Microsoft Word 11.0.5604;
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X|[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2005
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: 0-26048
WNC HOUSING TAX CREDIT FUND IV, L.P., Series 1
California 33-0563307
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
17782 Sky Park Circle
Irvine, CA 92614-6404
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
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 No X
-------- --------- ----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes No X
--------- -------------------
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
JuneSeptember 30, 2005 and March 31, 2005......................................32005.............................3
Statements of Operations
For the Three and Six Months Ended JuneSeptember 30, 2005 and 2004.....................42004......4
Statement of Partners' Equity (Deficit)
For the ThreeSix Months Ended JuneSeptember 30, 2005..............................52005.........................5
Statements of Cash Flows
For the ThreeSix Months Ended JuneSeptember 30, 2005 and 2004.....................62004................6
Notes to Financial Statements...........................................7Statements.........................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................14Operations.........................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....15Risk...15
Item 4. Procedures and Controls........................................15Controls......................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................15Proceedings............................................15
Item 2. Changes in Securities and Use of Proceed......................15Proceed....................15
Item 3. Defaults Upon Senior Securities...............................15Securities.............................15
Item 4. Submission of Matters to a Vote of Security Holders...........15Holders.........15
Item 5. Other Information.............................................15Information...........................................15
Item 6. Exhibits and Reports on Form 8-K..............................16
Signatures.............................................................178-K.............................16
Signatures...........................................................17
2
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
BALANCE SHEETS
JuneSeptember 30, 2005 March 31, 2005
---------------------- ------------------
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $ 170,236170,671 $ 191,640
Investments in limited partnerships, net (Note 2) 1,111,1851,098,842 1,121,294
---------------------- ------------------
Total assets $ 1,281,4211,269,513 $ 1,312,934
====================== ==================
LIABILITIES AND PARTNERS EQUITY (DEFICIT)
Liabilities:
Payable to limited partnership (Note 4) $ 2,303 $ 2,303
Accrued fees and expenses due to
General Partner and affiliates (Note 3) 162,387178,624 177,069
---------------------- ------------------
Total liabilities 164,690180,927 179,372
---------------------- ------------------
Partners' equity (deficit):
General Partner (88,733)(89,015) (88,565)
Limited Partners (10,000 units authorized,
10,000 units issued and outstanding) 1,205,4641,177,601 1,222,127
---------------------- ------------------
Total partners' equity 1,116,7311,088,586 1,133,562
---------------------- ------------------
$ 1,281,4211,269,513 $ 1,312,934
====================== ==================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended JuneSeptember 30, 2005 and 2004
(unaudited)
2005 2004
----------------------------------------- ------------------------------------
Three Months Six months Three Months ------------------------------ ------------------------------------Six months
------------------- ----------------- ----------------- -------------
Interest income $ 223214 $ 202437 $ 126 $ 328
Distribution income 2,569 1,5006,059 8,628 3,598 5,098
Reporting fee income - 2,456 - ------------------------------ ------------------------------------
Total operating income 5,248 1,702
------------------------------ -------------------------------------
------------------- ----------------- ----------------- -------------
6,273 11,521 3,724 5,426
------------------- ----------------- ----------------- -------------
Operating expenses:
Amortization (Note 2) 1,217 2,434 2,481 4,962
Asset management fees (Note 3) 10,500 21,000 10,500 21,000
Legal &and accounting 500 52513,305 13,805 16,300 16,825
Other 65 1,950
Printing 905 841
------------------------------ ------------------------------------504 1,474 - 2,791
------------------- ----------------- ----------------- -------------
Total operating expenses 13,187 16,297
------------------------------ ------------------------------------25,526 38,713 29,281 45,578
------------------- ----------------- ----------------- -------------
Loss from operations (7,939) (14,595)(19,253) (27,192) (25,557) (40,152)
------------------- ----------------- ----------------- -------------
Equity in losses of
limited partnerships (Note 2) (8,892) (18,461)
------------------------------ ------------------------------------(17,784) (19,683) (38,144)
------------------- ----------------- ----------------- -------------
Net loss
$ (16,831)(28,145) $ (33,056)
============================== ====================================(44,976) $ (45,240) $ (78,296)
=================== ================= ================= =============
Net loss allocated to:
General Partnerpartner
$ (168)(281) $ (331)
============================== ====================================(450) $ (452) $ (783)
=================== ================= ================= =============
Limited Partnerspartners
$ (16,663)(27,864) $ (32,725)
============================== ====================================(44,526) $ (44,788) $ (77,513)
=================== ================= ================= =============
Net loss per limited
partner unit
$ (2)(3) $ (3)
============================== ====================================(4) $ (4) $ (8)
=================== ================= ================= =============
Outstanding weighted limited
partner units 10,000 10,000 ============================== ====================================10,000 10,000
=================== ================= ================= =============
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the ThreeSix Months Ended JuneSeptember 30, 2005
(unaudited)
General Limited
Partner Partners Total
--------------- ------------------- ---------------
Partners' equity (deficit) at March 31, 2005 $ (88,565) $ 1,222,127 $ 1,133,562
Net loss (168) (16,663) (16,831)(450) (44,526) (44,976)
--------------- ------------------- ---------------
Partners' equity (deficit) at JuneSeptember 30, 2005 $ (88,733)(89,015) $ 1,205,4641,177,601 $ 1,116,7311,088,586
=============== =================== ===============
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the ThreeSix Months Ended JuneSeptember 30, 2005 and 2004
(unaudited)
2005 2004
------------------ -----------------
Cash flows from operating activities:
Net loss $ (16,831)(44,976) $ (33,056)(78,296)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 1,217 2,4812,434 4,962
Equity in losses of limited partnerships 8,892 18,46117,784 38,144
Change in accrued fees and expenses due to
General Partner and affiliates (14,682) 1,1751,555 (1,225)
------------------ -----------------
Net cash used in operating activities (21,404) (10,939)(23,203) (36,415)
------------------ -----------------
Cash flows from investing activities:
Distributions from limited partnerships -2,234 3,009
------------------ -----------------
Net decrease in cash (21,404) (7,930)(20,969) (33,406)
Cash and cash equivalents, beginning of period 191,640 222,356
------------------ -----------------
Cash and cash equivalents, end of period $ 170,236170,671 $ 214,426188,950
================== =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ -
================== =================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
- CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)considered necessary for a
fair presentation have been included. Operating results for the threesix months ended
JuneSeptember 30, 2005 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2006. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended March 31,
2005.
Organization
- ------------
WNC Housing Tax Credit Fund IV, L.P., Series 1, a California Limited Partnership
(the "Partnership"), was formed on May 4, 1993 under the laws of the state of
California, and commenced operations on October 20, 1993. The Partnership was
formed to invest primarily in other limited partnerships (the "Local Limited
Partnerships") which own and operate multi-family housing complexes(thecomplexes (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 of the Partnership is WNC Tax Credit Partners IV, L.P.(" ("TCP
IV"). The general partner of TCP IV is WNC & Associates, Inc.("Associates").
The chairman and president own substantially all of the outstanding stock of
Associates. The business of the Partnership is conducted primarily through
Associates as neither TCP IV nor the Partnership have employees of their own.
The Partnership Agreement authorized the sale of up to 10,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in July 1994 at which time
10,000 Units in the amount of $10,000,000 had been accepted. The General Partner
has 1% interest in operating profits and losses, taxable income and losses,cash
available for distribution from the Partnership and tax credits. The limited
partners will be allocated the remaining 99% of these items 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 proceeds
equal to its capital contribution and subordinated disposition fee (as described
in Note 3) from the remainder, any additional sale or refinancing remainder, 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.
Certain Risks and Uncertainties
- -------------------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to Partnership, and the Limited Partners, if any,
on liquidation of the PartnershipsPartnership's investments. Some of those risks include the
following:
The Low Income Housing Tax Credits rules are extremely complicated.
Noncompliance with these rules results in the loss of future Low Income Housing
Tax Credits and the fractional recapture of Low Income Housing Tax Credits
already taken. In
7
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
most cases the annual amount of Low Income Housing Tax Credits that an
individual can use is limited to the tax liability due on the person's last
$25,000 of taxable income. The Local Limited Partnerships may be unable to sell
the Housing Complexes at a price which would result in the Partnership realizing
cash distributions or proceeds from the transaction. Accordingly, the
Partnership may be unable to distribute any cash to its limited partners. Low
Income Housing Tax Credits may be the only benefit from an investment in the
Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
future Low Income Housing Tax Credits, a fractional recapture of prior Low
Income Housing Tax Credits, and a loss of the Partnership's investment in the
Housing Complex would occur. The Partnership is a limited partner or a
non-
managingnon-managing member of each Local Limited Partnership. Accordingly, the
Partnership will have very limited rights with respect to management of the
Local Limited Partnerships. The Partnership will rely totally on the Local
General Partners. Neither the Partnership's investments in Local Limited
Partnerships nor the Local Limited Partnerships' investments in Housing
Complexes are 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 interests in Local Limited Partnerships; limitations
on removal of Local General Partners; limitations on subsidy programs; and
possible changes in applicable regulations. Uninsured casualties could result in
loss of property and Low Income Housing Tax Credits and recapture of Low Income
Housing Tax Credits previously taken. The value of real estate is subject to
risks from fluctuating economic conditions, including employment rates,
inflation, tax, environmental, land use and zoning policies, supply and demand
of similar properties, and neighborhood conditions, among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low Income Housing Tax
Credits and tax losses allocable to the limited partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
Substantially all of the Low Income Housing Tax Credits anticipated to be
realized from the Local Limited Partnerships have been realized. The Partnership
does not anticipate being allocated a significant amount of Low Income Housing
Tax Credits from the Local Limited Partnerships in the future. Until the Local
Limited Partnerships have completed the 15 year Low Income Housing Tax Credit
compliance period, risks exist for potential recapture of prior Low Income
Housing Tax Credits.
No trading market for the Units exists or is expected to develop. Limited
Partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual limited partners
will have no recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
8
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Anticipated future and existing cash resources of the Partnership are not
sufficient to pay existing liabilities of the Partnership. However,
substantially all of the existing liabilities of the Partnership are payable to
the General Partner and/or its affiliates. Though the amounts payable to the
General Partner and/or its affiliates are contractually currently payable, the
Partnership anticipates that the General Partner and/or its affiliates will not
require the payment of these contractual obligations until capital reserves are
in excess of the aggregate of then existing contractual obligations and then
anticipated future foreseeable obligations of the Partnership. The Partnership
would be adversely affected should the General Partner and/or its affiliates
demand current payment of the existing contractual obligations and or suspend
services for this or any other reason.
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 Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the sum of the remaining future Low Income
Housing Tax Credits estimated to be allocated to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the investment exceeds fair value. The accounting
policies of the Local Limited Partnerships are generally 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).
Equity in losses of Limited Partnerships for the periods ended JuneSeptember 30,
2005 and 2004 have been recorded by the Partnership based on three monthsSix Months of
reported results estimated by management of the Partnership. Management's
estimate for the three-month period is based on either actual unaudited results
reported by the Local Limited Partnerships or historical trends in the
operations of the Local Limited Partnerships. In subsequent annual financial
statements, upon receiving the actual annual results reported by the Local
Limited Partnerships, management reverses its prior estimate and records the
actual results reported by the Local Limited Partnerships. Equity in losses from
the Limited Partnerships allocated to the Partnership are not recognized to the
extent that the investment balance would be adjusted below zero. As soon as the
investment balance reaches zero, amortization of the related costs of acquiring
the investment are accelerated to the extent of losses available (see Note 2).
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.
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.
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. WNC 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 $946,704 at the end of all periods
presented.
9
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-Continued
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Exit Strategy
- -------------
The IRS compliance period for Low Income Housing Tax Credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties including those that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the limited partners from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the Limited Partners' return
wherever possible and, ultimately, to wind down those funds that no longer
provide tax benefits to Limited Partners. However, Local Limited Partnership
interests may be disposed at any time by Associates in its discretion. To date
no properties in the Partnership have been selected for disposition.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. As of September
30, 2005 and March 31, 2005, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At JuneSeptember 30, 2005, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amounts.
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 loss available to limited
partnersLimited
Partners by the weighted average number of units outstanding during the period.
Calculation of diluted net loss per unit is not required.
Income Taxes
- ------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liability and/or benefits for income taxes as income taxes
flows to the partners of the Partnership and is their obligation and/or benefit.
For income tax purposes the Partnership reports on a calendar year basis.
Reporting Comprehensive Income
- ------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all periods presented, as defined by SFAS No. 130.
10
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
New Accounting Pronouncements
- -----------------------------
As of March 31, 2004, the Partnership adopted FASB Interpretation No. 46 -
Revised, Consolidation of Variable Interest Entities ("FIN46R"). FIN 46R
provides guidance as to when a company should include the assets, liabilities,
and activities of a variable interest entity ("VIE") in its financial
statements, and when a company should disclose information about its
relationship with a VIE. A VIE is a legal structure used to conduct activities
or hold assets, and a VIE must be consolidated by a company if it is the primary
beneficiary because a primary beneficiary absorbs the majority of the entity's
expected losses, the majority of the expected residual returns, or both.
Under FIN 46R, the Local Limited Partnerships in which the Partnership invests
are VIEs. However, management does not consolidate the Partnership's interests
in these VIE's under FIN46R, as the Partnership is not considered the primary
beneficiary. Rather, the Partnership currently records the amount of the
investment in the Local Limited Partnerships as an asset in the balance sheet,
and recognizes its share of Local Limited Partnership income or loss in the
statement of operations.
The Partnership's balance in its investment in Local Limited Partnerships, plus
the risk of recapture of tax credits previously recognized on these investments,
representsrepresent its maximum exposure to loss. The Partnership's exposure to loss is
mitigated by the condition and financial performance of the underlying
properties, as well as the strength of the Local General Partners and their
guarantee against credit recapture.
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154
(SFAS 154), "Accounting Changes and Error Corrections" which provides guidance
on the accounting for and reporting of accounting changes and correction of
errors. This statement changes the requirements for the accounting for and
reporting of a change in accounting principle and applies to all voluntary
changes in accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. This statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Partnership does not anticipate a material effect
upon the adoption of this statement.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of the periods presented, the Partnership had acquired limited partnership
interests in twenty-one Local Limited Partnerships, each of which owns one
housing complex, consisting of an aggregate of 812 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, taxable income and
losses and tax credits of the Local Limited Partnerships.
11
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented below:
For the ThreeSix Months For the Year
Ended Months Ended
Ended
JuneSeptember 30, 2005 March 31, 2005
---------------------- -------------------
Investments per balance sheet,
beginning of period $ 1,121,294 $ 1,395,876
Distributions received from limited partnerships -(2,234) (13,894)
Equity in losses of limited partnerships (8,892)(17,784) (122,808)
Impairment loss - (127,956)
Amortization of capitalized acquisition fees and costs (1,217)(2,434) (9,924)
---------------------- -------------------
Investments per balance sheet,
end of period $ 1,111,1851,098,842 $ 1,121,294
====================== ===================
Selected financial information for the threesix months ended JuneSeptember 30, 2005 and
2004 from the unaudited combined condensed financial statements of the limited
partnership in which the Partnership has invested is as follows:
2005 2004
------------------- -------------------
Revenues $ 959,0001,919,000 $ 936,0001,873,000
Expenses:
Interest expense 196,000 208,000393,000 417,000
Depreciation and amortization 267,000 270,000533,000 539,000
Operating expenses 673,000 645,0001,346,000 1,291,000
------------------- -------------------
Total expenses 1,136,000 1,123,0002,272,000 2,247,000
------------------- -------------------
Net loss $ (177,000) $ (187,000)(353,000) (374,000)
=================== ===================
Net loss allocable to the Partnership $ (174,000)(347,000) $ (184,000)(368,000)
=================== ===================
Net loss recorded by the Partnership $ (9,000)(18,000) $ (18,000)(38,000)
=================== ===================
12
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the QuarterQuarterly Period Ended JuneSeptember 30, 2005
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Certain Local Limited Partnerships have incurred significant operating losses
and/or have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partners 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, and the loss and recapture of the related tax credits could occur.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
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 for the following items:
(a) Annual Asset Management Fee. An annual asset management fee equal to the
greater amount of (i) $2,000 for each apartment complex, or (ii) 0.275% of
gross proceeds. The base fee amount will be adjusted annually based on
changes to the Consumer Price Index. However, in no event will the annual
asset management fee exceed 0.2% of the invested assets of the Local
Limited Partnerships, including the Partnership's allocable share of the
mortgages. Asset management fees of $10,500$21,000 were incurred for each of the
threesix months ended JuneSeptember 30, 2005 and 2004. The Partnership paid $18,750$28,125
and $7,500$22,500 of those asset management fees for the threesix months ended
JuneSeptember 30, 2005 and 2004, respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee is an amount
equal to 1% of the sales price of real estate sold. Payment of this fee is
subordinated to the Limited Partners receiving a preferred return of 16%
through December 31, 2004 and 6% thereafter (as defined in the Partnership
Agreement) and is payable only if the General Partner or its affiliates
render services in the sales efforteffort.
(c) The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred in behalf of the Partnership. Operating expense
reimbursements are approximately $7,900$9,544 and $0$19,341 during the threesix months
ended JuneSeptember 30, 2005 and 2004, respectively.
The accrued fees and advances due to General Partner and/or its affiliates
consisted of the following:
JuneSeptember 30, 2005 March 31, 2005
---------------------- --------------------
Reimbursement for expenses paid by the General
Partner and/or its affiliate $ 1,47016,582 $ 7,902
Asset management fee payable 160,917162,042 169,167
---------------------- --------------------
$ 162,387178,624 $ 177,069
====================== ====================
NOTE 4 - PAYABLE TO LIMITED PARTNERSHIP
- ---------------------------------------
PayablesPayable to Limited Partnerships represent amounts, which are due at various
times based on conditions specified in the Limited Partnership Agreement. These
contributions are payable in installments and are due upon the Limited
Partnership achieving certain operating and development benchmarks (generally
within two years of the Partnership's initial investment).benchmarks.
13
WNC HOUSING TAX CREDIT FUND IV L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended June 30, 2005
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain
forward-looking statements. Such statements are based on current expectations
subject to uncertainties and other factors, which may involve known and unknown
risks that could cause actual results of operations to differ materially from
those, projected or implied. Further, certain forward-looking statements are
based upon assumptions about future events, which may not prove to be accurate.
Risks and uncertainties inherent in forward-looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low-income housing tax
creditLow Income Housing Tax
Credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the condensed unaudited Financial Statements and the Notes
thereto included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
threesix months ended JuneSeptember 30, 2005 and 2004, and should be read in conjunction
with the condensed financial statements and accompanying notes included within
this report.
Financial Condition
The Partnership's assets at JuneSeptember 30, 2005 consisted primarily of $170,000$171,000
in cash and aggregate investments in the twenty-one Local Limited Partnerships
of $1,111,000.$1,099,000. Liabilities at JuneSeptember 30, 2005 consisted primarily of $162,000$179,000
in accrued asset annual management fees and reimbursement for expenses paid by
the General Partner and its affiliates.
Results of Operations
Three Months Ended JuneSeptember 30, 2005 Compared to Three Months Ended JuneSeptember 30,
2004. The Partnership's net loss for the three months ended JuneSeptember 30, 2005 was
$(17,000)$(28,000), reflecting a decrease of $16,000$17,000 from the net loss experienced for
the three months ended JuneSeptember 30, 2004 of $(33,000)$(45,000). The decrease in net loss
is primarily due to equity in losses offrom Local Limited Partnerships which
decreased by $10,000$11,000 to $(9,000) for the three months ended JuneSeptember 30, 2005
from $(19,000)$(20,000) for the three months ended JuneSeptember 30, 2004. The decrease in
equity in losses of Local Limited Partnerships is due to the Partnership not
recognizing certain losses of the Local Limited Partnerships. ThePartnerships, as the investments
in such Local Limited Partnerships had reached $0 at JuneSeptember 30, 2005. Since
the Partnership's liability with respect to its investments is limited, losses
in excess of investment are not recognized. In addition to the equity in losses
from Local Limited Partnerships there was also a decrease in losses from
operations by approximately $6,000 to $(19,000) for the three months ended
September 30, 2005 from $(25,000) for the three months ended September 30, 2004.
The decrease in losses from operations was due to a $2,000 increase of
distribution income along with a $3,000 decrease in legal and accounting
expenses, and a $1,000 decrease in amortization.
Six Months Ended September 30, 2005 Compared to Six Months Ended September 30,
2004. The Partnership's net loss for the six months ended September 30, 2005 was
$(45,000), reflecting a decrease of $33,000 from the net loss experienced for
the six months ended September 30, 2004 of $(78,000). The decrease in net loss
is primarily due to equity in losses of Local Limited Partnerships which
decreased by $20,000 to $(18,000) for the six months ended September 30, 2005
from $(38,000) for the six months ended September 30, 2004. The decrease in
equity in losses of Local Limited Partnerships is due to the Partnership not
recognizing certain losses of the Local Limited Partnerships, as the investments
in such Local Limited Partnerships had reached $0 at September 30, 2005. Since
the Partnership's liability with respect to its investments is limited, losses
in excess of investment are not recognized. Along with the decrease in equity in
losses of Local Limited Partnerships, the loss from operations decreased by
approximately $6,000$13,000 to $(8,000)$(27,000) for the threesix months ended JuneSeptember 30, 2005
from $(14,000)$(40,000) for the threesix months ended JuneSeptember 30, 2004, which was
contributed to a $1,000$4,000 increase in distribution income, a $2,000 increase in
reporting fee income, along with a $1,000$3,000 decrease in amortization, a $3,000
decrease in legal and accounting expenses and a $2,000$1,000 decrease in other
operating expenses for the threesix months ended JuneSeptember 30, 2005.
14
Cash Flows
Three monthsSix Months Ended JuneSeptember 30, 2005 Compared to Three monthsSix Months Ended JuneSeptember 30,
2004. Net cash used during the threesix months ended JuneSeptember 30, 2005 was $(21,000)
compared to net cash used by the threesix months ended JuneSeptember 30, 2004 of
$(8,000)$(33,000). The increasedecrease of $12,000 in cash used was primarily due to an increasea decrease
in cash used by operating activities of approximately $(10,000)$13,000 which included a
$16,000$5,000 decrease in amortization offset by a $(3,000) increase in accrued fees
and expense due to General Partner and its affiliates, and a decrease in cash
provided by investing activities of $(3,000)$(1,000) for the threesix months ended JuneSeptember
30, 2005.
During the threesix months ended JuneSeptember 30, 2005, accrued payables, which consist
primarily of related party management fees and advances due to the General
Partner, increased by approximately $15,000.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2005, to be sufficient to meet all currently foreseeable
future cash requirements.$3,000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NOT APPLICABLE
Item 4. Procedures and Controls
As of the end of the period covered by this report, the Partnership's General
Partner, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates carried out an evaluation of
the effectiveness of the Fund's "disclosure controls and procedures" as defined
in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to the Partnership
required to be included in the Partnership's periodic SEC filings.
Changes in internal controls. There were no changes in the Partnership's
internal control over financial reporting that occurred during the quarter ended
JuneSeptember 30, 2005 that materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
15
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
NONE
(b) Exhibits.
---------
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-
15(e)and 15d-15(e), as adopted pursuant to section 302 of the Sarbanes-
Oxley Act of 2002.(filed (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-
15(e) and 15d-15(e),as adopted pursuant to section 302 of the Sarbanes-
Oxley Act of 2002. (filed herewith)
32.1 Section 1350 Certification of the Chief Executive Officer. (filed
herewith)
32.2 Section 1350 Certification of the Chief Financial Officer. (filed
herewith)
16
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 IV, L.P., Series 1
By: WNC Tax Credit Partners IV, L.P. General Partner of the Registrant
By: WNC & ASSOCIATES, INC. General Partner of WNC Tax Credit Partners IV, L.P.
By: /s/ Wilfred N. Cooper Jr.
- -------------------------------------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: November 21,December 29, 2005
By: /s/ Thomas J. Riha
- -----------------------------------------
Thomas J. Riha,
Senior Vice President-Chief Financial Officer of WNC & Associates, Inc.
Date: November 21,December 29, 2005
17
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