FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-26048
WNC HOUSING TAX CREDIT FUND IV, L.P., Series 1
California 33-0563307
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 662-5565
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--------- ----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes No X
--------- ----------
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended June 30, 2003
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 2003 and March 31, 2003...........................3
Statements of Operations
For the Three Months Ended June 30, 2003 and 2002..........4
Statement of Partners' Equity (Deficit)
For the Three Months Ended June 30, 2003...................5
Statements of Cash Flows
For the Three Months Ended June 30, 2003 and 2002..........6
Notes to Financial Statements................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk...15
Item 4. Procedures and Controls......................................15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................15
Signatures...........................................................16
Certifications.......................................................17
2
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
BALANCE SHEETS
June 30, 2003 March 31, 2003
---------------------- -------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 245,059 $ 238,047
Investments in limited partnerships, net (Note 2) 1,899,874 1,965,138
---------------------- -------------------
Total assets $ 2,144,933 $ 2,203,185
====================== ===================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Payable to limited partnership $ 2,303 $ 2,303
Accrued fees and expenses due to
General Partner and affiliates (Note 3) 157,254 147,057
---------------------- -------------------
Total liabilities 159,557 149,360
---------------------- -------------------
Commitments and contingencies
Partners' equity (deficit):
General Partner (80,047) (79,363)
Limited Partners (10,000 units authorized,
10,000 units issued and outstanding) 2,065,423 2,133,188
---------------------- -------------------
Total partners' equity 1,985,376 2,053,825
---------------------- -------------------
$ 2,144,933 $ 2,203,185
====================== ===================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2003 and 2002
(unaudited)
2003 2002
----------------------- -------------------------
Three Months Three Months
----------------------- -------------------------
Interest income $ 626 $ 1,109
Distribution income 2,550 -
----------------------- -------------------------
3,176 1,109
----------------------- -------------------------
Operating expenses:
Amortization (Note 2) 5,953 5,953
Asset management fees (Note 3) 10,500 10,500
Legal & accounting 3,570 3,679
Other 3,627 2,924
----------------------- -------------------------
Total operating expenses 23,650 23,056
----------------------- -------------------------
Loss from operations (20,474) (21,947)
Equity in losses of limited
partnerships (Note 2) (47,975) (69,946)
----------------------- -------------------------
Net loss $ (68,449) $ (91,893)
======================= =========================
Net loss allocated to:
General partner $ (684) $ (919)
======================= =========================
Limited partners $ (67,765) $ (90,974)
======================= =========================
Net loss per limited partner unit $ (7) $ (9)
======================= =========================
Outstanding weighted limited
partner units 10,000 10,000
======================= =========================
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three Months Ended June 30, 2003
(unaudited)
General Limited
Partner Partners Total
--------------- ------------------- ---------------
Partners' equity (deficit) at March 31, 2003 $ (79,363) $ 2,133,188 $ 2,053,825
Net loss (684) (67,765) (68,449)
--------------- ------------------- ---------------
Partners' equity (deficit) at June 30, 2003 $ (80,047) $ 2,065,423 $ 1,985,376
=============== =================== ===============
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND IV, L.P. SERIES 1
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2003 and 2002
(unaudited)
2003 2002
------------------ -----------------
Cash flows from operating activities:
Net loss $ (68,449) $ (91,893)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 5,953 5,953
Equity in losses of limited partnerships 47,975 69,946
Change in accrued fees and expenses due to
General Partner and affiliates 10,197 (942)
------------------ -----------------
Net cash used in operating activities (4,324) (16,936)
------------------ -----------------
Cash flows from investing activities:
Distributions from limited partnerships 11,336 2,225
------------------ -----------------
Net increase (decrease) in cash and cash equivalents 7,012 (14,711)
Cash and cash equivalents, beginning of period 238,047 277,292
------------------ -----------------
Cash and cash equivalents, end of period $ 245,059 $ 262,581
================== =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ 800
================== =================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended March 31,
2003.
Organization
- ------------
WNC Housing Tax Credit Fund IV, L.P., Series 1, a California Limited Partnership
(the "Partnership"), was formed on May 4, 1993 under the laws of the state of
California, and commenced operations on October 20, 1993. The Partnership was
formed to invest primarily in other limited partnerships (the "Local Limited
Partnerships") which own and operate multi-family housing complexes (the
"Housing Complex") that are eligible for low-income housing credits. The local
general partners (the "Local General Partners") of each Local Limited
Partnership retain responsibility for maintaining, operating and managing the
Housing Complex.
The general partner of the Partnership is WNC Tax Credit Partners IV, L.P. ("TCP
IV"). The general partner of TCP IV is WNC & Associates, Inc. ("Associates").
The chairman and president own substantially all of the outstanding stock of
Associates. The business of the Partnership is conducted primarily through
Associates as neither TCP IV nor the Partnership have employees of their own.
The Partnership Agreement authorized the sale of up to 10,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in July 1994 at which time
10,000 Units in the amount of $10,000,000 had been accepted. The General Partner
has 1% interest in operating profits and losses, taxable income and losses, cash
available for distribution from the Partnership and tax credits. The limited
partners will be allocated the remaining 99% of these items in proportion to
their respective investments.
After the limited partners have received proceeds from sale or refinancing equal
to their capital contributions and their return on investment (as defined in the
Partnership Agreement) and the General Partner has received proceeds equal to
its capital contribution and subordinated disposition fee (as described in Note
3) from the remainder, any additional sale or refinancing proceeds will be
distributed 90% to the limited partners (in proportion to their respective
investments) and 10% to the General Partner.
7
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Certain Risks and Uncertainties
- -------------------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low-Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low-Income Housing Credit s and
the fractional recapture of Low-Income Housing Credits already taken. In most
cases the annual amount of Low-Income Housing Credits that an individual can use
is limited to the tax liability due on the person's last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a profit. Accordingly, the Partnership may be unable to distribute
any cash to its investors. Low-Income Housing Credits may be the only benefit
from an investment in the Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
future Low-Income Housing Credits, a fractional recapture of prior Low-Income
Housing Credits, and a loss of the Partnership's investment in the Housing
Complex would occur. The Partnership is a limited partner or non-managing member
of each Local Limited Partnership. Accordingly, the Partnership will have very
limited rights with respect to management of the Local Limited Partnerships. The
Partnership will rely totally on the Local General Partners. Neither the
Partnership's investments in Local Limited Partnerships, nor the Local Limited
Partnerships' investments in Housing Complexes, are readily marketable. To the
extent the Housing Complexes receive government financing or operating
subsidies, they may be subject to one or more of the following risks:
difficulties in obtaining tenants for the Housing Complexes; difficulties in
obtaining rent increases; limitations on cash distributions; limitations on
sales or refinancing of Housing Complexes; limitations on transfers of interests
in Local Limited Partnerships; limitations on removal of Local General Partners;
limitations on subsidy programs; and possible changes in applicable regulations.
Uninsured casualties could result in loss of property and Low-Income Housing
Credits and recapture of Low-Income Housing Credits previously taken. The value
of real estate is subject to risks from fluctuating economic conditions,
including employment rates, inflation, tax, environmental, land use and zoning
policies, supply and demand of similar properties, and neighborhood conditions,
among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low-Income Housing
Credits and tax losses allocable to the investors could be reduced if the IRS
were successful in such a challenge. The alternative minimum tax could reduce
tax benefits from an investment in the Partnership. Changes in tax laws could
also impact the tax benefits from an investment in the Partnership and/or the
value of the Housing Complexes.
No trading market for the Units exists or is expected to develop. Investors may
be unable to sell their Units except at a discount and should consider their
Units to be a long-term investment. Individual investors will have no recourse
if they disagree with actions authorized by a vote of the majority of Limited
Partners.
8
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Exit Strategy
- -------------
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties including those that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the investors from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the investors' return wherever
possible and, ultimately, to wind down those funds that no longer provide tax
benefits to investors. To date no properties in the Partnership have been
selected.
Method of Accounting for Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by a comparison of the carrying
amount to future undiscounted net cash flows expected to be generated. If an
investment is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the investment exceeds
fair value. The accounting policies of the Local Limited Partnerships are
generally consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of the
investment account and are being amortized over 30 years (see Note 2).
Equity in losses of Local Limited Partnerships for the periods ended June 30,
2003 and 2002 have been recorded by the Partnership based on three months of
results estimated by management of the Partnership. Management's estimate for
the three-month period is based on either actual unaudited results reported by
the Local Limited Partnerships or historical trends in the operations of the
Local Limited Partnerships. Equity in losses of limited partnerships allocated
to the Partnership will not be recognized to the extent that the investment
balance would be adjusted below zero. As soon as the investment balance reaches
zero, the related costs of acquiring the investment are accelerated to the
extent of losses available (see Note 2).
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 $1,356,705 at the end
of all periods presented.
9
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
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. The
Partnership had no cash equivalents as of June 30, 2003 and March 31, 2003.
At June 30, 2003, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amounts.
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited 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 income per unit is not required.
Reporting Comprehensive Income
- ------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all periods presented, as defined by SFAS No. 130.
Impact of New Accounting Pronouncements
- ---------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations", which requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement costs being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. The statement is effective for fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 did not have a material effect on the
Partnership's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard was effective for the
Partnership's financial statements beginning January 1, 2002. The implementation
of SFAS No. 144 did not have a material impact on the Partnership's financial
position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinded three previously issued statements and amended SFAS No.
13, "Accounting for Leases." The statement provides reporting standards for debt
10
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Impact of New Accounting Pronouncements, continued
- --------------------------------------------------
extinguishments and provides accounting standards for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The statement is effective for certain lease transactions occurring after May
15, 2002 and all other provisions of the statement shall be effective for
financial statements issued on or after May 15, 2002. The implementation of SFAS
No. 145 did not have a material impact on the Partnership's financial position
or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which updates accounting and reporting
standards for personnel and operational restructuring. The Partnership adopted
SFAS No. 146 for exit, disposal or other restructuring activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
effect on the Partnership's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a
material impact on the Partnership's financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method on accounting for stock-based employee compensation. The
implementation of SFAS No. 148 is not expected to have a material effect on the
Partnership's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The adoption of FIN 46 did not
have a material impact on the Partnership's financial position or results of
operations.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of the periods presented, the Partnership had acquired limited partnership
interests in twenty-one Local Limited Partnerships, each of which owns one
housing complex, consisting of an aggregate of 812 apartment units. The
respective general partners of the Local Limited Partnerships manage the day to
day operations of the entities. Significant Local Limited Partnership business
decisions require approval from the Partnership. The Partnership, as a limited
partner, is generally entitled to 99%, as specified in the Local Limited
Partnership agreements, of the operating profits and losses, taxable income and
losses and tax credits of the Local Limited Partnerships.
Equity in losses of Local Limited Partnerships is recognized in the financial
statements until the related investment account is reduced to a zero balance.
Losses incurred after the investment account is reduced to zero are not
recognized. If the Local Limited Partnerships report net income in future years,
the Partnership will resume applying the equity method only after its share of
such net income equals the share of net losses not recognized during the
period(s) the equity method was suspended.
Distributions received by limited partners are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income.
Following is a summary of the equity method activity of the investments in Local
Limited Partnerships for the periods presented below:
11
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
For the Three Months For the Year
Ended Ended
June 30, 2003 March 31, 2003
------------------------ -------------------
Investments per balance sheet,
beginning of period $ 1,965,138 $ 2,234,002
Distributions received from limited partnerships (11,336) (5,803)
Equity in losses of limited partnerships (47,975) (239,249)
Amortization of capitalized acquisition fees and costs (5,953) (23,812)
------------------------ -------------------
Investments per balance sheet,
end of period $ 1,899,874 $ 1,965,138
======================== ===================
12
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Selected financial information for the Three Months ended June 30, 2003 and 2002
from the unaudited combined condensed financial statements of the limited
partnership in which the Partnership has invested is as follows:
2003 2002
------------------- -------------------
Revenues $ 895,000 $ 850,000
------------------- -------------------
Expenses:
Interest expense 215,000 205,000
Depreciation and amortization 269,000 275,000
Operating expenses 563,000 567,000
------------------- -------------------
Total expenses 1,047,000 1,047,000
------------------- -------------------
Net loss $ (152,000) $ (197,000)
=================== ===================
Net loss allocable to the Partnership $ (149,000) $ (194,000)
=================== ===================
Net loss recorded by the Partnership $ (48,000) $ (70,000)
=================== ===================
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partners may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
impaired, and the loss and recapture of the related tax credits could occur.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Under the terms of the Partnership Agreement the Partnership is obligated to the
General Partner or its affiliates for the following items:
(a) Annual Asset Management Fee. An annual asset management fee equal to the
greater amount of (i) $2,000 for each apartment complex, or (ii) 0.275% of
gross proceeds. The base fee amount will be adjusted annually based on
changes to the Consumer Price Index. However, in no event will the annual
asset management fee exceed 0.2% of the invested assets of the Local
Limited Partnerships, including the Partnership's allocable share of the
mortgages. Asset management fees of $10,500 were incurred for each of the
three months ended June 30, 2003 and 2002. The Partnership paid $7,500 and
$15,000 of those asset management fees during the three months ended June
30, 2003 and 2002, respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sales price of real estate sold. Payment of this fee is
subordinated to the limited partners receiving a preferred return of 16%
through December 31, 2003 and 6% thereafter (as defined in the Partnership
Agreement) and is payable only if the General Partner or its affiliates
render services in the sales effort.
13
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
The accrued fees and advances due to General Partner and affiliates consisted of
the following:
June 30, 2003 March 31, 2003
---------------------- --------------------
Reimbursement for expenses paid by the General
Partner or an affiliate $ 9,087 $ 1,890
Asset management fee payable 148,167 145,167
---------------------- --------------------
$ 157,254 $ 147,057
====================== ====================
NOTE 4 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships represent amounts, which are due at various
times based on conditions specified in the limited partnership agreement. These
contributions are payable in installments and are due upon the limited
partnership achieving certain operating and development benchmarks (generally
within two years of the Partnership's initial investment).
NOTE 5 - INCOME TAXES
- ---------------------
No provision for income taxes has been recorded in the financial statements as
any liability for income taxes is the obligation of the partners of the
Partnership.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain
forward-looking statements. Such statements are based on current expectations
subject to uncertainties and other factors, which may involve known and unknown
risks that could cause actual results of operations to differ materially from
those, projected or implied. Further, certain forward-looking statements are
based upon assumptions about future events, which may not prove to be accurate.
Risks and uncertainties inherent in forward-looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low-income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the condensed unaudited Financial Statements and the Notes
thereto included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
three Months ended June 30, 2003 and 2002, and should be read in conjunction
with the condensed financial statements and accompanying notes included within
this report.
Financial Condition
The Partnership's assets at June 30, 2003 consisted primarily of $245,000 in
cash and aggregate investments in the twenty-one Local Limited Partnerships of
$1,900,000. Liabilities at June 30, 2003 consisted primarily of $157,000 in
accrued asset management fees and expenses payable to the General Partner.
Results of Operations
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.
The Partnership's net loss for the three months ended June 30, 2003 was
$(68,000), reflecting a decrease of $(24,000) from the net loss experienced for
the three months ended June 30, 2002 of $(92,000). The decrease in net loss is
primarily due to equity in losses of Local Limited Partnerships which decreased
by $(22,000) to $(48,000) for the three months ended June 30, 2003 from
$(70,000) for the three months ended June 30, 2002. The decrease in equity in
losses of Local Limited Partnerships is due to the Partnership not recognizing
certain losses of the Local Limited Partnerships. The investments in such Local
Limited Partnerships had reached $0 at June 30, 2003. Since the Partnership's
liability with respect to its investments is limited, losses in excess of
investment are not recognized. Along with the decrease in equity in losses of
Local Limited Partnerships, loss from operations decreased approximately by
$(1,000) to $(21,000) for the three months ended June 30, 2003 from $(22,000)
for the three months ended June 30, 2002, which was caused by an increase in
distribution income of $2,000, which was offset by an increase in other
operating expenses of $1,000 for the three months ended June 30, 2003.
Cash Flows
Three months Ended June 30, 2003 Compared to Three months Ended June 30, 2002.
Net cash provided during the three months ended June 30, 2003 was $7,000
compared to net cash used for the three months ended June 30, 2002 of ($15,000).
The $22,000 increase in cash was due to an increase in cash provided by
investing activities of approximately $9,000 of distributions received, and a
decrease in cash used by operating activities of $13,000 for the three months
ended June 30, 2003.
During the three months ended June 30, 2003, accrued payables, which consist
primarily of related party management fees and advances due to the General
Partner, increased by approximately $10,000. The General Partner does not
anticipate that these accrual fees and advances will be paid until such time as
capital reserves are in excess of foreseeable working capital requirements of
the partnership.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2003, to be sufficient to meet all currently foreseeable
future cash requirements.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
NOT APPLICABLE
Item 4. Procedures and Controls
Within the 90 days prior to the date of this report, the General
Partners of the Partnership carried out an evaluation, under the
supervision and with the participation of Associates' management,
including Associates' Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures pursuant to Exchange
Act Rule 13a- 14. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Partnership's
disclosure controls and procedures are effective. There were no
significant changes in the Partnership's internal controls or in other
factors that could significantly affect these controls subsequent to
the date of their evaluation.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. NONE
(b) Exhibits.
---------
99.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
99.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WNC HOUSING TAX CREDIT FUND IV, L.P., Series 1
By: WNC Tax Credit Partners IV, L.P. General Partner of the Registrant
By: WNC & ASSOCIATES, INC. General Partner of WNC Tax Credit Partners IV, L.P.
By: /s/ Wilfred N. Cooper Jr.
- ------------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: August 19, 2003
By: /s/ Thomas J. Riha
- -----------------------
Thomas J. Riha, Vice President- Chief Financial Officer of WNC & Associates,Inc.
Date: August 19, 2003
17
CERTIFICATIONS
I, Wilfred N. Cooper, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC HOUSING
TAX CREDIT FUND IV, L.P., Series 1;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: August 19, 2003
/s/ Wilfred N. Cooper Jr.
-------------------------
President and Chief Executive Officer of WNC & Associates, Inc.
18
CERTIFICATIONS
I, Thomas J. Riha, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC HOUSING
TAX CREDIT FUND IV, L.P., Series 1;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: August 19, 2003
/s/ Thomas J. Riha
------------------
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
19