FORM 10-K/A
AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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: 0-20056
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
California 33-0433017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 662-5565
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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 ____
1
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
State the aggregate market value of the voting and non-voting
common equity held by non-affiliayes of the registrant.
INAPPLICABLE
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
NONE
2
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PART I.
Item 1. Business
Organization
WNC California Housing Tax Credits II, L.P. ("CHTC" or the "Partnership") is a
California Limited Partnership formed under the laws of the State of California
on September 13, 1990. The Partnership was formed to acquire limited partnership
interests in other limited partnerships or limited liability companies ("Local
Limited Partnerships") which own multifamily housing complexes that are eligible
for low-income housing federal and in certain cases, California income tax
credits ("Low Income Housing Credit").
The general partner of the Partnership is WNC Tax Credit Partners, L.P. (the
"General Partner"). WNC & Associates, Inc. ("Associates") and Wilfred N. Cooper,
Sr. are the general partners of WNC Tax Credit Partners, L.P. Wilfred N. Cooper,
Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding stock of
Associates. John B. Lester, Jr. was the original limited partner of the
Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding
stock of Associates. The business of the Partnership is conducted primarily
through Associates, as the Partnership has no employees of its own.
Pursuant to a registration statement filed with the Securities and Exchange
Commission, on January 22, 1991, the Partnership commenced a public offering of
20,000 units of limited partnership interest ("Units") at a price of $1,000 per
Unit. As of the close of the public offering on January 21, 1993, a total of
17,726 Units representing $17,726,000 had been sold. Holders of Units are
referred to herein as "Limited Partners."
Description of Business
The Partnership's principal business objective is to provide its Limited
Partners with Low Income Housing Credits. The Partnership's principal business
therefore consists of investing as a limited partner or non-managing member in
Local Limited Partnerships each of which will own and operate a multi-family
housing complex (the "Housing Complex") which will qualify for the Low Income
Housing Credit. In general, under Section 42 of the Internal Revenue Code, an
owner of low-income housing can receive the Low Income Housing Credit to be used
to reduce Federal taxes otherwise due in each year of a ten-year period. In
general, under Section 17058 of the California Revenue and Taxation Code, an
owner of low-income housing can receive the Low Income Housing Credit to be used
against California taxes otherwise due in each year of a four-year period. The
Housing Complex is subject to a fifteen-year compliance period (the "Compliance
Period"), and under state law may have to be maintained as low income housing
for 30 or more years.
In general, in order to avoid recapture of Low Income Housing Credits, the
Partnership does not expect that it will dispose of its interests in Local
Limited Partnerships ("Local Limited Partnership Interests") or approve the sale
by any Local Limited Partnership of its Housing Complex prior to the end of the
applicable Compliance Period. Because of (i) the nature of the Housing
Complexes, (ii) the difficulty of predicting the resale market for low-income
housing 15 or more years in the future, and (iii) the ability of government
lenders to disapprove of transfer, it is not possible at this time to predict
whether the liquidation of the Partnership's assets and the disposition of the
proceeds, if any, in accordance with the Partnership's Agreement of Limited
Partnership, as amended by the Supplements thereto (the "Partnership
Agreement"), will be able to be accomplished promptly at the end of the 15-year
period. If a Local Limited Partnership is unable to sell its Housing Complex, it
is anticipated that the local general partner ("Local General Partner") will
either continue to operate such Housing Complex or take such other actions as
the Local General Partner believes to be in the best interest of the Local
Limited Partnership. Notwithstanding the preceding, circumstances beyond the
control of the General Partner or the Local General Partners may occur during
the Compliance Period, which would require the Partnership to approve the
disposition of an Housing Complex prior to the end thereof, possibly resulting
in recapture of Low Income Housing Credits.
3
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As of December 31, 1998, the Partnership had invested in fifteen Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that is eligible for the federal Low Income Housing Credit and twelve of them
were eligible for the California Low Income Housing Credit. Certain Local
Limited Partnerships may also benefit from government programs promoting low- or
moderate-income housing.
The Partnership's investments in Local Limited Partnerships are subject to the
risks incident to the management and ownership of low-income housing and to the
management and ownership of multi-unit residential real estate. Some of these
risks are that the Low Income Housing Credit could be recaptured and that
neither the Partnership's investments nor the Housing Complexes owned by the
Local Limited Partnerships will be readily marketable. To the extent the Housing
Complexes receive government financing or operating subsidies, they may be
subject to one or more of the following risks: difficulties in obtaining tenants
for the Housing Complexes; difficulties in obtaining rent increases; limitations
on cash distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of Local Limited Partnership Interests; limitations on
removal of Local General Partners; limitations on subsidy programs; and possible
changes in applicable regulations. The Housing Complexes are subject to mortgage
indebtedness. If a Local Limited Partnership does not make its mortgage
payments, the lender could foreclose resulting in a loss of the Housing Complex
and Low Income Housing Credits. As a limited partner or non-managing member of
the Local Limited Partnerships, the Partnership will have very limited rights
with respect to management of the Local Limited Partnerships, and will rely
totally on the general partners or managing members of the Local Limited
Partnerships for management of the Local Limited Partnerships. The value of the
Partnership's investments will be subject to changes in national and local
economic conditions, including unemployment conditions, which could adversely
impact vacancy levels, rental payment defaults and operating expenses. This, in
turn, could substantially increase the risk of operating losses for the Housing
Complexes and the Partnership. In addition, each Local Limited Partnership is
subject to risks relating to environmental hazards and natural disasters, which
might be uninsurable. Because the Partnership's operations will depend on these
and other factors beyond the control of the General Partner and the Local
General Partners, there can be no assurance that the anticipated Low Income
Housing Credits will be available to Limited Partners.
In addition, Limited Partners are subject to risks in that the rules governing
the Low Income Housing Credit are complicated, and the use of credits can be
limited. The only material benefit from an investment in Units may be the Low
Income Housing Credits. There are limits on the transferability of Units, and it
is unlikely that a market for Units will develop. All Partnership management
decisions are made by the General Partner.
As a limited partner or non-managing member, the Partnership's liability for
obligations of each Local Limited Partnership is limited to its investment. The
Local General Partners of each Local Limited Partnership retain responsibility
for developing, constructing, maintaining, operating and managing the Housing
Complexes.
Item 2. Properties
Through its investments in Local Limited Partnerships, the Partnership holds
limited partnership interests in the Housing Complexes. The following table
reflects the status of the fifteen Housing Complexes as of December 31, 1998 and
for the periods indicated:
4
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<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
As of December 31, 1998
----------------------------------------------------------------------------------------------
Partnership's
Total Amount of Estimated Encumbrances
General Number Investment in Investment Low Income of Local
Partnership Name Location Partner Name of Units Occupancy Local Limited Paid to Date Housing Limited
Partnerships Credits Partnerships
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
601 Main Street Stockton, Daniels C.
Investors, a California California Louge 165 96% $1,656,000 $1,656,000 $4,080,000 $4,011,000
limited partnership
ADI Development Partners, Delhi, Anthony Donovan
a California limited California 31 100% 699,000 699,000 1,757,000 1,226,000
partnership
Bayless Garden Apartments Red Bluff, Douglas W.
Investors, a California California Young 46 91% 1,110,000 1,110,000 2,741,000 1,291,000
limited partnership
Blackberry Oaks, Ltd., a Lodi, Bonita Homes
California limited California Incorporated 42 100% 463,000 463,000 1,063,000 1,934,000
partnership
Jacob's Square, a Exeter, Philip R.
California limited California Hammond, Jr.
partnership and Diane M.
Hammond 45 91% 1,324,000 1,324,000 2,933,000 1,717,000
Mecca Apartments II, a Mecca, Sam Jack, Jr.
California limited California and Sam Jack
partnership and Associates 60 98% 2,200,000 2,200,000 5,183,000 2,519,000
Nevada Meadows, a Grass Thomas G.
California limited Valley, Larson,
partnership California William H.
Larson and 34 97% 459,000 459,000 1,030,000 1,940,000
Raymond L.
Tetzlaff
Northwest Tulare Ivanhoe, Philip R.
Associates, a California California Hammond, Jr.
limited partnership and Diane M.
Hammond 54 74% 1,226,000 1,226,000 2,950,000 1,787,000
Orland Associates, a Orland, Richard E.
California limited California Huffman and
partnership Robert A. Ginno 40 100% 432,000 432,000 972,000 1,718,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
As of December 31, 1998
----------------------------------------------------------------------------------------------
Partnership's
Total Amount of Estimated Encumbrances
General Number Investment in Investment Low Income of Local
Partnership Name Location Partner Name of Units Occupancy Local Limited Paid to Date Housing Limited
Partnerships Credits Partnerships
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pine Gate Limited Ahoskie, Regency
Partnership California Investment
Associates,
Inc., Boyd
Management,
Inc. and
Gordon L. 56 98% 272,000 272,000 611,000 1,458,000
Blackwell
Silver Birch Associates Huron, Philip R.
California Hammond, Jr.
and Diane M.
Hammond 35 91% 378,000 1,131,000 1,347,000
378,000
Twin Pines Apartments Groveland, Donald S.
Associates California Kavanagh and
John N. Brezzo 39 79% 1,278,000 1,278,000 3,055,000 1,789,000
Ukiah Terrace Ukiah, Thomas G.
California Larson,
William H.
Larson and 41 98% 349,000 349,000 825,000 1,779,000
Raymond L.
Tetzlaff
Woodlake Garden Apartments Woodlake, David J.
California Michael and
Pamela J. 48 98% 548,000 548,000 1,374,000 1,943,000
Michael
Yucca-Warren Vista Joshua WNC &
Associates Tree, Associates,
California Inc. 50 96% 520,000 520,000 1,251,000 2,167,000
--- --- -------- -------- ---------- ----------
786 94% $12,914,000 $12,914,000 $30,956,000 $28,626,000
==== === =========== =========== =========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
For the year ended December 31, 1998
--------------------------------------
Low Income
Housing
Credits
Partnership Name Rental Income Net Loss Allocated to
Partnership
- -------------------------------------------------------------- ----------------
- -------------------------------------------------------------- ----------------
<S> <C> <C> <C>
601 Main Street Investors $366,000 (353,000) 99%
ADI Development Partners 119,000 (44,000) 90%
Bayless Garden Apartments 168,000 (99,000) 99%
Investors
Blackberry Oaks, Ltd 206,000 (17,000) 99%
Jacob's Square 183,000 (109,000) 99%
Mecca Apartments II 252,000 (164,000) 99%
Nevada Meadows 192,000 (20,000) 99%
Northwest Tulare Associates 183,000 (117,000) 99%
Orland Associates 187,000 (21,000) 99%
Pine Gate Limited Partnership 225,000 (6,000) 99%
Silver Birch Associates 129,000 (36,000) 99%
Twin Pines Apartments 95,000 (263,000) 99%
Associates
Ukiah Terrace 179,000 (54,000) 99%
Woodlake Garden Apartments 181,000 (52,000) 95%
Yucca-Warren Vista
Associates, Ltd 214,000 (39,000) 99%
-------- --------
$ 2,879,000 $ (1,394,000)
=========== ============
</TABLE>
7
<PAGE>
Item 3. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 5a.
(a) The Units are not traded on a public exchange but were sold through a public
offering. It is not anticipated that any public market will develop for the
purchase and sale of any Unit and none exists. Units can be assigned only if
certain requirements in the Partnership Agreement are satisfied.
(b) At December 31, 1998, there were 1,249 Limited Partners.
(c) The Partnership was not designed to provide cash distributions to Limited
Partners in circumstances other than refinancing or disposition of its
investments in Local Limited Partnerships.
(d) No unregistered securities were sold by the Partnership during 1998.
Item 5b.
NOT APPLICABLE
Item 6. Selected Financial Data
Selected balance sheet information for the Partnership is as follows as of
December 31:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
ASSETS
Cash and cash
equivalents 379,754 377,378 517,151 1,113,575 1,692,560
Investments in
limited
partnerships,
net 6,439,942 7,291,595 8,447,282 9,640,622 11,178,031
Other assets - - 12,492 34,288 5,919
--------- --------- --------- --------- ----------
$6,819,696 $7,668,973 $8,976,925 $10,788,485 $12,876,510
========== ========== ========== =========== ===========
LIABILITIES
Payable to
limited
partnerships $ - $ - $ - $ 555,000 $ 967,593
Accrued fees
and expenses
due to general
partner and
affiliates 1,044,307 836,316 703,693 566,653 408,571
PARTNERS'
EQUITY 5,775,389 6,832,657 8,273,232 9,666,832 11,500,346
---------- ---------- ---------- ---------- ----------
$6,819,696 $7,668,973 $8,976,925 $10,788,485 $12,876,510
========== ========== ========== =========== ===========
8
<PAGE>
Selected results of operations, cash flows and other information for the
Partnership is as follows for the years ended December 31:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Loss from
operations $ (274,539) $ (284,989) $ (264,807) $ (253,862) $ (342,010)
Equity in
loss from
limited
partnerships (782,729) (1,155,586) (1,128,793) (1,579,652) (1,194,095)
----------- ----------- ----------- ----------- -----------
Net loss $(1,057,268) $(1,440,575) $(1,393,600) $ (1,833,514) $(1,536,105)
=========== =========== =========== =========== ===========
Net loss
allocated to:
General
partner (10,573) (14,406) (13,936) (18,335) (15,361)
=========== =========== =========== =========== ===========
Limited
partners (1,046,695) (1,426,169) (1,379,664) (1,815,179) (1,520,744)
=========== =========== =========== =========== ===========
Net loss per
limited
partner unit (59.05) (80.46) (77.83) (102.40) (85.79)
======= ======= ======= ======== =======
Outstanding weighted
limited partner
units 17,726 17,726 17,726 17,726 17,726
======= ======= ======= ======= =======
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net cash provided
by (used in):
Operating
activities $(13,320) (95,215) (46,174) (68,921) 42,033
Investing
activities 15,696 (44,558) (550,250) (510,064) (2,299,805)
------- -------- --------- --------- -----------
Net change in cash and
cash equivalents 2,376 (139,773) (596,424) (578,985) (2,257,772)
Cash and cash
equivalents,
beginning of
period 377,378 517,151 1,113,575 1,692,560 3,950,332
-------- -------- --------- --------- ---------
Cash and cash
equivalents, end of
period 379,754 377,378 517,151 1,113,575 1,692,560
======== ======== ======== ========= =========
Low Income Housing Credit per limited partner unit was as follows for the year
ended December 31:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Federal $ 117 $ 117 $ 116 $ 108 $ 85
State 9 27 37 98 109
===== ===== ===== ===== =====
Total $ 126 $ 144 $ 153 $ 206 $ 194
===== ===== ===== ===== =====
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Financial Condition
The Partnership's assets at December 31, 1998 consisted primarily of $380,000 in
cash and aggregate investments in the fifteen Local Limited Partnerships of
$6,440,000. Liabilities at December 31, 1998 primarily consisted of $1,044,000
of accrued annual management fees due to the General Partners.
9
<PAGE>
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. The
Partnership's net loss for 1998 was $(1,057,000), reflecting a decrease of
$384,000 from the net loss experienced in 1997. The decline in net loss is
primarily due to equity in losses from limited partnerships which declined to
$(783,000) in 1998 from $(1,156,000) in 1997. This decrease was a result of the
Partnership not recognizing certain losses of the Local Limited Partnerships.
The investments in such Local Limited Partnerships reached $0 during 1998. Since
the Partnership's liability with respect to its investments is limited, losses
in excess of investment are not recognized. Other operating expenses also
fluctuate $(8,000) to $(10,000) per year, depending on the needs of the
Partnership.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996. The
Partnership's net loss for 1997 was $(1,441,000), reflecting an increase of
$(47,000) from the net loss experienced in 1996. The increase in net loss is
primarily due to a $(27,000) increase in recognized losses from limited
partnerships and an $(11,000) decline in interest income commensurate with a
decline in cash available for investment. Other operating expenses also
fluctuate $(8,000) to $(10,000) per year, depending on the needs of the
Partnership.
Cash Flows
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. The net
decrease in cash used in operating activities of $82,000 was primarily due to an
increase in the deferral of fees and expenses due to the General Partner and
affiliates. Net cash provided by investing activities increased to $16,000 in
1998 compared to a use of $(45,000) in 1997 primarily as a result of the
Partnership making its final, scheduled capital contributions to Local Limited
Partnerships in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996. The net
change in cash and cash equivalents declined to a net use of cash of $(140,000)
in 1997 compared to $(596,000) in 1996. The decline in cash uses is primarily as
a result of the Partnership making its final, scheduled capital contributions to
Local Limited Partnerships in 1997, net of recovery of certain loans made to the
Local Limited Partnerships.
During 1998 accrued payables, which consist of related party management fees due
to the General Partner, increased by $208,000. The General Partner does not
anticipate that these accrued fees will be paid until such time as capital
reserves are in excess of future forseeable working capital requirements of the
partnership.
The Partnership expects its future cash flows, together with its net available
assets at December 31, 1998, to be sufficient to meet all currently foreseeable
future cash requirements.
Impact of Year 2000 Issue
The General Partner has assessed the Partnership's exposure to date sensitive
computer systems that may not be operative subsequent to 1999. As a result of
this assessment, the General Partner has executed a plan to minimize the
Partnership's exposure to financial loss and/or disruption of normal business
operations that may occur as a result of Year 2000 non-compliant computer
systems.
Business Computer Systems
These systems include both computer hardware and software applications relating
to operations such as financial reporting. The Partnership does not maintain its
own systems and thus utilizes the computer systems of the General Partner. The
General Partner developed a compliance plan for each of its business computer
systems, with particular attention given to critical systems. The General
Partner contracted with an outside vendor to evaluate, test and repair such
systems. The assessment consisted of determining the compliance with Year 2000
of critical computer hardware and software. Incidences of non-compliance were
found with respect to computer software applications and were corrected. The
vendor found no instances of non-compliance with respect to computer hardware.
The amount expended and to be expended by the General Partner is nominal.
10
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The Local General Partners or property managers maintain the business computer
systems that relate to the operations of the Local Limited Partnerships. The
General Partner is in the process of obtaining completed questionnaires from
such Local General Partners and property management companies to assess their
respective Year 2000 readiness. The General Partner intends to identify those
Local General Partners and property management companies that have systems
critical to the operations of the Local Limited Partnerships that are not Year
2000 compliant. For those Local General Partners and property management
companies which have business computer systems which will not be Year 2000
compliant prior to the Year 2000 and where the lack of such compliance is
determined to have a potential material effect on the Partnership's financial
condition and results of operations, the General Partner intends to develop
contingency plans which may include changing property management companies.
Outside Vendors
The General Partner has obtained assurances from its suppliers of electrical
power and banking and telecommunication services that their critical systems are
all Year 2000 compliant. There exists, however, inherent uncertainty that all
systems of outside vendors or other third parties on which the General Partner,
and thus the Partnership, and the Local General Partners and property management
companies, and thus the Local Limited Partnerships rely will be Year 2000
compliant. Therefore, the Partnership remains susceptible to the consequences of
third party critical computer systems being non-compliant.
Personal Computers
The General Partner has determined that its personal computers and related
software critical to the operations of the Partnership are Year 2000 compliant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NOT APPLICABLE
Item 8. Financial Statements and Supplementary Data
11
<PAGE>
Report of Independent Certified Public Accountants
To the Partners
WNC California Housing Tax Credits II, L.P.
We have audited the accompanying balance sheet of WNC California Housing Tax
Credits II, L.P. (a California Limited Partnership) (the "Partnership") as of
December 31, 1998, and the related statements of operations, partners' equity
(deficit) and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. A
significant portion of the financial statements of the limited partnerships in
which the Partnership is a limited partner were audited by other auditors whose
reports have been furnished to us. As discussed in Note 2 to the financial
statements, the Partnership accounts for its investments in limited partnerships
using the equity method. The portion of the Partnership's investment in limited
partnerships audited by other auditors represented 76% of the total assets of
the Partnership at December 31, 1998. Our opinion, insofar as it relates to the
amounts included in the financial statements for the limited partnerships which
were audited by others, is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WNC California Housing Tax Credits II, L.P. (a
California Limited Partnership) as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Orange County, California
April 9, 1999
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
WNC California Housing Tax Credits II, L.P.
We have audited the accompanying balance sheets of WNC California Housing Tax
Credits II, L.P. ( a California Limited Partnership) (the "Partnership") as of
December 31, 1997, and the related statements of operations, partners' equity
(deficit) and cash flows for each of the years in the two-year period ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of the limited partnerships in which WNC California Housing Tax
Credits II, L.P. is a limited partner. These investments, as discussed in Note 2
to the financial statements, are accounted for by the equity method. The
investments in these limited partnerships represented 95% of the total assets of
WNC California Housing Tax Credits II, L.P. at December 31, 1997. The financial
statements of the limited partnerships were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for these limited partnerships, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WNC California Housing Tax Credits II, L.P. (a
California Limited Partnership) as of December 31, 1997, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
April 1, 1998
13
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
---- ----
ASSETS
Cash and cash equivalents $ 379,754 $ 377,378
Investments in limited
partnerships, net (Note 2) 6,439,942 7,291,595
------------ ------------
$ 6,819,696 $ 7,668,973
============ ============
LIABILITIES AND PARTNERS' EQUITY
(DEFICIT)
Liabilities:
Accrued fees and expenses due
to General Partner and
affiliates (Note 3) $ 1,044,307 $ 836,316
------------ ------------
Commitments and contingencies
Partners' equity (deficit):
General partner (107,508) (96,935)
Limited partners; (20,000 units
authorized; 17,726 units issued
and outstanding at December 31,
1998 and 1997) 5,882,897 6,929,592
------------ ------------
Total partners' equity 5,775,389 6,832,657
------------ ------------
$ 6,819,696 $ 7,668,973
============ ============
See accompanying notes to financial statements
14
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Interest income $ 16,353 $ 13,218 $ 24,231
----------- ----------- -----------
Operating expenses:
Amortization (Note 2) 53,228 54,445 54,836
Partnership management
fees (Note 3) 210,084 210,084 209,807
Other 27,580 33,678 24,395
----------- ----------- -----------
Total operating expenses 290,892 298,207 289,038
----------- ----------- -----------
Loss from operations (274,539) (284,989) (264,807)
Equity in losses from
limited partnerships
(Note 2) (782,729) (1,155,586) (1,128,793)
----------- ----------- -----------
Net loss $ (1,057,268) $ (1,440,575) $ (1,393,600)
========== ========== ==========
Net loss allocated to:
General partner $ (10,573) $ (14,406) $ (13,936)
========== ========== ==========
Limited partners $ (1,046,695) $ (1,426,169) $ (1,379,664)
========== ========== ==========
Net loss per limited
partner unit $ (59.05) $ (80.46) $ (77.83)
=========== =========== ============
Outstanding weighted
limited partner units 17,726 17,726 17,726
=========== =========== ===========
See accompanying notes to financial statements
15
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1998, 1997 and 1996
General Limited
Partner Partners Total
------- -------- -----
Partners' equity (deficit)
at January 1, 1996 $ (68,593) $ 9,735,425 $ 9,666,832
Net loss (13,936) (1,379,664) (1,393,600)
------- ---------- ----------
Partners' equity (deficit)
at December 31, 1996 (82,529) 8,355,761 8,273,232
Net loss (14,406) (1,426,169) (1,440,575)
------- ---------- ----------
Partners' equity (deficit)
at December 31, 1997 (96,935) 6,929,592 6,832,657
Net loss (10,573) (1,046,695) (1,057,268)
--------- ----------- -----------
Partners' equity (deficit)
at December 31, 1998 $ (107,508) $ 5,882,897 $ 5,775,389
========= =========== ===========
See accompanying notes to financial statements
16
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Cash flows from
operating activities:
Net loss $ (1,057,268) $ (1,440,575) $ (1,393,600)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Amortization 53,228 54,445 54,836
Equity in losses of
limited partnerships 782,729 1,155,586 1,128,793
Change in other assets - 2,706 26,757
Increase in accrued fees
and expenses due to
General Partner and
affiliates 207,991 132,623 137,040
----------- ----------- -----------
Net cash used in
operating activities (13,320) (95,215) (46,174)
----------- ----------- -----------
Cash flows from
investing activities:
Investments in limited
partnerships, net - (75,526) (555,000)
Distributions from
limited partnerships 15,696 22,399 11,319
Change in loans receivable - 8,569 (6,569)
----------- ----------- -----------
Net cash provided by
(used in) investing activities 15,696 (44,558) (550,250)
----------- ----------- -----------
Net decrease in cash
and cash equivalents 2,376 (139,773) (596,424)
Cash and cash equivalents,
beginning of year 377,378 517,151 1,113,575
----------- ----------- -----------
Cash and cash equivalents,
end of year $ 379,754 $ 377,378 $ 517,151
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Taxes paid $ 800 $ 800 $ 800
=========== =========== ===========
See accompanying notes to financial statements
17
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
WNC California Housing Tax Credits II, L.P. a California Limited Partnership
(the "Partnership"), was formed on September 13, 1990 under the laws of the
State of California. The Partnership was formed to invest primarily in other
limited partnerships (the "Local Limited Partnerships") which own and operate
multi-family housing complexes (the "Housing Complex") that are eligible for low
income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
The general partner is WNC Tax Credit Partners, L.P. (the "General Partner").
WNC & Associates, Inc. ("WNC") and Wilfred N. Cooper are the general partners of
WNC Tax Credit Partners, L.P. and Wilfred N. Cooper Sr., through the Cooper
Revocable Trust owns just less then 66.8% of the outstanding stock of WNC.
The Partnership shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 20,000 units of Limited
Partnership Interests at $1,000 per Unit ("Units"). The offering of Units
concluded in January 1993 at which time 17,726 Units, representing subscriptions
in the amount of $17,726,000, had been accepted. 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.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received a
subordinated disposition fee (as described in Note 3), 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.
Risks and Uncertainties
The Partnership's investments in Local Limited Partnerships are subject to the
risks incident to the management and ownership of low-income housing and to the
management and ownership of multi-unit residential real estate. Some of these
risks are that the low income housing credit could be recaptured and that
neither the Partnership's investments nor the Housing Complexes owned by the
Local Limited Partnerships will be readily marketable. To the extent the Housing
Complexes receive government financing or operating subsidies, they may be
subject to one or more of the following risks: difficulties in obtaining tenants
18
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
for the Housing Complexes; difficulties in obtaining rent increases; limitations
on cash distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of Local Limited Partnership Interests; limitations on
removal of Local General Partners; limitations on subsidy programs; and possible
changes in applicable regulations. The Housing Complexes are or will be subject
to mortgage indebtedness. If a Local Limited Partnership does not makes its
mortgage payments, the lender could foreclose resulting in a loss of the Housing
Complex and low income housing credits. As a limited partner of the Local
Limited Partnerships, the Partnership will have very limited rights with respect
to management of the Local Limited Partnerships, and will rely totally on the
Local General Partners of the Local Limited Partnerships for management of the
Local Limited Partnerships. The value of the Partnership's investments will be
subject to changes in national and local economic conditions, including
unemployment conditions, which could adversely impact vacancy levels, rental
payment defaults and operating expenses. This, in turn, could substantially
increase the risk of operating losses for the Housing Complexes and the
Partnership. In addition, each Local Limited Partnership is subject to risks
relating to environmental hazards and natural disasters which might be
uninsurable. Because the Partnership's operations will depend on these and other
factors beyond the control of the General Partner and the Local General
Partners, there can be no assurance that the anticipated low income housing
credits will be available to Limited Partners.
In addition Limited Partners are subject to risks in that the rules governing
the low income housing credit are complicated, and the use of credits can be
limited. The only material benefit from an investment in Units may be the low
income housing credits. There are limits in the transferability of Units, and it
is unlikely that a market for Units will develop. All management decisions will
be made by the General Partner.
Method of Accounting For Investments in Limited Partnerships
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnership's results of operations
and for any distributions received. The accounting policies of the Local Limited
Partnerships are consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of the
investment account and are being amortized over 30 years (see Note 2).
Losses from Local Limited Partnerships allocated to the Partnership are not
recognized to the extent that the investment balance would be adjusted below
zero.
Offering Expenses
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred with selling limited
partnership interests in the Partnership. The General Partner is obligated to
pay all offering and organization costs in excess of 15% (including sales
commissions) of the total offering proceeds. Offering expenses are reflected as
a reduction of limited partners' capital and amounted to $2,389,519 as of
December 31, 1998 and 1997.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.
19
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with remaining
maturities of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
At December 31, 1998, the Partnership maintained cash balances at certain
financial institutions in excess of the federally insured maximum.
Net Loss Per Limited Partner Unit
Net loss per limited partnership unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit
includes no dilution and is computed by dividing income available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net income per unit is not required.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting the components of comprehensive income and requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be included in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income includes net income as well as certain items that are reported directly
within a separate component of partners' equity and bypass net income. The
Partnership adopted the provisions of this statement in 1998. For the years
presented, the Partnership has no elements of other comprehensive income, as
defined by SFAS No. 130.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of December 31, 1998, the Partnership has acquired limited partnership
interests in fifteen Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 786 apartment units. The respective
general partners of the Local Limited Partnerships manage the day to day
operations of the entities. Significant Local Limited Partnership business
decisions require approval from the Partnership. The Partnership, as a limited
partner, is generally entitled to 99%, as specified in the Local Limited
Partnership agreements, of the operating profits and losses of the Limited
Partnerships.
The Partnership's investments in Local Limited Partnerships as shown in the
balance sheets as of December 31, 1998 and 1997 are approximately $1,835,000 and
$1,328,000, respectively, greater than the Partnership's equity as shown in the
Local Limited Partnerships' financial statements. This difference is primarily
due to unrecorded losses, as discussed below, and acquisition, selection and
other costs related to the acquisition of the investments which have been
capitalized in the Partnership's investment account (see Note 3).
Equity in losses of the Local 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 Local 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.
20
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
Distributions received by limited partners are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income.
At December 31, 1998, the investment accounts in certain Local Limited
Partnerships have reached a zero balance. Consequently, the Partnership's share
of losses during the year ended December 31, 1998 amounting to approximately
$567,892 have not been recognized. As of December 31, 1998, the aggregate share
of net losses not recognized by the Partnership amounted to $720,667.
Following is a summary of the equity method activity of the investments in Local
Limited Partnerships for the years ended December 31:
1998 1997
---- ----
Investments per balance
sheet, beginning of year $ 7,291,595 $ 8,447,282
Capital contributions paid, net - 75,526
Distributions paid (15,696) (22,399)
Equity in losses of
limited partnerships (782,729) (1,155,586)
Amortization of acquisition
fees and costs (53,228) (53,228)
------------ ------------
Investments per balance
sheet, end of year $ 6,439,942 $ 7,291,595
============ ============
21
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
The financial information from the individual financial statements of the Local
Limited Partnerships include rental and interest subsidies. Rental subsidies are
included in total revenues and interest subsidies are generally netted in
interest expense. Approximate combined condensed financial information from the
individual financial statements of the Local Limited Partnerships as of December
31 and for the years then ended is as follows:
COMBINED CONDENSED BALANCE SHEETS
1998 1997
---- ----
ASSETS
Buildings and improvements,
(net of accumulated depreciation
for 1998 and 1997 of $7,793,000
and $6,533,000 respectively) $ 31,200,000 $ 32,347,000
Land 2,465,000 2,465,000
Other assets 2,656,000 2,627,000
------------- -------------
$ 36,321,000 $ 37,439,000
============ ============
LIABILITIES
Mortgage and construction
loans payable $ 28,626,000 $ 28,603,000
Other liabilities (including
due to related parties
of $582,000 and $536,000
as of December 31,
1998 and 1997, respectively) 2,719,000 2,413,000
------------ ------------
31,345,000 31,016,000
------------ ------------
PARTNERS' CAPITAL
WNC California Housing
Tax Credits II, L.P. 4,605,000 5,964,000
Other partners 371,000 459,000
------------ ------------
4,976,000 6,423,000
------------ ------------
$ 36,321,000 $ 37,439,000
============ ============
22
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
COMBINED CONDENSED STATEMENTS OF OPERATIONS
1998 1997 1996
---- ---- ----
Revenues $ 3,034,000 $ 3,021,000 $ 3,081,000
------------ ------------ ------------
Expenses:
Operating expenses 2,220,000 2,137,000 2,043,000
Interest expense 924,000 935,000 875,000
Depreciation and
amortization 1,284,000 1,276,000 1,305,000
------------ ------------ -------------
Total expenses 4,428,000 4,348,000 4,223,000
------------ ------------ -------------
Net loss $ (1,394,000) $ (1,327,000) $ (1,142,000)
============ ============ ============
Net loss allocable
to the Partnership $ (1,351,000) $ (1,312,000) $ (1,129,000)
============ ============ ============
Net loss recorded
by the Partnership $ (783,000) $ (1,159,000) $ (1,129,000)
============ ============ ============
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership may be required to sustain the operations of
such Local Limited Partnerships. If additional capital contributions are not
made when they are required, the Partnership's investment in certain of such
Local Limited Partnerships could be impaired.
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or its affiliates for the following items:
Acquisition fees equal to 9% of the gross proceeds from the sale of
Units as compensation for services rendered in connection with the
acquisition of Local Limited Partnerships. As of December 31, 1998 and
1997, the Partnership incurred acquisition fees of $1,595,340.
Accumulated amortization of these capitalized costs was $351,380 and
$298,204 at December 31, 1998 and 1997, respectively.
Reimbursement of costs incurred by an affiliate of the General Partner
in connection with the acquisition of Local Limited Partnerships. These
reimbursements have not exceeded 1.7% of the gross proceeds. As of
December 31, 1998 and 1997, the Partnership incurred acquisition costs
of $1,520 which have been included in investments in limited
partnerships. Accumulated amortization was insignificant for 1998 and
1997.
An annual management fee equal to 0.5% of the invested assets of the
Local Limited Partnerships, including the Partnership's allocable share
of the mortgages. Management fees of $210,084, $210,084 and $209,807
were incurred for 1998, 1997 and 1996, respectively, of which $0,
$75,000 and $75,000 were paid in 1998, 1997 and 1996, respectively.
A subordinated disposition fee in an amount equal to 1% of the sales
price of real estate sold. Payment of this fee to the General Partner is
subordinated to the limited partners who receive a 6% preferred return
(as defined in the Partnership Agreement) and is payable only if the
General Partner or its affiliates render services in the sales effort.
23
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1998, 1997 and 1996
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
An affiliate of the General Partner provides management services for two
of the properties in the Local Limited Partnerships. Management fees of
$40,513, $4,130 and $0 were earned by the affiliate during 1998, 1997
and 1996, respectively.
The accrued fees and expenses due to General Partner and affiliates consist of
the following at December 31:
1998 1997
----- ----
Asset management fee payable $ 1,044,947 $ 834,863
Reimbursement for expenses
paid by an affiliate of the
General Partner (640) 1,453
------------ ------------
$ 1,044,307 $ 836,316
============ ============
The General Partner does not anticipate that these accrued fees will be paid
until such time as capital reserves are in excess of future foreseeable working
capital requirements of the Partnership.
NOTE 4 - INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial
statements as any liability for income taxes is the obligation of the partners
of the Partnership.
24
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
(a)(1)
(i) On December 16, 1998, Corbin & Wertz, Irvine, California was dismissed
as the Partnership's principal independent accountant.
(ii) During the last two fiscal years of the Partnership, the reports of
Corbin & Wertz respecting the financial statements of the Partnership
did not contain an adverse opinion or a disclaimer of opinion, nor were
any such reports qualified or modified as to uncertainty, audit scope or
accounting principles.
(iii) The decision to change accountants was approved by the board of
directors of WNC & Associates, Inc., the general partner of the
Partnership.
(iv) During the last two fiscal years and subsequent interim period of the
Partnership there were no disagreements between Corbin & Wertz and the
Partnership on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure of the
nature described in Item 304(a)(1)(iv) of Securities and Exchange
Commission Regulation S-K.
(v) During the last two fiscal years and subsequent interim period of the
Partnership there were no reportable events of the nature described in
Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K.
(a)(2)
On December 16, 1998, BDO Seidman, LLP, Costa Mesa, California was engaged as
the Partnership's principal independent accountant. During the last two fiscal
years and subsequent interim period of the Partnership, the Partnership did not
consult BDO Seidman, LLP regarding (i) either, the application of accounting
principles to a specified transaction; or the type of audit opinion that might
be rendered on the Partnership's financial statements, or (ii) any matter that
was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Securities and Exchange Commission Regulation S-K) or was a reportable event (as
defined in Item 304(a)(1)(v) of Securities and Exchange Commission Regulation
S-K).
PART III.
Item 10. Directors and Executive Officers of the Registrant
Directors of Registrant
The Partnership has no directors or executive officers of its own. The following
biographical information is presented for the directors and executive officers
of Associates which has principal responsibility for the Partnership's affairs.
Directors and Executive Officers of WNC & Associates, Inc.
The directors of WNC & Associates, Inc. are Wilfred N. Cooper, Sr., who serves
as Chairman of the Board, John B. Lester, Jr., David N. Shafer, Wilfred N.
Cooper, Jr. and Kay L. Cooper. The principal shareholders of WNC & Associates,
Inc. are trusts established by Wilfred N. Cooper, Sr. and John B. Lester, Jr.
Wilfred N. Cooper, Sr., age 68, is the founder, Chief Executive Officer and a
Director of WNC & Associates, Inc., a Director of WNC Capital Corporation, and a
general partner in some of the programs previously sponsored by the Sponsor. Mr.
Cooper has been involved in real estate investment and acquisition activities
since 1968. Previously, during 1970 and 1971, he was founder and principal of
Creative Equity Development Corporation, a predecessor of WNC & Associates,
Inc., and of Creative Equity Corporation, a real estate investment firm. For 12
years prior to that, Mr. Cooper was employed by Rockwell International
25
<PAGE>
Corporation, last serving as its manager of housing and urban developments where
he had responsibility for factory-built housing evaluation and project
management in urban planning and development. Mr. Cooper is a Director of the
National Association of Home Builders (NAHB) and a National Trustee for NAHB's
Political Action Committee, a Director of the National Housing Conference (NHC)
and a member of NHC's Executive Committee and a Director of the National
Multi-Housing Council (NMHC). Mr. Cooper graduated from Pomona College in 1956
with a Bachelor of Arts degree.
John B. Lester, Jr., age 65, is President, a Director, Secretary and a member of
the Acquisition Committee of WNC & Associates, Inc., and a Director of WNC
Capital Corporation. Mr. Lester has 27 years of experience in engineering and
construction and has been involved in real estate investment and acquisition
activities since 1986 when he joined the Sponsor. Previously, he was Chairman of
the Board and Vice President or President of E & L Associates, Inc., a provider
of engineering and construction services to the oil refinery and petrochemical
industries, which he co-founded in 1973. Mr. Lester graduated from the
University of Southern California in 1956 with a Bachelor of Science degree in
Mechanical Engineering.
Wilfred N. Cooper, Jr., age 36, is Executive Vice President, a Director and a
member of the Acquisition Committee of WNC & Associates, Inc. He is President
of, and a registered principal with, WNC Capital Corporation, a member firm of
the NASD, and is a Director of WNC Management, Inc. He has been involved in
investment and acquisition activities with respect to real estate since he
joined the Sponsor in 1988. Prior to this, he served as Government Affairs
Assistant with Honda North America in Washington, D.C. Mr. Cooper is a member of
the Advisory Board for LIHC Monthly Report, a Director of NMHC and an Alternate
Director of NAHB. He graduated from The American University in 1985 with a
Bachelor of Arts degree.
David N. Shafer, age 46, is Senior Vice President, a Director, General Counsel,
and a member of the Acquisition Committee of WNC & Associates, Inc., and a
Director and Secretary of WNC Management, Inc. Mr. Shafer has been involved in
real estate investment and acquisition activities since 1984. Prior to joining
the Sponsor in 1990, he was practicing law with a specialty in real estate and
taxation. Mr. Shafer is a Director and President of the California Council of
Affordable Housing and a member of the State Bar of California. Mr. Shafer
graduated from the University of California at Santa Barbara in 1978 with a
Bachelor of Arts degree, from the New England School of Law in 1983 with a Juris
Doctor degree (cum laude) and from the University of San Diego in 1986 with a
Master of Law degree in Taxation.
Michael L. Dickenson, age 42, is Vice President and Chief Financial Officer, and
a member of the Acquisition Committee of WNC & Associates, Inc., and Chief
Financial Officer of WNC Management, Inc. He has been involved with acquisition
and investment activities with respect to real estate since 1985. Prior to
joining the Sponsor in March 1999, he was the Director of Financial Services at
TrizecHahn Centers Inc., a developer and operator of commercial real estate,
from 1995 to 1999, a Senior Manager with E&Y Kenneth Leventhal Real Estate
Group, Ernst & Young, LLP, from 1988 to 1995, and Vice President of Finance with
Great Southwest Companies, a commercial and residential real estate developer,
from 1985 to 1988. Mr. Dickenson is a member of the Financial Accounting
Standards Committee for the National Association of Real Estate Companies and
the American Institute of Certified Public Accountants, and a Director of
HomeAid Southern California, a charitable organization affiliated with the
building industry. He graduated from Texas Tech University in 1978 with a
Bachelor of Business Administration - Accounting degree, and is a Certified
Public Accountant in California and Texas.
Thomas J. Riha, age 44, is Vice President - Asset Management and a member of the
Acquisition Committee of WNC & Associates, Inc. and a Director and Chief
Executive Officer of WNC Management, Inc. Mr. Riha has been involved in
acquisition and investment activities with respect to real estate since 1979.
Prior to joining the Sponsor in 1994, Mr. Riha was employed by Trust Realty
Advisor, a real estate acquisition and management company, last serving as Vice
President - Operations. Mr. Riha graduated from the California State University,
Fullerton in 1977 with a Bachelor of Arts degree (cum laude) in Business
Administration with a concentration in Accounting and is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants.
26
<PAGE>
Sy P. Garban, age 53, is Vice President - National Sales of WNC & Associates,
Inc. and has been employed by the Sponsor since 1989. Mr. Garban has been
involved in real estate investment activities since 1978. Prior to joining the
Sponsor he served as Executive Vice President by MRW, Inc., a real estate
development and management firm. Mr. Garban is a member of the International
Association of Financial Planners. He graduated from Michigan State University
in 1967 with a Bachelor of Science degree in Business Administration.
N. Paul Buckland, age 36, is Vice President - Acquisitions of WNC & Associates,
Inc. He has been involved in real estate acquisitions and investments since 1986
and has been employed with WNC & Associates, Inc. since 1994. Prior to that, he
served on the development team of the Bixby Ranch that constructed apartment
units and Class A office space in California and neighboring states, and as a
land acquisition coordinator with Lincoln Property Company where he identified
and analyzed multi-family developments. Mr. Buckland graduated from California
State University, Fullerton in 1992 with a Bachelor of Science degree in
Business Finance.
David Turek, age 44, is Vice President - Originations of WNC & Associates, Inc.
He has been involved with real estate investment and finance activities since
1976 and has been employed by WNC & Associates, Inc. since 1996. From 1995 to
1996, Mr. Turek served as a consultant for a national Tax Credit sponsor where
he was responsible for on-site feasibility studies and due diligence analyses of
Tax Credit properties. From 1990 to 1995, he was involved in the development of
conventional and tax credit multi-family housing. He is a Director with the
Texas Council for Affordable Rural Housing and graduated from Southern Methodist
University in 1976 with a Bachelor of Business Administration degree.
Kay L. Cooper, age 62, is a Director of WNC & Associates, Inc. Mrs. Cooper was
the founder and sole proprietor of Agate 108, a manufacturer and retailer of
home accessory products, from 1975 until 1998. She is the wife of Wilfred N.
Cooper, Sr., the mother of Wilfred N. Cooper, Jr. and the sister of John B.
Lester, Jr. Ms. Cooper graduated from the University of Southern California in
1958 with a Bachelor of Science degree.
Item 11. Executive Compensation
The Partnership has no officers, employees, or directors. However, under the
terms of the Partnership Agreement the Partnership is obligated to the General
Partner or its affiliates during the current or future years for the following
fees:
(a) Annual Asset Management Fee. An annual asset management fee in an amount
equal to 0.5% of the Invested Assets of the Partnership, as defined.
"Invested Assets" means the sum of the Partnership's Investment in Local
Limited Partnership Interests and the Partnership's allocable share of the
amount of the mortgage loans on and other debts related to, the Housing
Complexes owned by such Local Limited Partnerships. Fees of $210,084 were
incurred for 1998. The Partnership paid the General Partner or its
affiliates $0 of those fees in 1998.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sale price received in connection with the sale or
disposition of a Housing Complex or Local Limited Partnership Interest.
Subordinated disposition fees will be subordinated to the prior return of
the Limited Partners' capital contributions and payment of the Preferred
Return on investment to the Limited Partners. "Preferred Return" means an
annual, cumulative but not compounded, "return" to the Limited Partners
(including Low Income Housing Credits) as a class on their adjusted capital
contributions commencing for each Limited Partner on the last day of the
calendar quarter during which the Limited Partner's capital contribution is
received by the Partnership, calculated at the following rates: (i) 16%
through December 31, 2001, and (ii) 6% for the balance of the Partnerships
term. No disposition fees have been paid.
(c) Operating Expense. The Partnership over reimbursed the General Partner or
its affiliates for operating expenses of approximately $1,000 during the
year ended December 31, 1998.
(d) Interest in Partnership. The General Partners receive 1% of the
Partnership's allocated Low Income Tax Housing Credits, which approximated
$22,000 for the General Partner for the year ended December 31, 1998. The
General Partners are also entitled to receive 1% of cash distributions.
There were no distributions of cash to the General Partners during the year
ended December 31, 1998.
27
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
No person is known to own beneficially in excess of 5% of the
outstanding Limited Partnership Interests.
(b) Security Ownership of Management
Neither the General Partner, its affiliates, nor any of the officers or
directors of the General Partner or its affiliates own directly or
beneficially any Units in the Partnership.
(c) Changes in Control
The management and control of the General Partner may be changed at any
time in accordance with its organizational documents, without the
consent or approval of the Limited Partners. In addition, the
Partnership Agreement provides for the admission of one or more
additional and successor General Partners in certain circumstances.
First, with the consent of any other General Partners and a
majority-in-interest of the Limited Partners, any General Partner may
designate one or more persons to be successor or additional General
Partners. In addition, any General Partner may, without the consent of
any other General Partner or the Limited Partners, (i) substitute in its
stead as General Partner any entity which has, by merger, consolidation
or otherwise, acquired substantially all of its assets, stock or other
evidence of equity interest and continued its business, or (ii) cause to
be admitted to the Partnership an additional General Partner or Partners
if it deems such admission to be necessary or desirable so that the
Partnership will be classified a partnership for Federal income tax
purposes. Finally, a majority-in-interest of the Limited Partners may at
any time remove the General Partner of the Partnership and elect a
successor General Partner.
Item 13. Certain Relationships and Related Transactions
The General Partner manages all of the Partnership's affairs. The transactions
with the General Partner are primarily in the form of fees paid by the
Partnership for services rendered to the Partnership and the General Partner's
interest in the Partnership, as discussed in Item 11 and in the notes to the
Partnership's financial statements.
28
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial statements included in Part II hereof:
Report of Independent Certified Public Accountants
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998, 1997 and
1996
Statements of Partners' Equity for the years ended December 31,
1998, 1997 and 1996
Statement of Cash Flows for the years ended December
31, 1998, 1997 and 1996
Notes to Financial Statements
(a)(2) Financial statement schedules included in Part IV hereof:
Report of Independent Certified Public Accountants on Financial
Statement Schedule
Schedule III - Real Estate Owned by Local Limited
Partnerships
(b) Reports on Form 8-K.
1. A Form 8-K dated December 16, 1998 was filed on December 22, 1998
reporting the dismissal of the Partnership's former auditors and the
engagement of new auditors. No financial statements were included.
(c) Exhibits.
3.1 Agreement of Limited Partnership dated as of September 13, 1990, included
as Exhibit 28.1 to the Form 10-K filed for the year ended December 31,
1992, is hereby incorporated herein as Exhibit 3.1.
10.1 Amended and Restated Agreement of Limited Partnership Orland Associates
dated June 15, 1991 filed as exhibit 10.1 to Form 10-K dated December 31,
1992 is hereby incorporated herein by reference as exhibit 10.1.
10.2 Amended and Restated Agreement of Limited Partnership Ukiah Terrace a
California Limited Partnership dated June 15, 1991 filed as exhibit 10.2 to
Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 10.2.
10.3 Amended and Restated Agreement of Limited Partnership Northwest Tulare
Associates dated July 3, 1991 filed as exhibit 10.3 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.3.
10.4 Second Amended and Restated Agreement of Limited Partnership Yucca Warren
Vista, Ltd. dated July 15, 1991 filed as exhibit 10.4 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.4.
10.5 Amended and Restated Agreement of Limited Partnership of Woodlake Garden
Apartments dated July 17, 1991 filed as exhibit 10.5 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.5.
10.6 Amended and Restated Agreement of Limited Partnership of 601 Main Street
Investors dated December 22, 1991 filed as exhibit 10.6 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.6.
29
<PAGE>
10.7 Amended and Restated Agreement of Limited Partnership of ADI Development
Partners dated January 2, 1992 filed as exhibit 10.7 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.7.
10.8 Amended and Restated Agreement of Limited Partnership of Bayless Garden
Apartment Investors dated January 2, 1992 filed as exhibit 10.8 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 10.8.
10.9 Third Amended and Restated Agreement of Limited Partnership of Twin Pines
Apartment Associates dated January 2, 1992 filed as exhibit 10.9 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 10.9.
10.10Amended and Restated Agreement of Limited Partnership of Blackberry Oaks,
Ltd. dated January 15, 1992 filed as exhibit 10.10 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.10.
10.11Amended and Restated Agreement of Limited Partnership of Mecca Apartments
II dated January 15, 1992 filed as exhibit 10.11 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.11.
10.12Amended and Restated Agreement of Limited Partnership of Silver Birch
Limited Partnership dated November 23, 1992 filed as exhibit 10.12 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 10.12.
10.13Amended and Restated Agreement of Limited Partnership of Jacob's Square
dated January 2, 1992 filed as exhibit 10.1 to Form 10-K dated December 31,
1993 is hereby incorporated herein by reference as exhibit 10.13.
10.14Amended and restated limited partnership agreement of Nevada Meadows, A
California Limited Partnership as exhibit 10.2 to Form 10-K dated December
31, 1993 is hereby incorporated herein by reference as exhibit 10.14.
21.1 Financial Statements of Mecca Apartments II, for the years ended December
31, 1998 and 1997 together with auditors report thereon; a significant
subsidiary of the Partnership.
(d) Financial statement schedule follows, as set forth in subsection (a)(2)
hereof.
30
<PAGE>
Report of Independent Certified Public Accountants
on Financial Statement Schedule
To the Partners
California Housing Tax Credits II, L.P.
The audit referred to in our report dated April 9, 1999, relating to the 1998
financial statements of WNC California Housing Tax Credits II, L.P. (the
"Partnership"), which is contained in Item 8 of this Form 10-K, included the
audit of the accompanying financial statement schedule. The financial statement
schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audit.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the financial information set forth therein.
BDO SEIDMAN, LLP
Orange County, California
April 9, 1999
31
<PAGE>
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
As of December 31, 1998
-----------------------------------------------------------------------------------------------------------------
Total Encumbrances of
Investment in Amount of Local Limited Property Accumulated Net Book
Partnership Name Location Local Limited Investment Partnerships and Depreciation Value
Partnerships Paid to Date Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
601 Main Street Investors Stockton,
California $ 1,656,000 $ 1,656,000 $ 4,011,000 $ 5,553,000 $ 1,294,000 $ 4,259,000
ADI Development Partners Delhi,
California 699,000 699,000 1,226,000 1,898,000 348,000 1,550,000
Bayless Garden Apartments Red Bluff,
Investors California 1,110,000 1,110,000 1,291,000 2,560,000 655,000 1,905,000
Blackberry Oaks, Ltd Lodi,
California 463,000 463,000 1,934,000 2,419,000 344,000 2,075,000
Jacob's Square Exeter,
California 1,324,000 1,324,000 1,717,000 2,860,000 497,000 2,363,000
Mecca Apartments II Mecca,
California 2,200,000 2,200,000 2,519,000 4,361,000 436,000 3,925,000
Nevada Meadows Grass
Valley, 459,000 459,000 1,940,000 2,593,000 292,000 2,301,000
California
Northwest Tulare Associates Ivanhoe,
California 1,226,000 1,226,000 1,787,000 2,952,000 754,000 2,198,000
Orland Associates Orland,
California 432,000 432,000 1,718,000 2,246,000 371,000 1,875,000
Pine Gate Limited Partnership Ahoskie,
California 272,000 272,000 1,458,000 1,801,000 204,000 1,597,000
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
-----------------------------------------------------------------------------------------------------------------
As of December 31, 1998
-----------------------------------------------------------------------------------------------------------------
Total Encumbrances of
Investment in Amount of Local Limited Property Accumulated Net Book
Partnership Name Location Local Limited Investment Partnerships and Depreciation Value
Partnerships Paid to Date Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Silver Birch Associates Huron,
California 378,000 378,000 1,347,000 1,714,000 368,000 1,346,000
Twin Pines Apartments
Associates Groveland,
California 1,278,000 1,278,000 1,789,000 3,285,000 812,000 2,473,000
Ukiah Terrace Ukiah,
California 349,000 349,000 1,779,000 2,280,000 596,000 1,684,000
Woodlake Garden Apartments Woodlake,
California 548,000 548,000 1,943,000 2,423,000 412,000 2,011,000
Yucca-Warren Vista
Associates Joshua
Tree,
California 520,000 520,000 2,167,000 2,513,000 410,000 2,103,000
---------- ---------- --------- --------- --------- ---------
$ 12,914,000 $ 12,914,000 $ 28,626,000 $ 41,458,000 $ 7,793,000 $33,665,000
========== ========== ========== ========== ========= ==========
</TABLE>
33
<PAGE>
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
For the year ended December 31, 1998
----------------------------------------------------------------------------------------------
Partnership Name Rental Income Net Loss Year Status Estimated Useful
Investment Life (Years)
Acquired
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
601 Main Street Investors $ 366,000 $ (353,000) 1991 Completed 39
ADI Development Partners 119,000 (44,000) 1991 Completed 40
Bayless Garden Apartments Investors 168,000 (99,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 206,000 (17,000) 1992 Completed 40
Jacob's Square 183,000 (109,000) 1993 Completed 27.5
Mecca Apartments II 252,000 (164,000) 1993 Completed 40
Nevada Meadows 192,000 (20,000) 1993 Completed 40
Northwest Tulare Associates 183,000 (117,000) 1991 Completed 27.5
Orland Associates 187,000 (21,000) 1991 Completed 40
Pine Gate Limited Partnership 225,000 (6,000) 1994 Completed 50
Silver Birch Associates 129,000 (36,000) 1992 Completed 27.5
Twin Pines Apartments Associates 95,000 (263,000) 1991 Completed 27.5
Ukiah Terrace 179,000 (54,000) 1991 Completed 27.5
Woodlake Garden Apartments 181,000 (52,000) 1991 Completed 40
Yucca-Warren Vista Associates, Ltd. 214,000 (39,000) 1991 Completed 50
------------ ------------
$ 2,879,000 $ (1,394,000)
============ =============
</TABLE>
34
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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 CALIFORNIA HOUSING TAX CREDITS II, L.P.
By: WNC Tax Credit Partners, L.P., General Partner
By: WNC & Associates, Inc., General Partner
By: /s/ John B. Lester, Jr.
John B. Lester, Jr.,
President of WNC & Associates, Inc.
Date: August 23, 1999
By: /s/ Michael L. Dickenson
Michael L. Dickenson,
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: August 23, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ Wilfred N. Cooper, Sr.
Wilfred N. Cooper, Sr.,
Chairman of the Board of WNC & Associates, Inc.
Date: August 23, 1999
By: /s/ John B. Lester, Jr.
John B. Lester, Jr.,
Director of WNC & Associates, Inc.
Date: August 23, 1999
By: /s/ David N. Shafer
David N Shafer,
Director of WNC & Associates, Inc.
Date: August 23, 1999
35
Exhibit
Number Exhibit Description
EX-21.1 Financial Statements of Mecca Apartments II, for the years ended
December 31, 1998 and 1997 together with auditors report thereon;
a significant subsidiary of the Partnership.
36
<PAGE>
Mecca Apartments II
Table of Contents
Independent Auditors' Report Page
Financial Statements
Balance Sheet 40
Statement of Revenues and Expenses 42
Statement of Changes in Partners Deficit 43
Statement of Cash Flows 44
Notes to Financial Statements 46
37
<PAGE>
Mecca Apartments II
(A California Limited Partnership)
Financial Statements
For The Years Ended December 31, 1998 and 1997
38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Mecca Apartments II
We have audited the accompanying balance sheets of Mecca Apartments II, as of
December 31, 1998, and 1997, and the related statements of income and changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the project's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted. auditing
standards, Government Auditing Standards issued by the Comptroller General of
'the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation, We believe that our audit provides a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mecca Apartments II,
as of December 31, 1998, and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purposes of forming an opinion on the basic,
financial statements taken as a whole. The supporting information included in
the report are presented for the purposes of additional analysis and are not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
ROBERT G. CLAPHAM
ACCOUTANCY CORPORATION
February 12, 1999
39
<PAGE>
MECCA APARTMENTS II
BALANCE SHEETS
At December 31, 1998 and 1997
See accompanying notes to financial statements
1998 1997
---- ----
ASSETS
Cash-on hand $ 100 $ 100
-revenue accounts 107,107 107,207 63,367 63,467
-------- --------
Accounts receivable
-tenants (net of
allowance for
uncollectible rent
-$331-12/31/97 723 2,649
Prepaid expenses
and deposits 3,378 1,635
Deposits for taxes
and insurance 20,435 35,166
Tenants' security
deposits 20,318 19,388
---------- -----------
Total current assets 152,061 122,305
Replacement reserve 49,562 34,303
Operating reserve 68,142 58,981
Land 259,698 259,698
Buildings and improvements 3,961,851 3,961,851
Furniture and equipment 139,749 139,749
---------- ----------
4,361,298 4,361,298
Less accumulated
depreciation 436,134 3,925,164 319,459 4,041,839
---------- ----------
Deferred organization
and financing 225,616 259,948
costs, less accumulated ---------- -----------
amortization
$ 4,420,545 $ 4,517,376
========== ===========
See accompanying notes to financial statements
40
<PAGE>
MECCA APARTMENTS II
BALANCE SHEETS-CONTINUED
At December 31, 1998 and 1997
1998 1997
---- ----
LIABILITIES
Accounts payable, trade $ 5,622 $ 5,966
Accrued interest 5,426 5,469
Tenants' security deposits 21,522 18,046
Prepaid rents 634 1,453
Portion of notes payable
due within one year 6,106 5,568
---------- -----------
Total current liabilities 39,310 36,502
Deferred laundry income 3,420 5,340
Notes payable, secured by
real property 2,518,529 2,524,097
Less current portion due
within one year 6,106 2,512,423 5,568 2,518,529
---------- ----------
Deferred interest 235,876 163,939
Partners' capital 1,629,516 1,793,066
---------- ----------
$ 4,420,545 $ 4,517,376
========== ==========
See accompanying notes to financial statements
41
<PAGE>
MECCA APARTMENTS II
STATEMENT OF REVENUES AND EXPENSES
For The Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Tenants' rent, gross
potential $ 263,784 $ 262,286
Less vacancy loss 12,181 251,603 21,719 240,567
----------- ----------
Laundry concession 8,933 9,430
Interest income 6,725 2,922
Other income 4,187 19,845 4,810 17,162
----------- ---------- ---------- -----------
271,448 257,729
---------- -----------
Administrative
Salaries 18,793 23,947
Office expenses 1,769 1,544
Management fee 24,780 23,330
Telephone 600 536
Legal 1,625 -
Auditing 5,750 6,300
Bad debts 836 -
Other 2,523 56,676 4,138 59,795
----------- ----------
Utilities
Electricity 5,596 5,678
Water and sewer 10,912 10,078
Gas 1,962 18,470 2,111 17,867
----------- ----------
Operating and
Maintenance
Exterminating 1,031 1,667
Rubbish 9,999 7,309
Grounds 12,062 12,373
Materials and supplies 5,430 2,457
Repairs contract
and payroll 11,931 12,859
Painting and decorating 2,943 43,396 1,411 38,076
----------- ----------
Depreciation 116,675 118,007
Taxes and Insurance
Real property taxes 13,659 21,976
Other taxes 3,434 3,338
Insurance 11,063 28,156 9,653 34,967
----------- ----------
Interest, less
reimbursement 137,293 137,787
Amortization 34,332 34,235
---------- -----------
434,998 440,734
---------- -----------
Net income (loss)
for the year $ (163,550) $ (183,005)
========== ===========
See accompanying notes to financial statements
42
<PAGE>
MECCA APARTMENTS II
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
For The Years Ended December 31, 1998 and 1997
Capital, December 31, 1996 $ 1,976,071
Net loss for the year ended December 31, 1997 (183,005)
------------
Capital, December 31, 1997 1,793,066
Net loss for the year ended December 31, 1998 (163,550)
------------
Capital, December 31, 1998 $ 1,629,516
============
See accompanying notes to financial statements
43
<PAGE>
<TABLE>
<CAPTION>
MECCA APARTMENTS II
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1998 and 1997
1998 1997
---- ----
<S> <C> <C> <C> <C>
Cash Flows provided by (Used for)
Operating Activities
Cash collected from tenants and $ 263,466 $ 244,249
concessionaires
Cash paid to suppliers and (144,865) (160,114)
employees
Interest paid - mortgage (65,399) (65,888)
Interest collected 6,725 2,922
Withdrawals from (deposits to) 13,801 26,204
restricted cash, net ----------- ----------
Net cash flows provided by (used for)
operating activities 73,728 47,373
Cash Flows Provided by (Used for)
Financing Activities
Payments on loans (5,568) (5,078)
----------- ----------
Net cash flows provided by (used for)
financing activities (5,568) (5,078)
Cash Flows Provided by (Used for)
Investing Activities
Release of deposit by lender - 7,075
Payments for additions to property
and deferred costs - (7,075)
Deposits to restricted cash (24,420) (22,604)
----------- ----------
Net cash flows provided by (used for) (24,420) (22,604)
investing activities ------ -------
Increase (decrease) in cash 43,740 19,691
Unrestricted cash, beginning of year 63,467 43,776
---------- ---------
Unrestricted cash, end of year $ 107,207 $ 63,467
========== ===========
</TABLE>
See accompanying notes to financial statements
44
<PAGE>
MECCA APARTMENTS II
STATEMENT OF CASH FLOWS - CONTINUED
For The Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Reconciliation of Net Income
with Cash
Provided by (Used for) Operating
Activities
Net income (loss) for the year $ (163,550) $ (183,005)
Add depreciation and amortization 151,007 152,242
Deferred interest 71,937 71,938
Deferred income (1,920) 57,474 (1,920) 39,255
---------- ----------
(Increase) decrease in assets: 1,926 (510)
Accounts receivable (1,743) 9,998
Prepaid expenses and deposits 13,801 26,204
Restricted cash
Increase (decrease) in liabilities:
Accounts payable and accrued (387) (26,968)
liabilities
Other liabilities 2,657 16,254 (606) 8,118
--------- -------- -------- ---------
Cash flows provided by (used for) $ 73,728 $ 47,373
operating activities ======== ========
See accompanying notes to financial statements
45
<PAGE>
MECCA APARTMENTS II
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1998 and 1997
NOTE 1 - ORGANIZATION
The partnership was organized to develop and operate low-income housing in the
City of Mecca, California. The property included in the financial statements
consists of sixty units of rental housing. The partnership has entered into an
agreement with the State of California Tax Credit Allowance Committee; under the
terms of which the partnership will be allocated federal low-income housing
credits which will be passed through to the partners for the ten year period
following initial occupancy of the housing. The credits are to be 8.72% of the
eligible basis up to a maximum credit of $387,873 per year. Agreements with the
Tax Credit Allocation Committee and the lender place substantial restrictions on
the use and operation of the housing, including restrictions on rents,
expenditures and withdrawals and requirements that various restricted cash
deposits be maintained.
NOTE 2 - ACCOUNTING PRINCIPLES
The partnership uses the accrual basis, in that income is recorded as earned and
expenses as they are incurred.
Income from rents is recorded at the gross potential amount, with losses due to
vacancy of bad debts shown as reductions of income and free or reduced-rate
occupancy by on-site employees is shown as an expense. Losses from bad debts are
recorded at the time a tenant vacates a unit owing more than the amount of the
security deposit.
Expenses incurred that expire over a period of time are pro-rated over the time
period.
Property and equipment is recorded at cost; depreciation is provided using the
straight-line method over estimated lives of 40 years for the building and 5 to
7 years for furnishings. Repairs and routine replacement of assets will be
recorded as a current expense. Major renovations or replacements of a
significant part of a group of assets are recorded as additions to property and
disposal of the assets being replaced.
Estimates are used to determine amounts in financial statements. Actual results
may vary from those estimates.
Expenses being incurred during the construction period related to the
organization or to financing have been deferred. These costs will be amortized
over a thirty-year period on the straight-line method for $219,053 of financing
costs, and a five-year period for $135,099 of organization costs.
During 1996 the developer, formerly a general partner, was required to pay
certain costs and expenses under the terms of a completion guarantee. Of the
amount so paid, $494,597, $144,920 has been applied as a reduction of 1996
interest expense, $137,291 as reimbursement of 1995 interest expense, $91,378 as
reimbursement of financing costs, and the balance $121,006, as a reduction of
the developer's fee.
46
<PAGE>
MECCA APARTMENTS II
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1998 and 1997
NOTE 3 - ACCOUNTS RECEIVABLE
The details of accounts receivable are presented in the supplementary data
following the financial statements.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS
At December 31, 1998, prepaid expenses consisted of the following:
Insurance $ 3,378
===========
NOTE 5 - REPLACEMENT RESERVE DEPOSITS
The partnership is required to make deposits of $1,193 per month to a savings
account at Southern California Bank to accumulate funds for the replacement of
assets, and $454 to another account as an operating reserve. A schedule of the
activity in these reserve accounts is included in the supplementary data.
NOTE 6 - NOTES PAYABLE
The notes payable consist of a loan with an original balance of $715,000 payable
in monthly installments of $5,914, including interest at 9.25% per annum, due
January 1, 2026, a loan with a balance of $500,000 from the County of Riverside
Home Funds, payable together with accumulated simple interest of 6.5% per annum,
over a fifteen-year period beginning May, 2010, in monthly payments of $8,469
including interest at 6.5% per annum, and a loan with a balance of $1,314,577
from the Rental Housing construction program of the State of California
Department of Housing and Community Development, bearing simple interest at 3%
per annum, on which payments of interest and principal will be deferred, unless
the operation of the property generates surplus cash in excess of allowable
distributions.
The amounts of principal due in each of the five years after December 31, 1998,
except for payments that might be required from surplus cash, and the amount due
after five years are as follows:
1999 $ 6,106
2000 6,694
2001 7,341
2002 8,050
2003 8,827
Thereafter 2,481,511
------------
$ 2,518,529
============
NOTE 7 - PROPERTY TAXES
The managing general partner is Indio Housing Development Corporation, an
organization exempt from income taxes under the provisions of Internal Revenue
Code Section 501(c)(3). As a provider of rental housing to qualifying low income
families, the partnership qualifies for a welfare exemption from a portion of
the property taxes assessed by the County of Riverside
47
<TABLE> <S> <C>
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<NAME> WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
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