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, 1997
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>
Part I. Financial Information
Item 1. Financial Statements
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1997 and December 31,1996 3
Statement of Operations
For the three months and nine months ended September 30,
1997 and 1996 4
Statement of Partners' Equity
For the nine months ended September 30, 1997 and 1996 5
Statement of Cash Flows
For the nine months ended September 30, 1997 and 1996 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 12
Signatures 13
<PAGE>
FINANCIAL STATEMENTS
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
ASSETS 1997 1996
---- ----
Cash and cash equivalents $ 183,299 $ 208,303
Investment in limited
partnerships - Note 2 1,743,129 2,005,382
Other assets 1,293 587
--------- ---------
$ 1,927,721 $ 2,214,272
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued fees and expenses due to
general partner and affiliates -
Note 3 $ 837,086 $ 758,827
------- -------
Partners' equity (deficit):
General partner (48,636) (44,988)
Limited partners (12,000 units
authorized, 7,000 units issued
and outstanding) 1,139,271 1,500,433
--------- ---------
Total partners' equity 1,090,635 1,455,445
--------- ---------
$ 1,927,721 $ 2,214,272
========= =========
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, 1997 and 1996
1997 1996
---- ----
Three Nine Three Nine
Months Months Months Months
Interest income $ 2,026 $ 6,593 $ 2,468 $ 7,713
-------- -------- --------- ---------
Operating expenses:
Amortization 5,338 16,014 5,338 16,014
Asset management
fees (Note 4) 36,225 108,676 36,155 108,468
Legal and accounting (1,250) 3,837 - 5,175
Other 1,448 8,876 880 8,844
-------- -------- --------- ---------
Total operating expenses 41,761 137,403 42,373 138,501
-------- -------- --------- ---------
Loss from operations (39,735) (130,810) (39,905) (130,788)
Equity in loss from
limited partnerships (78,000) (234,000) (143,000) (428,000)
-------- -------- --------- ---------
Net loss $ (117,735) $ (364,810) $ (182,905) $ (558,788)
======== ======== ========= =========
Net loss allocated to:
General partner $ (1,144) (3,648) (1,829) (5,588
======== ======== ========= =========
Limited partners $ (116,558) (361,162) (181,076) (553,200)
======== ======== ========= =========
Net loss per limited
partner units (7,000
units issued
and outstanding) $ (17) $ (52) $ (26) $ (79)
======== ======== ========= =========
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, 1997 and 1996
For the Nine Months Ended September 30, 1997
General Limited
Partner Partner Total
Equity (deficit), December 31, 1996 $ (44,988) $ 1,500,433 $ 1,455,445
Net loss for the nine months ended
September 30, 1997 (3,648) (361,162) (364,810)
---------- ---------- ---------
Equity (deficit), September 30, 1997 $ (48,636) $ 1,139,271 $ 1,090,635
========== ========== =========
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
========== ========== =========
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, 1997 and 1996
1997 1996
Cash flows used by operating activities: ---- ----
Net loss $ (364,810) $ (558,788)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 234,000 428,000
Amortization 16,014 16,014
Asset management fee 76,676 73,468
(Increase)Decrease in other assets (706) 264
Increase (decrease) in accrued fees and
expense due to general partner and affiliates 1,583 (2,009)
---------- ---------
Net cash used by operating activities (37,243) (43,051)
---------- ---------
Cash flows provide by investing activities:
Decrease in investment 3,911 -
Distribution from limited partnerships 8,328 5,926
---------- ---------
Net cash provided by investing activities 12,239 5,926
---------- ---------
Net decrease in cash and cash equivalents (25,004) (37,125)
Cash and cash equivalents, beginning of period 208,303 238,482
---------- ---------
Cash and cash equivalent, end of period $ 183,299 $ 201,357
========== =========
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, 1997
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, 1996. 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,
1997 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, 1997
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.
Equity in losses of limited partnerships is 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. If the limited partnerships report net income in future years, the
Partnership will resume applying the equity method only after its share of such
net income equals the share of net losses not recognized during the period(s)
the equity method was suspended. At September 30, 1997 seven of the limited
partnership investment accounts have reached a zero balance and losses for those
partnerships are not recognized.
Following is a summary of the components of the Partnership's investment in
local limited partnerships as of September 30, 1997 and December 31, 1996.
1997 1996
---- ----
Investment balance, beginning of period $ 2,005,382 $ 2,606,673
Reduction of capital contributions (3,911) -
Equity in loss of limited partnerships (234,000) (568,488)
Distributions (8,328) (11,451)
Amortization of acquisition costs (16,014) (21,352)
--------- ---------
Investment per balance sheet,
end of period $ 1,743,129 $ 2,005,382
========= =========
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, 1997
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)
- -------------------------------------------------------
Selected financial information for the nine months ended September 30, 1997 and
1996 from the combined financial statements of the limited partnerships in which
the partnership has invested is as follows:
1997 1996
---- ----
Total revenue $ 2,301,000 $ 2,456,000
----------- -----------
Interest expense 681,000 923,000
Depreciation 651,000 673,000
Operating expenses 1,377,000 1,293,000
----------- -----------
Total expenses 2,709,000 2,889,000
----------- -----------
Net loss $ (408,000) $ (433,000)
=========== ===========
Net loss allocable to the Partnership $ (404,000) $ (428,000)
=========== ===========
Net loss recognized by the Partnership $ (234,000) $ (428,000)
=========== ===========
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 $108,676 and $108,468
was accrued for the nine months ended September 30, 1997 and 1996, respectively.
These amounts are reflected as an expense of the Partnership.
Accrued fees and advance due to affiliates of the General Partner included in
the accompanying balance sheet consists of the following at September 30, 1997
and December 31, 1996:
1997 1996
---- ----
Asset management fee $ 834,887 $ 758,211
Reimbursement due on expenses paid by
affiliate 2,199 616
---------- ---------
Total related party payables $ 837,086 $ 758,827
========== =========
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 $25,000 for the nine
months ended September 30, 1997. This decrease in cash resulted from cash (used)
in operating activities and cash provided by the Partnership's investing
activities of approximately ($37,000) and $12,000, respectively. Cash provided
by investing activities consisted of primarily of 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.
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $37,000 for the nine
months ended September 30, 1996. This decrease in cash resulted from cash (used)
in operating activities and cash provided by the Partnership's investing
activities of approximately ($43,000) and $6,000, respectively. Cash provided by
investing activities consisted of entirely of 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 $185,000 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 $365,000 and $559,000 the nine months ended September 30, 1997 and
1996, 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.
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.
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.
11
<PAGE>
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 nine months ended September 30, 1996 as compared to the 1997
period reflecting lower interest expense and suspended recognition of losses for
those limited partnerships reaching zero balance in their related investment
account.
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, 1997.
12
<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 7, 1997
By: /s/Theodore M. Paul
_____________________________________________________
Theodore M. Paul Vice President - Finance
Date: November 7, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000860331
<NAME> WNC HOUSING TAX CREDIT FUND II, L.P.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 183,299
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 183,299
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,927,721
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,090,635
<TOTAL-LIABILITY-AND-EQUITY> 1,927,721
<SALES> 0
<TOTAL-REVENUES> 6,593
<CGS> 0
<TOTAL-COSTS> 137,403
<OTHER-EXPENSES> 234,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (364,810)
<INCOME-TAX> 0
<INCOME-CONTINUING> (364,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (364,810)
<EPS-PRIMARY> (52)
<EPS-DILUTED> 0
</TABLE>
