<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1998
Commission File Number 0-18541
NATIONAL TAX CREDIT PARTNERS, L.P.
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-4205231
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1998 and December 31, 1997....................1
Statements of Operations
Nine and Three Months Ended September 30, 1998 and 1997...............2
Statement of Partners' Equity (Deficiency)
Nine Months Ended September 30, 1998..................................3
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997.........................4
Notes to Financial Statements ..............................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................15
Item 6. Exhibits and Reports on Form 8-K..........................................15
Signatures........................................................................16
</TABLE>
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $13,625,278 $14,370,207
CASH AND CASH EQUIVALENTS (Note 1) 56,742 540,686
RESTRICTED CASH (Note 3) -- 75,000
----------- -----------
TOTAL ASSETS $13,682,020 $14,985,893
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 5,247,438 $ 4,727,721
Capital contributions payable (Note 4) 266,841 329,030
Accounts payable and accrued expenses 198,722 224,703
----------- -----------
5,713,000 5,281,454
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 7,969,020 9,704,439
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $13,682,020 $14,985,893
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 12,878 $ 1,893 $ 10,683 $ 2,865
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 519,717 173,239 519,717 173,239
Legal and accounting 86,636 16,054 152,145 82,595
General and administrative (Note 5) 79,015 21,647 114,520 49,471
----------- ----------- ----------- -----------
Total operating expenses 685,368 210,940 786,382 305,305
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (672,490) (209,047) (775,699) (302,440)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME 32,071 1,667 18,380 1,666
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,095,000) (365,000) (1,512,000) (504,000)
----------- ----------- ----------- -----------
NET LOSS $(1,735,419) $ (572,380) $(2,269,319) $ (804,774)
=========== =========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (72) $ (24) $ (95) $ (34)
=========== =========== =========== ===========
</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)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Special
Limited General Limited
Partners Partners Partners Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PARTNERSHIP INTERESTS 23,899
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1998 $ 1,000 $ (421,779) $ 10,125,218 $ 9,704,439
Net loss for the nine months
ended September 30, 1998 -- (17,354) (1,718,065) (1,735,419)
------------ ------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
September 30, 1998 $ 1,000 $ (439,133) $ 8,407,153 $ 7,969,020
============ ============ ============ ============
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,735,419) $(2,269,319)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 1,095,000 1,512,000
Increase in:
Accrued fees and expenses due to partners 519,717 548,625
Accounts payable and accrued expenses (25,982) 112,240
----------- -----------
Net cash used in operating activities (146,684) (96,454)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital (contributions to) recoveries from limited partnerships (523,522) 554,875
Capitalized acquisition costs recovered -- 305
Decrease in restricted cash 75,000 --
Distributions recognized as a return of capital 173,452 106,914
Decrease in capital contributions payable (62,189) --
----------- -----------
Net cash provided by (used in) investing activities (337,259) 662,094
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (483,944) 565,640
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 540,686 149,927
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 56,742 $ 715,567
=========== ===========
</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
SEPTEMBER 30, 1998
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, 1997. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim periods presented are not necessarily
indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1998, and the results of operations for the nine and
three months then ended and changes in cash flows for the nine months then
ended.
ORGANIZATION
The Partnership, formed under the California Revised Limited Partnership
Act, was organized on March 7, 1989. The Partnership was formed to invest
primarily in other limited partnerships which own or lease and operate
multifamily housing complexes that are eligible for low-income housing tax
credits or, in certain cases, historic rehabilitation tax credits ("Tax
Credits"). The general partner of the Partnership (the "General Partner")
is National Partnership Investments Corp. ("NAPICO"), a California
corporation. The special limited partner of the Partnership (the "Special
Limited Partner") is PaineWebber T.C., Inc., a Delaware corporation.
The Partnership originally registered 14,000 units, consisting of 28,000
Limited Partnership Interests ("LPI"), and warrants to purchase a maximum
of 14,000 Additional Limited Partnership Interests ("ALPI"). The term of
the offering expired in September 1990, at which date the Partnership
raised $59,749,000 from the sale of 16,336 LPI and warrants representing
7,563 ALPI.
The General Partner has a one percent interest in operating profits and
losses of the Partnership. The limited partners will be allocated the
remaining 99 percent interest in proportion to their respective
investments.
The Partnership shall continue in full force and effect until December 31,
2029, unless terminated prior to that, pursuant to the partnership
agreement or law.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
5
<PAGE> 8
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
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.
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 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)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At September 30, 1998, the Local Partnership's own residential projects
consisted of 2,788 apartment units.
The Partnership, as a limited partner in each Local Partnership, is
generally entitled to 99 percent of the operating profits and losses of
the Local Partnerships. National Tax Credit, Inc. ("NTC"), an affiliate of
the General Partner, serves either as a special limited partner or
non-managing administrative general partner in which case it receives .01
percent of operating profits and losses of the Local Partnership, or as
the Local Operating General Partner of the Local Partnership in which case
it is entitled to .09 percent of operating profits and losses of the Local
Partnership. The Partnership is also generally entitled to receive 50
percent of the net cash flow generated by the Apartment Complexes, subject
to repayment of any loans made to the Local Partnerships (including loans
provided by NTC or an affiliate), repayment for funding of development
deficit and operating deficit guarantees by the Local Operating General
Partners or their affiliates (excluding NTC and its affiliates), and
certain priority payments to the Local Operating General Partners other
than NTC or its affiliates.
The Partnership's allocable share of losses from Local Partnerships are
recognized in the financial statements until the related investment
account is reduced to a zero balance. Losses incurred after the investment
account is reduced to zero are not recognized.
Distributions from the Local Partnerships are accounted for as a return of
capital until the investment balance is reduced to zero. Subsequent
distributions received will be recognized as income.
The following is a summary of the investment in Local Partnerships for the
nine months ended September 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $14,370,207
Capital contributions 523,523
Equity in losses of limited partnerships (1,023,000)
Amortization of capitalized acquisition costs (72,000)
Distributions recognized as a return of capital (173,452)
-----------
Balance, end of period $13,625,278
===========
</TABLE>
Summit I, II and III
Tara Construction, the general contractor for the Art Museum properties
(Summit I, II and III) commenced this action in December 1992 against the
three Summit Local Partnerships, NTCP, NTC, the general partner,
PaineWebber, and a PaineWebber affiliate seeking $600,000 in damages
allegedly due for work done in connection with the completion of
construction plus damages for alleged misrepresentations and punitive
damages. NTCP filed responsive pleadings asserting that Tara's claims are
barred and/or subject to offset. Although this lawsuit has been dormant
since 1993, Pennsylvania does not provide for the automatic dismissal of
inactive lawsuits. Defendants have not filed a motion to dismiss since the
plaintiff could respond by reactivating the litigation.
7
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Holden Village and Ticino Apartments
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of 96% and 98%, respectively, as of
September 30, 1998. In January 1998, NTCP was successful in negotiating an
interest rate reduction with the lender for each of the properties. Based
on the loan modifications, both properties improved their performance from
operating deficits to break-even levels. The Partnership's total
investment in Holden Village and Ticino Apartments was approximately
$1,306,000 at September 30, 1998.
Dynes Village
The Dynes Village Apartments complex is operating at a deficit and the
first mortgage loan encumbering the property was delinquent until it was
brought current by NTCP in November 1997. In addition, the property has
been audited by the IRS with respect to tenant qualifications performed by
the prior local operating general partner. The IRS has disqualified all
future housing tax credits based on what they consider non-compliance by
the prior local operating general partner. Finally, the property is
operating at a deficit during 1998. As a result, the Partnership's
investment in Dynes Village of $560,766 was written off in 1997.
Rose City
During 1997, the Oregon Housing and Community Services Department
("Department") inspected Rose City Village Limited Partnership's
compliance with the low-income housing credit provisions of the Internal
Revenue Code, and determined that the Partnership was not in compliance.
The Department filed Form 8823, Low-Income Housing Credit Agencies Report
of Noncompliance, with the Internal Revenue Service. Management believes
the instances of noncompliance are now corrected; however, as of the date
of this report, resolution of this matter by the Department and the
Internal Revenue Service is still outstanding. The effect, if any, of the
noncompliance on the financial statements of the Partnership cannot be
determined at this date. The Partnership's investment in Rose City is
approximately $685,000 at September 30, 1998.
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.
8
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 5 - RELATED-PARTY TRANSACTIONS
Under the terms of the Amended and Restated Agreement of the Limited
Partnership, the Partnership is obligated to pay the General Partner and
the Special Limited Partner the following fees:
(a) An annual Partnership management fee in an amount equal to 0.5
percent of invested assets (as defined in the Partnership Agreement)
is payable to the General Partner and Special Limited Partner. For
the nine months ended September 30, 1998 and 1997 approximately
$520,000 has been expensed. The unpaid balance at September 30, 1998
is $5,247,438.
(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 $0 and $38,544 for the nine months ended
September 30, 1998 and 1997, 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 $43,756 and
$45,054 for the nine months ended September 30, 1998 and 1997,
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.
9
<PAGE> 12
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 6 - CONTINGENCIES (CONTINUED)
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address
the issue and that the impact of the Year 2000 computer systems issue will
not materially affect the Partnership's future operating results or
financial condition.
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.
10
<PAGE> 13
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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.
The Partnership's unrestricted cash reserves as of September 30, 1998 were
approximately $56,000. In order to 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 1997.
The local general partner, accordingly, will be entitled to an increased
allocation of cash flow and proceeds from the sale or refinancing of the
property. NTCP will continue to receive its allocable portion of housing
tax credits, subject to the allocation made to the additional limited
partner identified in a prior report, through the ten year credit period.
As a result of this transaction, NTCP received $260,000 during 1997. In
addition, NTCP sold to an unrelated party a portion of its limited partner
interest in the Countryview local partnership and received $625,582 during
1997. The amounts received from these sales are traded as reductions to the
Partnership's investment balance in the local partnerships.
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 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
11
<PAGE> 14
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
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.
Reserves of the Partnership and reserves of the Local Partnerships may be
increased or decreased from time to time by the General Partner or the
local general partner, as the case may be, in order to meet anticipated
costs and expenses. The amount of cash flow available for distributions
and/or sale as refinancing proceeds, if any, which is available for
distribution to the Limited Partners may be affected accordingly.
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.
12
<PAGE> 15
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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.
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of 96% and 98%, respectively, as of
September 30, 1998. In January 1998, NTCP was successful in negotiating an
interest rate reduction with the lender for each of the properties. Based
on the loan modifications, both properties improved their performance from
operating deficits to break-even levels. The Partnership's total investment
in Holden Village and Ticino Apartments was approximately $1,306,000 at
September 30, 1998.
The Dynes Village Apartments complex is operating at a deficit and the
first mortgage loan encumbering the property was delinquent until it was
brought current by NTCP in November 1997. In addition, the property has
been audited by the IRS with respect to tenant qualifications performed by
the prior local operating general partner. The IRS has disqualified all
future housing tax credits based on what they consider non-compliance by
the prior local operating general partner. Finally, the property is
budgeted to operate at a deficit during 1998. As a result, the
Partnership's investment in Dynes Village of $560,766 was written off
during 1995.
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.
13
<PAGE> 16
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership has assessed the potential impact of the Year 2000 computer
systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address
the issue and that the impact of the Year 2000 computer systems issue will
not materially affect the Partnership's future operating results or
financial condition.
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
Tara Construction, the general contractor for the Art Museum properties (Summit
I, II and III) commenced this action in December 1992 against the three Summit
Local Partnerships, NTCP, NTC, the general partner, PaineWebber, and a
PaineWebber affiliate seeking $600,000 in damages allegedly due for work done in
connection with the completion of construction plus damages for alleged
misrepresentations and punitive damages. NTCP filed responsive pleadings
asserting that Tara's claims are barred and/or subject to offset. Although this
lawsuit has been dormant since 1993, Pennsylvania does not provide for the
automatic dismissal of inactive lawsuits. Defendants have not filed a motion to
dismiss since the plaintiff could respond by reactivating the litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report 8-K relating to an unsolicited offer was filed with the Securities and
Exchange Commission during the quarter ended September 30, 1998.
On March 15, 1998 Bond Purchase, L.L.C. (the "Buyer") made an unsolicited tender
offer to buy units of limited partnership interests (the "Units") in the
Partnership for a price of $150 per Unit. The Buyer did not contact the General
Partner prior to commencing its tender offer. By letter dated May 1, 1998, the
General Partner advised limited partners that it had determined not to take a
position with respect to the tender offer but cautioned limited partners to
consider certain items before determining whether to tender their Units to the
Buyer. A copy of the letter from the Buyer is attached as an Exhibit to this
form 10-Q.
15
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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
/s/ PAUL PATIERNO
----------------------------------------
Paul Patierno
Chief Financial Officer
Date: November 23, 1998
---------------------------------------
/s/ CHARLES H. BOXENBAUM
----------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: November 23, 1998
---------------------------------------
16
<PAGE> 19
BOND PURCHASE L.L.C.
P.O. Box 26730
Kansas City, MO 64196
March 15, 1998
To the Holders of Limited Partnership Interests in National Tax Credit Partners,
L.P.
RE: OFFER TO PURCHASE LIMITED PARTNERSHIP INTERESTS FOR $150.00
Dear Investor:
We are offering you an opportunity to sell your limited partnership
interests (the "Units") in National Tax Credit Partners, L.P. (the Partnership")
for cash in the amount of $150.00 per Unit (which amount will be reduced by any
cash distributions declared by the Partnership after the date of this letter).
Our offer provides you with an opportunity to sell your Units now without the
costly transfer fees and commission costs (typically up to 10%) usually paid by
the seller in secondary market sales. ALL TRANSFER COSTS AND FEES WILL BE PAID
BY BOND PURCHASE, L.L.C.
We believe that it is appropriate for investors to have financial
choices. Our offer gives you, the investor, the ability to make a decision about
your continued involvement with the Partnership. You may no longer wish to
continue with your investment in the Partnership for a number of reasons,
including:
* Inability to utilize tax credits, which have been the only benefit to
date. Tax credits you have previously used should not have to be
recaptured due to the large partnership exemption.
* If you sell your units, 1998 will be the final year for which you
receive a K-1 tax form from the partnership.
* The yearly tax credits you have been getting are about to stop. You
may be able to realize a tax loss from writing off your initial
investment of $2,500 per unit that would reduce your taxes for 1998.
* The Partnership was closed ten years ago in 1988. Your money has been
tied up for this long period with minimal return.
* More immediate use for the cash tied up in your investment in the
Units.
* The absence of a formal trading market for the Units and their
resulting relative illiquidity.
<PAGE> 20
* General disenchantment with real estate investments, particularly
long-term investments in limited partnerships;
Our offer is limited to 1,190 of the 23,899 outstanding Units. If we
were to acquire more than this amount, the administrative costs of our offer
would become burdensome.
We will accept for purchase properly documented Units on a
"first-received, first-buy" basis. You will be paid promptly following
confirmation of a valid, properly executed Agreement of Transfer and other
required transfer documents. We will pay for all Partnership transfer fees and
costs. All tenders of Units will be irrevocable and may not be rescinded or
withdrawn.
We are real estate investors who are not affiliated with the Partnership
or the General Partners. The General Partners of the Partnership have not
analyzed, approved, endorsed or made any recommendation as to acceptance of the
offer. The purchase offer has been determined solely at the discretion of Bond
Purchase, L.L.C. and does not necessarily represent the true market value of
each unit. We are seeking to acquire Units for investment purposes only and not
with a view to their resale.
An Agreement of Transfer is enclosed which you can use to accept our
offer. Please execute page 3 of this document, as well as the Power of Attorney.
Obtain all other required signatures and return the documentation in the
enclosed envelope. Please note that all signatures must be medallion
guaranteed. The transfer cannot be processed without signatures that are
medallion guaranteed and failure to obtain them will result in needless delays.
In addition, place your Unit Certificate in the enclosed envelope. We encourage
you to act immediately if you are interested in accepting or offer as only I,
190 Units will be purchased.
OUR OFFER WILL EXPIRE AT 5:00 PM ON APRIL 30, 1998, UNLESS EXTENDED.
Please call William Teel at (816) 421-4670 if you have any questions.
Sincerely,
Bond Purchase, L.L.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENT OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 56,742
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,742
<PP&E> 0
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<CURRENT-LIABILITIES> 198,722
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0
0
<COMMON> 0
<OTHER-SE> 7,969,020
<TOTAL-LIABILITY-AND-EQUITY> 13,682,020
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<TOTAL-REVENUES> 44,949
<CGS> 0
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<OTHER-EXPENSES> 1,780,368
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1,735,419
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