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 September 30, 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.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
California 33-0391979
WNC HOUSING TAX CREDIT FUND II, L.P.
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 662-5565
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 SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31,1995..................3
Statement of Operations
For the three and nine months ended September 30,
1996 and 1995..........................................................4
Statement of Partners' Equity
For the nine months ended September 30, 1996 and 1995..................5
Statement of Cash Flows
For the nine months ended September 30, 1996 and 1995..................6
Notes to Financial Statements............................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................13
Signatures............................................................14
<PAGE>
FINANCIAL STATEMENTS
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 201,357 $ 238,482
Investment in limited
partnerships - Note 2 2,156,733 2,606,673
Receivables from limited partnershps (Note 3) 52,726 52,726
Other assets - Note 4 667 931
--------- ---------
2,441,483 2,898,812
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued fees and expenses due to
general partner and affiliates - Note 3 $ 722,334 $ 650,875
------- -------
Partners' equity (deficit):
General partner (42,651) (37,063)
Limited partners (12,000 units
authorized, 7,000 units issued
and outstanding) 1,731,800 2,285,000
--------- ---------
Total partners' equity 1,689,149 2,247,937
--------- ---------
$2,411,483 $2,898,812
========= =========
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 and Nine Months Ended September 30, 1996 and 1995
1996 1995
------------------ ------------------
Three Nine Three Nine
Months Months Months Months
Interest income $ 2,468 $ 7,713 $ 2,888 $ 8,625
----- ----- ----- -----
Operating expenses:
Amortization 5,338 16,014 5,976 17,928
Asset management
fees (Note 4) 36,155 108,468 36,224 108,675
Legal and accounting - 5,175
Other 880 8,844 1,203 15,959
------ ------- ------ ------
Total operating expenses 42,373 138,501 43,403 142,562
------ ------- ------- -------
Loss from operations (39,905) (130,788) (40,515) (133,937)
Equity in loss from
limited partnerships (143,000) (428,000) (138,740) (479,300)
--------- --------- --------- ---------
Net loss $(182,905) $(558,788) $(179,255) $(613,237)
========= ========= ========= =========
Net loss allocated to:
General partner $ (1,829) $ (5,588) $ (1,793) $ (6,132)
======= ======= ======= ======
Limited partners $(181,076) $(553,200) $(177,462) $(607,105)
========= ========= ========= =========
Net loss per limited
partner units (7,000 units
issued and outstanding) $ (26) $ (79) $ (25) $ (87)
==== ==== ==== ====
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 For The
Nine Months Ended September 30, 1996 and 1995
For The Nine Months Ended September 30, 1996
General Limited
Partner Partner Total
Equity (deficit), December 31, 1995 $ (37,063) $ 2,285,000 $ 2,247,937
Net loss for the nine months ended
September 30, 1996 (5,588) (553,200) (558,788)
------- --------- ---------
Equity (deficit), September 30, 1996 $ (42,651) $ 1,731,800 $ 1,689,149
======== ========= =========
For The Nine Months Ended September 30, 1995
General Limited
Partner Partner Total
Equity (deficit), December 31, 1994 $ (29,291) $ 3,054,440 $ 3,025,149
Net loss for the nine months ended
September 30, 1995 (6,132) (607,105) (613,237)
------- --------- ---------
Equity (deficit), Septmeber 30, 1995 $(35,423) $2,447,335 $ 2,411,912
======== ========= =========
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 Nine Months Ended September 30, 1996 and 1995
1996 1995
---- ----
Cash flows used by operating activities:
Net loss $ (558,788) $ (613,237)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 428,000 479,300
Amortization 16,014 17,928
Asset management fee 73,468 108,675
Decrease in interest receivable and other assets 264 1,068
Decrease in accrued fees and expense due to
general partner and affiliates (2,009) (1,005)
------- -------
Net cash used by operating activities (43,051) (7,271)
-------- -------
Cash flows provide by investing activities:
Distribution from limited partnerships 5,926 6,186
----- -----
Cash flows used by financing activities:
Net decrease in cash and cash equivalents (37,125) (1,085)
Cash and cash equivalents, beginning of period 238,482 237,739
-------- -------
Cash and cash equivalents, end of period $ 201,357 $ 236,654
======= =======
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 September 30, 1996
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 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. 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.
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 September 30,
1996 and the results of operations and changes in cash flows for the nine months
ended.
Organization
The Partnership 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.
WNC Financial Group, L.P., a California partnership, is the general partner (the
"General Partner") of the partnership. WNC & Associates, Inc. is the general
partner of WNC Financial Group, L.P. Other officers and key employees of WNC &
Associates, Inc. are limited partners. The Cooper Revocable Trust owns 70% of
the outstanding stock of WNC & Associates, Inc. John B. Lester, Jr. is the
original limited partner of the Partnership and, through the Lester Family
Trust, owns 30% of the outstanding stock of WNC & Associates, Inc.
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.
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 .
7
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
For The Period Ended September 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 1996 and
December 31, 1995.
1996 1995
---- ----
Investment balance, beginning of period $2,606,673 $ 3,289,100
Return of capital contributions (52,726)
Equity in loss of limited partnerships (428,000) (602,163)
Distributions (5,926) (6,186)
Amortization of acquisition costs (16,014) (21,352)
-------- --------
Investment per balance sheet, end of period $ 2,156,733 $ 2,606,673
========= =========
8
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
For The Period Ended September 30, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
Selected financial information for the nine months ended September 30, 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 $ 2,456,000 $ 2,187,000
--------- ---------
Interest expense 923,000 740,500
Depreciation 673,000 435,000
Operating expenses 1,293,000 1,259,700
---------- ---------
Total expenses 2,889,000 2,671,400
--------- ---------
Net loss $(433,000) $ (484,000)
========= =========
Net loss allocable to the
Partnership $(428,000) $ (479,300)
=========
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 $108,468 and $108,675
was accrued for the nine months ended September 30, 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 Operation
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 $37,100 and $1,100 for
the nine months ended September 30, 1996 and 1995. 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 $201,000 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.
<PAGE>
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 $559,000 and $613,000 the nine months ended September
30, 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 nine months ended September 30, 1996
has decreased slightly compared to the same period in 1995 due to lower 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 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 nine months ended September 30, 1995 as compared to
the 1996 period.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
1. None.
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
13
<PAGE>
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.
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: November 13, 1996
By: /s/Theodore M. Paul
Theodore M. Paul Vice President - Finance
Date: November 13, 1996
14
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<CIK> 860331
<NAME> WNC HOUSING TAX CREDIT FUND II, L.P.
<MULTIPLIER> 1
<CURRENCY> US CURRENCY
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 201,357
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0
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