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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: 0-20056
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
California 33-0433017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 662-5565
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No ___
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
1
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 II, L.P. ("CHTC" or the "Partnership") is a
California Limited Partnership formed under the laws of the State of California
on September 13, 1990. The Partnership was formed to acquire limited partnership
interests in other limited partnerships or limited liability companies ("Local
Limited Partnerships") which own multifamily housing complexes that are eligible
for low-income housing federal and, in certain cases, California income tax
credits ("Low Income Housing Credit").
The general partner of the Partnership is WNC Tax Credit Partners, L.P. (the
"General Partner"). WNC & Associates, Inc. ("Associates") and Wilfred N. Cooper,
Sr. are the general partners of WNC Tax Credit Partners, L.P. Wilfred N. Cooper,
Sr., through the Cooper Revocable Trust, owns 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 January 22, 1991, the Partnership commenced a public offering of
20,000 units of limited partnership interest ("Units") at a price of $1,000 per
Unit. As of the close of the public offering on January 21, 1993, a total of
17,726 Units representing $17,726,000 had been sold. Holders of Units are
referred to herein as "Limited Partners."
Description of Business
The Partnership's principal business objective is to provide its Limited
Partners with Low Income Housing Credits. The Partnership's principal business
therefore consists of investing as a limited partner or non-managing member in
Local Limited Partnerships each of which will own and operate a multi-family
housing complex (the "Housing Complex") which will qualify for the Low Income
Housing Credit. In general, under Section 42 of the Internal Revenue Code, an
owner of low-income housing can receive the Low Income Housing Credit to be used
to reduce Federal taxes otherwise due in each year of a ten-year period. In
general, under Section 17058 of the California Revenue and Taxation Code, an
owner of low-income housing can receive the Low Income Housing Credit to be used
against California taxes otherwise due in each year of a four-year period. The
Housing Complex is subject to a fifteen-year compliance period (the "Compliance
Period"), and under state law may have to be maintained as low income housing
for 30 or more years.
In general, in order to avoid recapture of Low Income Housing Credits, the
Partnership does not expect that it will dispose of its interests in Local
Limited Partnerships ("Local Limited Partnership Interests") or approve the sale
by any Local Limited Partnership of its Housing Complex prior to the end of the
applicable Compliance Period. Because of (i) the nature of the Housing
Complexes, (ii) the difficulty of predicting the resale market for low-income
housing 15 or more years in the future, and (iii) the ability of government
lenders to disapprove of transfer, it is not possible at this time to predict
whether the liquidation of the Partnership's assets and the disposition of the
proceeds, if any, in accordance with the Partnership's Agreement of Limited
Partnership, as amended by the Supplements thereto (the "Partnership
Agreement"), will be able to be accomplished promptly at the end of the 15-year
period. If a Local Limited Partnership is unable to sell its Housing Complex, it
is anticipated that the local general partner ("Local General Partner") will
either continue to operate such Housing Complex or take such other actions as
the Local General Partner believes to be in the best interest of the Local
Limited Partnership. Notwithstanding the preceding, circumstances beyond the
control of the General Partner or the Local General Partners may occur during
the Compliance Period, which would require the Partnership to approve the
disposition of a Housing Complex prior to the end thereof, possibly resulting in
recapture of Low Income Housing Credits.
3
As of March 31, 2002, the Partnership had invested in fifteen Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that is eligible for the federal Low Income Housing Credit and twelve of them
were eligible for the California Low Income Housing Credit. Certain Local
Limited Partnerships may also benefit from government programs promoting low- or
moderate-income housing.
The Partnership's investments in Local Limited Partnerships are subject to the
risks incident to the management and ownership of low-income housing and to the
management and ownership of multi-unit residential real estate. Some of these
risks are that the Low Income Housing Credit could be recaptured and that
neither the Partnership's investments nor the Housing Complexes owned by the
Local Limited Partnerships will be readily marketable. To the extent the Housing
Complexes receive government financing or operating subsidies, they may be
subject to one or more of the following risks: difficulties in obtaining tenants
for the Housing Complexes; difficulties in obtaining rent increases; limitations
on cash distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of Local Limited Partnership Interests; limitations on
removal of Local General Partners; limitations on subsidy programs; and possible
changes in applicable regulations. The Housing Complexes are subject to mortgage
indebtedness. If a Local Limited Partnership does not make its mortgage
payments, the lender could foreclose resulting in a loss of the Housing Complex
and Low Income Housing Credits. As a limited partner or non-managing member of
the Local Limited Partnerships, the Partnership will have very limited rights
with respect to management of the Local Limited Partnerships, and will rely
totally on the general partners or managing members of the Local Limited
Partnerships for management of the Local Limited Partnerships. The value of the
Partnership's investments will be subject to changes in national and local
economic conditions, including unemployment conditions, which could adversely
impact vacancy levels, rental payment defaults and operating expenses. This, in
turn, could substantially increase the risk of operating losses for the Housing
Complexes and the Partnership. In addition, each Local Limited Partnership is
subject to risks relating to environmental hazards and natural disasters, which
might be uninsurable. Because the Partnership's operations will depend on these
and other factors beyond the control of the General Partner and the Local
General Partners, there can be no assurance that the anticipated Low Income
Housing Credits will be available to Limited Partners.
In addition, Limited Partners are subject to risks in that the rules governing
the Low Income Housing Credit are complicated, and the use of credits can be
limited. The only material benefit from an investment in Units may be the Low
Income Housing Credits. There are limits on the transferability of Units, and it
is unlikely that a market for Units will develop. All Partnership management
decisions are made by the General Partner.
As a limited partner or non-managing member, the Partnership's liability for
obligations of each Local Limited Partnership is limited to its investment. The
Local General Partners of each Local Limited Partnership retain responsibility
for developing, constructing, maintaining, operating and managing the Housing
Complexes.
Item 2. Properties
Through its investments in Local Limited Partnerships, the Partnership holds
limited partnership interests in the Housing Complexes. The following table
reflects the status of the fifteen Housing Complexes as of the dates indicated:
4
------------------------- ------------------------
As of March 31, 2002 As of December 31, 2001
------------------------- ------------------------
Partnership's Estimated Encumbrances
Total Investment Amount of Low Income of Local
In Local Limited Investment Number Housing Limited
Partnership Name Location General Partner Name Partnerships Paid to Date Of Units Occupancy Credits Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton, Daniels C.
Investors California Louge $ 1,656,000 $ 1,656,000 165 97% $ 4,080,000 $ 3,967,000
ADI Development Delhi, Anthony
Partners California Donovan 699,000 699,000 31 94% 1,757,000 1,207,000
Bayless Garden
Apartments Red Bluff, Douglas W.
Investors California Young 1,110,000 1,110,000 46 96% 2,741,000 1,268,000
Blackberry Lodi, Bonita Homes
Oaks, Ltd California Incorporated 463,000 463,000 42 100% 1,063,000 1,912,000
Philip R. Hammond,
Jacob's Exeter, Jr. and Diane M.
Square California Hammond 1,324,000 1,324,000 45 100% 2,933,000 1,574,000
Sam Jack, Jr. and
Mecca Mecca, Sam Jack and
Apartments II California Associates 2,200,000 2,200,000 60 98% 5,183,000 2,504,000
Thomas G. Larson
Grass William H. Larson
Nevada Valley, and Raymond L.
Meadows California Tetzlaff 459,000 459,000 34 100% 1,030,000 1,917,000
Northwest Philip R. Hammond,
Tulare Ivanhoe, Jr. and Diane M.
Associates California Hammond 1,226,000 1,226,000 54 74% 2,950,000 1,757,000
Orland Orland, Richard E.Huffman
Associates California and Robert A. Ginno 432,000 432,000 40 100% 972,000 1,703,000
5
------------------------- ------------------------
As of March 31, 2002 As of December 31, 2001
------------------------- ------------------------
Partnership's Estimated Encumbrances
Total Investment Amount of Low Income of Local
In Local Limited Investment Number Housing Limited
Partnership Name Location General Partner Name Partnerships Paid to Date Of Units Occupancy Credits Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Regency Investment
Associates, Inc.,
Pine Gate Boyd Management,
Limited Ahoskie, Inc. and Gordon L.
Partnership California Blackwell 272,000 272,000 56 100% 611,000 1,441,000
Silver Philip R. Hammond,
Birch Huron, Jr. and Diane M.
Associates California Hammond 378,000 378,000 35 97% 1,131,000 1,334,000
Twin Pines
Apartments Groveland, Donald S. Kavanagh
Associates California and John N. Brezzo 1,278,000 1,278,000 39 97% 3,055,000 1,789,000
Thomas G. Larson,
William H. Larson
Ukiah Ukiah, and Raymond L.
Terrace California Tetzlaff 349,000 349,000 41 100% 825,000 1,765,000
Woodlake David J. Michael
Garden Woodlake, and Pamela J.
Apartments California Michael 548,000 548,000 48 90% 1,374,000 1,913,000
Yucca-Warren Vista Joshua Tree, WNC & Associates,
Associates California Inc. 520,000 520,000 50 98% 1,251,000 2,150,000
------------- ------------ ----- ------ ------------- ------------
$ 12,914,000 $12,914,000 786 96% $ 30,956,000 $ 28,201,000
============= ============ ==== ====== ============= ============
6
-----------------------------------------------------------------------
For the year ended December 31, 2001
-----------------------------------------------------------------------
Low Income Housing
Credits Allocated
Partnership Name Rental Income Net Loss to Partnership
--------------------------------------------------------------------------------------------------------------
601 Main Street Investors $ 458,000 $(314,000) 99%
ADI Development Partners 123,000 (58,000) 90%
Bayless Garden Apartments Investors 180,000 (96,000) 99%
Blackberry Oaks, Ltd 217,000 (24,000) 99%
Jacob's Square 204,000 (79,000) 99%
Mecca Apartments II 261,000 (198,000) 99%
Nevada Meadows 197,000 (58,000) 99%
Northwest Tulare Associates 157,000 (151,000) 99%
Orland Associates 206,000 (18,000) 99%
Pine Gate Limited Partnership 226,000 (51,000) 99%
Silver Birch Associates 138,000 (30,000) 99%
Twin Pines Apartments Associates 152,000 (213,000) 99%
Ukiah Terrace 185,000 (65,000) 99%
Woodlake Garden Apartments 194,000 (53,000) 95%
Yucca-Warren Vista Associates, Ltd 219,000 (26,000) 99%
------------ -------------
$ 3,117,000 $ (1,434,000)
============ =============
7
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 1,289 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 $ 257,975 $ 281,525 $ 314,630 $ 364,853 $ 379,754 $ 377,378
Investments in limited
partnerships, net 3,494,236 4,391,885 5,442,623 6,240,560 6,439,942 7,291,595
Due from affiliates 3,646 59,554 38,540 - - -
----------- ----------- ----------- ----------- ------------ -----------
$ 3,755,857 $ 4,732,964 $ 5,795,793 $ 6,605,413 $ 6,819,696 $ 7,668,973
=========== =========== =========== ============= =========== ===========
LIABILITIES
Accrued fees and
expenses due to
general partner and
affiliates $ 1,631,958 $ 1,448,236 $ 1,278,242 $ 1,077,385 $ 1,044,307 $ 836,316
PARTNERS' EQUITY 2,123,899 3,284,728 4,517,551 5,528,028 5,775,389 6,832,657
----------- ----------- ----------- ------------- ----------- -----------
$ 3,755,857 $ 4,732,964 $ 5,795,793 $ 6,605,413 $ 6,819,696 $ 7,668,973
=========== =========== =========== ============= =========== ===========
8
Selected results of operations, cash flows and other information for the
Partnership is as follows:
For the Years Ended Three Months Ended For the Years Ended
March 31 March 31 December 31
------------------------------------- ------------------------ -----------------------
2002 2001 2000 1999 1998 1998 1997
----------- ----------- ---------- ----------- ---------- ---------- ----------
(Unaudited)
Loss from operations $ (337,782)$ (272,354)$ (273,480) $ (68,998)$ (65,161)$ (274,539)$ (284,989)
Equity in losses of
limited partnerships (823,047) (960,469) (736,997) (178,363) (241,600) (782,729) (1,155,586)
----------- ----------- ---------- ---------- ---------- ----------- -------------
Net loss $ (1,160,829)$ (1,232,823)$ (1,010,477) $ (247,361)$ (306,761)$ (1,057,268)$ (1,440,575)
=========== =========== ========== ========== ========== ========== =============
Net loss allocated to:
General partner $ (11,608)$ (12,328)$ (10,105) $ (2,474)$ (3,068)$ (10,573)$ (14,406)
=========== =========== ========== ========== =========== =========== ============
Limited partners $ (1,149,221)$ (1,220,495)$ (1,000,372) $ (244,887)$ (303,693)$ (1,046,695)$ (1,426,169)
=========== =========== ========== ========== =========== =========== ============
Net loss per limited
partner unit $ (64.83)$ (68.85)$ (56.44) $ (13.82)$ (17.13)$ (59.05)$ (80.46)
=========== =========== ========== ========== =========== =========== ============
Outstanding weighted
limited partner
units 17,726 17,726 17,726 17,726 17,726 17,726 17,726
=========== =========== ========== =========== ========== ========== ==========
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 $ (44,975)$ (70,146)$ (57,948) $ (22,613) $ (1,469) $ (13,320) $ (95,215)
Investing
activities 21,425 37,041 7,725 7,712 3,606 15,696 (44,558)
----------- ----------- ----------- ---------- ---------- --------- ----------
Net change in cash
and cash equivalents (23,550) (33,105) (50,223) (14,901) 2,137 2,376 (139,773)
Cash and cash
equivalents,
beginning of period 281,525 314,630 364,853 379,754 377,378 377,378 517,151
----------- ----------- ----------- ---------- ---------- --------- ----------
Cash and cash
equivalents, end of
period $ 257,975 $ 281,525 $ 314,630 $ 364,853 $ 379,515 $ 379,754 $ 377,378
=========== =========== =========== ========== ========== ========= ==========
Low Income Housing Credits per limited partner unit was as follows for the years
ended December 31:
2001 2000 1999 1998 1997
------------- -------------- ------------- ------------- -------------
Federal $ 114 $ 117 $ 117 $ 117 $ 117
State - - - 9 27
------------- -------------- ------------- ------------- -------------
Total $ 114 $ 117 $ 117 $ 126 $ 144
============= ============== ============= ============= =============
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-K contain forward
looking statements. Such statements are based on current expectations subject to
uncertainties and other factors
9
which may involve known and unknown risks that could cause actual results of
operations to differ materially from those projected or implied. Further,
certain forward-looking statements are based upon assumptions about future
events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-K and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this filing.
Financial Condition
The Partnership's assets at March 31, 2002 consisted primarily of approximately
$258,000 in cash and cash equivalents and net investments in the fifteen Local
Limited Partnerships of approximately $3,494,000. Liabilities at March 31, 2002
primarily consisted of approximately $1,630,000 of accrued annual management
fees due to the General Partner.
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 $(1,161,000),
reflecting a decrease of $72,000 from the net loss experienced for the year
ended March 31, 2001. The decrease in net loss is primarily due to equity in
losses of limited partnerships which decreased by $137,000 to $(823,000) for the
year ended March 31, 2002 from $(960,000) for the year ended March 31, 2001. The
decrease in equity in losses of limited partnerships is due to not recognizing
certain losses of the Local Limited Partnerships. The investments in such Local
Limited Partnerships had reached $0 at March 31, 2002. Since the Partnership's
liability with respect to its investments is limited, losses in excess of
investments are not recognized. This decrease was offset by the reduction of 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. The decrease is net loss due to equity was also offset
by $66,000 increase in loss from operations for the year ended March 31, 2002
compared to the year ended March 31, 2001. The increase in loss from operations
was primarily caused by an $8,000 decline in total income, $53,000 write off of
advances to Limited Partner and a $5,000 increase in other operating expenses
for the year ended March 31, 2002 compared to the year ended March 31, 2001.
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 $(1,233,000),
reflecting an increase of $223,000 from the net loss experienced for the year
ended December 31, 2000. The increase in net loss is primarily due to equity in
losses of Local Partnerships which increased by $223,000 to $(960,000) for the
year ended March 31, 2001 from $(737,000) for the year ended March 31, 2000. The
increase in equity in losses of limited partnerships is due to the reduction of
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. This increase was offset by the Partnership not
recognizing certain losses of the Local Limited Partnerships. The investments in
such Local Limited Partnerships had reached $0 at March 31, 2001. Since the
Partnership's liability with respect to its investments is limited, losses in
excess of investments are not recognized.
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 $(24,000), compared to net cash used
for the year ended March 31, 2001 of $(33,000). The change was primarily due to
the Partnership advancing approximately $21,000 to two Local Limited
Partnerships to cover operating deficiencies during the year ended March 31,
2001 and approximately $3,000 of which was repaid during the year ended March
31, 2002. In addition, the Partnership experienced a decrease in cash paid to
10
the General Partner for annual management fees of $11,000 which was offset by an
decrease in distributions received from Local Limited Partnerships of $15,000
and a decrease in interest income of $9,000.
Year Ended March 31, 2001 Compared to Year Ended March 31, 2000. Net cash used
during the year ended March 31, 2001 was $(33,000), compared to net cash used
for the year ended March 31, 2000 of $(50,000). The change was due primarily to
the Partnership advancing approximately $39,000 to two Local Limited
Partnerships to cover operating cash deficits during the year ended March 31,
2000 and approximately $21,000 during the year ended March 31, 2001. In
addition, the Partnership experienced an increase in cash paid to the General
Partner for annual management fees of $30,000 which was offset by an increase in
distributions received from Local Limited Partnerships of $29,000.
The report of the independent certified public accountants with respect to the
financial statements of one Local Limited Partnership expressed substantial
doubt as to the Local Limited Partnerships' ability to continue as a going
concern. The Partnership had no remaining investment in such Local Limited
Partnership at March 31, 2002 and 2001, respectively. The Partnership's original
investment in the Local Limited Partnership approximated $1,278,000. Through
December 31, 2001, the Local Limited Partnership has had recurring losses and
working capital deficiencies. In the event the Local Limited Partnership is
required to liquidate or sell its property, the net proceeds could be
significantly less than the carrying value of such property. As of December 31,
2001 and 2000, the net carrying value of such property on the books and records
of the Local Limited Partnership totaled $2,155,000 and $2,267,000,
respectively.
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 $181,000, $170,000 and $201,000, 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 expects its future cash flows, together with its net available
assets at March 31, 2002, to be sufficient to meet all currently foreseeable
future cash requirements.
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 Assets" ("SFAS
144"), which 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. 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
11
Report of Independent Certified Public Accountants
To the Partners
WNC California Housing Tax Credits II, L.P.
We have audited the accompanying balance sheets of WNC California Housing Tax
Credits II, L.P. (a California Limited Partnership) (the "Partnership") as of
March 31, 2002 and 2001, and the related statements of operations, partners'
equity (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 75% and 71% 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 audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WNC California Housing Tax Credits II, L.P. (a
California Limited Partnership) as of 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.
/s/ BDO SEIDMAN, LLP
Orange County, California
May 7, 2002
12
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31
------------------------------
2002 2001
------------- -------------
ASSETS
Cash and cash equivalents $ 257,975 $ 281,525
Investments in limited partnerships, net (Notes 2 and 3) 3,494,236 4,391,885
Due from affiliates (Note 2) 3,646 59,554
------------- -------------
$ 3,755,857 $ 4,732,964
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to General Partner
and affiliates (Note 3) $ 1,631,958 $ 1,448,236
------------- -------------
Commitments and contingencies
Partners' equity (deficit):
General Partner (144,023) (132,415)
Limited Partners (20,000 units authorized; 17,726 units
issued and outstanding) 2,267,922 3,417,143
------------- -------------
Total partners' equity 2,123,899 3,284,728
------------- -------------
$ 3,755,857 $ 4,732,964
============= =============
See accompanying notes to financial statements
13
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended
March 31
------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Interest income $ 7,523 $ 16,193 $ 16,614
Reporting fees 2,606 1,500 1,500
------------- ------------- -------------
Total income 10,129 17,693 18,114
------------- ------------- -------------
Operating expenses:
Amortization (Notes 2 and 3) 53,177 53,228 53,215
Write-off of advances to limited
partnership (Note 2) 52,894 - -
Asset management fees (Note 3) 210,084 210,084 210,084
Other 31,756 26,735 28,295
------------- ------------- -------------
Total operating expenses 347,911 290,047 291,594
------------- ------------- -------------
Loss from operations (337,782) (272,354) (273,480)
Equity in losses of limited
partnerships (Note 2) (823,047) (960,469) (736,997)
------------- ------------- -------------
Net loss $ (1,160,829)$ (1,232,823) $ (1,010,477)
============= ============= =============
Net loss allocated to:
General Partner $ (11,608)$ (12,328) $ (10,105)
============= ============= =============
Limited Partners $ (1,149,221)$ (1,220,495) $ (1,000,372)
============= ============= =============
Net loss per limited partner unit $ (64.83)$ (68.85) $ (56.44)
============= ============= =============
Outstanding weighted limited
partner units 17,726 17,726 17,726
============= ============= =============
See accompanying notes to financial statements
14
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended March 31, 2002, 2001 and 2000
General Limited Total
Partner Partners
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 1999 $ (109,982) $ 5,638,010 $ 5,528,028
Net loss (10,105) (1,000,372) (1,010,477)
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 2000 (120,087) 4,637,638 4,517,551
Net loss (12,328) (1,220,495) (1,232,823)
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 2001 (132,415) 3,417,143 3,284,728
Net loss (11,608) (1,149,221) (1,160,829)
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 2002 $ (144,023) $ 2,267,922 $ 2,123,899
=============== =============== ===============
See accompanying notes to financial statements
15
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 $ (1,160,829) $ (1,232,823) $ (1,010,477)
Adjustments to reconcile net loss
to
net cash used in operating
activities:
Amortization 53,177 53,228 53,215
Write-off of advances to limited
partnership 52,894 - -
Equity in losses of limited
partnerships 823,047 960,469 736,997
Change in due from affiliates 3,014 (21,014) (38,540)
Change in accrued fees and
expenses due to General Partner
and affiliates 183,722 169,994 200,857
-------------- ------------- --------------
Net cash used in operating activities (44,975) (70,146) (57,948)
-------------- ------------- --------------
Cash flows from investing activities:
Distributions received from limited
partnerships 21,425 37,041 7,725
-------------- ------------- --------------
Net cash provided by investing
activities 21,425 37,041 7,725
-------------- ------------- --------------
Net decrease in cash and
cash equivalents (23,550) (33,105) (50,223)
Cash and cash equivalents, beginning
of period 281,525 314,630 364,853
-------------- ------------- --------------
Cash and cash equivalents, end of
period $ 257,975 $ 281,525 $ 314,630
============== ============= ==============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Taxes paid $ 800 $ 800 $ 800
============== ============= ==============
See accompanying notes to financial statements
16
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 II, L.P. a California Limited Partnership
(the "Partnership"), was formed on September 13, 1990 under the laws of the
State of California. The Partnership was formed to invest primarily in other
limited partnerships (the "Local Limited Partnerships") which own and operate
multi-family housing complexes (the "Housing Complex") that are eligible for low
income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
The general partner is WNC Tax Credit Partners, L.P. (the "General Partner").
WNC & Associates, Inc. ("WNC") and Wilfred N. Cooper are the general partners of
WNC Tax Credit Partners, L.P. 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 in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 20,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in January 1993 at which
time 17,726 Units, representing subscriptions in the amount of $17,726,000, had
been accepted. The General Partner has a 1% interest in operating profits and
losses, taxable income and losses, 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 Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 3) from the remainder, any additional sale or refinancing
proceeds will be distributed 90% to the limited partners (in proportion to their
respective investments) and 10% to the General Partner.
17
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 Partner.
Method of Accounting For Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnership's results of operations
and for any distributions received. The accounting policies of the Local Limited
Partnerships are consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of the
investment account and are being amortized over 30 years (see Note 2).
Equity in losses of 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. Equity in losses of Local
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).
18
WNC CALIFORNIA HOUSING TAX CREDITS II, 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. The General Partner is obligated to
pay all offering and organization costs in excess of 15% (including sales
commissions) of the total offering proceeds. Offering expenses are reflected as
a reduction of limited partners' capital and amounted to $2,389,519 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.
Concentration of Credit Risk
- ----------------------------
At March 31, 2002, the Partnership maintained cash balances at a certain
financial institution in excess of the federally insured maximum.
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
during the years ended March 31, 2002, 2001 and 2000, 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"), which 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.
19
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 fifteen Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 786 apartment units. The respective
general partners of the Local Limited Partnerships manage the day to day
operations of the entities. Significant Local Limited Partnership business
decisions require approval from the Partnership. The Partnership, as a limited
partner, is generally entitled to 99%, as specified in the Local Limited
Partnership agreements, of the operating profits and losses, taxable income and
losses and tax credits of the Limited Partnerships.
The Partnership's investments in Local Limited Partnerships as shown in the
balance sheets at March 31, 2002 and 2001 are approximately $2,787,000 and
$2,279,000, 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 from the Local Limited Partnerships 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 $607,162, $443,391 and $556,141, respectively,
have not been recognized. As of March 31, 2002, the aggregate share of net
losses not recognized by the Partnership amounted to $2,207,321.
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 $ 4,391,885 $ 5,442,623 $ 6,240,560
Distributions received from limited partnerships (21,425) (37,041) (7,725)
Equity in losses of limited partnerships (823,047) (960,469) (736,997)
Amortization of capitalized acquisition fees and
costs (53,177) (53,228) (53,215)
--------------- --------------- ---------------
Investments per balance sheet, end of period $ 3,494,236 $ 4,391,885 $ 5,442,623
=============== =============== ===============
20
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 $11,591,000 and
$10,331,000, respectively) $ 27,827,000 $ 28,951,000
Land 2,465,000 2,465,000
Other assets 2,871,000 2,895,000
--------------- ---------------
$ 33,163,000 $ 34,311,000
=============== ===============
LIABILITIES
Mortgage and construction loans payable $ 28,201,000 $ 28,298,000
Due to related parties 825,000 757,000
Other liabilities 3,320,000 2,944,000
--------------- ---------------
32,346,000 31,999,000
--------------- ---------------
PARTNERS' EQUITY
WNC California Housing Tax Credits II, L.P. 707,000 2,113,000
Other partners 110,000 199,000
--------------- ---------------
817,000 2,312,000
--------------- ---------------
$ 33,163,000 $ 34,311,000
=============== ===============
21
WNC CALIFORNIA HOUSING TAX CREDITS II, 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
$ 3,282,000 $ 3,194,000 $ 3,077,000
--------------- --------------- ---------------
Expenses:
Operating expenses 2,515,000 2,210,000 2,252,000
Interest expense 909,000 907,000 924,000
Depreciation and amortization 1,292,000 1,293,000 1,286,000
--------------- --------------- ---------------
Total expenses 4,716,000 4,410,000 4,462,000
--------------- --------------- ---------------
Net loss $ (1,434,000) $ (1,216,000) $ (1,385,000)
=============== =============== ===============
Net loss allocable to the Partnership $ (1,385,000) $ (1,156,000) $ (1,310,000)
=============== =============== ===============
Net loss recorded by the Partnership $ (823,000) $ (960,000) $ (737,000)
=============== =============== ===============
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership may be required to sustain the operations of
such Local Limited Partnerships. If additional capital contributions are not
made when they are required, the Partnership's investment in certain of such
Local Limited Partnerships could be impaired, and the loss and recapture of the
related tax credits could occur.
The report of the independent certified public accountants with respect to the
financial statements of one Local Limited Partnership expressed substantial
doubt as to the Local Limited Partnerships' ability to continue as a going
concern. The Partnership had no remaining investment in such Local Limited
Partnership at March 31, 2002 and 2001, respectively. The Partnership's original
investment in the Local Limited Partnership approximated $1,278,000. Through
December 31, 2001, the Local Limited Partnership has had recurring losses and
working capital deficiencies. In the event the Local Limited Partnership is
required to liquidate or sell its property, the net proceeds could be
significantly less than the carrying value of such property. As of December 31,
2001 and 2000, the net carrying value of such property on the books and records
of the Local Limited Partnership totaled $2,155,000 and $2,267,000,
respectively.
The Partnership had advanced approximately $60,000 to three Local Limited
Partnerships as of March 31, 2001 to cover operating cash deficiencies, which is
presented as Due from Affiliates in the accompanying 2001 balance sheet. During
the year ended March 31, 2002, the Partnership fully reserved approximately
$53,000 and collected approximately $3,000 of such advances, resulting in the
remaining balance of approximately $4,000 as of March 31, 2002.
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or its affiliates for the following items:
Acquisition fees equal to 9% of the gross proceeds from the sale of Units
as compensation for services rendered in connection with the acquisition of
Local Limited Partnerships. At the end of all periods presented, the
Partnership incurred acquisition fees of $1,595,340. Accumulated
amortization of these capitalized costs was $911,226 and $755,966 as of
March 31, 2002 and 2001, respectively. Of the accumulated amortization
recorded on the balance sheet at March 31, 2001, $286,112 of the related
22
WNC CALIFORNIA HOUSING TAX CREDITS II, 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
- ----------------------------------------------
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 the year
ended March 31, 2002, an additional $102,083 was recognized under the same
methodology.
Reimbursement of costs incurred by an affiliate of the General Partner in
connection with the acquisition of Local Limited Partnerships. These
reimbursements have not exceeded 1.7% of the gross proceeds. As of the end
of all periods presented, the Partnership incurred acquisition costs of
$1,520 which have been included in investments in limited partnerships.
Accumulated amortization was insignificant for the periods presented.
An annual management fee equal to 0.5% of the invested assets of the Local
Limited Partnerships, including the Partnership's allocable share of the
mortgages. Management fees of $210,084 were incurred during each of the
years ended March 31, 2002, 2001 and 2000, of which $28,750, $40,000 and
$10,000 were paid during the years then ended, respectively.
A subordinated disposition fee in an amount equal to 1% of the sales price
of real estate sold. Payment of this fee to the General Partner is
subordinated to the limited partners who receive a 6% preferred return (as
defined in the Partnership Agreement) and is payable only if the General
Partner or its affiliates render services in the sales effort.
An affiliate of the General Partner provides management services for two of
the properties in the Local Limited Partnerships. Management fees were
earned by the affiliate in the amount of $24,764, $25,391 and $26,186 for
the years ended March 31, 2002, 2001 and 2000, respectively.
The accrued fees and expenses due to General Partner and affiliates consist of
the following:
March 31
--------------------------------
2002 2001
-------------- --------------
Reimbursement for expenses paid by the General Partner
or an affiliate $ 2,388 $ -
Accrued asset management fees 1,629,570 1,448,236
-------------- --------------
Total $ 1,631,958 $ 1,448,236
============== ==============
The General Partner does not anticipate that these accrued fees will be paid in
full until such time as capital reserves are in excess of future foreseeable
working capital requirements of the Partnership.
NOTE 4 - INCOME TAXES
- ---------------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liability for income taxes is the obligation of the partners
of the Partnership.
23
WNC CALIFORNIA HOUSING TAX CREDITS II, 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)
- ----------------------------------------------------
The following is a summary of the quarterly operations for the years ended March
31, 2002 and 2001:
June 30 September 30 December 31 March 31
--------------- --------------- --------------- ---------------
2002
----
Income $ 3,000 $ 2,000 $ 1,000 $ 4,000
Operating expenses (67,000) (75,000) (68,000) (138,000)
Equity in losses of limited
partnerships (146,000) (190,000) (171,000) (316,000)
Net loss (210,000) (263,000) (238,000) (450,000)
Loss available to limited partners (208,000) (260,000) (236,000) (445,000)
Loss per limited partner unit (12) (15) (13) (25)
2001
----
Income $ 4,000 $ 4,000 $ 4,000 $ 5,000
Operating expenses (71,000) (78,000) (70,000) (71,000)
Equity in losses of limited
partnerships (183,000) (183,000) (183,000) (411,000)
Net loss (250,000) (257,000) (249,000) (477,000)
Loss available to limited partners (248,000) (254,000) (246,000) (472,000)
Loss per limited partner unit (14) (14) (14) (27)
24
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
Directors of Registrant
The Partnership has no directors or executive officers of its own. The following
biographical information is presented for the directors and executive officers
of Associates which has principal responsibility for the Partnership's affairs.
Directors and Executive Officers of WNC & Associates, Inc.
The directors of WNC & Associates, Inc. are Wilfred N. Cooper, Sr., who serves
as Chairman of the Board, 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, Chairman, Chief Executive
Officer and a Director of WNC & Associates, Inc., a Director of WNC Capital
Corporation, and a general partner in some of the programs previously sponsored
by the Sponsor. Mr. Cooper has been involved in real estate investment and
acquisition activities since 1968. Previously, during 1970 and 1971, he was
founder and principal of Creative Equity Development Corporation, a predecessor
of WNC & Associates, Inc., and of Creative Equity Corporation, a real estate
investment firm. For 12 years prior to that, Mr. Cooper was employed by Rockwell
International 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.
25
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.
26
Item 11. Executive Compensation
The Partnership has no officers, employees, or directors. However, under the
terms of the Partnership Agreement the Partnership is obligated to the General
Partner or its affiliates during the current or future years for the following
fees:
(a) Annual Asset Management Fee. An annual asset management fee in an amount
equal to 0.5% of the Invested Assets of the Partnership, as defined.
"Invested Assets" means the sum of the Partnership's Investment in Local
Limited Partnership Interests and the Partnership's allocable share of the
amount of the mortgage loans on and other debts related to, the Housing
Complexes owned by such Local Limited Partnerships. Fees of $210,084 were
incurred during each of the years ended March 31, 2002, 2001 and 2000. The
Partnership paid the General Partner or its affiliates, $28,750, $40,000
and $10,000 of those fees during the years then ended, respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sale price received in connection with the sale or
disposition of a Housing Complex or Local Limited Partnership Interest.
Subordinated disposition fees will be subordinated to the prior return of
the Limited Partners' capital contributions and payment of the Preferred
Return on investment to the Limited Partners. "Preferred Return" means an
annual, cumulative but not compounded, "return" to the Limited Partners
(including Low Income Housing Credits) as a class on their adjusted capital
contributions commencing for each Limited Partner on the last day of the
calendar quarter during which the Limited Partner's capital contribution is
received by the Partnership, calculated at the following rates: (i) 16%
through December 31, 2001, and (ii) 6% for the balance of the Partnerships
term. No disposition fees have been paid.
(c) Operating Expense. The Partnership reimbursed the General Partner or its
affiliates for operating expenses of approximately $28,500, $23,500 and
$16,000, during the years ended March 31, 2002, 2001 and 2000,
respectively.
(d) Interest in Partnership. The General Partners receive 1% of the
Partnership's allocated Low Income Tax Housing Credits, which approximated
$20,000, $21,000 and $21,000 for the General Partner for the 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 own beneficially in excess of 5% of the
outstanding Units.
(b) Security Ownership of Management
--------------------------------
Neither the General Partner, its affiliates, nor any of the officers or
directors of the General Partner or its affiliates own directly or
beneficially any Units in the Partnership.
(c) Changes in Control
------------------
The management and control of the General Partner may be changed at any
time in accordance with its organizational documents, without the
consent or approval of the Limited Partners. In addition, the
Partnership Agreement provides for the admission of one or more
additional and successor General Partners in certain circumstances.
27
First, with the consent of any other General Partners and a
majority-in-interest of the Limited Partners, any General Partner may
designate one or more persons to be successor or additional General
Partners. In addition, any General Partner may, without the consent of
any other General Partner or the Limited Partners, (i) substitute in
its stead as General Partner any entity which has, by merger,
consolidation or otherwise, acquired substantially all of its assets,
stock or other evidence of equity interest and continued its business,
or (ii) cause to be admitted to the Partnership an additional General
Partner or Partners if it deems such admission to be necessary or
desirable so that the Partnership will be classified a partnership for
Federal income tax purposes. Finally, a majority-in-interest of the
Limited Partners may at any time remove the General Partner of the
Partnership and elect a successor General Partner.
Item 13. Certain Relationships and Related Transactions
The General Partner manages all of the Partnership's affairs. The transactions
with the General Partner are primarily in the form of fees paid by the
Partnership for services rendered to the Partnership and the General Partner's
interest in the Partnership, as discussed in Item 11 and in the notes to the
Partnership's financial statements.
28
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, as of 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.
-------------------
None
(c) Exhibits.
--------
3.1 Agreement of Limited Partnership dated as of September 13, 1990,
included as Exhibit 28.1 to the Form 10-K filed for the year ended
December 31, 1992, is hereby incorporated herein as Exhibit 3.1.
10.1 Amended and Restated Agreement of Limited Partnership of Orland
Associates dated June 15, 1991 filed as exhibit 10.1 to Form 10-K dated
December 31, 1992 is hereby incorporated herein by reference as exhibit
10.1.
10.2 Amended and Restated Agreement of Limited Partnership of Ukiah Terrace
a California Limited Partnership dated June 15, 1991 filed as exhibit
10.2 to Form 10-K dated December 31, 1992 is hereby incorporated herein
by reference as exhibit 10.2.
10.3 Amended and Restated Agreement of Limited Partnership of Northwest
Tulare Associates dated July 3, 1991 filed as exhibit 10.3 to Form 10-K
dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 10.3.
10.4 Second Amended and Restated Agreement of Limited Partnership of Yucca
Warren Vista, Ltd. dated July 15, 1991 filed as exhibit 10.4 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference
as exhibit 10.4.
10.5 Amended and Restated Agreement of Limited Partnership of Woodlake
Garden Apartments dated July 17, 1991 filed as exhibit 10.5 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference
as exhibit 10.5.
10.6 Amended and Restated Agreement of Limited Partnership of 601 Main
Street Investors dated December 22, 1991 filed as exhibit 10.6 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference
as exhibit 10.6.
10.7 Amended and Restated Agreement of Limited Partnership of ADI
Development Partners dated January 2, 1992 filed as exhibit 10.7 to
Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 10.7.
29
10.8 Amended and Restated Agreement of Limited Partnership of Bayless Garden
Apartment Investors dated January 2, 1992 filed as exhibit 10.8 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference
as exhibit 10.8.
10.9 Third Amended and Restated Agreement of Limited Partnership of Twin
Pines Apartment Associates dated January 2, 1992 filed as exhibit 10.9
to Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 10.9.
10.10 Amended and Restated Agreement of Limited Partnership of Blackberry
Oaks, Ltd. dated January 15, 1992 filed as exhibit 10.10 to Form 10-K
dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 10.10.
10.11 Amended and Restated Agreement of Limited Partnership of Mecca
Apartments II dated January 15, 1992 filed as exhibit 10.11 to Form
10-K dated December 31, 1992 is hereby incorporated herein by reference
as exhibit 10.11.
10.12 Amended and Restated Agreement of Limited Partnership of Silver Birch
Limited Partnership dated November 23, 1992 filed as exhibit 10.12 to
Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 10.12.
10.13 Amended and Restated Agreement of Limited Partnership of Jacob's Square
dated January 2, 1992 filed as exhibit 10.1 to Form 10-K dated December
31, 1993 is hereby incorporated herein by reference as exhibit 10.13.
10.14 Amended and Restated Limited Partnership Agreement of Nevada Meadows, A
California Limited Partnership as exhibit 10.2 to Form 10-K dated
December 31, 1993 is hereby incorporated herein by reference as exhibit
10.14.
21.1 Financial Statements of Mecca Apartments II, for the years ended
December 31, 2000 and 1999 together with Independent Auditors' Report
thereon; filed as exhibit 21.1 on Form 10-K dated March 31, 2001 is
hereby incorporated as exhibit 21.1; a significant subsidiary of the
Partnership.
21.2 Financial Statements of Mecca Apartments II, 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.
30
Report of Independent Certified Public Accountants on Financial Statement
Schedules
To the Partners
California Housing Tax Credits II, L.P.
The audits referred to in our report dated May 7, 2002 relating to the 2002,
2001 and 2000 financial statements of WNC California Housing Tax Credits II,
L.P. (the "Partnership"), which are contained in Item 8 of this Form 10-K,
included the audits 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
Orange County, California
May 7, 2002
31
WNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $ 3,967,000 $ 5,562,000 $ 1,889,000 $ 3,673,000
ADI Development Delhi,
Partners California 699,000 699,000 1,207,000 1,909,000 482,000 1,427,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,268,000 2,580,000 943,000 1,637,000
Blackberry Oaks, Lodi,
Ltd California 463,000 463,000 1,912,000 2,446,000 526,000 1,920,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,574,000 2,873,000 793,000 2,080,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,504,000 4,361,000 785,000 3,576,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,917,000 2,599,000 478,000 2,121,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,757,000 2,977,000 1,053,000 1,924,000
Orland Orland,
Associates California 432,000 432,000 1,703,000 2,259,000 537,000 1,722,000
Pine Gate Limited Ahoskie,
Partnership California 272,000 272,000 1,441,000 1,929,000 346,000 1,583,000
32
WNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,334,000 1,714,000 549,000 1,165,000
Twin Pines Apartments Groveland,
Associates California 1,278,000 1,278,000 1,789,000 3,346,000 1,192,000 2,154,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,765,000 2,309,000 824,000 1,485,000
Woodlake Garden Woodlake,
Apartments California 548,000 548,000 1,913,000 2,484,000 626,000 1,858,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,150,000 2,535,000 568,000 1,967,000
-------------- ------------ ----------- ------------ ------------ -----------
$12,914,000 $12,914,000 $28,201,000 $41,883,000 $11,591,000 $30,292,000
============== ============ =========== ============ ============ ===========
33
WNC California Housing Tax Credits II, 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)
- -----------------------------------------------------------------------------------------------------------
601 Main Street Investors $ 458,000 $ (314,000) 1991 Completed 39
ADI Development Partners 123,000 (58,000) 1991 Completed 40
Bayless Garden Apartments Investors 180,000 (96,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 217,000 (24,000) 1992 Completed 40
Jacob's Square 204,000 (79,000) 1993 Completed 27.5
Mecca Apartments II 261,000 (198,000) 1993 Completed 40
Nevada Meadows 197,000 (58,000) 1993 Completed 40
Northwest Tulare Associates 157,000 (151,000) 1991 Completed 27.5
Orland Associates 206,000 (18,000) 1991 Completed 40
Pine Gate Limited Partnership 226,000 (51,000) 1994 Completed 50
Silver Birch Associates 138,000 (30,000) 1992 Completed 27.5
Twin Pines Apartments Associates 152,000 (213,000) 1991 Completed 27.5
Ukiah Terrace 185,000 (65,000) 1991 Completed 27.5
Woodlake Garden Apartments 194,000 (53,000) 1991 Completed 40
Yucca-Warren Vista Associates, Ltd. 219,000 (26,000) 1991 Completed 50
---------- ------------
$3,117,000 $(1,434,000)
========== ============
34
WNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $ 3,984,000 $ 5,559,000 $ 1,693,000 $ 3,866,000
ADI Development Delhi,
Partners California 699,000 699,000 1,214,000 1,904,000 473,000 1,467,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,276,000 2,576,000 849,000 1,727,000
Blackberry Oaks, Lodi,
Ltd California 463,000 463,000 1,920,000 2,443,000 464,000 1,979,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,580,000 2,860,000 697,000 2,163,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,498,000 4,361,000 669,000 3,692,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,925,000 2,599,000 416,000 2,183,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,768,000 2,967,000 954,000 2,013,000
Orland Orland,
Associates California 432,000 432,000 1,709,000 2,259,000 481,000 1,778,000
Pine Gate Limited Ahoskie,
Partnership California 272,000 272,000 1,447,000 1,873,000 293,000 1,580,000
35
WNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,339,000 1,714,000 491,000 1,223,000
Twin Pines Apartments Groveland,
Associates California 1,278,000 1,278,000 1,788,000 3,332,000 1,065,000 2,267,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,770,000 2,301,000 752,000 1,549,000
Woodlake Garden Woodlake,
Apartments California 548,000 548,000 1,924,000 2,471,000 552,000 1,919,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,156,000 2,529,000 518,000 2,011,000
-------------- ------------ ----------- ------------ ------------ -----------
$12,914,000 $12,914,000 $28,298,000 $41,748,000 $10,331,000 $31,417,000
============== ============ =========== ============ ============ ===========
36
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2001
------------------------------------------------------------------------
For the year ended December 31, 2000
------------------------------------------------------------------------
Year Estimated
Investment Useful Life
Partnership Name Rental Income Net Income(Loss) Acquired Status (Years)
- -----------------------------------------------------------------------------------------------------------
601 Main Street Investors $ 388,000 $ (328,000) 1991 Completed 39
ADI Development Partners 121,000 (52,000) 1991 Completed 40
Bayless Garden Apartments Investors 176,000 (96,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 218,000 (15,000) 1992 Completed 40
Jacob's Square 193,000 (103,000) 1993 Completed 27.5
Mecca Apartments II 263,000 (177,000) 1993 Completed 40
Nevada Meadows 196,000 (41,000) 1993 Completed 40
Northwest Tulare Associates 168,000 (123,000) 1991 Completed 27.5
Orland Associates 202,000 (22,000) 1991 Completed 40
Pine Gate Limited Partnership 226,000 18,000 1994 Completed 50
Silver Birch Associates 139,000 (42,000) 1992 Completed 27.5
Twin Pines Apartments Associates 134,000 (134,000) 1991 Completed 27.5
Ukiah Terrace 185,000 (60,000) 1991 Completed 27.5
Woodlake Garden Apartments 183,000 (33,000) 1991 Completed 40
Yucca-Warren Vista Associates, Ltd. 219,000 (8,000) 1991 Completed 50
---------- ------------
$3,011,000 $(1,216,000)
========== ============
37
WNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $ 3,997,000 $ 5,553,000 $ 1,496,000 $ 4,057,000
ADI Development Delhi,
Partners California 699,000 699,000 1,220,000 1,904,000 392,000 1,512,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,284,000 2,570,000 754,000 1,816,000
Blackberry Oaks, Lodi,
Ltd California 463,000 463,000 1,930,000 2,430,000 403,000 2,027,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,586,000 2,860,000 597,000 2,263,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,512,000 4,361,000 553,000 3,808,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,778,000 2,599,000 354,000 2,245,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,933,000 2,959,000 856,000 2,103,000
Orland Orland,
Associates California 432,000 432,000 1,714,000 2,250,000 425,000 1,825,000
Pine Gate Limited Ahoskie,
Partnership California 272,000 272,000 1,452,000 1,803,000 243,000 1,560,000
38
WWNC California Housing Tax Credits II, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,343,000 1,714,000 431,000 1,283,000
Twin Pines Apartments Groveland,
Associates California 1,278,000 1,278,000 1,788,000 3,316,000 938,000 2,378,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,775,000 2,301,000 673,000 1,628,000
Woodlake Garden Woodlake,
Apartments California 548,000 548,000 1,936,000 2,458,000 481,000 1,977,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,162,000 2,514,000 469,000 2,045,000
-------------- ------------ ----------- ------------ ------------ -----------
$12,914,000 $12,914,000 $28,410,000 $41,592,000 $ 9,065,000 $32,527,000
============== ============ =========== ============ ============ ===========
39
WNC California Housing Tax Credits II, 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 Income(Loss) Acquired Status (Years)
- -----------------------------------------------------------------------------------------------------------
601 Main Street Investors $ 360,000 $ (351,000) 1991 Completed 39
ADI Development Partners 121,000 (56,000) 1991 Completed 40
Bayless Garden Apartments Investors 163,000 (124,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 214,000 (19,000) 1992 Completed 40
Jacob's Square 186,000 (109,000) 1993 Completed 27.5
Mecca Apartments II 261,000 (158,000) 1993 Completed 40
Nevada Meadows 195,000 (37,000) 1993 Completed 40
Northwest Tulare Associates 171,000 (123,000) 1991 Completed 27.5
Orland Associates 202,000 (11,000) 1991 Completed 40
Pine Gate Limited Partnership 226,000 8,000 1994 Completed 50
Silver Birch Associates 134,000 (29,000) 1992 Completed 27.5
Twin Pines Apartments Associates 99,000 (236,000) 1991 Completed 27.5
Ukiah Terrace 184,000 (56,000) 1991 Completed 27.5
Woodlake Garden Apartments 182,000 (59,000) 1991 Completed 40
Yucca-Warren Vista Associates, Ltd. 223,000 (25,000) 1991 Completed 50
---------- ------------
$2,921,000 $(1,385,000)
========== ============
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
By: WNC Tax Credit Partners, L.P., General Partner
By: WNC & Associates, Inc., General Partner
By: /s/ Wilfred N. Cooper, Jr.
--------------------------
Wilfred N. Cooper, Jr., President
Chief Operating Officer of WNC & Associates, Inc.
Date: May 31, 2002
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha, Vice-President
Chief Financial Officer of WNC & Associates, Inc.
Date: May 31, 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 31, 2002
By: /s/ David N. Shafer
-------------------
David N Shafer, Director of WNC & Associates, Inc.
Date: May 31, 2002
41
Exhibit
Number Exhibit Description
EX-21.2 Financial Statements of Mecca Apartments II, for the years ended
December 31, 2001 and 2000 together with Independent Auditors
Report thereon; a significant equity account investment of the
Partnership.
42
MECCA APARTMENTS II
Audit of the Financial Statements
For the Year ended December 31, 2001
February 25, 2002
To the Partners of
Mecca Apartments II
Independent Auditor's Report
We have audited the accompanying balance sheets of Mecca Apartments II, as of
December 31, 2001, and 2000, and the related statements of income and changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the project's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mecca Apartments II, as of
December 31, 2001, and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purposes of forming an opinion on the basic
financial statements taken as a whole. The supporting information included in
the report are presented for the purposes of additional analysis and are not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
/S/ ROBERT G. CLAPHAM
ACCOUNTANCY CORPORATION
By________________________
President
Mecca Apartments II
BALANCE SHEETS
At December 31, 2001, and 2000
Assets 2001 2000
------ ---- ----
Cash - on hand $ 100 100
- revenue accounts 111,886 111,986 135,914 136,014
--------- -------
Accounts receivable
- tenants 1,748 6,272
Prepaid expenses and deposits 4,187 4,007
Deposits for taxes and insurance 9,690 9,247
Tenants' security deposits 23,999 24,446
------ -------
Total current assets 151,610 179,986
Replacement reserve 85,757 80,761
Operating reserve 97,257 87,691
Land 259,698 259,698
Buildings and improvements 3,961,851 3,961,851
Furniture and equipment 139,749 139,749
---------- --------
4,361,298 4,361,298
Less accumulated depreciation 785,412 3,575,886 669,164 3,692,134
--------- --------
Deferred financing costs 163,074 177,179
---------- ---------
$4,073,584 4,217,751
========== =========
The accompanying notes are an integral part
of the financial statements
Liabilities 2001 2000
----------- ---- ----
Accounts payable, trade $ 6,607 7,207
Accrued interest 5,419 5,328
Tenants' security deposits 23,495 23,438
Prepaid rent 2,594 1,396
Portion of notes payable
due within one year 6,558 7,341
------- --------
Total current liabilities 44,673 44,710
Notes payable, secured by real property 2,504,298 2,505,729
Less current portion due within one year 6,558 2,497,740 7,341 2,498,388
--------- -------
Deferred interest 451,687 379,750
Partners' capital 1,079,484 1,294,903
------------ -----------
$4,073,584 4,217,751
============ ============
Mecca Apartments II
STATEMENT OF INCOME
For the Years ended December 31, 2001, and 2000
2001 2000
---- ----
Tenants' rent, gross potential $263,784 263,784
Less vacancy loss 2,561 261,223 610 263,174
- ----- ------- --- -------
Laundry concession 9,959 10,601
Interest income 8,293 10,948
Other income 2,798 21,050 3,617 24,716
----- ------ ----- -------
282,273 287,890
------- -------
Administrative
Salaries 23,048 22,171
Office expenses 4,679 3,413
Management fee 13,603 14,080
Telephone 1,615 1,715
Legal 100 -
Auditing 6,300 5,800
Bad debts 1,955 78
Other 3,880 55,180 5,480 52,737
----- ------ ----- ------
Utilities
Electricity 7,187 6,119
Water and sewer 11,269 11,044
Gas 2,431 20,887 1,989 19,152
----- ------ ----- ------
Operating and Maintenance
Exterminating 1,401 1,434
Rubbish 10,361 9,736
Grounds 12,261 12,454
Materials and supplies 31,716 10,299
Repairs contract and payroll 23,067 18,174
Painting and decorating 2,613 81,419 7,591 59,688
------ -------
Depreciation 116,249 116,355
The accompanying notes are an integral part
of the financial statements
2001 2000
---- ----
Taxes and Insurance
Real property taxes 15,440 14,263
Other taxes 4,337 3,944
Insurance 15,725 35,502 13,119 31,326
------ ------
Interest 141,646 136,157
Amortization 14,105 14,105
------ ------
464,988 429,520
------- -------
Net operating loss for the year (182,715) (141,630)
Partners' fees 15,000 35,000
------ ------
Net (loss) for the year $(197,715) $(176,630)
========== ==========
Mecca Apartments II
STATEMENT OF CHANGES IN CAPITAL
For the Years ended December 31, 2001, and 2000
Capital, December 31, 1999 1,472,009
Net loss for the year ended
December 31, 2000 (176,630)
Distributions 476
----------
Capital, December 31, 2000 1,294,903
Net loss for the year ended
December 31, 2001 (197,715)
Distributions 17,704
----------
Capital, December 31, 2001 $1,079,484
==========
The accompanying notes are an integral part
of the financial statements
Mecca Apartments II
STATEMENT OF CASH FLOWS
For the Years ended December 31, 2001, and 2000
2001 2000
---- ----
Cash Flows provided by (Used for)
Operating Activities
Cash collected from tenants
and concessionaires $272,270 264,401
Cash paid to suppliers and employees (201,362) (200,499)
Interest paid - mortgage (69,536) (64,271)
Interest collected 8,293 10,948
Withdrawals from (deposits to)
restricted cash, net 4 (1,181)
------- -----------
Net cash flows provided by (used
for) operating activities 9,669 9,398
Cash Flows Provided by (Used for)
Financing Activities
Payments on loans (1,431) (6,694)
Distributions (17,704) (476)
Net cash flows provided by (used --------- -----------
for) financing activities (19,135) (7,170)
Cash Flows Provided by (Used for)
Investing Activities
Deposits to restricted cash (14,562) (25,811)
Net cash flows provided by (used -------- -----------
for) investing activities (14,562) (25,811)
-------- --------
Increase (decrease) in cash (24,028) (23,583)
Unrestricted cash, beginning of year 136,014 159,597
---------- ---------
Unrestricted cash, end of year $ 111,986 136,014
========== ==========
The accompanying notes are an integral part
of the financial statements
2001 2000
---- ----
Reconciliation of Net Income with Cash
Provided by (Used for) Operating Activities
Net income (loss) for the year $(197,715) (176,630)
Add depreciation and amortization 130,353 130,460
Deferred interest 71,937 71,937
Deferred income - 4,575 (1,500) 24,267
------- --------
(Increase) decrease in assets:
Accounts receivable 4,524 (5,752)
Prepaid expenses and deposits (180) (847)
Restricted cash 4 (1,181)
Increase (decrease) in liabilities:
Accounts payable and
accrued lia (509) (6,982)
Other liabilities 1,255 5,094 (107) (14,869)
------ ------ ------- ---------
Cash flows provided by (used for) operating activities $ 9,669 9,398
========= =========
Mecca Apartments II
-------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 2001
-----------------
Note 1. Organization
- ------ -------------
The partnership was organized to develop and operate low-income housing
in the City of Mecca, California. The property included in the financial
statements consists of sixty units of rental housing placed in service in 1995.
The partnership has entered into an agreement with the State of California Tax
Credit Allowance Committee; under the terms of which the partnership will be
allocated federal low-income housing credits which will be passed through to the
partners for the ten year period following initial occupancy of the housing. The
credits are to be 8.72% of the eligible basis up to a maximum credit of $387,873
per year. Agreements with the Tax Credit Allocation Committee and the lender
place substantial restrictions on the use and operation of the housing,
including restrictions on rents, expenditures and withdrawals and requirements
that various restricted cash deposits be maintained.
Note 2. Accounting Principles
- ------- -----------------------
The partnership uses the accrual basis, in that income is recorded as
earned and expenses as they are incurred.
Income from rents is recorded at the gross potential amount, with losses
due to vacancy of bad debts shown as reductions of income and free or
reduced-rate occupancy by on-site employees is shown as an expense. Losses from
bad debts are recorded at the time a tenant vacates a unit owing more than the
amount of the security deposit.
Expenses incurred that expire over a period oftime are pro-rated over the
time period.
Property and equipment is recorded at cost;depreciation is provided
using the straight-line method over estimated lives of
40 years for the building and 5 to 7 years for furnishings. Repairs and routine
replacement of assets will be recorded as a current expense. Major renovations
or replacements of a significant part of a group of assets are recorded as
additions to property and disposal of the assets being replaced.
Estimates are used to determine amounts in financial statements. Actual
results may vary from those estimates.
Expenses being incurred during the construction period related to
financing have been deferred. These costs will be amortized over a thirty-year
period on the straight-line.
Note 3. Accounts Receivable
- ----- -------------------
The details of accounts receivable are presented in the supplementary
data following the financial statements.
Note 4. Prepaid Expenses and Deposits
- ------- -----------------------------
At December 31, 2001, prepaid expenses consisted of the following:
Insurance $4,187
======
Note 5. Replacement Reserve Deposits
- ------- ----------------------------
The partnership is required to make deposits of $1,193 per month to an
account held by the lender to accumulate funds for the replacement of assets,
and $554 to another a savings accounts at U.S. Bank. A schedule of the activity
in these reserve accounts is included in the supplementary data.
Note 6. Notes Payable
- ------- -------------
The notes payable consist of a loan with an original balance of $715,000
payable in monthly installments of $5,914, including interest at 9.25% per
annum, due January 1, 2026, a loan with a balance of $500,000 from the County of
Riverside Home Funds, payable together with accumulated simple interest of 6.5%
per annum, over a fifteen-year period beginning May, 2010, in monthly payments
of $8,469 including interest at 6.5% per annum, and a loan with a balance of
$1,314,577 from the Rental Housing construction program of the State of
California Department of Housing and Community Development, bearing simple
interest at 3% per annum, on which payments of interest and principal will be
deferred, unless the operation of the property generates surplus cash in excess
of allowable distributions. During the year 2001, the lender changed the
amortization method to a 365/360 day year basis. The resulting adjustment of
prior interest is included in interest expense. The amounts of principal due in
each of the five years after December 31, 2001, except for payments that might
be required from surplus cash, and the amount due after five years are as
follows:
2002 $ 6,558
2003 7,201
2004 7,905
2005 8,680
2006 9,530
Note 7. Property Taxes
- ------- --------------
The managing general partner is Indio Housing Development Corporation,
an organization exempt from income taxes under the provisions of Internal
Revenue Code Section 501(c)(3). As a provider of rental housing to qualifying
low income families, the partnership qualifies for a welfare exemption from a
portion of the property taxes assessed by the County of Riverside.
Note 8. Concentration of Activities
- ------- ---------------------------
The partnership's sole asset is 60 units of housing. 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 administrative directives, rules and
regulations of federal, state and local regulatory agencies, including, but not
limited to HUD. Such administrative directives, rules and regulations are
subject to change by an act of congress, or and administrative change mandated
by HUD. 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.
42