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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2004
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
(Exact name of registrant as specified in its charter)
California 33-0563307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17782 Sky Park Circle 92614-6404
Irvine, CA (Zip Code)
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
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
(Title of Class)
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|
Indicate by check mark whether the registrant is an accelerated
filer.
Yes No X
----------- ----------------
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
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 Housing Tax Credit Fund IV, L.P., Series 1 (the "Partnership") is a
California Limited Partnership formed under the laws of the State of California
on May 4, 1993. The Partnership was formed to acquire limited partnership
interests or membership interests in limited partnerships or limited liability
companies ("Local Limited Partnerships") which own multi-family housing
complexes that are eligible for Federal low-income housing and, in certain
cases, California low-income housing tax credits ("Low Income Housing Credits").
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 of Associates owns 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.
Pursuant to a registration statement filed with the Securities and Exchange
Commission, on October 20, 1993, the Partnership commenced a public offering of
10,000 Units of Limited Partnership Interest ("Units"), at a price of $1,000 per
Unit. The Partnership's offering terminated on July 19, 1994. A total of 10,000
Limited Partnership Interests representing $10,000,000 had been sold. Holders of
Limited Partnership Interests are referred to herein as "Limited Partners."
The Partnership shall continue to be in full force and effect until December 31,
2050 unless terminated prior to that date pursuant to the partnership agreement
or law.
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 owns and operates a multi-family
housing complex (the "Housing Complexes") which qualify for the Low Income
Housing Credits. 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 California Low Income Housing Credit
to be used against California taxes otherwise due in each year of a four-year
period. Each 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, dated May 4, 1993, (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, 2004, the Partnership had invested in twenty-one Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that is eligible for the federal Low Income Housing Credit. Certain Local
Limited Partnerships may also benefit from government programs promoting low- or
moderate-income housing.
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 credits and
the fractional recapture of Low Income Housing Credits already taken. An
individual Limited Partner's ability to use tax credits is limited. In most
cases, the annual amount of Low Income Housing Credits that an individual
Limited Partner can use is limited to the tax liability due on the person's last
$25,000 of taxable income. Low Income Housing Credits may be the only material
benefit from the Partnership because Limited Partners may not get back their
capital. Any transactions between the Partnership and Associates and its
affiliates will entail conflicts of interest.
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, and a fractional recapture of prior Low
Income Housing Credits, would occur. At any time, a foreclosure would result in
a loss of the Partnership's investment in the Housing Complex. 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 Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
There are limits on the transferability of units, including a prohibition on the
transfer of more than 50% of the Units in a 12-month period. No trading market
for the Units exists or is expected to develop. Limited Partners may be unable
to sell their Units except at a discount and should consider their Units to be a
long-term investment. Individual Limited Partners will have no recourse if they
disagree with actions authorized by a vote of the majority of Limited Partners.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
4
Anticipated future and existing cash resources are not sufficient to meet
existing contractual cash obligations. Substantially all of the future
contractual cash obligations of the Partnership are payable to the General
Partner. Though a substantial portion of the amounts contractually obligated to
the General Partner are contractually currently payable, the Partnership
anticipates that the General Partner will not require the payment of these
contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner on a current basis. The Partnership would be adversely affected should
the General Partner demand current payment of these contractual obligations and
or suspend services for this or any other reason.
Exit Strategy
The IRS compliance period for low-income housing tax credit properties is
generally 15 years following construction or rehabilitation completion.
Associates was one of the first in the industry to offer syndicated investments
in Low Income Housing Credits. The initial programs are completing their
compliance periods.
With that in mind, the Partnership is continuing its review of the Partnership's
holdings, with special emphasis on the more mature properties including those
that have satisfied the IRS compliance requirements. The review considers many
factors including extended use requirements on the property (such as those due
to mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the Limited Partners from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, the Partnership expects to proceed with
efforts to liquidate those properties. The objective is to maximize the Limited
Partners' return wherever possible and, ultimately, to wind down the Partnership
when it no longer provides tax benefits to Limited Partners. However, Local
Limited Partnership interests may be disposed at any time by Associates in its
discretion. To date no properties in the Partnership have been selected for
disposition.
Item 2. Properties
Through its investments in Local Limited Partnerships, the Partnership holds
indirect ownership interests in the Housing Complexes. The following table
reflects the status of the twenty-one Housing Complexes as the dates and for the
periods indicated:
5
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Alpine Alpine, 1600 Capital
Manor, L.P. Texas Company, Inc. $ 195,000 $ 195,000 36 86% $ 394,000 $ 900,000
Baycity Village Baytown, Green Companies
Apartments, Texas Development
Limited Group, Inc. 301,000 301,000 62 97% 629,000 1,428,000
Partnership
Beckwood Manor Marianna, Phillips
Seven Limited Arkansas Development
Partnership Corporation 307,000 307,000 42 100% 636,000 1,372,000
Briscoe Manor Galena, McKnight &
Limited Maryland Decoster, Inc.
Partnership 308,000 308,000 31 100% 648,000 1,470,000
Evergreen Maynard, Phillips
Four Limited Arkansas Development
Partnership Corporation 195,000 195,000 24 88% 402,000 859,000
Fawn Haven Manchester, Georg E. Maharg
Limited Ohio and Maharg
Partnership Realty, Inc. 167,000 167,000 28 100% 376,000 843,000
Fort Stockton Ft.Stockton, 1600 Capital
Manor, L.P. Texas Company,Inc. 224,000 224,000 36 92% 453,000 1,037,000
Hidden Valley Gallup, New Alan Deke
Limited Mexico Noftsker
Partnership 412,000 412,000 40 97% 801,000 1,466,000
HOI Limited Lenoir, Housing
Partnership North Opportunities,
Of Lenoir Carolina Inc. 198,000 198,000 34 100% 400,000 512,000
Indian Creek Bucyrus, Georg E.
Limited Ohio Maharg
Partnership 306,000 306,000 48 96% 637,000 1,449,000
Laurel Creek San Luis San Luis Obispo
Apartments Obispo, Non-Profit
California Housing Corp. 1,030,000 1,030,000 24 100% 2,103,000 576,000
6
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Madisonville Madisonville Jean
Manor Senior Texas Johnson
Citizens
Complex, Ltd. 174,000 174,000 32 100% 375,000 892,000
Mt. Graham Safford, Rural Housing,
Housing, Ltd. Arizona Inc.
410,000 410,000 40 88% 788,000 1,387,000
Northside Plaza Angleton, Jean
Apartments, Ltd. Texas Johnson 282,000 282,000 48 94% 607,000 1,341,000
Pampa Manor, Pampa, 1600 Capital
L.P. Texas Company,Inc. 180,000 180,000 32 69% 363,000 834,000
Regency Monrovia, Community
Court California Housing
Partners Assistance
Program,Inc.,
a California
Nonprofit
Corporation 1,692,000 1,690,000 115 100% 3,293,000 4,045,000
Sandpiper Aulander, I. Norwood
Square, a North Stone
Limited Carolina
Partnership
219,000 219,000 24 96% 433,000 934,000
Seneca Falls Seneca David R. Bacon
East Falls, New and Frank
Apartments York Salvatore
Company II, L.P.
270,000 270,000 32 94% 360,000 882,000
Vernon Vernon, 1600 Capital
Manor, L.P. Texas Company, Inc. 177,000 177,000 28 100% 325,000 743,000
Waterford Calhoun Thomas E.
Place, a Falls, Connelly, Jr.,
Limited South TEC Rental
Partnership Carolina Properties Inc.,
Warren H.Abernathy,
II and Solid
South, Inc. 272,000 272,000 32 100% 549,000 1,163,000
7
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Yantis Yantis, Charles
Housing, Ltd. Texas Cannon Jr. 145,000 145,000 24 100% 287,000 619,000
------------ ----------- --- ---- ------------ ------------
$ 7,464,000 $ 7,462,000 812 95% $ 14,859,000 $ 24,752,000
============ ============ === ==== ============ ============
(1) Represents aggregate anticipated Low Income Housing Credits to be received
over the 10 year credit period if Housing Complexes are retained and rented in
compliance with credit rules for the 15-year compliance period. Approximately
87% of the anticipated Low Income Housing Credits have been received from the
Local Limited Partnerships and are no longer available to the Partnerships
Limited Partners.
8
---------------------------------------------------------------------------
For the year ended December 31, 2003
---------------------------------------------------------------------------
Low Income Housing
Credits Allocated to
Partnership Name Rental Income Net Income (Loss) Partnership
- --------------------------------------------------------------------------------------------------------------------
Alpine Manor, L.P. $ 122,000 $(15,000) 99%
Baycity Village Apartments, Limited
Partnership 321,000 (31,000) 99%
Beckwood Manor Seven Limited Partnership 153,000 (64,000) 95%
Briscoe Manor Limited Partnership 187,000 (48,000) 99%
Evergreen Four Limited Partnership 86,000 (44,000) 95%
Fawn Haven Limited Partnership 87,000 (20,000) 99%
Fort Stockton Manor, L.P. 136,000 (15,000) 99%
Hidden Valley Limited Partnership 188,000 (23,000) 99%
HOI Limited Partnership Of Lenoir 150,000 (35,000) 99%
Indian Creek Limited Partnership 148,000 (39,000) 99%
Laurel Creek Apartments 206,000 19,000 99%
Madisonville Manor Senior Citizens
Complex, Ltd. 122,000 (5,000) 99%
Mt. Graham Housing, Ltd. 158,000 (60,000) 99%
Northside Plaza Apartments, Ltd. 172,000 (15,000) 99%
Pampa Manor, L.P. 93,000 (21,000) 99%
Regency Court Partners 726,000 (227,000) 99%
Sandpiper Square, a Limited Partnership 105,000 (15,000) 99%
Seneca Falls East Apartments Company
II, L.P. 152,000 (32,000) 99.98%
Vernon Manor, L.P. 107,000 (2,000) 99%
Waterford Place, a Limited Partnership 132,000 (39,000) 99%
Yantis Housing, Ltd. 82,000 (17,000) 99%
---------- ----------
$3,633,000 $(748,000)
========== ==========
9
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, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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, 2004, there were 707 Limited Partners and 9 assignees of Units
who were not admitted as 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. Any such distributions would be
made in accordance with the terms of the Partnership Agreement.
(d) No securities are authorized for issuance by the Partnership under equity
compensation plans.
(e) No unregistered securities were sold by the Partnership during the year
ended March 31, 2004.
Item 5b. Use of Proceeds
NOT APPLICABLE
Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
NONE
10
Item 6. Selected Financial Data
Selected balance sheet information for the Partnership is as follows:
March 31
---------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
ASSETS
Cash and cash equivalents $ 222,356 $ 238,047 $ 277,292 $ 312,214 $ 310,214
Investments in limited
partnerships, net 1,395,876 1,965,138 2,234,002 2,823,846 3,538,899
Due from affiliate - - - - 18,407
----------- ----------- ----------- ----------- -----------
$ 1,618,232 $ 2,203,185 $ 2,511,294 $ 3,136,060 $ 3,867,520
=========== =========== =========== =========== ===========
LIABILITIES
Payables to limited $
partnerships $ 2,303 $ 2,303 2,303 $ 2,303 $ 2,303
Accrued fees and expenses
due to general partner
and affiliates 158,992 147,057 134,569 115,667 104,593
PARTNERS' EQUITY 1,456,937 2,053,825 2,374,422 3,018,090 3,760,624
----------- ----------- ----------- ----------- -----------
$ 1,618,232 $ 2,203,185 $ 2,511,294 $ 3,136,060 $ 3,867,520
=========== =========== =========== =========== ===========
Selected results of operations, cash flows and other information for the Partnership are as follows:
For the Years Ended
March 31
----------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- -----------
Loss from operations
(Note 1) $ (197,156) $ (81,348) $ (78,700)$ (76,146)$ (79,134)
Equity in losses of
limited
partnerships (399,732) (239,249) (564,968) (666,388) (693,836)
----------- ----------- ----------- ---------- ------------
Net loss $ (596,888) $ (320,597) $ (643,668)$ (742,534)$ (772,970)
=========== =========== =========== ========== ============
Net loss allocated to:
General Partner $ (5,969) $ (3,206) $ (6,437)$ (7,425)$ (7,730)
=========== =========== =========== ========== ============
Limited Partners $ (590,919) $ (317,391) $ (637,231)$ (735,109)$ (765,240)
=========== =========== =========== ========== ============
Net loss per limited
partner unit $ (59.09) $ (31.74) $ (63.72)$ (73.51)$ (76.52)
=========== =========== =========== ========== ============
Outstanding weighted
limited partner units 10,000 10,000 10,000 10,000 10,000
=========== ========== =========== ========== ============
Note 1 - Loss from operations for the year ended March 31, 2004 includes a
charge for impairment losses on investments in limited partnerships of $124,048.
(See Note 2 to the audited financial statements.)
11
For the Years Ended
March 31
-------------------------------------------------- ------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ------------
Net cash provided by
(used in):
Operating activities $ (43,185)$ (45,048)$ (35,847)$ (18,169)$ (45,392)
Investing activities 27,494 5,803 925 20,169 14,256
----------- ----------- ----------- ---------- ------------
Net change in cash and
cash equivalents (15,691) (39,245) (34,922) 2,000 (31,136)
Cash and cash
equivalents,
beginning of period 238,047 277,292 312,214 310,214 341,350
----------- ----------- ----------- ---------- ------------
Cash and cash
equivalents,
end of period $ 222,356 $ 238,047 $ 277,292 $ 312,214 $ 310,214
=========== =========== =========== ========== ============
Low Income Housing Credits per Unit were as follows for the years ended December 31:
2003 2002 2001 2000 1999
----------- ------------ ------------ ------------ ------------
Federal $ 119 $ 146 $ 145 $ 149 $ 146
State - - - - -
----------- ------------ ------------ ------------ ------------
Total $ 119 $ 146 $ 145 $ 149 $ 146
=========== ============ ============ ============ ============
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 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 Financial Statements and the Notes thereto included
elsewhere in this filing.
Critical Accounting Policies and Certain Risks and Uncertainties
The Company believes that the following discussion addresses the Partnership's
most significant accounting policies, which are the most critical to aid in
fully understanding and evaluating the Company's reported financial results, and
certain of the Partnership's risks and uncertainties.
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.
12
Method of Accounting For Investments in Limited Partnerships
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the product of the remaining future
Low-Income Housing Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be 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 (Notes 2 and 3).
Equity in losses of limited partnerships for each year ended March 31 have been
recorded by the Partnership based on nine months of reported results provided by
the Local Limited Partnerships for each year ended December 31 and 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 from the 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 are accelerated to the extent of losses available.
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. 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.
Income Taxes
No provision for income taxes has been recorded in the financial statements as
any liability and/or benefits for income taxes flows to the partners of the
Partnership and is their obligation and/or benefit. For income tax purposes the
Partnership reports on a calendar year basis.
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 price which would result in the Partnership realizing cash
distributions or proceeds from the transaction. Accordingly, the Partnership may
be unable to distribute any cash to its Limited Partners. Low Income Housing
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
13
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 Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
No trading market for the Units exists or is expected to develop. Limited
Partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual Limited Partners
will have no recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
To date, 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 Partner 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.
Anticipated future and existing cash resources are not sufficient to meet
existing contractual cash obligations. Substantially all of the future
contractual cash obligations of the Partnership are payable to the General
Partner. Though a substantial portion of the amounts contractually obligated to
the General Partner are contractually currently payable, the Partnership
anticipates that the General Partner will not require the payment of these
contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner and/or its affiliates on a current basis. The Partnership would be
adversely affected should the General Partner and/or affiliates demand current
payment of these contractual obligations and or suspend services for this or any
other reason.
14
Financial Condition
The Partnership's assets at March 31, 2004 consisted primarily of $222,000 in
cash and aggregate investments in the 21 Local Limited Partnerships of
$1,396,000. Liabilities at March 31, 2004 were $161,000, of which $159,000 was
accrued annual management fees and advances due to the General Partner, and
$2,000 was a payable to a limited partnership.
Results of Operations
Year Ended March 31, 2004 Compared to Year Ended March 31, 2003 The
Partnership's net loss for the year ended March 31, 2004 was $(597,000),
reflecting an increase of $(276,000) from the net loss experienced for the year
ended March 31, 2003. The increase in net loss is due to equity in losses from
limited partnerships which increased by $(161,000) to $(400,000) for the year
ended March 31, 2004 from $(239,000) for the year ended March 31, 2003. Equity
in losses of limited partnerships increased from the prior year due to an
increase of the write-off of acquisition fees and costs in the current year
related to the investments that have gone below zero. Additionally, there was an
increase in loss from operations of approximately $(116,000) largely due to an
impairment loss of $(124,000) for the year ended March 31, 2004. The impairment
loss was due to a certain limited partnership whose net investment balance
exceeded the remaining tax credits and residual value. The impairment loss was
offset by a decrease in amortization of acquisition fees and costs of $6,000
along with an increase in income of $3,000 in the current year.
Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 The
Partnership's net loss for the year ended March 31, 2003 was $(321,000),
reflecting a decrease of $323,000 from the net loss experienced for the year
ended March 31, 2002. The decline in net loss is primarily due to equity in
losses from limited partnerships which declined by $326,000 to $(239,000) for
the year ended March 31, 2003 from $(565,000) for the year ended March 31, 2002.
Equity in losses of limited partnerships decreased from prior year due to a
reduction of the write-off of acquisition fees and costs in the current year
related to the investments that have gone below zero. The equity in losses
decrease is also due to one of the Local Limited Partnerships having an
extraordinary gain of $86,000 in the current year.
Liquidity and Capital Resources
Year Ended March 31, 2004 Compared to Year Ended March 31, 2003 Net cash used
during the year ended March 31, 2004 was $(16,000) compared to net cash used for
the year ended March 31, 2003 of $(39,000). The change was primarily due to a
$21,000 increase of cash provided by investing activities due to the $21,000
increase in distributions received from limited partnerships.
Year Ended March 31, 2003 Compared to Year Ended March 31, 2002. Net cash used
during the year ended March 31, 2003 was $(39,000) compared to net cash used for
the year ended March 31, 2002 of $(35,000). The change was primarily due to a
$9,000 increase of cash used for operating expenses of which $4,000 resulted
from a decrease in interest income, offset by an increase of $5,000 of cash
provided by investing activities resulting from a decrease of investments in
limited partnerships of $16,000 from prior year offset by a decrease of $11,000
in distributions from limited partners.
The financial statements of one Local Limited Partnership were prepared assuming
the limited partnership will continue as a going concern. The auditor for this
entity has expressed substantial doubt as to this entity's ability to continue
as a going concern as a result of the property tax issue discussed below. The
Partnership had a $0 and $183,195, remaining investment in such Local Limited
Partnership at March 31, 2004 and 2003, respectively. The Partnership's original
investment in the Local Limited Partnership approximated $1,691,585. Through
December 31, 2003, the Local Limited Partnership has had recurring losses,
working capital deficiencies and has not been billed for certain property tax
expenses due since 1994. The Local Limited Partnership is seeking abatement or
an extended payment plan to pay down certain of these liabilities; however, if
the Local Limited Partnership is unsuccessful, additional funding may be
requested from the Partnership. 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
15
December 31, 2003 and 2002, the carrying value of such property on the books and
records of the Local Limited Partnership totaled $6,114,888 and $6,311,179,
respectively.
The Partnership expects its future cash flows, together with its net available
assets at March 31, 2004, to be sufficient to meet all currently foreseeable
future cash requirements. This excludes amounts owed to Associates by the
Partnership disclosed below.
Future Contractual Cash Obligations
The following table summarizes our future contractual cash obligations as of March 31, 2004:
2005 2006 2007 2008 2009 Thereafter Total
--------- --------- --------- --------- --------- ---------- ----------
Asset Management Fees (1) $ 199,167 $ 42,000 $ 42,000 $ 42,000 $ 42,000 $ 1,722,000 $ 2,089,167
Capital Contributions
Payable to Lower Tier
Partnerships 2,000 - - - - - 2,000
--------- --------- --------- --------- --------- ---------- ----------
Total contractual cash
obligations $ 201,167 $ 42,000 $ 42,000 $ 42,000 $ 42,000 $ 1,722,000 $ 2,091,167
========= ========= ========= ========= ========= ========== ==========
(1) Asset Management Fees are payable annually until termination of the
Partnership, which is to occur no later than 2050. The estimate of the fees
payable included herein assumes the retention of the Partnership's interest in
all Housing Complexes until 2050. Amounts due to the General Partner as of March
31, 2004 have been included in the 2005 column. The General Partner does not
anticipate that these fees will be paid until such time as capital reserves are
in excess of the future foreseeable working capital requirements of the
Partnership.
For additional information on our Asset Management Fees and Capital
Contributions Payable to Lower Tier Partnerships, see Notes 3 and 4 to the
financial statements included elsewhere herein.
Off-Balance Sheet Arrangements
The Partnership has no off-balance sheet arrangements.
Exit Strategy
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties including those that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the Limited Partners from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the Limited Partners' return
wherever possible and, ultimately, to wind down those funds that no longer
provide tax benefits to Limited Partners. To date no properties in the
Partnership have been selected.
Impact of New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities." FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both.
16
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created after
January 31, 2003, but prior to January 1, 2004, may be accounted for either
based on the original interpretations or the revised interpretations. However,
all VIEs must be accounted for under the revised interpretations as of March 31,
2004, when FIN 46R is effective for the Partnership.
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NOT APPLICABLE
Item 8. Financial Statements and Supplementary Data
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
WNC Housing Tax Credit Fund IV, L.P., Series 1
We have audited the accompanying balance sheet of WNC Housing Tax redit
Fund IV, L.P., Series 1 (a California Limited Partnership) (the "Partnership")
as of March 31, 2004 and the related statements of operations, partners' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit. 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 $1,212,000 of the total
assets of the Partnership at March 31, 2004 and $259,000 of the Partnership's
net loss for the year ended March 31, 2004. 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 audit in accordance with the standards of the Public
Company Accounting Oversight Board (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 and the reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of WNC Housing Tax Credit Fund IV, L.P., Series
1 (a California Limited Partnership) as of March 31, 2004, and the results of
its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
June 11, 2004
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Partners
WNC Housing Tax Credit Fund IV, L.P., Series 1
We have audited the accompanying balance sheet of WNC Housing Tax Credit Fund
IV, L.P., Series 1 (a California Limited Partnership) (the "Partnership") as of
March 31, 2003 and the related statements of operations, partners' equity
(deficit) and cash flows for the years ended March 31, 2003 and 2002. 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 74% of
the total assets of the Partnership at March 31, 2002 and 79%, and 79% of the
Partnership's equity in losses of limited partnerships for the years ended March
31, 2003 and 2002, 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits 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 Housing Tax Credit Fund IV, L.P., Series 1 (a
California Limited Partnership) as of March 31, 2003, and the results of its
operations and its cash flows for the years ended March 31, 2003 and 2002, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
May 12, 2003
19
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
BALANCE SHEETS
March 31
-------------------------------
2004 2003
-------------- -------------
ASSETS
Cash and cash equivalents $ 222,356 $ 238,047
Investments in limited partnerships (Notes 2 and 3) 1,395,876 1,965,138
-------------- -------------
$ 1,618,232 $ 2,203,185
============== =============
LIABILITIES AND PARTNERS' EQUITY
(DEFICIT)
Liabilities:
Payable to a limited partnership (Note 4) $ 2,303 $ 2,303
Accrued fees and advances due to General
Partner and affiliate (Note 3) 158,992 147,057
-------------- -------------
Total liabilities 161,295 149,360
-------------- -------------
Commitments and contingencies
Partners' equity (deficit):
General partner (85,332) (79,363)
Limited partners (10,000 units authorized,
10,000 units issued and outstanding) 1,542,269 2,133,188
-------------- -------------
Total partners' equity 1,456,937 2,053,825
-------------- -------------
$ 1,618,232 $ 2,203,185
============== =============
See accompanying notes to financial statements
20
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended
March 31
-------------------------------------------
2004 2003 2002
------------ ------------- ------------
Interest income $ 2,093 $ 3,714 $ 7,808
Other income 12,238 7,475 9,798
------------ ------------- ------------
Total income 14,331 11,189 17,606
------------ ------------- ------------
Operating expenses:
Amortization (Notes 2 and 3) 17,988 23,812 23,951
Asset management fees (Note 3) 42,000 42,000 42,000
Impairment loss (Note 2) 124,048 - -
Other 27,451 26,725 30,355
------------ ------------- ------------
Total operating expenses 211,487 92,537 96,306
------------ ------------- ------------
Loss from operations (197,156) (81,348) (78,700)
Equity in losses of limited
partnerships (Note 2) (399,732) (239,249) (564,968)
------------ ------------- ------------
Net loss $ (596,888) $ (320,597) $ (643,668)
============ ============= ============
Net loss allocated to:
General partner $ (5,969) $ (3,206) $ (6,437)
============ ============= ============
Limited partners $ (590,919) $ (317,391) $ (637,231)
============ ============= ============
Net loss per limited partner unit $ (59.09) $ (31.74) $ (63.72)
============ ============= ============
Outstanding weighted limited
partner units 10,000 10,000 10,000
============ ============= ============
See accompanying notes to financial statements
21
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For The Years Ended March 31, 2004, 2003 and 2002
General Limited Total
Partner Partners
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 2001 $ (69,720)$ 3,087,810 $ 3,018,090
Net loss (6,437) (637,231) (643,668)
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 2002 (76,157) 2,450,579 2,374,422
Net loss (3,206) (317,391) (320,597)
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 2003 (79,363) 2,133,188 2,053,825
Net loss (5,969) (590,919) (596,888)
--------------- --------------- ---------------
Partners' equity (deficit) at March 31, 2004 $ (85,332) $ 1,542,269 $ 1,456,937
=============== =============== ===============
See accompanying notes to financial statements
22
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended
March 31
------------------------------------------------
2004 2003 2002
----------- -------------- ----------------
Cash flows from operating activities:
Net loss $ (596,888) $ (320,597) $ (643,668)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization 17,988 23,812 23,951
Equity in losses of limited
partnerships 399,732 239,249 564,968
Impairment loss 124,048 - -
Increase in accrued fees and
expenses due to General Partner
and affiliates 11,935 12,488 18,902
----------- -------------- ----------------
Net cash used in operating activities (43,185) (45,048) (35,847)
----------- -------------- ----------------
Cash flows from investing activities:
Investments in limited partnerships,
net - - (16,028)
Distributions from limited
partnerships 27,494 5,803 16,953
----------- -------------- ----------------
Net cash provided by
investing activities 27,494 5,803 925
----------- -------------- ----------------
Net decrease in cash and cash equivalents (15,691) (39,245) (34,922)
Cash and cash equivalents, beginning
of period 238,047 277,292 312,214
----------- -------------- ----------------
Cash and cash equivalents, end of
period $ 222,356 $ 238,047 $ 277,292
=========== ============== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ 800 $ 800 $ 800
=========== ============== ================
23
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
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 Complexes") 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 is WNC Tax Credit Partners, IV, L.P. (the "General
Partner"), a California limited partnership. WNC & Associates, Inc.
("Associates") is the general partner of the General Partner. The chairman and
president of Associates own substantially all 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.
The Partnership shall continue to be in full force and effect until December 31,
2050 unless terminated prior to that date pursuant to the partnership agreement
or law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 10,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in July 1994 at which time
10,000 Units in the amount of $10,000,000 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. 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.
24
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
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 price which would result in the Partnership realizing cash
distributions or proceeds from the transaction. Accordingly, the Partnership may
be unable to distribute any cash to its Limited Partners. Low Income Housing
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 Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
25
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
No trading market for the Units exists or is expected to develop. Limited
Partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual Limited Partners
will have no recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
Anticipated future and existing cash resources of the Partnership are not
sufficient to meet existing contractual cash obligations. Substantially all of
the future contractual cash obligations of the Partnership are payable to the
General Partner. Though a substantial portion of the amounts contractually
obligated to the General Partner are contractually currently payable, the
Partnership anticipates that the General Partner will not require the payment of
these contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner on a current basis. The Partnership would be adversely affected should
the General Partner demand current payment of these contractual obligations and
or suspend services for this or any other reason.
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, the Partnership is continuing to review the Partnership's
holdings, with special emphasis on the more mature properties including those
that have satisfied the IRS compliance requirements. The Partnership's review
will consider many factors including extended use requirements on the property
(such as those due to mortgage restrictions or state compliance agreements), the
condition of the property, and the tax consequences to the Limited Partners from
the sale of the property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, the Partnership expects to proceed with
efforts to liquidate those properties. The Partnership's objective is to
maximize the Limited Partners' return wherever possible and, ultimately, to wind
down those funds that no longer provide tax benefits to Limited Partners. 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 the estimated value derived by
management, generally consisting of the product of the remaining future
Low-Income Housing Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be 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 each year ended March 31 have been
recorded by the Partnership based on nine months of reported results provided by
the Local Limited Partnerships for each year ended December 31 and on three
months of results estimated by management of the Partnership. Management's
estimate for the three-month
26
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
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 from the 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 are accelerated to
the extent of losses available (see Note 3). 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.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. As of March 31,
2004 and 2003, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At March 31, 2004, 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 loss per unit is not required.
Income Taxes
- ------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liability and/or benefits for income taxes as income taxes
flows to the partners of the Partnership and is their obligation and/or benefit.
For income tax purposes the Partnership reports on a calendar year basis.
New Accounting Pronouncements
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities." FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both.
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created
27
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued.
- -------------------------------------------------------------------------------
after January 31, 2003, but prior to January 1, 2004, may be accounted for
either based on the original interpretations or the revised interpretations.
However, all VIEs must be accounted for under the revised interpretations as of
March 31, 2004, when FIN 46R is effective for the Partnership.
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnership.
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 Local 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.
As discussed in Note 1, the Partnership accounts for its investments in limited
partnerships using the equity method of accounting. The Partnership's
investments in Local Limited Partnerships as shown in the balance sheets at
March 31, 2004 and 2003, are approximately $1,403,000 and $1,207,000,
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, acquisition, selection and other costs related to the
acquisition of the investments which have been capitalized in the Partnership's
investment account, impairment losses recorded in the Partnership's investment
account and to capital contributions payable to the limited partnerships which
were netted against partner capital in the Local Limited Partnership's financial
statements. 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.
A loss in value from a Local Limited Partnership other than a temporary decline
would be recorded as an impairment loss. Impairment is measured by comparing the
investment carrying amount to the sum of the total amount of the remaining tax
credits allocated to the fund and the estimated residual value of the
investment. Accordingly, the Partnership recorded an impairment loss of
$124,048, $0 and $0 during the years ended March 31, 2004, 2003 and 2002,
respectively.
Distributions from the Local Limited Partners are accounted for as a reduction
of the investment balance. Distributions received after the investment has
reached zero are recognized as income.
28
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
At March 31, 2004 and 2003, 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,
2004, 2003 and 2002 amounting to approximately $354,000, $332,000 and $212,000,
respectively, have not been recognized. As of March 31, 2004, the aggregate
share of net losses not recognized by the Partnership amounted to $1,250,000.
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
----------------------------------------------------
2004 2003 2002
---------------- --------------- --------------
Investments per balance sheet,
beginning of period $ 1,965,138 $ 2,234,002 $ 2,823,846
Capital contributions paid, net - - 16,028
Distributions received from limited
partnerships (27,494) (5,803) (16,953)
Equity in losses of limited partnerships (399,732) (239,249) (564,968)
Impairment loss (124,048) - -
Amortization of paid acquisition fees
and costs (17,988) (23,812) (23,951)
---------------- --------------- --------------
Investments per balance sheet,
end of period $ 1,395,876 $ 1,965,138 $ 2,234,002
================ =============== ==============
29
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
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
2003 2002
--------------- ---------------
ASSETS
Buildings and improvements, net of accumulated
depreciation as of December 31, 2003 and 2002 of
$ 9,941,414 and $8,876,000, respectively $ 24,858,000 $ 25,862,000
Land 1,674,000 1,668,000
Due from related parties 13,000 14,000
Other assets 2,362,000 2,260,000
--------------- ---------------
$ 28,907,000 $ 29,804,000
=============== ===============
LIABILITIES
Mortgage loans payable $ 24,752,000 $ 25,864,000
Due to related parties 914,000 923,000
Other liabilities 1,969,000 976,000
--------------- ---------------
27,635,000 27,763,000
--------------- ---------------
PARTNERS' CAPITAL (DEFICIT)
WNC Housing Tax Credits Fund IV, L.P., Series 1 (7,000) 758,000
Other partners 1,279,000 1,283,000
--------------- ---------------
1,272,000 2,041,000
--------------- ---------------
$ 28,907,000 $ 29,804,000
=============== ===============
30
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2003 2002 2001
--------------- --------------- ---------------
Revenues $ 3,746,000 $ 3,581,000 $ 3,400,000
--------------- --------------- ---------------
Expenses:
Operating expenses 2,583,000 2,251,000 2,250,000
Interest expense 833,000 860,000 841,000
Depreciation and amortization 1,078,000 1,076,000 1,098,000
--------------- --------------- ---------------
Total expenses 4,494,000 4,187,000 4,189,000
--------------- --------------- ---------------
Net loss $ (748,000) $ (606,000) $ (789,000)
=============== =============== ===============
Net loss allocable to the Partnership $ (736,000) $ (597,000) $ (777,000)
=============== =============== ===============
Net loss recorded by the Partnership $ (400,000) $ (239,000) $ (565,000)
=============== =============== ===============
Certain Local Limited Partnerships incurred operating losses and/or have working
capital deficiencies. In the event these Local Limited Partnerships continue to
incur significant operating losses, additional capital contributions by the
Partnership and/or the Local General Partner 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 of
future and recapture of prior Low Income Housing Credits could occur.
The financial statements of one Local Limited Partnership were prepared assuming
the limited partnership will continue as a going concern. The auditor for this
entity has expressed substantial doubt as to this entity's ability to continue
as a going concern as a result of the property tax issue discussed below. The
Partnership had a $0 and $183,195, remaining investment in such Local Limited
Partnership at March 31, 2004 and 2003, respectively. The Partnership's original
investment in the Local Limited Partnership approximated $1,691,585. Through
December 31, 2003, the Local Limited Partnership has had recurring losses,
working capital deficiencies and has not been billed for certain property tax
expenses due since 1994. The Local Limited Partnership is seeking abatement or
an extended payment plan to pay down certain of these liabilities; however, if
the Local Limited Partnership is unsuccessful, additional funding may be
requested from the Partnership. 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,
2003 and 2002, the carrying value of such property on the books and records of
the Local Limited Partnership totaled $6,114,888 and $6,311,179, respectively.
31
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 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 of up to 8% of the gross proceeds from the sale of
Partnership 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
$800,000. Accumulated amortization of these capitalized costs was
$616,251 and $457,719 as of March 31, 2004 and 2003, respectively. Of
the accumulated amortization recorded on the balance sheet at March
31, 2004, $ 140,544, $49,656 and $117,011 of the related expense was
reflected as equity in losses of limited partnerships during the years
ended March 31, 2004, 2003 and 2002, respectively, 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.
Reimbursement of costs incurred by the General Partner in connection
with the acquisition of Local Limited Partnerships. These
reimbursements have not exceeded 1.2% of the gross proceeds. At the
end of all periods presented, the Partnership had incurred acquisition
costs of $54,949, which have been included in investments in limited
partnerships. At the end of all years presented accumulated
amortization amounted to $54,949.
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.
In either case, the fee will be decreased or increased annually based
on changes to the Consumer Price Index. However, in no event will the
maximum amount exceed 0.2% of the invested assets of the Local Limited
Partnerships, including the Partnership's allocable share of the
mortgages, for the life of the Partnership. Management fees of $42,000
were incurred during the years ended March 31, 2004, 2003 and 2002, of
which $30,000, $30,000 and $24,500 was paid, respectively.
The Partnership reimbursed the General Partner or its affiliates for
operating expenses incurred on behalf of the Partnership. Operating
expense reimbursements were approximately $ 27,500 during the year
ended March 31, 2004.
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. No such fee was incurred in the three
year period ended March 31, 2004.
An affiliate of the General Partner provides management services for
one of the properties in the limited partnerships. Management fees
were earned by the affiliate in the amount of $35,780, $33,926 and
$55,040 for the years ended March 31, 2004, 2003 and 2002.
The accrued fees and advances due to the General Partner and affiliates consist
of the following at:
March 31
------------------------------
2004 2003
------------- -------------
Reimbursement for expenses paid by the General Partner
or an affiliate $ 1,825 $ 1,890
Asset management fee payable 157,167 145,167
------------- -------------
$ 158,992 $ 147,057
============= =============
32
WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
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 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------
The following is a summary of the quarterly operations for the years ended March 31:
June 30 September 30 December 31 March 31
--------------- --------------- --------------- ---------------
2004
----
Income $ 3,000 $ 4,000 $ - $ 7,000
Operating expenses (24,000) (31,000) (18,000) (138,000)
Equity in losses of limited
partnerships (48,000) (48,000) (48,000) (256,000)
Net loss (69,000) (75,000) (66,000) (387,000)
Net Loss available to limited
partners (68,000) (75,000) (65,000) (383,000)
Net Loss per limited partner unit (7) (7) (7) (38)
2003
----
Income $ 1,000 $ 7,000 $ 1,000 $ 2,000
Operating expenses (23,000) (28,000) (19,000) (23,000)
Equity in losses of limited
partnerships (70,000) (74,000) (72,000) (23,000)
Net loss (92,000) (95,000) (90,000) (44,000)
Net Loss available to limited
partners (91,000) (94,000) (90,000) (42,000)
Net Loss per limited partner unit (9) (9) (9) (5)
33
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
NOT APPLICABLE
Item 9a. Controls and Procedures
As of the end of the period covered by this report, the Partnership's General
Partner, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates carried out an evaluation of
the effectiveness of the Fund's "disclosure controls and procedures" as defined
in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that
evaluation, the Chief Executive Officer and Principal Financial Officer have
concluded that as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to the Partnership
required to be included in the Partnership's periodic SEC filings.
Changes in internal controls. There were no changes in the Partnership's
internal control over financial reporting that occurred during the quarter ended
March 31, 2004 that materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors, (b) Identification of Executive Officers, (c)
---------------------------------------------------------------------------
Identification of Certain Significant Employees, (d) Family Relationships,
---------------------------------------------------------------------------
and (e) Business Experience
---------------------------
The Partnership has no directors, executive officers or employees of its own.
The following biographical information is presented for the directors, executive
officers and significant employees of Associates, which has principal
responsibility for the Partnership's affairs.
Associates is a California corporation which was organized in 1971. Its officers
and significant employees are:
Wilfred N. Cooper, Sr. Chairman of the Board
Wilfred N. Cooper, Jr. President and Chief Executive Officer
David N. Shafer, Esq. Executive Vice President and Director of Asset Management
Sylvester P. Garban Senior Vice President - Institutional Investments
Thomas J. Riha, CPA Senior Vice President - Chief Financial Officer
David C. Turek Senior Vice President - Originations
Michael J. Gaber Senior Vice President - Acquisitions
Diemmy T. Tran Vice President - Portfolio Management
In addition to Wilfred N. Cooper, Sr., the directors of Associates are Wilfred
N. Cooper, Jr., David N. Shafer, and Kay L. Cooper. The principal shareholder of
Associates is a trust established by Wilfred N. Cooper, Sr. and Kay L. Cooper.
Wilfred N. Cooper, Sr., age 73, is the founder and Chairman of the Board of
Directors of Associates, a Director of WNC Capital Corporation, and a general
partner in some of the partnerships previously sponsored by Associates. Mr.
Cooper has been actively involved in the affordable housing industry since 1968.
Previously, during 1970 and 1971, he was founder and a principal of Creative
Equity Development Corporation, a predecessor of Associates, and of Creative
Equity Corporation, a real estate investment firm. For 12 years before 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. He has testified before committees of the U.S. Senate and the U.S.
House of Representatives. Mr. Cooper is a Life Director of the National
Association of Home Builders and a National Trustee for NAHB's Political Action
Committee, and the Chairman of NAHB's Multifamily Council. He is a Director of
the National Housing Conference and a member of NHC's Executive Committee, and a
founder and Director of the California Housing Consortium. He is the husband of
Kay Cooper and the father of Wilfred N. Cooper, Jr. Mr. Cooper graduated from
Pomona College in 1956 with a Bachelor of Arts degree.
34
Wilfred N. Cooper, Jr., age 41, is President, Chief Executive Officer,
Secretary, a Director and a member of the Acquisition Committee of Associates.
He is President of, and a registered principal with, WNC Capital Corporation,
and is a Director of WNC Management, Inc. He has been involved in real estate
investment and acquisition activities since 1988 when he joined Associates.
Previously, he served as a Government Affairs Assistant with Honda North America
in Washington, D.C. Mr. Cooper is a member of the Editorial Advisory Boards of
Affordable Housing Finance and LIHC Monthly Report, a Steering Member of the
- ---------------------------- --------------------
Housing Credit Group of the National Association of Home Builders, an Alternate
Director of NAHB, a member of the Advisory Board of the New York State
Association for Affordable Housing and a member of the Urban Land Institute. He
is the son of Wilfred Cooper, Sr. and Kay Cooper. Mr. Cooper graduated from The
American University in 1985 with a Bachelor of Arts degree.
David N. Shafer, age 51, is Executive Vice President, a Director, Director of
Asset Management and a member of the Acquisition Committee of Associates, and a
Director and Secretary of WNC Management, Inc. Mr. Shafer has been active in the
real estate industry since 1984. Before joining Associates in 1990, he was
engaged as an attorney in the private practice of 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.
Sylvester P. Garban, age 58, is Senior Vice President - Institutional
Investments of Associates. Mr. Garban has been involved in real estate
investment activities since 1978. Before joining Associates in 1989, he served
as Executive Vice President with MRW, Inc., a real estate development and
management firm. Mr. Garban is a member of the National Association of
Affordable Housing Lenders and the Financial Planning Association. He graduated
from Michigan State University in 1967 with a Bachelor of Science degree in
Business Administration.
Thomas J. Riha, age 48, is Senior Vice President - Chief Financial Officer and a
member of the Acquisition Committee of Associates and President, Treasurer and a
Director of WNC Management, Inc. He has been involved in real estate acquisition
and investment activities since 1979. Before joining Associates in 1994, Mr.
Riha was employed by Trust Realty Advisor, a real estate acquisition and
management company, last serving as Vice President - Operations. He is a
Director of the Task Force on Housing Credit Certification of the National
Association of Home Builders. 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.
David C. Turek, age 49, is Senior Vice President - Originations of Associates.
His experience with real estate investments and finance has continued since
1976, and he has been employed by Associates since 1996. Previously, 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 1992 to 1995 he served as Executive Vice
President for Levcor, Inc., a multi-family development company, and from 1990 to
1992 he served as Vice President for the Paragon Group where he was responsible
for tax credit development activities. He is a Director of the National Housing
and Rehabilitation Association, the Rural Rental Housing Association of Texas,
and the Alabama Council of Affordable Rental Housing. Mr. Turek graduated from
Southern Methodist University in 1976 with a Bachelor of Business Administration
degree.
Michael J. Gaber, age 38, is Senior Vice President - Acquisitions and a member
of the Acquisition Committee of Associates. Mr. Gaber has been involved in real
estate acquisition, valuation and investment activities since 1989 and has been
associated with Associates since 1997. Prior to joining Associates, he was
involved in the valuation and classification of major assets, restructuring of
debt and analysis of real estate taxes with H.F. Ahmanson & Company, parent of
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.
Diemmy T. Tran, age 38, is Vice President - Portfolio Management of Associates.
She is responsible for overseeing portfolio management and investor reporting
for all WNC funds, and for monitoring investment returns for all WNC
institutional funds. Ms. Tran has been involved in real estate asset management
and finance activities for 12 years. Prior to joining Associates in 1998, Ms.
Tran served as senior asset manager for a national Tax Credit sponsor and as an
asset specialist for the Resolution Trust Corporation where she was responsible
for the disposition and management of commercial loan and REO portfolios. Ms.
Tran is licensed as a California real estate broker. She graduated from
California State University, Northridge in 1989 with a Bachelor of Science
degree in finance and a minor in real estate.
35
Kay L. Cooper, age 67, is a Director of Associates. Mrs. Cooper was the sole
proprietor of Agate 108, a manufacturer and retailer of home accessory products,
from 1975 until its sale in 1998. She is the wife of Wilfred Cooper, Sr. and the
mother of Wilfred Cooper, Jr. Ms. Cooper graduated from the University of
Southern California in 1958 with a Bachelor of Science degree.
(f) Involvement in Certain Legal Proceedings
----------------------------------------
Inapplicable.
(g) Promoters and Control Persons
-----------------------------
Inapplicable.
(h) Audit Committee Financial Expert, and (i) Identification of the audit
---------------------------------------------------------------------------
Committee
---------
Neither the Partnership nor Associates has an audit committee.
(j) Changes to Nominating Procedures
--------------------------------
Inapplicable
(k) Code of Ethics
--------------
WNC & Associates has adopted a Code of Ethics which applies to the Chief
Executive Officer and Chief Financial Officer of WNC & Associates. The Code
of Ethics will be provided without charge to any person who requests it.
Such requests should be directed to: Investor Relations at (714)662-5565
extension 118.
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 TCP IV or
Associates during the current or future years for the following fees:
(a) Annual Asset Management Fee. An annual asset management fee accrues in an
amount greater of (i) $2,000 per multi-family housing complex, or (ii)
0.275% of Gross Proceeds. The base fee amount will be adjusted annually
based on the change in the Consumer Price Index. However, in no event will
the annual asset management fee exceed 0.2% of Invested Assets. "Invested
Assets" means the sum of the Partnership's investment in Local Limited
Partnerships and the Partnership's allocable share of the amount of the
indebtedness related to the Housing Complexes. Fees of $42,000 were
incurred during the years ended March 31, 2004, 2003 and 2002 The
Partnership paid the General Partner or its affiliates $30,000, $30,000 and
$24,000 of those fees during the years ended March 31, 2004, 2003 and 2002,
respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sale price may be received in connection with the sale
or disposition of a Housing Complex. Subordinated disposition fees will be
subordinated to the prior return of the Limited Partners' capital
contributions and payment of the return on investment to the Limited
Partners. "Return on Investment" 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, 2003, and
(ii) 6% for the balance of the Partnership's term. No disposition fees have
been incurred.
36
(c) Operating Expenses. The Partnership reimbursed the General Partner or its
affiliates for operating expenses of approximately $ 27,500, $25,000 and
$28,000 during the years ended March 31, 2004, 2003 and 2002, respectively.
(d) Interest in Partnership. The General Partner receives 1% of the
Partnership's allocated Low Income Housing Credits, which approximated
$15,000 for the General Partner for all tax years presented. The General
Partner is also entitled to receive a percentage of cash distributions.
There were no distributions of cash to the General Partner during the years
presented.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
(a) Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------
The Partnership has no compensation plans under which intereests in the
Partnership are authorized for issuance.
(b) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person is known to the General Partner to own beneficially in excess of
5% of the outstanding units.
(c) 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.
(d) Changes in Control
------------------
The management and control of the General Partner and of Associates and
their affiliates may be changed at any time in accordance with their
respective organizational documents, without the consent or approval of the
Limited Partners. In addition, the Partnership Agreement provides for the
admission of one or more additional and successor General Partners in
certain circumstances.
First, with the consent of any other General Partners and a
majority-in-interest of the Limited Partners, any General Partner may
designate one or more persons to be successor or additional General
Partners. In addition, any General Partner may, without the consent of any
other General Partner or the Limited Partners, (i) substitute in its stead
as General Partner any entity which has, by merger, consolidation or
otherwise, acquired substantially all of its assets, stock or other
evidence of equity interest and continued its business, or (ii) cause to be
admitted to the Partnership an additional General Partner or Partners if it
deems such admission to be necessary or desirable so that the Partnership
will be classified a partnership for Federal income tax purposes. Finally,
a majority-in-interest of the Limited Partners may at any time remove the
General Partner of the Partnership and elect a successor General Partner.
Item 13. Certain Relationships and Related Transactions
The General 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, reimbursement of expenses,
and the General Partner's interests in the Partnership, as discussed in Item 11
and in the notes to the Partnership's financial statements.
37
Item 14. Principal Accountant Fees and Services
The following is a summary of fees paid to the Fund's independent auditors for
the years ended March 31:
2004 2003
--------------- ---------------
Audit Fees $ 19,351 18,570
Audit-related Fees - -
Tax Fees 1,625 1,500
All Other Fees - -
--------------- ---------------
TOTAL $ 20,976 20,070
=============== ===============
The Partnership has no Audit Committee. All audit services and any permitted
non-audit services performed by the Fund's independent auditors are preapproved
by the General Partner.
38
PART IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
(a)(1) Financial statements included in Part II hereof:
------------------------------------------------
Report of Independent Registered Public Accounting Firm - Reznick
Fedder & Silverman
Report of Independent Registered Public Accounting Firm - BDO Seidman,
LLP
Balance Sheets, March 31, 2004 and 2003
Statements of Operations for the years ended March 31, 2004, 2003 and
2002
Statements of Partners' Equity (Deficit) for the years ended March 31,
2004, 2003 and 2002
Statements of Cash Flows for the years ended March 31, 2004, 2003 and
2002
Notes to Financial Statements
(a)(2) Financial statement schedule included in Part IV hereof:
--------------------------------------------------------
Report of Independent Registered Public Accounting Firm on Financial
Statement Schedules - Reznick Fedder & Silverman
Report of Independent Registered Public Accounting Firm on Financial
Statement Schedules - BDO Seidman, LLP
Schedule III - Real Estate Owned by Local Limited Partnerships
(b) Reports on Form 8-K.
--------------------
NONE
(c) Exhibits.
---------
3.1 Articles of incorporation and by-laws: The registrant is not
incorporated. The Partnership Agreement filed as Exhibit 28.1 to Form
10-K for fiscal year ended December 31, 1995.
31.1 Certification of the Principal Executive Officer pursuant to Rule
13a-14 and 15d-14, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule
13a-14 and 15d-14, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Section 1350 Certification of the Chief Executive Officer. (filed
herewith)
32.2 Section 1350 Certification of the Chief Financial Officer. (filed
herewith)
99.1 Second Amended and Restated Agreement of Limited Partnership of
Beckwood Manor Seven Limited Partnership filed as exhibit 10.1 to Form
8-K dated December 8, 1993 is hereby incorporated herein by reference
as exhibit 99.1.
99.2 Amended and Restated Agreement of Limited Partnership of Alpine Manor
filed as exhibit 10.3 to Post-Effective Amendment No 1 dated February
16, 1994 is hereby incorporated herein by reference as exhibit 99.2.
99.3 Second Amended and Restated Agreement of Limited Partnership of
Briscoe Manor, Limited Partnership filed as exhibit 10.4 to
Post-Effective Amendment No 1 dated February 16, 1994 is hereby
incorporated herein by reference as exhibit 99.3.
99.4 Amended and Restated Agreement and Certificate of Limited Partnership
of Evergreen Four, Limited Partnership filed as exhibit 10.5 to
Post-Effective Amendment No 1 dated February 16, 1994 is hereby
incorporated herein by reference as exhibit 99.4.
39
99.5 Amended and Restated Agreement and Certificate of Limited Partnership
of Fawn Haven, Limited Partnership filed as exhibit 10.6 to
Post-Effective Amendment No 1 dated February 16, 1994 is hereby
incorporated herein by reference as exhibit 99.5.
99.6 Amended and Restated Agreement of Limited Partnership of Fort
Stockton, L. P. filed as exhibit 10.7 to Post-Effective Amendment No 1
dated February 16, 1994 is hereby incorporated herein by reference as
exhibit 99.6.
99.7 Amended and Restated Agreement and Certificate of Limited Partnership
of Madison Manor Senior Citizens Complex, Ltd. filed as exhibit 10.8
to Post-Effective Amendment No 1 dated February 16, 1994 is hereby
incorporated herein by reference as exhibit 99.7.
99.8 Amended and Restated Agreement and Certificate of Limited Partnership
of Mt. Graham Housing, Ltd. filed as exhibit 10.9 to Post-Effective
Amendment No 1 dated February 16, 1994 is hereby incorporated herein
by reference as exhibit 99.8.
99.9 Amended and Restated Agreement and Certificate of Limited Partnership
of Northside Plaza Apartments, Ltd. filed as exhibit 10.10 to
Post-Effective Amendment No 1 dated February 16, 1994 is hereby
incorporated herein by reference as exhibit 99.9.
99.10 Amended and Restated Agreement of Limited Partnership of Pampa Manor,
L.P. filed as exhibit 10.11 to Post-Effective Amendment No 1 dated
February 16, 1994 is hereby incorporated herein by reference as
exhibit 99.10.
99.11 Amended and Restated Agreement of Limited Partnership of Vernon Manor,
L.P. filed as exhibit 10.12 to Post-Effective Amendment No 1 dated
February 16, 1994 is hereby incorporated herein by reference as
exhibit 99.11.
99.12 Amended and Restated Agreement of Limited Partnership of Waterford
Place, A Limited Partnership filed as exhibit 10.13 to Post-Effective
Amendment No 1 dated February 16, 1994 is hereby incorporated herein
by reference as exhibit 99.12.
99.13 Amended and Restated Agreement of Limited Partnership of Yantis
Housing, Ltd filed as exhibit 10.13 to Post-Effective Amendment No 1
dated February 16, 1994 is hereby incorporated herein by reference as
exhibit 99.13.
99.14 Third Amended and Restated Agreement of Limited Partnership and
Certificate of Limited Partnership of Indian Creek Limited Partnership
filed as exhibit 10.16 to Post-Effective Amendment No 2 dated March
11, 1994 is hereby incorporated herein by reference as exhibit 99.14.
99.15 Agreement of Limited Partnership of Laurel Creek Apartments filed as
exhibit 10.1 to Form 8-K dated May 25, 1994 is hereby incorporated
herein by reference as exhibit 99.15.
99.16 Second Amended and Restated Agreement of Limited Partnership of
Sandpiper Square, A Limited Partnership filed as exhibit 10.2 to Form
8-K dated May 25, 1994 is hereby incorporated herein by reference as
exhibit 99.16.
99.17 Amended and Restated Agreement of Limited Partnership of Regency Court
Partners filed as exhibit 10.1 to Form 8-K dated June 30, 1994 is
hereby incorporated herein by reference as exhibit 99.17.
99.18 Disposition and Development Agreement By and Between The Community
Development Commission of the County of Los Angeles and Regency Court
Partners (including forum of Ground Lease) filed as exhibit 10.2 to
Form 8-K dated June 30, 1994 is hereby incorporated herein by
reference as exhibit 99.18.
99.19 Amended and Restated Agreement of Limited Partnership of Bay City
Village Apartments, Limited Partnership filed as exhibit 10.19 to
Post-Effective Amendment No 4 dated July 14, 1994 is hereby
incorporated herein by reference as exhibit 99.19.
99.20 Second Amended and Restated Agreement of Limited Partnership of Hidden
Valley Limited Partnership filed as exhibit 10.20 to Post-Effective
Amendment No 4 dated July 14, 1994 is hereby incorporated herein by
reference as exhibit 99.20.
40
99.21 Amended and Restated Agreement of Limited Partnership of HOI Limited
Partnership of Lenoir and Amendments thereto filed as exhibit 10.21 to
Post-Effective Amendment No 4 dated July 14, 1994 is hereby
incorporated herein by reference as exhibit 99.21.
99.22 Financial Statements of Regency Court, as of and for the years ended
December 31, 2002 and 2001 together with Independent Auditors' Report
thereon; filed as exhibit 99.6 on Form 10-K dated March 31, 2003; a
significant subsidiary of the Partnership.
99.23 Financial Statements of Laurel Creek Apartments, as of and for the
years ended December 31, 2003 and 2002 together with Independent
Auditors' Report thereon; a significant subsidiary of the Partnership.
(filed herewith)
99.24 Financial Statements of Regency Court, as of and for the years ended
December 31, 2003 and 2002 together with Independent Auditors' Report
thereon; a significant subsidiary of the Partnership. (filed herewith)
(d) Financial statement schedules follow, as set forth in subsection
---------------------------------------
(a)(2) hereof.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
STATEMENT SCHEDULES
To the Partners
WNC Housing Tax Credit Fund IV, L.P., Series 1
The audits referred to in our report dated June 11, 2004 relating to the 2004
financial statements of WNC Housing Tax Credit Fund IV, L.P., Series 1 (a
California Limited Partnership) (the "Partnership"), which are contained in Item
8 of this Form 10-K, included the audit of the accompanying financial statement
schedule "Real Estate Owned by Local Limited Partnerships March 31, 2004." This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audit.
In our opinion, based upon our audit and the reports of the other auditors, such
financial statement schedule referred to above presents fairly, in all material
respects, the information set forth therein.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
June 11, 2004
42
Report of Independent Registered Public Accounting Firm on Financial Statement
Schedules
To the Partners
WNC Housing Tax Credit Fund IV, L.P. Series 1
The audits referred to in our report dated May 12, 2003, relating to the 2003
and 2002 financial statements of WNC Housing Tax Credit Fund IV, L.P. Series 1
(the "Partnership"), which is contained in Item 8 of this Form 10-K, included
the audit of the accompanying financial statement schedules. The financial
statement schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statement schedules
based upon our audits.
In our opinion, such financial statement schedules presents fairly, in all
material respects, the financial information set forth therein.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
May 12, 2003
43
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2004
------------------------------- ---------------------------------------------------
As of March 31, 2004 As of December 31, 2003
------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alpine Manor, Alpine,
L.P. Texas $ 195,000 $ 195,000 $ 900,000 $1,171,000 $ 278,000 $ 893,000
Baycity Baytown,
Village Texas
Apartments,
Limited
Partnership 301,000 301,000 1,428,000 1,838,000 677,000 1,161,000
Beckwood Marianna,
Manor Seven Arkansas
Limited
Partnership 307,000 307,000 1,372,000 1,805,000 651,000 1,154,000
Briscoe Manor Galena,
Limited Maryland
Partnership 308,000 308,000 1,470,000 1,845,000 633,000 1,212,000
Evergreen Maynard,
Four Limited Arkansas
Partnership 195,000 195,000 859,000 1,129,000 403,000 726,000
Fawn Haven Manchester,
Limited Ohio
Partnership 167,000 167,000 843,000 1,073,000 407,000 666,000
Fort Stockton Ft.Stockton,
Manor, L.P. Texas 224,000 224,000 1,037,000 1,248,000 277,000 971,000
Hidden Gallup,
Valley New
Limited Mexico
Partnership 412,000 412,000 1,466,000 2,005,000 482,000 1,523,000
HOI Limited Lenoir,
Partnership North
Of Lenoir Carolina 198,000 198,000 512,000 1,174,000 346,000 828,000
Indian Creek Bucyrus,
Limited Ohio
Partnership 306,000 306,000 1,449,000 1,778,000 603,000 1,175,000
Laurel San Luis
Creek Obispo,
Apartments California 1,030,000 1,030,000 576,000 2,165,000 670,000 1,495,000
44
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2004
------------------------------- ---------------------------------------------------
As of March 31, 2004 As of December 31, 2003
------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Madisonville Madisonville,
Manor Senior Texas
Citizens
Complex, Ltd. 174,000 174,000 892,000 1,154,000 188,000 966,000
Mt. Graham Safford,
Housing, Ltd. Arizona 410,000 410,000 1,387,000 1,908,000 664,000 1,244,000
Northside Plaza Angleton,
Apartments, Ltd. Texas 282,000 282,000 1,341,000 1,753,000 315,000 1,438,000
Pampa Manor, Pampa,
L.P. Texas 180,000 180,000 834,000 1,033,000 237,000 796,000
Regency Court Monrovia,
Partners California 1,692,000 1,690,000 4,045,000 7,707,000 1,593,000 6,114,000
Sandpiper Aulander,
Square, a North
Limited Carolina
Partnership 219,000 219,000 934,000 1,200,000 290,000 910,000
Seneca Falls Seneca
East Apartments Falls, New
Company II, L.P. York 270,000 270,000 882,000 1,235,000 241,000 994,000
Vernon Manor, Vernon,
L.P. Texas 177,000 177,000 743,000 906,000 206,000 700,000
Waterford Calhoun
Place, a Limited Falls, South
Partnership Carolina 272,000 272,000 1,163,000 1,503,000 574,000 929,000
Yantis Housing, Yantis,
Ltd. Texas 145,000 145,000 619,000 843,000 206,000 637,000
------------- ---------- ------------ ----------- ----------- -----------
$ 7,464,000 $7,462,000 $24,752,000 $36,473,000 $9,941,000 $26,532,000
============= ========== ============ =========== =========== ===========
45
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2004
--------------------------------------------------------------------------------------
For the year ended December 31, 2003
--------------------------------------------------------------------------------------
Net Income Year Investment Estimated Useful
Partnership Name Rental Income (Loss) Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Alpine Manor, L.P. $122,000 $(15,000) 1994 Completed 40
Baycity Village Apartments,
Limited Partnership 321,000 (31,000) 1994 Completed 30
Beckwood Manor Seven Limited
Partnership 153,000 (64,000) 1993 Completed 27.5
Briscoe Manor Limited
Partnership 187,000 (48,000) 1994 Completed 27.5
Evergreen Four Limited
Partnership 86,000 (44,000) 1994 Completed 27.5
Fawn Haven Limited
Partnership 87,000 (20,000) 1994 Completed 27.5
Fort Stockton Manor, L.P. 136,000 (15,000) 1994 Completed 40
Hidden Valley Limited
Partnership 188,000 (23,000) 1994 Completed 40
HOI Limited Partnership Of
Lenoir 150,000 (35,000) 1993 Completed 40
Indian Creek Limited
Partnership 148,000 (39,000) 1994 Completed 27.5
Laurel Creek Apartments 206,000 19,000 1994 Completed 27.5
Madisonville Manor Senior
Citizens Complex, Ltd. 122,000 (5,000) 1994 Completed 50
Mt. Graham Housing, Ltd. 158,000 (60,000) 1994 Completed 27.5
Northside Plaza Apartments,
Ltd. 172,000 (15,000) 1994 Completed 50
Pampa Manor, L.P. 93,000 (21,000) 1994 Completed 40
Regency Court Partners 726,000 (227,000) 1994 Completed 40
Sandpiper Square, a Limited
Partnership 105,000 (15,000) 1994 Completed 35
Seneca Falls East Apartments
Company II, L.P. 152,000 (32,000) 1998 Completed 40
46
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2004
--------------------------------------------------------------------------------------
For the year ended December 31, 2003
--------------------------------------------------------------------------------------
Net Income Year Investment Estimated Useful
Partnership Name Rental Income (Loss) Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Vernon Manor, L.P. 107,000 (2,000) 1994 Completed 40
Waterford Place, a Limited
Partnership 132,000 (39,000) 1994 Completed 40
Yantis Housing, Ltd. 82,000 (17,000) 1994 Completed 40
---------- ----------
$3,633,000 $(748,000)
========== ==========
47
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2003
------------------------------- -----------------------------------------------------
As of March 31, 2003 As of December 31, 2002
--------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alpine Manor, Alpine,
L.P. Texas $ 195,000 $ 195,000 $ 904,000 $1,169,000 $ 249,000 $ 920,000
Baycity Baytown,
Village Texas
Apartments,
Limited
Partnership 301,000 301,000 1,442,000 1,837,000 613,000 1,224,000
Beckwood Marianna,
Manor Seven Arkansas
Limited
Partnership 307,000 307,000 1,377,000 1,805,000 589,000 1,216,000
Briscoe Manor Galena,
Limited Maryland
Partnership 308,000 308,000 1,476,000 1,845,000 570,000 1,275,000
Evergreen Maynard,
Four Limited Arkansas
Partnership 195,000 195,000 862,000 1,129,000 364,000 765,000
Fawn Haven Manchester,
Limited Ohio
Partnership 167,000 167,000 847,000 1,072,000 370,000 702,000
Fort Stockton Ft.Stockton,
Manor, L.P. Texas 224,000 224,000 1,042,000 1,249,000 246,000 1,003,000
Hidden Gallup,
Valley New
Limited Mexico
Partnership 412,000 412,000 1,472,000 1,988,000 430,000 1,558,000
HOI Limited Lenoir,
Partnership North
Of Lenoir Carolina 198,000 198,000 526,000 1,178,000 316,000 862,000
Indian Creek Bucyrus,
Limited Ohio
Partnership 306,000 306,000 1,456,000 1,776,000 543,000 1,233,000
Laurel San Luis
Creek Obispo,
Apartments California 1,030,000 1,030,000 609,000 2,165,000 602,000 1,563,000
48
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2003
------------------------------- ---------------------------------------------------
As of March 31, 2003 As of December 31, 2002
------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Madisonville Madisonville,
Manor Senior Texas
Citizens
Complex, Ltd. 174,000 174,000 895,000 1,151,000 164,000 987,000
Mt. Graham Safford,
Housing, Ltd. Arizona 410,000 410,000 1,394,000 1,886,000 594,000 1,292,000
Northside Angleton,
Plaza Texas
Apartments,
Ltd. 282,000 282,000 1,348,000 1,745,000 280,000 1,465,000
Pampa Manor, Pampa,
L.P. Texas 180,000 180,000 838,000 1,032,000 212,000 820,000
Regency Monrovia,
Court California
Partners 1,692,000 1,690,000 5,017,000 7,707,000 1,396,000 6,311,000
Sandpiper Aulander,
Square, a North
Limited Carolina
Partnership 219,000 219,000 938,000 1,193,000 261,000 932,000
Seneca Falls Seneca
East Apartments Falls, New
Company II, L.P. York 270,000 270,000 885,000 1,229,000 195,000 1,034,000
Vernon Manor, Vernon,
L.P. Texas 177,000 177,000 745,000 905,000 184,000 721,000
Waterford Calhoun
Place, a Limited Falls, South
Partnership Carolina 272,000 272,000 1,169,000 1,503,000 513,000 990,000
Yantis Housing, Yantis,
Ltd. Texas 145,000 145,000 622,000 842,000 185,000 657,000
------------- ---------- ------------ ----------- ---- ------- -----------
$ 7,464,000 $7,462,000 $25,864,000 $36,406,000 $8,876,000 $27,530,000
============= ========== ============ =========== =========== ===========
49
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2003
--------------------------------------------------------------------------------------
For the year ended December 31, 2002
--------------------------------------------------------------------------------------
Year Investment Estimated Useful
Partnership Name Rental Income Net Loss Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Alpine Manor, L.P. $ 121,000 $ (17,000) 1994 Completed 40
Baycity Village Apartments,
Limited Partnership 309,000 (31,000) 1994 Completed 30
Beckwood Manor Seven Limited
Partnership 148,000 (41,000) 1993 Completed 27.5
Briscoe Manor Limited
Partnership 179,000 (50,000) 1994 Completed 27.5
Evergreen Four Limited
Partnership 83,000 (40,000) 1994 Completed 27.5
Fawn Haven Limited
Partnership 85,000 (15,000) 1994 Completed 27.5
Fort Stockton Manor, L.P. 131,000 (22,000) 1994 Completed 40
Hidden Valley Limited
Partnership 182,000 (23,000) 1994 Completed 40
HOI Limited Partnership Of
Lenoir 148,000 (18,000) 1993 Completed 40
Indian Creek Limited
Partnership 148,000 (28,000) 1994 Completed 27.5
Laurel Creek Apartments 194,000 (19,000) 1994 Completed 27.5
Madisonville Manor Senior
Citizens Complex, Ltd. 110,000 (1,000) 1994 Completed 50
Mt. Graham Housing, Ltd. 148,000 (64,000) 1994 Completed 27.5
Northside Plaza Apartments,
Ltd. 171,000 (10,000) 1994 Completed 50
Pampa Manor, L.P. 95,000 (26,000) 1994 Completed 40
Regency Court Partners 686,000 (75,000) 1994 Completed 40
Sandpiper Square, a Limited
Partnership 98,000 (23,000) 1994 Completed 35
Seneca Falls East Apartments
Company II, L.P. 152,000 (25,000) 1998 Completed 40
50
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2003
--------------------------------------------------------------------------------------
For the year ended December 31, 2002
--------------------------------------------------------------------------------------
Year Investment Estimated Useful
Partnership Name Rental Income Net Loss Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Vernon Manor, L.P. 96,000 (8,000) 1994 Completed 40
Waterford Place, a Limited
Partnership 126,000 (46,000) 1994 Completed 40
Yantis Housing, Ltd. 77,000 (24,000) 1994 Completed 40
----------- -----------
$ 3,487,000 $ (606,000)
=========== ===========
51
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
------------------------------- -----------------------------------------------------
As of March 31, 2002 As of December 31, 2001
--------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Alpine Manor, Alpine,
L.P. Texas $ 195,000 $ 195,000 $ 909,000 $1,170,000 $ 221,000 $ 949,000
Baycity Baytown,
Village Texas
Apartments,
Limited
Partnership 301,000 301,000 1,455,000 1,829,000 550,000 1,279,000
Beckwood Marianna,
Manor Seven Arkansas
Limited
Partnership 307,000 307,000 1,383,000 1,789,000 527,000 1,262,000
Briscoe Manor Galena,
Limited Maryland
Partnership 308,000 308,000 1,481,000 1,845,000 505,000 1,340,000
Evergreen Maynard,
Four Limited Arkansas
Partnership 195,000 195,000 865,000 1,129,000 325,000 804,000
Fawn Haven Manchester,
Limited Ohio
Partnership 167,000 167,000 851,000 1,072,000 333,000 739,000
Fort Stockton Ft.Stockton,
Manor, L.P. Texas 224,000 224,000 1,046,000 1,248,000 216,000 1,032,000
Hidden Gallup,
Valley New
Limited Mexico
Partnership 412,000 412,000 1,477,000 1,981,000 378,000 1,603,000
HOI Limited Lenoir,
Partnership North
Of Lenoir Carolina 198,000 198,000 539,000 1,173,000 283,000 890,000
Indian Creek Bucyrus,
Limited Ohio
Partnership 306,000 306,000 1,462,000 1,777,000 483,000 1,294,000
Laurel San Luis
Creek Obispo,
Apartments California 1,030,000 1,030,000 611,000 2,165,000 534,000 1,631,000
52
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
------------------------------- ---------------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------------------------------------------------------------------
Mortgage
Total Investment Amount of Balances of
in Local Limited Investment Paid Local Limited Property and Accumulated Net Book
Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value
- ------------------------------------------------------------------------------------------------------------------------------------
Madisonville Madisonville,
Manor Senior Texas
Citizens
Complex, Ltd. 174,000 174,000 898,000 1,150,000 140,000 1,010,000
Mt. Graham Safford,
Housing, Ltd. Arizona 410,000 410,000 1,400,000 1,883,000 525,000 1,358,000
Northside Angleton,
Plaza Texas
Apartments,
Ltd. 282,000 282,000 1,354,000 1,741,000 244,000 1,497,000
Pampa Manor, Pampa,
L.P. Texas 180,000 180,000 841,000 1,032,000 186,000 846,000
Regency Monrovia,
Court California
Partners 1,692,000 1,690,000 5,088,000 7,708,000 1,200,000 6,508,000
Sandpiper Aulander,
Square, a North
Limited Carolina
Partnership 219,000 219,000 942,000 1,193,000 231,000 962,000
Seneca Falls Seneca
East Apartments Falls, New
Company II, L.P. York 270,000 270,000 888,000 1,227,000 151,000 1,076,000
Vernon Manor, Vernon,
L.P. Texas 177,000 177,000 748,000 905,000 162,000 743,000
Waterford Calhoun
Place, a Limited Falls, South
Partnership Carolina 272,000 272,000 1,174,000 1,501,000 452,000 1,049,000
Yantis Housing, Yantis,
Ltd. Texas 145,000 145,000 625,000 839,000 163,000 676,000
------------- ---------- ------------ ----------- ---- ------- -----------
$ 7,464,000 $7,462,000 $26,037,000 $36,357,000 $7,809,000 $28,548,000
============= ========== ============ =========== =========== ===========
53
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
--------------------------------------------------------------------------------------
For the year ended December 31, 2001
--------------------------------------------------------------------------------------
Year Investment Estimated Useful
Partnership Name Rental Income Net Loss Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Alpine Manor, L.P. $ 113,000 $ (19,000) 1994 Completed 40
Baycity Village Apartments,
Limited Partnership 248,000 (51,000) 1994 Completed 30
Beckwood Manor Seven Limited
Partnership 148,000 (75,000) 1993 Completed 27.5
Briscoe Manor Limited
Partnership 174,000 (64,000) 1994 Completed 27.5
Evergreen Four Limited
Partnership 89,000 (37,000) 1994 Completed 27.5
Fawn Haven Limited
Partnership 84,000 (24,000) 1994 Completed 27.5
Fort Stockton Manor, L.P. 123,000 (14,000) 1994 Completed 40
Hidden Valley Limited
Partnership 176,000 (18,000) 1994 Completed 40
HOI Limited Partnership Of
Lenoir 142,000 (26,000) 1993 Completed 40
Indian Creek Limited
Partnership 145,000 (33,000) 1994 Completed 27.5
Laurel Creek Apartments 180,000 (4,000) 1994 Completed 27.5
Madisonville Manor Senior
Citizens Complex, Ltd. 104,000 (12,000) 1994 Completed 50
Mt. Graham Housing, Ltd. 138,000 (69,000) 1994 Completed 27.5
Northside Plaza Apartments,
Ltd. 151,000 (30,000) 1994 Completed 50
Pampa Manor, L.P. 94,000 (27,000) 1994 Completed 40
Regency Court Partners 657,000 (162,000) 1994 Completed 40
Sandpiper Square, a Limited
Partnership 99,000 (17,000) 1994 Completed 35
Seneca Falls East Apartments
Company II, L.P. 144,000 (27,000) 1998 Completed 40
54
WNC Housing Tax Credit Fund IV, L.P., Series 1
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
--------------------------------------------------------------------------------------
For the year ended December 31, 2001
--------------------------------------------------------------------------------------
Year Investment Estimated Useful
Partnership Name Rental Income Net Loss Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
Vernon Manor, L.P. 92,000 (4,000) 1994 Completed 40
Waterford Place, a Limited
Partnership 125,000 (50,000) 1994 Completed 40
Yantis Housing, Ltd. 73,000 (26,000) 1994 Completed 40
----------- -----------
$ 3,299,000 $ (789,000)
=========== ===========
55
SIGNATURES
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 HOUSING TAX CREDIT FUND IV, L.P., SERIES 1
By: WNC & Associates, Inc.,
General Partner
By: /s/ Wilfred N. Cooper, Jr.
--------------------------
Wilfred N. Cooper, Jr.,
President of WNC & Associates, Inc.
Date: July 14, 2004
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, Jr.
--------------------------
Wilfred N. Cooper, Jr.,
Chief Executive Officer, President and Director of
WNC & Associates, Inc. (principal executive officer)
Date: July 14, 2004
By: /s/ Thomas J. Riha
----------------------
Thomas J. Riha,
Senior Vice-President - Chief Financial Officer of
WNC & Associates, Inc. (principal financial officer and principal
accounting officer)
Date: July 14, 2004
By: /s/ Wilfred N. Cooper, Sr.
--------------------------
Wilfred N. Cooper, Sr.,
Chairman of the Board of WNC & Associates, Inc.
Date: July 14, 2004
By: /s/ David N. Shafer
-------------------
David N Shafer,
Director of WNC & Associates, Inc.
Date: July 14, 2004
56