<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- --------------------
Commission file number 0-20057
WNC HOUSING TAX CREDIT FUND II, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0391979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 REDHILL AVENUE, SUITE 120, COSTA MESA, CA 92626
(Address of principal executive offices)
(714) 662-5565
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1996 and December 31, 1995 3
Statement of Operations
For the three months ended March 31, 1996 and 1995 4
Statement of Partners' Equity
For the three months ended March 31, 1996 and 1995 5
Statement of Cash Flows
For the three months ended March 31, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 238,026 $ 238,482
Investments in limited partnerships 2,481,834 2,606,673
Receivables from limited partnerships (Note 3) 52,727 52,726
Other assets 80 931
--------- ---------
$ 2,772,667 $ 2,898,812
--------- -----------
--------- -----------
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued fees and expenses due to general partner and
affiliates (Note 3) $ 686,592 $ 650,875
------- -------
Total liabilities 686,592 650,875
------- -------
Partners' equity (deficit) (Note 1):
General partner (38,682) (37,063)
Limited partners (7,000 units issued and outstanding) 2,124,757 2,285,000
--------- ---------
Total partners' equity 2,086,075 2,247,937
--------- ---------
$ 2,772,667 $ 2,898,812
--------- ---------
--------- ---------
</TABLE>
UNAUDITED
See Accompanying Notes To Financial Statements
3
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For The Three Months Ended March 31, 1996 and 1995
1996 1995
---------- ----------
Interest income $ 2,582 $ 2,467
----- -----
Operating expenses:
Amortization 5,338 5,338
Asset management fees (Note 3) 36,156 36,226
Other 3,950 5,935
----- -----
Total operating expenses 45,444 47,499
------ ------
Loss from operations (42,862) (45,032)
Equity in loss from limited partnerships (119,000) (128,700)
-------- --------
Net loss $ (161,862) $ (173,732)
-------- --------
Net loss allocated to:
General partner $ (1,619) $ (1,737)
------ ------
Limited partners $ (160,243) $ (171,995)
-------- --------
-------- --------
Net loss per weighted limited partner
unit outstanding (7,000 units at 1996
and 1995) $ (23) $ (25)
--- ---
--- ---
UNAUDITED
See Accompanying Notes To Financial Statements
4
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For The Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
General Partner Limited Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Equity (deficit), December 31, 1995 $ (37,063) 2,285,000 2,247 937
Net loss for the three months ended
March 31, 1996 (1,619) (160,243) (161,862)
------ -------- --------
Equity (deficit), March 31, 1996 $ (38,682) $ 2,124,757 $ 2,086,075
------- --------- ---------
------- --------- ---------
FOR THE THREE MONTHS ENDED MARCH 31, 1995
General Partner Limited Partner Total
--------------- --------------- -----
Equity (deficit), December 31, 1994 $ (29,291) $ 3,054,440 $ 3,025,149
Net loss for the three months ended
March 31, 1995 (1,737) (171,995) (173,732)
------ -------- --------
Equity (deficit), March 31, 1995 $ (31,028) $ 2,285,000 $ 2,851,417
------- --------- ---------
------- --------- ---------
</TABLE>
UNAUDITED
See Accompanying Notes To Financial Statements
5
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For The Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net loss $ (161,862) $ (173,732)
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization 5,338 5,976
(Increase) decrease in interest receivable and other
assets 850 1,325
Equity in loss of limited partnerships 119,000 128,700
Increase in due to general partner and affiliates 35,718 39,318
------- -------
Net cash provided (used) by operating activities (956) 1,587
------- -------
Net cash provided by investing activities:
Investments in limited partnerships
Distribution from limited partnership 500 4,100
------- -------
Net cash provided by investing activities 500 4,100
------- -------
Net increase (decrease) in cash and cash equivalents (456) 5,687
Cash and cash equivalents, beginning of period 238,482 237,739
------- -------
Cash and cash equivalents, end of period $ 238,026 $ 243,426
------- -------
------- -------
</TABLE>
UNAUDITED
See Accompanying Notes To Financial Statements
6
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
For The Period Ended March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
WNC Housing Tax Credit Fund II, L.P. was formed on January 19, 1990, under the
laws of the State of California. The Partnership was formed to invest in other
limited partnerships, which will acquire, develop, rehabilitate, own and operate
multi-family residential apartment complexes. All of the complexes qualify for
low income housing tax credits.
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements;
accordingly, the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the WNC Housing Tax Credit Fund II, L.P. (the "Partnership") Annual Report for
the year ended December 31, 1995.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1996 and the results of operations and changes in cash flows for the three
months ended. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim period presented are not necessarily indicative of the results for
the entire year.
The general partner is WNC & Associates, Inc. Wilfred N. Cooper Sr., through
the Cooper Revocable Trust, owns 70% of the outstanding stock of WNC &
Associates, Inc. John B. Lester is the original limited partner of the
Partnership and, through the Lester Family Trust, owns 30% of the outstanding
stock of WNC & Associates, Inc.
ALLOCATIONS UNDER THE TERMS OF THE PARTNERSHIP AGREEMENT
The General Partner has a 1% interest in operating profits and losses of the
Partnership. The limited partners will be allocated the remaining 99% interest
in proportion to their respective investments.
7
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
For The Period Ended March 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
After the limited partners have received sale or refinancing proceeds equal to
their capital contributions and their return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and the General Partner has
received a subordinated disposition fee (as described in Note 2 below), any
additional sale or refinancing proceeds will be distributed 90% to the limited
partners (in proportion to their respective investments) and 10% to the General
Partner.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity method of
accounting. Costs incurred by the Partnership in acquiring the investments in
limited partnerships were capitalized as part of the investment account
CASH AND CASH EQUIVALENTS
The Partnership considers all bank certificates of deposit with an original
maturity of three months or less to be cash equivalents.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership has acquired limited partnership interests in twenty-seven
limited partnerships which own and operate multi-family residential rental
complexes. The Partnership, as a limited partner, is generally entitled to 99%
of the operating profits and losses of the local limited partnerships.
Following is a summary of the components of the Partnership's investment in
local limited partnerships as of March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Investment per balance sheet, beginning of period $ 2,606,673 $ 3,289,100
Return of capital contributions (52,726)
Capitalized acquisition fees and costs
Equity in loss of limited partnerships (119,000) (602,163)
Distributions (500) (6,186)
Amortization (5,338) (21,352)
--------- ---------
Investment per balance sheet, end of period $ 2,481,834 $ 2,606,673
--------- ---------
--------- ---------
</TABLE>
8
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
For The Period Ended March 31, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
Selected financial information for the three months ended March 31, 1996 and
1995 from the combined financial statements of the limited partnerships in which
the partnership has invested is as follows:
1996 1995
---------- ----------
Total revenue $ 819,000 $ 751,000
------- -------
Expenses:
Operating expenses 405,000 407,000
Interest expense 310,000 245,000
Depreciation 224,000 229,000
------- -------
Total expenses 939,000 881,000
------- -------
Net loss $ (120,000) $ (130,000)
-------- --------
-------- --------
Net loss allocable to the Partnership $ (119,000) $ (128,700)
-------- --------
-------- --------
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for an annual management fee
equal to .5% of the invested assets of the limited partnerships, including the
Partnership's allocable share of the mortgages. A fee of $36,156 and $36,226
was accrued for the three months ended March 31, 1996 and 1995, respectively.
These amounts are reflected as an expense of the Partnership.
NOTE 4 - INCOME TAXES
No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership completed raising funds in December 1991 from investors by means
of a public offering. $7,000,000 was raised from investors from this offering.
These funds were applied to the acquisition of investments in local
partnerships, acquisition fees, the establishment of reserves, the payment of
operating expenses and the payment of expenses of this offering. The
Partnership's primary source of capital was the proceeds from its offering.
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $500 for the three months
ended March 31, 1996. This decrease in cash resulted as cash used by the
Partnership's operating activities expenses was greater than the cash was
provided by investing activities from distributions from limited partnerships.
Cash used by the Partnership's operating activities consisted primarily of
payments for operating fees and expenses. Cash provided by operations consisted
primarily of interest received on cash deposits. The Partnership has no further
financial obligations from its real estate investments. The major components of
all these activities are discussed in greater detail below.
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 limited
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 has working capital of approximately $240,000 which is
anticipated to be sufficient to satisfy general working capital and
administrative expense requirements of the Partnership excluding payment of the
asset management fee as well as expenses attendant to the preparation of tax
returns and reports to the limited partners and other investor servicing
obligations of the Partnership. Liquidity would, however, be adversely affected
by unanticipated or greater than anticipated operating costs. To the extent
that working capital reserves are insufficient to satisfy the cash requirements
of the Partnership, it is anticipated that additional funds would be sought
through bank loans or other institutional financing. The General Partner may
also apply any cash distributions received from the local limited partnerships
for such purposes or to replenish or increase working capital reserves.
It is not expected that any of the local limited partnerships in which the
Partnership will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant amount. Such cash from
operations, if any, would first be used to meet operating expenses of the
Partnership, including the payment of the asset management fee to the General
Partner.
10
<PAGE>
Under its partnership agreement, the Partnership does not have the ability to
assess its partners for additional capital contributions to provide capital if
needed by the Partnership or local limited partnerships. Accordingly, if
circumstances arise that cause the local limited 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, as
the apartment complexes owned by the local limited partnerships are already
substantially leveraged), (ii) additional equity contributions or advances of
the local general partners, (iii) other equity source (which could adversely
affect the Partnership's interest in tax credits, cash flow and/or proceeds of
sale or refinancing of the apartment complexes and result in adverse tax
consequences to the limited partners), or (iv) the sale or disposition of the
apartment complexes (which could have the same adverse effects as discussed in
(iii) above). There can be no assurance that funds from any of such sources
would be readily available in sufficient amounts to fund the capital requirement
of the local limited partnerships in question. If such funds are not available,
the local limited 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 to the extent the capital
requirements of the local limited partnerships relate to such debt.
The Partnership's capital needs and resources are expected to be relatively
stable over the holding periods of the investments.
RESULTS OF OPERATIONS
Consistent with the Partnership's investment objectives, each limited
partnership is generating federal low income housing credits for a period of
approximately ten years, and (as discussed below) is generating or is expected
to generate losses until sale of the apartment complex(es).
As reflected on its Statements of Operations, the Partnership has losses of
approximately $162,000 and $174,000 the three months ended March 31, 1996 and
1995, respectively. The components items of revenue and expense are discussed
below.
REVENUE - Partnership revenues consisted entirely of interest earned on cash
deposits held in financial institutions as reserves. Interest revenue in future
years will be a function of prevailing interest rates and the amount of cash
balances. The amount for the three months ended March 31, 1996 has increased
slightly compared to the same period in 1996 due to higher interest rates in
1996.
EXPENSES - The most significant component of operating expenses is, and is
expected to be, the asset management fee. The asset management fee is equal to
0.5% of invested assets in limited partnerships (the sum of the Partnership's
capital contributions to the limited partnerships plus the Partnership's share
of the debts related to the apartment complexes owned by such limited
partnerships). The amount of the asset management fee is expected to be the
same in future periods as the amount of invested assets is expected to remain
stable until disposition of the underlying apartment complexes.
11
<PAGE>
Amortization expense consists of the amortization over a period of 30 years of
the 9% selection fee and other expenses attributable to the acquisition of
limited partnership interests.
Office expenses consists of the Partnership's administrative expenses, such as
legal, accounting, bank charges and investor reporting expenses. Although these
amounts are expected to remain consistent on an annual basis, there may be
variations between quarters depending on the timing of preparing and mailing
reports to investors.
EQUITY IN LOSSES FROM LIMITED PARTNERSHIPS - The Partnership's equity in losses
from limited partnerships is equal to 99% of the aggregate net loss of the
limited partnerships. After rent-up, the limited partnerships have, and are
expected to, generate losses during each year of operations; this is so because,
although rental income is expected to exceed cash operating expenses,
depreciation and amortization deductions claimed by the limited partnerships are
expected to exceed net rental income.
The Partnership's operations for both periods reflect losses from the
Partnership's investments in limited partnerships. These losses arise primarily
from depreciation of the underlying apartment complexes. These losses were
greater for the three months ended March 31, 1995 as compared to the 1996
period.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
13
<PAGE>
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.
WNC HOUSING TAX CREDIT FUND II, L.P.
(Registrant)
By WNC Financial Group, L.P., General Partner
By: WNC & ASSOCIATES, INC., General Partner
By: /s/ John B. Lester, Jr.
--------------------------------
John B. Lester, Jr.
President
Date: May 13, 1996
By /s/ Theodore M. Paul
--------------------------------
Theodore M. Paul
Vice President - Finance
Date: May 13, 1996
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 238,026
<SECURITIES> 0
<RECEIVABLES> 52,807
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 290,833
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,772,667
<CURRENT-LIABILITIES> 686,592
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,086,075
<TOTAL-LIABILITY-AND-EQUITY> 2,772,667
<SALES> 0
<TOTAL-REVENUES> 2,582
<CGS> 0
<TOTAL-COSTS> 45,444
<OTHER-EXPENSES> 119,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (161,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,862)
<EPS-PRIMARY> (23)
<EPS-DILUTED> 0
</TABLE>
