<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 JUNE 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
----- -----
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, June 30, 1997 and December 31, 1996............. 1
Statements of Operations
Six and Three Months Ended June 30, 1997 and 1996........... 2
Statement of Partners' Equity (Deficiency)
Six Months Ended June 30, 1997.............................. 3
Statements of Cash Flows
Six Months Ended June 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>
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $16,628,210 $17,721,398
CASH AND CASH EQUIVALENTS (Note 1) 197,015 149,927
RESTRICTED CASH (Note 3) 75,000 75,000
----------- -----------
TOTAL ASSETS $16,900,225 $17,946,325
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 4,388,875 $ 3,996,221
Capital contributions payable (Note 4) 392,300 392,300
Accounts payable and accrued expenses 296,146 270,354
----------- -----------
5,077,321 4,658,875
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' EQUITY 11,822,904 13,287,450
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $16,900,225 $17,946,325
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 7,818 $ 4,282 $ 10,553 $ 3,973
----------- --------- ----------- ---------
OPERATING EXPENSES:
Management fees - partners (Note 5) 346,478 173,239 346,478 173,239
Legal and accounting 69,551 37,398 94,293 37,823
General and administrative (Note 5) 65,049 11,531 64,174 29,914
----------- --------- ----------- ---------
Total operating expenses 481,078 222,168 504,945 240,976
----------- --------- ----------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (473,260) (217,886) (494,392) (237,003)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 16,714 -- 37,532 37,532
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,008,000) (504,000) (1,508,000) (754,000)
----------- --------- ----------- ---------
NET LOSS $(1,464,546) $(721,886) $(1,964,860) $(953,471)
=========== ========= =========== =========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (61) $ (30) $ (81) $ (39)
=========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Special
Limited General Limited
Partners Partners Partners Total
-------- --------- ------------ ------------
<S> <C> <C> <C> <C>
PARTNERSHIP INTERESTS,
June 30, 1997 23,899
=============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1997 $1,000 $(385,949) $ 13,672,399 $ 13,287,450
Net loss for the six months
ended June 30, 1997 -- (14,645) (1,449,901) (1,464,546)
------ --------- ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
June 30, 1997 $1,000 $(400,594) $ 12,222,498 $ 11,822,904
====== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,464,546) $(1,964,860)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 1,008,000 1,508,000
Increase in deposits and other receivables -- (116,454)
Increase (decrease) in:
Accrued fees and expenses due to partners 392,654 395,314
Accounts payable and accrued expenses 25,792 (42,039)
----------- -----------
Net cash used in operating activities (38,100) (220,039)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital contributions (10,633) (119,000)
Capitalized acquisition costs recovered 302 --
Distributions recognized as a return of capital 95,519 83,521
----------- -----------
Net cash provided by (used in) investing activities 85,188 (35,479)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 47,088 (255,518)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 149,927 500,282
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 197,015 $ 244,764
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 30, 1997 and the results of operations for the six and three
months then ended and changes in cash flows for the six 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.
5
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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.
6
<PAGE> 9
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At June 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
six months ended June 30, 1997:
<TABLE>
<S> <C>
Balance, beginning of period $17,721,398
Capital contributions to limited partnerships 10,633
Capitalized acquisition costs recovered (302)
Equity in losses of limited partnerships (942,000)
Amortization of capitalized acquisition costs (66,000)
Distributions recognized as a return of capital (95,519)
-----------
Balance, end of period $16,628,210
===========
</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
7
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Partnership retained its interest in the Local Partnership. As of June 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 June 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. After the lender refused to negotiate an extension of the loan, the
Local Partnership filed Chapter 11 bankruptcy proceedings to avert
foreclosure. 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, and
(iii) unsecured creditors of $18,590. The Plan also required NTCP to make
a 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.
8
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 96 percent as of June 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. As of
June 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"). 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 at June 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 of which only the November 1, 1996 payment in the amount of
$15,677 has been paid to date. Accordingly, while the loan under the
restructured terms is being paid monthly out of the cash flow from the
property's operations, there is currently a default under the
modification. The Partnership is currently negotiating with the lender to
cure this default. In connection with the modification, the interest rate
was reduced from 11.515 percent to 8 percent. As of June 1997 the property
attained 100 percent occupancy. The Partnership's investment in
Countryview Apartments at June 30, 1997 was approximately $2,185,000.
Holden Village & Ticino Apartments
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of approximately 97 percent and 87
percent, respectively, and both are still experiencing operating deficits
for the six months ended June 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.
9
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 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 assign all or part of its local
partnership interests, including its allocable share of the remaining tax
credits in each of the local partnerships, which assignment could result
in recapture for NCTP's partners. 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
June 30, 1997 was approximately $1,389,000.
Dynes Village
The first mortgage loan encumbering Dynes Village is delinquent in the
amount of $36,597, which includes a shortfall in the tax escrow fund. In
addition, the property has been audited by the IRS with respect to tenant
qualifications performed by the prior local operating general partner in
1989, 1990 and 1991. The IRS has preliminarily disqualified certain
housing tax credits taken based on what they consider non-compliance by
the prior local operating general partner. The accountants for the Dynes
Village local partnership believe that a settlement can be reached
pursuant to which the entire amount of tax credits claimed during the
disputed period will not be disqualified. Finally, while the property is
budgeted to operate at a $10,000 deficit during 1997, the first mortgage
loan is currently being paid one month in arrears. The Partnership's
investment in Dynes Village was approximately $568,000 at June 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 June 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.
10
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 six months ended June 30, 1997 approximately $346,000 has been
expensed. The unpaid balance at June 30, 1997 is $4,388,875.
(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 $19,272 and $8,826 for the six months
ended June 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 $29,779 and
$30,385 for the six months ended June 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.
11
<PAGE> 14
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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.
12
<PAGE> 15
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 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 reporting
period. The local general partner will, accordingly, be 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 was to receive $240,000, of which $120,000 was paid in
February 1997, and the balance of $120,000 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 is currently
considering raising additional funds from one or more investors that would
be admitted for a minority interest as a special limited partner into four
Local Partnerships and entitled to receive a portion of the tax credits
otherwise allocable to the Partnership. There is no assurance that the
Partnership will be successful in these sales. If the offerings were
successfully concluded, the net proceeds would be added to the
Partnership's reserves and used to implement the provisions of
restructurings with Local Partnerships previously agreed upon.
Additionally, at least two properties are projected to operate at a
cumulative annual deficit of approximately $85,000.
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
13
<PAGE> 16
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.
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 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. After the lender refused to negotiate an extension of the loan, the
Local Partnership filed Chapter 11 bankruptcy proceedings to avert
foreclosure. 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, and (iii)
unsecured creditors of $18,590. In accordance with the Plan, NTCP made a
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 96
percent as of June 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 June 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, of
which only the November 1, 1996 payment in the amount of $15,677 has been
paid to date. Accordingly, while the loan under the restructured terms is
being paid monthly out of the cash flow from the property's operations,
there is currently a default under the modification. The Partnership is
currently negotiating with the lender to cure this default In connection
with the modification, the interest rate was reduced from 11.515 percent to
8 percent. As of June 1997 the property attained 100 percent occupancy. The
Partnership's investment in Countryview Apartments at June 30, 1997 was
approximately $2,185,000.
15
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 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 97 percent and 87
percent, respectively, but both are still experiencing operating deficits
as of June 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. 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 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 assign all
or part of its local partnership interests, including its allocable share
of the remaining tax credits in each of the local partnerships, which
assignment could result in recapture for NCTP's partners. 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 June 30, 1997 was
approximately $1,389,000.
The first mortgage loan encumbering Dynes Village is delinquent in the
amount of $21,177, which includes a shortfall in the tax escrow fund. In
addition, the property has been audited by the IRS with respect to tenant
qualifications performed by the prior local operating general partner in
1989, 1990 and 1991. The IRS has preliminarily disqualified certain housing
tax credits taken based on what they consider non-compliance by the prior
local operating general partner. The accountants for the Dynes Village
local partnership believe that a settlement can be reached pursuant to
which the entire amount of tax credits claimed during the disputed period
will not be disqualified. Finally, while the property is budgeted to
operate at a $10,000 deficit during 1997, the first mortgage loan is
currently being paid one month in arrears. The Partnership's investment in
Dynes Village is approximately $568,000 at June 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 June 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 June 30, 1997 and December 31,
1996 was zero.
16
<PAGE> 19
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.
17
<PAGE> 20
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 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 June
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 June 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.
18
<PAGE> 21
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 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.
19
<PAGE> 22
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 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: ____________________________________
20
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 272,015
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 272,015
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,900,225
<CURRENT-LIABILITIES> 296,146
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,822,904
<TOTAL-LIABILITY-AND-EQUITY> 16,900,225
<SALES> 0
<TOTAL-REVENUES> 24,532
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,489,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,464,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,464,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,464,546
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
