<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, 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 MARCH 31, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1998 and December 31, 1997........................1
Statements of Operations
Three Months Ended March 31, 1998 and 1997............................2
Statement of Partners' Equity (Deficiency)
Three Months Ended March 31, 1998.....................................3
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997............................4
Notes to Financial Statements ..............................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................16
Item 6. Exhibits and Reports on Form 8-K.........................................17
Signatures........................................................................18
</TABLE>
<PAGE> 3
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $14,506,456 $14,370,207
CASH AND CASH EQUIVALENTS (Note 1) 665 540,686
RESTRICTED CASH (Note 3) 75,000 75,000
----------- -----------
TOTAL ASSETS $14,582,121 $14,985,893
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 4,900,960 $ 4,727,721
Capital contributions payable (Note 4) 329,030 329,030
Accounts payable and accrued expenses 205,104 224,703
----------- -----------
5,435,094 5,281,454
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 9,147,027 9,704,439
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $14,582,121 $14,985,893
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
INTEREST AND OTHER INCOME $ 7,023 $ 3,537
--------- ---------
OPERATING EXPENSES:
Management fees - partners (Note 5) 173,239 173,239
Legal and accounting 30,770 32,153
General and administrative (Note 5) 25,830 53,519
--------- ---------
Total operating expenses 229,839 258,911
--------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (222,816) (255,374)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME 30,404 16,714
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (365,000) (504,000)
--------- ---------
NET LOSS $(557,412) $(742,660)
========= =========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (23) $ (31)
========= =========
</TABLE>
The accompanying notes are an integral part of these inancial statements.
<PAGE> 5
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 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 1998 -- (5,574) (551,838) (557,412)
------------ ------------ ------------ ------------
PARTNERS' EQUITY
(DEFICIENCY)
March 31, 1998 $ 1,000 $ (427,353) $ 9,573,380 $ 9,147,027
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(557,412) $(742,660)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 365,000 504,000
Increase in:
Accrued fees and expenses due to partners 173,239 219,415
Accounts payable and accrued expenses (19,599) (3,653)
--------- ---------
Net cash used in operating activities (38,772) (22,898)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital contributions to limited partnerships (502,249) (97,659)
Distributions recognized as a return of capital 1,000 129,302
--------- ---------
Net cash provided by (used in) investing activities (501,249) 31,643
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (540,021) 8,745
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 540,686 149,927
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 665 $ 158,672
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1998, 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, 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)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At March 31, 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
three months ended March 31, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $14,370,207
Capital contributions 502,249
Equity in losses of limited partnerships (341,000)
Amortization of capitalized acquisition costs (24,000)
Distributions recognized as a return of capital (1,000)
-----------
Balance, end of period $14,506,456
===========
</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
Local Operating General Partners' Seventh Amended Plan of
7
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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. 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) is 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. The lawsuit has been dormant for more than three years.
Occupancy levels at the three related Local Partnerships, Summit I, II,
and III (Wallace, Bergdoll, and Chandler School located in Philadelphia)
were 100%, 100% and 92%, respectively, at March 31, 1998. The Summit I and
III properties have approximately $187,000 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. 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. 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 has been operating at an
occupancy level of 96%, and did attain break-even levels in operations
during 1997. The Partnership's carrying value of the investment in the
Meadows Apartments is zero, as the investment was written off in 1995.
8
<PAGE> 11
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 is zero.
Holden Village and Ticino Apartments
Holden Village and Ticino Apartments, located in Seattle, Washington, have
been experiencing operating deficits primarily as a result of the high
cost of servicing its debt. 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, the operating performance of
each property is expected to improve substantially. The Partnership's
total investment in Holden Village and Ticino Apartments is approximately
$1,243,000 at March 31, 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
budgeted to operate at a deficit during 1998. As a result, the
Partnership's investment in Dynes Village of $560,766 was written off in
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 1997, approximately
$63,000 was paid by NTCP to the local partnership under the Workout (see
Note 4). The Partnership's investment in Blue Lake is zero.
9
<PAGE> 12
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 $598,000 at March 31, 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.
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, 1998 and 1997 approximately
$173,000 has been expensed. The unpaid balance at March 31, 1998 is
$4,900,960.
(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
10
<PAGE> 13
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 5 - RELATED-PARTY TRANSACTIONS
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 $9,186 for the three months ended
March 31, 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 $14,326 and
$14,706 for the three months ended March 31, 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.
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.
11
<PAGE> 14
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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 March 31, 1998 were
approximately $665. 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 will, accordingly, 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. In April and
May, 1998, commitment fees of $73,724 were received by the Partnership and
distributions from three Local Partnerships amounting to $118,000 were also
received by the Partnership. This puts the reserves at approximately
$154,000.
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 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
12
<PAGE> 15
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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.
13
<PAGE> 16
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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.
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. 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 96% as of December 1997 and attained break-even levels of
operations during 1997. The Partnership's investment in Meadows Apartments
was zero at March 31, 1998, as the investment was written off in 1995.
Holden Village and Ticino Apartments, located in Seattle, Washington,
maintained average occupancy levels of 96% and 89%, respectively, and
experienced operating deficits of approximately $149,000 and $94,000,
respectively, during 1997. The high cost of servicing the debt is the
largest contributing factor associated with the deficit operations. 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, the operating performance of each property is expected to
improve substantially. The Partnership's total investment in Holden Village
and Ticino Apartments was approximately $1,243,000 at March 31, 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.
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
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 was zero at March 31, 1998.
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 1997 and 1996, approximately $63,000 and $49,000,
respectively, was paid by NTCP to the local partnership under the Workout.
The Partnership's investment in Blue Lake was zero at March 31, 1998.
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.
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.
15
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1998, the Partnership's General Partner was involved in various
lawsuits. In addition, the Partnership is involved in the following lawsuits
arising from transactions in the ordinary course of business. In the opinion of
management and the General Partner, the claims will not result in any material
liability to the Partnership
Victorian Park Associates, which owns a 336-unit Apartment Complex located in
Illinois, defaulted on its mortgage in July 1991 principally because the
unaffiliated Local Operating General Partners failed to pay $800,000 of real
estate taxes required under their guarantees. On March 25, 1992, the Partnership
commenced litigation [National Tax Credit Partners, L.P. v. Havlick, Owings,
United Development et al., Case No. 92C2074 in the United States District Court
for the Northern District of Illinois Eastern Division] against the Local
Operating General Partners to enforce its rights. On November 13, 1992 the
Partnership was advised that a Chapter 11 petition in bankruptcy was filed by
the local operating general partners on behalf of the Local Partnership [In re:
Victorian Park Associates, Debtor, Case No. 92-B-25140, Chapter 11] and that the
lender, Patrician Mortgage ("Patrician"), had accelerated its mortgage. The
Local Operating General Partners' Seventh Amended Plan of Reorganization (the
"Plan") was confirmed by the Court and is being implemented. Pursuant to the
Plan, the Partnership retained its interest in the Local Partnership. As of
March 31, 1998, the Partnership's carrying value of the investment in the
Victorian Local Partnership (which represents approximately 5.7 percent of the
Partnership's total equity initially invested in Local Partnerships) was zero.
In December 1992, Tara Construction, the general contractor for Art Museum
properties (Summit I, II and III), commenced an action in the Court of Common
Pleas, Montgomery County, Pennsylvania Tara Construction v. NTCP et al., (Case
No. 92-23505) against the three Summit Local Partnerships, the Partnership, NTC,
the General Partner, PaineWebber Incorporated, and a PaineWebber affiliate,
seeking damages of approximately $600,000 allegedly due the general contractor
for work done in connection with the completion of construction plus damages for
alleged misrepresentations and punitive damages. The Partnership believes that
the general contractor's claims are barred and/or subject to offset and it has
filed responsive pleadings. The Partnership has not accrued any liability in the
accompanying financial statements as of March 31, 1998. Tara Construction's
lawsuit has been dormant for more than two years. Although occupancy levels at
the three related Local Partnerships, Summit I, II, and III (Wallace, Bergdoll,
and Chandler School located in Philadelphia) were stabilized at 88 percent, 100
percent and 88 percent, respectively, the properties operated at deficits during
1996. The Summit I and III properties have approximately $150,000 in outstanding
property taxes (a portion of which could result in liens on the properties),
utility bills, and other trade payables. The local general partner is currently
attempting to negotiate discounted payments and/or payment plans for these items
which, if unsuccessful, could result in foreclosure proceedings on all three
properties. NTCP has settled its litigation with the lender on Summit I and III.
As part of the settlement, the lender dismissed its foreclosure actions and
converted its mortgages to mortgages requiring debt service payments out of
available cash flow only. In return, NTCP intends to (i) admit the lender into
all three of the local partnerships if certain conditions are satisfied, and
(ii) to assign a portion of NTCP's interests in each local partnership,
including an allocation of approximately $100,000 in remaining tax credits. In
1996, the aggregate carrying value of the investments in Summit I, Summit II and
Summit III of approximately $2,290,000 was written off. Summit I, II and III
represent 3.2 percent, 1.4 percent and 4.6 percent, respectively, of NTCP's
original portfolio investment.
16
<PAGE> 19
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of regulation S-K.
17
<PAGE> 20
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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/ BRUCE NELSON
---------------------------------------
Bruce Nelson
President
Date: May 18, 1998
/s/ CHARLES H. BOXENBAUM
---------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: May 18, 1998
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 665
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 665
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,582,121
<CURRENT-LIABILITIES> 205,104
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,147,027
<TOTAL-LIABILITY-AND-EQUITY> 14,582,121
<SALES> 0
<TOTAL-REVENUES> 37,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 594,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (557,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (557,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (557,412)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
