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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: 0-20056
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(Exact name of registrant as specified in its charter)
California 33-0433017
(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 California Housing Tax Credits II, L.P. ("CHTC" or the "Partnership") is a
California Limited Partnership formed under the laws of the State of California
on September 13, 1990. The Partnership was formed to acquire limited partnership
interests or membership interests in other limited partnerships or limited
liability companies ("Local Limited Partnerships") which own multi-family
housing complexes that are eligible for Federal low-income housing tax credits
and, in certain cases, California low-income housing tax credits ("Low Income
Housing Credit").
The general partner of the Partnership is WNC Tax Credit Partners, L.P. (the
"General Partner"). WNC & Associates, Inc. ("Associates") and Wilfred N. Cooper,
Sr. are the general partners of WNC Tax Credit Partners, L.P. 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 the Partnership has no employees of its own.
Pursuant to a registration statement filed with the Securities and Exchange
Commission, on January 22, 1991, the Partnership commenced a public offering of
20,000 units of limited partnership interest ("Units") at a price of $1,000 per
Unit. As of the close of the public offering on January 21, 1993, a total of
17,726 Units representing $17,726,000 had been sold. Holders of Units are
referred to herein as "Limited Partners."
The Partnership shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
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 September 13, 1990 (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 fifteen Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that was eligible for the Federal Low Income Housing Credit and twelve of them
were eligible for the California Low Income Housing Credit. Certain Local
Limited Partnerships may also benefit from government programs promoting low- or
moderate-income housing.
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.
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
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.
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 its affiliates 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 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 fifteen Housing Complexes as of the dates 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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Stockton, Daniels C.
Street Investors California Louge $ 1,656,000 $ 1,656,000 165 88% $ 4,080,000 $ 3,933,000
ADI Development Delhi, Anthony
Partners California Donovan 699,000 699,000 31 100% 1,757,000 1,191,000
Bayless Garden Red Bluff, Douglas W.
Apartments California Young 1,110,000 1,110,000 46 98% 2,741,000 1,249,000
Investors
Blackberry Lodi, Bonita Homes
Oaks, Ltd California Incorporated 463,000 463,000 42 100% 1,063,000 1,895,000
Jacob's Exeter, Philip R. Hammond,
Square California Jr. and Diane M.
Hammond 1,324,000 1,324,000 45 93% 2,933,000 1,559,000
Mecca Mecca, Sam Jack, Jr. and
Apartments California Sam Jack and
II Associates 2,200,000 2,200,000 60 90% 5,183,000 2,489,000
Nevada Grass Thomas G. Larson,
Meadows Valley, William H. Larson
California and Raymond L.
Tetzlaff 459,000 459,000 34 100% 1,030,000 1,898,000
Northwest Ivanhoe, Philip R. Hammond,
Tulare California Jr. and Diane M.
Associates Hammond 1,226,000 1,226,000 54 83% 2,950,000 1,735,000
Orland Orland, Richard E. Huffman
Associates California and Robert A. Ginno 432,000 432,000 40 100% 972,000 1,692,000
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
- ------------------------------------------------------------------------------------------------------------------------------------
Pine Gate Ahoskie, Regency Investment
Limited California Associates, Inc.,
Partnership Boyd Management,
Inc. and Gordon L.
Blackwell 272,000 272,000 56 100% 611,000 1,428,000
Silver Huron, Philip R. Hammond,
Birch California Jr. and Diane M.
Associates Hammond 378,000 378,000 35 97% 1,131,000 1,323,000
Twin Pines Groveland, Donald S.
Apartments California Kavanagh and
Associates John N. Brezzo 1,278,000 1,278,000 39 95% 3,055,000 1,789,000
Ukiah Ukiah, Thomas G. Larson,
Terrace California William H. Larson
and Raymond L.
Tetzlaff 349,000 349,000 41 100% 825,000 1,754,000
Woodlake Woodlake, David J. Michael
Garden California and Pamela J.
Apartments Michael 548,000 548,000 48 100% 1,374,000 1,888,000
Yucca-Warren Joshua Tree, WNC & Associates,
Vista Associates California Inc. 520,000 520,000 50 100% 1,251,000 2,135,000
------------- ----------- ---- ---- ----------- ------------
$ 12,914,000 $12,914,000 786 96% $ 30,956,000 $ 27,958,000
============= =========== ==== ==== =========== ============
(1) Represents aggregate total anticipated Low Income Housing Credits to be
received over the 10 year credit period if the Housing complexes are retained
and rented in compliance with credit rules for the 15-year compliance period.
Substantially all of the anticipated Low Income Housing Credits have been
received from the Local Limited Partnerships. Accordingly, the Partnership does
not anticipate a significant amount of Low Income Housing Credits being
allocated to the Limited Partners in the future.
7
---------------------------------------------------------------------------------
For the year ended December 31, 2003
---------------------------------------------------------------------------------
Low Income Housing
Local Limited Credits Allocated to
Partnership Name Rental Income Net Income/(Loss) Partnership
- ------------------------------------------------------------------------------------------------------------------
601 Main Street Investors $ 516,000 $ (365,000) 99%
ADI Development Partners 157,000 (55,000) 90%
Bayless Garden Apartments Investors 196,000 (97,000) 99%
Blackberry Oaks, Ltd 289,000 22,000 99%
Jacob's Square 209,000 (108,000) 99%
Mecca Apartments II 254,000 (245,000) 99%
Nevada Meadows 225,000 (27,000) 99%
Northwest Tulare Associates 201,000 (111,000) 99%
Orland Associates 301,000 44,000 99%
Pine Gate Limited Partnership 230,000 (34,000) 99%
Silver Birch Associates 176,000 (17,000) 99%
Twin Pines Apartments Associates 180,000 (175,000) 99%
Ukiah Terrace 209,000 (43,000) 99%
Woodlake Garden Apartments 365,000 66,000 95%
Yucca-Warren Vista Associates, Ltd 318,000 22,000 99%
--------------- ----------------
$ 3,826,000 $ (1,123,000)
=============== ================
8
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 1,205 Limited Partners and 12 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
9
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 $ 206,876 $ 220,039 $ 257,975 $ 281,525 $ 314,630
Investments in limited
partnerships, net 1,546,722 2,675,025 3,494,236 4,391,885 5,442,623
Due from affiliates 3,646 3,646 3,646 59,554 38,540
---------- ---------- ---------- ------------ -----------
$ 1,757,244 $ 2,898,710 $ 3,755,857 $ 4,732,964 $ 5,795,793
========== ========== ========== ============ ============
LIABILITIES
Accrued fees and
expenses due to
general partner and
affiliates $ 1,997,095 $ 1,816,544 $ 1,631,958 $ 1,448,236 $ 1,278,242
PARTNERS' EQUITY
(DEFICIT) (239,851) 1,082,166 2,123,899 3,284,728 4,517,551
---------- ---------- ---------- ------------ ------------
$ 1,757,244 $ 2,898,710 $ 3,755,857 $ 4,732,964 $ 5,795,793
========== ========== ========== ============ ============
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) $ (991,037)$ (289,638)$ (337,782) $ (272,354)$ (273,480)
Equity in losses of
limited partnerships (330,980) (752,095) (823,047) (960,469) (736,997)
----------- ----------- ---------- ------------ ----------
Net loss $ (1,322,017)$ (1,041,733)$ (1,160,829) $ (1,232,823)$ (1,010,477)
=========== =========== =========== =========== ===========
Net loss allocated to:
General partner $ (13,220)$ (10,417)$ (11,608) $ (12,328)$ (10,105)
=========== =========== ========== =========== ===========
Limited partners $ (1,308,797)$ (1,031,316)$ (1,149,221) $ (1,220,495)$ (1,000,372)
=========== =========== ========== =========== ===========
Net loss per limited
partner unit $ (73.83)$ (58.18)$ (64.83) $ (68.85)$ (56.44)
=========== =========== ========== =========== ===========
Outstanding weighted
limited partner
units 17,726 17,726 17,726 17,726 17,726
=========== =========== ========== =========== ==========
Note 1 - Loss from operations for the year ended Mach 31, 2004 includes a charge
for impairment losses on investments in limited partnerships of $744,736. (See
Note 2 to the audited financial statements.)
10
For the Years Ended
March 31
--------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ----------
Net cash provided by
(used in):
Operating
activities $ (18,466)$ (51,873)$ (44,975) $ (70,146) $ (57,948)
Investing
activities 5,303 13,937 21,425 37,041 7,725
----------- ----------- ----------- ---------- ----------
Net change in cash
and cash equivalents (13,163) (37,936) (23,550) (33,105) (50,223)
Cash and cash
equivalents,
beginning of period 220,039 257,975 281,525 314,630 364,853
----------- ----------- ----------- ---------- ----------
Cash and cash
equivalents, end of
period $ 206,876 $ 220,039 $ 257,975 $ 281,525 $ 314,630
=========== =========== =========== ========== ==========
Low Income Housing Credits per limited partner unit were as follows for the years ended December 31:
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------- --------------
Federal $ 36 $ 80 $ 114 $ 117 $ 117
State - - - - -
------------- ------------- ------------- ------------- --------------
Total $ 36 $ 80 $ 114 $ 117 $ 117
============= ============= ============= ============= ==============
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.
11
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.
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.
12
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
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.
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.
13
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 its affiliates demand
current payment of these contractual obligations and or suspend services for
this or any other reason.
Financial Condition
The Partnership's assets at March 31, 2004 consisted primarily of approximately
$207,000 in cash and cash equivalents and net investments in the 15 Local
Limited Partnerships of approximately $1,547,000. Liabilities at March 31, 2004
primarily consisted of approximately $1,995,000 of accrued annual management
fees due to the General Partner.
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 $(1,322,000),
reflecting an increase of $(280,000) from the net loss of $(1,042,000)
experienced for the year ended March 31, 2003. The increase in net loss is
largely due to an increase in loss from operations of $(701,000) for the year
ended March 31, 2004 compared to the year ended March 31, 2003. The increase in
loss from operations was primarily caused by a $(745,000) increase in impairment
loss. The impairment loss is due to the fact that the net investment balance
exceeded the remaining tax credits along with any residual value in four limited
partnerships. The impairment loss was offset by a decrease of $6,000 in
amortization of acquisition fees and costs, a decrease of $5,000 in write-off of
advances to limited partnerships, a $2,000 decrease in other expenses along with
an increase in total income of $31,000. The loss from operations was offset by a
decrease of equity in losses of limited partnerships of $421,000 to $(331,000)
for the year ended March 31, 2004 from $(752,000) for the year ended March-31,
2003. The decrease in equity in losses of limited partnerships is primarily due
to not recognizing certain losses of the Local Limited Partnerships. The
investments in such Local Limited Partnerships had reached $0 at March 31, 2003.
Since the Partnership's liability with respect to its investments is limited,
losses in excess of investments are not recognized. This decrease was offset by
the reduction of the respective net acquisition fee component of investments in
Local Limited Partnerships to zero for those Local Limited Partnerships which
would otherwise be below a zero balance.
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 $(1,042,000),
reflecting a decrease of $119,000 from the net loss of $(1,161,000) experienced
for the year ended March 31, 2002. The decrease in net loss is primarily due to
equity in losses of limited partnerships which decreased by $71,000 to
$(752,000) for the year ended March 31, 2003 from $(823,000) for the year ended
March 31, 2002. The decrease in equity in losses of limited partnerships is
primarily due to not recognizing certain losses of the Local Limited
Partnerships. The investments in such Local Limited Partnerships had reached $0
at March 31, 2003. Since the Partnership's liability with respect to its
investments is limited, losses in excess of investments are not recognized. This
decrease was offset by the reduction of the respective net acquisition fee
component of investments in Local Limited Partnerships to zero for those Local
Limited Partnerships which would otherwise be below a zero balance. In addition
to the decrease in net loss due to equity in losses of limited partnerships, the
loss from operations decreased by $48,000 for the year ended March 31, 2003
compared to the year ended March 31, 2002. The decrease in loss from operations
was primarily caused by a $4,000 decline in total income, a decrease of $48,000
in write-offs of advances to a Limited Partnership and a $4,000 decrease in
other operating expenses for the year ended March 31, 2003 compared to the year
ended March 31, 2002.
14
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 $(13,000), compared to net cash used
for the year ended March 31, 2003 of $(38,000). The change was due to a decrease
in distributions received from Local Limited Partnerships of $9,000 in the year
ended March 31, 2004. In addition, net cash used in operating activities
decreased $33,000 due primarily to an increase in reporting fee income of
$31,000.
Year Ended March 31, 2003 Compared to Year Ended March 31, 2002. Net cash used
during the year ended March 31, 2003 was $(38,000), compared to net cash used
for the year ended March 31, 2002 of $(24,000). The change was due to a decrease
in distributions received from Local Limited Partnerships of $7,000 in the year
ended March 31, 2003. In addition, net cash used in operating activities
increased by $7,000 due to a decrease in interest income of $4,000 and an
increase in other expenses of approximately $3,000.
The report of the independent certified public accountants with respect to the
financial statements of one Local Limited Partnership expressed substantial
doubt as to the Local Limited Partnerships' ability to continue as a going
concern. The Partnership had no remaining investment in such Local Limited
Partnership at March 31, 2004 and 2003. The Partnership's original investment in
the Local Limited Partnership approximated $1,278,000. Through December 31,
2003, the Local Limited Partnership has had recurring losses and working capital
deficiencies. In the event the Local Limited Partnership is required to
liquidate or sell its property, the net proceeds could be significantly less
than the carrying value of such property. As of December 31, 2003 and 2002, the
net carrying value of such property on the books and records of the Local
Limited Partnership totaled $1,930,000 and $2,044,000, respectively.
During the years ended March 31, 2004, 2003, and 2002, accrued payables, which
consist primarily of related party management fees due to the General Partner
increased by $181,000 $185,000, and $181,000, respectively. The General Partner
does not anticipate that these accrued fees will be paid until such time as
capital reserves are in excess of future foreseeable working capital
requirements of the Partnership.
The Partnership expects its future cash flows, together with its net available
assets at March 31, 2003, 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) $ 2,205,322 $ 210,084 $ 210,084 $ 210,084 $ 210,084 $ 7,563,024 $ 10,608,682
Capital Contributions Payable
to Lower Tier Partnerships - - - - - - -
----------- --------- --------- --------- --------- ----------- -----------
Total contractual cash
obligations $ 2,205,322 $ 210,084 $ 210,084 $ 210,084 $ 210,084 $ 7,563,024 $ 10,608,682
=========== ========= ========= ========= ========= =========== ===========
(1) Asset Management Fees are payable annually until termination of the
Partnership, which is to occur no later than December 31, 2045. The
estimate of the fees payable included herein assumes the retention of the
Partnership's interest in all Housing Complexes until 2045. 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, see Note 3 to the
financial statements included elsewhere herein.
15
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.
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
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
WNC California Housing Tax Credits II, L.P.
We have audited the accompanying balance sheet of WNC California Housing
Tax Credits II, L.P. (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 $1,227,000 of the total
assets of the Partnership at March 31, 2004 and $201,000 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 California Housing Tax Credits II, L.P.
(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.
The Partnership currently has insufficient working capital to fund
obligations to an affiliate of the General Partner for asset management
services. As discussed in Note 1 to the financial statements, the Partnership
would be adversely affected should the affiliate of the General Partner of the
Partnership, WNC and Associates, Inc., demand current payment of existing
contractual obligations and/or suspend services for this or any other reason.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
June 24, 2004
17
Report of Independent Registered Public Accounting Firm
To the Partners
WNC California Housing Tax Credits II, L.P.
We have audited the accompanying balance sheet of WNC California Housing Tax
Credits II, L.P. (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 71% of
the total assets of the Partnership at March 31, 2003 and 96% and 88% 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WNC California Housing Tax Credits II, L.P. (a
California Limited Partnership) as of March 31, 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 15, 2003
18
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31
------------------------------
2004 2003
------------- -------------
ASSETS
Cash and cash equivalents $ 206,876 $ 220,039
Investments in limited partnerships, net (Notes 2 and 3) 1,546,722 2,675,025
Due from affiliates (Note 2) 3,646 3,646
------------- -------------
$ 1,757,244 $ 2,898,710
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to General Partner
and affiliates (Note 3) $ 1,997,095 $ 1,816,544
------------- -------------
Commitments and contingencies
Partners' equity (deficit):
General Partner (167,660) (154,440)
Limited Partners (20,000 units authorized; 17,726 units
issued and outstanding) (72,191) 1,236,606
------------- -------------
Total partners' equity (deficit) (239,851) 1,082,166
------------- -------------
$ 1,757,244 $ 2,898,710
============= =============
See accompanying notes to financial statements
19
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended
March 31
------------------------------------------------
2004 2003 2002
------------- ------------- -------------
Interest income $ 1,950 $ 3,504 $ 7,523
Reporting fees 33,606 2,620 2,606
Distribution income 1,120 - -
------------- ------------- -------------
Total income 36,676 6,124 10,129
------------- ------------- -------------
Operating expenses:
Amortization (Notes 2 and 3) 47,184 53,179 53,177
Write-off of advances to limited
partnership (Note 2) - 5,141 52,894
Asset management fees (Note 3) 210,084 210,084 210,084
Impairment loss (Note 2) 744,836 - -
Other 25,609 27,358 31,756
------------- ------------- -------------
Total operating expenses 1,027,713 295,762 347,911
------------- ------------- -------------
Loss from operations (991,037) (289,638) (337,782)
Equity in losses of limited
partnerships (Note 2) (330,980) (752,095) (823,047)
------------- ------------- -------------
Net loss $ (1,322,017) $ (1,041,733) $ (1,160,829)
============= ============= =============
Net loss allocated to:
General Partner $ (13,220) $ (10,417) $ (11,608)
============= ============= =============
Limited Partners $ (1,308,797) $ (1,031,316) $ (1,149,221)
============= ============= =============
Net loss per limited partner unit $ (73.83) $ (58.18) $ (64.83)
============= ============= =============
Outstanding weighted limited
partner units 17,726 17,726 17,726
============= ============= =============
See accompanying notes to financial statements
20
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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' (deficit) equity at March 31, 2001 $ (132,415) $ 3,417,143 $ 3,284,728
Net loss (11,608) (1,149,221) (1,160,829)
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 2002 (144,023) 2,267,922 2,123,899
Net loss (10,417) (1,031,316) (1,041,733)
--------------- --------------- ---------------
Partners' (deficit) equity at March 31, 2003 $ (154,440) $ 1,236,606 $ 1,082,166
Net loss (13,220) (1,308,797) (1,322,017)
--------------- --------------- ---------------
Partners' deficit at March 31, 2004 $ (167,660) $ (72,191) $ (239,851)
=============== =============== ===============
See accompanying notes to financial statements
21
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years
Ended March 31
--------------------------------------------------
2004 2003 2002
-------------- ------------- --------------
Cash flows from operating activities:
Net loss $ (1,322,017) $ (1,041,733) $ (1,160,829)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization 47,184 53,179 53,177
Write-off of advances to limited
partnership - - 52,894
Equity in losses of limited
partnerships 330,980 752,095 823,047
Impairment loss 744,836 - -
Change in due from affiliates - - 3,014
Change in accrued fees and
expenses due to General Partner
and affiliates 180,551 184,586 183,722
-------------- ------------- --------------
Net cash used in operating activities (18,466) (51,873) (44,975)
-------------- ------------- --------------
Cash flows from investing activities:
Distributions from limited
partnerships 5,303 13,937 21,425
-------------- ------------- --------------
Net decrease in cash and
cash equivalents (13,163) (37,936) (23,550)
Cash and cash equivalents, beginning
of period 220,039 257,975 281,525
-------------- ------------- --------------
Cash and cash equivalents, end of
period $ 206,876 $ 220,039 $ 257,975
============== ============= ==============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Taxes paid $ 800 $ 800 $ 800
============== ============= ==============
See accompanying notes to financial statements
22
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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 California Housing Tax Credits II, L.P. a California Limited Partnership
(the "Partnership"), was formed on September 13, 1990 under the laws of the
State of California. The Partnership was formed to invest primarily in other
limited partnerships (the "Local Limited Partnerships") which own and operate
multi-family housing complexes (the "Housing Complexes") that are eligible for
low income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
The general partner is WNC Tax Credit Partners, L.P. (the "General Partner").
WNC & Associates, Inc. ("Associates") and Wilfred N. Cooper are the general
partners of WNC Tax Credit Partners, L.P. 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 the
Partnership has no employees of its own.
The Partnership shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes of the partners.
The Partnership Agreement authorized the sale of up to 20,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in January 1993 at which
time 17,726 Units, representing subscriptions in the amount of $17,726,000, had
been accepted. The General Partner has a 1% interest in operating profits and
losses, taxable income and losses, cash available for distribution from the
Partnership and tax credits of the Partnership. The limited partners will be
allocated the remaining 99% of these items in proportion to their respective
investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 3) from the remainder, any additional sale or refinancing
proceeds will be distributed 90% to the limited partners (in proportion to their
respective investments) and 10% to the General Partner.
23
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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 Credits 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.
24
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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
- -------------------------------------------------------------------------------
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 and/or its affiliates on a current basis. The Partnership would be
adversely affected should the General Partner and/or its affiliates demand
current payment of these contractual obligations and or suspend services for
this or any other reason.
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.
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 for disposition.
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 Notes 2 and 3).
25
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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
- -------------------------------------------------------------------------------
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 (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.
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.
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 cash balances at a certain
financial institution in excess of the federally insured maximum.
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited partner unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit
includes no dilution and is computed by dividing loss available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net loss per unit is not required.
Income Taxes
- ------------
No provision for income taxes has been recorded in the accompanying 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.
26
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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
- -------------------------------------------------------------------------------
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 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 has acquired limited partnership
interests in fifteen Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 786 apartment units. The respective 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 Limited Partnership.
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 $3,314,000 and $3,402,000,
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 along with impairment losses recorded in the Partnership's
investment account. The Partnership's investment is also lower than the
Partnership's equity as shown in the Local Limited Partnership's combined
financial statements due to the estimated losses recorded by the Partnership for
the three month period ended March 31.
27
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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
- -------------------------------------------------------
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
$744,836, $0 and $0 during the years ended March 31, 2004, 2003 and 2002,
respectively.
Distributions from the Local Limited Partnerships are accounted for as a
reduction of the investment balance. Distributions received after the investment
has reached zero are recognized as income.
At March 31, 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 $604,000, $666,000, and
$607,000, respectively, have not been recognized. As of March 31, 2004, the
aggregate share of net losses not recognized by the Partnership amounted to
$3,477,000.
28
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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
- -------------------------------------------------------
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 $ 2,675,025 $ 3,494,236 $ 4,391,885
Distributions received from limited partnerships (5,303) (13,937) (21,425)
Equity in losses of limited partnerships (330,980) (752,095) (823,047)
Impairment loss (744,836) - -
Amortization of capitalized acquisition fees and
costs (47,184) (53,179) (53,177)
--------------- --------------- ---------------
Investments per balance sheet, end of period $ 1,546,722 $ 2,675,025 $ 3,494,236
=============== =============== ===============
29
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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 for 2003 and 2002 of $14,123,000 and
$12,862,000, respectively. $ 25,621,000 $ 26,681,000
Land 2,465,000 2,465,000
Other assets 3,068,000 2,837,000
--------------- ----------------
$ 31,154,000 $ 31,983,000
=============== ================
LIABILITIES
Mortgage loans payable $ 27,958,000 $ 28,086,000
Due to related parties 923,000 858,000
Other liabilities 4,134,000 3,761,000
--------------- ----------------
33,015,000 32,705,000
--------------- ----------------
PARTNERS' EQUITY (DEFICIT)
WNC California Housing Tax Credits II, L.P. (1,767,000) (727,000)
Other partners (94,000) 5,000
--------------- ----------------
(1,861,000) (722,000)
--------------- ----------------
$ 31,154,000 $ 31,983,000
=============== ==================
30
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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 $ 3,954,000 $ 3,448,000 $ 3,282,000
--------------- --------------- ---------------
Expenses:
Operating expenses 2,901,000 2,735,000 2,515,000
Interest expense 882,000 899,000 909,000
Depreciation and amortization 1,294,000 1,302,000 1,292,000
--------------- --------------- ---------------
Total expenses 5,077,000 4,936,000 4,716,000
--------------- --------------- ---------------
Net loss $ (1,123,000) $ (1,488,000) $ (1,434,000)
=============== =============== ===============
Net loss allocable to the Partnership $ (1,032,000) $ (1,422,000) $ (1,385,000)
=============== =============== ===============
Net loss recorded by the Partnership $ (331,000) $ (752,000) $ (823,000)
=============== =============== ===============
Certain Local Limited Partnerships have 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
and recapture of the related tax credits could occur.
The report of the independent certified public accountants with respect to the
financial statements of one Local Limited Partnership expressed substantial
doubt as to the Local Limited Partnerships' ability to continue as a going
concern. The Partnership had no remaining investment in such Local Limited
Partnership at March 31, 2004 and 2003. The Partnership's original investment in
the Local Limited Partnership approximated $1,278,000. Through December 31,
2003, the Local Limited Partnership has had recurring losses and working capital
deficiencies. In the event the Local Limited Partnership is required to
liquidate or sell its property, the net proceeds could be significantly less
than the carrying value of such property. Additionally, the recapture of the
related tax credits could occur. As of December 31, 2003 and 2002, the net
carrying value of such property on the books and records of the Local Limited
Partnership totaled $1,930,000 and $2,044,000, respectively.
The Partnership had advanced approximately $60,000 to three Local Limited
Partnerships as of March 31, 2001 to cover operating cash deficiencies. During
the year ended March 31, 2002, the Partnership had fully reserved approximately
$53,000 and collected approximately $3,000 of such advances, resulting in the
remaining balance of approximately $4,000 as of March 31, 2002. During the year
ended March 31, 2003, the Partnership made additional advances of approximately
$5,000 to one Local Limited Partnership which the Partnership fully reserved for
as of March 31, 2003.
31
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(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 equal to 9% of the gross proceeds from the sale of
Units as compensation for services rendered in connection with the
acquisition of Local Limited Partnerships. At the end of all periods
presented, the Partnership incurred acquisition fees of $1,595,340.
Accumulated amortization of these capitalized costs was $1,168,407 and
$991,030 as of March 31, 2004 and 2003, respectively. Of the
accumulated amortization recorded on the balance sheet at March 31,
2004, $130,193, $26,625, and $102,083 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 an affiliate of the General Partner
in connection with the acquisition of Local Limited Partnerships.
These reimbursements have not exceeded 1.7% of the gross proceeds. As
of the end of all periods presented, the Partnership incurred
acquisition costs of $1,520 which have been included in investments in
limited partnerships. Accumulated amortization was insignificant for
the periods presented.
An annual management fee equal to 0.5% of the invested assets of the
Local Limited Partnerships, including the Partnership's allocable
share of the mortgages, for the life of the Partnership. Management
fees of $210,084 were incurred during each of the years ended March
31, 2004, 2003 and 2002, of which $29,500, $25,000, and $28,750 were
paid during the years ended March 31, 2004, 2003 and 2002,
respectively.
The Partnership reimbursed the General Partner or its affiliates for
operating expenses incurred on behalf of the Partnership. Operating
expense reimbursements was approximately, $25,600 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 to the General Partner
is subordinated to the limited partners who receive a 6% preferred
return (as defined in the Partnership Agreement) and is payable only
if the General Partner or its affiliates render services in the sales
effort. No such fee was incurred for the three year period ended March
31, 2004.
An affiliate of the General Partner provides management services for
two of the properties in the Local Limited Partnerships. Management
fees were earned by the affiliate in the amount of $27,198, $25,805
and $24,764 for the years ended March 31, 2004, 2003 and 2002,
respectively.
The accrued fees and expenses due to General Partner and affiliates consist of the following:
March 31
--------------------------------
2004 2003
-------------- --------------
Reimbursement for expenses paid by the General Partner
or an affiliate $ 1,857 $ 1,890
Accrued asset management fees 1,995,238 1,814,654
-------------- --------------
$ 1,997,095 $ 1,816,544
============== ==============
The General Partner does not anticipate that these accrued fees will be paid in
full until such time as capital reserves are in excess of the future foreseeable
working capital requirements of the Partnership.
32
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Years Ended March 31, 2004, 2003 and 2002
NOTE 4 - 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 $ 1,000 $ 2,000 $ - $ 34,000
Operating expenses (71,000) (80,000) (65,000) (812,000)
Equity in losses of limited
partnerships (150,000) (267,000) (137,000) 223,000
Net Loss (220,000) (345,000) (202,000) (555,000)
Net Loss available to limited
partners (218,000) (341,000) (200,000) (550,000)
Net Loss per limited partner unit (12) (19) (11) (31)
2003
----
Income $ 1,000 $ 4,000 $ 1,000 $ -
Operating expenses (68,000) (77,000) (64,000) (87,000)
Equity in losses of limited
partnerships (163,000) (165,000) (163,000) (261,000)
Net loss (230,000) (238,000) (226,000) (348,000)
Net Loss available to limited
partners (228,000) (236,000) (224,000) (343,000)
Net Loss per limited partner unit (13) (13) (13) (19)
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.
35
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.
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 the General
Partner or its affiliates during the current or future years for the following
fees:
(a) Annual Asset Management Fee. An annual asset management fee accrues in an
amount equal to 0.5% of the Invested Assets of the Partnership, as defined.
"Invested Assets" means the sum of the Partnership's Investment in Local
Limited Partnership Interests and the Partnership's allocable share of the
amount of the mortgage loans on and other debts related to, the Housing
Complexes owned by such Local Limited Partnerships. Fees of $210,084 were
incurred during each of the years ended March 31, 2004, 2003 and 2002. The
Partnership paid the General Partner or its affiliates, $29,500, $25,000
and $28,750 of those fees during the years then ended, respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sale price may be received in connection with the sale
or disposition of a Housing Complex or Local Limited Partnership Interest.
Subordinated disposition fees will be subordinated to the prior return of
the Limited Partners' capital contributions and payment of the Preferred
Return on investment to the Limited Partners. "Preferred Return" means an
annual, cumulative but not compounded, "return" to the Limited Partners
(including Low Income Housing Credits) as a class on their adjusted capital
contributions commencing for each Limited Partner on the last day of the
calendar quarter during which the Limited Partner's capital contribution is
received by the Partnership, calculated at the following rates: (i) 16%
through December 31, 2001, and (ii) 6% for the balance of the Partnerships
term. No disposition fees have been incurred.
36
(c) Operating Expense. The Partnership reimbursed the General Partner or its
affiliates for operating expenses of approximately, $25,600, $30,700 and
$28,500, during the years ended March 31, 2004, 2003 and 2002,
respectively.
(d) Interest in Partnership. The General Partners receive 1% of the
Partnership's allocated Low Income Tax Housing Credits, which approximated
$11,000, $14,000 and $20,000 for the General Partners for the tax years
ended December 31, 2003, 2002 and 2001, respectively. The General Partners
is also entitled to receive a percentage of cash distributions. There were
no distributions of cash to the General Partners during the years ended
March 31, 2004, 2003 and 2002.
37
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 interests in the
Partnership are authorized for issuance.
(b) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person is known 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 interest in the Partnership, as discussed in Item 11
and in the notes to the Partnership's financial statements.
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 $ 17,925 $ 17,372
Audit-related Fees - -
Tax Fees 1,625 1,500
All Other Fees - -
--------------- ---------------
TOTAL $ 19,550 $ 18,872
=============== ===============
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
(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, as of 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 yearsended 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 schedules 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 Agreement of Limited Partnership dated as of September 13, 1990,
included as Exhibit 28.1 to the Form 10-K filed for the year ended
December 31, 1992, is hereby incorporated herein as Exhibit 3.1.
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 Amended and Restated Agreement of Limited Partnership of Orland
Associates dated June 15, 1991 filed as exhibit 10.1 to Form 10-K
dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 99.1.
99.2 Amended and Restated Agreement of Limited Partnership of Ukiah Terrace
a California Limited Partnership dated June 15, 1991 filed as exhibit
10.2 to Form 10-K dated December 31, 1992 is hereby incorporated
herein by reference as exhibit 99.2.
99.3 Amended and Restated Agreement of Limited Partnership of Northwest
Tulare Associates dated July 3, 1991 filed as exhibit 10.3 to Form
10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.3.
99.4 Second Amended and Restated Agreement of Limited Partnership of Yucca
Warren Vista, Ltd. dated July 15, 1991 filed as exhibit 10.4 to Form
10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.4.
39
99.5 Amended and Restated Agreement of Limited Partnership of Woodlake
Garden Apartments dated July 17, 1991 filed as exhibit 10.5 to Form
10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.5.
99.6 Amended and Restated Agreement of Limited Partnership of 601 Main
Street Investors dated December 22, 1991 filed as exhibit 10.6 to Form
10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.6.
99.7 Amended and Restated Agreement of Limited Partnership of ADI
Development Partners dated January 2, 1992 filed as exhibit 10.7 to
Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.7.
99.8 Amended and Restated Agreement of Limited Partnership of Bayless
Garden Apartment Investors dated January 2, 1992 filed as exhibit 10.8
to Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.8.
99.9 Third Amended and Restated Agreement of Limited Partnership of Twin
Pines Apartment Associates dated January 2, 1992 filed as exhibit 10.9
to Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.9.
99.10 Amended and Restated Agreement of Limited Partnership of Blackberry
Oaks, Ltd. dated January 15, 1992 filed as exhibit 10.10 to Form 10-K
dated December 31, 1992 is hereby incorporated herein by reference as
exhibit 99.10.
99.11 Amended and Restated Agreement of Limited Partnership of Mecca
Apartments II dated January 15, 1992 filed as exhibit 10.11 to Form
10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.11.
99.12 Amended and Restated Agreement of Limited Partnership of Silver Birch
Limited Partnership dated November 23, 1992 filed as exhibit 10.12 to
Form 10-K dated December 31, 1992 is hereby incorporated herein by
reference as exhibit 99.12.
99.13 Amended and Restated Agreement of Limited Partnership of Jacob's
Square dated January 2, 1992 filed as exhibit 10.1 to Form 10-K dated
December 31, 1993 is hereby incorporated herein by reference as
exhibit 99.13.
99.14 Amended and Restated Limited Partnership Agreement of Nevada Meadows,
A California Limited Partnership as exhibit 10.2 to Form 10-K dated
December 31, 1993 is hereby incorporated herein by reference as
exhibit 99.14.
99.15 Financial Statements of Mecca Apartments II, for the years ended
December 31, 2002 and 2001 together with Independent Auditors' Report
thereon; a significant subsidiary of the Partnership.
99.16 Financial Statements of 601 Main Street Investors, for the years ended
December 31, 2002 and 2001 together with Independent Auditors' Report
thereon; a significant subsidiary of the Partnership.
99.17 Financial Statements of Mecca Apartments II, 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.
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL
STATEMENT SCHEDULES
To the Partners
WNC California Housing Tax Credits II, L.P.
The audits referred to in our report dated June 24, 2004 relating to the 2004
financial statements of WNC California Housing Tax Credits II, L.P. (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 24, 2004
41
Report of Independent Registered Public Accounting Firm on Financial Statement
Schedules
To the Partners
California Housing Tax Credits II, L.P.
The audits referred to in our report dated May 15, 2003 relating to the 2003 and
2002 financial statements of WNC California Housing Tax Credits II, L.P. (the
"Partnership"), which are contained in Item 8 of this Form 10-K, included the
audits of the accompanying financial statement schedules. The financial
statement schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statement schedules
based upon our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the financial information set forth therein.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
May 15, 2003
42
WNC California Housing Tax Credits II, L.P.
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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $3,933,000 $5,564,000 $2,283,000 $ 3,281,000
ADI Development Delhi,
Partners California 699,000 699,000 1,191,000 1,918,000 574,000 1,344,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,249,000 2,594,00 1,131,000 1,463,000
Blackberry Lodi
Oaks, Ltd California 463,000 463,000 1,895,000 2,481,000 650,000 1,831,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,559,000 2,897,000 982,000 1,915,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,489,000 4,361,000 1,003,000 3,358,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,898,000 2,599,000 602,000 1,997,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,735,000 2,996,000 1,255,000 1,741,000
Orland
Associates Orland,
California 432,000 432,000 1,692,000 2,291,000 644,000 1,647,000
Pine Gate Ahoskie,
Limited Partnership California 272,000 272,000 1,428,000 1,962,000 467,000 1,495,000
43
WNC California Housing Tax Credits II, L.P.
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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,323,000 1,761,000 667,000 1,094,000
Twin Pines Groveland,
Apartments California
Associates 1,278,000 1,278,000 1,789,000 3,380,000 1,450,000 1,930,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,754,000 2,342,000 972,000 1,370,000
Woodlake Woodlake,
Garden California
Apartments 548,000 548,000 1,888,000 2,494,000 773,000 1,721,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,135,000 2,569,000 670,000 1,899,000
----------- ----------- ----------- ----------- ----------- -----------
$12,914,000 $12,914,000 $27,958,000 $42,209,000 $14,123,000 $28,086,000
=========== =========== =========== =========== =========== ===========
44
WNC California Housing Tax Credits II, L.P.
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)
- --------------------------------------------------------------------------------------------------------------------
601 Main Street Investors $516,000 $(365,000) 1991 Completed 39
ADI Development Partners 157,000 (55,000) 1991 Completed 40
Bayless Garden
Apartments Investors 196,000 (97,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 289,000 22,000 1992 Completed 40
Jacob's Square 209,000 (108,000) 1993 Completed 27.5
Mecca Apartments II 254,000 (245,000) 1993 Completed 40
Nevada Meadows 225,000 (27,000) 1993 Completed 40
Northwest Tulare
Associates 201,000 (111,000) 1991 Completed 27.5
Orland Associates 301,000 44,000 1991 Completed 40
Pine Gate
Limited Partnership 230,000 (34,000) 1994 Completed 50
Silver Birch Associates 176,000 (17,000) 1992 Completed 27.5
Twin Pines
Apartments Associates 180,000 (175,000) 1991 Completed 27.5
Ukiah Terrace 209,000 (43,000) 1991 Completed 27.5
Woodlake Garden
Apartments 365,000 66,000 1991 Completed 40
Yucca-Warren
Vista Associates, Ltd. 318,000 22,000 1991 Completed 50
---------- ------------
$3,826,000 $(1,123,000)
========== ============
45
WNC California Housing Tax Credits II, L.P.
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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $3,951,000 $5,564,000 $2,085,000 $ 3,479,000
ADI Development Delhi,
Partners California 699,000 699,000 1,199,000 1,915,000 527,000 1,388,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,258,000 2,591,00 1,038,000 1,553,000
Blackberry Lodi
Oaks, Ltd California 463,000 463,000 1,904,000 2,448,000 587,000 1,861,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,567,000 2,887,000 887,000 2,000,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,497,000 4,362,000 902,000 3,460,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,908,000 2,599,000 540,000 2,059,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,747,000 2,989,000 1,154,000 1,835,000
Orland
Associates Orland,
California 432,000 432,000 1,698,000 2,264,000 592,000 1,672,000
Pine Gate Ahoskie,
Limited Partnership California 272,000 272,000 1,435,000 1,962,000 406,000 1,556,000
46
WNC California Housing Tax Credits II, L.P.
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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,329,000 1,718,000 607,000 1,111,000
Twin Pines Groveland,
Apartments California
Associates 1,278,000 1,278,000 1,788,000 3,364,000 1,320,000 2,044,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,760,000 2,312,000 898,000 1,414,000
Woodlake Woodlake,
Garden California
Apartments 548,000 548,000 1,902,000 2,491,000 700,000 1,791,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,143,000 2,542,000 619,000 1,923,000
----------- ----------- ----------- ----------- ----------- -----------
$12,914,000 $12,914,000 $28,086,000 $42,008,000 $12,862,000 $29,146,000
=========== =========== =========== =========== =========== ===========
47
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2003
--------------------------------------------------------------------------------------
For the year ended December 31, 2002
--------------------------------------------------------------------------------------
Net Income Year Investment Estimated Useful
Partnership Name Rental Income (Loss) Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
601 Main Street Investors $512,000 $(330,000) 1991 Completed 39
ADI Development Partners 139,000 (57,000) 1991 Completed 40
Bayless Garden
Apartments Investors 186,000 (111,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 240,000 (18,000) 1992 Completed 40
Jacob's Square 206,000 (95,000) 1993 Completed 27.5
Mecca Apartments II 272,000 (206,000) 1993 Completed 40
Nevada Meadows 207,000 (54,000) 1993 Completed 40
Northwest Tulare
Associates 180,000 (139,000) 1991 Completed 27.5
Orland Associates 211,000 (39,000) 1991 Completed 40
Pine Gate
Limited Partnership 227,000 (27,000) 1994 Completed 50
Silver Birch Associates 144,000 (34,000) 1992 Completed 27.5
Twin Pines
Apartments Associates 169,000 (190,000) 1991 Completed 27.5
Ukiah Terrace 187,000 (71,000) 1991 Completed 27.5
Woodlake Garden
Apartments 215,000 (74,000) 1991 Completed 40
Yucca-Warren
Vista Associates, Ltd. 231,000 (43,000) 1991 Completed 50
---------- ------------
$3,326,000 $(1,488,000)
========== ============
48
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
------------------------------- ---------------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
601 Main Street Stockton,
Investors California $ 1,656,000 $ 1,656,000 $3,967,000 $5,562,000 $1,889,000 $ 3,673,000
ADI Development Delhi,
Partners California 699,000 699,000 1,207,000 1,909,000 482,000 1,427,000
Bayless Garden Red Bluff,
Apartments Investors California 1,110,000 1,110,000 1,268,000 2,580,00 943,000 1,637,000
Blackberry Lodi
Oaks, Ltd California 463,000 463,000 1,912,000 2,446,000 526,000 1,920,000
Jacob's Exeter,
Square California 1,324,000 1,324,000 1,574,000 2,873,000 793,000 2,080,000
Mecca Mecca,
Apartments II California 2,200,000 2,200,000 2,504,000 4,361,000 785,000 3,576,000
Nevada Grass Valley,
Meadows California 459,000 459,000 1,917,000 2,599,000 478,000 2,121,000
Northwest Tulare Ivanhoe,
Associates California 1,226,000 1,226,000 1,757,000 2,977,000 1,053,000 1,924,000
Orland
Associates Orland,
California 432,000 432,000 1,703,000 2,259,000 537,000 1,722,000
Pine Gate Ahoskie,
Limited Partnership California 272,000 272,000 1,441,000 1,929,000 346,000 1,583,000
49
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
------------------------------- ---------------------------------------------------
As of March 31, 2002 As of December 31, 2001
------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Silver Birch Huron,
Associates California 378,000 378,000 1,334,000 1,714,000 549,000 1,165,000
Twin Pines Groveland,
Apartments California
Associates 1,278,000 1,278,000 1,789,000 3,346,000 1,192,000 2,154,000
Ukiah Ukiah,
Terrace California 349,000 349,000 1,765,000 2,309,000 824,000 1,485,000
Woodlake Woodlake,
Garden California
Apartments 548,000 548,000 1,913,000 2,484,000 626,000 1,858,000
Yucca-Warren Joshua Tree,
Vista Associates California 520,000 520,000 2,150,000 2,535,000 568,000 1,967,000
----------- ----------- ----------- ----------- ----------- -----------
$12,914,000 $12,914,000 $28,201,000 $41,883,000 $11,591,000 $30,292,000
=========== =========== =========== =========== =========== ===========
50
WNC California Housing Tax Credits II, L.P.
Schedule III
Real Estate Owned by Local Limited Partnerships
March 31, 2002
--------------------------------------------------------------------------------------
For the year ended December 31, 2001
--------------------------------------------------------------------------------------
Net Income Year Investment Estimated Useful
Partnership Name Rental Income (Loss) Acquired Status Life (Years)
- --------------------------------------------------------------------------------------------------------------------
601 Main Street Investors $458,000 $(314,000) 1991 Completed 39
ADI Development Partners 123,000 (58,000) 1991 Completed 40
Bayless Garden
Apartments Investors 180,000 (96,000) 1992 Completed 27.5
Blackberry Oaks, Ltd. 217,000 (24,000) 1992 Completed 40
Jacob's Square 204,000 (79,000) 1993 Completed 27.5
Mecca Apartments II 261,000 (198,000) 1993 Completed 40
Nevada Meadows 197,000 (58,000) 1993 Completed 40
Northwest Tulare
Associates 157,000 (151,000) 1991 Completed 27.5
Orland Associates 206,000 (18,000) 1991 Completed 40
Pine Gate
Limited Partnership 226,000 (51,000) 1994 Completed 50
Silver Birch Associates 138,000 (30,000) 1992 Completed 27.5
Twin Pines
Apartments Associates 152,000 (213,000) 1991 Completed 27.5
Ukiah Terrace 185,000 (65,000) 1991 Completed 27.5
Woodlake Garden
Apartments 194,000 (53,000) 1991 Completed 40
Yucca-Warren
Vista Associates, Ltd. 219,000 (26,000) 1991 Completed 50
---------- ------------
$3,117,000 $(1,434,000)
========== ============
51
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 CALIFORNIA HOUSING TAX CREDITS II, L.P.
By: WNC & Associates, Inc.,
General Partner
By: /s/ Wilfred N. Cooper, Jr.
--------------------------
Wilfred N. Cooper, Jr.,
President of WNC & Associates, Inc.
Date: August 30, 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: August 30, 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: August 30, 2004
By: /s/ Wilfred N. Cooper, Sr.
--------------------------
Wilfred N. Cooper, Sr.,
Chairman of the Board of WNC & Associates, Inc.
Date: August 30, 2004
By: /s/ David N. Shafer
-------------------
David N Shafer,
Director of WNC & Associates, Inc.
Date: August 30, 2004
52