<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, 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 SEPTEMBER 30, 1999
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1999 and December 31, 1998..................1
Statements of Operations
Nine Months Ended September 30, 1999 and 1998......................2
Statement of Partners' Equity (Deficiency)
Nine Months Ended September 30, 1999...............................3
Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998......................4
Notes to Financial Statements ............................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................18
Item 6. Exhibits and Reports on Form 8-K.........................................18
Signatures........................................................................19
</TABLE>
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NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $10,894,679 $11,421,621
CASH AND CASH EQUIVALENTS (Note 1) 129,682 220,457
----------- -----------
TOTAL ASSETS $11,024,361 $11,642,078
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees and expenses due to partners (Notes 4 and 6) $ 5,940,391 $ 5,420,677
Capital contributions payable (Note 3) 266,841 266,841
Accounts payable and accrued expenses 308,212 247,614
----------- -----------
6,515,444 5,935,132
CONTINGENCIES (Note 5)
PARTNERS' EQUITY 4,508,917 5,706,946
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $11,024,361 $11,642,078
=========== ===========
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 1999 Sept 30, 1999 Sept 30, 1998 Sept 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 5,768 $ 1,942 $ 12,878 $ 1,893
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 4) 519,714 173,238 519,717 173,239
Legal and accounting 106,601 44,853 86,636 16,054
General and administrative (Note 4) 68,097 24,949 79,015 21,647
----------- ----------- ----------- -----------
Total operating expenses 694,412 243,040 685,368 210,940
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (688,644) (241,098) (672,490) (209,047)
DISTRIBUTIONS FROM LIMITED PARTNERSHIPS
RECOGNIZED AS INCOME 79,365 3,193 32,071 1,667
EQUITY IN LOSS OF LIMITED PARTNERSHIPS AND
AMORTIZATION OF ACQUISITION COSTS (Note 2) (588,750) (196,250) (1,095,000) (365,000)
----------- ----------- ----------- -----------
NET LOSS $(1,198,029) $ (434,155) $(1,735,419) $ (572,380)
=========== =========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (50) $ (18) $ (72) $ (24)
=========== =========== =========== ===========
</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 SIX MONTHS ENDED SEPTEMBER 30, 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 nine
months ended Sept 30, 1999 -- (11,980) (1,186,049) (1,198,029)
----------- ----------- ----------- -----------
PARTNERS' EQUITY (DEFICIENCY),
Sept 30, 1999 $ 1,000 $ (473,734) $ 4,981,651 $ 4,508,917
=========== =========== =========== ===========
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,198,029) $(1,735,419)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in losses of limited partnerships
and amortization of acquisition costs 588,750 1,095,000
Increase (decrease) in:
Accrued fees and expenses due to partners 519,714 519,717
Accounts payable and accrued expenses 60,598 (25,982)
----------- -----------
Net cash used in operating activities (28,967) (146,684)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in investee partnerships:
Capital contributions to limited partnerships (167,487) (523,522)
Decrease in restricted cash -- 75,000
Distributions recognized as a return of capital 105,679 173,452
Decrease in capital contributions payable -- (62,189)
----------- -----------
Net cash used in investing activities (61,808) (337,259)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (90,775) (483,943)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 220,457 540,686
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 129,682 $ 56,743
=========== ===========
</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, 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 September 30,
1999, and the results of operations and changes in cash flows for the nine and
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. Casden Properties Inc. owns a 95.25%
economic interest in NAPICO, with the balance owned by Casden Investment
Corporation ("CIC"). CIC, which is wholly owned by Alan I. Casden, owns 95% of
the voting common stock of NAPICO. The special limited partner of the
Partnership (the "Special Limited Partner") is PaineWebber T.C., Inc., a
Delaware corporation.
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.
5
<PAGE> 8
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
6
<PAGE> 9
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
At September 30, 1999, the Local Partnerships owned residential projects
consisting 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.
7
<PAGE> 10
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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, 1999:
<TABLE>
<S> <C>
Balance, beginning of period $ 11,421,621
Capital contributions 167,487
Equity in losses of limited partnerships (525,000)
Amortization of capitalized acquisition costs (63,750)
Distributions recognized as a return of capital (105,679)
------------
Balance, end of period $ 10,894,679
============
</TABLE>
The following are unaudited combined estimated statements of operations for the
nine and three months ended September 30, 1999 and 1998 for the limited
partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1999 Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $ 13,272,000 $ 4,424,000 $ 13,566,000 $ 4,522,000
------------ ------------ ------------ ------------
EXPENSES
Depreciation 3,243,000 1,081,000 3,201,000 1,067,000
Interest 5,652,000 1,884,000 5,763,000 1,921,000
Operating 7,161,000 2,387,000 7,194,000 2,398,000
------------ ------------ ------------ ------------
16,056,000 5,352,000 16,158,000 5,386,000
------------ ------------ ------------ ------------
Net income (loss) $ (2,784,000) $ (928,000) $ (2,592,000) $ (864,000)
============ ============ ============ ============
</TABLE>
8
<PAGE> 11
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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%, 89% and 80%, respectively, at September 30, 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
9
<PAGE> 12
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 agreement dated January 11, 1995 (the
"Workout") relating to the resolution of an existing default under the first
mortgage loan encumbering Glenark Landing, an annual payment of approximately
$64,000 for a five year term is due to the lender. The local partnership is in
default under the Workout Agreement and is in discussions with the lender to
resolve the matter.
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.
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
10
<PAGE> 13
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
partnership is in default under the Workout. The parties are currently engaged
in 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 $573,000 at September 30, 1999.
NOTE 3 - 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 4 - 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.
11
<PAGE> 14
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 4 - RELATED-PARTY TRANSACTIONS (CONTINUED)
For the nine months ended September 30, 1999 and 1998 approximately
$520,000 has been expensed. The unpaid balance at September 30, 1999 is
approximately $5,940,000.
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 five 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 approximately $66,000 and $44,000
for the nine months ended September 30, 1999 and 1998, respectively.
12
<PAGE> 15
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 5 - 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 6 - 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.
13
<PAGE> 16
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 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 as of September 30, 1999 were approximately $130,000. 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.
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
14
<PAGE> 17
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
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 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
15
<PAGE> 18
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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.
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
16
<PAGE> 19
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 September 30, 1999.
Pursuant to the terms of a workout agreement, dated January 11, 1995 (the
"Workout") relating to the resolution of an existing default under the first
mortgage loan encumbering Glenark Landing, annual payments of approximately
$64,000 for a five year term, is due to the Rhode Island Housing and Mortgage
Finance Corporation (the "Lender"). The local Partnership is in default under
the Workout Agreement and is in discussions with the Lender to resolve the
matter. The Partnership's investment in Glenark Landing was zero at September
30, 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 September 30, 1999.
A dispute has arisen as to whether the local partnership is in default under the
Workout. The parties are currently engaged in 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.
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 September
30, 1999 was $573,000.
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.
17
<PAGE> 20
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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.
18
<PAGE> 21
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 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
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, 1999 and 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)
19
<PAGE> 22
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
were 100%, 89%, and 80%, respectively, at September 30, 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. In 1996, the aggregate carrying value of the investments
in Summit I, Summit II and Summit III of approximately $2,290,000, was written
off. Summit I, II and III represent 3.2%, 1.4% and 4.6%, respectively, of NTCP's
original portfolio investment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of
regulation S-K.
20
<PAGE> 23
NATIONAL TAX CREDIT PARTNERS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 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., its General Partner
By: /s/ BRUCE NELSON
---------------------------------
Bruce Nelson
President
Date: November 17, 1999
-------------------------------
By: /s/ CHARLES H. BOXENBAUM
---------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: November 17, 1999
-------------------------------
21
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 129,682
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129,682
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,894,679
<CURRENT-LIABILITIES> 308,212
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,508,917
<TOTAL-LIABILITY-AND-EQUITY> 11,024,361
<SALES> 0
<TOTAL-REVENUES> 85,133
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,283,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,198,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,198,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,198,029
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
