-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H5ia9ATLuXGtRiqvv0GGVuQiX93+yE94QJlO2NXWvdLq3bI1ROle6iiM/hii3iz/ d+yzIW6uHHTL57FEwhq9Dg== 0001084067-09-000045.txt : 20090908 0001084067-09-000045.hdr.sgml : 20090907 20090908132625 ACCESSION NUMBER: 0001084067-09-000045 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20090908 DATE AS OF CHANGE: 20090908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WNC HOUSING TAX CREDIT FUND IV L P SERIES 2 CENTRAL INDEX KEY: 0000913497 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 330596399 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28370 FILM NUMBER: 091057634 BUSINESS ADDRESS: STREET 1: 17782 SKY PARK CIRCLE CITY: IRVINE STATE: CA ZIP: 92614-6404 BUSINESS PHONE: 7146625565 MAIL ADDRESS: STREET 1: 17782 SKY PARK CIRCLE CITY: IRVINE STATE: CA ZIP: 92614-6404 10-K/A 1 nt4210ka.txt NAT 4-2 FORM 10K/A MARCH 31, 2007 UNITED STATES FORM 10-K/A 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, 2004 For the fiscal year ended March, 31, 2005 For the fiscal year ended March, 31, 2006 For the fiscal year ended March, 31, 2007 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 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) California 33-0596399 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17782 Sky Park Circle, Irvine, CA 92614-6404 (Address of principal executive offices) (zip code) (714) 662-5565 (Telephone Number) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes [_] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [_] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X] Smaller reporting company [_] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 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 EXPLANATORY NOTE WNC Housing Tax Credit Fund IV, L.P., Series 2 is filing this amendment to its Annual Report on Form 10-K for the period ended March 31, 2007 for the following modifications: Item 1. Business was modified to add additional disclosures related to the 15-year compliance period expiration dates. Item 1A. Risk Factors was modified to add additional disclosures regarding economic conditions related to the value of real estate, the risks related to the Partnership and the Partnership Agreement and the Partnership's inability to timely file and provide investors with periodic reports. Item 5a was revised to include additional disclosure regarding distributions to the Limited Partners. Additional disclosures were added to Item 7 regarding the liquidity and capital resources of the Partnership. The Item 9A disclosure has been revised to include additional disclosure in the disclosure controls and procedures section. Item 10 was revised to add the information for two Directors of an affiliate of the General Partner. Additional disclosures were added to Item 11 addressing compensation to the General Partner, reimbursement of expenses and sale of interest in properties due to the General Partner. Lastly, the Partnership added Exhibits 99.23 and 99.24 and are filing the statements of operations and cash flows for Pioneer Street Associates and Apartment Housing of East Brewton, Ltd. for the three years preceding the date of the most recent audited balance sheet, in accordance with Rule 3-09 of Regulations S-X. 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 ("Local Limited Partnerships") which owns multi-family housing complexes ("Housing Complexes") that are eligible for Federal low income housing tax credits ("Low Income Housing Tax Credits"). The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex. Each Local Limited Partnership is governed by its agreement of limited partnership or limited liability company operating agreement (the "Local Limited Partnership Agreement"). 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 of Associates own substantially all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through the General Partner, 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 interest ("Partnership Units") at $1,000 per Partnership Unit. The offering of Partnership Units concluded in July 1995 at which time 15,600 Partnership 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 investors (the "Limited Partners") will be allocated the remaining 99% of these items in proportion to their respective investments. Sempra Energy Financial, a California corporation, which is not an affiliate of the Partnership or General partner, has purchased 4,000 Partnership Units, which represents 25.6% of the Partnership Units outstanding for the partnership. Sempra Energy Financial invested $3,641,000. A discount of $359,000 was allowed due to a volume discount. On July 1, 2006 Sempra Energy Financial transferred their 4,000 Partnership Units to Sempra Section 42, LLC. See Item 12(b) in this 10-K. The Partnership shall continue in full force and effect until December 31, 2050 unless terminated prior to that date pursuant to the Partnership Agreement (as defined below) or law. DESCRIPTION OF BUSINESS The Partnership's principal business objective is to provide its Limited Partners with Low Income Housing Tax 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 Housing Complex which will qualify for the Low Income Housing Tax Credits. In general, under Section 42 of the Internal Revenue Code, an owner of low income housing can receive the Low Income Housing Tax Credits to be used to reduce Federal taxes otherwise due in each year of a ten-year credit period. Each Housing Complex is subject to a 15 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 Tax 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 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 3 with the Partnership's Agreement of Limited Partnership, dated May 4, 1993 as amended on May 15, 1994 ("Partnership Agreement"), will be accomplished promptly at the end of the Compliance Period. If a Local Limited Partnership is unable to sell its Housing Complex, it is anticipated that the 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 Tax Credits. The Partnership invested in twenty-two Local Limited Partnerships, none of which had been sold or otherwise disposed through March 31, 2006. As of March 31, 2007 one Local Limited Partnership had been disposed. Each of these Local Limited Partnerships owns a single Housing Complex that was eligible for the Low Income Housing Tax Credits. Certain Local Limited Partnerships may also benefit from additional government programs promoting low- or moderate-income housing. EXIT STRATEGY The Compliance Period for a Housing Complex is generally 15 years following construction or rehabilitation completion. Associates was one of the first in the industry to offer syndicated investments in Low Income Housing Tax Credits. The initial programs are completing their Compliance Periods. The following table reflects the 15-year compliance period of the twenty-one Housing Complexes: EXPIRATION DATE FOR 15-YEAR COMPLIANCE PERIOD LOCAL LIMITED PARTNERSHIP NAME 15-YEAR EXPIRATION DATE - -------------------------------------------------------------------------------- Apartment Housing of East Brewton, Ltd. 2014 Autumn Trace Associates, Ltd. 2008 Broken Bow Apartments I, Limited Partnership 2012 Candleridge Apartments of Waukee L.P. II 2010 Chadwick Limited Partnership 2009 Comanche Retirement Village, Ltd. 2010 Crossings II Limited Dividend Housing Association L.P. 2012 Garland Street Limited Partnership 2009 Hereford Seniors Community, Ltd. 2011 Hickory Lane Associates, Ltd. 2011 Honeysuckle Court Associates, Ltd. 2011 Klimpel Manor, Ltd. 2009 Lamesa Seniors Community, Ltd. 2009 Laredo Heights Apartments Ltd. 2012 Mountainview Apartments Limited Partnership 2009 Palestine Seniors Community, Ltd. 2010 Pecan Grove Limited Partnership 2009 Pioneer Street Associates 2010 Sidney Apartments I, Limited Partnership 2011 Southcove Associates 2010 Walnut Turn Associates, Ltd. 2011 With that in mind, the General Partner is continuing its review of the Housing Complexes, with special emphasis on the more mature Housing Complexes such as any that have satisfied the IRS compliance requirements. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes. 4 Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners' return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership Interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of March 31, 2007. As of March 31, 2007 none of the Housing Complexes had completed the 15 year compliance period. During the year ended March, 31, 2007 the partnership sold the Housing Complex of one Local Limited Partnership, EW, a Wisconsin Limited Partnership ("EW") and the Local Limited Partnership was subsequently dissolved. EW had not completed its 15-year compliance period. The Partnership did not purchase a recapture bond since the cost of the bond was equal to the amount of credits at risk for recapture. The Partnership retained a cash balance to cover any recapture. The Housing Complex was sold for the same amount as the outstanding mortgage owing. The net investment balance in this Local Limited Partnership was zero, since there was no distribution of cash there was no gain or loss for the Partnership. The disposition was due to this Local Limited Partnership experiencing operational and cash flow issues. As of March 31, 2007 the Partnership had advanced approximately $57,500 to this Local Limited Partnership which was not recovered and the advances were reserved. Subsequent to year ended March 31, 2007 one additional Housing Complex had been selected for disposition (Crossing II Limited Dividend Housing Association LP ("Crossings II")). This Local Limited Partnership started to experience operational issues during the year ended March 31, 2005 and continues to have operation issues. The low occupancy was the primary reason for the properties cash flow issues. The Partnership received all of the Low Income Housing Tax Credits from Crossings II. The final credits were taken in 2007. The Local Limited Partnership's General Partner is looking to purchase the Partnership's limited partnership interest in Crossings II. The General Partner is going to post the surety bond to protect the Partnership from recapture. The anticipated closing date of this transaction is April of 2008. The proceeds from the disposition of any of the Housing Complexes will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement. Any remaining proceeds will then be paid to the partners of the Local Limited Partnership, including the Partnership, in accordance with the terms of the particular Local Limited Partnership Agreement, the sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership. Should such distributions occur, the Limited Partners will be entitled to receive distributions from the proceeds remaining after payment of Partnership obligations and funding of reserves, equal to their capital contributions and their return on investment (as defined in the Partnership Agreement). The General Partners would then be entitled to receive proceeds equal to their capital contributions 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. ITEM 1A. RISK FACTORS Set forth below are the principal risks the Partnership believes are material to the Limited Partners. The Partnership and the Local Limited Partnerships operate in a continually changing business environment and, therefore, new risks emerge from time to time. This section contains some forward-looking statements. For an explanation of the qualifications and limitations on forward-looking statements, see Item 7. (A) RISKS ARISING FROM THE INTERNAL REVENUE CODE RULES GOVERNING LOW INCOME HOUSING TAX CREDITS LOW INCOME HOUSING TAX CREDITS MIGHT NOT BE AVAILABLE. If a Housing Complex does not satisfy the requirements of Internal Revenue Code Section 42, then the Housing Complex will not be eligible for Low Income Housing Tax Credits. LOW INCOME HOUSING TAX CREDITS MIGHT BE LESS THAN ANTICIPATED. The Local General Partners will calculate the amount of the Low Income Housing Tax Credits. No opinion of counsel will cover the calculation of the amount of Low Income Housing Tax Credits. The IRS could challenge the amount of the Low Income Housing Tax Credits claimed for any Housing Complex under any of a number of provisions set forth in Internal Revenue Code Section 42. A successful challenge 5 by the IRS would decrease the amount of the Low Income Housing Tax Credits from the amount paid for by the Partnership. UNLESS A BOND IS POSTED OR A TREASURY DIRECT ACCOUNT IS ESTABLISHED, LOW INCOME HOUSING TAX CREDITS MAY BE RECAPTURED IF HOUSING COMPLEXES ARE NOT OWNED AND OPERATED FOR 15 YEARS. Housing Complexes must comply with Internal Revenue Code Section 42 for the 15-year Compliance Period. Low Income Housing Tax Credits will be recaptured with interest to the extent that a Housing Complex is not rented as low income housing or in some other way does not satisfy the requirements of Internal Revenue Code Section 42 during the Compliance Period. For example, unless a bond is posted or a Treasury Direct Account is established, recapture with interest would occur if: o a Local Limited Partnership disposed of its interest in a Housing Complex during the Compliance Period, or o the Partnership disposed of its interest in a Local Limited Partnership during the Compliance Period. For these purposes, disposition includes transfer by way of foreclosure. It will be up to the Partnership to determine whether to post a bond. There is no obligation under the agreements with the Local Limited Partnerships that the Local Limited Partnerships must do so. There can be no assurance that recapture will not occur. If it does, recapture will be of a portion of all Low Income Housing Tax Credits taken in prior years for that Housing Complex, plus interest. During the first 11 years of the Compliance Period, non-compliance results in one-third of the credits up to that point for the particular Housing Complex being recaptured, plus interest. Between years 12 and 15, the recapture is phased out ratably. SALES OF HOUSING COMPLEXES AFTER 15 YEARS ARE SUBJECT TO LIMITATIONS WHICH MAY IMPACT A LOCAL LIMITED PARTNERSHIP'S ABILITY TO SELL ITS HOUSING COMPLEX. Each Local Limited Partnership executes an extended low income housing commitment with the state in which the Housing Complex is located. The extended low income housing commitment states the number of years that the Local Limited Partnership and any subsequent owners must rent the Housing Complex as low income housing. Under Federal law, the commitment must be for at least 30 years. The commitment actually agreed to may be significantly longer than 30 years. In prioritizing applicants for Low Income Housing Tax Credits, most states give additional points for commitment periods in excess of 30 years. On any sale of the Housing Complex during the commitment period, the purchaser would have to agree to continue to rent the Housing Complex as low income housing for the duration of the commitment period. This requirement reduces the potential market, and possibly the sales price, for the Housing Complexes. The sale of a Housing Complex may be subject to other restrictions. For example, Federal lenders or subsidizers may have the right to approve or disapprove a purchase of a Housing Complex. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amount of cash will be distributed to the Limited Partners. As a result, a material portion of the Low Income Housing Tax Credits may represent a return of the money originally invested in the Partnership. LIMITED PARTNERS CAN ONLY USE LOW INCOME HOUSING TAX CREDITS IN LIMITED AMOUNTS. The ability of an individual or other non-corporate Limited Partner to claim Low Income Housing Tax Credits on his individual tax return is limited. For example, an individual Limited Partner can use Low Income Housing Tax Credits to reduce his tax liability on: o an unlimited amount of passive income, which is income from entities such as the Partnership, and o $25,000 in income from other sources. However, the use of Low Income Housing Tax Credits by an individual against these types of income is subject to ordering rules, which may further limit the use of Low Income Housing Tax Credits. Some corporate Limited Partners are subject to similar and other limitations. They include corporations which provide personal services, and corporations which are owned by five or fewer shareholders. Any portion of a Low Income Housing Tax Credit which is allowed to a Limited Partner under such rules is then aggregated with all of the Limited Partner's other business credits. The aggregate is then subject to the general limitation on all business credits. That limitation provides that a Limited Partner can use business credits to offset the Limited Partner's annual tax liability equal to 6 $25,000 plus 75% of the Limited Partner's tax liability in excess of $25,000. However, business credits may not be used to offset any alternative minimum tax. All of these concepts are extremely complicated. (B) RISKS RELATED TO INVESTMENT IN LOCAL LIMITED PARTNERSHIPS AND HOUSING COMPLEXES BECAUSE THE PARTNERSHIP HAS FEW INVESTMENTS, EACH INVESTMENT WILL HAVE A GREAT IMPACT ON THE PARTNERSHIP'S RESULTS OF OPERATIONS. Any single Housing Complex experiencing poor operating performance, impairment of value or recapture of Low Income Housing Tax Credits will have a significant impact upon the Partnership as a whole. THE FAILURE TO PAY MORTGAGE DEBT COULD RESULT IN A FORCED SALE OF A HOUSING COMPLEX. Each Local Limited Partnership leverages the Partnership's investment therein by incurring mortgage debt. A Local Limited Partnership's revenues could be less than its debt payments and taxes and other operating costs. If so, the Local Limited Partnership would have to use working capital reserves, seek additional funds, or suffer a forced sale of its Housing Complex, which could include a foreclosure. The same results could occur if government subsidies ceased. Foreclosure would result in a loss of the Partnership's capital invested in the Housing Complex. Foreclosure could also result in a recapture of Low Income Housing Tax Credits, and a loss of Low Income Housing Tax Credits for the year in which the foreclosure occurs. If the Housing Complex is highly-leveraged, a relatively slight decrease in the rental revenues could adversely affect the Local Limited Partnership's ability to pay its debt service requirements. Mortgage debt may be repayable in a self-amortizing series of equal installments or with a large balloon final payment. Balloon payments maturing prior to the end of the anticipated holding period for the Housing Complex create the risk of a forced sale if the debt cannot be refinanced. There can be no assurance that additional funds will be available to any Local Limited Partnership if needed on acceptable terms or at all. THE PARTNERSHIP DOES NOT CONTROL THE LOCAL LIMITED PARTNERSHIPS AND MUST RELY ON THE LOCAL GENERAL PARTNERS. The Local General Partners will make all management decisions for the Local Limited Partnerships and the Housing Complexes. The Partnership has very limited rights with respect to management of the Local Limited Partnerships. The Partnership will not be able to exercise any control with respect to Local Limited Partnership business decisions and operations. Consequently, the success of the Partnership will depend on the abilities of the Local General Partners. HOUSING COMPLEXES SUBSIDIZED BY OTHER GOVERNMENT PROGRAMS ARE SUBJECT TO ADDITIONAL RULES WHICH MAY MAKE IT DIFFICULT TO OPERATE AND SELL HOUSING COMPLEXES. Some or all of the Housing Complexes receive or may receive government financing or operating subsidies in addition to Low Income Housing Tax Credits. The following are risks associated with some such subsidy programs: o Obtaining tenants for the Housing Complexes. Government regulations limit the types of people who can rent subsidized housing. These regulations may make it more difficult to rent the residential units in the Housing Complexes. o Obtaining rent increases. In many cases rents can only be increased with the prior approval of the subsidizing agency. o Limitations on cash distributions. The amount of cash that may be distributed to owners of subsidized Housing Complexes is less than the amount that could be earned by the owners of non-subsidized Housing Complexes. o Limitations on sale or refinancing of the Housing Complexes. A Local Limited Partnership may be unable to sell its Housing Complex or to refinance its mortgage loan without the prior approval of the subsidizer. The subsidizer may withhold such approval in the discretion of the subsidizer. Approval may be subject to conditions, including the condition that the purchaser continues to operate the property as affordable housing for terms which could be as long as 30 years or more. In addition, any prepayment of a mortgage may result in the assessment of a prepayment penalty. o Limitations on transfers of interests in Local Limited Partnerships. The Partnership may be unable to sell its interest in a Local Limited Partnership without the prior approval of the subsidizer. The subsidizer may withhold such approval in the discretion of the subsidizer. Approval may be subject to conditions. 7 o Limitations on removal and admission of Local General Partners. The Partnership may be unable to remove a Local General Partner from a Local Limited Partnership except for cause, such as the violation of the rules of the subsidizer. Regulations may prohibit the removal of a Local General Partner or permit removal only with the prior approval of the subsidizer. Regulations may also require approval of the admission of a successor Local General Partner even upon the death or other disability of a Local General Partner. o Limitations on subsidy payments. Subsidy payments may be fixed in amount and subject to annual legislative appropriations. The rental revenues of a Housing Complex, when combined with the maximum committed subsidy, may be insufficient to meet obligations. Congress or the state legislature, as the case may be, may fail to appropriate or increase the necessary subsidy. In those events, the mortgage lender could foreclose on the Housing Complex unless a workout arrangement could be negotiated. o Possible changes in applicable regulations. Legislation may be enacted which adversely revises provisions of outstanding mortgage loans. Such legislation has been enacted in the past. o Limited Partners may not receive distributions if Housing Complexes are sold. There is no assurance that Limited Partners will receive any cash distributions from the sale or refinancing of a Housing Complex. The price at which a Housing Complex is sold may not be high enough to pay the mortgage and other expenses which must be paid at such time. If that happens, a Limited Partner's return may be derived only from the Low Income Housing Tax Credits and tax losses. UNINSURED CASUALTIES COULD RESULT IN LOSSES AND RECAPTURE. There are casualties which are either uninsurable or not economically insurable. These include earthquakes, floods, wars and losses relating to hazardous materials or environmental matters. If a Housing Complex experienced an uninsured casualty, the Partnership could lose both its invested capital and anticipated profits in such property. Even if the casualty were an insured loss, the Local Limited Partnership might be unable to rebuild the destroyed property. A portion of prior tax credits could be recaptured and future tax credits could be lost if the Housing Complex were not restored within a reasonable period of time. And liability judgments against the Local Limited Partnership could exceed available insurance proceeds or otherwise materially and adversely affect the Local Limited Partnership. The cost of liability and casualty insurance has increased in recent years. Casualty insurance has become more difficult to obtain and may require large deductible amounts. HOUSING COMPLEXES WITHOUT FINANCING OR OPERATING SUBSIDIES MAY BE UNABLE TO PAY OPERATING EXPENSES. If a Local Limited Partnership were unable to pay operating expenses, one result could be a forced sale of its Housing Complex. If a forced sale occurs during the first 15 years of a Housing Complex, a partial recapture of Low Income Housing Tax Credits could occur. In this regard, some of the Local Limited Partnerships may own Housing Complexes which have no subsidies other than Low Income Housing Tax Credits. Those Housing Complexes do not have the benefit of below-market-interest-rate financing or operating subsidies which often are important to the feasibility of low income housing. Those Housing Complexes rely solely on rents to pay expenses. However, in order for any Housing Complex to be eligible for Low Income Housing Tax Credits, it must restrict the rent which may be charged to tenants. Over time, the expenses of a Housing Complex will increase. If a Local Limited Partnership cannot increase its rents, it may be unable to pay increased operating expenses. THE PARTNERSHIP'S INVESTMENT PROTECTION POLICIES WILL BE WORTHLESS IF THE NET WORTH OF THE LOCAL GENERAL PARTNERS IS NOT SUFFICIENT TO SATISFY THEIR OBLIGATIONS. There is a risk that the Local General Partners will be unable to perform their financial obligations to the Partnership. The General Partner has not established a minimum net worth requirement for the Local General Partners. Rather, each Local General Partner demonstrates a net worth which the General Partner believes is appropriate under the circumstances. The assets of the Local General Partners are likely to consist primarily of real estate holdings and similar assets. The fair market value of these types of assets is difficult to estimate. These types of assets cannot be readily liquidated to satisfy the financial guarantees and commitments which the Local General Partners make to the Partnership. Moreover, other creditors may have claims on these assets. No escrow accounts or other security arrangements will be established to ensure performance of a Local General Partner's obligations. The cost to enforce a Local General Partner's obligations may be high. If a Local General Partner does not satisfy its obligations the Partnership may have no remedy, or the remedy may be limited to removing the Local General Partner as general partner of the Local Limited Partnership. 8 FLUCTUATING ECONOMIC CONDITIONS CAN REDUCE THE VALUE OF REAL ESTATE. Any investment in real estate is subject to risks from fluctuating economic conditions. These conditions can adversely affect the ability to realize a profit or even to recover invested capital. Among these conditions are: o the general and local job market, o the availability and cost of mortgage financing, o monetary inflation, o tax, environmental, land use and zoning policies, o the supply of and demand for similar properties, o neighborhood conditions, o the availability and cost of utilities and water. For each of the years ended March 31, 2007, 2006, 2005 and 2004, a loss in value of the Partnership's investments in Local Limited Partnerships other than a temporary decline was recorded as an impairment loss in the Partnership's financial statements. Impairment is measured by comparing the Partnership's carrying amount in the investment to the sum of the total amount of the remaining future Low Income Housing Tax Credits estimated to be allocated to the Partnership and the estimated residual value to the Partnership. For the years ended March 31, 2007, 2006, 2005 and 2004, impairment loss related to investments in Local Limited Partnerships was $450,003, $275,383, $1,560,537 and $916,713, respectively. (C) TAX RISKS OTHER THAN THOSE RELATING TO TAX CREDITS In addition to the risks pertaining specifically to Low Income Housing Tax Credits, there are other Federal income tax risks. Additional Federal income tax risks associated with the ownership of Partnership Units and the operations of the Partnership and the Local Limited Partnerships include, but are not limited to, the following: NO OPINION OF COUNSEL AS TO CERTAIN MATTERS. No legal opinion is obtained regarding matters: o the determination of which depends on future factual circumstances, o which are peculiar to individual Limited Partners, or o which are not customarily the subject of an opinion. The more significant of these matters include: o allocating purchase price among components of a property, particularly as between buildings and fixtures, the cost of which is depreciable, and the underlying land, the cost of which is not depreciable, o characterizing expenses and payments made to or by the Partnership or a Local Limited Partnership, o identifying the portion of the costs of any Housing Complex which qualify for historic and other tax credits, o applying to any specific Limited Partner the limitation on the use of tax credits and tax losses. Limited Partners must determine for themselves the extent to which they can use tax credits and tax losses, and o the application of the alternative minimum tax to any specific Limited Partner, or the calculation of the alternative minimum tax by any Limited Partner. The alternative minimum tax could reduce the tax benefits from an investment in the Partnership. There can be no assurance, therefore, that the IRS will not challenge some of the tax positions adopted by the Partnership. The courts could sustain an IRS challenge. An IRS challenge, if successful, could have a detrimental effect on the Partnership's ability to realize its investment objectives. PASSIVE ACTIVITY RULES WILL LIMIT DEDUCTION OF THE PARTNERSHIP'S LOSSES AND IMPOSE TAX ON INTEREST INCOME. The Internal Revenue Code imposes limits on the ability of most investors to claim losses from investments in real estate. An individual may claim these so-called passive losses only as an offset to income from investments in real estate or rental activities. An individual may not claim passive losses as an offset against other types of income, such as salaries, wages, dividends and interest. These passive activity rules will restrict the ability of most Limited Partners to use losses from the Partnership as an offset of non-passive income. 9 THE PARTNERSHIP MAY EARN INTEREST INCOME ON ITS RESERVES AND LOANS. The passive activity rules generally will categorize interest as portfolio income, and not passive income. Passive losses cannot be used as an offset to portfolio income. Consequently, a Limited Partner could pay tax liability on portfolio income from the Partnership. AT RISK RULES MIGHT LIMIT DEDUCTION OF THE PARTNERSHIP'S LOSSES. If a significant portion of the financing used to purchase Housing Complexes does not consist of qualified nonrecourse financing, the "at risk" rules will limit a Limited Partner's ability to claim Partnership losses to the amount the Limited Partner invests in the Partnership. The "at risk" rules of the Internal Revenue Code generally limit a Limited Partner's ability to deduct Partnership losses to the sum of: o the amount of cash the Limited Partner invests in the Partnership, and o the Limited Partner's share of Partnership qualified nonrecourse financing. Qualified nonrecourse financing is non-convertible, nonrecourse debt which is borrowed from a government, or with exceptions, any person actively and regularly engaged in the business of lending money. TAX LIABILITY ON SALE OF A HOUSING COMPLEX OR LOCAL LIMITED PARTNERSHIP INTEREST MAY EXCEED THE CASH AVAILABLE FROM THE SALE. When a Local Limited Partnership sells a Housing Complex it will recognize gain. Such gain is equal to the difference between: o the sales proceeds plus the amount of indebtedness secured by the Housing Complex, and o the adjusted basis for the Housing Complex. The adjusted basis for a Housing Complex is its original cost, plus capital expenditures, minus depreciation. Similarly, when the Partnership sells an interest in a Local Limited Partnership the Partnership will recognize gain. Such gain is equal to the difference between: o the sales proceeds plus the Partnership's share of the amount of indebtedness secured by the Housing Complex, and o the adjusted basis for the interest. The adjusted basis for an interest in a Local Limited Partnership is the amount paid for the interest, plus income allocations and cash distributions, less loss allocations. Accordingly, gain will be increased by the depreciation deductions taken during the holding period for the Housing Complex. In some cases, a Limited Partner could have a tax liability from a sale greater than the cash distributed to the Limited Partner from the sale. ALTERNATIVE MINIMUM TAX LIABILITY COULD REDUCE A LIMITED PARTNER'S TAX BENEFITS. If a Limited Partner pays alternative minimum tax, the Limited Partner could suffer a reduction in benefits from an investment in the Partnership. The application of the alternative minimum tax is personal to each Limited Partner. Tax credits may not be utilized to reduce alternative minimum tax liability. IRS COULD AUDIT THE RETURNS OF THE PARTNERSHIP, THE LOCAL LIMITED PARTNERSHIPS OR THE LIMITED PARTNERS. The IRS can audit the Partnership or a Local Limited Partnership at the entity level with regard to issues affecting the entity. The IRS does not have to audit each Limited Partner in order to challenge a position taken by the Partnership or a Local Limited Partnership. Similarly, only one judicial proceeding can be filed to contest an IRS determination. A contest by the Partnership of any IRS determination might result in high legal fees. AN AUDIT OF THE PARTNERSHIP OR A LOCAL LIMITED PARTNERSHIP ALSO COULD RESULT IN AN AUDIT OF A LIMITED PARTNER. An audit of a Limited Partner's tax returns could result in adjustments both to items that are related to the Partnership and to unrelated items. The Limited Partner could then be required to file amended tax returns and pay additional tax plus interest and penalties. A SUCCESSFUL IRS CHALLENGE TO TAX ALLOCATIONS OF THE PARTNERSHIP OR A LOCAL LIMITED PARTNERSHIP WOULD REDUCE THE TAX BENEFITS OF AN INVESTMENT IN THE PARTNERSHIP. Under the Internal Revenue Code, a partnership's allocation of 10 income, gains, deductions, losses and tax credits must have substantial economic effect. Substantial economic effect is a highly-technical concept. The fundamental principle is two-fold. If a partner will benefit economically from an item of partnership income or gain, that item must be allocated to him so that he bears the correlative tax burden. Conversely, if a partner will suffer economically from an item of partnership deduction or loss, that item must be allocated to him so that he bears the correlative tax benefit. If a partnership's allocations do not have substantial economic effect, then the partnership's tax items are allocated in accordance with each partner's interest in the partnership. The IRS might challenge the allocations made by the Partnership: o between the Limited Partners and the General Partner, o among the Limited Partners, or o between the Partnership and a Local General Partner. If any allocations were successfully challenged, a greater share of the income or gain or a lesser share of the losses or tax credits might be allocated to the Limited Partners. This would increase the tax liability or reduce the tax benefits to the Limited Partners. TAX LIABILITIES COULD ARISE IN LATER YEARS OF THE PARTNERSHIP. After a period of years following commencement of operations by a Local Limited Partnership, the Local Limited Partnership may generate profits rather than losses. A Limited Partner would have tax liability on his share of such profits unless he could offset the income with: o unused passive losses from the Partnership or other investments, or o current passive losses from other investments. In such circumstances, the Limited Partner would not receive a cash distribution from the Partnership with which to pay any tax liability. IRS CHALLENGE TO TAX TREATMENT OF EXPENDITURES COULD REDUCE LOSSES. The IRS may contend that fees and payments of the Partnership or a Local Limited Partnership: o should be deductible over a longer period of time or in a later year, o are excessive and may not be capitalized or deducted in full, o should be capitalized and not deducted, or o may not be included as part of the basis for computing tax credits. Any such contention by the IRS could adversely impact, among other things: o the eligible basis of a Housing Complex used to compute Low Income Housing Tax Credits, o the adjusted basis of a Housing Complex used to compute depreciation, o the correct deduction of fees, o the amortization of organization and offering expenses and start-up expenditures. If the IRS were successful in any such contention, the anticipated Low Income Housing Tax Credits and losses of the Partnership would be reduced, perhaps substantially. CHANGES IN TAX LAW MIGHT REDUCE THE VALUE OF LOW INCOME HOUSING TAX CREDITS. Although all Low Income Housing Tax Credits are allocated to a Housing Complex at commencement of the 10-year credit period, there can be no assurance that future legislation may not adversely affect an investment in the Partnership. For example, legislation could reduce or eliminate the value of Low Income Housing Tax Credits. In this regard, before 1986, the principal tax benefit of an investment in low income housing was tax losses. These tax losses generally were used to reduce an investor's income from all sources on a dollar-for-dollar basis. Investments in low income housing were made in reliance on the availability of such tax benefits. However, tax legislation enacted in 1986 severely curtailed deduction of such losses. 11 NEW ADMINISTRATIVE OR JUDICIAL INTERPRETATIONS OF THE LAW MIGHT REDUCE THE VALUE OF TAX CREDITS. Many of the provisions of the Internal Revenue Code related to low income housing and real estate investments have not been interpreted by the IRS in regulations, rulings or public announcements, or by the courts. In the future, these provisions may be interpreted or clarified by the IRS or the courts in a manner adverse to the Partnership or the Local Limited Partnerships. The IRS constantly reviews the Federal tax rules, and can revise its interpretations of established concepts. Any such revisions could reduce or eliminate tax benefits associated with an investment in the Partnership. STATE INCOME TAX LAWS MAY ADVERSELY AFFECT THE LIMITED PARTNERS. A Limited Partner may be required to file income tax returns and be subject to tax and withholding in each state or local taxing jurisdiction in which: a Housing Complex is located, the Partnership or a Local Limited Partnership engages in business activities, or the Limited Partner is a resident. Corporate Limited Partners may be required to pay state franchise taxes. THE TAX TREATMENT OF PARTICULAR ITEMS UNDER STATE OR LOCAL INCOME TAX LAWS MAY VARY MATERIALLY FROM THE FEDERAL INCOME TAX TREATMENT OF SUCH ITEMS. Nonetheless, many of the Federal income tax risks associated with an investment in the Partnership may also apply under state or local income tax law. The Partnership may be required to withhold state taxes from distributions or income allocations to Limited Partners in some instances. (D) RISKS RELATED TO THE PARTNERSHIP AND THE PARTNERSHIP AGREEMENT THE PARTNERSHIP MAY BE UNABLE TO TIMELY PROVIDE FINANCIAL REPORTS TO THE LIMITED PARTNERS WHICH WOULD ADVERSELY AFFECT THEIR ABILITY TO MONITOR PARTNERSHIP OPERATIONS. Historically, the Partnership has been unable to timely file and provide investors with all of its required periodic reports. In some instances, the delay has been substantial. Each Local General Partner is required to retain independent public accountants and to report financial information to the Partnership in a timely manner. There cannot be any assurance that the Local General Partners will satisfy these obligations. If not, the Partnership would be unable to provide to the Limited Partners in a timely manner its financial statements and other reports. That would impact the Limited Partners' ability to monitor Partnership operations. The Partnership's failure to meet its filing requirements under the Securities Exchange Act of 1934 could reduce the liquidity for the Partnership Units due to the unavailability of public information concerning the Partnership. The failure to file could also result in sanctions imposed by the SEC. Any defense mounted by the Partnership in the face of such sanctions could entail legal and other fees, which would diminish cash reserves. LACK OF LIQUIDITY OF INVESTMENT. It is unlikely that a public market will develop for the purchase and sale of Partnership Units. Accordingly, Limited Partners may not be able to sell their Partnership Units promptly or at a reasonable price. Partnership Units should be considered as a long-term investment because the Partnership is unlikely to sell any Local Limited Partnership Interests for at least 15 years. Partnership Units cannot be transferred to tax-exempt or foreign entities, or through a secondary market. The General Partner can deny effectiveness of a transfer if necessary to avoid adverse tax consequences from the transfer. The General Partner does not anticipate that any Partnership Units will be redeemed by the Partnership. THE LIMITED PARTNERS WILL NOT CONTROL THE PARTNERSHIP AND MUST RELY TOTALLY ON THE GENERAL PARTNER. The General Partner will make all management decisions for the Partnership. Management decisions include exercising powers granted to the Partnership by a Local Limited Partnership. Limited Partners have no right or power to take part in Partnership management. Individual Limited Partners will have no recourse if they disagree with actions authorized by a vote of the majority. The Partnership Agreement grants to Limited Partners owning more than 50% of the Partnership Units the right to: o remove the General Partner and elect a replacement general partner, o amend the Partnership Agreement, o terminate the Partnership. Accordingly, a majority-in-interest of the Limited Partners could cause any such events to occur, even if Limited Partners owning 49% of the Partnership Units opposed such action. 12 LIMITATIONS ON LIABILITY OF THE GENERAL PARTNER TO THE PARTNERSHIP. The ability of Limited Partners to sue the General Partner and it affiliates is subject to limitations. The Partnership Agreement limits the liability of the General Partner and it affiliates to the Limited Partners. The General Partner and it affiliates will not be liable to the Limited Partners for acts and omissions: performed or omitted in good faith, and performed or omitted in a manner which the General Partner reasonably believed to be within the scope of its authority and in the best interest of the Limited Partners, provided such conduct did not constitute negligence or misconduct. Therefore, Limited Partners may be less able to sue the General Partner and it affiliates than would be the case if such provisions were not included in the Partnership Agreement. PAYMENT OF FEES TO THE GENERAL PARTNER AND ITS AFFILIATES REDUCES CASH AVAILABLE FOR INVESTMENT IN LOCAL LIMITED PARTNERSHIPS. The General Partner and it affiliates perform many services for the Partnership. They are paid fees for these services, which reduce the amount of the cash available for investment in Local Limited Partnerships. Accordingly, an investor investing directly in a low income housing apartment complex would have a greater amount available for investment than an investor investing in low income housing through the Partnership. ASSOCIATES AND ITS AFFILIATES ARE SERVING AS THE GENERAL PARTNERS OF MANY OTHER PARTNERSHIPS. Depending on their corporate area of responsibility, the officers of Associates initially devote approximately 5% to 50% of their time to the Partnership. These individuals spend significantly less time devoted to the Partnership after the investment of the Partnership`s capital in Local Limited Partnerships. THE INTERESTS OF LIMITED PARTNERS MAY CONFLICT WITH THE INTERESTS OF THE GENERAL PARTNER AND ITS AFFILIATES. The General Partner and its affiliates are committed to the management of more than 100 other limited partnerships that have investments similar to those of the Partnership. The General Partner and its affiliates receive substantial compensation from the Partnership. The General Partner decides how the Partnership's investments in Housing Complexes are managed, and when the investments will be sold. The General Partner may face a conflict in these circumstances because the General Partner's share of fees and cash distributions from the transaction may be more or less than their expected share of fees if a Housing Complex were not sold. The result of these conflicts could be that a Partnership may make investments which are less desirable, or on terms which are less favorable, to the Partnership than might otherwise be the case. The Partnership has not developed any formal process for resolving conflicts of interest. However, the General Partner is subject to a fiduciary duty to exercise good faith and integrity in handling the affairs of the Partnership, and that duty will govern its actions in all such matters. Furthermore, the manner in which the Partnership can operate and sell investments are subject to substantial restrictions in the Partnership Agreement. Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates. The Partnership's accrued payables consist primarily of the asset management fees payable to the General Partner. These accrued payables increased by approximately $41,000, $44,000, $44,000 and $44,000 for the years ended March 31, 2007, 2006, 2005 and 2004, respectively. The Partnership's future contractual cash obligations consist solely of its obligations to pay future annual asset management fees. These will equal approximately $42,000 per year through the termination of the Partnership, which must occur no later than December 31, 2050. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of the existing contractual obligations and anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason. Associates agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through March 31, 2009. 13 ITEM 5A. a) The Partnership 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 Partnership Units and none exists. Partnership Units can be assigned or otherwise transferred only if certain requirements in the Partnership Agreement are satisfied. b) At March 31, 2007, 2006, 2005 and 2004, there were 822, 822, 818, and 817 Limited Partners, respectively, and 12, 10, 9, and 8, assignees of Partnership Units who were not admitted as Limited Partners, respectively. c) The Partnership was not designed to provide cash distributions to Limited Partners in circumstances other than, perhaps, refinancing or disposition of its investments in Local Limited Partnerships. Any such distributions would be made in accordance with the terms of the Partnership Agreement. For all years presented there were no such distributions paid to the Limited Partners. d) No securities are authorized for issuance by the Partnership under equity compensation plans. e) The Partnership does not issue common stock f) No unregistered securities were sold by the Partnership during the years ended March 31, 2007, 2006, 2005 and 2004. 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, this "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 Credits 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 the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-K and in other reports filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this filing. CRITICAL ACCOUNTING POLICIES AND CERTAIN RISKS AND UNCERTAINTIES The Partnership 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 Partnership'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 LOCAL LIMITED PARTNERSHIPS The Partnership accounts for its investments in Local Limited Partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnerships' results of operations and for any contributions made and distributions received. The Partnership reviews the carrying amount of an individual investment in a Local Limited Partnership for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. Recoverability of such investment is measured by the estimated value derived by management, generally consisting of the product of the remaining future Low Income Housing Tax Credits estimated to be allocable to the Partnership and the estimated residual value to the Partnership. If an investment is considered to be impaired, the Partnership reduces the carrying value of its investment in any such Local Limited Partnership. The accounting policies of the Local Limited Partnerships, generally, are expected to be consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments are capitalized as part of the investment account and are being amortized over 30 years. (See Notes 2 and 3 to the financial statements) "Equity in losses of Local Limited Partnerships" for each year ended March 31 has been recorded by the Partnership based on nine months of reported results provided by the Local Limited Partnerships for each year ended December 31 and on three months of results estimated by management of the Partnership. Management's estimate for the three-month period is based on either actual unaudited results reported by the Local Limited Partnerships or historical trends in the operations of the Local Limited Partnerships. In subsequent annual financial statements, upon receiving the actual annual results reported by the Local Limited Partnerships, management reverses its prior estimate and records the actual results reported by the Local Limited Partnerships. Equity in losses from the Local Limited Partnerships allocated to the Partnership is not recognized to the extent that the investment balance would be adjusted below zero. As soon as the investment balance reaches zero, amortization of the related costs of acquiring the investment are impaired. 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 distribution income. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended. The Partnership does not consolidate the accounts and activities of the Local Limited Partnerships which are Variable Interest Entities under Financial Accounting Standards Board Interpretation No. 46-Revised, "Consolidation of Variable Interest Entities", because the Partnership is not considered the primary beneficiary. The Partnership's balance in Investments in Local Limited Partnerships represents the maximum exposure to loss in connection with such investments. The Partnership's exposure to loss on the Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners. INCOME TAXES No provision for income taxes has been recorded in the financial statements as any liabilities and/or benefits from income taxes flow to the partners of the Partnership and are their obligations and/or benefits. For income tax purposes, the Partnership reports on a calendar year basis. CERTAIN RISKS AND UNCERTAINTIES See Item 1A for a discussion of risks regarding the Partnership. 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 Partners may be required to sustain the operations of such Local Limited Partnerships. If additional capital contributions are not made when they are required, the Partnership's investment in certain of such Local Limited Partnerships could be lost, and the loss and recapture of the related Low Income Housing Tax Credits could occur. 15 TROUBLED HOUSING COMPLEXES One Local Limited Partnership, Crossing II Limited Dividend Housing Association LP ("Crossings II") started to experience operational issues during the year ended March 31, 2005. As interest rates were falling, this particular market saw an increasing number of people purchasing first time homes, thereby, causing high vacancy rates. This particular area of Michigan is experiencing an overall low occupancy issue. The low occupancy was the primary reason for the properties' cash flow issues. The Local General Partner continues to make advances to the property to help fund its operations. The Partnership received all the Low Income Housing Tax Credits from Crossings II. The final credits were taken in 2007. The Local Limited Partnership's General Partner is looking to purchase the Partnership's limited partnership interest in Crossings II. The General Partner is going to post a surety bond to protect the Partnership from tax credit recapture. The anticipated closing date of this transaction is April of 2008. The Partnership has two investments, 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 Partnerships , Broken Bow and Sidney, in addition to 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 owed 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 owed to the lender by Broken Bow was satisfied by the execution of two promissory notes. Simultaneously, the balance of the indebtedness owed to the lender by Sidney was also satisfied by the execution of two promissory notes. The Partnership and a WNC subsidiary had 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 had also executed a grant deed to the lender in the event that any of the entities defaulted under the terms and provisions of the notes. The deeds were 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 had under the promissory notes 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 were prohibited from selling, assigning, transferring or further encumbering the Housing Complexes retained by each Local Limited Partnership without the lenders acknowledgement. On March 24, 2006 Broken Bow and Sidney had the promissory notes refinanced and as a result the Partnership and a WNC subsidiary were relieved of their obligations as guarantors for these two Local Limited Partnerships. The Partnership was also released of pledging additional collateral in the form of its residual value interests. FINANCIAL CONDITION FOR THE YEAR ENDED MARCH 31, 2007 The Partnership's assets at March 31, 2007 consisted primarily of $20,000 in cash, and aggregate investments in twenty-one Local Limited Partnerships of $970,000 (See "Method of Accounting for Investments in Local Limited Partnerships"). Liabilities at March 31, 2007 primarily consisted of $618,000 of accrued annual management fees and advances payable to the General Partner and/or its affiliates. (See "Future Contractual Cash Obligations" below) FOR THE YEAR ENDED MARCH 31, 2006 The Partnership's assets at March 31, 2006 consisted primarily of $17,000 in cash, and aggregate investments in twenty-two Local Limited Partnerships of $1,750,000 (See "Method of Accounting for Investments in Local Limited Partnerships"). Liabilities at March 31, 2006 primarily consisted of $550,000 of accrued annual management fees and advances payable to the General Partner and/or its affiliates. (See "Future Contractual Cash Obligations" below) 16 FOR THE YEAR ENDED MARCH 31, 2005 The Partnership's assets at March 31, 2005 consisted primarily of $16,000 in cash aggregate investments in twenty-two Local Limited Partnerships of $2,558,000 (See "Method of Accounting for Investments in Local Limited Partnerships") and other assets of $1,000. Liabilities at March 31, 2005 primarily consisted of $ 476,000 of accrued annual management fees and advances payable to the General Partner and/or its affiliates. (See "Future Contractual Cash Obligations" below) FOR THE YEAR ENDED MARCH 31, 2004 The Partnership's assets at March 31, 2004 consisted primarily of $9,000 in cash aggregate investments in twenty-two Local Limited Partnerships of $4,659,000 (See "Method of Accounting for Investments in Local Limited Partnerships") and other assets of $1,000. Liabilities at March 31, 2004 primarily consisted of $404,000 of accrued annual management fees and advances payable to the General Partner and/or its affiliates. (See "Future Contractual Cash Obligations" below) RESULTS OF OPERATIONS YEAR ENDED MARCH 31, 2007 COMPARED TO YEAR ENDED MARCH 31, 2006 The Partnership's net loss for the year ended March 31, 2007 was $(846,000), reflecting an decrease of $35,000 from the net loss experienced for the year ended March 31, 2006 of $(881,000). The decrease in net loss in due to a decrease in the equity in losses from Local Limited Partnership of $181,000 due to the fact that as of March 31, 2007 the Partnership had remaining investment balances in only two Local Limited Partnership's compared to six remaining investment balances as of March 31, 2006. Since the Partnership's liability with respect to its investments is limited, losses in excess of investment are not recognized. The decrease in the equity in losses from Local Limited Partnership is off set by an increase in loss from operations of $(146,000). The change in loss from operations is due to a $(175,000) increase in impairment loss. The impairment loss can vary each year depending on the annual decrease in Low Income Housing Tax Credits allocated to the fund and the current estimated residual value of the investments compared to the current carrying value of each of the investments. There was a decrease of $25,000 in bad debt expense to $15,000 for the year ended March 31, 2007 from $40,000 for the year ended March 31, 2006. This was due to the Partnership advancing $40,000 to a Local Limited Partnership during the year ended March 31, 2006 and fully reserving the advance compared to only $15,000 having to be advanced and reserved in full for the year ended March 31, 2007. The accounting and legal expense increased by $17,000 for the year ended March 31, 2007 compared to the year ended March 31, 2006, due to a timing issue of the accounting work being performed. Due to a majority of the accounting work being performed during the year ended March 31, 2008, the Partnership expects a large increase for the year ended March 31, 2008. The other expenses decreased by $3,000 while amortization decreased by $9,000. The decrease in amortization is due to the fact that when a Local Limited Partnership's investment balance reaches zero the acquisition costs and fees associated with that investment are expensed. Distribution income increased by $9,000 for the year ended March 31, 2007 compared to the year ended March 31, 2006 which was offset by the reporting fees decreasing by $(1,000) for the year ended March 31, 2007. Distribution and reporting fee income fluctuate from year to year due to the fact that Local Limited Partnerships pay those fees to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. YEAR ENDED MARCH 31, 2006 COMPARED TO YEAR ENDED MARCH 31, 2005 The Partnerships net loss for the year ended March 31, 2006 was $(881,000), reflecting a decrease of $1,285,000 from the net loss experienced for the year ended March 31, 2005 of $(2,166,000). That decrease was largely due to a decrease in loss from operations of $1,280,000. The change in loss from operations was primarily due to a $1,285,000 decrease in impairment loss. The impairment loss can vary each year depending on the annual decrease in tax credits allocated to the fund and the current estimated residual value of the investments compared to the current carrying value of each of the investments. There was an increase of $(29,000) in bad debt expense to $40,000 for the year ended March 31, 2006 from $11,000 for the year ended March 31, 2005. This was due to the Partnership advancing $40,000 to a Local Limited Partnership during the year ended March 31, 2006 and fully reserving the advance compared to only $11,000 having to be advanced and reserved for in full for the year ended March 31, 2005. The accounting and legal expense decreased by $18,000 for the year ended March 31, 2006 compared to the year ended March 31, 2005, due to a timing issue of the accounting work being performed. The other expenses increased by $(2,000) and amortization expense decreased by $3,000. The reporting fee income increased by $1,000 for the year 17 ended March 31, 2006 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. Distribution income also increased by $3,000 for the year ended March 31, 2006 compared to the year ended March 31, 2005. Additionally, equity in losses of Local Limited Partnerships decreased by $6,000 due to the fact that as of March 31, 2006 the Partnership had remaining investment balances in only six Local Limited Partnership's compared to nine remaining investment balances as of March 31, 2005. Since the Partnership's liability with respect to its investments is limited, losses in excess of investment are not recognized. YEAR ENDED MARCH 31, 2005 COMPARED TO YEAR ENDED MARCH 31, 2004 The Partnerships net loss for the year ended March 31, 2005 was $(2,166,000), reflecting an increase of $(674,000) from the net loss experienced for the year ended March 31, 2004 of $(1,492,000). That increase was primarily due to an increase in loss from operations of $(650,000). The change in loss from operations was due to a $(644,000) increase in impairment loss. The impairment loss can vary each year depending on the annual decrease in tax credits allocated to the fund and the current estimated residual value of the investments compared to the current carrying value of each of the investments. The bad debt expense increased by $(11,000) to $(11,000) for the year ended March 31, 2005 from $0 for the year ended March 31, 2004. This was due to the Partnership advancing $11,000 to a Local Limited Partnership during the year ended March 31, 2005 and fully reserving the advance compared to no advances having to be made during the year ended March 31, 2004. The accounting and legal expense increased by $(1,000) for the year ended March 31, 2005 compared to the year ended March 31, 2004. Additionally, amortization decreased by $6,000 due to the fact that when a Local Limited Partnership's investment balance reaches zero the acquisition costs and fees associated with that investment are expensed. Reporting fees also decreased by $(6,000). In addition to the increase in loss from operations, equity in losses of Local Limited Partnership increased by $(24,000) for the year ended March 31, 2005. The equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. YEAR ENDED MARCH 31, 2004 COMPARED TO YEAR ENDED MARCH 31, 2003 The Partnerships net loss for the year ended March 31, 2004 was $(1,492,000), reflecting an increase of $(854,000) from the net loss experienced for the year ended March 31, 2003 of $(638,000). That decrease was primarily due to an increase in loss from operations of $(910,000). The change in loss from operations is primarily due to a $(917,000) increase in impairment loss. The Partnership changed the way it evaluated impairment during the year ended March 31, 2004, by comparing tax credits allocated to the fund and the current estimated residual value of the investments compared to the current carrying value of each of the investments. There was a decrease of $3,000 in bad debt expense from $3,000 for the year ended March 31, 2003 to $0 for the year ended March 31, 2004. The accounting and legal expense increased by $(2,000) for the year ended March 31, 2004 compared to the year ended March 31, 2003, due to a timing issue of the accounting work being performed. Other expenses increased by $(3,000) and reporting fees increased by $7,000 for the year ended March 31, 2004 due to the fact that Local Limited Partnerships pay the reporting fee to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. Distribution income also increased by $1,000 for the year ended March 31, 2004. The increase in loss from operations was offset by a decrease in the equity in losses of Local Limited Partnerships of $56,000 the equity in losses can vary each year depending on the operations of each of the Local Limited Partnerships. YEAR ENDED MARCH 31, 2003 COMPARED TO YEAR ENDED MARCH 31, 2002. The Partnerships net loss for the year ended March 31, 2003 was $(638,000), reflecting a decrease of $331,000 from the net loss experienced for the year ended March 31, 2002 of $(969,000). The decrease in net loss is due to a decrease in the equity in losses of Local Limited Partnerships of $188,000 along with a decrease in loss from operations of $145,000. The decrease in loss from operations was primarily due to a $162,000 decrease in bad debt expense offset by an increase of $(17,000) in accounting and legal fees and a decrease of $2,000 in other expenses. The remaining decrease was due to a decrease of $(2,000) in reporting fees and a decrease of $2,000 in interest income. LIQUIDITY AND CAPITAL RESOURCES YEAR ENDED MARCH 31, 2007 COMPARED TO YEAR ENDED MARCH 31, 2006. The net cash provided during the year ended March 31, 2007 was $3,000 compared to net cash provided of $1,000 for the year ended March 31, 2006. The net change of $2,000 was due to net cash being provided by (used in) operating activities increasing from $3,000 for the year ended March 31, 2007 compared to $(11,000) for the year ended March 31, 2006. This was offset by the decrease in net cash provided by investing activities of $12,000 for the year ended March 31, 2006 compared to $0 18 for the year ended March 31, 2007. For the year ended March 31, 2007 the Partnership paid the General Partner and affiliates approximately $69,000 for asset management fees and reimbursement for expenses paid on behalf of the Partnership compared to $74,000 paid for the year ended March 31, 2006, which is a $5,000 decrease in cash used. YEAR ENDED MARCH 31, 2006 COMPARED TO YEAR ENDED MARCH 31, 2005. The net increase in cash during the year ended March 31, 2006 was $1,000 compared to a net increase in cash for the year ended March 31, 2005 of $7,000. The net change of $(6,000) was primarily due to net cash used in operating activities increasing from $(5,000) for the year ended March 31, 2005 to $(11,000) for the year ended March 31, 2006. For the year ended March 31, 2006 the Partnership paid the General Partner and affiliates approximately $74,000 for asset management fees and reimbursement for expenses paid on behalf of the Partnership compared to $72,000 paid for the year ended March 31, 2005, which is a $(2,000) increase in cash used. YEAR ENDED MARCH 31, 2005 COMPARED TO YEAR ENDED MARCH 31, 2004. The net increase in cash during the year ended March 31, 2005 was $7,000 compared to a net decrease in cash for the year ended March 31, 2004 of $(7,000). The net change of $14,000 was primarily due to net cash being used in operating activities decreasing from $(20,000) for the year ended March 31, 2005 to $(20,000) for the year ended March 31, 2004. For the year ended March 31, 2005 the Partnership paid the General Partner and affiliates approximately $72,000 for asset management fees and reimbursement for expenses paid on behalf of the Partnership compared to $45,000 paid for the year ended March 31, 2004, which is a $27,000 decrease in cash used. YEAR ENDED MARCH 31, 2004 COMPARED TO YEAR ENDED MARCH 31, 2003. The net decrease in cash during the year ended March 31, 2004 was $(7,000) compared to a net decrease in cash for the year ended March 31, 2003 of $(16,000). This decrease of $9,000 was due to a decrease in cash used in operating activities of $9,000. For the year ended March 31, 2004 the Partnership paid the General Partner and affiliates approximately $45,000 for asset management fees and reimbursement for expenses paid on behalf of the Partnership compared to $43,000 paid for the year ended March 31, 2003, resulting in a net difference of $2,000 more cash used during March 31, 2004. The accrued fees and expenses due to General Partner and affiliate also increased by $45,000 for the year ended March 31, 2004, YEAR ENDED MARCH 31, 2003 COMPARED TO YEAR ENDED MARCH 31, 2002. The net decrease in cash during 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). This change of $36,000 was due to a decrease in cash used in operating activities of $23,000. For the year ended March 31, 2003 the Partnership paid the General Partner and affiliates approximately $43,000 for asset management fees and reimbursement for expenses paid on behalf of the Partnership compared to $209,000 paid for the year ended March 31, 2002, resulting in a net difference of $166,000 more cash used during March 31, 2003. The accrued fees and expenses due to General Partner and affiliate also increased by $43,000 for the year ended March 31, 2003. The Partnership currently has insufficient working capital to fund its operations. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through March 31, 2009. Associates will evaluate the need for any future advances, and its ability and intention to provide such advances, on a year to year basis. Please see "Risk Factors" under Item 1A of this report. 19 FUTURE CONTRACTUAL CASH OBLIGATIONS The following table summarizes the Partnership's future contractual cash obligations as of March 31, 2007:
2008 2009 2010 2011 2012 THEREAFTER TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- Asset management fees(1) $ 410,284 $ 42,000 $ 42,000 $ 42,000 $ 42,000 $1,596,000 $2,174,284 Capital Contributions payable to Local Limited Partnerships -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total contractual cash obligations $ 410,284 $ 42,000 $ 42,000 $ 42,000 $ 42,000 $1,596,000 $2,174,284 ========== ========== ========== ========== ========== ========== ==========
(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 Partner as of March 31, 2007 have been included in the 2008 column. The General Partner does not anticipate that these fees will be paid until such time as capital reserves are in excess of the aggregate of the existing contractual obligations and the anticipated future foreseeable obligations of the Partnership. For additional information regarding our asset management fees, see Notes 2 and 3 to the financial statements included elsewhere herein. OFF-BALANCE SHEET ARRANGEMENTS The Partnership has no off-balance sheet arrangements. EXIT STRATEGY See Item 1 for information in this regard. 20 ITEM 9A. CONTROLS AND PROCEDURES (a) As of the end of the period covered by this report, the Partnership's General Partner, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of Associates, carried out an evaluation of the effectiveness of the Partnership's "disclosure controls and procedures" as defined in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Partnership's disclosure controls and procedures were not effective to ensure that material information required to be disclosed in the Partnership's periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC's rules and forms, consistent with the definition of "disclosure controls and procedures" under the Securities Exchange Act of 1934. The Partnership must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership's periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership's inability to file its periodic reports in a timely manner. Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer of Associates believe that the material information required to be disclosed in the Partnership's periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership's periodic reports. (b) There were no changes in the Partnership's internal control over financial reporting that occurred during the periods ended March 31, 2007, 2006, 2005, or 2004 that materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS, (B) IDENTIFICATION OF EXECUTIVE OFFICERS, (C) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES, (D) FAMILY RELATIONSHIPS, AND (E) BUSINESS EXPERIENCE Neither the General Partner nor the Partnership has directors, executives officers or employees of its own. The business of the Partnership is conducted primarily through Associates. Associates is a California corporation which was organized in 1971. The following biographical information is presented for the officers and employees of Associates with principal responsibility for the Partnership's affairs. Wilfred N. Cooper, Sr. Chairman Wilfred N. Cooper, Jr. President and Chief Executive Officer David N. Shafer, Esq. Executive Vice President Michael J. Gaber Executive Vice President Sylvester P. Garban Senior Vice President - Institutional Investments Thomas J. Riha, CPA Senior Vice President - Chief Financial Officer Thomas J. Hollingsworth Vice President - Asset Management Gregory S. Hand Vice President - Acquisitions Melanie R. Wenk Vice President - Portfolio Management & Accounting Kay L. Cooper Director of WNC & Associates, Inc. Jennifer E. Cooper Director of WNC & Associates, Inc. In addition to Wilfred N. Cooper, Sr., the directors of Associates are Wilfred N. Cooper, Jr., Kay L. Cooper, and Jennifer Cooper. The principal shareholders of Associates are trusts established by the Coopers. 21 Wilfred N. Cooper, Sr., age 77, 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 on matters pertaining to the affordable housing industry. Mr. Cooper is a Life Director of the National Association of Home Builders, a National Trustee for NAHB's Political Action Committee, and a past Chairman of NAHB's Multifamily Council. He is a Life Trustee of the National Housing Conference, 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 44, is President, Chief Executive Officer, Secretary, a Director and a member of the Acquisition Committee of Associates. He is President and a Director of, and a registered principal with, WNC Capital Corporation. 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 serves on the Board of Trustees of the National Housing Conference, and is a member of the Editorial Advisory Board of LIHTC Monthly Report, a Steering Member of the Housing Credit Group of the National Association of Home Builders, a member of the Tax Policy Council for the National Trust for Historic Preservation, a member of the Advisory Board of the New York State Association for Affordable Housing, a member of the Urban Land Institute, a member of the Orange County Advisory Board of US Bank, and a member of Vistage International, a global network of business leaders and chief executives. He is the son of Wilfred Cooper, Sr. and Kay Cooper. Mr. Cooper graduated from The American University in 1985 with a Bachelor of Arts degree. David N. Shafer, age 55, is an Executive Vice President, a member of the Acquisition Committee of, and oversees the New Markets Tax Credit operations of, Associates, and is responsible for the business development activities of WNC Community Preservation Partners. 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 past 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. Michael J. Gaber, age 41, is an Executive Vice President, oversees the Originations, and the Acquisitions Departments, and is 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. Sylvester P. Garban, age 61, is Senior Vice President - Institutional Investments of Associates and a registered principal with WNC Capital Corporation. Mr. Garban has been involved in domestic and multinational institutional real estate investment activities since 1978. Before joining Associates in 1989, he served as Executive Vice President with MRW, Inc., a commercial real estate development and management firm. He was previously involved in operations management with The Taubman Company, an international regional mall developer. Mr. Garban is a member of the National Association of Affordable Housing Lenders and the Financial Planning Association. He graduated from Michigan State University in 1967 with a Bachelor of Science degree in Business Administration. Thomas J. Riha, age 52, is Senior Vice President - Chief Financial Officer and a member of the Acquisition Committee of Associates. 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 founding member of the Housing Credit Certified Professional Board of 22 Governors, a national professional certification program administered by the NAHB and the National Affordable Housing Management Association. 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. Thomas J. Hollingsworth, age 56, is Vice President - Asset Management of Associates and oversees WNC's asset management group. Mr. Hollingsworth has been involved in real estate acquisitions, operations and syndication of multifamily properties for over 25 years. Prior to joining WNC in 2005, he was the senior workout specialist at Key Corporation Housing Management, Inc., a division of Key Bank. He has also been responsible for structuring several tax sheltered multifamily acquisitions during his career. Mr. Hollingsworth graduated from the University of Utah in 1973 with a Bachelor of Science degree (cum laude) in Business Administration. Gregory S. Hand, age 44, is Vice President - Acquisitions of, and oversees the property underwriting activities of, Associates. Mr. Hand has been involved in real estate analysis, development and management since 1987. Prior to joining WNC in 1998, he was a portfolio asset manager with a national Tax Credit sponsor with responsibility for the management of $200 million in assets. Prior to that, he was a finance manager with The Koll Company and a financial analyst with The Irvine Company. Mr. Hand graduated from Iowa State University in 1987 with a Bachelor of Business Administration degree in finance. Melanie R. Wenk, age 39, is Vice President - Portfolio Management & Accounting of Associates. She is responsible for overseeing institutional and retail fund portfolio management, including partnership accounting, SEC reporting, quarterly and annual investor reporting, monitoring investment returns for all stabilized WNC institutional funds, and corporate accounting. Prior to joining WNC in 2003, Ms. Wenk was associated as a public accountant with BDO Seidman, LLP. She graduated from the California Polytechnic State University, Pomona, in 1999 with a Bachelor of Science degree in accounting. Kay L. Cooper, age 72, is a Director of WNC & Associates, Inc. and has not otherwise been engaged in business activities during the previous five years. Kay Cooper was the sole proprietor of Agate 108, a manufacturer and retailer of home accessory products, from 1975 until its sale in 1998. She is the wife of Wilfred Cooper, Sr. and the mother of Wilfred Cooper, Jr. Ms. Cooper graduated from the University of Southern California in 1958 with a Bachelor of Science degree. Jennifer E. Cooper, age 46, is a Director of WNC & Associates, Inc. and has not otherwise been engaged in business activities during the previous five years. She is the wife of Wilfred Cooper, Jr. and attended the University of Texas from 1981 to 1986. (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS Two Local Limited Partnerships invested in by other Associates-sponsored public limited partnerships were unable to meet their obligations as they became due, and each has filed a voluntary petition in bankruptcy. The local general partner of one of them is not affiliated with Associates. The original unaffiliated local general partner of the other was removed and replaced with a general partnership wholly-owned by two of the executive officers of Associates identified above. (g) PROMOTERS AND CONTROL PERSONS Inapplicable. (h) AUDIT COMMITTEE FINANCIAL EXPERT, AND (I) IDENTIFICATION OF THE AUDIT COMMITTEE Neither the Partnership nor Associates has an audit committee. (j) CHANGES TO NOMINATING PROCEDURES 23 Inapplicable. (k) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT None. (l) CODE OF ETHICS Associates has adopted a Code of Ethics which applies to the Chief Executive Officer and Chief Financial Officer of Associates. The Code of Ethics will be provided without charge to any person who requests it. Such requests should be directed to: Investor Relations at (714)662-5565 extension 187. ITEM 11. EXECUTIVE COMPENSATION The General Partner and its affiliates are not permitted under Section 5.6.1 of the Partnership's Agreement of Limited Partnership (the "Agreement," incorporated as Exhibit 3.1 to this report) to receive any salary, fees, profits, distributions or allocations from the Partnership or any Local Limited Partnership in which the Partnership invests except as expressly allowed by the Agreement. The compensation and other economic benefits to the General Partner and its affiliates provided for in the Agreement are summarized below. (a) Compensation for Services For services rendered by the General Partner or an affiliate of the General Partner in connection with the administration of the affairs of the Partnership, the General Partner or any affiliate may receive an annual asset management fee of the greater of (i) $2,000 per Housing Complex or (ii) 0.275% of gross proceeds from the offering of Units. 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 that portion of Invested Assets in Local Limited Partnerships which are attributable to apartment units receiving government assistance. "Invested Assets" means the sum of the Partnership's investment in Local Limited Partnerships and the Partnership's allocable share of the amount of mortgage loans and other debts related to the Housing Complexes owned by the Local Limited Partnerships. Accrued but unpaid asset management fees for any year are deferred without interest and are payable in subsequent years from any funds available to the Partnership after payment of all other costs and expenses of the Partnership, including any capital reserves then determined by the General Partner to no longer be necessary to be retained by the Partnership, or from the proceeds of a sale or refinancing of Partnership assets. Management fees of $44,000 were incurred during each of the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002, of which $0, $0, $0, $0, $1,875, and $0 were paid for the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002, respectively. Subject to a number of terms and conditions set forth in the Agreement, the General Partner and its affiliates may be entitled to compensation for services actually rendered or to be rendered in connection with (i) selecting, evaluating, structuring, negotiating and closing the Partnership's investments in Local Limited Partnership Interests, (ii) property management services actually rendered by the General Partner or its affiliates respecting the Housing Complexes owned by Local Limited Partnerships or (iii) disposition services in connection with the sale of any Housing Complex owned by a Local Limited Partnership, for which a subordinated disposition fee may be payable. The Partnership had completed its investment stage, so no compensation for the services in (i) was paid during the periods covered by this report and none will be paid in the future. None of the compensation described in (ii) or (iii) above was paid or payable for such services during the periods covered by this report. (b) Operating Expenses The Partnership incurred operating expenses reimbursable to the General Partner or its affiliates in the amounts of approximately $24,833, $11,714, $28,057, $32,438, $30,390 and $39,813 during the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002, respectively. The Partnership reimbursed the General Partner or its affiliates for such operating expenses in the amounts of approximately $0, $0, $0, $31,786, $29,914 and $38,642 during the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002, respectively. Reimbursement to the General Partner or any of its affiliates of Operating Cash Expenses is subject to specific restrictions in Section 5.3.4 of the Partnership's Agreement of Limited Partnership (the "Agreement," incorporated as Exhibit 3.1 to this report). The Agreement defines "Operating Cash Expenses" as 24 " . . . the amount of cash disbursed by the Partnership . . . in the ordinary course of business for the payment of its operating expenses, such as expenses for management, utilities, repair and maintenance, insurance, investor communications, legal, accounting, statistical and bookkeeping services, use of computing or accounting equipment, travel and telephone expenses, salaries and direct expenses of Partnership employees while engaged in Partnership business, and any other operational and administrative expenses necessary for the prudent operation of the Partnership. Without limiting the generality of the foregoing, Operating Cash Expenses shall include the actual cost of goods, materials and administrative services used for or by the Partnership, whether incurred by the General Partner, an Affiliate of the General Partner or a non-Affiliated Person in performing the foregoing functions. As used in the preceding sentence, actual cost of goods and materials means the actual cost of goods and materials used for or by the Partnership and obtained from entities not Affiliated with the General Partner, and actual cost of administrative services means the pro rata cost of personnel (as if such persons were employees of the Partnership) associated therewith, but in no event to exceed the Competitive amount." The Agreement provides that no such reimbursement shall be permitted for services for which the General Partner or any of its affiliates is entitled to compensation by way of a separate fee. Furthermore, no such reimbursement is to be made for (a) rent or depreciation, utilities, capital equipment or other such administrative items, and (b) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any "controlling person" of the General Partner or any affiliate of the General Partner. For the purposes of Section 5.3.4, "controlling person" includes, but is not limited to, any person, however titled, who performs functions for the General Partner or any affiliate of the General Partner similar to those of: (1) chairman or member of the board of directors; (2) executive management, such as president, vice president or senior vice president, corporate secretary or treasurer; (3) senior management, such as the vice president of an operating division who reports directly to executive management; or (4) those holding 5% or more equity interest in the General Partner or any affiliate of the General Partner or a person having the power to direct or cause the direction of the General Partner or any affiliate of the General Partner, whether through the ownership of voting securities, by contract or otherwise. (c) Interest in Partnership The General Partner receives 1% of the Partnership's allocated Low Income Housing Tax Credits, which approximated $4,575, $12,418, $20,805, $21,624, and $22,000, for the General Partner for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively. The General Partner is also entitled to receive 1% of the Partnership's operating income or losses, gain or loss from the sale of property and operating cash distributions. There were no distributions of operating cash to the General Partner during the years ended March 31, 2007, 2006, 2005, 2004, 2003 or 2002. The General Partner has an interest in sale or refinancing proceeds as follows: after the Limited Partners have received a return of their capital plus a specified return on capital, General Partner may receive an amount equal to its capital contribution, less any prior distribution of such proceeds, then the General Partner may receive 10% and the Limited Partners 90% of any remaining proceeds. There were no such distributions to the General Partner during the years ended March 31, 2007, 2006, 2005, 2004, 2003 or 2002. 25 PART IV. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) LIST OF FINANCIAL STATEMENTS INCLUDED IN PART II HEREOF Balance Sheets, March 31, 2007, 2006, 2005, 2004 and 2003 Statements of Operations for the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002 Statements of Partners' Equity (Deficit) for the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002 Statements of Cash Flows for the years ended March 31, 2007, 2006, 2005, 2004, 2003 and 2002 Notes to Financial Statements (a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES INCLUDED IN PART IV HEREOF: Schedule III, Real Estate Owned by Local Limited Partnerships (a)(3) EXHIBITS. 3.1 Articles of incorporation and by-laws: The registrant is not incorporated. The Partnership Agreement filed as Exhibit 28.1 to Form 10-K for fiscal year ended December 31, 1995. 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) 32.1 Section 1350 Certification of the Chief Executive Officer. (filed herewith) 32.2 Section 1350 Certification of the Chief Financial Officer. (filed herewith) 99.1 Second Amended and Restated Agreement of Limited Partnership of Beckwood Manor Seven Limited Partnership filed as exhibit 10.1 to Form 8-K dated December 8, 1993 is hereby incorporated herein by reference as exhibit 99.1. 99.2 Amended and Restated Agreement of Limited Partnership of Alpine Manor filed as exhibit 10.3 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.2. 99.3 Second Amended and Restated Agreement of Limited Partnership of Briscoe Manor, Limited Partnership filed as exhibit 10.4 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.3. 99.4 Amended and Restated Agreement and Certificate of Limited Partnership of Evergreen Four, Limited Partnership filed as exhibit 10.5 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.4. 99.5 Amended and Restated Agreement and Certificate of Limited Partnership of Fawn Haven, Limited Partnership filed as exhibit 10.6 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.5. 99.6 Amended and Restated Agreement of Limited Partnership of Fort Stockton, L. P. filed as exhibit 10.7 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.6. 26 99.7 Amended and Restated Agreement and Certificate of Limited Partnership of Madison Manor Senior Citizens Complex, Ltd. filed as exhibit 10.8 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.7. 99.8 Amended and Restated Agreement and Certificate of Limited Partnership of Mt. Graham Housing, Ltd. filed as exhibit 10.9 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.8. 99.9 Amended and Restated Agreement and Certificate of Limited Partnership of Northside Plaza Apartments, Ltd. filed as exhibit 10.10 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.9. 99.10 Amended and Restated Agreement of Limited Partnership of Pampa Manor, L.P. filed as exhibit 10.11 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.10. 99.11 Amended and Restated Agreement of Limited Partnership of Vernon Manor, L.P. filed as exhibit 10.12 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.11. 99.12 Amended and Restated Agreement of Limited Partnership of Waterford Place, A Limited Partnership filed as exhibit 10.13 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.12. 99.13 Amended and Restated Agreement of Limited Partnership of Yantis Housing, Ltd filed as exhibit 10.13 to Post-Effective Amendment No 1 dated February 16, 1994 is hereby incorporated herein by reference as exhibit 99.13. 99.14 Third Amended and Restated Agreement of Limited Partnership and Certificate of Limited Partnership of Indian Creek Limited Partnership filed as exhibit 10.16 to Post-Effective Amendment No 2 dated March 11, 1994 is hereby incorporated herein by reference as exhibit 99.14. 99.15 Agreement of Limited Partnership of Laurel Creek Apartments filed as exhibit 10.1 to Form 8-K dated May 25, 1994 is hereby incorporated herein by reference as exhibit 99.15. 99.16 Second Amended and Restated Agreement of Limited Partnership of Sandpiper Square, A Limited Partnership filed as exhibit 10.2 to Form 8-K dated May 25, 1994 is hereby incorporated herein by reference as exhibit 99.16. 99.17 Amended and Restated Agreement of Limited Partnership of Regency Court Partners filed as exhibit 10.1 to Form 8-K dated June 30, 1994 is hereby incorporated herein by reference as exhibit 99.17. 99.18 Disposition and Development Agreement By and Between The Community Development Commission of the County of Los Angeles and Regency Court Partners (including forum of Ground Lease) filed as exhibit 10.2 to Form 8-K dated June 30, 1994 is hereby incorporated herein by reference as exhibit 99.18. 99.19 Amended and Restated Agreement of Limited Partnership of Bay City Village Apartments, Limited Partnership filed as exhibit 10.19 to Post-Effective Amendment No 4 dated July 14, 1994 is hereby incorporated herein by reference as exhibit 99.19. 99.20 Second Amended and Restated Agreement of Limited Partnership of Hidden Valley Limited Partnership filed as exhibit 10.20 to Post-Effective Amendment No 4 dated July 14, 1994 is hereby incorporated herein by reference as exhibit 99.20. 99.21 Amended and Restated Agreement of Limited Partnership of HOI Limited Partnership of Lenoir and Amendments thereto filed as exhibit 10.21 to Post-Effective Amendment No 4 dated July 14, 1994 is hereby incorporated herein by reference as exhibit 99.21. 99.22 Financial Statements of Regency Court, as of and for the years ended December 31, 2003 and 2002 together with Independent Auditors' Report thereon; a significant subsidiary of the Partnership. (filed herewith) 27 99.23 Financial Statements of Pioneer Street Associates for the years ended December 31, 2006, 2005 and 2004, together with Independent Auditors' eport thereon; a significant subsidiary of the Partnership. 99.24 Financial Statements of Apartment Housing of East Brewton, Ltd for the years ended December 31, 2006, 2005 and 2004 together with Independent Auditors' Report thereon; a significant subsidiary of the Partnership. (d) FINANCIAL STATEMENT SCHEDULES FOLLOW, as set forth in subsection (a)(2) hereof. 28 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: September 8, 2009 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. (chief executive officer) Date: September 8, 2009 By: /s/ Thomas J. Riha ------------------ Thomas J. Riha, Senior Vice-President - Chief Financial Officer of WNC & Associates, Inc. (chief financial officer and chief accounting officer) Date: September 8, 2009 By: /s/ Wilfred N. Cooper, Sr. -------------------------- Wilfred N. Cooper, Sr., Chairman of the Board of WNC & Associates, Inc. Date: September 8, 2009 By: /s/ Kay L. Cooper ----------------- Kay L. Cooper Director of WNC & Associates, Inc. Date: September 8, 2009 29 EX-31 2 nt4210ka3101.txt EX 31-1 EXHIBIT 31.1 CERTIFICATIONS I, Wilfred N. Cooper, Jr., certify that: 1. I have reviewed this annual report on Form 10-K/A of WNC HOUSING TAX CREDIT FUND IV, L.P. Series 2; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 15e and 15d-15e for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 8, 2009 /s/ Wilfred N. Cooper, Jr. - --------------------------- President and Chief Executive Officer of WNC & Associates, Inc. EX-31 3 nt4210ka102.txt EX 31-2 EXHIBIT 31.2 CERTIFICATIONS I, Thomas J. Riha, certify that: 1. I have reviewed this report on Form 10-K/A of WNC HOUSING TAX CREDIT FUND IV, L.P. Series 2; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15e and 15d-15e) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such discolosure controls and procedures to be designed under our spervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 8, 2009 /s/ Thomas J. Riha - ------------------ Senior Vice-President - Chief Financial Officer of WNC & Associates, Inc. EX-32 4 nt4210ka3201.txt EX 32-1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K/A of WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") for the year ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C., section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, Wilfred N. Cooper, Jr., President and Chief Executive Officer of WNC & Associates, Inc., general partner of the Partnership, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, except to the extent that such provisions require the audit reports of Local Limited Partnership financial statements to refer to the standards of the Public Company Accounting Oversight Board. 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. /s/ Wilfred N. Cooper, Jr. - ------------------------- Wilfred N. Cooper, Jr. President and Chief Executive Officer of WNC & Associates, Inc. September 8, 2009 EX-99 5 pioneer06.txt EX 99.23 F/S PIONEER STREET ASSOCIATES FYE 12/31/06 AND 05 INDEPENDENT AUDITOR'S REPORT TO THE PARTNERS PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) VISALIA, CALIFORNIA I have audited the accompanying balance sheets of Pioneer Street Associates (A California Limited Partnership), as of December 31, 2006 and 2005, and the related statements of income, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pioneer Street Associates (A California Limited Partnership) as of December 31, 2006 and 2005, and the results of its operations, the changes in partners' capital, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Bernard E. Rea, CPA - ----------------------- Stockton, California April 14, 2007 - 1 - C O N T E N T S Page INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.................................................1 FINANCIAL STATEMENTS Balance sheets.........................................................2-3 Statements of income...................................................4-7 Statements of changes in partners' capital...............................8 Statements of cash flows..............................................9-10 Notes to financial statements........................................11-14 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2006 AND 2005 ASSETS 2006 2005 ---------- ---------- CURRENT ASSETS Cash $ 11,028 $ 8,049 Real estate tax and insurance 15,429 17,512 Prepaid expense 12,653 12,519 ---------- ---------- Total current assets $ 39,110 $ 38,080 ---------- ---------- RESTRICTED DEPOSITS AND FUNDED RESERVES Tenant security deposits held in trust $ 44,997 $ 44,020 Replacement reserve 149,097 148,497 ---------- ---------- $ 194,094 $ 192,517 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Land $ 300,000 $ 300,000 Buildings 3,689,617 3,667,343 Equipment 179,217 178,017 ---------- ---------- $4,168,834 $4,145,360 Less accumulated depreciation 1,729,048 1,584,945 ---------- ---------- $2,439,786 $2,560,415 ---------- ---------- OTHER ASSETS Deferred charges, less accumulated amortization of $34,991 and $31,907 $ 30,859 $ 33,943 ---------- ---------- $2,703,849 $2,824,955 ========== ========== See Notes to Financial Statements. - 2 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2006 AND 2005 LIABILITIES AND PARTNERS' CAPITAL 2006 2005 ---------- ---------- CURRENT LIABILITIES Current maturities of long-term debt $ 45,116 $ 42,103 Accounts payable 9,634 4,733 Accrued interest -- -- Accrued reporting and administrative fees 4,000 4,000 Accrued partnership management fee 5,600 5,600 ---------- ---------- Total current liabilities $ 64,350 $ 56,436 ---------- ---------- DEPOSIT AND PREPAYMENT LIABILITIES Tenant security deposits $ 37,628 $ 35,890 Prepaid rents -- -- ---------- ---------- $ 37,628 $ 35,890 ---------- ---------- LONG-TERM DEBT Mortgage payable, less current maturities $1,628,068 $1,673,185 ---------- ---------- COMMITMENT PARTNERS' CAPITAL $ 973,803 $1,059,444 ---------- ---------- $2,703,849 $2,824,955 ========== ========== See Notes to Financial Statements. - 3 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 --------- --------- RENTAL INCOME Apartments $ 598,428 $ 595,045 Tenant assistance payments -- -- Subsidy income -- -- Miscellaneous -- -- --------- --------- Sub-total potential rent revenue $ 598,428 $ 595,045 --------- --------- VACANCIES Apartments $ (34,149) $ (30,191) Miscellaneous -- -- --------- --------- Sub-total vacancies $ (34,149) $ (30,191) --------- --------- Net rental revenue $ 564,279 $ 564,854 --------- --------- FINANCIAL REVENUE Interest Income - project operations $ 1,385 $ 838 Income from investments - replacement reserve 4,785 2,581 Income from investments - operating reserve -- -- Income from investments - miscellaneous -- -- --------- --------- Sub-total financial revenue $ 6,170 $ 3,419 --------- --------- OTHER REVENUE Laundry and vending $ 14,572 $ 10,252 NSF and late charges -- -- Damage and cleaning fees -- 24 Forfeited tenant security deposits 5,460 3,851 Other revenue 11,634 12,670 --------- --------- Sub-total other revenue $ 31,666 $ 26,797 --------- --------- Total revenues $ 602,115 $ 595,070 --------- --------- See Notes to Financial Statements. - 4 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 ------- ------- OPERATING EXPENSES Renting expenses Advertising $ 247 $ 659 Miscellaneous renting expenses 4,730 4,630 ------- ------- Sub-total renting expenses $ 4,977 $ 5,289 ------- ------- Administrative expenses Office salaries $ -- $ -- Office supplies 3,043 1,858 Office rent -- -- Management fee 51,744 48,384 Manager's salary 31,478 26,358 Legal expense 2,215 2,022 Audit expense 4,900 4,725 Bookkeeping / accounting services -- -- Telephone and answering service 1,582 1,274 Bad debts -- -- Miscellaneous administrative expenses 1,090 -- ------- ------- Sub-total administrative expenses $96,052 $84,621 ------- ------- Utilities expense Fuel oil / coal $ -- $ -- Electricity 21,349 16,371 Water 20,921 15,949 Gas -- -- Sewer -- -- ------- ------- Sub-total utilities expense $42,270 $32,320 ------- ------- See Notes to Financial Statements. - 5 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 -------- -------- Operating and maintenance expense Janitor and cleaning payroll $ -- $ -- Janitor and cleaning supplies -- -- Janitor and cleaning contract -- -- Exterminating payroll / contract -- -- Exterminating supplies -- -- Garbage and trash removal 20,859 18,339 Security payroll / contract -- -- Grounds payroll -- -- Grounds supplies -- -- Grounds contract 26,417 29,967 Repairs payroll 44,300 45,494 Repairs material 37,905 32,121 Repairs contract 35,224 40,896 Heating / cooling repairs and maintenance -- -- Decorating payroll / contract -- -- Decorating supplies -- -- Vehicle and maintenance equipment o & r -- -- Miscellaneous operating and maint. expenses 11,223 8,304 -------- -------- Sub-total operating & maint. expense $175,928 $175,121 -------- -------- Taxes and insurance Real estate taxes $ 18,254 $ 17,323 Payroll taxes 12,660 6,809 Miscellaneous taxes, licenses, and permits 1,005 1,035 Property and liability insurance 15,049 12,958 Fidelity bond insurance 99 -- Workman's compensation 9,789 8,292 Health insurance and other employee benefits 9,337 8,470 Other insurance -- -- -------- -------- Sub-total taxes & insurance $ 66,193 $ 54,887 -------- -------- Total operating expenses $385,420 $352,238 -------- -------- See Notes to Financial Statements. - 6 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 --------- --------- OTHER EXPENSES$ Interest expense - mortgage $ 117,549 $ 136,413 Interest expense - notes -- -- Miscellaneous financial expense -- -- Depreciation and amortization 147,187 144,947 Reporting fee 2,000 2,000 Admistrative fee 2,000 2,000 Partnership management fee 5,600 11,200 --------- --------- Sub-total other expenses $ 274,336 $ 296,560 --------- --------- Total expenses $ 659,756 $ 648,798 --------- --------- Net income (loss) $ (57,641) $ (53,728) ========= ========= See Notes to Financial Statements. - 7 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2006 AND 2005 General Limited Total Partners Partner ----------- ----------- ----------- Partners' capital December 31, 2004 $ 1,183,172 $ (489,270) $ 1,672,442 Partners' capital contributions -- -- -- Partners' capital distributions (70,000) (70,000) -- Net income (loss) (53,728) (537) (53,191) ----------- ----------- ----------- Partners' capital December 31, 2005 $ 1,059,444 $ (559,807) $ 1,619,251 Partners' capital contributions -- -- -- Partners' capital distributions (28,000) (28,000) -- Net income (loss) (57,641) (576) (57,065) ----------- ----------- ----------- Partners' capital December 31, 2006 $ 973,803 $ (588,383) $ 1,562,186 =========== =========== =========== Percentage at December 31, 2006 100% 1% 99% =========== =========== =========== See Notes to Financial Statements. - 8 -
PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (57,641) $ (53,728) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 147,187 144,947 Change in assets and liabilities: Decrease (increase) in: Rents receivable -- -- Prepaid expenses (134) (2,064) Tenants' security deposits (977) (455) Tax and insurance impounds 2,083 (13,953) Increase (decrease) in: Accounts payable 4,901 (6,347) Accrued reporting and administrative fee -- -- Accrued partnership management fee -- 5,600 Accrued interest -- -- Prepaid rents -- -- Tenants' security deposits 1,738 1,715 --------- --------- Net cash provided by (used in) operating activities $ 97,157 $ 75,715 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Funding of replacement reserve $ (32,982) $ (29,874) Withdrawals from replacement reserve 32,382 40,446 Acquisition of property and equipment (23,474) (4,912) --------- --------- Net cash provided by (used in) investing activities $ (24,074) $ 5,660 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Partner contributions $ -- $ -- Partner distributions (28,000) (70,000) Principal payments on long-term debt (42,104) (35,033) --------- --------- Net cash provided by (used in) financing activities $ (70,104) $(105,033) --------- --------- See Notes to Financial Statements.
- 9 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 --------- --------- Increase (decrease) in cash and cash equivalents $ 2,979 $ (23,658) Cash and cash equivalents Beginning 8,049 31,707 --------- --------- Ending $ 11,028 $ 8,049 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 117,549 $ 136,413 ========= ========= See Notes to Financial Statements. - 10 - PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Partnership's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. BASIS OF ACCOUNTING The financial statements of the partnership are prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America. CAPITALIZATION AND DEPRECIATION Land, buildings and improvements are recorded at cost. Depreciation of buildings and equipment is computed principally using the Modified Accelerated Cost Recovery System which approximates straight-line for buildings and double-declining balance for equipment over the following estimated useful lives: Years ----- Buildings 27.5 Equipment 7 Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. The resulting gains and losses are reflected in the statement of operations. CASH AND CASH EQUIVALENTS For purposes of reporting the statements of cash flows, the Partnership includes all cash accounts which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying balance sheet. AMORTIZATION Deferred charges are amortized over the following estimated useful lives using the straight-line method: Years ----- Deferred debt expense 30 Tax credit monitoring fee 15 INCOME TAXES No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. - 11 - NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. These assumptions affect the reported amounts of assets, liabilities and the amount of any 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 differ from the estimates made. PERSONAL ASSETS AND LIABILITIES In accordance with the generally accepted method of presenting partnership financial statements, the financial statements do not include the personal assets and liabilities of the partners, including their obligation for income taxes on their distributive shares of the net income of the Partnership, nor any provision for income tax expense. SFAS NO. 144 Statement of Financial Accounting Standards (SFAS) No. 144 requires that long-lived assets and certain identifiable intangibles held and used by a entity be reviewed for impairment whenever events or changes in circumstances that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 144 has not materially affected the partnership's reported earnings, financial condition or cash flows. NOTE 2 - ORGANIZATION Pioneer Street Associates is a California Limited Partnership which was formed in February 1994, to develop, construct, own, maintain and operate a 112-unit multi-family apartment complex known as Foothill Vista Apartments and is located in the city of Bakersfield, California. The major activities of the Partnership are governed by the Partnership Agreement and Loan Agreement with the Pacific Life. Under the Loan Agreement, the Partnership is required to provide low cost housing to moderate or low-income households. The Partnership has three general partners and one investing limited partner. Partnership transactions with the general partners are described in other notes to this financial statement. - 12 - NOTES TO FINANCIAL STATEMENTS NOTE 3 - DEFERRED CHARGES Deferred charges as of December 31, 2006 and 2005, consists of the following: 2006 2005 ------- ------- Deferred debt expense $39,200 $39,200 Tax credit monitoring fee 26,650 26,650 ------- ------- $65,850 $65,850 Less accumulated amortization 34,991 31,907 ------- ------- $30,859 $33,943 ======= ======= NOTE 4 - RESTRICTED DEPOSITS AND FUNDED RESERVES In accordance with the Partnership and the Pacific Life replacement Reserve Agreements, the Partnership is required to maintain a replacement reserve account. The account is to be funded annually in the amount of $28,000 until the aggregate balance of the account reaches $182,000. NOTE 5 - LONG-TERM DEBT Long-Term debt consisted of a permanent loan with Pacific Life in face amount of $1,960,000. Under the terms of the 30-year Promissory Note with Pacific Life, the loan provides for an initial interest rate of 8.17% and monthly payments of $14,614.74 commencing on November 1, 1995, and continuing through September 2025. The interest rate and monthly payment will be adjusted at year eleven (11) and year Twenty-one (21), at which time the interest rate will be adjusted based on the Current Index plus 2.75% and the payment will be adjusted and determined by the amount of the monthly payment that would be sufficient to repay the note within 360 months of the initial payment date. As of December 31, 2006, the current interest rate and minimum monthly payment due is 6.93% and $13,304.35, respectively. The apartment complex is pledged as collateral for the mortgage and is secured by deeds of trust, assignment of rents, security agreements and fixture filings against the property. Aggregate maturities of Long-term debt for the next five years are as follows: December 31, 2007 $ 45,116 2008 48,343 2009 51,802 2010 55,508 2011 59,479 Thereafter 1,412,936 --------- TOTAL $1,673,184 ========== - 13 - NOTES TO FINANCIAL STATEMENTS NOTE 6 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES MANAGEMENT FEE In accordance with the management agreement, the Partnership paid Tetra Property Management Company, affiliates of one of the general partners, a management fee during 2006 and 2005 in the amounts of $51,744 and $48,384, respectively, for services rendered in connection with the leasing and operation of the project. The fee for its services is approximately 8% of the project's rental income. ANNUAL REPORTING FEE An annual reporting fee of $2,000 is payable to the limited partner, WNC California Housing Tax Credit Fund IV, L.P. Series 2, an investor limited partner which holds a 99% interest in the partnership, for services to be rendered for accounting matters relating to preparation of tax returns and other reports required. ANNUAL PARTNERSHIP ADMINISTRATIVE FEE An annual partnership administrative fee of $2,000 is payable to the general partners, for their services to be rendered in connection with the administration of the day to day business of the Partnership. PARTNERSHIP MANAGEMENT FEE An annual partnership management fee of $5,600 is payable to the Central Valley Coalition for Affordable Housing (A California Nonprofit Corporation) for services rendered for partnership administrative matters relating to day to day operations of the partnership. For the years ended December 31, 2006 and 2005, $5,200 and $11,200 (which includes a back charge of $5,600), respectively, was accrued and charged to operations. NOTE 7 - CONCENTRATION OF CREDIT RISK The Partnership maintains its cash and cash equivalents at two financial institutions located in California, which at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts and believes it is not exposed at any significant credit risk on cash. NOTE 8 - COMMITMENT The Partnership entered into a Regulatory Agreement with the Tax Credit Allocation Committee (TCAC), established under Section 50185 of the Health and Safety Code of the State of California. Under this Agreement, the Partnership shall maintain the project as a Qualified Low-income Housing Project for a period of 55 consecutive taxable years beginning with 1995, the first taxable year of the Credit Period. In exchange for this agreement, TCAC has authorized an allocation relating to the low-income housing credit under the provisions of Section 42 of the Internal Revenue Code. NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Partnership's sole asset is Foothill Vista Apartments. The Partnership's operations are concentrated in the multifamily real estate market. - 14 - EX-99 6 apthouse06.txt EX 99.24 APARTMENT HOUISNG OF EAST BREWTON, LTD FYE 12/31/06 AND 05 APARTMENT HOUSING OF EAST BREWTON, LTD. FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 APARTMENT HOUSING OF EAST BREWTON, LTD. TABLE OF CONTENTS DECEMBER 31, 2006 AND 2005 Page ---- Independent Auditors' Report 1 Financial Statements Balance Sheets 2 Statements of Operations and Comprehensive Income 4 Statements of Partners' Capital (Deficit) 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Supplemental Information 11 GRANBERRY & ASSOCIATES, LLC Certified Public Accountants Michelle M. Granberry, CPA P.O. Box 3196 Kellie B. Blackmon, CPA Auburn, AL 36831-3196 MEMBER Phone: (334) 741-1050 American Institute of CPAs Fax. (334) 741-1059 Alabama Society of CPAs www.granberrycpa.com INDEPENDENT AUDITORS' REPORT To the Partners of Apartment Housing of East Brewton, Ltd. We have audited the accompanying balance sheets of Apartment Housing of East Brewton, Ltd. (an Alabama limited partnership) as of December 31, 2006 and 2005, and the related statements of operations and comprehensive income, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of Apartment Housing of East Brewton, Ltd.'s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apartment Housing of East Brewton, Ltd. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Granberry & Associates, LLC ------------------------------- January 22, 2007 1 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2006 AND 2005 2006 2005 ----------- ----------- ASSETS Current Assets Cash $ 2,082 $ 2,350 Accounts Receivable - Tenant 2,220 1,073 Prepaid Insurance 1,124 963 ----------- ----------- Total Current Assets 5,426 4,386 ----------- ----------- Restricted Deposits and Funded Reserves Taxes and Insurance 2,975 3,271 Replacement Reserve 60,515 50,237 Security Deposits 12,218 9,654 ----------- ----------- Total Restricted Deposits and Funded Reserves 75,708 63,162 ----------- ----------- Property and Equipment Land 69,000 69,000 Buildings and Improvements 2,185,247 2,185,247 Furniture, Fixtures and Equipment 99,454 99,454 ----------- ----------- 2,353,701 2,353,701 Less Accumulated Depreciation (626,003) (559,908) ----------- ----------- Total Property and Equipment 1,727,698 1,793,793 ----------- ----------- Other Assets Deposits 75 75 ----------- ----------- TOTAL ASSETS $ 1,808,907 $ 1,861,416 =========== =========== The accompanying notes are an integral part of these financial statements. 2 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2006 AND 2005 2006 2005 ----------- ----------- LIABILITIES AND PARTNERS' EQUITY Current Liabilities Accounts Payable $ 6,838 $ 7,336 Accrued Partners' Fee Payable 1,250 1,000 Security Deposits Payable 9,715 9,105 Tenant Overage Payable 160 686 Payroll Taxes Payable 670 534 Accrued Interest Payable 36,895 32,185 Accrued Property Taxes Payable 4,593 4,232 Current Maturities of Mortgage Payable 9,018 8,373 ----------- ----------- Total Current Liabilities 69,139 63,451 ----------- ----------- Long-Term Liabilities Mortgage Payable, net of current maturities 1,101,809 1,110,827 Obligation Under Interest Rate Swap 15,297 18,866 ----------- ----------- Total Long-Tenn Liabilities 1,117,106 1,129,693 ----------- ----------- Total Liabilities 1,186,245 1,193,144 Partners' Equity Partners' Capital 637,959 687,138 Unrealized Loss on Cash Flow Hedge (15,297) (18,866) ----------- ----------- Total Partners' Equity 622,662 668,272 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,808,907 $ 1,861,416 =========== =========== The accompanying notes are an integral part of these financial statements. 3 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 --------- --------- Revenues Rental $ 138,115 $ 133,352 Miscellaneous Charges 3,507 2,417 --------- --------- Total Revenues 141,622 135,769 --------- --------- Operating Expenses Administrative 17,210 18,105 Advertising 134 103 Bad Debt 4,610 8,708 Management Fees 11,993 11,237 Repair and Maintenance 25,194 24,528 Taxes and Insurance 35,669 35,835 Utilities 8,860 5,320 --------- --------- Total Operating Expenses 103,670 103,836 --------- --------- Income from Operations 37,952 31,933 Partnership and Financial Income (Expense) Interest Income 374 266 Interest Expense (21,160) (20,932) Partnership Management Fees (250) (250) --------- --------- Total Partnership and Financial Income (Expense) (21,036) (20,916) --------- --------- Income (Loss) from Operations before Depreciation 16,916 11,017 Depreciation (66,095) (67,561) --------- --------- Net Loss (49,179) (56,544) --------- --------- Other Comprehensive Income (Loss) Unrealized Gain (Loss) on cash flow hedge arising during the period 3,569 5,100 --------- --------- Total Other Comprehensive Income (Loss) 3,569 5,100 --------- --------- Total Comprehensive Loss $ (45,610) $ (51,444) ========= ========= The accompanying notes are an integral part of these financial statements. 4 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 2006 AND 2005 General Limited Partners Partners Total --------- --------- --------- Partners' Capital, December 31, 2004 $ 339 $ 743,343 $ 743,682 Net Loss (565) (55,979) (56,544) --------- --------- --------- Partners' Capital (Deficit), December 31, 2005 (226) 687,364 687,138 Net Loss (492) (48,687) (49,179) --------- --------- --------- Partners' Capital (Deficit), December 31, 2006 $ (718) $ 638,677 $ 637,959 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 5 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 -------- -------- Cash flows from operating activities Net Loss $(49,179) $(56,544) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activitIes: Depreciation 66,095 67,561 (Increase) Decrease in Accounts Receivable - Tenant (1,147) 148 (Increase) Decrease in Prepaid Insurance (161) 359 (Increase) Decrease in Security Deposit Cash (2,564) 1,928 (Increase) Decrease in Other Receivables -- 56,950 Increase (Decrease) in Accounts Payable (498) (845) Increase (Decrease) in Accrued Partners' Fees 250 250 Increase (Decrease) in Security Deposits Payable 610 (965) Increase (Decrease) in Tenant Overage Payable (526) 527 Increase (Decrease) in Payroll Taxes Payable 136 (14) Increase (Decrease) in Accrued Interest Payable 4,710 4,882 Increase (Decrease) in Accrued Property Taxes 361 (13) Increase (Decrease) in Deferred Revenue -- (65,350) -------- -------- Total Adjustments 67,266 65,418 -------- -------- Net cash provided (used) by operating activities 18,087 8,874 -------- -------- Cash flows from investing activities: Deposits to Taxes and Insurance Escrow (34,328) (36,026) Deposits to Reserve Account (10,278) (10,206) Transfers from Taxes and Insurance 34,624 33,514 Transfers from Reserve for Replacement -- 4,498 -------- -------- Net cash provided (used) by investing activities (9,982) (8,220) -------- -------- Cash flows from financing activities: Principal Payments on Mortgage Loan (8,373) (7,703) -------- -------- Net cash provided (used) by financing activities (8,373) (7,703) -------- -------- Net increase (decrease) in cash and cash equivalents (268) (7,049) Cash and cash equivalents, beginning of year 2,350 9,399 -------- -------- Cash and cash equivalents, end of year $ 2,082 $ 2,350 ======== ======== Supplemental disclosures of cash flow information Interest Paid $ 16,295 $ 15,986 ======== ======== The accompanying notes are an integral part of these financial statements. 6
APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HISTORY - Apartment Housing of East Brewton, Ltd., an Alabama limited partnership, formed during June 1998. The partnership owns and operates a forty (40) unit apartment complex in East Brewton, Alabama for low and moderate income persons. Such projects are regulated by the Alabama Housing Finance Authority as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts. Construction was completed and the units were available for rental in February of 1999. BASIS OF ACCOUNTING - The financial statements are prepared on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when the liability is incurred. PROPERTY, EQUIPMENT AND RELATED DEPRECIATION - Property and equipment are stated at cost less accumulated depreciation as calculated under the straight-line and declining balance methods. The assets are being depreciated as follows: Buildings 40 years, straight-line Furniture, fixtures, and equipment 5-7 years, declining balance INCOME TAXES - Items of income and loss pass through to the individual partners for both Federal and State income tax purposes; therefore, the financial statements reflect no tax liability or benefit. Modified accelerated cost recovery system (MACRS) is used for income tax reporting purposes. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, cash includes unrestricted cash investments with an initial maturity not in excess of ninety (90) days. Cash flows from interest rate swap hedging the company's mortgage payable are classified as interest paid in the statement of cash flows. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. ADVERTISING - The partnership expenses the cost of advertising the first time the advertising activity takes place. See independent auditors' report. 7 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 2. RESTRICTED DEPOSITS AND FUNDED RESERVES Under the terms of the HOME Investment Partnership Program agreement the partnership is required to maintain these restricted accounts as follows: REPLACEMENT RESERVE - The partnership is to transfer monthly the amount of $833 until the account reaches a balance of $70,000. Any disbursements from this account are subject to the approval of Alabama Housing Finance Authority. At December 31, 2006 and 2005, this account is not properly funded. SECURITY DEPOSITS - A separate account is maintained for tenant security deposits as specified under Alabama law. At December 31, 2006 and 2005, this account is properly funded. TAXES AND INSURANCE - The partnership is to transfer monthly an amount estimating one-twelfth of the annual cost of real estate taxes and insurance. These expenditures are then to be paid from this account. At December 31, 2006 and 2005, this account is properly funded. 3. LONG-TERM DEBT Long-term debt is summarized as follows: 2006 2005 ----------- ----------- Mortgage note payable in monthly installments (including principal and interest at a variable rate of 1.75% per annum over LIBOR) to Compass Bank, secured by land, building, cash, receivables and income, maturing May 2019 The interest rate at 12/31/06 is 7.10 % $ 189,827 $ 198,200 Mortgage note payable to Alabama's HOME Investment Partnership Program. No payment due until maturity in May 2019. Interest accrues annually at 1/2 of 1% until maturity 921,000 921,000 ----------- ----------- 1,110,827 1,119,200 Less principal due within one year (9,018) (8,373) ----------- ----------- Total long-term debt $ 1,101,809 $ 1,110,827 =========== ===========
See independent auditors' report. 8 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 3. LONG-TERM DEBT - continued Principal payments due on long-term debt for the subsequent five years are as follows: 2007 $ 9,018 2008 9,930 2009 10,748 2010 11,682 2011 12,698 Thereafter 1,056,751 ------------- $ 1,110,827 ============= Total 4. INTEREST RATE SWAP -- On July 12, 2002, the partnership entered into an interest rate swap agreement with Compass Bank. The purpose of this agreement was to hedge cash flows against variable interest rates on their mortgage loan to Compass Bank. The terms include a notional amount equal to the outstanding mortgage loan whereby the partnership pays a fixed rate of interest, 8.25%, and receives a variable rate of interest equal to 1.75% over LIBOR not less than 5.25% and expires May 1, 2019. The net payments are calculated and paid on a monthly basis. The carrying amount of the swap has been adjusted to its fair value at the end of the year, which because of changes in forecasted levels of LIBOR resulted in reporting a liability for the fair value of the future net payments forecasted under the swap. The liability is classified as non-current since management does not intend to settle it during 2007. Since the critical terms of the swap and the note are the same, the swap is assumed to be completely effective as a hedge, and none of the change in its fair value is included in income. Accordingly, all of the adjustment of the swap's carrying amount is reported as other comprehensive loss. Estimated net payments of $5,590 are expected to be reclassified into earnings within the next twelve months. 5. RELATED PARTY TRANSACTIONS MANAGEMENT CONTRACTS - Apartment Services and Management, Inc., an affiliate of the general partners, managed the project during 2006 and 2005 pursuant to a contract approved by Alabama Housing Finance Authority. Management fees are $11,993 and $11,237 in 2006 and 2005, respectively. Management fees included in accounts payable at December 31, 2006 and 2005 are $6,200 and $6,677, respectively. See independent auditors' report. 9 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 5. RELATED PARTY TRANSACTIONS - CONTINUED REPAIRS AND MAINTENANCE - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, was paid $1,884 in 2006 and $68,286 in 2005 for repairs related to Hurricane Katrina and Ivan. The partnership received insurance monies to cover the cost of these repairs. (See Hurricane Damage footnote 9.) Also, during 2005 Southeast Maintenance, Inc. was paid $18,342 for repairs made to a fire-damaged unit and other various repairs. The partnership received insurance monies in the amount of $14,659 to cover the cost of the repairs to the fire-damaged unit. 6. CURRENT VULNERABILITY DUE TO CERTAIN CIRCUMSTANCES The partnership's operations are concentrated in the low-income real estate market. In addition, the partnership operates in a heavily regulated environment. The operations of the partnership are subject to the administrative directives, rules and regulations of federal and state regulatory agencies, including, but not limited to, the state housing financing agency. Such administrative directives, rules and regulations are subject to change by federal and state agencies. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 7. RECONCILIATION OF FINANCIAL TO TAXABLE LOSS A reconciliation of financial statement net loss to ordinary loss of the partnership, as reported on the partnership's information return, for the year ended December 31 is as follows: 2006 2005 -------- -------- Financial statement net loss $(49,179) $(56,544) Reconciling items: Financial statement depreciation 66,095 67,561 Tax return depreciation (86,840) (87,660) -------- -------- Partnership tax return ordinary loss $(69,924) $(76,643) ======== ======== 8. COMMITMENTS AND CONTINGENCIES On December 31, 2006, the partnership was contingently liable under a $37,412 standby letter of credit at Wachovia Bank expiring September 2009. 9. HURRICANE DAMAGE During 2005 and 2004, the apartment complex sustained damage as a result of Hurricane Katrina and Ivan. The partnership received insurance proceeds in the amount of $72,736 in 2005 to pay for the necessary repairs to the complex. At December 31, 2005, the repairs were completed and all insurance proceeds were disbursed. See independent auditors' report. 10 APARTMENT HOUSING OF EAST BREWTON, LTD. SUPPLEMENTAL INFORMATION YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 ------- ------- Administrative Bank Charges $ 146 $ 233 Consultant Fees 628 176 Dues and Subscriptions 284 96 Miscellaneous 227 125 Office Supplies and Postage 934 1,504 Professional Fees 3,776 3,178 Salaries - Office 8,924 10,246 Telephone 2,186 2,057 Travel and Entertainment Expense 105 490 ------- ------- Total Administrative $17,210 $18,105 ======= ======= Repairs and Maintenance Equipment Rental $ 455 $ 385 Maintenance Supplies 2,262 784 Interior Paint and Decorating 287 981 General Maintenance 8,952 4,563 Grounds Maintenance 3,514 5,399 Exterminating Services 1,148 972 Reserve -- 4,498 Salaries - Maintenance 8,576 6,946 ------- ------- Total Repairs and Maintenance $25,194 $24,528 ======= ======= Taxes and Insurance Property, Liability and Workers' Compensation $13,182 $14,699 Medical Insurance 1,992 2,340 Payroll Taxes 1,584 1,633 Real Estate Taxes 18,731 16,914 Other Taxes, Licenses, and Permits 180 249 ------- ------- Total Taxes and Insurance $35,669 $35,835 ======= ======= Utilities Electricity $ 6,232 $ 4,331 Water 137 362 Sewer 135 190 Miscellaneous 2,356 437 ------- ------- Total Utilities $ 8,860 $ 5,320 ======= ======= See independent auditors' report. 11 EX-99 7 apthousing05.txt EX 99.24.1 APT HOUSING OF EAST BREWTON, LTD F/S FYE 12/31/05 AND 04 APARTMENT HOUSING OF EAST BREWTON, LTD. FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 APARTMENT HOUSING OF EAST BREWTON, LTD. TABLE OF CONTENTS DECEMBER 31, 2005 AND 2004 Page ---- Independent Auditors' Report 1 Financial Statements Balance Sheets 2 Statements of Operations and Comprehensive Income 4 Statements of Partners' Capital 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Supplemental Information 12 GRANBERRY & ASSOCIATES, LLC Certified Public Accountants Michelle M. Granberry, CPA P.O. Box 3196 Auburn, AL 36831-3196 MEMBER Phone: (334) 741-1050 American Institute of CPAs Fax: (334) 741-1059 Alabama Society of CPAs www.granberrycpa.com INDEPENDENT AUDITORS' REPORT To the Partners of Apartment Housing of East Brewton, Ltd. We have audited the accompanying balance sheets of Apartment Housing of East Brewton, Ltd. (an Alabama limited partnership) as of December 31, 2005 and 2004, and the related statements of operations and comprehensive income, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of Apartment Housing of East Brewton, Ltd.'s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apartment Housing of East Brewton, Ltd. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Granberry & Associates, LLC ------------------------------- January 19, 2006 1 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2005 AND 2004 2005 2004 ----------- ----------- ASSETS Current Assets Cash $ 2,350 $ 9,399 Accounts Receivable - Tenant 1,073 1,221 Prepaid Insurance 963 1,322 Other Receivable -- 56,950 ----------- ----------- Total Current Assets 4,386 68,892 ----------- ----------- Restricted Deposits and Funded Reserves Taxes and Insurance 3,271 760 Replacement Reserve 50,237 44,528 Security Deposits 9,654 11,583 ----------- ----------- Total Restricted Deposits and Funded Reserves 63,162 56,870 ----------- ----------- Property and Equipment Land 69,000 69,000 Buildings and Improvements 2,185,247 2,185,247 Furniture, Fixtures and Equipment 99,454 99,454 ----------- ----------- 2,353,701 2,353,701 Less Accumulated Depreciation (559,908) (492,347) ----------- ----------- Total Property and Equipment 1,793,793 1,861,354 ----------- ----------- Other Assets Deposits 75 75 ----------- ----------- TOTAL ASSETS $ 1,861,416 $ 1,987,191 =========== =========== The accompanying notes are an integral part of these financial statements. 2 2005 2004 ----------- ----------- LIABILITIES AND EQUITY Current Liabilities Accounts Payable $ 7,336 $ 8,181 Deferred Revenue -- 65,350 Security Deposits Payable 9,105 10,070 Tenant Overage Payable 686 159 Payroll Taxes Payable 534 548 Accrued Interest Payable 32,185 27,303 Accrued Partner Fees 1,000 750 Accrued Property Taxes Payable 4,232 4,245 Current Maturities of Mortgage Payable 8,373 7,704 ----------- ----------- Total Current Liabilities 63,451 124,310 ----------- ----------- Long-Term Liabilities Mortgage Payable, net of current maturities 1,110,827 1,119,199 Obligation Under Interest Rate Swap 18,866 23,966 ----------- ----------- Total Long-Telco Liabilities 1,129,693 1,143,165 ----------- ----------- Total Liabilities 1,193,144 1,267,475 Partners' Equity Partners' Capital 687,138 743,682 Unrealized Loss on Cash Flow Hedge (18,866) (23,966) ----------- ----------- Total Partners' Equity 668,272 719,716 ----------- ----------- TOTAL LIABILITIES AND EQUITY $ 1,861,416 $ 1,987,191 =========== =========== The accompanying notes are an integral part of these financial statements. 3 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 --------- --------- Revenues Rental $ 133,352 $ 127,614 Miscellaneous Charges 2,417 6,430 --------- --------- Total Revenues 135,769 134,044 --------- --------- Operating Expenses Administrative 18,105 21,333 Advertising 103 188 Bad Debt 8,708 4,706 Management Fees 11,237 11,346 Repair and Maintenance 24,528 28,848 Taxes and Insurance 35,835 35,468 Utilities 5,320 5,300 --------- --------- Total Operating Expenses 103,836 107,189 --------- --------- Income (Loss) from Operations 31,933 26,855 Partnership and Financial Income (Expense) Partnership Management Fees (250) (250) Forgiveness of Management Fees -- 3,085 Interest Income 266 209 Interest Expense (20,932) (18,051) --------- --------- Total Partnership and Financial Income (Expense) (20,916) (15,007) --------- --------- Income (Loss) from Operations before Depreciation 11,017 11,848 Depreciation (67,561) (75,032) --------- --------- Net Loss (56,544) (63,184) --------- --------- Other Comprehensive Income (Loss) Unrealized Gain (Loss) on cash flow hedge arising during the period 5,100 (2,907) --------- --------- Total Other Comprehensive Income (Loss) 5,100 (2,907) --------- --------- Total Comprehensive Loss $ (51,444) $ (66,091) ========= ========= The accompanying notes are an integral part of these financial statements. 4 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2005 AND 2004 General Limited Partners Partners Total --------- --------- --------- Partners' Capital, December 31, 2003 $ 971 $ 805,895 $ 806,866 Net Loss (632) (62,552) (63,184) --------- --------- --------- Partners' Capital, December 31, 2004 339 743,343 743,682 Net Loss (565) (55,979) (56,544) --------- --------- --------- Partners' Capital, December 31, 2005 $ (226) $ 687,364 $ 687,138 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 5 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 -------- -------- Cash flows from operating activities Net Loss $(56,544) $(63,184) -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 67,561 75,032 (Increase) Decrease in Accounts Rec. Tenants 148 329 (Increase) Decrease in Prepaid Insurances 359 -- (Increase) Decrease in Other Receivables 56,950 (56,950) Increase (Decrease) in Accounts Payable (845) (8,417) Increase (Decrease) in Security Deposits Payable (965) 955 Increase (Decrease) in Tenant Overage Payable 527 159 Increase (Decrease) in Accrued. Partners' Fees 250 250 Increase (Decrease) in Payroll Taxes Payable (14) (98) Increase (Decrease) in Accrued Interest 4,882 4,907 Increase (Decrease) in Accrued Property Taxes (13) 889 Increase (Decrease) in Deferred Revenue (65,350) 65,350 -------- -------- Total adjustments 63,490 82,406 -------- -------- Net cash provided (used) by operating activities 6,946 19,222 -------- -------- Cash flow from investing activities: Purchase of Fixed Assets -- (6,806) -------- -------- Net cash provided (used) by investing activities -- (6,806) -------- -------- Cash flow from financing activities: Payment of Loan Principal (7,703) (7,040) -------- -------- Net cash provided (used) by financing activities (7,703) (7,040) -------- -------- Net increase (decrease) in cash and equivalents (757) 5,376 Cash and equivalents, beginning of year 66,269 60,893 -------- -------- Cash and equivalents, end of year $ 65,512 $ 66,269 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense $ 15,986 $ 13,027 ======== ======== The accompanying notes are an integral part of these financial statements. 6
APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HISTORY - Apartment Housing of East Brewton, Ltd., an Alabama limited partnership, formed during June 1998. The partnership owns and operates a forty (40) unit apartment complex in East Brewton, Alabama for low and moderate income persons. Such projects are regulated by the Alabama Housing Finance Authority as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts. Construction was completed and the units were available for rental in February of 1999. BASIS OF ACCOUNTING - The financial statements are prepared on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when the liability is incurred. PROPERTY, EQUIPMENT AND RELATED DEPRECIATION - Property and equipment are stated at cost less accumulated depreciation as calculated under the straight-line and declining balance methods. The assets are being depreciated as follows: Buildings 40 years, straight-line Furniture, fixtures, and equipment 5-7 years, declining balance INCOME TAXES - Items of income and loss pass through to the individual partners for both Federal and State income tax purposes; therefore, the financial statements reflect no tax liability or benefit. Modified accelerated cost recovery system (MACRS) is used for income tax reporting purposes. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, cash includes cash investments with an initial maturity not in excess of ninety (90) days. Cash flows from interest rate swap hedging the company's mortgage payable are classified as interest paid in the statement of cash flows. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. ADVERTISING -The partnership expenses the cost of advertising the first time the advertising activity takes place. See independent auditors' report. 7 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 2. RESTRICTED DEPOSITS AND FUNDED RESERVES Under the terms of the HOME Investment Partnership Program agreement the partnership is required to maintain these restricted accounts as follows: REPLACEMENT RESERVE - The partnership is to transfer monthly the amount of $833 until the account reaches a balance of $70,000. Any disbursements from this account are subject to the approval of Alabama Housing Finance Authority. At December 31, 2005 and 2004, this account is not properly funded. SECURITY DEPOSITS - A separate account is maintained for tenant security deposits as specified under Alabama law. At December 31, 2005 and 2004, this account is properly funded. TAXES AND INSURANCE - The partnership is to transfer monthly an amount estimating one-twelfth of the annual cost of real estate taxes and insurance. These expenditures are then to be paid from this account. At December 31, 2005 and 2004, this account is properly funded. 3. LONG-TERM DEBT Long-term debt is summarized as follows: 2005 2004 ----------- ----------- Mortgage note payable in monthly installments (including principal and interest at a variable rate of 1.75% per annum over LIBOR) to Compass Bank, secured by land, building, cash, receivables and income, maturing May 2019. The interest rate at 12/31/05 is 6.06% $ 198,200 $ 205,903 Mortgage note payable to Alabama's HOME Investment Partnership Program. No payment due until maturity in May 2019. Interest accrues annually at 1/2 of 1% until maturity 921,000 921,000 ----------- ----------- 1,119,200 1,126,903 Less principal due within one year (8,373) (7,704) ----------- ----------- Total long-term debt $ 1,110,827 $ 1,119,199 =========== ===========
See independent auditors' report. 8 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 3. LONG-TERM DEBT - continued Principal payments due on long-term debt for the subsequent five years are as follows: 2006 $ 8,373 2007 9,018 2008 9,930 2009 10,748 2010 11,682 Thereafter 1,069,449 ------------ Total $ 1,119,200 ============ 4. INTEREST RATE SWAP - On July 12, 2002, the partnership entered into an interest rate swap agreement with Compass Bank. The purpose of this agreement was to hedge cash flows against variable interest rates on their mortgage loan to Compass. The terms include a notional amount equal to the outstanding mortgage loan whereby the partnership pays a fixed rate of interest, 8.25%, and receives a variable rate of interest equal to 1.75% over LIBOR not less than 5.25% and expires May 1, 2019. The net payments are calculated and paid on a monthly basis. The carrying amount of the swap has been adjusted to its fair value at the end of the year, which because of changes in forecasted levels of LIBOR resulted in reporting a liability for the fair value of the future net payments forecasted under the swap. The liability is classified as non-current since management does not intend to settle it during 2005. Since the critical terms of the swap and the note are the same, the swap is assumed to be completely effective as a hedge, and none of the change in its fair value is included in income. Accordingly, all of the adjustment of the swap's carrying amount is reported as other comprehensive loss. Estimated net payments of $5,851 are expected to be reclassified into earnings within the next twelve months. 5. RELATED PARTY TRANSACTIONS MANAGEMENT CONTRACTS - Apartment Services and Management, Inc., an affiliate of the general partners, managed the project during 2005 and 2004 pursuant to a contract approved by Alabama Housing Finance Authority. Management fees were $11,237 and $11,346 in 2005 and 2004, respectively. Unpaid management fees included in accounts payable were $6,677 and $6,428 at December 31, 2005 and 2004, respectively. CAPITAL IMPROVEMENTS - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, provided various capital improvements during 2004 totaling $5,640. Unpaid capital improvements included in accounts payable at December 31, 2004 totaled $547. See independent auditors' report. 9 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 5. RELATED PARTY TRANSACTIONS - continued REPAIRS AND MAINTENANCE - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, was paid $68,286 in 2005 and $3,326 in 2004 for repairs related to Hurricane Katrina and Hurricane Ivan. The partnership received insurance monies to cover the cost of these repairs. See Hurricane Damage footnote 9. Also during 2005, Southeast Maintenance, Inc. was paid $18,342 for repairs made to a fire damaged unit and other various repairs. The partnership received insurance monies in the amount of $14,659 to cover the cost of the repairs to the fire damaged unit. 6. CURRENT VULNERABILITY DUE TO CERTAIN CIRCUMSTANCES The partnership's operations are concentrated in the low-income real estate market. In addition, the partnership operates in a heavily regulated environment. The operations of the partnership are subject to the administrative directives, rules and regulations of federal and state regulatory agencies, including, but not limited to, the state housing financing agency. Such administrative directives, rules and regulations are subject to change by federal and state agencies. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 7. RECONCILIATION OF FINANCIAL TO TAXABLE LOSS A reconciliation of financial statement net loss to ordinary loss of the partnership, as reported on the partnership's information return, for the year ended December 31 is as follows: 2005 2004 -------- -------- Financial statement net loss $(56,544) $(63,184) Reconciling items: Financial statement depreciation 67,561 75,032 Tax return depreciation (87,660) (98,564) -------- -------- Partnership tax return ordinary loss $(76,643) $(86,716) ======== ======== 8. COMMITMENTS AND CONTINGENCIES On December 31, 2005, the partnership was contingently liable under a $37,412 standby letter of credit at Wachovia Bank expiring September 2006. See independent auditors' report. 10 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 9. HURRICANE DAMAGE During 2005 and 2004, the apartment complex sustained damage as a result of Hurricane Katrina and Ivan. The partnership received insurance proceeds in the amount of $72,736 in 2005 and $10,850 in 2004 to pay for the necessary repairs to the complex. At December 31, 2005, the repairs were completed and all insurance proceeds were disbursed. See independent auditors' report. 11 APARTMENT HOUSING OF EAST BREWTON, LTD. SUPPLEMENTAL INFORMATION YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------- ------- Administrative Bank Charges $ 233 $ 210 Consultant Fees 176 138 Dues and Subscriptions 96 110 Miscellaneous 125 84 Office Supplies & Postage 1,504 1,182 Professional Fees 3,178 4,509 Salaries - Office 10,246 12,557 Telephone 2,057 2,248 Training Expense -- 295 Travel & Entertainment Expense 490 -- ------- ------- Total Administrative $18,105 $21,333 ======= ======= Repairs & Maintenance Equipment Rental $ 385 $ 803 Maintenance Supplies 784 3,172 Interior Paint & Decorating 981 2,557 General Maintenance 4,563 4,020 Grounds Maintenance 5,399 5,602 Exterminating Services 972 1,148 Reserve 4,498 876 Salaries - Maintenance 6,946 10,670 ------- ------- Total Repairs & Maintenance $24,528 $28,848 ======= ======= Taxes & Insurance Property, Liability and Workmen's Comp. Insurance $14,699 $11,478 Medical Insurance 2,340 3,920 Payroll Taxes 1,633 2,100 Real Estate Taxes 16,914 17,870 Other Taxes, Licenses, and Permits 249 100 ------- ------- Total Taxes & Insurance $35,835 $35,468 ======= ======= Utilities Electricity $ 4,331 $ 4,628 Water 362 199 Sewer 190 128 Miscellaneous 437 345 ------- ------- Total Utilities $ 5,320 $ 5,300 ======= ======= See independent auditors' report. 12 EX-99 8 pioneer05.txt EX 99.23.1 F/S PIONEER STREET ASSOCIATES FYE 12/31/05 AND 04 INDEPENDENT AUDITOR'S REPORT TO THE PARTNERS PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) VISALIA, CALIFORNIA I have audited the accompanying balance sheets of Pioneer Street Associates (A California Limited Partnership), as of December 31, 2005 and 2004, and the related statements of income, changes in partners capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pioneer Street Associates (A California Limited Partnership) as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Bernard E. Rea, CPA - ----------------------- Stockton, California February 27, 2006 1 C O N T E N T S Page INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.............................................. 1 FINANCIAL STATEMENTS Balance sheets........................................................ 2-3 Statements of income.................................................. 4-7 Statements of changes in partners capital............................. 8 Statements of cash flows.............................................. 9-10 Notes to financial statements......................................... 11-14 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2005 AND 2004 ASSETS 2005 2004 ------------ ------------ CURRENT ASSETS Cash $ 8,049 $ 31,707 Real estate tax and insurance 17,512 3,559 Prepaid expense 12,519 10,455 ------------ ------------ Total current assets $ 38,080 $ 45,721 ------------ ------------ RESTRICTED DEPOSITS AND FUNDED RESERVES Tenant security deposits held in trust $ 44,020 $ 43,565 Replacement reserve 148,497 159,069 ------------ ------------ $ 192,517 $ 202,634 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST Land $ 300,000 $ 300,000 Buildings 3,667,343 3,662,431 Equipment 178,017 178,017 ------------ ------------ $ 4,145,360 $ 4,140,448 Less accumulated depreciation 1,584,945 1,443,082 ------------ ------------ $ 2,560,415 $ 2,697,366 ------------ ------------ OTHER ASSETS Deferred charges, less accumulated amortization of $31,907 and $28,823 $ 33,943 $ 37,027 ------------ ------------ $ 2,824,955 $ 2,982,748 ============ ============ See Notes to Financial Statements. 2 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2005 AND 2004 LIABILITIES AND PARTNERS CAPITAL 2005 2004 ------------ ------------ CURRENT LIABILITIES Current maturities of long-term debt $ 42,103 $ 33,616 Accounts payable 4,733 11,080 Accrued interest - - Accrued reporting and administrative fees 4,000 4,000 Accrued partnership management fee 5,600 - ------------ ------------ Total current liabilities $ 56,436 $ 48,696 ------------ ------------ DEPOSIT AND PREPAYMENT LIABILITIES Tenant security deposits $ 35,890 $ 34,175 Prepaid rents - - ------------ ------------ $ 35,890 $ 34,175 ------------ ------------ LONG-TERM DEBT Mortgage payable, less current maturities $ 1,673,185 $ 1,716,705 ------------ ------------ COMMITMENT PARTNERS CAPITAL $ 1,059,444 $ 1,183,172 ------------ ------------ $ 2,824,955 $ 2,982,748 ============ ============ See Notes to Financial Statements. 3 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ RENTAL INCOME Apartments $ 595,045 $ 581,172 Tenant assistance payments - - Subsidy income - - Miscellaneous - - ------------ ------------ Sub-total potential rent revenue $ 595,045 $ 581,172 ------------ ------------ VACANCIES Apartments $ (30,191) $ (47,932) Miscellaneous - - ------------ ------------ Sub-total vacancies $ (30,191) $ (47,932) ------------ ------------ Net rental revenue $ 564,854 $ 533,240 ------------ ------------ FINANCIAL REVENUE Interest Income - project operations $ 838 $ 672 Income from investments - replacement reserve 2,581 1,115 Income from investments - operating reserve - - Income from investments - miscellaneous - - ------------ ------------ Sub-total financial revenue $ 3,419 $ 1,787 ------------ ------------ OTHER REVENUE Laundry and vending $ 10,252 $ 12,754 NSF and late charges - - Damage and cleaning fees 24 2 Forfeited tenant security deposits 3,851 8,915 Other revenue 12,670 12,438 ------------ ------------ Sub-total other revenue $ 26,797 $ 34,109 ------------ ------------ Total revenues $ 595,070 $ 569,136 ------------ ------------ See Notes to Financial Statements. 4 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ OPERATING EXPENSES Renting expenses Advertising $ 659 $ 895 Miscellaneous renting expenses 4,630 3,429 ------------ ------------ Sub-total renting expenses $ 5,289 $ 4,324 ------------ ------------ Administrative expenses Office salaries $ - $ - Office supplies 1,858 4,607 Office rent - - Management fee 48,384 46,704 Manager's salary 26,358 30,016 Legal expense 2,022 9,408 Audit expense 4,725 4,532 Bookkeeping / accounting services - - Telephone and answering service 1,274 1,145 Bad debts - - Miscellaneous administrative expenses - 4,958 ------------ ------------ Sub-total administrative expenses $ 84,621 $ 101,370 ------------ ------------ Utilities expense Fuel oil / coal $ - $ - Electricity 16,371 12,012 Water 15,949 14,709 Gas - - Sewer - - ------------ ------------ Sub-total utilities expense $ 32,320 $ 26,721 ------------ ------------ See Notes to Financial Statements. 5 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ Operating and maintenance expense Janitor and cleaning payroll $ - $ - Janitor and cleaning supplies - - Janitor and cleaning contract - - Exterminating payroll / contract - - Exterminating supplies - - Garbage and trash removal 18,339 17,594 Security payroll / contract - - Grounds payroll - - Grounds supplies - - Grounds contract 29,967 23,727 Repairs payroll 45,494 37,938 Repairs material 32,121 20,742 Repairs contract 40,896 23,644 Heating / cooling repairs and maintenance - - Decorating payroll / contract - - Decorating supplies - 1,079 Vehicle and maintenance equipment o & r - - Miscellaneous operating and maint. expenses 8,304 19,720 ------------ ------------ Sub-total operating & maint. expense $ 175,121 $ 144,444 ------------ ------------ Taxes and insurance Real estate taxes $ 17,323 $ 25,744 Payroll taxes 6,809 7,511 Miscellaneous taxes, licenses, and permits 1,035 1,005 Property and liability insurance 12,958 12,832 Fidelity bond insurance - - Workman's compensation 8,292 7,776 Health insurance and other employee benefits 8,470 8,086 Other insurance - - ------------ ------------ Sub-total taxes & insurance $ 54,887 $ 62,954 ------------ ------------ Total operating expenses $ 352,238 $ 339,813 ------------ ------------ See Notes to Financial Statements. 6 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ OTHER EXPENSES Interest expense - mortgage $ 136,413 $ 144,390 Interest expense - notes - - Miscellaneous financial expense - - Depreciation and amortization 144,947 143,936 Reporting fee 2,000 2,000 Admistrative fee 2,000 2,000 Partnership management fee 11,200 - ------------ ------------ Sub-total other expenses $ 296,560 $ 292,326 ------------ ------------ Total expenses $ 648,798 $ 632,139 ------------ ------------ Net income (loss) $ (53,728) $ (63,003) ============ ============ See Notes to Financial Statements. 7 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS CAPITAL YEARS ENDED DECEMBER 31, 2005 AND 2004 General Limited Total Partners Partner ------------- ------------ ------------- Partners capital December 31, 2003 $ 1,324,175 $ (410,640) $ 1,734,815 Partners capital contributions - - - Partners capital distributions (78,000) (78,000) - Net income (loss) (63,003) (630) (62,373) ------------- ------------ ------------- Partners capital December 31, 2004 $ 1,183,172 $ (489,270) $ 1,672,442 Partners capital contributions - - - Partners capital distributions (70,000) (70,000) - Net income (loss) (53,728) (537) (53,191) ------------- ------------ ------------- Partners capital December 31, 2005 $ 1,059,444 $ (559,807) $ 1,619,251 ============= ============ ============= Percentage at December 31, 2005 100% 1% 99% ============= ============ ============= See Notes to Financial Statements. 8 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (53,728) $ (63,003) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 144,947 143,936 Change in assets and liabilities: Decrease (increase) in: Rents receivable - - Prepaid expenses (2,064) 286 Tenants' security deposits (455) (366) Tax and insurance impounds (13,953) 5,896 Increase (decrease) in: Accounts payable (6,347) 5,837 Bank overdraft - - Accrued reporting and administrative fee - - Accrued partnership management fee 5,600 - Accrued interest - - Prepaid rents - - Tenants' security deposits 1,715 (1,425) ------------ ------------ Net cash provided by (used in) operating activities $ 75,715 $ 91,161 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Funding of replacement reserve $ (29,874) $ (28,458) Withdrawals from replacement reserve 40,446 18,150 Acquisition of property and equipment (4,912) (15,542) ------------ ------------ Net cash provided by (used in) investing activities $ 5,660 $ (25,850) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Partner contributions $ - $ - Partner distributions (70,000) (78,000) Principal payments on long-term debt (35,033) (30,987) ------------ ------------ Net cash provided by (used in) financing activities $ (105,033) $ (108,987) ------------ ------------ See Notes to Financial Statements. 9 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ Increase (decrease) in cash and cash equivalents $ (23,658) $ (43,676) Cash and cash equivalents Beginning 31,707 75,383 ------------ ------------ Ending $ 8,049 $ 31,707 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 136,413 $ 144,390 ============ ============ See Notes to Financial Statements. 10 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Partnership's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. Basis of Accounting The financial statements of the partnership are prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America. Capitalization and Depreciation Land, buildings and improvements are recorded at cost. Depreciation of buildings and equipment is computed principally using the Modified Accelerated Cost Recovery System which approximates straight-line for buildings and double-declining balance for equipment over the following estimated useful lives: Years ----- Buildings 27.5 Equipment 7 Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. The resulting gains and losses are reflected in the statement of operations. Cash and cash equivalents For purposes of reporting the statements of cash flows, the Partnership includes all cash accounts which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying balance sheet. Amortization Deferred charges are amortized over the following estimated useful lives using the straight-line method: Years ----- Deferred debt expense 30 Tax credit monitoring fee 15 Income Taxes No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. 11 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. THESE ASSUMPTIONS AFFECT THE REPORTED AMOUNTS OF ASSETS, LIABILITIES AND THE AMOUNT OF ANY 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 DIFFER FROM THE ESTIMATES MADE. Personal Assets and Liabilities In accordance with the generally accepted method of presenting partnership financial statements, the financial statements do not include the personal assets and liabilities of the partners, including their obligation for income taxes on their distributive shares of the net income of the Partnership, nor any provision for income tax expense. SFAs no. 144 STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 144 REQUIRES THAT LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES HELD AND USED BY A ENTITY BE REVIEWED FOR IMPAIRMENT WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES THAT THE CARRYING AMOUNT OF AN ASSET MAY NOT BE RECOVERABLE. THE ADOPTION OF SFAS NO. 144 HAS NOT MATERIALLY AFFECTED THE PARTNERSHIP'S REPORTED EARNINGS, FINANCIAL CONDITION OR CASH FLOWS. Reclassifications CERTAIN ACCOUNTS IN THE PRIOR-YEAR FINANCIAL STATEMENTS HAVE BEEN RECLASSIFIED FOR COMPARATIVE PURPOSES TO CONFORM TO THE PRESENTATION IN THE CURRENT-YEAR FINANCIAL STATEMENTS. NOTE 2 - ORGANIZATION Pioneer Street Associates is a California Limited Partnership which was formed in February 1994, to develop, construct, own, maintain and operate a 112-unit multi-family apartment complex known as Foothill Vista Apartments and is located in the city of Bakersfield, California. The major activities of the Partnership are governed by the Partnership Agreement and Loan Agreement with the Pacific Life. Under the Loan Agreement, the Partnership is required to provide low cost housing to moderate or low-income households. The Partnership has three general partners and one investing limited partner. Partnership transactions with the general partners are described in other notes to this financial statement. 12 NOTES TO FINANCIAL STATEMENTS NOTE 3 - DEFERRED CHARGES Deferred charges as of December 31, 2005 and 2004, consists of the following: 2005 2004 ------------ ------------ Deferred debt expense $ 39,200 $ 39,200 Tax credit monitoring fee 26,650 26,650 ------------ ------------ $ 65,850 $ 65,850 Less accumulated amortization 31,907 28,823 ------------ ------------ $ 33,943 $ 37,027 ============ ============ NOTE 4 - RESTRICTED DEPOSITS AND FUNDED RESERVES In accordance with the Partnership and the Pacific Life replacement Reserve Agreements, the Partnership is required to maintain a replacement reserve account. The account is to be funded annually in the amount of $28,000 until the aggregate balance of the account reaches $182,000. NOTE 5 - LONG-TERM DEBT Long-Term debt consisted of a permanent loan with Pacific Life in face amount of $1,960,000. Under the terms of the 30-year Promissory Note with Pacific Life, the loan provides for an initial interest rate of 8.17% and monthly payments of $14,614.74 commencing on November 1, 1995, and continuing through September 2025. The interest rate and monthly payment will be adjusted at year eleven (11) and year Twenty-one (21), at which time the interest rate will be adjusted based on the Current Index plus 2.75% and the payment will be adjusted and determined by the amount of the monthly payment that would be sufficient to repay the note within 360 months of the initial payment date. As of December 31, 2005, the current interest rate and minimum monthly payment due is 6.93% and $13,304.35, respectively. The apartment complex is pledged as collateral for the mortgage and is secured by deeds of trust, assignment of rents, security agreements and fixture filings against the property. Aggregate maturities of Long-term debt for the next five years are as follows: December 31, 2006 $ 42,103 2007 45,116 2008 48,343 2009 51,802 2010 55,508 Thereafter 1,472,416 ------------ TOTAL $ 1,715,288 ============ 13 NOTES TO FINANCIAL STATEMENTS NOTE 6 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES MANAGEMENT FEE In accordance with the management agreement, the Partnership paid Tetra Property Management Company, affiliates of one of the general partners, a management fee during 2005 and 2004 in the amounts of $48,384 and $46,704, respectively, for services rendered in connection with the leasing and operation of the project. The fee for its services is approximately 8% of the project's rental income. ANNUAL REPORTING FEE An annual reporting fee of $2,000 is payable to the limited partner, WNC California Housing Tax Credit Fund IV, L.P. Series 2, an investor limited partner which holds a 99% interest in the partnership, for services to be rendered for accounting matters relating to preparation of tax returns and other reports required. Annual PARTNERSHIP administrative Fee An annual partnership administrative fee of $2,000 is payable to the general partners, for their services to be rendered in connection with the administration of the day to day business of the Partnership. PARTNERSHIP MANAGEMENT FEE An annual partnership management fee of $5,600 is payable to the Central Valley Coalition for Affordable Housing (A California Nonprofit Corporation) for services rendered for partnership administrative matters relating to day to day operations of the partnership. For the year ended December 31, 2005, $11,200 was accrued (which includes a back charge of $5,600) and charged to operations. NOTE 7 - CONCENTRATION OF CREDIT RISK The Partnership maintains cash and cash equivalents at two financial institutions located in California. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000 per financial institution. At December 31, 2005, the Partnership's uninsured cash balances totaled $18,078. NOTE 8 - COMMITMENT The Partnership entered into a Regulatory Agreement with the Tax Credit Allocation Committee (TCAC), established under Section 50185 of the Health and Safety Code of the State of California. Under this Agreement, the Partnership shall maintain the project as a Qualified Low-income Housing Project for a period of 55 consecutive taxable years beginning with 1995, the first taxable year of the Credit Period. In exchange for this agreement, TCAC has authorized an allocation relating to the low-income housing credit under the provisions of Section 42 of the Internal Revenue Code. NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Partnership's sole asset is Foothill Vista Apartments. The Partnership's operations are concentrated in the multifamily real estate market. 14 EX-32 9 nt4210ka3202.txt EX 32-2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K/A of WNC Housing Tax Credit Fund IV, L.P., Series 2 (the "Partnership") for the year ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C., section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, Thomas J. Riha, Chief Financial Officer of WNC & Associates, Inc., general partner of the Partnership, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, except to the extent that such provisions require the audit reports of Local Limited Partnership financial statements to refer to the standards of the Public Company Accounting Oversight Board. 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. /s/ Thomas J. Riha - ----------------- Thomas J. Riha Senior Vice President and Chief Financial Officer of WNC & Associates, Inc. September 8, 2009 -----END PRIVACY-ENHANCED MESSAGE-----