,000 and $100,000, respectively, was paid by
NTCP to the local partnership under the Workout (see Note 4). The
Partnership's investment in Blue Lake at September 30, 1997 and
December 31, 1996 was zero.
NOTE 3 - RESTRICTED CASH
Restricted cash represents collateral securing a letter of credit
relating to the 1994 loan modification of the Concepts I and II Local
Partnership.
NOTE 4 - CAPITAL CONTRIBUTION PAYABLE
Capital contributions payable represents $70,000 due annually, until
paid in full, for the investment in the Blue Lake Local Partnership.
The capital contributions payable are unsecured and non interest
bearing.
12
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 5 - RELATED-PARTY TRANSACTIONS
Under the terms of the Amended and Restated Agreement of the Limited
Partnership, the Partnership is obligated to pay the General Partner
and the Special Limited Partner the following fees:
(a) An annual Partnership management fee in an amount equal to 0.5
percent of invested assets (as defined in the Partnership
Agreement) is payable to the General Partner and Special Limited
Partner. For the nine months ended September 30, 1997
approximately $520,000 has been expensed. The unpaid balance at
September 30, 1997 is $4,544,846.
(b) A property disposition fee is payable to the General Partner in
an amount equal to the lesser of (I) one-half of the competitive
real estate commission that would have been charged by
unaffiliated third parties providing comparable services in the
area where the apartment complex is located, or (ii) 3 percent of
the sales price received in connection with the sale or
disposition of the apartment complex or local partnership
interest, but in no event will the property disposition fee and
all amounts payable to unaffiliated real estate brokers in
connection with any such sale exceed in the aggregate, the lesser
of the competitive rate (as described above) or 6 percent of such
sale price. Receipt of the property disposition fee will be
subordinated to the distribution of sale or refinancing proceeds
by the Partnership until the limited partners have received
distributions of sale or refinancing proceeds in an aggregate
amount equal to (I) their 10 percent priority return for any year
not theretofore satisfied (as defined in the partnership
agreement) and (ii) an amount equal to the aggregate adjusted
investment (as defined in the partnership agreement) of the
limited partners. No disposition fees have been paid.
(c) The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was $29,908 and $26,307 for the nine
months ended September 30, 1997 and 1996, respectively, and is
included in general and administrative expenses.
NTC is the Local Operating General Partner in sixteen of the
Partnership's 31 Local Partnerships. In addition, NTC is either a
special limited partner or an administrative general partner in each
Local Partnership.
An affiliate of the General Partner is currently managing two
properties owned by Local Partnerships. The Local Partnerships pay the
affiliate property management fees which have been reduced from 5
percent to 4.5 percent of their gross rental revenues. The amounts paid
were $45,054 and $44,575 for the nine months ended September 30, 1997
and 1996, respectively.
NOTE 6 - CONTINGENCIES
The General Partner and the Partnership, are involved in various
lawsuits arising from transactions in the ordinary course of business.
In the opinion of management and the General Partner, the claims will
not result in any material liability to the Partnership.
13
<PAGE> 14
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The operations generated by the investee limited
partnerships, which account for the Partnership's primary source of
funds, are subject to various government rules, regulations and
restrictions which make it impracticable to estimate the fair value of
the accrued fees due to partners. The carrying amount of other assets
and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
14
<PAGE> 15
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership received proceeds totaling $59,749,000 from the sale of
Limited Partnership Interests, pursuant to a registration statement
filed on Form S-11 which sale commenced in September 1989 and
terminated in September 1990. This amount includes $18,907,500 from the
sale of 7,563 Additional Limited Partnership Interests. The proceeds
have been used to invest in Local Partnerships which own and operate
Apartment Complexes that are eligible for Tax Credits.
It is not expected that any of the Local Partnerships in which the
Partnership invested will generate cash from operations sufficient to
provide distributions to the Limited Partners. Such cash from
operations, if any, would first be used to meet operating expenses of
the Partnership. The Partnership's investments are not readily
marketable and may be affected by adverse general economic conditions
which, in turn, could substantially increase the risk of operating
losses for the Apartment Complexes, the Local Partnerships and the
Partnership. These problems may result from a number of factors, many
of which cannot be controlled by the General Partner.
In order to further replenish NTCP's reserves, NTCP sold to the local
general partner an additional portion and further diluted its limited
partner interest in the Rose City local partnership during the first
quarter of 1997. The local general partner is now entitled to an
increased allocation of cash flow and back-end distributions. NTCP will
continue to receive its allocable portion of housing tax credits,
subject to the allocation made to the additional limited partner
identified in a prior report, through the ten year credit period. As a
result of this transaction, NTCP received $230,000, of which $120,000
was paid in February 1997, and the balance was discounted to
approximately $110,000 and paid in April 1997. As a result, the local
general partner will also increase its interest in distributions of
cash flow and proceeds from the sale or refinancing of the property.
The Partnership also sold substantially all of its remaining housing
tax credits otherwise allocable to the Partnership from Countryview,
retaining only a 5% limited partnership interest. In an effort to raise
cash to fund the restructurings and other obligations discussed herein,
NTCP sold substantially all of the Countryview's remaining housing tax
credits, retaining a 5% limited partnership interest. In the aggregate,
the Partnership sold $1,687,159 of the housing tax credits remaining,
raising $1,036,727. After closing costs, which included obligations
under the Countryview loan workout, $609,904 was the net amount
deposited into NTCP's reserves in September 1997. It is currently
anticipated that other agreed upon restructurings will substantially
deplete the Partnership's reserves in early 1998 and that an additional
sale will be required to further replenish reserves.
The Partnership does not have the ability to assess Limited Partners
for additional capital contributions to provide capital if needed by
the Partnership or Local Partnerships. Accordingly, if circumstances
arise that cause the Local Partnerships to require capital in addition
to that contributed by the Partnership and any equity of the local
general partners, the only sources from which such capital needs will
be able to be satisfied (other than the limited reserves available at
the Partnership level) will be (i) third-party debt financing (which
may not be available if, as expected, the Apartment Complexes owned by
the Local Partnerships are already substantially leveraged), (ii) other
equity sources (which could reduce the amount of Tax Credits being
allocated to the Partnership, adversely affect the Partnership's
interest in operating cash flow and/or proceeds
15
<PAGE> 16
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
of sale or refinancing of the Apartment Complexes and possibly even
result in adverse tax consequences to the Limited Partners), or (iii)
the sale or disposition of Apartment Complexes. There can be no
assurance that any of such sources would be readily available in
sufficient proportions to fund the capital requirements of the Local
Partnerships. If such sources are not available, the Local Partnerships
would risk foreclosure on their Apartment Complexes if they were unable
to renegotiate the terms of their first mortgages and any other debt
secured by the Apartment Complexes, which would have significant
adverse tax consequences to the Limited Partners.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its Limited
Partners. It is not expected that any of the Local Partnerships in
which the Partnership has invested will generate cash flow sufficient
to provide for distributions to Limited Partners. The Partnership
accounts for its investments in the Local Partnerships on the equity
method, thereby adjusting its investment balance by its proportionate
share of the income or loss of the Local Partnerships.
In general, in order to avoid recapture of Tax Credits, the Partnership
does not expect that it will voluntarily dispose of its Local
Partnership Interests or approve the sale by a Local Partnership of any
Apartment Complex prior to the end of the applicable 15-year Compliance
Period (although earlier dispositions of Historic Complexes may occur).
Because of (i) the nature of the Apartment Complexes, (ii) the
difficulty of predicting the resale market for low-income housing 15 or
more years in the future, and (iii) the inability of the Partnership to
directly cause the sale of Apartment Complexes by local general
partners, but generally only to require such local general partners to
use their respective best efforts to find a purchaser for the Apartment
Complexes, it is not possible at this time to predict whether the
liquidation of substantially all of the Partnership's assets and the
disposition of the proceeds, if any, in accordance with the Partnership
Agreement will be able to be accomplished promptly at the end of the
15-year Compliance Period. If a Local Partnership is unable to sell an
Apartment Complex, it is anticipated that the local general partner
will either continue to operate such Apartment Complex or take such
other actions as the local general partner believes to be in the best
interest of the Local Partnership. In addition, circumstances beyond
the control of the General Partner may occur during the Compliance
Period which would require the Partnership to approve the disposition
of an Apartment Complex prior to the end of the Compliance Period.
Except for interim investments in highly liquid debt investments, the
Partnership's investments consist entirely of interests in other Local
Partnerships owning Apartment Complexes. Funds temporarily not required
for such investments in projects are invested in these highly liquid
debt investments earning interest income as reflected in the statement
of operations. These interim investments can be easily converted to
cash to meet obligations as they arise.
16
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership, as a limited partner in the Local Partnerships in
which it has invested, is subject to the risks incident to the
construction, management, and ownership of improved real estate. The
Partnership investments are also subject to adverse general economic
conditions, and accordingly, the status of the national economy,
including substantial unemployment and concurrent inflation, could
increase vacancy levels, rental payment defaults, and operating
expenses, which in turn, could substantially increase the risk of
operating losses for the Apartment Complexes. Certain of the Local
Partnerships and their respective Apartment Complexes are subject to
litigation and operating problems. See "Legal Proceedings" in Part II
and the information which follows.
The Meadows Apartments (the "Local Partnership") is a 112-unit building
located in Ypsilanti, Michigan. The first mortgage loan matured on May
15, 1996. A plan of reorganization for the Local Partnership (the
"Plan") was approved by the bankruptcy court on December 16, 1996.
Pursuant to the Plan, NTCP paid the following amounts out of reserves
(i) 1996 delinquent property taxes of $35,317, (ii) legal fees of
$10,000, (iii) unsecured creditors of $18,590 and (iv) payment of
$171,093 in April 1997, which will satisfy the 1993 delinquent real
estate taxes. The Plan also outlines a partial payment schedule for the
1994 and 1995 delinquent real estate taxes which would be paid out of
the property's operations. Under the Plan, the existing loan in the
principal amount of $2,890,000, at an interest rate of 10 percent, was
reduced to $2,100,000 with an interest rate of 9 percent. In exchange,
the lender received one-third of NTCP's local partnership interest,
including anticipated allocations of housing tax credits in the amount
of approximately $488,500. The property operated at an occupancy level
of 98 percent as of September 30, 1997. It is anticipated that the
Local Partnership will attain break-even levels of operations on a go
forward basis once the Plan is fully implemented. The Partnership's
investment in Meadows Apartments at September 30, 1997 and December 31,
1996 was zero.
A loan modification with Federal Home Loan Mortgage Corporation, the
lender on Countryview Apartments, was completed October 9, 1996 with,
among other things as part of the modification, NTCP is required to pay
to the lender $15,677 on a monthly basis (commencing November 1, 1996)
for the first six months and $10,910 for an additional two months for a
total of $115,882, which has now been completely funded. In connection
with the modification, the interest rate was reduced from 11.515
percent to 8 percent. As of September 1997 the property attained 97
percent occupancy. The Partnership's investment in Countryview
Apartments at September 30, 1997 was approximately $1,621,000. In an
effort to raise cash to fund the restructurings and other obligations
discussed herein, NTCP sold a substantial portion of Countryview's
remaining housing tax credits. In the aggregate, the Partnership sold
$1,687,159 of the housing tax credits remaining, raising $1,036,727 and
retaining a 5% limited partnership interest. After closing costs, which
included obligations under the Countryview loan workout, $609,904 was
the net amount deposited into NTCP's reserves in September 1997.
17
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of approximately 100 percent and 91
percent, respectively, but both are still experiencing operating
deficits as of September 1997. The high cost of servicing the debt is
the largest contributing factor associated with the deficit operations.
In an effort to improve the performance of the properties, the local
general partner, an affiliate of the General Partner, removed the
existing management agent in June 1996. The new management agent has
attempted to reduce operating expenses and increase occupancy levels,
but has been generally unsuccessful; both mortgages are in default.
NTCP is currently negotiating an interest rate reduction and write down
of the existing debt with the lender for each of the properties in an
effort to improve the cash flow. In exchange, it is expected that NTCP
will be required to pay down each loan in the aggregate amount of
$350,000. However, if the loan modifications are successful the
operating performance of each property is expected to improve
substantially. The Partnership's total investment in Holden Village and
Ticino Apartments at September 30, 1997 was approximately $945,000.
The property was audited by the IRS with respect to tenant
qualifications performed by the prior local operating general partner
in 1989, 1990 and 1991 which audit resulted in the following closing
agreement which was executed in November 1997: for tax years 1989
through 1996 there will be no adjustment to the credit already claimed;
for tax years 1997 through 1999, the Dynes Local Partnership agrees
that it will not claim the credit on the tax returns. This means that
the $1,333,369 (74%) of credit already claimed from 1989 through 1996
will stand but the Dynes Local Partnership will give up the $467,671
(26%) of credit for 1997 through 1999. The property is budgeted to
operate at a $10,000 deficit during 1997. The Partnership's investment
in Dynes Village was approximately $630,000 at September 30, 1997.
Pursuant to the terms of a workout, dated January 11, 1995 (the
"Workout") agreed between the parties relating to the resolution of an
existing default under the first mortgage loan encumbering Glenark
Landing, an annual payment of $30,000 was due in March 1997 to the
Rhode Island Housing and Mortgage Finance Corporation (the "Lender").
The Workout provides for additional payments of $42,800 per year, for a
five year term, totaling $214,000. The property incurred significant
accounts payable due to necessary repairs, consequently the property
has accrued payables in the amount of $70,000. The General Partner is
negotiating with the Lender for an extension of time to make the
$30,000 payment. In addition, the General Partner is requesting a
release of available replacement reserves from the Lender to bring the
accounts payable current. The Partnership's investment in Glenark
Landing at September 30, 1997 and December 31, 1996 was zero.
Pursuant to the terms of a loan workout relating to the Blue Lake Local
Partnership, dated March 25, 1995 (the "Workout"), NTCP is required to
contribute an additional $541,300 to the local partnership over a ten
year period. In exchange, the debt service on the property is payable
out of net cash flow. During 1996 and 1995, approximately $49,000 and
$100,000, respectively, was paid by NTCP to the local partnership under
the Workout. The Partnership's investment in Blue Lake at September 30,
1997 and December 31, 1996 was zero.
18
<PAGE> 19
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership accounts for its investments in the Local Partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the Local Partnerships.
Distributions received from Local Partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to
a negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
The Partnership's income consists primarily of interest income earned
on certificates of deposit and other temporary investment of funds not
required for investment in Local Partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual partnership management fee in
an amount equal to 0.5 percent of invested assets is payable to the
General Partner and Special Limited Partner. The management fee
represents the annual recurring fee which will be paid to the General
Partner for its continuing management of Partnership affairs.
19
<PAGE> 20
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 1997, the Partnership's General Partner was involved in
various lawsuits. In addition, the Partnership is involved in the following
lawsuits arising from transactions in the ordinary course of business. In the
opinion of management and the General Partner, the claims will not result in any
material liability to the Partnership
Victorian Park Associates, which owns a 336-unit Apartment Complex located in
Illinois, defaulted on its mortgage in July 1991 principally because the
unaffiliated Local Operating General Partners failed to pay $800,000 of real
estate taxes required under their guarantees. On March 25, 1992, the Partnership
commenced litigation [National Tax Credit Partners, L.P. v. Havlick, Owings,
United Development et al., Case No. 92C2074 in the United States District Court
for the Northern District of Illinois Eastern Division] against the Local
Operating General Partners to enforce its rights. On November 13, 1992 the
Partnership was advised that a Chapter 11 petition in bankruptcy was filed by
the local operating general partners on behalf of the Local Partnership [In re:
Victorian Park Associates, Debtor, Case No. 92-B-25140, Chapter 11] and that the
lender, Patrician Mortgage ("Patrician"), had accelerated its mortgage. The
Local Operating General Partners' Seventh Amended Plan of Reorganization (the
"Plan") was confirmed by the Court and is being implemented. Pursuant to the
Plan, the Partnership retained its interest in the Local Partnership. As of
September 30, 1997, the Partnership's carrying value of the investment in the
Victorian Local Partnership (which represents approximately 5.7 percent of the
Partnership's total equity initially invested in Local Partnerships) was zero.
In December 1992, Tara Construction, the general contractor for Art Museum
properties (Summit I, II and III), commenced an action in the Court of Common
Pleas, Montgomery County, Pennsylvania Tara Construction v. NTCP et al., (Case
No. 92-23505) against the three Summit Local Partnerships, the Partnership, NTC,
the General Partner, PaineWebber Incorporated, and a PaineWebber affiliate,
seeking damages of approximately $600,000 allegedly due the general contractor
for work done in connection with the completion of construction plus damages for
alleged misrepresentations and punitive damages. The Partnership believes that
the general contractor's claims are barred and/or subject to offset and it has
filed responsive pleadings. The Partnership has not accrued any liability in the
accompanying financial statements as of September 30, 1997. Tara Construction's
lawsuit has been dormant for more than two years. Although occupancy levels at
the three related Local Partnerships, Summit I, II, and III (Wallace, Bergdoll,
and Chandler School located in Philadelphia) were stabilized at 88 percent, 100
percent and 88 percent, respectively, the properties operated at deficits during
1996. The Summit I and III properties have approximately $150,000 in outstanding
property taxes (a portion of which could result in liens on the properties),
utility bills, and other trade payables. The local general partner is currently
attempting to negotiate discounted payments and/or payment plans for these items
which, if unsuccessful, could result in foreclosure proceedings on all three
properties. NTCP has settled its litigation with the lender on Summit I and III.
As part of the settlement, the lender dismissed its foreclosure actions and
converted its mortgages to mortgages requiring debt service payments out of
available cash flow only. In return, NTCP intends to (i) admit the lender into
all three of the local partnerships if certain conditions are satisfied, and
(ii) to assign a portion of NTCP's interests in each local partnership,
including an allocation of approximately $100,000 in remaining tax credits. In
1996, the aggregate carrying value of the investments in Summit I, Summit II and
Summit III of approximately $2,290,000 was written off. Summit I, II and III
represent 3.2 percent, 1.4 percent and 4.6 percent, respectively, of NTCP's
original portfolio investment.
20
<PAGE> 21
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of
regulation S-K.
21
<PAGE> 22
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
SIGNATURES
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.
NATIONAL TAX CREDIT PARTNERS, L.P.
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
______________________________________
Bruce Nelson
President
Date: _____________________________________
______________________________________
Charles H. Boxenbaum
Chief Executive Officer
Date: _____________________________________
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 790,567
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 790,567
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,337,871
<CURRENT-LIABILITIES> 382,594
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,018,131
<TOTAL-LIABILITY-AND-EQUITY> 16,337,871
<SALES> 0
<TOTAL-REVENUES> 29,063
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,298,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,269,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,269,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,269,319)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
