<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -------------------
Commission file number 0-21494
WNC HOUSING TAX CREDIT FUND III, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0463432
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 REDHILL AVENUE, SUITE 120, COSTA MESA, CA 92626
(Address of principal executive offices)
(714) 662-5565
(Registrant's telephone number,
including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1996 and December 31, 1995 3
Statement of Operations
For the three months ended March 31, 1996 and 1995 4
Statement of Partners' Equity
For the three months ended March 31, 1996 and 1995 5
Statement of Cash Flows
For the three months ended March 31, 1996 and 1995 6
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 1) $ 483,486 $ 519,652
Investments in limited partnerships 8,376,976 8,840,410
Other assets 17,004 17,004
--------- ---------
$ 8,877,466 $ 9,377,066
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payables to limited partnerships
(Note 4) $ 16,172 $ 159,730
Accrued fees and expenses due to
general partner and affiliates (Note 3) 576,814 516,327
--------- ---------
Total liabilities 592,986 676,057
--------- ---------
Partners' equity (Note 1):
General partner 42,323 46,488
Limited partners (15,000 units issued and
outstanding) 8,242,157 8,654,521
--------- ---------
Total partners' equity 8,284,480 8,701,009
--------- ---------
$ 8,877,466 $ 9,377,066
--------- ---------
--------- ---------
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
3
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Interest income $ 4,103 $ 11,231
Other income 0 6,500
4,103 17,731
--------- ---------
Operating expenses:
Amortization 11,794 11,792
Asset management fees (Note 3) 74,869 70,451
Other 5,969 3,839
--------- ---------
Total operating expenses 92,632 86,082
--------- ---------
Loss from operations (88,529) (68,351)
Equity in loss from limited partnerships (328,000) (295,000)
--------- ---------
Net loss $ (416,529) $ (363,351)
--------- ---------
--------- ---------
Net loss allocated to:
General partner $ (4,165) $ (3,634)
--------- ---------
--------- ---------
Limited partners $ (412,364) $ (359,717)
--------- ---------
--------- ---------
Net loss per weighted limited partner
unit outstanding (15,000 units at
1996 and 1995) $ (27) $ (24)
---- ----
---- ----
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
4
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
General Partner Limited Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Equity (deficit),
December 31, 1995 $ 46,488 $ 8,654,521 $ 8,701,009
Net loss for the three
months ended March 31, 1996 (4,165) (412,364) (416,529)
------ --------- ---------
Equity (deficit),
March 31, 1996 $ 42,323 $ 8,242,157 $ 8,284,480
------ --------- ---------
------ --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1995
General Partner Limited Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Equity (deficit),
December 31, 1994 $ 62,651 $ 10,254,653 $ 10,317,304
Net loss for the three
months ended March 31, 1995 (3,634) (359,717) (363,351)
------ --------- ---------
Equity (deficit),
March 31, 1995 $ 59,017 $ 9,894,936 $ 9,953,953
------ --------- ---------
------ --------- ---------
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
5
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (416,529) $ (363,351)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization 11,794 11,792
Equity in loss of limited partnerships 328,000 295,000
Increase (decrease) in interest receivable 220
Increase in due to general partner and
affiliates 60,487 16,251
------- ---------
Net cash used by operating activities (16,248) (40,088)
------- ---------
Cash flows used investing activities:
Investments in limited partnerships (25,935) (184,144)
Increase in loans receivable (122,000)
Distribution from limited partnership 6,017 2,000
------- ---------
Net cash used by investing activities (19,918) (304,144)
------- ---------
Net decrease in cash and cash equivalents (36,166) (344,232)
Cash and cash equivalents, beginning of
period 519,652 1,110,349
------- ---------
Cash and cash equivalents, end of period $ 483,486 $ 766,117
------- ---------
------- ---------
</TABLE>
Continued
UNAUDITED
See Accompanying Notes to Financial Statements
6
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS (CONTINUED)
For the Three months Ended March 31, 1996 and 1995
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITY
THREE MONTHS ENDED MARCH 31, 1996
During the three months ended March 31, 1996, the Partnership decreased its
Investments in Limited Partnerships and the corresponding Payables to Limited
Partnerships (in connection with its investments in limited partnerships) by
$108,902 due to various price adjuster provisions in the respective limited
partnership agreements.
- - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995
During the three months ended March 31, 1995, the Partnership decreased its
Investments in Limited Partnerships and the corresponding Payables to Limited
Partnerships (in connection with its investments in limited partnerships) by
$5,007 due to various price adjuster provisions in the respective limited
partnership agreements.
UNAUDITED
See Accompanying Notes to Financial Statements
7
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
WNC Housing Tax Credit Fund III, L.P. (the "Partnership") was formed under the
California Revised Limited Partnership Act on May 10, 1991, and commenced
operations on June 30, 1992. The Partnership was formed to invest primarily in
other limited partnerships which will own and operate multi-family housing
complexes that will qualify for low income housing credits.
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements;
accordingly, the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the Partnership's Annual Report for the year ended December 31, 1995.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1996 and changes in cash flows for the three months then ended. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim period presented
are not necessarily indicative of the results for the entire year.
The general partner is WNC Tax Credit Partners, L.P. (the "General Partner"), a
California limited partnership. WNC & Associates, Inc. and Wilfred N. Cooper,
Sr. are the general partners of the General Partner. The Cooper Revocable Trust
owns 70% of the outstanding stock of WNC & Associates, Inc. John B. Lester, Jr.
is the original limited partner of the Partnership and owns, through the Lester
Family Trust, 30% of the outstanding stock of WNC & Associates, Inc.
ALLOCATIONS UNDER THE TERMS OF THE PARTNERSHIP AGREEMENT
The General Partner has a 1% interest in operating profits and losses, taxable
income and loss and in cash available for distribution from the Partnership.
The limited partners will be allocated the remaining 99% of these items in
proportion to their respective investments.
After the limited partners have received sale or refinancing proceeds equal to
their capital contributions and their preferred return (as defined in the
Partnership's Agreement of Limited Partnership) and the general partner has
received a subordinated disposition fee 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.
8
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - ORGANIZATION AND OTHER MATTERS (CONTINUED)
METHOD OF ACCOUNTING FOR INVESTMENT 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 each limited partnership's results of operations and
for any distributions received. Costs incurred by the Partnership in acquiring
the investments in limited partnerships are capitalized as part of the
investment.
CASH AND CASH EQUIVALENTS
The Partnership considers all bank certificates of deposit with a maturity of
less than three months to be cash equivalents.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
At March 31, 1996, the Partnership had acquired limited partnership interests in
forty eight limited partnerships which own and operate fifty apartment
complexes. All of fifty of these apartment complexes have completed
construction as of March 31, 1996.
The Partnership, as a limited partner, is a 99% owner and is entitled to 99% of
the operating profits and losses of the limited partnerships.
Following is a summary of the components of the Partnership's investment in
limited partnerships as of March 31, 1996 and December 31, 1995 :
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment per balance sheet,
beginning of period $ 8,840,410 $ 9,933,747
Investments in limited partnerships (117,623) 280,275
Capitalized acquisition fees and costs 300
Equity in loss of limited partnerships (328,000) (1,312,450)
Distributions (6,017) (14,286)
Amortization (11,794) (47,176)
--------- ---------
Investment per balance sheet, end of
period $ 8,376,976 $ 8,840,410
--------- ---------
--------- ---------
</TABLE>
9
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)
Selected operating information from the combined financial statements of the
limited partnerships for the three months ended March 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Total revenue $ 1,470,000 $ 1,291,000
Expenses:
Interest expenses 469,000 409,000
Depreciation and amortization 489,000 447,000
Operating Expenses 844,000 733,000
--------- ---------
Total expenses 1,802,000 1,589,000
--------- ---------
Net loss $ (332,000) $ (298,000)
--------- ---------
--------- ---------
Net loss allocable to the Partnership $ (328,000) $ (295,000)
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for an annual management fee
equal to .5% of the invested assets (defined as the Partnership's capital
contributions plus its allocable percentage of the permanent financing) of the
limited partnerships. Fees of $74,869 and $70,451 were incurred for the three
months ended March 31, 1996 and 1995, respectively.
10
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - CAPITAL CONTRIBUTIONS PAYABLE
Capital contributions payable represent amounts which are due at various times
based on conditions specified in the respective limited partnership agreements.
These contributions are payable in installments, are generally due upon the
limited partnership achieving certain operating benchmarks and are generally
expected to be paid within two years of the Partnership's initial investment.
NOTE 5 - INCOME TAXES
No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.
11
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership raised funds from investors through its public offering of units
of limited partnership interest ("Units") and intends to apply such funds,
including the installment payments of the limited partners' promissory notes as
received, to the acquisition of investments in partnerships, acquisition fees,
the establishment of reserves, the payment of operating expenses and the payment
of expenses of this offering.
As of March 31, 1996, the Partnership has received subscriptions for 15,000
units consisting of cash of $15,000,000. The Partnership's primary source of
capital has been the proceeds from its offering.
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $36,000 for the three
months ended March 31, 1996. This decrease in cash was attributable to the
Partnership's investing activities, primarily the payments for the Partnership's
investments in limited partnerships and operating activities. Cash used by the
Partnership's operating activities consisted primarily of payments of accrued
management fees, secondarily of operating fees and expenses The cash reserves
are sufficient to fund the Partnership's remaining capital obligations (capital
contributions due limited partnerships). No cash was provided by financing
activities during the three months ended March 31, 1996. All funds due from
investors had been received as of March 31, 1996. Cash used by the
Partnership's operating activities was minimal compared to the Partnership's
other activities and consisted primarily of payments for operating fees and
expenses. Cash provided from operations consisted primarily of interest
received on cash deposits. The major components of all these activities are
discussed in greater detail below.
As of March 31, 1996, the Partnership had made capital contributions to local
limited partnerships in the amount of approximately $10,930,000.
The Partnership's investments will not be readily marketable and may be affected
by adverse general economic conditions which, in turn, could substantially
increase the risk of operating losses for the apartment complexes, the local
limited partnerships and the Partnership. These problems may result from a
number of factors, many of which cannot be controlled by the General Partner.
Nevertheless, the General Partner anticipates that capital raised from the sale
of the Units will be sufficient to fund the Partnership's future investment
commitments and proposed operations.
12
<PAGE>
The Partnership will establish working capital reserves of at least 3% of
capital contributions, an amount which is anticipated to be sufficient to
satisfy general working capital and administrative expense requirements of the
Partnership including payment of the asset management fee as well as expenses
attendant to the preparation of tax returns and reports to the limited partners
and other investor servicing obligations of the Partnership. Liquidity would,
however, be adversely affected by unanticipated or greater than anticipated
operating costs. The Partnership's liquidity could also be affected by defaults
or delays in payment of the promissory notes, from which a portion of the
working capital reserves is expected to be funded. To the extent that working
capital reserves are insufficient to satisfy the cash requirements of the
Partnership, it is anticipated that additional funds would be sought through
bank loans or other institutional financing. The General Partner may also apply
any cash distributions received from the local limited partnerships for such
purposes or to replenish or increase working capital reserves.
As part of its application for government assistance, each local limited
partnership must establish to the satisfaction of the agency providing the
government assistance that the local limited partnership will have sufficient
funds to complete construction or rehabilitation of its apartment complex. None
of the local limited partnerships has any material capital commitments other
than the completion of its apartment complex.
It is not expected that any of the local limited partnerships in which the
Partnership will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant amount. Such cash from
operations, if any, would first be used to meet operating expenses of the
Partnership, including the payment of the asset management fee to the General
Partner.
Under its partnership agreement the Partnership does not have the ability to
assess its partners for additional capital contributions to provide capital if
needed by the Partnership or local limited partnerships. Accordingly, if
circumstances arise that cause the local limited partnerships to require capital
in addition to that contributed by the Partnership and any equity of the local
general partners, the only sources from which such capital needs will be able to
be satisfied (other than the limited reserves available at the Partnership
level) will be (i) third-party debt financing (which may not be available, if,
as expected, the apartment complexes owned by the local limited partnerships are
already substantially leveraged), (ii) additional equity contributions or
advances of the local general partners, (iii) other equity sources (which could
adversely affect the Partnership's interest in tax credits, cash flow and/or
proceeds of sale or refinancing of the apartment complexes and result in adverse
tax consequences to the limited partners), or (iv) the sale or disposition of
the apartment complexes (which could have the same adverse effects as discussed
in (iii) above). There can be no assurance that funds from any of such sources
would be readily available in sufficient amounts to fund the capital requirement
of the local limited partnerships in question. If such funds are not available,
the local limited partnerships would risk foreclosure on their apartment
complexes if they were unable to re-negotiate the terms of their first mortgages
and any other debt secured by the apartment complexes to the extent the capital
requirements of the local limited partnerships relate to such debt.
RESULTS OF OPERATIONS
13
<PAGE>
As of March 31, 1996 the Partnership had acquired 48 limited partnership
interests. Each of the 50 apartment complexes owned by such limited
partnerships receives or is expected to receive government assistance and each
of them has received a reservation for federal low income housing credits.
Consistent with the Partnership's investment objectives, each limited
partnership is generating or is expected to generate federal low income housing
credits for a period of approximately ten years, commencing with completion of
construction or rehabilitation of its apartment complex(es), and (as discussed
below) is generating or is expected to generate losses until sale of the
apartment complex(es).
As reflected on its Statements of Operations, the Partnership has a loss of
approximately $417,000 and $363,000 for the three months ended March 31, 1996
and 1995, respectively. The components items of revenue and expense are
discussed below.
REVENUE - Partnership revenues consisted of miscellaneous income from collection
of a loan written off in 1995 and interest earned on investor promissory note
and on cash deposits held in financial institutions (i) as reserves, or (ii)
pending investment in limited partnerships. Interest revenue in future years
will be a function of prevailing interest rates and the amount of cash balances.
EXPENSES - The most significant component of operating expenses is, and is
expected to be, the asset management fee (called "Partnership management fee" in
the Statements of Operations). The asset management fee is equal to 0.5% of
invested assets in limited partnerships; accordingly, the amount to be incurred
in the future is a function of the level of such invested assets (i.e., the sum
of the Partnership's capital contributions to the limited partnerships plus the
Partnership's share of the debts related to the apartment complexes owned by
such limited partnerships). Amortization expense consists of the amortization
over a period of 30 years of the selection fee and other expenses attributable
to the acquisition of limited partnership interests.
Office expenses consists of the Partnership's administrative expenses, such as
accounting and legal fees, bank charges and investor reporting expenses.
EQUITY IN LOSSES FROM LIMITED PARTNERSHIPS - The Partnership's equity in losses
from limited partnerships is equal to 99% of the aggregate net loss of the
limited partnerships. After rent-up, the limited partnerships are expected to
generate losses during each year of operations; this is so because, although
rental income is expected to exceed cash operating expenses, depreciation and
amortization deductions claimed by the limited partnerships are expected to
exceed net rental income.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter ended
March 31 1996.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WNC HOUSING TAX CREDIT FUND III, L.P.
(Registrant)
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
Date: May 13, 1996
By: /s/ Theodore M. Paul
----------------------------------
Theodore M. Paul,
Vice President-Finance
Date: May 13, 1996
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 483,486
<SECURITIES> 0
<RECEIVABLES> 17,004
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 500,490
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,877,466
<CURRENT-LIABILITIES> 592,986
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,284,480
<TOTAL-LIABILITY-AND-EQUITY> 8,877,466
<SALES> 0
<TOTAL-REVENUES> 4,103
<CGS> 0
<TOTAL-COSTS> 92,632
<OTHER-EXPENSES> 328,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (416,529)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416,529)
<EPS-PRIMARY> (27)
<EPS-DILUTED> 0
</TABLE>
