FORM 10-K
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 March 31, 2002
OR
o 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: 0-20058
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
California 33-0316953
(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____ No __X
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-affiliates 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
PART I.
Item 1. Business
Organization
WNC California Housing Tax Credits, L.P. ("CHTC" or the "Partnership") is a
California Limited Partnership formed under the laws of the State of California
on September 15, 1988. 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 Credits").
The general partners of the Partnership are WNC & Associates, Inc.
("Associates") and Wilfred N. Cooper, Sr. (collectively, the "General Partner"
or "General Partners"). Wilfred N. Cooper, Sr., through the Cooper Revocable
Trust, owns 93.65% of the outstanding stock of Associates. Wilfred N. Cooper,
Jr., President of Associates, owns 3.01% 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 March 16, 1989, the Partnership commenced a public offering of
10,000 Units of Limited Partnership Interest ("Units") at a price of $1,000 per
Unit. As of the close of the public offering on October 31, 1990, a total of
7,450 Units representing $7,450,000 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 Supplement No. 1 through Supplement No. 9 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 a Housing Complex prior to the end
thereof, possibly resulting in recapture of Low Income Housing Credits.
As of March 31, 2002, the Partnership had invested in eleven Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that is eligible for the federal Low Income Housing Credit and eight 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.
3
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 eleven Housing Complexes as of the dates and for the
periods indicated:
4
------------------------ ----------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------ ----------------------------------------------
Partnership's
Total Estimated Encumbrances
Investment Amount of Low Income of Local
Partnership Name Location General Partner Name Partnership's Paid to Date Of Units Occupancy Credits Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Philip R. Hammond,
Alta Vista Orosi Jr. and Diane M.
Investors California Hammond $ 583,000 $ 583,000 42 100% $ 1,274,000 $ 1,428,000
Anderson, Douglas W.
BCA Associates California Young 514,000 514,000 40 100% 1,105,000 1,416,000
David J. Michael,
Patrick R.
Sabelhaus and
Professional
Cloverdale Garden Cloverdale, Apartment
Apartments California Management 617,000 617,000 34 97% 1,387,000 1,630,000
Philip R. Hammond,
Countryway Mendota, Jr. and Diane M.
Associates California Hammond 571,000 571,000 41 95% 1,162,000 1,469,000
David J. Michael
and Professional
East Garden Jamestown, Apartment
Apartments California Management 770,000 770,000 51 98% 1,772,000 2,144,000
Shafter, Douglas W.
HPA California Young 538,000 538,000 42 86% 1,223,000 1,504,000
Knights Douglas W.
Knights Landing Landing Young and Diane
Harbor California L. Young 275,000 275,000 25 92% 446,000 978,000
5
------------------------- ---------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------- ---------------------------------------------
Partnership's
Total Estimated Encumbrances
Investment Amount of Low Income of Local
Partnership Name Location General Partner Name Partnership's Paid to Date Of Units Occupancy Credits Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Philip R. Hammond,
Midland Manor Mendota, Jr. and Diane M.
Associates California Hammond 383,000 383,000 40 93% 668,000 1,421,000
Richard Parasol
San Jacinto San Jacinto, and Richard A.
Associates California Gullota 469,000 469,000 38 97% 830,000 1,776,000
Thomas G. Larson,
William H. Larson
Woodlake Woodlake, and Raymond L.
Manor California Tetzlaff 545,000 545,000 44 89% 1,146,000 1,447,000
Yreka Investment Yreka, Ronald D.
Group California Bettencourt 538,000 538,000 36 100% 1,174,000 1,462,000
------------ ------------ ---------- ------- ------------- ---------
$ 5,803,000 $ 5,803,000 433 95% $ 12,187,000 $ 16,675,000
============ ============ ======= ==== ============= ============
6
--------------------------------------------------------------------------
For the year ended December 31, 2001
--------------------------------------------------------------------------
Low Income
Housing Credits
Allocated to
Partnership Name Rental Income Net Loss Partnership
-------------------------------------------------------------------------------------------------------------------
Alta Vista Investors $ 158,000 $ (43,000) 99%
BCA Associates 162,000 (25,000) 99%
Cloverdale Garden Apartments 190,000 (28,000) 99%
Countryway Associates 160,000 (70,000) 99%
East Garden Apartments 232,000 (34,000) 99%
HPA Investors 157,000 (58,000) 99%
Knights Landing Harbor 116,000 (25,000) 99%
Midland Manor Associates 152,000 (50,000) 99%
San Jacinto Associates 190,000 (16,000) 99%
Woodlake Manor 167,000 (114,000) 99%
Yreka Investment Group 166,000 (17,000) 99%
------------ -----------
$ 1,850,000 $ (479,000)
============ ===========
7
11
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 March 31, 2002, there were 688 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 the year
ended March 31, 2002.
Item 5b.
NOT APPLICABLE
Item 6. Selected Financial Data
Selected balance sheet information for the Partnership is as follows:
March 31 December 31
------------------------------------------------------ -------------------------
2002 2001 2000 1999 1998 1997
----------- ----------- ----------- ------------ ----------- -----------
ASSETS
Cash and cash
equivalents $ 12,170 $ 44,172 $ 47,877 $ 61,123 $ 66,028 $ 78,109
Investments in limited
partnerships, net 600,843 809,249 1,187,690 1,508,351 1,595,464 2,001,822
----------- ----------- ----------- ------------ ----------- -----------
$ 613,013 $ 853,421 $ 1,235,567 $ 1,569,474 $ 1,661,492 $ 2,079,931
=========== =========== =========== ============ =========== ===========
LIABILITIES
Accrued fees and
expenses due to
general partner and
affiliates $ 1,180,524 $ 1,080,521 $ 957,395 $ 848,503 $ 820,365 $ 705,925
PARTNERS' EQUITY
(DEFICIT) (567,511) (227,100) 278,172 720,971 841,127 1,374,006
----------- ----------- ----------- ------------ ----------- -----------
$ 613,013 $ 853,421 $ 1,235,567 $ 1,569,474 $ 1,661,492 $ 2,079,931
=========== =========== =========== ============ =========== ===========
8
Selected results of operations, cash flows and other information for the
Partnership are as follows for the periods indicated:
For the Years Ended For the Three Months For the Years Ended
March 31 Ended March 31 December 31
------------------------------------- --------------------------- --------------------------
2002 2001 2000 1999 1998 1998 1997
---------- --------- ---------- ------------ ------------ ------------ --------------
(Unaudited)
Loss from operations $ (139,316) $ (146,597) $ (142,543) $ (37,519) $ (32,603) $ (144,721) $ (137,368)
Equity in loss from
limited partnerships (201,095) (358,675) (300,256) (82,637) (104,625) (388,158) (420,868)
------------ ------------ ---------- ------------ ------------ ------------- -------------
Net loss $ (340,411) $ (505,272) $ (442,799) $ (120,156) $ (137,228) $ (532,879)$ (558,236)
============ ============ ========== ============ ============ ============= =============
Net loss allocated to:
General partners $ (3,404) $ (5,053) $ (4,428) $ (1,202) $ (1,372) $ (5,329) $ (5,582)
============ ============ ========== ============ ============ ============ ==============
Limited partners $ (337,007) $ (500,219) $ (438,371) $ (118,954) $ (135,856) $ (527,550) $ (552,654)
============ ============ ========== ============ ============ ============ ==============
Net loss per limited
partner unit $ (45.24) $ (67.14) $ (58.84) $ (15.97) $ (18.24) $ (70.81) $ (74.18)
============ ============ ============= ============ ============ ============ ==============
Outstanding weighted
limited partner units 7,450 7,450 7,450 7,450 7,450 7,450 7,450
============ ========= ============ ============ ============ ============= ==============
For the Years Ended For the Three Months For the Years Ended
March 31 Ended March 31 December 31
--------------------------------------- -------------------------- --------------------------
2002 2001 2000 1999 1998 1998 1997
----------- ---------- ---------- ----------- ------------ ----------- -----------
(Unaudited)
Net cash provided by
(used in):
Operating activities $ (34,751) $ (8,569) $ (18,747) $ (5,655) $ 546 $ (15,377) $ (10,787)
Investing activities 2,749 4,864 5,501 750 535 3,296 4,953
------------ ------------ ---------- ----------- ----------- ------------- -------------
Net change in cash and
cash equivalents (32,002) (3,705) (13,246) (4,905) 1,081 (12,081) (5,834)
Cash and cash
equivalents,
beginning of period 44,172 47,877 61,123 66,028 78,109 78,109 83,943
----------- ------------ ---------- ----------- ----------- ------------- -------------
Cash and cash
equivalents, end of
period $ 12,170 $ 44,172 $ 47,877 $ 61,123 $ 79,190 $ 66,028 $ 78,109
============ ============ ========== =========== =========== ============= =============
Low Income Housing Credit per Unit was as follows for the years ended December
31:
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Federal $ 16 $ 59 $ 99 $ 99 $ 99
State - - - - -
------------ ------------ ------------ ------------ ------------
Total $ 16 $ 59 $ 99 $ 99 $ 99
============ ============ ============ ============ ============
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
The Partnership's assets at March 31, 2002 consisted primarily of $12,000 in
cash and aggregate investments in the eleven Local Limited Partnerships of
$601,000. Liabilities at March 31, 2001 primarily consisted of $1,179,000 of
accrued annual management fees due to the General Partners.
Results of Operations
Year Ended March 31, 2002 Compared to Year Ended March 31, 2001. The
Partnership's net loss for the year ended March 31, 2002 was $(340,000),
reflecting a decrease of $165,000 from the net loss experienced for the year
ended March 31, 2001. The decrease in net loss is primarily due to equity in
losses from limited partnerships which decreased by $158,000 to $(201,000) for
the year ended March 31, 2002 from $(359,000) for the year ended March 31, 2001.
Equity in losses of limited partnerships included a portion relating to the
reduction of the net acquisition fee component of investments in Local Limited
Partnerships to zero for those Local Limited Partnerships which would otherwise
be below a zero balance.
Year Ended March 31, 2001 Compared to Year Ended March 31, 2000. The
Partnership's net loss for the year ended March 31, 2001 was $(505,000),
reflecting an increase of $62,000 from the net loss experienced for the year
ended March 31, 2000. The increase in net loss is primarily due to equity in
losses from limited partnerships which increased by $59,000 to $(359,000) for
the year ended March 31, 2001 from $(300,000) for the year ended March 31, 2000.
Equity in losses of limited partnerships increased due to the reduction of the
net acquisition fee component of investments in Local Limited Partnerships to
zero for those Local Limited Partnerships which would otherwise be below a zero
balance.
Cash Flows
Year Ended March 31, 2002 Compared to Year Ended March 31, 2001. Net cash used
during the year ended March 31, 2002 was $(32,000), compared to net cash used
for the year ended March 31, 2001 of $(4,000). The net cash used primarily
represents cash used for operating expenses net of minimal cash distributions
from Local Limited Partnerships.
Year Ended March 31, 2001 Compared to Year Ended March 31, 2000. Net cash used
during the year ended March 31, 2001 was $(4,000), compared to net cash used for
the year ended March 31, 2000 of $(13,000). The net cash used primarily
represents cash used for operating expenses net of minimal cash distributions
from Local Limited Partnerships.
During the years ended March 31, 2002, 2001 and 2000, accrued payables, which
consist primarily of related party management fees due to the General Partner,
increased by $100,000, $123,000 and $109,000, respectively. 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.
The Partnership currently has insufficient working capital to fund its
operations. WNC has agreed to continue providing advances sufficient enough to
fund the operations and working capital requirements of the Partnership through
at least April 1, 2003.
Impact of New Accounting Pronouncement
In October 2001, the FASB issued Statement of Financial Accounting Standards
No.144,"Accounting for the Impairment or Disposal of Long-Lived Asssets" ("SFAS
144"), which addresses accounting and financial reporting for the impairment or
disposal of long-lived assest. SFAS 144 is effective for fiscal years beginning
after December 15, 2001, and generally, is to be applied prospectively. We have
not yet completed our evaluation of the impact of SFAS 144 on our financial
position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
NOT APPLICABLE
Item 8. Financial Statements and Supplementary Data
10
Report of Independent Certified Public Accountants
To the Partners
WNC California Housing Tax Credits, L.P.
We have audited the accompanying balance sheets of WNC California Housing Tax
Credits, L.P. (a California Limited Partnership) (the "Partnership") as of March
31, 2002 and 2001, and the related statements of operations, partners' deficit
and cash flows for the years ended March 31, 2002, 2001 and 2000. 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 audits. 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 79% and
78% of the total assets of the Partnership at March 31, 2002 and 2001,
respectively. 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 audits in accordance with auditing standards generally accepted
in the United States of America. 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, L.P. (A California
Limited Partnership) as of March 31, 2002 and 2001, and the results of its
operations and its cash flows for the years ended March 31, 2002, 2001 and 2000,
in conformity with accounting principles generally accepted in the United States
of America.
The Partnership currently has insufficient working capital to fund its
operations. As discussed in Note 3 to the financial statements, WNC and
Associates, Inc., the general partner of the Partnership, has agreed to continue
providing advances sufficient enough to fund the operations and working capital
requirements of the Partnership through at least April 1, 2003.
/S/BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Orange County, California
April 19, 2002
11
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31
------------------------------
2002 2001
-------------- -------------
ASSETS
Cash and cash equivalents $ 12,170 $ 44,172
Investments in limited partnerships, net (Notes 2 and 3) 600,843 809,249
-------------- -------------
$ 613,013 $ 853,421
============== =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accrued fees and expenses due to General Partner and
affiliates (Note 3) $ 1,180,524 $ 1,080,521
Commitments and contingencies
Partners' deficit:
General partners (70,516) (67,112)
Limited partners (10,000 units authorized; 7,450 units
issued and outstanding) (496,995) (159,988)
-------------- -------------
Total partners' deficit (567,511) (227,100)
-------------- -------------
$ 613,013 $ 853,421
============== =============
See accompanying notes to financial statements
12
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended March 31
----------------------------------------------
2002 2001 2000
-------------- ------------ ------------
Interest income $ 720 $ 1,836 $ 1,817
Distribution income 1,584 1,584 -
-------------- ------------ ------------
Total income 2,304 3,420 1,817
-------------- ------------ ------------
Operating expenses:
Amortization (Note 2) 4,562 14,902 14,904
Asset management fees (Note 3) 111,854 111,856 111,855
Legal and accounting 18,957 17,995 12,807
Office 6,247 5,264 4,794
-------------- ------------ ------------
Total operating expenses 141,620 150,017 144,360
-------------- ------------ ------------
Loss from operations (139,316) (146,597) (142,543)
Equity in losses of limited
partnerships (Note 2) (201,095) (358,675) (300,256)
-------------- ------------ ------------
$ (340,411) $ (505,272) $ (442,799)
============== ============ ============
Net loss allocated to:
General partners $ (3,404) $ (5,053) $ (4,428)
============== ============ ============
Limited partners $ (337,007) $ (500,219) $ (438,371)
============== ============ ============
Net loss per limited partnership unit $ (45.24) $ (67.14) $ (58.84)
============== ============ ============
Outstanding weighted limited partner units 7,450 7,450 7,450
============== ============ ============
See accompanying notes to financial statements
13
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For The Years Ended March 31, 2002, 2001 and 2000
General Limited Total
Partners Partners
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 1999 $ (57,631) $ 778,602 $ 720,971
Net loss (4,428) (438,371) (442,799)
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 2000 (62,059) 340,231 278,172
Net loss (5,053) (500,219) (505,272)
--------------- --------------- ---------------
Partners' deficit at March 31, 2001 (67,112) (159,988) (227,100)
Net loss (3,404) (337,007) (340,411)
--------------- --------------- ---------------
Partners' deficit at March 31, 2002 $ (70,516) $ (496,995) $ (567,511)
=============== =============== ===============
See accompanying notes to financial statements
14
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended March 31
-------------------------------------------
2002 2001 2000
------------ ------------ -----------
Cash flows from operating activities:
Net loss $ (340,411) $ (505,272) $ (442,799)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization 4,562 14,902 14,904
Equity in losses of limited partnerships 201,095 358,675 300,256
Change in accrued fees and expenses due to
General Partner and affiliates 100,003 123,126 108,892
------------ ------------ -----------
Net cash used in operating activities (34,751) (8,569) (18,747)
------------ ------------ -----------
Cash flows provided by investing activities:
Distributions from limited partnerships 2,749 4,864 5,501
------------ ------------ -----------
Net decrease in cash and cash equivalents (32,002) (3,705) (13,246)
Cash and cash equivalents, beginning of period 44,172 47,877 61,123
------------ ------------ -----------
Cash and cash equivalents, end of period $ 12,170 $ 44,172 $ 47,877
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Taxes paid $ 800 $ 800 $ 800
============ ============ ===========
See accompanying notes to financial statements
15
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
WNC California Housing Tax Credits, L.P., a California Limited Partnership (the
"Partnership"), was formed on September 15, 1988 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.
WNC & Associates, Inc., a California corporation ("WNC"), and Wilfred N. Cooper,
Sr., are general partners of the Partnership (the "General Partners"). Wilfred
N. Cooper, Sr., through the Cooper Revocable Trust owns 93.65% of the
outstanding stock of WNC. Wilfred N. Cooper, Jr., President of WNC, owns 3.01%
of the outstanding stock of WNC.
The Partnership shall continue to be in full force and effect until December 31,
2037 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 10,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in October 1990 at which
time 7,450 Units representing subscriptions in the amount of $7,450,000, had
been accepted. The General Partners have a 1% interest in operating profits and
losses, taxable income and losses, in cash available for distribution from the
Partnership and tax credits of 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 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 Partners have received proceeds
equal to their capital contributions from the remainder, any additional sale or
refinancing proceeds will be distributed 99% to the limited partners (in
proportion to their respective investments) and 1% to the General Partners.
16
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
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
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 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 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 on the transferability of Units, and it
is unlikely that a market for Units will develop. All management decisions will
be made by the General Partners.
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 and are being amortized over 30 years (see Note 2).
Losses from Local Limited Partnerships for the years ended March 31, 2002, 2001
and 2000 have been recorded by the Partnership based on nine months of reported
results provided by the Local Limited Partnerships and on three months of
results estimated by management of the Partnership. Losses from 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 is accelerated to the extent of losses available (see Note 3).
17
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
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.
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 remaining
maturities of three months or less when purchased to be cash equivalents. As of
March 31, 2002 and 2001, the Partnership had no cash equivalents.
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited partner 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
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net loss per unit is not required.
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 years presented, as defined by SFAS No. 130.
New Accounting Pronouncement
- ----------------------------
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), addresses accounting and financial reporting for the impairment or
disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning
after December 15, 2001, and generally, is to be applied prospectively. The
Partnership has not yet completed its evaluation of the impact of SFAS 144 on
its financial position or results of operations.
18
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of the periods presented, the Partnership has acquired limited partnership
interests in eleven Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 433 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.
The Partnership's investments in Local Limited Partnerships as shown in the
balance sheets at March 31, 2002 and 2001, are approximately $571,000 and
$298,000, respectively, greater than the Partnership's equity at the preceding
December 31 as shown in the Local Limited Partnerships' combined financial
statements presented below. 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. The Partnership's investment is also lower
than the Partnership's equity as shown in the Local Limited Partnership's
combined financial statements due to the estimated losses recorded by the
Partnership for the three month period ended March 31.
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.
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 March 31, 2002 and 2001, the investment accounts in certain Local Limited
Partnerships have reached a zero balance. Consequently, a portion of the
Partnership's estimate of its share of losses for the years ended March 31,
2002, 2001 and 2000, amounting to approximately $276,000, $116,000 and $103,000,
respectively, have not been recognized. As of March 31, 2002, the aggregate
share of net losses not recognized by the Partnership amounted to $550,000.
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented:
For the Years
Ended March 31
-------------------------------------------
2002 2001 2000
------------ ----------- ------------
Investments per balance sheet, beginning of period $ 809,249 $ 1,187,690 $ 1,508,351
Equity in losses of limited partnerships (201,095) (358,675) (300,256)
Distributions received (2,749) (4,864) (5,501)
Amortization of paid acquisition fees and costs (4,562) (14,902) (14,904)
------------ ----------- ------------
Investments per balance sheet, end of period $ 600,843 $ 809,249 $ 1,187,690
============ =========== ============
19
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
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 against
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
2001 2000
--------------- ---------------
ASSETS
Buildings and improvements (net of accumulated
depreciation for 2001 and 2000 of $7,304,000 and
$6,668,000, respectively) $ 14,501,000 $ 14,964,000
Land 1,484,000 1,484,000
Other assets 1,513,000 1,606,000
--------------- ---------------
$ 17,498,000 $ 18,054,000
=============== ===============
LIABILITIES
Mortgage loans payable $ 16,675,000 $ 16,724,000
Due to related parties 347,000 373,000
Other liabilities 178,000 165,000
--------------- ---------------
17,200,000 17,262,000
--------------- ---------------
PARTNERS' CAPITAL
WNC California Housing Tax Credits, L.P. 30,000 511,000
Other partners 268,000 281,000
--------------- ---------------
298,000 792,000
--------------- ---------------
$ 17,498,000 $ 18,054,000
=============== ===============
20
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2001 2000 1999
--------------- --------------- ---------------
Revenues $ 1,936,000 $ 1,891,000 $ 1,849,000
--------------- --------------- ---------------
Expenses:
Operating expenses 1,394,000 1,336,000 1,237,000
Interest expense 385,000 396,000 401,000
Depreciation and amortization 636,000 625,000 622,000
--------------- --------------- ---------------
Total expenses 2,415,000 2,357,000 2,260,000
--------------- --------------- ---------------
Net loss $ (479,000) $ (466,000) $ (411,000)
=============== =============== ===============
Net loss allocable to the Partnership $ (474,000) $ (461,000) $ (407,000)
=============== =============== ===============
Net loss recorded by the Partnership $ (201,000) $ (359,000) $ (300,000)
=============== =============== ===============
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 and/or the Local General Partners may be
required to sustain 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
- -----------------------------------
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partners or their affiliates for the following items:
Acquisition fees equal to 6% 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 the end of all
periods presented, the Partnership incurred acquisition fees of
$447,060. Accumulated amortization of these capitalized costs was
$329,564 and $300,629, as of March 31, 2002 and 2001, respectively. Of
the accumulated amortization recorded on the balance sheet at March
31, 2001, $80,140 of the related expense was reflected as equity in
losses of limited partnerships on the statement of operations during
the fourth quarter of the year ended March 31, 2001 to reduce the
respective net acquisition fee component of investments in local
limited partnerships to zero for those Local Limited Partnerships
which would otherwise be below a zero balance. During 2002 an
additional $24,373 was recognized under the same methodology.
Reimbursement of costs incurred by the General Partners or an
affiliate in connection with the acquisition of the Local Limited
Partnerships. These reimbursements have not exceeded 3% of the gross
proceeds. As of the end of all periods presented, the Partnership had
incurred acquisition costs of $32,018 which have been included in
investments in limited partnerships and were fully amortized at March
31, 2002.
An annual management fee equal to 0.5% of the invested assets of the
Local Limited Partnerships, including the Partnerships allocable share
of the mortgages. Management fees of $111,854, $111,856 and $111,855
were incurred during the years ended March 31, 2002, 2001 and 2000,
respectively, of which $2,430, $0 and $0 was paid during the years
ended March 31, 2002, 2001 and 2000, respectively.
21
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
The accrued fees and expenses due to the General Partners and affiliates consist
of the following as of the dates indicated:
March 31
-----------------------------
2002 2001
------------ --------------
Reimbursement for expenses paid by the General Partners
or an affiliate $ 1,850 $ 11,271
Asset management fee payable 1,178,674 1,069,250
------------ --------------
Total $ 1,180,524 $ 1,080,521
============ ==============
The General Partners do 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.
The Partnership currently has insufficient working capital to fund its
operations. WNC has agreed to continue providing advances sufficient enough to
fund the operations and working capital requirements of the Partnership through
at least April 1, 2003.
NOTE 4 - INCOME TAXES
- ---------------------
No provision for income taxes has been recorded in the financial statements as
any liability for income taxes is the obligation of the partners of the
Partnership.
NOTE 5 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------
The following is a summary of the quarterly operations for the years ended March
31, 2002 and 2001 (in thousands, except for per share data).
June 30 September 30 December 31 March 31
--------------- --------------- --------------- ---------------
2002
----
Income $ - $ - $ - $ 2,000
Operating expenses (33,000) (41,000) (33,000) (35,000)
Equity in losses of limited
partnerships (47,000) (67,000) (48,000) (39,000)
Net loss (80,000) (108,000) (81,000) (72,000)
Loss available to limited partner (79,000) (107,000) (80,000) (71,000)
Loss per limited partner unit (11) (14) (11) (9)
22
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2002, 2001 and 2000
NOTE 5 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), continued
- ---------------------------------------------------------------
June 30 September 30 December 31 March 31
--------------- --------------- --------------- ---------------
2001
----
Income $ - $ 1,000 $ - $ 2,000
Operating expenses (35,000) (36,000) (33,000) (46,000)
Equity in losses of limited
partnerships (64,000) (63,000) (63,000) (168,000)
Net loss (99,000) (98,000) (96,000) (212,000)
Loss available to limited partner (98,000) (97,000) (95,000) (210,000)
Loss per limited partner unit (13) (13) (13 (28)
23
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
NOT APPLICABLE
PART III.
Item 10. Directors and Executive Officers of the 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 Chief Executive Officer, Chairman of the Board, John B. Lester, Jr., David N.
Shafer, Wilfred N. Cooper, Jr. and Kay L. Cooper. The principal shareholder of
WNC & Associates, Inc. is a trust established by Wilfred N. Cooper, Sr.
Wilfred N. Cooper, Sr., age 71, is the founder, Chief Executive Officer,
Chairman 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 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.
Wilfred N. Cooper, Jr., age 39, is President, Chief Operating Officer, 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 50, is Executive 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.
Thomas J. Riha, age 47, became Chief Financial Officer effective January 2001.
Prior to his appointment as Chief Financial Officer he was 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.
24
Sy P. Garban, age 56, 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 of 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.
Michael J. Gaber, age 36, is Vice President - Acquisitions and a member of the
Acquisitions Committee of WNC & Associates, Inc. Mr. Gaber has been involved in
real estate acquisition, valuation and investment activities since 1989 and has
been employed with WNC since 1997. Prior to joining WNC & Associates, Inc., he
was involved in the valuation and classification of major assets, restructuring
of debt and analysis of real estate taxes with the H.F. Ahmanson company, parent
to Home Savings of America. Mr. Gaber graduated from the California State
University, Fullerton in 1991 with a Bachelor of Science degree in Business
Administration - Finance.
David Turek, age 47, 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 65, 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. and the mother of Wilfred N. Cooper, 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 Partnerships 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 $112,000 were incurred
during each of the years ended March 31, 2002, 2001 and 2000. The
Partnership paid the General Partners and or their affiliates $3,000, $0
and $0 of those fees during the years ended March 31, 2002, 2001 and 2000,
respectively.
(b) Operating Expense. The Partnership reimbursed the General Partner or its
affiliates for operating expenses of approximately $34,000, $4,000 and
$7,000 during the years ended March 31, 2002, 2001 and 2000, respectively.
(c) Interest in Partnership. The General Partners receive 1% of the
Partnership's allocated Low Income Housing Credits, which approximated
$1,100, $3,800 and $6,700 for Associates and $120, $420 and $750 for Mr.
Cooper for the calendar years ended December 31, 2001, 2000 and 1999,
respectively. The General Partners are also entitled to receive 1% of cash
distributions. There were no distributions of cash to the General Partners
during the years ended March 31, 2002, 2001 and 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person is known to the General Partners to own beneficially in excess of
5% of the outstanding Units.
25
(b) Security Ownership of Management
Neither the General Partners, their affiliates, nor any of the officers or
directors of the corporate General Partner or its affiliates own directly
or beneficially any Units in the Partnership.
(c) Changes in Control
The management and control of the corporate 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 Partners manage all of the Partnership's affairs. The transactions
with the General Partners are primarily in the form of fees paid by the
Partnership for services rendered to the Partnership and the General Partner's
interests in the Partnership, as discussed in Item 11 and in the notes to the
Partnership's financial statements.
26
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
Balance Sheets, March 31, 2002 and 2001
Statements of Operations for the years ended March 31, 2002, 2001
and 2000
Statements of Partners' Equity (Deficit) for the years ended
March 31, 2002, 2001 and 2000
Statements of Cash Flows for the years ended March 31, 2002, 2001
and 2000
Notes to Financial Statements
(a)(2) Financial statement schedules included in Part IV hereof:
--------------------------------------------------------
Report of Independent Certified Public Accountants on Financial
Statement Schedules Schedule III - Real Estate Owned by Local Limited
Partnerships
(b) Reports on Form 8-K.
-------------------
1. NONE.
(c) Exhibits.
--------
3.1 Agreement of Limited Partnership dated September 15, 1988; included as
Exhibit B to the Prospectus, which was filed as Exhibit 28.1 to Form
10-K for the year ended December 31, 1992 is hereby incorporated herein
as Exhibit 3.1.
10.1 Amended and Restated Agreement of Limited Partnership of Countryway
Associates filed as exhibit 10.1 on Form 10-K dated December 31, 1992
is hereby incorporated herein as exhibit 10.1.
10.2 Amended and Restated Agreement of Limited Partnership of Alta Vista
Investors filed as exhibit 10.2 on Form 10-K dated December 31, 1992 is
hereby incorporated herein as exhibit 10.2.
10.3 Amended and Restated Agreement of Limited Partnership of Yreka
Investment Group filed as exhibit 10.3 on Form 10-K dated December 31,
1992 is hereby incorporated herein as exhibit 10.3.
10.4 Amended and Restated Agreement of Limited Partnership of BCA Associates
filed as exhibit 10.7 on Form 10-K dated December 31, 1992 is hereby
incorporated herein as exhibit 10.4.
10.5 Amended and Restated Agreement of Limited Partnership of HPA Investors
filed as exhibit 10.8 on Form 10-K dated December 31, 1992 is hereby
incorporated herein as exhibit 10.5.
10.6 Amended and Restated Agreement of Limited Partnership of Cloverdale
Garden Apartments filed as exhibit 10.11 on Form 10-K dated December
31, 1992 is hereby incorporated herein as exhibit 10.6.
10.7 Amended and Restated Agreement of Limited Partnership of Knights
Landing Harbor filed as exhibit 10.13 on Form 10-K dated December 31,
1992 is hereby incorporated herein as exhibit 10.7.
10.8 Amended and Restated Agreement of Limited Partnership of Woodlake Manor
filed as exhibit 10.16 on Form 10-K dated December 31, 1992 is hereby
incorporated herein as exhibit 10.8.
10.9 Amended and Restated Agreement of Limited Partnership of East Garden
Apartments filed as exhibit 10.18 on Form 10-K dated December 31, 1992
is hereby incorporated herein as exhibit 10.9.
27
10.10 Amended and Restated Agreement of Limited Partnership of Midland Manor
Associates filed as exhibit 10.26 on Form 10-K dated December 31, 1992
is hereby incorporated herein as exhibit 10.10.
10.11 Amended and Restated Agreement of Limited Partnership of San Jacinto
Associates filed as exhibit 10.27 on Form 10-K dated December 31, 1992
is hereby incorporated herein as exhibit 10.11.
21.1 Financial Statements of Yreka Investment Group, as of and for the years
ended December 31, 1999 and 1998 together with Independent Auditors'
Report thereon filled as exhibit 21.1 on Form 10-K dated June 29, 2000
is hereby incorporated as exhibit 21.1; a significant subsidiary of the
Partnership.
21.2 Financial Statements of Yreka Investment Group, as of and for the years
ended December 31, 2000 and 1999 together with Independent Auditors'
Report thereon filled as exhibit 21.2 on Form 10-K dated July 20, 2001
is hereby incorporated as exhibit 21.2; a significant subsidiary of the
Partnership.
21.3 Financial Statements of Yreka Investment Group, as of and for the years
ended December 31, 2001 and 2000 together with Independent Auditors'
Report thereon; a significant subsidiary of the Partnership.
(d) Financial statement schedules follow, as set forth in subsection (a)(2)
hereof.
28
Report of Independent Certified Public Accountants on Financial Statement
Schedules
To the Partners
California Housing Tax Credits, L.P.
The audits referred to in our report dated April 19, 2002, relating to the 2002,
2001 and 2000 financial statements of WNC California Housing Tax Credits, L.P.
(the "Partnership"), which are contained in Item 8 of this Form 10-K, included
the audit of the accompanying financial statement schedules. The financial
statement schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statement schedules
based upon our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the financial information set forth therein.
/S/BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Orange County, California
April 19, 2002
29
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
------------------------------- ----------------------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------------- ----------------------------------------------------------
Total Investment Amount of Encumbrances
in Local Limited Investment of Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships Paid to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------ ----------------------------------------------------------
Alta Vista Orosi
Investors California $ 583,000 $ 583,000 $ 1,428,000 $ 2,092,000 $ 857,000 $ 1,235,000
BCA Anderson
Associates California 514,000 514,000 1,416,000 2,040,000 611,000 1,429,000
Cloverdale Garden Cloverdale
Apartments California 617,000 617,000 1,630,000 2,163,000 541,000 1,622,000
Countryway Mendota
Associates California 571,000 571,000 1,469,000 2,142,000 890,000 1,252,000
East Garden Jamestown
Apartments California 770,000 770,000 2,144,000 2,903,000 722,000 2,181,000
HPA Shafter
Investors California 538,000 538,000 1,504,000 2,203,000 654,000 1,549,000
Knights Knights
Landing Landing
Harbor California 275,000 275,000 978,000 1,363,000 406,000 957,000
Midland Manor Mendota
Associates California 383,000 383,000 1,421,000 1,852,000 704,000 1,148,000
San Jacinto San Jacinto
Associates California 469,000 469,000 1,776,000 2,349,000 501,000 1,848,000
Woodlake Woodlake
Manor California 545,000 545,000 1,447,000 2,138,000 890,000 1,248,000
Yreka Investment Yreka
Group California 538,000 538,000 1,462,000 2,044,000 528,000 1,516,000
------------- ------------ ------------- ------------- ----------- ------------
$ 5,803,000 $ 5,803,000 $ 16,675,000 $ 23,289,000 $ 7,304,000 $ 15,985,000
============= ============ ============= ============= =========== ============
30
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
----------------------------------------------------------------------------
For the year ended December 31, 2001
----------------------------------------------------------------------------
Year Estimated
Investment Useful Life
Partnership Name Rental Income Net Loss Acquired Status (Years)
- ---------------------------------------------------------------------------------------------------------------
Alta Vista Investors $ 158,000 $ (43,000) 1989 Completed 27.5
BCA Associates 162,000 (25,000) 1989 Completed 40
Cloverdale Garden Apartments 190,000 (28,000) 1989 Completed 40
Countryway Associates 160,000 (70,000) 1989 Completed 27.5
East Garden Apartments 232,000 (34,000) 1989 Completed 40
HPA Investors 157,000 (58,000) 1989 Completed 40
Knights Landing Harbor 116,000 (25,000) 1989 Completed 40
Midland Manor Associates 152,000 (50,000) 1990 Completed 27.5
San Jacinto Associates 190,000 (16,000) 1990 Completed 50
Woodlake Manor 167,000 (114,000) 1989 Completed 30
Yreka Investment Group 166,000 (17,000) 1989 Completed 50
------------ -----------
$ 1,850,000 $ (479,000)
============ ===========
31
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2001
------------------------------ ----------------------------------------------------------
As of March 31, 2001 As of December 31, 2000
------------------------------ ----------------------------------------------------------
Total Investment Amount of Encumbrances
in Local Limited Investment of Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships Paid to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alta Vista Orosi
Investors California $ 583,000 $ 583,000 $ 1,432,000 $ 2,044,000 $ 782,000 $ 1,262,000
BCA Anderson
Associates California 514,000 514,000 1,421,000 2,025,000 563,000 1,462,000
Cloverdale Garden Cloverdale
Apartments California 617,000 617,000 1,634,000 2,155,000 484,000 1,671,000
Countryway Mendota
Associates California 571,000 571,000 1,473,000 2,090,000 814,000 1,276,000
East Garden Jamestown
Apartments California 770,000 770,000 2,150,000 2,901,000 647,000 2,254,000
HPA Shafter
Investors California 538,000 538,000 1,508,000 2,196,000 597,000 1,599,000
Knights Knights
Landing Landing
Harbor California 275,000 275,000 981,000 1,351,000 374,000 977,000
Midland Manor Mendota
Associates California 383,000 383,000 1,425,000 1,824,000 640,000 1,184,000
San Jacinto San Jacinto
Associates California 469,000 469,000 1,781,000 2,349,000 459,000 1,890,000
Woodlake Woodlake
Manor California 545,000 545,000 1,452,000 2,137,000 817,000 1,320,000
Yreka Investment Yreka
Group California 538,000 538,000 1,467,000 2,044,000 491,000 1,553,000
------------- ------------ ------------- ------------- ----------- ------------
$ 5,803,000 $ 5,803,000 $ 16,724,000 $ 23,116,000 $ 6,668,000 $ 16,448,000
============= ============ ============= ============= =========== ============
32
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2001
----------------------------------------------------------------------------
For the year ended December 31, 2001
----------------------------------------------------------------------------
Year Estimated
Investment Useful Life
Partnership Name Rental Income Net Loss Acquired Status (Years)
- ---------------------------------------------------------------------------------------------------------------
Alta Vista Investors $ 160,000 $ (48,000) 1989 Completed 27.5
BCA Associates 145,000 (45,000) 1989 Completed 40
Cloverdale Garden Apartments 190,000 (20,000) 1989 Completed 40
Countryway Associates 151,000 (56,000) 1989 Completed 27.5
East Garden Apartments 229,000 (34,000) 1989 Completed 40
HPA Investors 155,000 (59,000) 1989 Completed 40
Knights Landing Harbor 124,000 (5,000) 1989 Completed 40
Midland Manor Associates 143,000 (51,000) 1990 Completed 27.5
San Jacinto Associates 164,000 (54,000) 1990 Completed 50
Woodlake Manor 183,000 (63,000) 1989 Completed 30
Yreka Investment Group 155,000 (31,000) 1989 Completed 50
------------ -----------
$ 1,799,000 $ (466,000)
============ ===========
33
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2000
------------------------------- ---------------------------------------------------------
As of March 31, 2000 As of December 31, 1999
------------------------------- ---------------------------------------------------------
Total Investment Amount of Encumbrances
in Local Limited Investment of Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships Paid to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alta Vista Orosi
Investors California $ 583,000 $ 583,000 $ 1,436,000 $ 2,044,000 $ 709,000 $ 1,335,000
BCA Anderson
Associates California 514,000 514,000 1,425,000 2,017,000 517,000 1,500,000
Cloverdale Garden Cloverdale
Apartments California 617,000 617,000 1,638,000 2,154,000 428,000 1,726,000
Countryway Mendota
Associates California 571,000 571,000 1,478,000 2,085,000 741,000 1,344,000
East Garden Jamestown
Apartments California 770,000 770,000 2,156,000 2,901,000 573,000 2,328,000
HPA Shafter
Investors California 538,000 538,000 1,511,000 2,186,000 542,000 1,644,000
Knights Knights
Landing Landing
Harbor California 275,000 275,000 984,000 1,350,000 343,000 1,007,000
Midland Manor Mendota
Associates California 383,000 383,000 1,428,000 1,824,000 575,000 1,249,000
San Jacinto San Jacinto
Associates California 469,000 469,000 1,786,000 2,349,000 417,000 1,932,000
Woodlake Woodlake
Manor California 545,000 545,000 1,456,000 2,137,000 744,000 1,393,000
Yreka Investment Yreka
Group California 538,000 538,000 1,471,000 2,044,000 454,000 1,590,000
------------- ------------ ------------- ------------- ----------- ------------
$ 5,803,000 $ 5,803,000 $ 16,769,000 $ 23,091,000 $ 6,043,000 $ 17,048,000
============= ============ ============= ============= =========== ============
34
WNC California Housing Tax Credits, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2000
----------------------------------------------------------------------------
For the year ended December 31, 1999
----------------------------------------------------------------------------
Year Estimated
Investment Useful Life
Partnership Name Rental Income Net Loss Acquired Status (Years)
- ---------------------------------------------------------------------------------------------------------------
Alta Vista Investors $ 161,000 $ (36,000) 1989 Completed 27.5
BCA Associates 150,000 (32,000) 1989 Completed 40
Cloverdale Garden Apartments 181,000 (30,000) 1989 Completed 40
Countryway Associates 165,000 (49,000) 1989 Completed 27.5
East Garden Apartments 227,000 (29,000) 1989 Completed 40
HPA Investors 158,000 (40,000) 1989 Completed 40
Knights Landing Harbor 120,000 (13,000) 1989 Completed 40
Midland Manor Associates 147,000 (44,000) 1990 Completed 27.5
San Jacinto Associates 130,000 (55,000) 1990 Completed 50
Woodlake Manor 178,000 (57,000) 1989 Completed 30
Yreka Investment Group 155,000 (26,000) 1989 Completed 50
------------ -----------
$ 1,772,000 $ (411,000)
============ ===========
35
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, L.P.
By: WNC & Associates, Inc., General Partner
By: /s/ Wilfred N. Cooper, Jr.
--------------------------
Wilfred N. Cooper, Jr., President
Chief Executive Officer of WNC & Associates, Inc.
Date: May 23, 2002
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha, Vice-President
Chief Financial Officer of WNC & Associates, Inc.
Date: May 23, 2002
By: /s/ Wilfred N. Cooper, Sr.
--------------------------
Wilfred N. Cooper, Sr., General Partner
Date: May 23, 2002
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: May 23, 2002
By: /s/ David N. Shafer
--------------------
David N Shafer, Director of WNC & Associates, Inc.
Date: May 23, 2002
36
Exhibit
Number Exhibit Description
EX-21.3 Financial Statements of Yreka Investment Group.
YREKA INVESTMENT GROUP
A California Limited Partnership
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT ON THE
FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3 - 5
Statements of Changes in Partners' Capital 6
Statements of Cash Flows 7 - 8
Notes to Financial Statements 9 - 14
INDEPENDENT AUDITORS' REPORT ON THE
SUPPORTING DATA REQUIRED BY USDA/RD 15
SUPPORTING DATA REQUIRED BY USDA/RD 16 - 26
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON
INTERNAL CONTROL OVER FINANCIAL REPORTING BASED
ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 27 - 28
INDEPENDENT AUDITORS' REPORT
To the Partners
Yreka Investment Group
A California Limited Partnership
We have audited the accompanying balance sheets of Yreka Investment Group, a
California Limited Partnership, as of December 31, 2001 and 2000, and the
related statements of operations, changes in partners' capital, and cash flows
for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and 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 audits provide 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 Yreka Investment Group as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued a report
dated January 10, 2002, on our consideration of Yreka Investment Group's
internal control over financial reporting and our tests of its compliance with
certain provisions of laws, regulations, contracts and grants.
/S/TATE,PROPP,BEGGS & SUGIMOTO
An Accountancy Corporation
January 10, 2002
Sacramento, California
YREKA INVESTMENT GROUP
A California Limited Partnership
BALANCE SHEETS
December 31, 2001 and 2000
ASSETS
2001 2000
---------------- -----------------
Current Project Assets:
Cash $ $
11,657 8,830
Restricted cash:
Tenant security deposits 8,750 8,750
Taxes and insurance 5,850 8,662
USDA/RD reserve 140,717 133,138
Accounts receivable 8,610 2,022
Prepaid expenses 2,730 2,388
---------------- -----------------
Total current project assets 178,314 163,790
Property and equipment 1,515,961 1,552,817
---------------- -----------------
Total Assets $ 1,694,275 $ 1,716,607
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Current Project Liabilities:
Tenant security deposits $ $ 8,750
8,750
Note payable, current portion 5,148 4,718
--------------- -----------------
Total current project liabilities 13,898 13,468
Long-Term Project Liabilities:
Note payable, less current portion 1,456,932 1,462,080
Non-Project Liabilities:
Due to related party 2,400 2,400
--------------- -----------------
Total liabilities 1,473,230 1,477,948
Partners' capital 221,045 238,659
--------------- -----------------
Total Liabilities and Partners' Capital $ 1,694,275 $ 1,716,607
=============== =================
The accompanying notes are an integral part
of these financial statements
2
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001 and 2000
2001 2000
---------------- -----------------
Project Operating Income:
Gross rent $ 64,362 $ 61,426
Rental assistance 103,848 96,308
Less vacancies (2,177) (2,462)
---------------- -----------------
Net rent 166,033 155,272
Other project income:
Late charges 324 245
Laundry income 1,645 2,292
Tenant damages 2,109 1,866
Interest income 4,019 4,438
Miscellaneous income - 114
---------------- -----------------
Total project operating income 174,130 164,227
---------------- -----------------
Project Operating Expenses:
Maintenance and operating:
Caretaker 8,978 7,384
Supplies 2,257 2,802
Painting and decorating 531 665
General maintenance and repairs 967 3,563
Snow removal - 25
Elevator maintenance - -
Grounds maintenance 480 1,608
Services 566 429
Furniture and furnishings replacement 2,113 2,578
Other operating expenses - -
---------------- -----------------
Total maintenance and operating 15,892 19,054
---------------- -----------------
Utilities:
Electricity 1,919 1,548
Water 9,460 8,228
Sewer 7,385 7,074
Heating fuel/other 3,866 2,983
Garbage and trash removal 3,510 3,434
Other utilities (2,191) -
---------------- -----------------
Total utilities 23,949 23,267
The accompanying notes are an integral part ---------------- -----------------
of these financial statements
3
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended December 31, 2001 and 2000
2001 2000
---------------- -----------------
Project Operating Expenses (Continued):
Administrative:
Manager $ $ 11,628
9,832
Management fees 17,928 17,064
Accounting/auditing 4,120 4,000
Bookkeeping 864 864
Legal - 1,685
Advertising 151 352
Telephone 815 978
Office supplies 2,536 2,547
Office furniture and equipment 293 428
Training expense - 467
Health insurance 3,314 2,073
Payroll taxes 1,831 1,712
Worker's compensation insurance 2,616 2,297
Other administrative expenses 946 938
---------------- -----------------
Total administrative 45,246 47,033
---------------- -----------------
Taxes and insurance:
Real estate taxes 13,551 14,539
Special assessments - -
Other taxes, fees and permits 899 905
Property insurance 4,540 4,174
Other insurance 578 493
---------------- -----------------
Total taxes and insurance 19,568 20,111
---------------- -----------------
Total project operating expenses 104,655 109,465
---------------- -----------------
The accompanying notes are an integral part
of these financial statements
4
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended December 31, 2001 and 2000
2001 2000
---------------- -----------------
Other Project Income (Expenses):
Interest subsidy - PASS Credit $ 94,672 $ 94,672
Depreciation and amortization (36,856) (36,856)
Interest expense:
USDA/RD 1% interest (33,487) (33,881)
Interest subsidy (94,672) (94,672)
Authorized capital improvements from USDA/RD reserve (13,050) (11,832)
---------------- -----------------
Total other project income (expenses) (83,393) )
---------------- -----------------
Non-Project Expenses:
Partnership administration fee 2,400 2,400
Tax administration fee 800 800
---------------- -----------------
Total non-project expenses 3,200 3,200
---------------- -----------------
Net loss $ (17,118) $ (31,007)
================ =================
The accompanying notes are an integral part
of these financial statements
5
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 2001 and 2000
General Limited
Partner Partner
-------------------- ------------------
WNC
California
Ronald D. Housing
Bettencourt Tax Credits Total
-------------------- ------------------ --------------------
Balance, December 31, 1999 $ 1,515 $ 268,647 $ 270,162
Return on investment (5) (491) (496)
Net loss (310) (30,697) (31,007)
-------------------- ------------------ --------------------
Balance, December 31, 2000 1,200 237,459 238,659
Return on investment (5) (491) (496)
Net loss (171) (16,947) (17,118)
-------------------- ------------------ --------------------
Balance, December 31, 2001 $ 1,024 $ 220,021 $ 221,045
==================== ================== ====================
The accompanying notes are an integral part
of these financial statements
6
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001 and 2000
Increase in Cash
2001 2000
---------------- -----------------
Cash Flows From Operating Activities:
Cash received from tenants for rent $ 159,445 $ 158,111
Miscellaneous cash received 8,097 8,955
Cash paid to suppliers and employees and
for other restricted cash (117,635) (111,106)
Mortgage interest paid (33,487) (33,881)
Limited partnership tax paid (800) (800)
---------------- -----------------
Net cash provided by operating activities 15,620 21,279
---------------- -----------------
Cash Flows From Investing Activities:
Deposits to the USDA/RD reserve (24,480) (24,311)
Withdrawals from the USDA/RD reserve 16,901 15,986
---------------- -----------------
Net cash used by investing activities (7,579) (8,325)
---------------- -----------------
Cash Flows From Financing Activities:
Principal payments on note payable (4,718) (4,324)
Return on investment (496) (496)
---------------- -----------------
Net cash used by financing activities (5,214) (4,820)
---------------- -----------------
Increase in cash 2,827 8,134
Cash, beginning of year 8,830 696
---------------- -----------------
Cash, end of year $ 11,657 $ 8,830
================ =================
The accompanying notes are an integral part
of these financial statements
7
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, 2001 and 2000
Increase in Cash
Reconciliation of Net Loss to Net
Cash Provided By Operating Activities: 2001 2000
---------------- -----------------
Net loss $ $ (31,007)
(17,118)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 36,856 36,856
(Increase) decrease in accounts receivable (6,588) 2,839
Increase in prepaid expenses (342) (108)
Decrease in other restricted cash 2,812 12,699
---------------- -----------------
Net cash provided by operating activities $ 15,620 $ 21,279
================ =================
The accompanying notes are an integral part
of these financial statements
8
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Yreka Investment Group, a California Limited Partnership, was formed in
October 1988 for the purpose of constructing and operating a 36-unit rural
rental housing project located in Yreka, California, known as Siskiyou
Valley Apartments. Project construction began in February 1989 and was
completed in November 1989. Rental operations commenced in November 1989.
The major activities of the Project are governed by the Partnership
agreement and the United States Department of Agriculture/Rural Development
(USDA/RD) pursuant to Sections 515 and 521 of the Housing Act of 1949, as
amended, which provide for interest and rental subsidies, respectively.
USDA/RD has contracted with the Partnership to make rental assistance
payments to the Partnership on behalf of qualified tenants. The contract
terminates upon total disbursement of the assistance obligation.
The following is a summary of significant accounting policies:
(a) The financial statements are prepared on the accrual basis of
accounting.
(b) The Partnership is not an income tax paying entity although, as a
limited partnership, it is subject to a limited partnership tax.
The net income or loss of the Partnership passes through to and
is reportable by the partners individually. Therefore, no
provision for income taxes is reflected in these financial
statements.
(c) Property and equipment is stated at cost. Assets are depreciated
over their estimated useful lives using the straight-line method.
The estimated useful lives range from 5 to 50 years.
(d) Loan acquisition costs and construction period interest are
amortized over 50 years using the straight-line method.
(e) The Partnership maintains its cash balances in institutions where
they are insured, up to $100,000, by the Federal Deposit
Insurance
Corporation (FDIC).
9
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) The presentation of financial statements in conformity with
accounting principles generally accepted in the Unites 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 differ
from those estimates.
NOTE 2: TENANT SECURITY DEPOSITS
Tenant security deposits are maintained in a separate account at
a bank insured by the FDIC.
NOTE 3: TAXES AND INSURANCE RESERVE
A separate bank account has been established to accumulate cash
transfers for the payment of property taxes and insurance. During
2001 and 2000, $3,000 and 15,900, respectively, of unrestricted
cash was transferred from this interest bearing account.
NOTE 4: USDA/RD RESERVE
The loan agreement with USDA/RD requires cash transfers to a
replacement reserve account each year until $201,600 has been
accumulated. Withdrawals from the reserve account may be made
only with the approval and countersignature of the USDA/RD.
10
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 4: USDA/RD RESERVE (CONTINUED)
Changes in the reserve for the years ended December 31, 2001 and
2000, are as follows:
Balance, December 31, 1999 $ 124,813
Deposits 20,160
Interest earned 4,151
Withdrawals (11,832)
Interest withdrawn (4,151)
Bank charges (3)
-----------------
Balance, December 31, 2000 133,138
Deposits 20,629
Interest earned 3,851
Withdrawals (13,050)
Interest withdrawn (3,851)
-----------------
Balance, December 31, 2001 $ 140,717
=================
This account was underfunded at December 31, 2001 and 2000, by
$2,075 and $470, respectively.
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 and 2000, was
comprised of the following:
2001 2000
---------------- -----------------
Land $ 157,378 $ 157,378
Building 1,786,004 1,786,004
Furniture and equipment 100,405 100,405
---------------- -----------------
2,043,787 2,043,787
Less accumulated depreciation and amortization 527,826 490,970
---------------- -----------------
Total property and equipment $ 1,515,961 $ 1,552,817
================ =================
11
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 6: NOTE PAYABLE
The Partnership has a note payable to USDA/RD in monthly
installments of $11,073 including interest at 8.75% per annum,
due January 1, 2039. The note is secured by a deed of trust on
the apartment project.
The Partnership has entered into an interest subsidy agreement
with USDA/RD. USDA/RD provides a monthly interest subsidy in the
amount of $7,889, which reduces the effective interest rate to
approximately 1% over the term of the loan. The subsidy is
credited to subsidy income, and interest at 8.75% is included in
interest expense. The USDA/RD regulatory agreement provides for
USDA/RD to establish and control the allowable rents.
Principal payments for the succeeding five years and thereafter
are as follows:
Year Ending December 31:
2002 5,148
2003 5,617
2004 6,128
2005 6,687
2006 7,296
Thereafter 1,431,204
-----------------
Total $ 1,462,080
=================
NOTE 7: RELATED PARTY TRANSACTIONS
Fees Paid to Related Entities
The general partner of the Project is a partner in The CBM Management
Group. The general partner of the Project is also a shareholder in the
following related entities:
o The CBM Group, Inc. and its divisions: CBM Diversified,
Consolidated Building Maintenance, and CBM Landscape.
During 2001 and 2000, The CBM Group, Inc. was paid $17,928
and $17,064, respectively, in management fees, and $864 each
year for automation services. CBM Diversified was paid $490
and $408 during 2001 and 2000, respectively, for credit
checking fees.
o Capital Resources, Inc. and its division Atlantic Vending
Services. During 2001 and 2000, Atlantic Vending Services
was paid $1,645 and $2,292 for laundry facility maintenance.
12
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 7: RELATED PARTY TRANSACTIONS (CONTINUED)
Fees Paid to Related Entities (Continued)
o Rural Housing Reinsurance, the surety company which provides the
insurance coverage for the Project. The general partner owns a less
than 5% interest in the surety company, which was paid $4,882 and
$4,282 during 2001 and 2000, respectively, for insurance premiums.
During 2001 and 2000, a tax administration fee of $800 was paid each
year to The CBM Group, Inc. as a non-project expense. (See Note 8.)
The Project also pays The CBM Group, Inc. a ten-cent per copy fee for
bulk copies of forms.
Fees Paid in Accordance with the Partnership Agreement.
In accordance with the partnership agreement, fees for each of the
years ended December 31, 2001 and 2000, were charged to non-project
expenses as follows:
Fee Partner 2001 2000
Partnership administration Ronald Bettencourt $2,400 $2,400
At December 31, 2001 and 2000, $2,400 was payable to the general
partner for accrued partnership administration fees.
NOTE 8: PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS
Profits and losses, as adjusted for certain provisions of the
Partnership agreement, are allocated 1% to the general partner and 99%
to the limited partner. Under USDA/RD regulations, distributions to
partners may be made from project operations only to the extent funds
exceed the required contributions to the cash reserve account. Annual
distributions are limited to 8% of the Partnership's initial capital
investment. If the return on investment is not paid in a given year,
any unpaid portion may be carried forward for one year and paid if
earned. During 2001 and 2000, a portion of the 2000 and 1999 earned
return on investment, $3,200 each year, was used to pay non-project
expenses and liabilities.
13
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 9: TAXABLE LOSS
A reconciliation of the financial statement net loss to the taxable
loss of the partnership at December 31, 2001 and 2000, is as follows:
2001 2000
---------------- -----------------
Financial statement net loss $ $ (31,007)
(17,118)
Adjustments:
Excess of tax depreciation and amortization over financial
statement depreciation and amortization (28,999) (29,609)
---------------- -----------------
Taxable loss $ $ (60,616)
(46,117)
================ =================
NOTE 10: CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Project's operations are concentrated in the multifamily real
estate market. In addition, the Project operates in a heavily
regulated environment. The operations of the Project are subject to
the administrative directives, rules and regulations of federal, state
and local regulatory agencies, including, but not limited to, USDA/RD.
Such administrative directives, rules and regulations are subject to
change by an act of congress or an administrative change mandated by
USDA/RD. Such changes may occur with little notice or inadequate
funding to pay for the related cost, including the additional
administrative burden, to comply with a change.
14
SUPPORTING DATA REQUIRED BY USDA/RD
INDEPENDENT AUDITORS' REPORT ON THE
SUPPORTING DATA REQUIRED BY USDA/RD
To the Partners
Yreka Investment Group
A California Limited Partnership
We have audited the financial statements of Yreka Investment Group, a California
Limited Partnership, as of and for the year ended December 31, 2001, and have
issued our report thereon dated January 10, 2002. Our audit was made in
accordance with auditing standards generally accepted in the United States of
America and Government Auditing Standards issued by the Comptroller General of
the United States and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the
circumstances.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information provided on pages 16
through 26, including USDA/RD Form RD 1930-7, has been prepared in the format
and following the instructions of the USDA/RD. Those instructions prescribe
practices that differ in some respects from accounting principles generally
accepted in the United States of America. Accordingly, the accompanying forms
are not intended to present financial position or results of operations in
conformity with accounting principles generally accepted in the United States of
America. The information in USDA/RD Form RD 1930-7 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 accordance with
practices and instructions prescribed by USDA/RD.
This report is intended solely for filing with regulatory agencies and the
United States Department of Agriculture/Rural Development and is not intended to
be and should not be used by anyone other than these specific parties.
/S/TATE,PROPP,BEGGS & SUGIMOTO
An Accountancy Corporation
January 10, 2002
Sacramento, California
YREKA INVESTMENT GROUP
A California Limited Partnership
SUPPLEMENTAL INFORMATION REQUIRED FOR
2001 ANNUAL REPORTS FOR 515 PROJECTS
Requirement Response
1. Identity of interest. See the audited financial statements of Yreka Investment
Group, a California Limited Partnership, as of and for the
year ended December 31, 2001, and the accompanying Note 7 -
Related Party Transactions, to the audited financial
statements dated January 10, 2002.
2. Funds paid to management firm in excess of the approved
management fee. $0
3. Incumbrance of project accounts. None
4. Project accounts. Cash, account #12589-08513 maintained at Bank of America,
2885 Bell Road, Auburn, CA 95603, with a balance of $11,507,
non-interest bearing.
Tenant security deposits, account #12589-01408 maintained at
Bank of America, 2885 Bell Road, Auburn, CA 95603, with a
balance of $8,750, non-interest bearing.
Taxes and insurance reserve, account #12587-01409 maintained
at Bank of America, 2885 Bell Road, Auburn, CA 95603, with a
balance of $5,850, interest at 1.0% annually.
USDA/RD reserve, account #3150963973 maintained at Union
Bank of California, 874 Lincoln Way, Auburn, CA 95603, with
a balance of $4,472, interest at 1.50% annually.
USDA/RD reserve, account #190002253 maintained at Bank of
Sacramento, 1750 Howe Ave., Suite 100, Sacramento, CA 95825,
with a balance of $83,549 interest at 1.40% annually.
22
YREKA INVESTMENT GROUP
A California Limited Partnership
SUPPLEMENTAL INFORMATION REQUIRED FOR
2001 ANNUAL REPORTS FOR 515 PROJECTS (CONTINUED)
Requirement Response
4. Project accounts (continued). USDA/RD reserve, account #92-24126988, maintained at
California Federal Bank, 2845 Bell Road, Auburn, CA 95603,
with a balance of $52,696, interest at 1.88% annually.
5. Total cash paid to owners in 2001. $3,696 return on investment was paid in 2001. Of that
amount, $3,200 was used to pay non-project expenses and
liabilities and $496 was paid to the owners.
23
YREKA INVESTMENT GROUP
A California Limited Partnership
SUPPLEMENTAL INFORMATION REQUIRED FOR
2001 ANNUAL REPORTS FOR 515 PROJECTS (CONTINUED)
Requirement/Response
6. USDA/RD reserve activity.
The reserve account activity for the year ended December 31, 2001 is summarized
below:
Actual Required
----------------- -----------------
Required reserve balance, December 31, 2000 $ 133,608
Actual reserve balance, December 31, 2000 $ 133,138
Required 2001 annual reserve deposit 20,160
Required Reserve Adjustment deposit 2,074
(See Adjustment to Reserve Requirement below)
Actual 2001 reserve account deposit 20,629
Less 2001 authorized withdrawals:
02/08 Reimburse legal fees $
602
08/24 Replace carpet/vinyl 1,650
08/24 Replace three stairways 4,990
09/21 Replace refrigerator 480
10/04 ADA transition plan 550
12/12 Legal fees over budget 2,587
12/17 Utilities over budget 2,191
----------------
Total 2001 authorized withdrawals (13,050) (13,050)
----------------- -----------------
Required reserve balance, December 31, 2001 142,792
Actual reserve balance, December 31, 2001 $ 140,717 140,717
================= -----------------
Underfunded $ 2,075
=================
24
YREKA INVESTMENT GROUP
A California Limited Partnership
SUPPLEMENTAL INFORMATION REQUIRED FOR
2001 ANNUAL REPORTS FOR 515 PROJECTS (CONTINUED)
Requirement/Response
6. USDA/RD reserve activity (continued).
ADJUSTMENT TO RESERVE REQUIREMENT:
Was Return to Owner earned?
Yes
A. Were there any amount of net funds remaining (non-expended funds) from line items 2, 3, 4 or 9
from Page 2 of Form 1930-7, exclusive of reserve expenditures? Yes
Budgeted Actual Balance
----------------- ---------------- -----------------
Item 2 Supply $ $ 2,257 $
2,238 (19)
Item 3 Contract 3,217 967 2,250
Item 4 Painting 287 531 (244)
Item 9 Furniture 2,200 2,113 87
-----------------
Net $ 2,074
=================
B. Were any reserve funds used to items which would normally be classified under line 2, 3,4 or 9
from page 2 of Form 1930-7, "MFH Project Budget"? Yes
$7,120
Enter the LESSER of (A) or (B) above $2,074
25
YREKA INVESTMENT GROUP
A California Limited Partnership
SUPPLEMENTAL INFORMATION REQUIRED FOR
2001 ANNUAL REPORTS FOR 515 PROJECTS (CONTINUED)
Requirement/Response
7. Owners' return on investment.
Total project operating income $ 174,130
Less total project operating expenses (104,655)
-----------------
Net project income 69,475
Less authorized capital improvements from USDA/RD reserve (13,050)
Less debt service:
Principal (4,718)
Interest (33,487)
Less required USDA/RD reserve contribution (20,160)
Add authorized USDA/RD reserve withdrawals 13,050
-----------------
Surplus cash - sub-total 11,110
Less Reserve Adjustment
(Transfer is $2,075, net of underfunding) (2,074)
-----------------
Surplus cash $ 9,036
=================
Budgeted return on investment $ 3,696
=================
Available for distribution in 2002 $ 3,696
Less annual partnership management fee
(Ronald Bettencourt) (2,400)
-----------------
Net available for distribution in 2002 1,296
Ronald Bettencourt (13)
WNC California Housing (1,283)
-----------------
$
-
=================
26
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL
OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER
FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Partners
Yreka Investment Group
A California Limited Partnership
We have audited the financial statements of Yreka Investment Group, a California
Limited Partnership, as of and for the year ended December 31, 2001, and have
issued our report thereon dated January 10, 2002. We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States.
Compliance
- ----------
As part of obtaining reasonable assurance about whether Yreka Investment Group's
financial statements are free of material misstatement, we performed tests of
its compliance with certain provisions of laws, regulations, contracts and
grants, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests
disclosed a certain immaterial instance of noncompliance which is described in
Note 4 to the audited financial statements dated January 10, 2002.
Internal Control Over Financial Reporting
- -----------------------------------------
In planning and performing our audit, we considered Yreka Investment Group's
internal control over financial reporting in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements
and not to provide assurance on the internal control over financial reporting.
Our consideration of the internal control over financial reporting would not
necessarily disclose all matters in the internal control over financial
reporting that might be material weaknesses. A material weakness is a condition
in which the design or operation of one or more of the internal control
components does not reduce to a relatively low level the risk that misstatements
in amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. We noted no matters
involving the internal control over financial reporting and its operation that
we consider to be material weaknesses.
This report is intended solely for filing with regulatory agencies and the
United States Department of Agriculture/Rural Development and is not intended to
be and should not be used by anyone other than these specific parties.
/S/TATE,PROPP,BEGGS & SUGIMOTO
An Accountancy Corporation
January 10, 2002
Sacramento, California