<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, 1999
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, 1999
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1999 and December 31, 1998........................1
Statements of Operations
Three Months Ended March 31, 1999 and 1998............................2
Statement of Partners' Equity (Deficiency)
Three Months Ended March 31, 1999.....................................3
Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998............................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, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $11,290,901 $11,421,621
CASH AND CASH EQUIVALENTS (Note 1) 134,406 220,457
----------- -----------
TOTAL ASSETS $11,425,307 $11,642,078
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 5 and 7) $ 5,593,915 $ 5,420,677
Capital contributions payable (Note 4) 266,841 266,841
Accounts payable and accrued expenses 249,121 247,614
----------- -----------
6,109,877 5,935,132
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 5,315,430 5,706,946
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $11,425,307 $11,642,078
=========== ===========
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
INTEREST AND OTHER INCOME $ 1,969 $ 7,023
--------- ---------
OPERATING EXPENSES:
Management fees - partners (Note 5) 173,238 173,239
Legal and accounting 29,487 30,770
General and administrative (Note 5) 21,238 25,830
--------- ---------
Total operating expenses 223,963 229,839
--------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (221,994) (222,816)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME 26,728 30,404
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (196,250) (365,000)
--------- ---------
NET LOSS $(391,516) $(557,412)
========= =========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (16) $ (23)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial 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, 1999
(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, 1999 $ 1,000 $ (461,754) $ 6,167,700 $ 5,706,946
Net loss for the three months
ended March 31, 1999 -- (3,915) (387,601) (391,516)
----------- ----------- ----------- -----------
PARTNERS' EQUITY (DEFICIENCY),
March 31, 1999 $ 1,000 $ (465,669) $ 5,780,099 $ 5,315,430
=========== =========== =========== ===========
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(391,516) $(557,412)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 196,250 365,000
Increase in:
Accrued fees and expenses due to partners 173,238 173,239
Accounts payable and accrued expenses 1,507 (19,599)
--------- ---------
Net cash used in operating activities (20,521) (38,772)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital contributions to limited partnerships (71,530) (502,249)
Distributions recognized as a return of capital 6,000 1,000
--------- ---------
Net cash used in investing activities (65,530) (501,249)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (86,051) (540,021)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 220,457 540,686
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 134,406 $ 665
========= =========
</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, 1999
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, 1998. 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, 1999, 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, 1999
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, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
At March 31, 1999, 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, 1999:
<TABLE>
<S> <C>
Balance, beginning of period $11,421,621
Capital contributions 71,530
Equity in losses of limited partnerships (175,000)
Amortization of capitalized acquisition costs (21,250)
Distributions recognized as a return of capital (6,000)
-----------
Balance, end of period $11,290,901
===========
</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
7
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
NOTE 2 -- INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
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
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, 1999. 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. The Partnership's carrying value of the investments in
Summit I, Summit II and Summit III which approximately 3.2%, 1.4% and
4.6%, respectively, of the Partnership's original portfolio investment
is 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 $42,800 for a five year term, totaling
$214,000 are due to the Rhode Island Housing and Mortgage Corporation
(the "Lender").
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. The Partnership's investment in
Holden Village and Ticino Apartments is zero.
8
<PAGE> 11
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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. 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 (see Note 4). The
Partnership's investment in Blue Lake is zero. A dispute has arisen as
to whether the local partnership is in default under the Workout. The
parties are currently engaged in settlement discussions regarding this
dispute.
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 $531,000 at March 31, 1999.
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.
9
<PAGE> 12
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
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, 1999 and 1998
approximately $173,000 has been expensed. The unpaid balance at
March 31, 1999 is $5,600,000.
As of December 31, 1998, the fees and expenses due the General
Partner and Special Limited Partner exceeded the Partnership's
cash. The partners, during the forthcoming year, will not demand
payment of amounts due in excess of such cash or such that the
Partnership would not have sufficient operating cash; however,
the Partnership will remain liable for all such amounts.
(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.
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 $13,399
and $14,326 for the three months ended March 31, 1999 and 1998,
respectively.
10
<PAGE> 13
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
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, 1999
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 cash reserves as of March 31, 1999 were approximately
$134,000. 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 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, 1999
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, 1999
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,
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. The Partnership's total
investment in Holden Village and Ticino Apartments of approximately
$1,223,100 was written off in 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. The
Partnership's investment in Dynes Village was zero at March 31, 1999.
Pursuant to the terms of a workout, dated January 11, 1995 (the
"Workout") agreed upon between the parties relating to the resolution of
an existing default under the first mortgage loan encumbering Glenark
Landing, annual payments of $42,800 for a five year term, totaling
$214,000, are due to the Rhode Island Housing and Mortgage Finance
Corporation (the "Lender"). The Partnership's investment in Glenark
Landing was zero at March 31, 1999.
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. The Partnership's investment in Blue Lake was zero
at March 31, 1999. A dispute has arisen as to whether the local
partnership is in default under the Workout. The parties are currently
engaged in settlement discussions regarding this dispute.
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.
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 at March 31, 1999 was $531,000.
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, 1999
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1999, 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 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 successfully implemented. As of December 31, 1998,
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 December 31, 1998. Tara Construction's
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 76%, 100%, and 96%, respectively,
at December 31, 1998, and the properties have been operating at a deficit. The
local general partner is currently attempting to negotiate discounted payments
and/or payment plans for outstanding payables 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. Summit I, II and III represent
3.2%, 1.4% and 4.6%, respectively, of NTCP's original portfolio investment.
16
<PAGE> 19
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1999
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, 1999
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 24, 1999
-------------------------------------
/s/ CHARLES H. BOXENBAUM
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: May 24, 1999
-------------------------------------
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 134,406
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 134,406
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,425,307
<CURRENT-LIABILITIES> 249,121
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,315,430
<TOTAL-LIABILITY-AND-EQUITY> 11,425,307
<SALES> 0
<TOTAL-REVENUES> 28,697
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 420,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (391,516)
<INCOME-TAX> 0
<INCOME-CONTINUING> (391,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (391,516)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
