Note 2 - Investments in and Advances To Local Partnerships

3 Months Ended

Mar. 31, 2014

Notes

Note 2 - Investments in and Advances To Local Partnerships

Note 2 – Investments in and Advances to Local Partnerships

As of March 31, 2014 and December 31, 2013, the Partnership held limited partnership interests in one Local Partnership that owned a residential low income rental project consisting of 80 apartment units. The rental project was located in Puerto Rico at March 31, 2014 December 31, 2013. The mortgage loans of this project are payable to or insured by various governmental agencies.

The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnership that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Partnership using the equity method. The Partnership is allocated profits and losses of the Local Partnership based upon its ownership percentage (99%). Distributions of surplus cash from operations from the Local Partnership are restricted by the Local Partnership's Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnership's partnership agreement. This agreement limits the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Partnership.

The investment is carried at cost plus the Partnership’s share of the Local Partnership’s profits less the Partnership’s share of the Local Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Partnership and is not otherwise committed to provide additional support to it. Therefore, it does not recognize losses once its investment in the Local Partnership reaches zero. Distributions from the Local Partnership are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations.

For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

At March 31, 2014 and December 31, 2013, the investment balance in the Local Partnership had been reduced to zero.

In July 2013, the Partnership sold its limited partnership interest in Lakeside Apartments, Ltd. to an affiliate of the operating General Partner for no consideration. The Partnership's investment balance in this local partnership was zero at the time of sale.

In August 2013, the Partnership sold the real estate of Santa Maria Limited Dividend Partnership Assoc. and received approximately $407,000 in proceeds from the sale. Subsequent to the closing, the Partnership received an additional amount of $404,000 from release of reserves. The Partnership's investment balance in this local partnership was zero at the time of sale.

On October 2, 2013, the Partnership assigned its limited partnership interest in Alabama Properties, Ltd., V (Ramblewood I) to an affiliate of the operating general partner for a total of $17,600. The Partnership had no investment balance remaining at the date of the assignment.

At times, advances are made to the Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnership’s investment in the Local Partnerships. Advances to Local Partnerships for which the investment has been reduced to zero are charged to expense. During the three months ended March 31, 2014 and 2013, the Partnership advanced approximately $0 and $46,000, respectively, to two Local Partnerships, Santa Maria Ltd. and Marina Del Ray Limited Dividend Partnership Assoc., for taxes of those Local Partnerships. The advances were recognized as expense. While not obligated to make advances to any of the Local Partnerships, the Partnership may make future advances in order to protect its economic investment in the Local Partnerships.

The following are unaudited condensed combined estimated statements of operations for the three months ended March 31, 2014 and 2013 for the Local Partnerships in which the Partnership has invested. The 2014 and 2013 amount exclude Santa Maria Ltd., Lakeside and Alabama Properties, Ltd. V (in thousands):

	Three Months Ended March 31, 2014	Three Months Ended March 31, 2013
Rental and other income	$                    154	$                    158
Expenses:
Operating expenses	76	71
Financial expenses	61	63
Depreciation and amortization	13	12
Total expenses	150	146
Income (loss) from continuing operations	$                        4	$                      12

In addition to being the General Partner of the Partnership, NAPICO or one of its affiliates is the local operating general partner of the Local Partnership included above.