10-K 1 n4-2k03.txt ANNUAL REPORT 3-31-2003 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 0-28370 WNC HOUSING TAX CREDIT FUND IV, L.P. - Series 2 California 33-0596399 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626 (714) 662-5565 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ---------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| 1 Indicate by check mark whether the registrant is an accelerated filer. Yes No X ----------- --------------- State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. INAPPLICABLE DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). NONE 2 PART I. Item 1. Business Organization WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") is a California Limited Partnership formed under the laws of the State of California on September 27, 1993. The Partnership was formed to acquire limited partnership interests in other limited partnerships or limited liability companies ("Local Limited Partnerships") which own multifamily housing complexes that are eligible for low-income housing federal and, in some cases, California income tax credits (the "Low Income Housing Credit"). The general partner of the Partnership is WNC Tax Credit Partners IV, L.P. (the "General Partner"). The general partner of the General Partner is WNC & Associates, Inc. ("Associates"). The chairman and president own substantially all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through Associates, as the Partnership has no employees of its own. Pursuant to a registration statement filed with the Securities and Exchange Commission on October 20, 1993, in July 1994 the Partnership commenced a public offering of 20,000 Units of Limited Partnership Interests ("Units"), at a price of $1,000 per Unit. As of the close of the public offering in July 1995, a total of 15,600 Units representing approximately $15,241,000 had been sold. Holders of Limited Partnership Interests are referred to herein as "Limited Partners." Sempra Energy Financial, a California corporation, which is not an affiliate of the Partnership or General Partner, has purchased 4,000 Units, which represents 25.6% of the Units outstanding for the Partnership. Sempra Energy Financial invested $3,641,000. A discount of $359,000 was allowed due to a volume discount. See Item 12(a) in this 10-K. Description of Business The Partnership's principal business objective is to provide its Limited Partners with Low Income Housing Credits. The Partnership's principal business therefore consists of investing as a limited partner or non-managing member in Local Limited Partnerships each of which will own and operate a multi-family housing complex (the "Housing Complexes") which will qualify for the Low Income Housing Credit. In general, under Section 42 of the Internal Revenue Code, an owner of low-income housing can receive the Low Income Housing Credit to be used to reduce Federal taxes otherwise due in each year of a ten-year period. In general, under Section 17058 of the California Revenue and Taxation Code, an owner of low-income housing can receive the Low Income Housing Credit to be used against California taxes otherwise due in each year of a four-year period. Each Housing Complex is subject to a fifteen-year compliance period (the "Compliance Period"), and under state law may have to be maintained as low income housing for 30 or more years. In general, in order to avoid recapture of Low Income Housing Credits, the Partnership does not expect that it will dispose of its interests in Local Limited Partnerships ("Local Limited Partnership Interests") or approve the sale by any Local Limited Partnership of its Housing Complex prior to the end of the applicable Compliance Period. Because of (i) the nature of the Housing Complexes, (ii) the difficulty of predicting the resale market for low-income housing 15 or more years in the future, and (iii) the ability of government lenders to disapprove of transfer, it is not possible at this time to predict whether the liquidation of the Partnership's assets and the disposition of the proceeds, if any, in accordance with the Partnership's Agreement of Limited Partnership, dated May 4, 1993, as amended on May 15, 1994 (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. As of March 31, 2003, the Partnership had invested in twenty-two Local Limited Partnerships. Each of these Local Limited Partnerships owns a Housing Complex that is eligible for the federal Low Income Housing Credit. Certain 3 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 Credit s and the fractional recapture of Low Income Housing Credits already taken. In most cases the annual amount of Low Income Housing Credits that an individual can use is limited to the tax liability due on the person's last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a profit. Accordingly, the Partnership may be unable to distribute any cash to its investors. Low Income Housing Credits may be the only benefit from an investment in the Partnership. The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership's ability to satisfy its investment objectives. Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years, the loss of any remaining Low Income Housing Credits, a fractional recapture of prior Low Income Housing Credits, and a loss of the Partnership's investment in the Housing Complex would occur. The Partnership is a limited partner or non-managing member of each Local Limited Partnership. Accordingly, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships. The Partnership will rely totally on the Local General Partners. Neither the Partnership's investments in Local Limited Partnerships, nor the Local Limited Partnerships' investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Credits and recapture of Low Income Housing Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar properties, and neighborhood conditions, among others. The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Credits and tax losses allocable to the investors could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership. Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes. No trading market for the Units exists or is expected to develop. Investors may be unable to sell their Units except at a discount and should consider their Units to be a long-term investment. Individual investors will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners. 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 4 mature properties such as any that have satisfied the IRS compliance requirements. Our review will consider many factors including extended use requirements on the property (such as those due to mortgage restrictions or state compliance agreements), the condition of the property, and the tax consequences to the investors from the sale of the property. Upon identifying those properties with the highest potential for a successful sale, refinancing or syndication, we expect to proceed with efforts to liquidate those properties. Our objective is to maximize the investors' return wherever possible and, ultimately, to wind down those funds that no longer provide tax benefits to investors. To date no properties in the Partnership have been selected. Item 2. Properties Through its investment in Local Limited Partnerships the Partnership holds limited partnership interests in Housing Complexes. The following table reflects the status of the twenty-two Housing Complexes as of the dates and for the periods indicated: 5
---------------------------------- ----------------------------------------------- As of March 31, 2003 As of December 31, 2002 ---------------------------------- ----------------------------------------------- Partnership's Original Total Original Estimated Low Encumbrances Investmentin Amount of Income of Local General Partner Local Limited Investment Number Housing Limited Partnership Name Location Name Partnerships Paid to Date of Units Occupancy Credits Partnerships ------------------------------------------------------------------------------------------------------------------------------------ Apartment Apartment Housing of East Developers Inc. East Brewton, Brewton, and Thomas H. Ltd. Alabama Cooksey $ 1,192,000 $ 1,192,000 40 93% $ 1,863,000 $ 1,141,000 Autumn Trace Olsen Associates, Silsbee, Securities Ltd. Texas Corp. 412,000 412,000 58 90% 714,000 1,233,000 Broken Bow Apartments Retro I, Limited Broken Bow, Development, Partnership Nebraska Inc. 608,000 608,000 16 88% 1,127,000 584,000 Candleridge Apartments of Waukee Waukee, Eric A. L.P. II Iowa Sheldahl 125,000 125,000 23 100% 230,000 673,000 Boyd Management, Inc. Gordon L. Blackwelland Chadwick Regency Limited Edan, North Investment Partnership Carolina Associates 378,000 378,000 48 98% 735,000 1,528,000 Comanche Retirement Comanche, Max L. Village, Ltd. Texas Rightmer 136,000 136,000 22 95% 265,000 587,000 Crossings II Limited Dividend Housing Association Limited Portage, Raymond T. Partnership Michigan Cato, Jr. 432,000 432,000 114 94% 739,000 5,715,000 EW, a Philip Wallis, James Wisconsin Poehlman, Cynthia Limited Evansville, Solfest Wallis, and Partnership Wisconsin Anita Poehlman 164,000 164,000 16 100% 306,000 609,000
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---------------------------------- ----------------------------------------------- As of March 31, 2003 As of December 31, 2002 ---------------------------------- ----------------------------------------------- Partnership's Original Total Original Estimated Low Encumbrances Investmentin Amount of Income of Local General Partner Local Limited Investment Number Housing Limited Partnership Name Location Name Partnerships Paid to Date of Units Occupancy Credits Partnerships ------------------------------------------------------------------------------------------------------------------------------------ Garland Conrad L. Beggs, Street Audrey D. Beggs, Limited Malvarn, Russell J. Altizer, Partnership Arkansas and Marjorie L. Beggs 164,000 164,000 18 100% 319,000 687,000 Hereford Seniors Hereford, Winston Community, Ltd. Texas Sullivan 167,000 167,000 28 100% 330,000 792,000 Hickory Lane Olsen Associates, Newton, Securities Ltd Texas Corp. 174,000 174,000 24 96% 320,000 591,000 Honeysuckle Court Olsen Associates, Vidor, Securities Ltd. Texas Corp 339,000 339,000 48 100% 622,000 1,156,000 Klimpel Manor, Fullerton, Klimpel Manor Ltd California Apartments 1,774,000 1,774,000 59 98% 3,360,000 2,000,000 Lamesa Seniors Lamesa, Winston Community, Ltd. Texas Sullivan 143,000 143,000 24 96% 284,000 675,000 Laredo Heights Navasota, Donald W. Apartments Ltd. Texas Sowell 225,000 225,000 48 96% 413,000 977,000 Mountainview North John C. Apartments Wilkesboro, Loving and Limited North Gordon D. Partnership Carolina Brown, Jr. 195,000 195,000 24 100% 387,000 984,000 Palestine Seniors Community, Palestine, Winston Ltd. Texas Sullivan 225,000 225,000 42 98% 446,000 1,114,000 Pecan Grove Forrest Conrad Beggs, Audrey Limited City, Beggs and Russell Partnership Arkansas Altizer 240,000 240,000 32 94% 486,000 1,099,000
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---------------------------------- ----------------------------------------------- As of March 31, 2003 As of December 31, 2002 ---------------------------------- ----------------------------------------------- Partnership's Original Total Original Estimated Low Encumbrances Investmentin Amount of Income of Local General Partner Local Limited Investment Number Housing Limited Partnership Name Location Name Partnerships Paid to Date of Units Occupancy Credits Partnerships ------------------------------------------------------------------------------------------------------------------------------------ Pioneer Philip R. Hammond, Street Bakersfield, Jr. and Walter A. Associates California Dwelle 2,222,000 2,222,000 112 98% 4,116,000 1,810,000 Sidney Retro Development, Apartments I, Inc. And Most Limited Sidney, Worshipful Prince Partnership Nebraska Hall Grand Lodge 530,000 530,000 18 100% 972,000 429,000 Philip R. Hammond, Southcove Orange Cove, Jr. and Diane M. Associates California Hammond 2,000,000 2,000,000 54 96% 3,585,000 1,514,000 Walnut Turn Olsen Associates, Buna, Securities Ltd. Texas Corp. 188,000 188,000 24 96% 344,000 684,000 ------------ ------------ ---- ---- ------------- ------------ $ 12,033,000 $ 12,033,000 892 97% $ 21,963,000 $ 26,582,000 ============ ============ ==== ==== ============= ============
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------------------------------------------------------------------------------------ For the year ended December 31, 2002 ------------------------------------------------------------------------------------ Partnership Name Low Income Housing Credits Allocated to Rental Income Net Income (Loss) Partnership -------------------------------------------------------------------------------------------------------------------- Apartment Housing of East Brewton, Ltd. $ 120,000 $ (77,000) 98.99% Autumn Trace Associates, Ltd. 231,000 (74,000) 95.00% Broken Bow Apartments I, Limited Partnership 51,000 (48,000) 99.00% Candleridge Apartments of Waukee L.P. II 130,000 (8,000) 99.00% Chadwick Limited Partnership 205,000 (17,000) 99.00% Comanche Retirement Village, Ltd. 78,000 (22,000) 99.00% Crossings II Limited Dividend Housing Association Limited Partnership 772,000 (45,000) 98.99% EW, a Wisconsin Limited Partnership 93,000 (18,000) 99.00% Garland Street Limited Partnership 77,000 (26,000) 99.00% Hereford Seniors Community, Ltd. 90,000 (21,000) 99.00% Hickory Lane Associates, Ltd 100,000 (12,000) 99.00% Honeysuckle Court Associates, Ltd. 203,000 (47,000) 95.00% Klimpel Manor, Ltd 416,000 (97,000) 96.00% Lamesa Seniors Community, Ltd. 119,000 (27,000) 99.00% Laredo Heights Apartments Ltd. 171,000 (35,000) 99.00% Mountainview Apartments Limited Partnership 102,000 (21,000) 99.00% Palestine Seniors Community, Ltd. 139,000 (20,000) 99.00% Pecan Grove Limited Partnership 135,000 (32,000) 99.00%
9
------------------------------------------------------------------------------------ For the year ended December 31, 2002 ------------------------------------------------------------------------------------ Partnership Name Low Income Housing Credits Allocated to Rental Income Net Income (Loss) Partnership -------------------------------------------------------------------------------------------------------------------- Pioneer Street Associates 488,000 2,000 99.00% Sidney Apartments I, Limited 76,000 (21,000) Partnership 99.00% Southcove Associates 229,000 (112,000) 99.00% Walnut Turn Associates, Ltd. 20,000 (22,000) 99.00% --------- ----------- $4,045,000 $ (800,000) =========== ===========
10 Item 3. Legal Proceedings During 2000, Associates identified a potential problem with a developer who, at the time, was the local general partner in six Local Limited Partnerships. The Partnership has a 99% limited partnership interest in two of those six Local Limited Partnerships. Those investments are Broken Bow Apartments I, Limited Partnership and Sidney Apartments I, Limited Partnership. All of the properties continue to experience operating deficits. The local general partner ceased funding the operating deficits, which placed the Local Limited Partnerships in jeopardy of foreclosure. Consequently, Associates voted to remove the local general partner and the management company from the Local Limited Partnerships. After the local general partner contested its removal, Associates commenced legal action on behalf of the Local Limited Partnerships and was successful in getting a receiver appointed to manage the Local Limited Partnerships and an unaffiliated entity appointed as property manager. Associates was subsequently successful in attaining a summary judgment to confirm the removal of the local general partner, the receiver was discharged and Associates now controls all six of the Local Limited Partnerships. The six Local Limited Partnerships (hereinafter referred to as "Defendants") were defendants in a separate lawsuit. The lawsuit was filed by eight other partnerships in which the local general partner of the Local Limited Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that the local general partner accepted funds from the Plaintiffs and improperly loaned these funds to the Defendants. In July 2001, this lawsuit was settled for an aggregate amount of $35,000 of which the Partnership's share was approximately $11,700. Item 4. Submission of Matters to a Vote of Security Holders NONE. PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 5a. (a) The Units are not traded on a public exchange but were sold through a public offering. It is not anticipated that any public market will develop for the purchase and sale of any Unit and none exists. Units can be assigned only if certain requirements in the Partnership Agreement are satisfied. (b) At March 31, 2003, there were 817 Limited Partners. (c) The Partnership was not designed to provide cash distributions to Limited Partners in circumstances other than refinancing or disposition of its investments in Local Limited Partnerships. (d) No unregistered securities were sold by the Partnership during the year ended March 31, 2003. Item 5b. NOT APPLICABLE 11 Item 6. Selected Financial Data Selected balance sheet information for the Partnership is as follows:
March 31 December 31 --------------------------------------------------------------- -------------- 2003 2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- -------------- ASSETS Cash and cash equivalents $ 16,162 $ 32,342 $ 84,147 $ 180,133 $ 552,348 $ 738,364 Investments in limited partnerships, net 6,098,332 6,677,963 7,432,933 8,311,454 10,092,782 10,274,595 Other assets 998 3,998 998 998 998 2,534 ----------- ----------- ----------- ----------- ----------- -------------- $ 6,115,492 $ 6,714,303 $ 7,518,078 $ 8,492,585 $ 10,646,128 $ 11,015,493 =========== =========== =========== =========== =========== ============== LIABILITIES Payables to limited partnerships $ - $ - $ - $ - $ 421,025 $ 605,517 Accrued expenses - 4,000 48,569 86,965 - - Accrued fees and expenses due to general partner and affiliates 359,174 316,573 107,278 72,598 29,722 28,066 PARTNERS' EQUITY 5,756,318 6,393,730 7,362,231 8,333,022 10,195,381 10,381,910 ----------- ----------- ----------- ----------- ----------- -------------- $ 6,115,492 $ 6,714,303 $ 7,518,078 $ 8,492,585 $ 10,646,128 $ 11,015,493 =========== =========== =========== =========== =========== ==============
Selected results of operations, cash flows and other information for the Partnership are as follows: For the For the Years Ended For the Three Months Year Ended March 31 Ended March 31 December 31 -------------------------------------------------- ----------------------- ------------- 2003 2002 2001 2000 1999 1998 1998 ----------- ----------- ----------- ---------- ---------- ---------- ------------- (Unaudited) Loss from operations (Note 1) $ (108,294)$ (251,713)$ (139,153)$ (870,197)$ (21,846)$ (1,492)$ (50,484) Equity in losses of limited partnerships (529,118) (716,788) (831,638) (992,162) (164,683) (191,552) (658,728) ----------- ----------- ----------- ---------- ---------- ---------- ------------- Net loss $ (637,412)$ (968,501)$ (970,791)$ (1,862,359)$ (186,529)$ (193,044)$ (709,212) =========== =========== =========== ========== ========== ========== ============= Net loss allocated to: General partner $ (6,374)$ (9,685)$ (9,708)$ (18,624)$ (1,865)$ (1,930)$ (7,092) =========== =========== =========== ========== ========== ========== ============= Limited partners $ (631,038)$ (958,816)$ (961,083)$ (1,843,735)$ (184,664)$ (191,114)$ (702,120) =========== =========== =========== ========== ========== ========== ============= Net loss per limited partner unit $ (40.45)$ (61.46)$ (61.61)$ (118.19)$ (11.84)$ (12.25)$ (45.01) =========== =========== =========== ========== =========== =========== ============= Outstanding weighted limited partner units 15,600 15,600 15,600 15,600 15,600 15,600 15,600 =========== =========== =========== ========== ========== ========== =============
Note 1 - Loss from operations in 2000 includes a charge for impairment losses on investments in limited partnerships of $766,559. (See Note 2 to the audited financial statements.) 12
For the For the Years Ended For the Three Months Year Ended March 31 Ended March 31 December 31 -------------------------------------------------- ----------------------- ------------ 2003 2002 2001 2000 1999 1998 1998 ----------- ----------- ----------- ---------- ---------- ---------- ------------ (Unaudited) Net cash provided by (used in): Operating activities $ (29,005)$ (52,055)$ (101,935)$ (19,827)$ (8,424)$ 12,245 $ 26,255 Investing activities 12,825 250 5,949 (352,388) (177,592) (109,910) (768,753) ----------- ----------- ----------- ---------- ---------- ---------- ------------ Net change in cash and cash equivalents (16,180) (51,805) (95,986) (372,215) (186,016) (97,665) (742,498) Cash and cash equivalents, beginning of period 32,342 84,147 180,133 552,348 738,364 1,480,862 1,480,862 ----------- ----------- ----------- ---------- ---------- ---------- ------------ Cash and cash equivalents, end of period $ 16,162 $ 32,342 $ 84,147 $ 180,133 $ 552,348 $ 1,383,197 $ 738,364 =========== =========== =========== ========== ========== ========== ============
Low Income Housing Credit per Unit was as follows for the years ended December 31: 2002 2001 2000 1999 1998 -------------- --------------- --------------- ------------- ------------- Federal $ 137 $ 137 $ 141 $ 135 $ 124 State - - - - - -------------- --------------- --------------- ------------- ------------- Total $ 137 $ 137 $ 141 $ 135 $ 124 ============== =============== =============== ============= =============
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. 13 Uncertainty and Commitments with Respect to Investment in Broken Bow and Sidney The Partnership has two investments accounted for under the equity method, consisting of 99% limited partnership interests in each of Broken Bow Apartments I, Limited Partnership ("Broken Bow") and Sidney Apartments I, Limited Partnership ("Sidney"). Due to operational difficulties and negative cash flows in 2000, foreclosure procedures were commenced by the lender of these two Local Limited Partnerships. As a result, the Partnership, Broken Bow, Sidney, and a WNC subsidiary executed a work-out agreement with the lender (the "Agreement"), which was effective December 14, 2001. Broken Bow was required to pay to the lender $165,000 as a partial settlement of the indebtedness due and owing by Broken Bow due to the fact that their loan was a construction loan. The Partnership advanced the aforementioned monies to Broken Bow and fully reserved the amount as of March 31, 2002. The balance of the indebtedness due and owing to the lender by Broken Bow was satisfied by the execution of two promissory notes. The first note of $85,000, bears interest at 7% per annum, and requires principal and interest payments totaling $600 per month through April 2014, at which date the unpaid principal balance is due. The second note of $500,000, bears interest at 1% per annum, and has payments due monthly out of available cash flow, as defined, with the unpaid principal balance due April 2014. The balance of the indebtedness due and owing to the lender by Sidney was satisfied by the execution of two promissory notes. The first note totals $130,000, bears interest at 7% per annum, and requires principal and interest payments totaling $900 per month through April 2012, at which date the unpaid principal is due. The second note totals $300,000, bears interest at 1% per annum, and has payments due monthly out of available cash flow, as defined, with the unpaid principal balance due April 2014. The Partnership and a WNC subsidiary have executed a guarantee for the payment of both notes of Broken Bow and Sidney. In addition, several other commitments were made. Broken Bow and Sidney executed a grant deed to the lender in the event that either entity defaults under the terms and provisions of the notes. The deeds are held in escrow, and if Broken Bow or Sidney defaults on either note, the lender may, at its option, record the respective deed. In addition, the Partnership has assigned the lender as additional collateral all of its residual value interests, as defined, in all of the Local Limited Partnerships. The Partnership and the Local Limited Partnerships are prohibited from selling, assigning, transferring or further encumbering the Housing Complexes retained by each Local Limited Partnership. As a result of the operating difficulties mentioned above, there is uncertainty as to additional costs, if any, that the Partnership may incur in connection with its investment in Broken Bow and Sidney and as to whether the Partnership will ultimately retain its interest in these Local Limited Partnerships. In the event the Partnership does not successfully retain its interest in Broken Bow and Sidney, the Partnership would be exposed to the cessation and recapture of the related tax credits. The Partnership's financial statements do not include any adjustments that might result from the outcome of these uncertainties. Critical Accounting Policies and Certain Risks and Uncertainties The Company believes that the following discussion addresses the Partnership's most significant accounting policies, which are the most critical to aid in fully understanding and evaluating the Company's reported financial results, and certain of the Partnership's risks and uncertainties. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. 14 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 or distributions received. The Partnership reviews the carrying amount of an individual investment in a Local Limited Partnership for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. Recoverability of such investment is measured by a comparison of the carrying amount to future undiscounted net cash flows expected to be generated. If an investment is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the investment exceeds fair value. The accounting policies of the Local Limited Partnerships are generally consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and are being amortized over 30 years. Equity in losses of the Local 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 for each three-month period ended March 31. Management's estimate for the three-month period is based on either actual unaudited results reported by the Local Limited Partnerships or historical trends in the operations of the Local Limited Partnerships. Equity in losses of the Local Limited Partnerships are recognized in the financial statements until the related investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended. Distributions received from the Local Limited Partnerships are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as income. Income Taxes No provision for income taxes has been recorded in the financial statements as any liability for income taxes is the obligation of the partners of the Partnership. 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. In most cases the annual amount of Low Income Housing Credits that an individual can use is limited to the tax liability due on the person's last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a profit. Accordingly, the Partnership may be unable to distribute any cash to its investors. Low Income Housing Credits may be the only benefit from an investment in the Partnership. The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership's ability to satisfy its investment objectives. Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years, the loss of any remaining 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 15 Limited Partnerships' investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Credits and recapture of Low Income Housing Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar properties, and neighborhood conditions, among others. The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Credits and tax losses allocable to the investors could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership. Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes. No trading market for the Units exists or is expected to develop. Investors may be unable to sell their Units except at a discount and should consider their Units to be a long-term investment. Individual investors will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners. 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. Financial Condition The Partnership's assets at March 31, 2003 consisted primarily of $16,000 in cash, $1,000 in other assets and aggregate investments in the twenty-two Local Limited Partnerships of $6,098,000. Liabilities at March 31, 2003 primarily consisted of $167,000 of accrued expenses and $192,000 due to General Partner or affiliates for advances. Results of Operations Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 The Partnerships net loss for the year ended March 31, 2003 was $(637,000), reflecting a decrease of $(332,000) from the net loss experienced for the year ended March 31, 2002 of $(969,000). The decline in net loss is due to a reduction in the equity in losses of limited partnerships by $188,000. The decrease in equity in losses of Local Limited Partnerships is primarily due to the Partnership 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 investment are not recognized. In addition, operating expenses decreased by $147,000 due to the $165,000 non-recurring revenue for advances booked in 2002, offset by an increase in expenses of $15,000 in 2003. Year Ended March 31, 2002 Compared to Year Ended March 31, 2001 The Partnerships net loss for the year ended March 31, 2002 was $(969,000), reflecting a decrease of $(2,000) from the net loss experienced for the year ended March 31, 2001 of $(971,000). The decline in net loss is due to a reduction in the equity in losses of limited partnerships which decreased by $115,000, offset by an increase in operating expenses of $111,000 and a decrease in income of $2,000. 16 Liquidity and Capital Resources Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 Net decrease in cash for the year ended March 31, 2003 was $(16,000) compared to a net decrease in cash for the year ended March 31, 2002 of $(52,000). The change of $36,000 was due primarily to a decrease in cash used in operating activities of $23,000, due primarily to the increase in accrued fees and expenses due to the General Partner and affiliates, and an increase of $13,000 in distributions from limited partnerships. Year Ended March 31, 2002 Compared to Year Ended March 31, 2001 Net decrease in cash for the year ended March 31, 2002 was $(52,000) compared to a net decrease in cash for the year ended March 31, 2001 of $(96,000). The change of $44,000 was due primarily to a decrease in cash used in operating activities of $50,000 due primarily to the increase in accrued fees and expenses due to the General Partner and affiliates, offset by a net decrease of $6,000 in distributions from limited partnerships. During the year ended March 31, 2003 and 2002 accrued payables, which consist of an advance from WNC & Associates, Inc. to fund an advance to Broken Bow of $165,000 and related party management fees due to the General Partner increased by $42,000. The General Partner does not anticipate that these accrued management fees will be paid in full until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership. The Partnership does not expect 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. Accordingly, WNC and Associates, Inc. has agreed to provide advances sufficient to fund the operations and working capital requirements of the Partnership through June 30, 2004. Future Contractual Cash Obligations The following table summarizes our future contractual cash obligations as of March 31, 2003:
2004 2005 2006 2007 2008 Thereafter Total --------- --------- --------- --------- --------- ----------- ----------- Asset Management Fees $ 236,284 $ 44,000 $ 44,000 $ 44,000 $ 44,000 $ 1,848,000 $ 2,260,284 Capital Contributions Payable to Lower Tier Partnerships - - - - - - - --------- --------- --------- --------- --------- ----------- ----------- Total contractual cash obligations $ 236,284 $ 44,000 $ 44,000 $ 44,000 $ 44,000 $ 1,848,000 $ 2,260,284 ========= ========= ========= ========= ========= =========== ===========
(1) Asset Management Fees are payable annually until termination of the Partnership, which is to occur no later than 2050. The estimate of the fees payable included herein assumes the retention of the Partnership's interest in all Housing Complexes until 2050. Amounts due to the General Partners as of March 31, 2003 have been included in the 2004 column. The General Partner does not anticipate that these fees will be paid until such time as capital reserves are in excess of the future foreseeable working capital requirements of the Partnership. For additional information on our Asset Management Fees and Capital Contributions Payable to Lower Tier Partnerships, see Notes 3 and 4 to the financial statements included elsewhere herein. 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. 17 With that in mind, we are continuing our review of the Partnership's holdings, with special emphasis on the more mature properties such as any that have satisfied the IRS compliance requirements. Our review will consider many factors including extended use requirements on the property (such as those due to mortgage restrictions or state compliance agreements), the condition of the property, and the tax consequences to the investors from the sale of the property. Upon identifying those properties with the highest potential for a successful sale, refinancing or syndication, we expect to proceed with efforts to liquidate those properties. Our objective is to maximize the investors' return wherever possible and, ultimately, to wind down those funds that no longer provide tax benefits to investors. To date no properties in the Partnership have been selected. Impact of New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations", which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. The statement is effective for fiscal years beginning after June 15, 2002. The Partnershp does not expect the adoption of SFAS No. 143 to have a material effect on the Partnerhip's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," which addresses accounting and financial reporting for the impairment or disposal of long-lived assets. This standard was effective for the Partnership's financial statements beginning January 1, 2002. The implementation of SFAS No. 144 did not have a material impact on the Partnership's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinded three previously issued statements and amended SFAS No. 13, "Accounting for Leases." The statement provides reporting standards for debt extinguishments and provides accounting standards for certain lease modifications that have economic effects similar to sale-leaseback transactions. The statement is effective for certain lease transactions occurring after May 15, 2002 and all other provisions of the statement shall be effective for financial statements issued on or after May 15, 2002. The implementation of SFAS No. 145 did not have a material impact on the Partnership's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which updates accounting and reporting standards for personnel and operational restructurings. The Partnership adopted SFAS No. 146 for exit, disposal or other restructuring activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Partnership's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a material impact on the Partnership's finacial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method on accounting for stock-based employee compensation. The implementation of SFAS No. 148 is not expected to have a material effect on the Partnership's financial position or results of operations. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." The adoption of FIN 46 did not have a material impact on the Partnership's financial position or results of operations. 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk NOT APPLICABLE Item 8. Financial Statements and Supplementary Data 19 Report of Independent Certified Public Accountants To the Partners WNC Housing Tax Credit Fund IV, L.P., Series 2 We have audited the accompanying balance sheets of WNC Housing Tax Credit Fund IV, L.P., Series 2 (a California Limited Partnership) (the "Partnership") as of March 31, 2003 and 2002, and the related statements of operations, partners' equity (deficit) and cash flows for the years ended March 31, 2003, 2002 and 2001. 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 3 to the financial statements, the Partnership accounts for its investments in limited partnerships using the equity method. The portion of the Partnership's investments in limited partnerships audited by other auditors represented 85% and 83% of the total assets of the Partnership at March 31, 2003 and 2002, respectively, and 76%, 76% and 74% of the Partnership's equity in losses of limited partnerships for the years ended March 31, 2003, 2002 and 2001, respectively. Our opinion, insofar as it relates to the amounts included in the financial statements for the limited partnerships which were audited by others, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of WNC Housing Tax Credit Fund IV, L.P., Series 2 (a California Limited Partnership) as of March 31, 2003 and 2002, and the results of its operations and its cash flows for the years ended March 31, 2003, 2002 and 2001, in conformity with accounting principles generally accepted in the United States of America. The Partnership currently has insufficient working capital to fund its operations. As discussed in Note 7 to the accompanying financial statements, WNC & Associates, Inc., has agreed to provide advances sufficient enough to fund the operations and working capital requirements of the Partnership through June 30, 2004. /s/ BDO SEIDMAN, LLP Costa Mesa, California June 3, 2003 20 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) BALANCE SHEETS
March 31 ------------------------------- 2003 2002 -------------- -------------- ASSETS Cash and cash equivalents $ 16,162 $ 32,342 Investments in limited partnerships, net (Notes 2, 3, 4 and 7) 6,098,332 6,677,963 Other assets 998 3,998 -------------- -------------- $ 6,115,492 $ 6,714,303 ============== ============== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Accrued expenses (Note 2) $ - $ 4,000 Accrued fees and expenses due to General Partner and affiliates (Note 4) 359,174 316,573 -------------- -------------- Total liabilities 359,174 320,573 -------------- -------------- Commitments and contingencies (Notes 2, 3 and 7) Partners' equity (deficit): General partner (94,749) (88,375) Limited partners (20,000 units authorized; 15,600 units issued and outstanding) 5,851,067 6,482,105 -------------- -------------- Total partners' equity 5,756,318 6,393,730 -------------- -------------- $ 6,115,492 $ 6,714,303 ============== ============== See report of independent certified public accountants and accompanying notes to financial statements.
21 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) STATEMENTS OF OPERATIONS
For the Years Ended March 31 -------------------------------------------------- 2003 2002 2001 --------------- ------------- ------------- Interest income $ 384 $ 2,083 $ 7,274 Reporting fees 4,000 5,800 2,950 --------------- ------------- ------------- Total income 4,384 7,883 10,224 --------------- ------------- ------------- Operating expenses: Amortization (Notes 3 and 4) 37,688 37,932 40,934 Asset management fees (Note 4) 44,000 44,000 44,000 Provision for uncollectible advances to limited partnership (Note 2) 3,000 165,000 - Other 27,990 12,664 64,443 --------------- ------------- ------------- Total operating expenses 112,678 259,596 149,377 --------------- ------------- ------------- Loss from operations (108,294) (251,713) (139,153) Equity in losses of limited partnerships (Note 3) (529,118) (716,788) (831,638) --------------- ------------- ------------- Net loss $ (637,412) $ (968,501) $ (970,791) =============== ============= ============= Net loss allocated to: General partner $ (6,374) $ (9,685) $ (9,708) =============== ============= ============= Limited partners $ (631,038) $ (958,816) $ (961,083) =============== ============= ============= Net loss per limited partner unit $ (40.45) $ (61.46) $ (61.61) =============== ============= ============= Outstanding weighted limited partner units 15,600 15,600 15,600 =============== ============= ============= See report of independent certified public accountants and accompanying notes to financial statements.
22 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For The Years Ended March 31, 2003, 2002 and 2001
General Limited Partner Partners Total --------------- --------------- -------------- Partners' equity (deficit) at March 31, 2000 $ (68,982) $ 8,402,004 $ 8,333,022 Net loss (9,708) (961,083) (970,791) --------------- --------------- -------------- Partners' equity (deficit) at March 31, 2001 (78,690) 7,440,921 7,362,231 Net loss (9,685) (958,816) (968,501) --------------- --------------- -------------- Partners' equity (deficit) at March 31, 2002 (88,375) 6,482,105 6,393,730 Net loss (6,374) (631,038) (637,412) --------------- --------------- -------------- Partners' equity (deficit) at March 31, 2003 $ (94,749) $ 5,851,067 $ 5,756,318 =============== =============== ============== See report of independent certified public accountants and accompanying notes to financial statements.
23 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) STATEMENTS OF CASH FLOWS
For the Years Ended March 31 --------------------------------------------------- 2003 2002 2001 -------------- ------------- ------------- Cash flows from operating activities: Net loss $ (637,412) $ (968,501) $ (970,791) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 37,688 37,932 40,934 Equity in losses of limited partnerships 529,118 716,788 831,638 Change in other assets 3,000 (3,000) - Change in accrued expenses (4,000) (44,569) (38,396) Change in accrued fees and expenses due to General Partner and affiliates 42,601 209,295 34,680 -------------- ------------- ------------- Net cash used in operating activities (29,005) (52,055) (101,935) -------------- ------------- ------------- Cash flows from investing activities: Distributions from limited partnerships 12,825 250 5,949 -------------- ------------- ------------- Net decrease in cash and cash equivalents (16,180) (51,805) (95,986) Cash and cash equivalents, beginning of period 32,342 84,147 180,133 -------------- ------------- ------------- Cash and cash equivalents, end of period $ 16,162 $ 32,342 $ 84,147 ============== ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ 800 $ 800 $ 800 ============== ============= ============= See report of independent certified public accountants and accompanying notes to financial statements.
24 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For The Years Ended March 31, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- Organization ------------ WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") was formed on September 27, 1993 under the laws of the state of California and commenced operations on July 18, 1994. The Partnership was formed to invest primarily in other limited partnerships (the "Local Limited Partnerships") which own and operate multi-family housing complexes (the "Housing Complexes") that are eligible for low income housing credits. The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex. The general partner is WNC Tax Credit Partners, IV, L.P. (the "General Partner"), a California limited partnership. WNC & Associates, Inc. ("WNC") is the general partner of the General Partner. The chairman and president own substantially all of the outstanding stock of WNC. The business of the Partnership is conducted primarily through WNC, as the Partnership has no employees of its own. The Partnership shall continue in full force and effect until December 31, 2050 unless terminated prior to that date pursuant to the partnership agreement or law. The financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners. The Partnership Agreement authorized the sale of 20,000 units at $1,000 per unit ("Units"). The offering of Units concluded in July 1995 at which time 15,600 Units representing subscriptions, net of discounts for volume purchases of more than 100 units, in the amount of $15,241,000 had been accepted. The General Partner has a 1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and tax credits. The limited partners will be allocated the remaining 99% of these items in proportion to their respective investments. After the limited partners have received proceeds from sale or refinancing equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner has received proceeds equal to its capital contributions and a subordinated disposition fee (as described in Note 4) 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. 25 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- Certain Risks and Uncertainties ------------------------------- An investment in the Partnership and the Partnership's investments in Local Limited Partnerships and their Housing Complexes are subject to risks. These risks may impact the tax benefits of an investment in the Partnership, and the amount of proceeds available for distribution to the Limited Partners, if any, on liquidation of the Partnership's investments. Some of those risks include the following: The Low Income Housing Credit rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Credit s and the fractional recapture of Low Income Housing Credits already taken. In most cases the annual amount of Low Income Housing Credits that an individual can use is limited to the tax liability due on the person's last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a profit. Accordingly, the Partnership may be unable to distribute any cash to its investors. Low Income Housing Credits may be the only benefit from an investment in the Partnership. The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership's ability to satisfy its investment objectives. Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years, the loss of any remaining Low Income Housing Credits, a fractional recapture of prior Low Income Housing Credits, and a loss of the Partnership's investment in the Housing Complex would occur. The Partnership is a limited partner or non-managing member of each Local Limited Partnership. Accordingly, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships. The Partnership will rely totally on the Local General Partners. Neither the Partnership's investments in Local Limited Partnerships, nor the Local Limited Partnerships' investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Credits and recapture of Low Income Housing Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar properties, and neighborhood conditions, among others. The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Credits and tax losses allocable to the investors could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership. Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes. No trading market for the Units exists or is expected to develop. Investors may be unable to sell their Units except at a discount and should consider their Units to be a long-term investment. Individual investors will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners. 26 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- Exit Strategy ------------- The IRS compliance period for low-income housing tax credit properties is generally 15 years from occupancy following construction or rehabilitation completion. WNC was one of the first in the industry to offer investments using the tax credit. Now these very first programs are completing their compliance period. With that in mind, 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 investors 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 investors' return wherever possible and, ultimately, to wind down those funds that no longer provide tax benefits to investors. To date no properties in the Partnership have been selected. Method of Accounting For Investments in Limited Partnerships ------------------------------------------------------------ The Partnership accounts for its investments in limited partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnerships' results of operations and for any contributions made and distributions received. The Partnership reviews the carrying amount of an individual investment in a Local Limited Partnership for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. Recoverability of such investment is measured by a comparison of the carrying amount to future undiscounted net cash flows expected to be generated. If an investment is considered to be impaired (see Note 2), the impairment to be recognized is measured by the amount by which the carrying amount of the investment exceeds fair value. The accounting policies of the Local Limited Partnership are generally consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and are being amortized over 30 years (see Notes 3 and 4). Equity in losses from Local Limited Partnerships for the years ended March 31, 2003, 2002 and 2001 have been recorded by the Partnership based on nine months of reported results provided by the Local Limited Partnerships and on three months of results estimated by management of the Partnership. Management's estimate for the three-month period is based on either actual unaudited results reported by the Local Limited Partnerships or historical trends in the operations of the Local Limited Partnerships. Equity in losses of limited partnerships allocated to the Partnership will not be recognized to the extent that the investment balance would be adjusted below zero. As soon as the investment balance reaches zero, the related costs of acquiring the investment are accelerated to the extent of losses available (see Note 3). Offering Expenses Offering expenses consist of underwriting commissions, legal fees, printing, filing and recordation fees, and other costs incurred with selling limited partnership interests in the Partnership. The General Partner is obligated to pay all offering and organization costs in excess of 15% (including sales commissions) of the total offering proceeds. Offering expenses are reflected as a reduction of partners' capital and amounted to $1,971,172 at the end of all periods presented. 27 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- Use of Estimates ---------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Cash and Cash Equivalents ------------------------- The Partnership considers highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Partnership had no cash equivalents at the end of all periods presented. Net Loss Per Limited Partner Unit --------------------------------- Net loss per limited partner unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit includes no dilution and is computed by dividing loss available to limited partners by the weighted average number of units outstanding during the period. Calculation of diluted net income per unit is not required. Reporting Comprehensive Income ------------------------------ The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income established standards for the reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Partnership had no items of other comprehensive income during the years ended March 31, 2003, 2002 and 2001, as defined by SFAS No. 130. New Accounting Pronouncements ----------------------------- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations", which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. The statement is effective for fiscal years beginning after June 15, 2002. The Partnershp does not expect the adoption of SFAS No. 143 to have a material effect on the Partnerhip's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," which addresses accounting and financial reporting for the impairment or disposal of long-lived assets. This standard was effective for the Partnership's financial statements beginning January 1, 2002. The implementation of SFAS No. 144 did not have a material impact on the Partnership's financial position or results of operations. 28 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued -------------------------------------------------------------- In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinded three previously issued statements and amended SFAS No. 13, "Accounting for Leases." The statement provides reporting standards for debt extinguishments and provides accounting standards for certain lease modifications that have economic effects similar to sale-leaseback transactions. The statement is effective for certain lease transactions occurring after May 15, 2002 and all other provisions of the statement shall be effective for financial statements issued on or after May 15, 2002. The implementation of SFAS No. 145 did not have a material impact on the Partnership's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which updates accounting and reporting standards for personnel and operational restructurings. The Partnership adopted SFAS No. 146 for exit, disposal or other restructuring activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Partnership's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a material impact on the Partnership's finacial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method on accounting for stock-based employee compensation. The implementation of SFAS No. 148 is not expected to have a material effect on the Partnership's financial position or results of operations. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." The adoption of FIN 46 did not have a material impact on the Partnership's financial position or results of operations. 29 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 2 - UNCERTAINTY AND COMMITMENTS WITH RESPECT TO INVESTMENTS IN BROKEN BOW -------------------------------------------------------------------------------- AND SIDNEY ---------- The Partnership has two investments accounted for under the equity method, consisting of 99% limited partnership interests in each of Broken Bow Apartments I, Limited Partnership ("Broken Bow") and Sidney Apartments I, Limited Partnership ("Sidney"). Due to operational difficulties and negative cash flows in 2000, foreclosure procedures were commenced by the lender of these two Local Limited Partnerships. As a result, the Partnership, Broken Bow, Sidney, and a WNC subsidiary executed a work-out agreement with the lender (the "Agreement"), which was effective December 14, 2001. Broken Bow was required to pay to the lender $165,000 as a partial settlement of the indebtedness due and owing by Broken Bow due to the fact that their loan was a construction loan. The Partnership advanced the aforementioned monies to Broken Bow and fully reserved the amount as of March 31, 2002. The balance of the indebtedness due and owing to the lender by Broken Bow was satisfied by the execution of two promissory notes. The first note of $85,000, bears interest at 7% per annum, and requires principal and interest payments totaling $600 per month through April 2014, at which date the unpaid principal balance is due. The second note of $500,000, bears interest at 1% per annum, and has payments due monthly out of available cash flow, as defined, with the unpaid principal balance due April 2014. The balance of the indebtedness due and owing to the lender by Sidney was satisfied by the execution of two promissory notes. The first note totals $130,000, bears interest at 7% per annum, and requires principal and interest payments totaling $900 per month through April 2012, at which date the unpaid principal is due. The second note totals $300,000, bears interest at 1% per annum, and has payments due monthly out of available cash flow, as defined, with the unpaid principal balance due April 2014. The Partnership and a WNC subsidiary have executed a guarantee for the payment of both notes of Broken Bow and Sidney. In addition, several other commitments were made. Broken Bow and Sidney executed a grant deed to the lender in the event that either entity defaults under the terms and provisions of the notes. The deeds are held in escrow, and if Broken Bow or Sidney defaults on either note, the lender may, at its option, record the respective deed. In addition, the Partnership has assigned the lender as additional collateral all of its residual value interests, as defined, in all of the Local Limited Partnerships. The Partnership and the Local Limited Partnerships are prohibited from selling, assigning, transferring or further encumbering the Housing Complexes retained by each Local Limited Partnership. As a result of the operating difficulties mentioned above, there is uncertainty as to additional costs, if any, that the Partnership may incur in connection with its investment in Broken Bow and Sidney and as to whether the Partnership will ultimately retain its interest in these Local Limited Partnerships. In the event the Partnership does not successfully retain its interest in Broken Bow and Sidney, the Partnership would be exposed to the cessation and recapture of the related tax credits. The Partnership's financial statements do not include any adjustments that might result from the outcome of these uncertainties. 30 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS -------------------------------------------- As of the periods presented, the Partnership had acquired limited partnership interests in twenty-two Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate of 892 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, as defined, require the approval from the Partnership. The Partnership, as a limited partner, is entitled to 96% to 99%, as specified in the Local Limited Partnership agreements, of the operating profits and losses, taxable income and losses and tax credits of the Limited Partnerships. The Partnership's investments in Local Limited Partnerships as shown in the balance sheets at March 31, 2003 and 2002 are approximately $720,000 and $502,000, 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 and to capital contributions payable to the limited partnerships which were netted against partner capital in the Local Limited Partnership's financial statements. The Partnership's investment is also lower than the Partnership's equity as shown in the Local Limited Partnership's combined financial statements due to the losses recorded by the Partnership for the three month period ended March 31, and the impairment of two Local Limited Partnerships (see Note 2). Equity in losses of Local Limited Partnerships is recognized in the financial statements until the related investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended. Distributions from the Local Limited Partners are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as income. At March 31, 2003 and 2002, 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 year ended March 31, 2003, 2002 and 2001 amounting to approximately $172,000, $81,000 and $36,000 have not been recognized. As of March 31, 2003, the aggregate share of net losses not recognized by the Partnership amounted to $296,000. Following is a summary of the equity method activity of the investments in Local Limited Partnerships for the periods presented:
For the Years Ended March 31 ------------------------------------------- 2003 2002 2001 ----------- ----------- ------------- Investments per balance sheet, beginning of year $ 6,677,963 $ 7,432,933 $ 8,311,454 Distributions received from limited partnerships (12,825) (250) (5,949) Equity in losses of limited partnerships (529,118) (716,788) (831,638) Amortization of paid acquisition fees and costs (37,688) (37,932) (40,934) ----------- ----------- ------------- Investments per balance sheet, end of period $ 6,098,332 $ 6,677,963 $ 7,432,933 =========== =========== =============
31 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued ------------------------------------------------------- The financial information from the individual financial statements of the Local Limited Partnerships includes 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
2002 2001 --------------- --------------- ASSETS Land $ 1,712,000 $ 1,634,000 Buildings and improvements, net of accumulated depreciation as of December 31, 2002 and 2001 of $9,656,000 and $8,489,000, respectively 30,546,000 31,695,000 Due from affiliates 4,000 54,000 Other assets 2,730,000 2,532,000 --------------- --------------- $ 34,992,000 $ 35,915,000 =============== =============== LIABILITIES Mortgage and construction loans payable $ 26,582,000 $ 26,069,000 Due to related parties 962,000 1,993,000 Other liabilities 1,223,000 749,000 --------------- --------------- 28,767,000 28,811,000 --------------- --------------- PARTNERS' CAPITAL WNC Housing Tax Credit Fund IV, L.P., Series 2 5,378,000 6,176,000 Other partners 847,000 928,000 --------------- --------------- 6,225,000 7,104,000 --------------- --------------- $ 34,992,000 $ 35,915,000 =============== ===============
32 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued ------------------------------------------------------- COMBINED CONDENSED STATEMENTS OF OPERATIONS
2002 2001 2000 --------------- --------------- --------------- Revenues $ 4,322,000 $ 4,121,000 $ 3,930,000 --------------- --------------- --------------- Expenses: Operating expenses 2,634,000 2,559,000 2,368,000 Interest expense 1,151,000 1,100,000 1,191,000 Depreciation and amortization 1,337,000 1,347,000 1,367,000 --------------- --------------- --------------- Total expenses 5,122,000 5,006,000 4,926,000 --------------- --------------- --------------- Net loss $ (800,000) $ (885,000) $ (996,000) =============== =============== =============== Net loss allocable to the Partnership $ (789,000) $ (874,000) $ (985,000) =============== =============== =============== Net loss recorded by the Partnership $ (529,000) $ (717,000) $ (832,000) =============== =============== ===============
Certain Local Limited Partnerships have incurred significant 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 (furthermore see Note 7). NOTE 4 - RELATED PARTY TRANSACTIONS ----------------------------------- Under the terms of the Partnership Agreement, the Partnership is obligated to the General Partner or its affiliates for the following items: Acquisition fees of up to 8% 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 $1,058,950. Accumulated amortization of these capitalized costs was $376,539 and $302,638 as of March 31, 2003 and 2002, respectively. Of the accumulated amortization recorded on the balance sheet at March 31, 2003, $40,969, $0 and $67,480 of the related expense was reflected as equity in losses of limited partnerships during the years ended March 31, 2003, 2002 and 2001, respectively, to reduce the respective net acquisition fee component of investments in local limited partnerships to zero for those Local Limited Partnerships which would otherwise be below a zero balance. Reimbursement of costs incurred by the General Partner in connection with the acquisition of Local Limited Partnerships. These reimbursements have not exceeded 1.2% of the gross proceeds. The Partnership incurred acquisition costs of $169,193, at the end of all periods presented, which have been included in investments in limited partnerships. Accumulated amortization was $121,484 and $110,059 as of March 31, 2003 and 2002, respectively. Of the accumulated amortization recorded on the balance sheet at March 31, 2003, $6,669, $59,051 and $15,258 of the related expense was reflected as equity in losses of limited partnerships during the years ended March 31, 2003, 2002 and 2001, respectively, to reduce the respective net acquisition cost component of investments in local limited partnerships to zero for those Local Limited Partnerships which would otherwise be below a zero balance. 33 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 4 - RELATED PARTY TRANSACTIONS, continued ---------------------------------------------- An annual asset management fee equal to the greater amount of (i) $2,000 for each apartment complex, or (ii) 0.275% of gross proceeds. In either case, the fee will be decreased or increased annually based on changes to the Consumer Price Index. However, in no event will the maximum amount exceed 0.2% of the invested assets of the Local Limited Partnerships, including the Partnership's allocable share of the mortgages, for the life of the Partnership. Management fees of $44,000 were incurred during each of the years ended March 31, 2003, 2002 and 2001, of which $1,875, $0 and $3,750 were paid during the years ended March 31, 2003, 2002 and 2001, respectively. A subordinated disposition fee in an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the limited partners receiving a preferred return of 16% through December 31, 2003 and 6% thereafter (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. The accrued fees and expenses due to General Partner and affiliates consisted of the following: March 31 ------------------------------- 2003 2002 ------------ --------------- Reimbursement for expenses paid by the General Partner or an affiliate $ 166,890 $ 166,414 Asset management fee payable 192,284 150,159 ------------ --------------- $ 359,174 $ 316,573 ============ =============== The General Partner does not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of the future foreseeable working capital requirements of the Partnership. 34 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 5 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) ----------------------------------------------------
The following is a summary of the quarterly operations for the years ended March 31, 2003 and 2002: June 30 September 30 December 31 March 31 ---------------- --------------- --------------- --------------- 2003 ---- Income $ - $ - $ - $ 4,000 Operating expenses (28,000) (34,000) (24,000) (26,000) Equity in losses of limited partnerships (138,000) (134,000) (133,000) (124,000) Net loss (166,000) (168,000) (157,000) (146,000) Loss available to limited partners (165,000) (166,000) (155,000) (145,000) Loss per limited partner unit (11) (11) (10) (8) 2002 ---- Income $ 800 $ 700 $ 500 $ 6,000 Operating expenses (26,000) (28,000) (190,000) (16,000) Equity in losses of limited partnerships (168,000) (200,000) (138,000) (211,000) Net loss (194,000) (227,000) (328,000) (219,000) Loss available to limited partners (192,000) (225,000) (325,000) (217,000) Loss per limited partner unit (12) (14) (21) (14)
NOTE 6 - INCOME TAXES --------------------- No provision for income taxes has been recorded in the accompanying financial statements as any liability for income taxes is the obligation of the partners of the Partnership. 35 WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED For The Years Ended March 31, 2003, 2002 and 2001 NOTE 7 - COMMITMENTS AND CONTINGENCIES -------------------------------------- During 2000, WNC removed a developer who, at the time, was the local general partner in six Local Limited Partnerships. The Partnership has a 99% limited partnership interest in two of those six Local Limited Partnerships. Those investments are Broken Bow Apartments I, Limited Partnership, and Sidney Apartments I, Limited Partnership. The six Local Limited Partnerships (hereinafter referred to as "Defendants") were defendants in a lawsuit. The lawsuit was filed by eight other partnerships in which the former Local General Partner of the Local Limited Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that the Local General Partner accepted funds from the Plaintiffs and improperly loaned these funds to the Defendants. In July 2001, this lawsuit was settled for an aggregate amount of $35,000. The Partnership's allocated share of $11,700 had been accrued in full at March 31, 2001 and paid in full at March 31, 2002. The Partnership currently has insufficient working capital to fund its operations. WNC and Associates, Inc., the general partner of the General Partner of the Partnership, has agreed to provide advances sufficient enough to fund the operations and working capital requirements of the Partnership through June 30, 2004. 36 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure NOT APPLICABLE PART III. Item 10. Directors and Executive Officers of the Registrant (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 David C. Turek Senior Vice President - Originations Thomas J. Riha, CPA Vice President - Chief Financial Officer Michael J. Gaber Vice President - Acquisitions Diemmy T. Tran Vice President - Portfolio Management J. Brad Hurlbut Director of Syndications
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. Wilfred N. Cooper, Sr., age 72, 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. Wilfred N. Cooper, Jr., age 40, is President, Chief Executive Officer, Secretary and 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. 37 David N. Shafer, age 50, 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 57, 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. David C. Turek, age 48, 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. Thomas J. Riha, age 47, is 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. Michael J. Gaber, age 37, is Vice President - Acquisitions and a member of the Acquisition Committee of Associates Mr. Gaber has been involved in real estate acquisition, valuation and investment activities since 1989 and has been associated with Associates since 1997. Prior to joining Associates, he was involved in the valuation and classification of major assets, restructuring of debt and analysis of real estate taxes with H.F. Ahmanson & Company, parent of Home Savings of America. Mr. Gaber graduated from the California State University, Fullerton in 1991 with a Bachelor of Science degree in Business Administration - Finance. Diemmy T. Tran, age 37, 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. J. Brad Hurlbut, age 43, is Director of Syndications of Associates He is responsible for the financial structuring of WNC's institutional funds. Mr. Hurlbut has 20 years of experience in real estate investment and development. Prior to joining WNC in 2000, he served as corporate controller for Great Western Hotels Corporation. Mr. Hurlbut has been an enrolled agent licensed to practice before the IRS since 1984. He graduated from the University of Redlands in 1981 with a Bachelor of Science degree in business management and from California State University, Fullerton in 1985 with a Master of Science degree in taxation. 38 Kay L. Cooper, age 66, 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. Mrs. 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 -------------------------------- Neither the Partnership nor Associates has an audit committee. 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 Associates for the following fees: (a) Annual Asset Management Fee. An annual asset management fee of the greater of (i) $2,000 per multi-family housing complex or (ii) 0.275% of Gross Proceeds. The base fee amount will be adjusted annually based on changes in the Consumer Price Index, however in no event will the annual asset management fee exceed 0.2% of Invested Assets. "Invested Assets" means the sum of the Partnership's investment in Local Limited Partnerships and the Partnership's allocable share of the amount of indebtedness related to the Housing Complexes. Fees of $44,000 were incurred during each of the years ended March 31, 2003, 2002 and 2001. The Partnership paid the General Partner or its affiliates $1,875, $0 and $4,000 of those fees during the years ended March 31, 2003, 2002 and 2001, respectively. (b) Subordinated Disposition Fee. A subordinated disposition fee in an amount equal to 1% of the sale price received in connection with the sale or disposition of a Housing Complex. Subordinated disposition fees will be subordinated to the prior return of the Limited Partners' capital contributions and payment of the Return on Investment to the Limited Partners. "Return on Investment" means an annual, cumulative but not compounded, "return" to the Limited Partners (including Low Income Housing Credits) as a class on their adjusted capital contributions commencing for each Limited Partner on the last day of the calendar quarter during which the Limited Partner's capital contribution is received by the Partnership, calculated at the following rates: (i) 16% through December 31, 2003, and (ii) 6% for the balance of the Partnership's term. No disposition fees have been paid. (c) Operating Expense. The Partnership reimbursed the General Partner or its affiliates for operating expenses of approximately $30,000, $39,000 and $58,000 during the years ended March 31, 2003, 2002 and 2001, respectively. (d) Interest in Partnership. The General Partners receives 1% of the Partnership's allocated Low Income Housing Credits, which approximated $22,000 for the General Partner for each of the years ended March 31, 2003, 2002 and 2001. The General Partner is also entitled to receive 1% of cash distributions. There were no distributions of cash to the General Partner during the years ended March 31, 2003, 2002 and 2001. 39 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (a) Securities Authorized for Issuance Under Equity Compensation Plans ------------------------------------------------------------------ Inapplicable (b) Security Ownership of Certain Beneficial Owners ---------------------------------------------- The following is the only limited partner known to the General Partner to own beneficially in excess of 5% of the outstanding Units.
Amount of Name and Address of Units Title of Class Beneficial Owner Controlled Percent of Class ------------------------------------------------------------------------------------------------------- Units of Limited Partnership Sempra Energy Financial 4,000 Units 25.6% Interests P.O. Box 126943 San Diego, CA 92113-6943
(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 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 and the General Partner's interests in the Partnership, as discussed in Item 11 and in the notes to the Partnership's financial statements. Item 14. Controls and Procedures Associates, on behalf of the Partnership, maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 40 Based on their most recent evaluation, which was completed within 90 days of the filing of this Annual Report on Form 10-K, our Principal Executive Officer and Principal Financial Officer believe that our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) are effective. There were no significant changes in internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation. 41 PART IV. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Financial Statements (a)(1) Financial statements included in Part II hereof: ------------------------------------------------ Report of Independent Certified Public Accountants Balance Sheets, March 31, 2003 and 2002 Statements of Operations for the years ended March 31, 2003, 2002 and 2001 Statements of Partners' Equity (Deficit) for the years ended March 31, 2003, 2002 and 2001 Statements of Cash Flows for the years ended March 31, 2003, 2002 and 2001 Notes to Financial Statements (a)(2) Financial statement schedules included in Part IV hereof: --------------------------------------------------------- Report of Independent Certified Public Accountants on Financial Statement Schedules Schedule III - Real Estate Owned by Local Limited Partnerships (b) Reports on Form 8-K ------------------- 1. NONE (c) Exhibits 3.1 Articles of incorporation and by-laws: The registrant is not incorporated. The Partnership Agreement is included as Exhibit B to the Prospectus which is included in Post-Effective No 11 to Registration Statement on Form S-11 dated May 24, 1995 incorporated herein by reference as Exhibit 3. 10.1 Amended and Restated Agreement of Limited Partnership of Chadwick Limited Partnership filed as exhibit 10.1 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.1. 10.2 Second Amended and Restated Agreement of Limited Partnership of Garland Street Limited Partnership filed as exhibit 10.2 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.2. 10.3 Amended and Restated Agreement of Limited Partnership of Lamesa Seniors Community, Ltd. filed as exhibit 10.3 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.3. 10.4 Amended and Restated Agreement of Limited Partnership of Palestine Seniors Community, Ltd. filed as exhibit 10.4 to Form 8-K dated July 22, 1994 is hereby incorporated herein by reference as exhibit 10.4. 10.5 Second Amended and Restated Agreement of Limited Partnership of Southcove Associates filed as exhibit 10.1 to Form 8-K dated August 8, 1994 is hereby incorporated herein by reference as exhibit 10.5. 10.6 Third Amended and Restated Agreement of Limited Partnership of Southcove Associates filed as exhibit 10.2 to Form 8-K dated August 8, 1994 is hereby incorporated herein by reference as exhibit 10.6. 10.7 Amended and Restated Agreement of Limited Partnership of Comanche Retirement Village, Ltd. filed as exhibit 10.1 to Form 8-K dated August 31, 1994 is hereby incorporated herein by reference as exhibit 10.7. 10.8 Amended and Restated Agreement of Limited Partnership of Mountainview Apartments Limited Partnership filed as exhibit 10.1 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.8. 42 10.9 Second Amendment to Amended and Restated Agreement of Limited Partnership of Mountainview Apartments Limited Partnership filed as exhibit 10.2 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.9. 10.10 Amended and Restated Agreement of Limited Partnership of Pecan Grove Limited Partnership filed as exhibit 10.3 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.10. 10.11 Second Amendment to Amended and Restated Agreement of Limited Partnership of Pecan Grove Limited Partnership filed as exhibit 10.4 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.11. 10.12 Second Amendment to and Entire Restatement of the Agreement of Limited Partnership of Autumn Trace Associates, Ltd. filed as exhibit 10.1 to Form 8-K dated October 31, 1994 is hereby incorporated herein by reference as exhibit 10.12. 10.13 Amended and Restated Agreement of Limited Partnership of EW , a Wisconsin Limited Partnership filed as exhibit 10.2 to Form 8-K dated October 31, 1994 is hereby incorporated herein by reference as exhibit 10.13. 10.14 Agreement of Limited Partnership of Klimpel Manor, Ltd. filed as exhibit 10.3 to Form 8-K dated September 21, 1994 is hereby incorporated herein by reference as exhibit 10.14. 10.15 Amended and Restated Agreement of Limited Partnership of Hickory Lane Associates Limited filed as exhibit 10.15 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.15. 10.16 Amended and Restated Agreement of Limited Partnership of Honeysuckle Court Associates, Ltd. filed as exhibit 10.16 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.16. 10.17 Amended and Restated Agreement of Limited Partnership of Walnut Turn Associates, Ltd. filed as exhibit 10.17 to Form 10-K dated December 31, 1995 is hereby incorporated herein by reference as exhibit 10.17. 10.18 Amended and Restated Agreement of Limited Partnership of Pioneer Street Associates, a California limited partnership filed as exhibit 10.1 to Form 8-K dated July 5, 1995 is hereby incorporated herein by reference as exhibit 10.18. 99.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) 99.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) 99.3 Financial Statements of Pioneer Street Associates, a California Limited Partnership as of and for the years ended December 31, 2001 and 2000 together with Independent Auditors' Report thereon; filed as exhibit 99.3 on Form 10-K dated March 31, 2002; a significant subsidiary of the Partnership. 99.4 Financial Statements of Pioneer Street Associates, a California Limited Partnership as of and for the years ended December 31, 2002 and 2001 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. Report of Independent Certified Public Accountants on Financial Statement Schedules To the Partners WNC Housing Tax Credit Fund IV, L.P., Series 2 The audits referred to in our report dated June 3, 2003, relating to the 2003, 2002 and 2001 financial statements of WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership"), which is contained in Item 8 of this Form 10-K, included the audit of the accompanying financial statement schedules. The financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audits. In our opinion, such financial statement schedules present fairly, in all material respects, the financial information set forth therein. /s/ BDO SEIDMAN, LLP Costa Mesa, California June 3, 2003 44 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2003
------------------------------------ ------------------------------------------------ As of March 31, 2003 As of December 31, 2002 ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Apartment Housing of East Brewton, East Brewton, Ltd. Alabama $ 1,192,000 $ 1,192,000 $ 1,141,000 $ 2,342,000 $ (336,000) $ 2,006,000 Autumn Trace Silsbee, Associates, Ltd. Texas 412,000 412,000 1,233,000 2,059,000 (693,000) 1,366,000 Broken Bow Apartments I, Limited Broken Bow, Partnership Nebraska 608,000 608,000 584,000 1,383,000 (210,000) 1,173,000 Candleridge Apartments of Waukee Waukee, L.P. II Iowa 125,000 125,000 673,000 904,000 (236,000) 668,000 Chadwick Limited Edan, North Partnership Carolina 378,000 378,000 1,528,000 2,053,000 (390,000) 1,663,000 Comanche Retirement Comanche, Village, Ltd. Texas 136,000 136,000 587,000 761,000 (200,000) 561,000 Crossings II Limited Housing Association Limited Dividend Portage, Partnership Michigan 432,000 432,000 5,715,000 6,952,000 (1,059,000) 5,893,000 EW, a Wisconsin Limited Evansville, Partnership Wisconson 164,000 164,000 609,000 907,000 (301,000) 606,000 Garland Street Limited Malvarn, Partnership Arkansas 164,000 164,000 687,000 928,000 (308,000) 620,000 Hereford Seniors Hereford, Community, Ltd. Texas 167,000 167,000 792,000 1,009,000 (193,000) 816,000
45 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2003
------------------------------------ ------------------------------------------------ As of March 31, 2003 As of December 31, 2002 ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Hickory Lane Newton, Associates, Ltd Texas 174,000 174,000 591,000 950,000 225,000 725,000 Honeysuckle Court Associates, Vidor, Ltd. Texas 339,000 339,000 1,156,000 1,833,000 453,000 1,380,000 Klimpel Fullerton, Manor, Ltd California 1,774,000 1,774,000 2,000,000 3,589,000 849,000 2,740,000 Lamesa Seniors Lamesa, Community, Ltd. Texas 143,000 143,000 675,000 821,000 241,000 580,000 Laredo Heights Navasota, Apartments Ltd. Texas 225,000 225,000 977,000 1,383,000 264,000 1,119,000 Mountainview North Apartments Wilkesboro, Limited North Partnership Carolina 195,000 195,000 984,000 1,211,000 250,000 961,000 Palestine Seniors Palestine, Community, Ltd. Texas 225,000 225,000 1,114,000 1,388,000 299,000 1,089,000 Pecan Grove Forrest City, Limited Partnership Arkansas 240,000 240,000 1,099,000 1,419,000 483,000 936,000 Pioneer Street Bakersfield, Associates California 2,222,000 2,222,000 1,810,000 4,097,000 1,164,000 2,933,000 Sidney Apartments I, Limited Sidney, Partnership Nebraska 530,000 530,000 429,000 1,419,000 251,000 1,168,000 Southcove Orange Cove, Associates California 2,000,000 2,000,000 1,514,000 3,466,000 1,001,000 2,465,000 Walnut Turn Buna, Associates, Ltd. Texas 188,000 188,000 684,000 1,040,000 250,000 790,000 ------------ ----------- ------------ ------------ ------------ ------------ $12,033,000 $12,033,000 $26,582,000 $ 41,914,000 $ 9,656,000 $ 32,258,000 ============ =========== ============ ============= ============ ============
46 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2003
---------------------------------------------------------------------------------- For the year ended December 31, 2002 ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Apartment Housing of East Brewton, Ltd. $ 120,000 $ (77,000) 1998 Completed 40 Years Autumn Trace Associates, Ltd. 231,000 (74,000) 1994 Completed 27.5 Years Broken Bow Apartments I, Limited Partnership 51,000 (48,000) 1996 Completed 40 Years Candleridge Apartments of Waukee L.P. II 130,000 (8,000) 1995 Completed 27.5 Years Chadwick Limited Partnership 205,000 (17,000) 1994 Completed 50 Years Comanche Retirement Village, Ltd. 78,000 (22,000) 1994 Completed 30 Years Crossings II Limited Dividend Housing Association Limited Partnership 772,000 (45,000) 1997 Completed 40 Years EW, a Wisconsin Limited Partnership 93,000 (18,000) 1994 Completed 27.5 Years Garland Street Limited Partnership 77,000 (26,000) 1994 Completed 27.5 Years Hereford Seniors Community, Ltd. 90,000 (21,000) 1995 Completed 40 Years Hickory Lane Associates, Ltd 100,000 (12,000) 1995 Completed 27.5 Years Honeysuckle Court Associates, Ltd. 203,000 (47,000) 1995 Completed 27.5 Years Klimpel Manor, Ltd 416,000 (97,000) 1994 Completed 40 Years Lamesa Seniors Community, Ltd. 119,000 (27,000) 1994 Completed 40 Years Laredo Heights Apartments Ltd. 171,000 (35,000) 1996 Completed 45 Years Mountainview Apartments Limited Partnership 102,000 (21,000) 1994 Completed 40 Years Palestine Seniors Community, Ltd. 139,000 (20,000) 1994 Completed 40 Years
47 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2003
---------------------------------------------------------------------------------- For the year ended December 31, 2002 ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Pecan Grove Limited Partnership 135,000 (32,000) 1994 Completed 27.5 Years Pioneer Street Associates 488,000 2,000 1995 Completed 27.5 Years Sidney Apartments I, Limited Partnership 76,000 (21,000) 1996 Completed 40 Years Southcove Associates 229,000 (112,000) 1994 Completed 27.5 Years Walnut Turn Associates, Ltd. 20,000 (22,000) 1995 Completed 27.5 Years ------------ ----------- $ 4,045,000 $ (800,000) ============ ===========
48 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2002
------------------------------------ ------------------------------------------------ As of March 31, 2002 As of December 31, 2001 ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Apartment Housing of East Brewton, East Brewton, Ltd. Alabama $ 1,192,000 $ 1,192,000 $ 1,139,000 $ 2,341,000 $ 254,000 $ 2,087,000 Autumn Trace Silsbee, Associates, Ltd. Texas 412,000 412,000 1,243,000 2,058,000 618,000 1,440,000 Broken Bow Apartments I, Limited Broken Bow, Partnership Nebraska 608,000 608,000 586,000 1,384,000 171,000 1,213,000 Candleridge Apartments of Waukee Waukee, L.P. II Iowa 125,000 125,000 676,000 895,000 202,000 693,000 Chadwick Limited Edan, North Partnership Carolina 378,000 378,000 1,540,000 2,021,000 344,000 1,677,000 Comanche Retirement Comanche, Village, Ltd. Texas 136,000 136,000 589,000 761,000 174,000 587,000 Crossings II Limited Housing Association Limited Dividend Portage, Partnership Michigan 432,000 432,000 5,812,000 6,952,000 862,000 6,090,000 EW, a Wisconsin Limited Evansville, Partnership Wisconson 164,000 164,000 613,000 900,000 262,000 638,000 Garland Street Limited Malvarn, Partnership Arkansas 164,000 164,000 690,000 927,000 273,000 654,000 Hereford Seniors Hereford, Community, Ltd. Texas 167,000 167,000 796,000 1,005,000 167,000 838,000
49 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2002
------------------------------------ ------------------------------------------------ As of March 31, 2002 As of December 31, 2002 ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Hickory Lane Newton, Associates, Ltd Texas 174,000 174,000 593,000 950,000 193,000 757,000 Honeysuckle Court Associates, Vidor, Ltd. Texas 339,000 339,000 1,159,000 1,833,000 388,000 1,445,000 Klimpel Fullerton, Manor, Ltd California 1,774,000 1,774,000 1,297,000 3,588,000 754,000 2,834,000 Lamesa Seniors Lamesa, Community, Ltd. Texas 143,000 143,000 669,000 820,000 212,000 608,000 Laredo Heights Navasota, Apartments Ltd. Texas 225,000 225,000 981,000 1,374,000 221,000 1,153,000 Mountainview North Apartments Wilkesboro, Limited North Partnership Carolina 195,000 195,000 989,000 1,212,000 372,000 840,000 Palestine Seniors Palestine, Community, Ltd. Texas 225,000 225,000 1,119,000 1,385,000 265,000 1,120,000 Pecan Grove Forrest City, Limited Partnership Arkansas 240,000 240,000 1,104,000 1,417,000 427,000 990,000 Pioneer Street Bakersfield, Associates California 2,222,000 2,222,000 1,836,000 4,087,000 1,023,000 3,064,000 Sidney Apartments I, Limited Sidney, Partnership Nebraska 530,000 530,000 431,000 1,420,000 214,000 1,206,000 Southcove Orange Cove, Associates California 2,000,000 2,000,000 1,521,000 3,448,000 879,000 2,569,000 Walnut Turn Buna, Associates, Ltd. Texas 188,000 188,000 686,000 1,040,000 214,000 826,000 ------------ ----------- ------------ ------------ ------------ ------------ $12,033,000 $12,033,000 $26,069,000 $ 41,818,000 $ 8,489,000 $ 33,329,000 ============ =========== ============ ============= ============ ============
50 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2002
---------------------------------------------------------------------------------- For the year ended December 31, 2001 ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Apartment Housing of East Brewton, Ltd. $ 116,000 $ (74,000) 1998 Completed 40 Years Autumn Trace Associates, Ltd. 232,000 (33,000) 1994 Completed 27.5 Years Broken Bow Apartments I, Limited Partnership 49,000 (37,000) 1996 Completed 40 Years Candleridge Apartments of Waukee L.P. II 125,000 (9,000) 1995 Completed 27.5 Years Chadwick Limited Partnership 189,000 (36,000) 1994 Completed 50 Years Comanche Retirement Village, Ltd. 74,000 (13,000) 1994 Completed 30 Years Crossings II Limited Dividend Housing Association Limited Partnership 738,000 (88,000) 1997 Completed 40 Years EW, a Wisconsin Limited Partnership 76,000 (33,000) 1994 Completed 27.5 Years Garland Street Limited Partnership 76,000 (31,000) 1994 Completed 27.5 Years Hereford Seniors Community, Ltd. 89,000 (11,000) 1995 Completed 40 Years Hickory Lane Associates, Ltd 90,000 (26,000) 1995 Completed 27.5 Years Honeysuckle Court Associates, Ltd. 202,000 (42,000) 1995 Completed 27.5 Years Klimpel Manor, Ltd 398,000 (52,000) 1994 Completed 40 Years Lamesa Seniors Community, Ltd. 110,000 (43,000) 1994 Completed 40 Years Laredo Heights Apartments Ltd. 181,000 (20,000) 1996 Completed 45 Years Mountainview Apartments Limited Partnership 99,000 (10,000) 1994 Completed 40 Years Palestine Seniors Community, Ltd. 134,000 (16,000) 1994 Completed 40 Years
51 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2002
---------------------------------------------------------------------------------- For the year ended December 31, 2001 ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Pecan Grove Limited Partnership 124,000 (41,000) 1994 Completed 27.5 Years Pioneer Street Associates 487,000 (87,000) 1995 Completed 27.5 Years Sidney Apartments I, Limited Partnership 71,000 (36,000) 1996 Completed 40 Years Southcove Associates 216,000 (120,000) 1994 Completed 27.5 Years Walnut Turn Associates, Ltd. 91,000 (27,000) 1995 Completed 27.5 Years ------------ ----------- $ 3,967,000 $ (885,000) ============ ===========
52 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2001
------------------------------------ ------------------------------------------------ As of March 31, 2001 As of December 31, 2000(Restated) ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Apartment Housing of East Brewton, East Brewton, Ltd. Alabama $ 1,192,000 $ 1,192,000 $ 1,145,000 $ 2,339,000 $ 168,000 $ 2,171,000 Autumn Trace Silsbee, Associates, Ltd. Texas 412,000 412,000 1,253,000 2,059,000 544,000 1,515,000 Broken Bow Apartments I, Limited Broken Bow, Partnership Nebraska 608,000 608,000 750,000 1,383,000 130,000 1,253,000 Candleridge Apartments of Waukee Waukee, L.P. II Iowa 125,000 125,000 679,000 883,000 171,000 712,000 Chadwick Limited Edan, North Partnership Carolina 378,000 378,000 1,551,000 2,020,000 298,000 1,722,000 Comanche Retirement Comanche, Village, Ltd. Texas 136,000 136,000 591,000 784,000 166,000 582,000 Crossings II Limited Housing Association Limited Dividend Portage, Partnership Michigan 432,000 432,000 5,905,000 6,952,000 666,000 6,286,000 EW, a Wisconsin Limited Evansville, Partnership Wisconson 164,000 164,000 613,000 882,000 224,000 658,000 Garland Street Limited Malvarn, Partnership Arkansas 164,000 164,000 693,000 924,000 237,000 687,000 Hereford Seniors Hereford, Community, Ltd. Texas 167,000 167,000 799,000 1,006,000 142,000 864,000
53 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2001
------------------------------------ ------------------------------------------------ As of March 31, 2001 As of December 31, 2000(Restated) ------------------------------------------------------------------------------------------------------------------------------------ Partnerships Total Amount of Encumbrances Original Investment Investment of Local Net in Local Limited Paid Limited Property and Accumulated Book Partnership Name Location Partnerships to Date Partnerships Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Hickory Lane Newton, Associates, Ltd Texas 174,000 174,000 594,000 950,000 160,000 790,000 Honeysuckle Court Associates, Vidor, Ltd. Texas 339,000 339,000 1,162,000 1,833,000 323,000 1,510,000 Klimpel Fullerton, Manor, Ltd California 1,774,000 1,774,000 1,314,000 3,589,000 649,000 2,940,000 Lamesa Seniors Lamesa, Community, Ltd. Texas 143,000 143,000 671,000 818,000 184,000 634,000 Laredo Heights Navasota, Apartments Ltd. Texas 225,000 225,000 1,101,000 1,358,000 179,000 1,179,000 Mountainview North Apartments Wilkesboro, Limited North Partnership Carolina 195,000 195,000 994,000 1,211,000 197,000 1,014,000 Palestine Seniors Palestine, Community, Ltd. Texas 225,000 225,000 1,124,000 1,385,000 231,000 1,154,000 Pecan Grove Forrest City, Limited Partnership Arkansas 240,000 240,000 1,109,000 1,402,000 370,000 1,032,000 Pioneer Street Bakersfield, Associates California 2,222,000 2,222,000 1,862,000 4,087,000 876,000 3,211,000 Sidney Apartments I, Limited Sidney, Partnership Nebraska 530,000 530,000 430,000 1,419,000 176,000 1,243,000 Southcove Orange Cove, Associates California 2,000,000 2,000,000 1,527,000 3,445,000 753,000 2,692,000 Walnut Turn Buna, Associates, Ltd. Texas 188,000 188,000 688,000 1,040,000 179,000 861,000 ------------ ----------- ------------ ------------ ------------ ------------ $12,033,000 $12,033,000 $26,555,000 $ 41,733,000 $ 7,023,000 $ 34,710,000 ============ =========== ============ ============= ============ ============
54 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2001
---------------------------------------------------------------------------------- For the year ended December 31, 2000(Restated) ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Apartment Housing of East Brewton, Ltd. $ 114,000 $ (89,000) 1998 Completed 40 Years Autumn Trace Associates, Ltd. 209,000 (47,000) 1994 Completed 27.5 Years Broken Bow Apartments I, Limited Partnership 41,000 (76,000) 1996 Completed 40 Years Candleridge Apartments of Waukee L.P. II 129,000 (4,000) 1995 Completed 27.5 Years Chadwick Limited Partnership 183,000 (27,000) 1994 Completed 50 Years Comanche Retirement Village, Ltd. 67,000 (16,000) 1994 Completed 30 Years Crossings II Limited Dividend Housing Association Limited Partnership 648,000 (145,000) 1997 Completed 40 Years EW, a Wisconsin Limited Partnership 74,000 (67,000) 1994 Completed 27.5 Years Garland Street Limited Partnership 69,000 (30,000) 1994 Completed 27.5 Years Hereford Seniors Community, Ltd. 96,000 0 1995 Completed 40 Years Hickory Lane Associates, Ltd 75,000 (32,000) 1995 Completed 27.5 Years Honeysuckle Court Associates, Ltd. 191,000 (47,000) 1995 Completed 27.5 Years Klimpel Manor, Ltd 374,000 (55,000) 1994 Completed 40 Years Lamesa Seniors Community, Ltd. 103,000 (26,000) 1994 Completed 40 Years Laredo Heights Apartments Ltd. 167,000 6,000 1996 Completed 45 Years Mountainview Apartments Limited Partnership 96,000 (18,000) 1994 Completed 40 Years Palestine Seniors Community, Ltd. 148,000 11,000 1994 Completed 40 Years
55 WNC Housing Tax Credit Fund IV, L.P., Series 2 Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2001
---------------------------------------------------------------------------------- For the year ended December 31, 2000(Restated) ---------------------------------------------------------------------------------- Partnership Name Year Estimated Investment Useful Life Rental Income Net Income (Loss) Acquired Status (Years) --------------------------------------------------------------------------------------------------------------------- Pecan Grove Limited Partnership 123,000 (58,000) 1994 Completed 27.5 Years Pioneer Street Associates 491,000 (80,000) 1995 Completed 27.5 Years Sidney Apartments I, Limited Partnership 57,000 (61,000) 1996 Completed 40 Years Southcove Associates 226,000 (103,000) 1994 Completed 27.5 Years Walnut Turn Associates, Ltd. 92,000 (32,000) 1995 Completed 27.5 Years ------------ ----------- $ 3,773,000 $ (996,000) ============ ===========
56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WNC HOUSING TAX CREDIT FUND IV, L.P., SERIES 2 By: WNC & Associates, Inc., General Partner By: /s/ Wilfred N. Cooper, Jr. -------------------------- Wilfred N. Cooper, Jr., President of WNC & Associates, Inc. Date: July 7, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Wilfred N. Cooper, Jr. -------------------------- Wilfred N. Cooper, Jr., Chief Executive Officer, President and Director of WNC & Associates, Inc. (principal executive officer) Date: July 7, 2003 By: /s/ Thomas J. Riha ------------------- Thomas J. Riha, Vice-President - Chief Financial Officer of WNC & Associates, Inc. (principal financial officer and principal accounting officer) Date: July 7, 2003 By: /s/ Wilfred N. Cooper, Sr. -------------------------- Wilfred N. Cooper, Sr., ----------------------- Chairman of the Board of WNC & Associates, Inc. Date: July 7, 2003 By: /s/ David N. Shafer ------------------- David N Shafer, Director of WNC & Associates, Inc. Date: ________ ___, 2003 57 CERTIFICATIONS I, Wilfred N. Cooper, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of WNC HOUSING TAX CREDITS FUND IV, L.P., Series 2; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 7, 2003 /s/ Wilfred N. Cooper, Jr. --------------------------- [Signature] Chairman and Chief Executive Officer of WNC & Associates, Inc. 58 CERTIFICATIONS I, Thomas J. Riha, certify that: 1. I have reviewed this annual report on Form 10-K of WNC HOUSING TAX CREDITS FUND IV, L.P., Series 2; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 7, 2003 /s/ Thomas J. Riha ------------------- [Signature] Vice-President - Chief Financial Officer of WNC & Associates, Inc. 59