<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 MARCH 31, 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 MARCH 31, 1997
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1997 and 1996.......................1
Statements of Operations
Three Months Ended March 31, 1997 and 1996................2
Statement of Partners' Equity (Deficiency)
Three Months Ended March 31, 1997.........................3
Statements of Cash Flows
Three Months Ended March 31, 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
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $17,185,754 $17,721,398
CASH AND CASH EQUIVALENTS (Note 1) 158,672 149,927
RESTRICTED CASH (Note 3) 75,000 75,000
----------- -----------
TOTAL ASSETS $17,419,426 $17,946,325
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 4,215,636 $ 3,996,221
Capital contributions payable (Note 4) 392,299 392,300
Accounts payable and accrued expenses 266,701 270,354
----------- -----------
4,874,636 4,658,875
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' EQUITY 12,544,790 13,287,450
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $17,419,426 $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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INTEREST INCOME $ 3,537 $ 6,581
----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 173,239 173,239
Legal and accounting 32,153 56,470
General and administrative (Note 5) 53,519 34,261
----------- -----------
Total operating expenses 258,911 263,970
----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (255,374) (257,389)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 16,714 -
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (504,000) (754,000)
----------- -----------
NET LOSS $ (742,660) $(1,011,389)
=========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (31) $ (42)
=========== ===========
</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)
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Special
Limited General Limited
Partners Partners Partners Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PARTNERSHIP INTERESTS,
March 31, 1997 23,899
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1997 $ 1,000 $ (385,949) $ 13,672,399 $ 13,287,450
Net loss for the three months
ended March 31, 1997 - (7,427) (735,233) (742,660)
------------ ------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
March 31, 1997 $ 1,000 $ (393,376) $ 12,937,166 $ 12,544,790
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (742,660) $(1,011,389)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 504,000 754,000
Increase (decrease) in:
Accrued fees and expenses due to partners 219,415 182,065
Accounts payable and accrued expenses (3,653) (11,098)
----------- -----------
Net cash used in operating activities (22,898) (86,422)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital contributions (97,659) (66,001)
Distributions recognized as a return of capital 129,302 10,000
----------- -----------
Net cash provided by (used in) investing activities 31,643 (56,001)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,745 (142,423)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 149,927 500,282
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 158,672 $ 357,859
=========== ===========
</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
MARCH 31, 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 March 31, 1997 and the results of operations and changes in cash
flows for the three 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
<PAGE> 8
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 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)
MARCH 31, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At March 31, 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 as
of March 31, 1997:
<TABLE>
<S> <C>
Balance, beginning of period $17,721,398
Capital contributions to limited partnerships 97,659
Equity in losses of limited partnerships (471,000)
Amortization of capitalized acquisition costs (33,000)
Distributions recognized as a return of capital (129,303)
-----------
Balance, end of period $17,185,754
===========
</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. On January 7, 1993, the
Partnership obtained an order compelling the Local Operating General
Partners to perform under their Guarantees, which order was reversed by
the U.S. Court of Appeals for the Seventh Circuit. The Partnership has
until June 1997 to reinstate this case. The Local
7
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Operating General Partners' Seventh Amended Plan of Reorganization (the
"Plan") is now pending approval. Pursuant to the Plan, Patrician is
required to reissue and/or reduce the principal on the first mortgage
bonds and the Local Operating General Partners are required to (i) pay
$1,000,000 cash to implement the Plan and (ii) pay an agreed upon
monthly guarantee payment. No assurances can be given that the Plan
will be successfully implemented. As of March 31, 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 March 31,
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 94%, 100%, and 88%, 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%, 1.4% and 4.6%,
respectively, of NTCP's original portfolio investment.
Meadows
The Meadows Apartments (the "Local Partnership") is a 114-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
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)
MARCH 31, 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%, was reduced to $2,100,000 with
an interest rate of 9%. 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 97% as of March 31, 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 March 31, 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 is due in March 1998 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
March 31, 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% to 8%. As of March 1997 the property
attained 99% occupancy. The Partnership's investment in Countryview
Apartments at March 31, 1997 was approximately $2,208,226.
Holden Village & Ticino Apartments
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of 96%, but both are still
experiencing operating deficits as of March 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
9
<PAGE> 12
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 March 31, 1997 was approximately $1,461,259.
Dynes Village
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 was
approximately $598,980 at March 31, 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 March 31, 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
<PAGE> 13
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 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 three months ended March 31, 1997
approximately $173,000 has been expensed. The unpaid balance
at March 31, 1997 is $4,215,635.
(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% 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% 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% 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 $9,186 and $8,826 for the three
months ended March 31, 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 $14,706 and $15,353 for the three months ended March 31, 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)
MARCH 31, 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)
MARCH 31, 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 will receive $240,000, of which $120,000 was paid in February 1997, and
the balance of $120,000 is payable in July, 1997. Based on immediate cash
needs, NTCP is negotiating with the local operating general partner for a
discounted advance payment of the $120,000, and the sale of an additional
portion of NTCP's economic interest in the local partnership. 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 in two-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
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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.
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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 114-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%, was reduced to $2,100,000 with an
interest rate of 9%. 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 97% as of December 1996. 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 March 31, 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 11.5% to 8%. As of
March 1997 the property attained 99% occupancy. The Partnership's investment
in Countryview Apartments at March 31, 1997 was approximately $2,208,226.
15
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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 96%, but both are still experiencing
operating deficits as of March 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
March 31, 1997 was approximately $1,461,259.
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 $598,980 at March 31, 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 is due in March 1998 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
March 31, 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 March 31, 1997 and December 31,
1996 was zero.
16
<PAGE> 19
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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.
17
<PAGE> 20
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 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. On
January 7, 1993, the Partnership obtained an order compelling the Local
Operating General Partners to perform under their Guarantees, which order was
reversed by the U.S. Court of Appeals for the Seventh Circuit. The Partnership
has until June 1997 to reinstate this case. The Local Operating General
Partners' Seventh Amended Plan of Reorganization (the "Plan") is now pending
approval. Pursuant to the Plan, Patrician is required to reissue and/or reduce
the principal on the first mortgage bonds and the Local Operating General
Partners are required to (i) pay $1,000,000 cash to implement the Plan and (ii)
pay an agreed upon monthly guarantee payment. No assurances can be given that
the Plan will be successfuly implemented. As of March 31, 1997, the
Partnership's carrying value of the investment in the Victorian Local
Partnership (which represents approximately 5.7% 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 March 31, 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 94%, 100%, and
88%, 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
18
<PAGE> 21
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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%, 1.4% and 4.6%,
respectively, of NTCP's original portfolio investment.
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)
MARCH 31, 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
By:
------------------------------------------
Bruce Nelson
President
Date:
-----------------------------------------
By:
------------------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
Date:
-----------------------------------------
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEETS, THE STATEMENT OF OPERATIONS, AND STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 233,672
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 233,672
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,419,426
<CURRENT-LIABILITIES> 266,701
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,544,790
<TOTAL-LIABILITY-AND-EQUITY> 17,419,426
<SALES> 0
<TOTAL-REVENUES> 3,537
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 746,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (742,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (742,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,660)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
