10-K 1 form10k.htm Form 10K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2012

 

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: 0-32395

 

WNC HOUSING TAX CREDIT FUND VI, L.P., Series 7

(Exact name of registrant as specified in its charter)

 

California 33-0761517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
17782 Sky Park Circle 92614-6404
Irvine, CA (Zip Code)
(Address of principal executive offices)  

 

(714) 662-5565

(Telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

NONE

 

Securities registered pursuant to section 12(g) of the Act:

 

UNITS OF LIMITED PARTNERSHIP INTEREST

(Title of Class)

 

Indicate by check mark 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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]  No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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 file [  ] 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

 

 

 

 
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

INDEX TO FORM 10-K

 

TABLE OF CONTENTS

 

For the fiscal year ended March 31, 2012

 

      Page
PART I.
 
Item 1. Business   3
Item 1A. Risk Factors   5
Item 1B. Unresolved Staff Comments   12
Item 2. Properties   13
Item 3. Legal Proceedings   18
Item 4. Mine Safety Disclosures   18
       
PART II.    
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   18 
Item 5a.     18 
Item 5b. Use of Proceeds   18 
Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers   18 
Item 6. Selected Financial Data   19 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   21 
Item 7A. Quantitative and Qualitative Disclosures about Market Risk   26 
Item 8. Financial Statements and Supplementary Data   26
       
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    
     
  Balance Sheets of March 31, 2012 and 2011   F-1
  Statements of Operations for the Years Ended March 31, 2012, 2011 and 2010   F-2
  Statements of Partner’s Equity (Deficit) for the Years Ended March 31, 2012, 2011 and 2010   F-3
  Statements of Cash Flows for the Years Ended March 31, 2012, 2011 and 2010   F-4
  Notes to Financial Statements   F-5
       
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   28
Item 9A. Controls and Procedures   28 
Item 9B. Other Information   29
       
PART III.    
       
Item 10. Directors and Executive Officers and Corporate Governance   29 
Item 11. Executive Compensation   32 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   33 
Item 13. Certain Relationship and Related Transactions, and Director Independence   34 
Item 14. Principal Accountant Fees and Services   34
       
PART IV.      
       
Item 15. Exhibits and Financial Statement Schedules   34
     
SIGNATURES 45

 

2
 

 

PART I.

 

Item 1. Business

 

Organization

 

WNC Housing Tax Credit Fund VI, L.P., Series 7 (the "Partnership") is a California Limited Partnership formed under the laws of the State of California on June 16, 1997. The Partnership was formed to acquire limited partnership interests in other limited partnerships ("Local Limited Partnerships") which own 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 Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the “Local Limited Partnership Agreement”).

 

The general partner of the Partnership is WNC & Associates, Inc. (the “General Partner” or “Associates”). The chairman and president of Associates owns all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through Associates, as the Partnership has no employees of its own.

 

Pursuant to a registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) on April 16, 1999, the Partnership commenced a public offering of 25,000 units of limited partnership interest (“Partnership Units”), at a price of $1,000 per Partnership Unit. As of the close of the public offering on November 7, 2000 a total of $18,850,000 representing 18,850 Partnership Units had been sold. Holders of Partnership Units are referred to herein as “Limited Partners”.

 

The Partnership shall continue in full force and effect until December 31, 2060 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.

 

As a consequence of the provisions of tax law in effect for dispositions of buildings prior to August 2008, in order to avoid recapture of Low Income Housing Tax Credits, the Partnership expected that it would not 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. That provision of law was amended in 2008 (i) to provide that there would be no recapture on sale of a Low Income Housing Tax Credit building during the Compliance Period if it were reasonable to expect at the time of sale that the building would continue to be operated as qualified low income housing (see “Exit Strategy” below) and (ii) to eliminate the possibility of posting a bond against potential recapture. The Partnership is seeking to sell its Local Limited Partnership Interests. Nonetheless, because of (i) the nature of the Housing Complexes and the Local Limited Partnership Interests, (ii) the difficulty of predicting the resale market for low-income housing, (iii) the current economy, and (iv) the ability of lenders to disapprove of transfer, it is not possible at this time to predict whether the liquidation of the Partnership's assets and the disposition of the proceeds, if any, in accordance with the Partnership's Agreement of Limited Partnership dated June 16, 1997 (the "Partnership Agreement"), will be accomplished in the near term. Furthermore, the recent codification of the economic substance doctrine as part of 2010 legislation has created some uncertainty about the deductibility of losses from low income housing that is not generating Low Income Housing Tax Credits, and this could have an adverse effect on the resale market for Housing Complexes and Local Limited Partnership Interests. If a Local Limited Partnership Interest or the related Housing Complex is not sold, it is anticipated that the Local General Partner would continue to operate such Housing Complexes.

 

3
 

 

The Partnership originally invested in thirteen Local Limited Partnerships, one Local Limited Partnership has been sold or otherwise disposed of as of March 31, 2012. Each of these Local Limited Partnerships owns or owned one Housing Complex that was eligible for the Federal Low Income Housing Tax Credit. 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.

 

Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. A sale prior to the end of the Compliance Period must satisfy the “reasonable belief” test outline above to avoid recapture.

 

The following table reflects the 15-year compliance period of the twelve Housing Complexes:

 

Expiration Date for 15-year Compliance Period

Local Limited

Partnership Name

 

Compliance Period

15-year Expiration Date

2nd Fairhaven, LLC   2014
ACN Southern Hills Partners II, L.P.   2016
Hickory Lane Partners, L.P.   2015
Lake Village Apartments, L.P.   2016
Montrose County Estates Limited Dividend Housing Association, L.P.   2015
Ozark Properties III   2015
Pierce Street Partners, L.P.   2015
Red Oaks Estates, L.P.   2014
School Square, L.P.   2014
Tahlequah Properties IV   2015
Timberwolf Townhomes, L.P.   2016
United Development L.P., 2000   2016

 

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.

 

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, 2012.

 

Upon management of the Partnership identifying a Local Limited Partnership for disposition, costs incurred by the Partnership in preparation for the disposition are deferred. Upon the sale of the Local Limited Partnership Interest, the Partnership nets the costs that had been deferred against the proceeds from the sale in determining the gain or loss on the sale of the Local Limited Partnership. Deferred disposition costs are included in other assets on the balance sheets.

 

On April 1, 2011, the Partnership sold its Local Limited Partnership interest in Stroud Housing Associates, L.P. (“Stroud”) to an affiliate of the Local General Partner. Stroud had been experiencing several operational issues including extremely low occupancy. The Local General Partner had overfunded its contractual obligations as General Partner. The Partnership offered to pay $5,000 if the Local General Partner would purchase its Local Limited Partnership Interest. The Local General Partner countered at $25,000 which the Partnership accepted.

 

4
 

 

The Local Limited Partnership will complete its 15-year Compliance Period in 2015; therefore there is a risk of tax credit recapture. The last year in which Low Income Housing Tax Credits will be generated by this Local Limited Partnership was 2011. The maximum exposure of recapture along with the interest and penalties related to the recapture is $408,914, which equates to $21.69 per Partnership Unit. The executed Purchase Agreement states that Stroud must remain in compliance with Section 42 of the IRS code. Until the completion of the Compliance Period, the purchaser must furnish the Partnership with certain reports proving that the Housing Complex is still in compliance with the IRS code.

 

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, as the proceeds first would be used to pay Partnership obligations and funding of reserves.

 

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 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:

 

·a Local Limited Partnership disposed of its interest in a Housing Complex during the Compliance Period, or
·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 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 Low Income Housing Tax 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.

 

5
 

 

As part of the recently enacted health care legislation, Congress has codified the economic substance doctrine. Because of its recent enactment, the full reach of this provision is unclear. Inasmuch as Housing Complexes might offer no benefit to a purchaser other than tax benefits, it is possible that the economic substance doctrine could be interpreted to limit deduction of tax losses from Housing Complexes, which would be expected to have a significant adverse effect on the sale value of the Housing Complexes and the Local Limited Partnership Interests.

 

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:

 

·an unlimited amount of passive income, which is income from entities such as the Partnership, and
·$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 $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:

 

6
 

 

·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.
·Obtaining rent increases. In many cases rents can only be increased with the prior approval of the subsidizing agency.
·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.
·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.
·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.
·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.
·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.
·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.
·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.

 

7
 

 

Fluctuating economic conditions can reduce the value of real estate. The Partnership’s principal business objective is providing its Limited Partners with Low Income Housing Tax Credits, not the generation of gains from the appreciation of real estate held by the Local Limited Partnerships. In its financial statements, the Partnership has carried its investments in Local Limited Partnerships at values reflecting 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 of its interests in the Local Limited Partnerships.

 

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:

 

·the general and local job market,
·the availability and cost of mortgage financing,
·monetary inflation,
·tax, environmental, land use and zoning policies,
·the supply of and demand for similar properties, 
·neighborhood conditions,
·the availability and cost of utilities and water.

 

For each of the years ended March 31, 2012, 2011 and 2010, 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, 2012, 2011 and 2010, impairment loss related to investments in Local Limited Partnerships was $638,150, $853,991, and $863,041, 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:

 

·the determination of which depends on future factual circumstances,
·which are peculiar to individual Limited Partners, or
·which are not customarily the subject of an opinion.

 

The more significant of these matters include:

 

·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,
·characterizing expenses and payments made to or by the Partnership or a Local Limited Partnership,
·identifying the portion of the costs of any Housing Complex which qualify for historic and other tax credits,
·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
·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.

 

8
 

 

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:

 

·the amount of cash the Limited Partner invests in the Partnership, and
·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 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:

 

·the sales proceeds plus the amount of indebtedness secured by the Housing Complex, and
·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:

 

·the sales proceeds plus the Partnership’s share of the amount of indebtedness secured by the Housing Complex, and
·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 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:

 

9
 

 

·between the Limited Partners and the General Partner,
·among the Limited Partners, or
·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:

 

·unused passive losses from the Partnership or other investments, or
·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:

 

·should be deductible over a longer period of time or in a later year,
·are excessive and may not be capitalized or deducted in full,
·should be capitalized and not deducted, or
·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:

 

·the eligible basis of a Housing Complex used to compute Low Income Housing Tax Credits,
·the adjusted basis of a Housing Complex used to compute depreciation,
·the correct deduction of fees,
·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.

 

New administrative or judicial interpretations of the law might reduce the value of Low Income Housing 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.

 

10
 

 

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:

 

·remove the General Partner and elect a replacement general partner,
·amend the Partnership Agreement,
·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.

 

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.

 

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 was 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 is subject to substantial restrictions as outlined in the Partnership Agreement. 

 

11
 

 

Anticipated future and existing cash resources of the Partnership are not sufficient to pay exsting 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 asset management fees payable increased by approximately $10,000, $13,000, and $36,000 for the years ended March 31, 2012, 2011 and 2010, respectively. The Partnership’s future contractual cash obligations consist solely of its obligations to pay future annual asset management fees. These will equal approximately $55,000 per year through the termination of the Partnership, which must occur no later than December 31, 2060. 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 November 30, 2013.

 

Item 1B. Unresolved Staff Comments

 

Not Applicable

 

12
 

 

Item 2. Properties

 

Through its investments in Local Limited Partnerships, the Partnership holds indirect ownership interests in the Housing Complexes. The following table reflects the status of the thirteen Housing Complexes for which the Partnership had ownership during the year, as of the dates or for the periods indicated:

 

         As of March 31, 2012   As of December 31, 2011 
Local
Limited
Partnership
Name
  Location  General
Partner Name
  Partnership’s
Total Investment in
Local Limited Partnerships
   Amount of
Investment Paid
to Date
   Number
of
Units
   Estimated Aggregate
Low Income Housing Tax
Credits (1)
   Mortgage Balances
of Local
Limited Partnership
 
                           
2nd Fairhaven, LLC
  Federalsburg, Maryland  Larry C. Porter and Carter Chinniss  $360,000   $360,000    18   $470,000   $957,000 
                                
ACN Southern Hills Partners II, L.P.  Oskaloosa, Iowa  ACN Partnership
   1,284,000    1,284,000    30    1,668,000    483,000 
                                
Hickory Lane
Partners, L.P.
  Sioux City, Iowa  Lewis F. Weinberg, Weinberg Investments, Inc. and Sioux Falls Environmental Access, Inc.   988,000    988,000    64    1,288,000    3,142,000 
                                
Lake Village
Apartments, L.P.
  Kewanee,
Illinois
  Quad Cities Redevelopment Resources, Inc.   3,834,000    3,834,000    50    5,139,000    - 
                                
Montrose County Estates Limited Dividend Housing Association, L.P.  Montrose, Michigan  Raymond T. Cato, Jr., Christopher R. Cato and Kenneth Bradner   487,000    487,000    32    676,000    667,000 
                                
Ozark Properties III  Ozark,
Arkansas
  ERC Properties, Inc.   300,000    300,000    24    393,000    758,000 
                                
Pierce Street
Partners, L.P.
  Sioux City, Iowa  Lewis F. Weinberg, Weinberg Investments, Inc. and Sioux Falls Environmental Access, Inc.   2,389,000    2,389,000    86    2,493,000    3,574,000 
                                

 

13
 

 

         As of March 31, 2012   As of December 31, 2011 
Local
Limited
Partnership
Name
  Location  General
Partner
Name
  Partnership’s
Total
Investment
in Local
Limited
Partnerships
   Amount of
Investment
Paid
to Date
   Number of
Units
   Estimated
Aggregate
Low Income
Housing Tax
Credits (1)
   Mortgage
Balances
of Local
Limited
Partnership
 
                           
Red Oaks
Estates, L.P.
  Holly Springs,
Mississippi
  Douglas B. Parker and
Billy D. Cobb
   242,000    242,000    24    337,000    665,000 
                                
School Square, L.P.  Albany, Minnesota  Bradley V. Larson   286,000    286,000    17    401,000    927,000 
                                
Tahlequah Properties IV  Tahlequah, Oklahoma  ERC Properties, Inc.   375,000    375,000    24    490,000    771,000 
                                
Timberwolf
Townhomes, L.P.
  Deer River,
Minnesota
  Curtis G. Carlson Co., Inc.,
M.F. Carlson Co., Inc.,
and Robert Carlson
   469,000    469,000    20    631,000    1,355,000 
                                
United Development L.P., 2000  West Memphis,
Arkansas
  Harold E. Buehler, Sr.
and Jo Ellen Buehler
   2,249,000    2,249,000    51    3,000,000    955,000 
                                
         $13,263,000   $13,263,000    440   $16,986,000    14,254,000 

 

(1) Represents aggregate anticipated Low Income Housing Tax Credits to be received over the 10-year credit period if Housing Complexes are retained and rented in compliance with credit rules for the 15-year Compliance Period. Approximately 90% of the anticipated Low Income Housing Tax Credits have been received from the Local Limited Partnerships and are no longer available to the Limited Partners.

 

14
 

 

WNC Housing Tax Credit Fund VI, L.P., Series 7

 

   For the year ended December 31, 2011 
Local Limited
Partnership Name
  Rental Income   Net Income
(Loss)
   Low Income
Housing Tax
Credits
Allocated to
Partnership
 
             
2nd Fairhaven, LLC  $138,000   $(23,000)   99.98%
                
ACN Southern Hills Partners II, L.P.   171,000    (55,000)   99.98%
                
Hickory Lane Partners, L.P.   476,000    (86,000)   99.98%
                
Lake Village Apartments, L.P.   132,000    1,396,000    99.98%
                
Montrose County Estates Limited Dividend Housing Association, L.P.   163,000    (36,000)   99.98%
                
Ozark Properties III   126,000    (18,000)   99.98%
                
Pierce Street Partners, L.P.   791,000    (113,000)   99.98%
                
Red Oaks Estates, L.P.   171,000    (7,000)   99.98%
                
School Square, L.P.   129,000    (41,000)   99.98%
                
Tahlequah Properties IV   126,000    (40,000)   99.98%
                
Timberwolf Townhomes, L.P.   105,000    (26,000)   99.98%
                
United Development L.P., 2000   259,000    (124,000)   99.98%
                
   $2,787,000    827,000      

 

15
 

 

WNC Housing Tax Credit Fund VI, L.P., Series 7

 

         Occupancy Rates 
         As of December 31, 
Local Limited
Partnership Name
  Location  General Partner Name  2011   2010   2009   2008   2007 
                           
2nd Fairhaven, LLC  Federalsburg, Maryland  Larry C. Porter and Carter Chinniss   100%   100%   100%   100%   100%
                                
ACN Southern Hills Partners II, L.P.  Oskaloosa, Iowa  ACN Partnership
   93%   97%   100%   97%   97%
                                
Hickory Lane
Partners, L.P.
  Sioux City, Iowa  Lewis F. Weinberg, Weinberg Investments, Inc. and Sioux Falls Environmental Access, Inc.   100%   95%   100%   100%   95%
                                
Lake Village
Apartments, L.P.
  Kewanee,
Illinois
  Quad Cities Redevelopment Resources, Inc.   66%   66%   48%   54%   40%
                                
Montrose County Estates Limited Dividend Housing Association, L.P.  Montrose, Michigan  Raymond T. Cato, Jr., Christopher R. Cato and Kenneth Bradner   88%   100%   100%   100%   91%
                                
Ozark Properties III  Ozark,
Arkansas
  ERC Properties, Inc.   96%   92%   96%   92%   96%
                                
Pierce Street
Partners, L.P.
  Sioux City, Iowa  Lewis F. Weinberg, Weinberg Investments, Inc. and Sioux Falls Environmental Access, Inc.   98%   99%   95%   100%   100%

 

16
 

 

WNC Housing Tax Credit Fund VI, L.P., Series 7

 

         Occupancy Rates 
         As of December 31, 
Local Limited
Partnership Name
  Location  General Partner
Name
  2011   2010   2009   2008   2007 
                           
Red Oaks
Estates, L.P.
  Holly Springs,
Mississippi
  Douglas B. Parker
and
Billy D. Cobb
   100%   100%   100%   96%   100%
                                
School Square, L.P.  Albany, Minnesota  Bradley V. Larson   100%   100%   100%   88%   100%
                                
Stroud Housing Associates, L.P.  Stroud, Oklahoma   NHS/ERC Housing Company, LLC   N/A    83%   8%   33%   58%
                                
Tahlequah Properties IV  Tahlequah, Oklahoma  ERC Properties, Inc.   96%   100%   96%   100%   88%
                                
Timberwolf
Townhomes, L.P.
  Deer River,
Minnesota
  Curtis G. Carlson Co., Inc.,
M.F. Carlson Co., Inc.,
and Robert Carlson
   85%   95%   95%   85%   90%
                                
United Development L.P., 2000  West Memphis,
Arkansas
  Harold E. Buehler, Sr.
and Jo Ellen Buehler
   59%   96%   92%   69%   96%
                                
   Weighted Average      94%   93%   85%   85%   89%
                                

 

17
 

 

Item 3. Legal Proceedings

 

NONE

 

Item 4. Mine Safety Disclosures

 

NOT APPLICABLE

 

PART II.

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

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, 2012, there were 962 Limited Partners and 0 assignees of Partnership Units who were not admitted as Limited Partners.

 

(c)The Partnership was not designed to provide cash distributions to Limited Partners in circumstances other than refinancing or disposition of its investments in Local Limited Partnerships. Any such distributions would be made in accordance with the terms of the Partnership Agreement. During the years ended March 31, 2012, 2011 and 2010, the Partnership made no cash distributions 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 year ended March 31, 2012.

 

Item 5b. Use of Proceeds

 

NOT APPLICABLE

 

Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

NONE

 

18
 

 

Item 6. Selected Financial Data

 

Selected balance sheet information for the Partnership is as follows:

 

   March 31, 
   2012   2011   2010   2009   2008 
ASSETS                         
Cash  $26,139   $160,878   $338,530   $323,243   $450,623 
Investments in Local Limited Partnerships, net   472,226    1,426,216    2,618,751    3,856,934    5,504,128 
Due from affiliates, net   75,394    75,394    75,394    78,807    78,807 
Other assets   -    22,964    4,800    -    - 
                          
Total Assets  $573,759   $1,685,452   $3,037,475   $4,258,984   $6,033,558 
                          
LIABILITIES                         
Payables to Local Limited Partnerships  $-   $-   $-   $12,081   $12,081 
Accrued expenses   -    2,295    2,295    5,500    15,265 
Accrued fees and expenses due to General Partner and affiliates   379,294    254,330    199,163    143,417    133,434 
                          
Total Liabilities   379,294    256,625    201,458    160,998    160,780 
                          
PARTNERS' EQUITY   194,465    1,428,827    2,836,017    4,097,986    5,872,778 
                          
Total Liabilities and Partners’ Equity  $573,759   $1,685,452   $3,037,475   $4,258,984   $6,033,558 

 

19
 

 

Selected results of operations, cash flows and other information for the Partnership are as follows:

 

   For the Years Ended March 31, 
   2012   2011   2010   2009   2008 
Loss from operations (Note 1)  $(970,621)  $(1,127,444)  $(971,578)  $(1,389,737)  $(807,199)
Equity in losses of Local Limited Partnerships   (247,905)   (279,911)   (311,581)   (389,225)   (187,209)
Loss on sale of Local Limited Partnership   (25,377)   -    -    -    - 
Interest income   9,541    165    21,190    4,170    11,070 
Net loss  $(1,234,362)  $(1,407,190)  $(1,261,969)  $(1,774,792)  $(983,338)
                          
Net loss allocated to:                         
General Partner  $(1,234)  $(1,407)  $(1,262)  $(1,775)  $(983)
Limited Partners  $(1,233,128)  $(1,405,783)  $(1,260,707)  $(1,773,017)  $(982,355)
Net loss per Partnership Unit  $(65.42)  $(74.58)  $(66.88)  $(94.06)  $(52.11)
Outstanding weighted Partnership Units   18,850    18,850    18,850    18,850    18,850 

 

Note 1 – Loss from operations for the years ended March 31, 2012, 2011, 2010, 2009 and 2008 includes a charge for impairment losses on investments in Local Limited Partnerships of $638,150, $853,991, $863,041, $1,208,418, and $700,971, respectively.

 

   For the Years Ended March 31, 
   2012   2011   2010   2009   2008 
                     
Net cash provided by (used in):                         
Operating activities  $(278,869)  $(197,049)  $3,043   $(137,695)  $(30,902)
Investing activities   9,286    19,397    12,244    10,315    1,062 
Financing activities   134,844    -    -    -    - 
Net change in cash   (134,739)   (177,652)   15,287    (127,380)   (29,840)
                          
Cash, beginning of period   160,878    338,530    323,243    450,623    480,463 
                          
Cash, end of period  $26,139   $160,878   $338,530   $323,243   $450,623 

 

Low Income Housing Tax Credits per Partnership Unit were as follows for the years ended December 31:

 

    2011   2010   2009   2008   2007 
                      
Federal   $61   $91   $95   $95   $95 
                           
State    -    -    -    -    - 
                           
Total   $61   $91   $95   $95   $95 

 

20
 

 

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, the Partnership’s 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 SEC. 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.

 

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 at least annually or 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 were 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 the twelve months of reported results provided by the Local Limited Partnerships for each year ended December 31. Equity in losses of Local Limited Partnerships allocated to the Partnership is not recognized to the extent that the investment balance would be adjusted below zero. If the Local Limited Partnerships reported 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 (see Note 2).

 

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.

 

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In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.

 

Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership’s interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership’s balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership’s exposure to loss on these 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 and their guarantee against credit recapture to the investors in the Partnership.

 

Income Taxes

 

The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnerships has no other tax positions which must be considered for disclosure.

 

Impact of Recent Accounting Pronouncements

 

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance for Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007 and shall be applied prospectively except for very limited transactions. In February 2008, the FASB delayed for one year implementation of the guidance as it pertains to certain non-financial assets and liabilities. The Partnership adopted U.S. generally accepted accounting principles (“GAAP”) for Fair Value Measurements effective April 1, 2008, except as it applies to those non-financial assets and liabilities, for which the effective date was April 1, 2009. The Partnership has determined that adoption of this guidance has no material impact on the Partnership’s financial statements.

 

In November 2008, the FASB issued accounting guidance on Equity Method Investment Accounting Considerations that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. This guidance is effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Partnership adopted the guidance for the interim quarterly period beginning April 1, 2009. The impact of adopting it did not have a material impact on the Partnership’s financial condition or results of operations.

 

In April 2009, the FASB issued accounting guidance for Interim Disclosures about Fair Value of Financial Instruments. This requires disclosure about the method and significant assumptions used to establish the fair value of financial instruments for interim reporting periods as well as annual statements. It became effective for as of and for the interim period ended June 30, 2009 and had no impact on the Partnership’s financial condition or results of operations.

 

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In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Partnership for the quarter ended June 30, 2009. The adoption did not have a significant impact on the subsequent events that the Partnership reports, either through recognition or disclosure, in the financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and therefore the Partnership did not include the disclosure in this Form 10-K.

 

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (VIEs). The amended guidance modifies the consolidation model to one based on control and economics, and replaced quantitative primary beneficiary analysis with a qualitative analysis. The primary beneficiary of a VIE will be the entity that has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the amended guidance requires continual reconsideration of the primary beneficiary of a VIE and adds an additional reconsideration event for determination of whether an entity is a VIE. Additionally, the amendment requires enhanced and expanded disclosures around VIEs. This amendment is effective for fiscal years beginning after November 15, 2009. The adoption of this guidance on April 1, 2010 did not have a material effect on the Partnership’s financial statements.

 

In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The Codification is intended to reorganize, rather than change, existing GAAP. Accordingly, all references to currently existing GAAP have been removed and have been replaced with plain English explanations of the Partnership’s accounting policies. The adoption of the Codification did not have a material impact on the Partnership’s financial position or results of operations.

 

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.

 

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. 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 then existing contractual obligations and then 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.

 

Financial Condition

 

The Partnership’s assets at March 31, 2012 consisted of $26,000 in cash, aggregate investments in thirteen Local Limited Partnerships of $472,000 (see “Method of Accounting for Investments in Local Limited Partnerships”), and $75,000 of due from affiliates, net. Liabilities at March 31, 2012 consisted of $379,000 of accrued fees and expenses due to the General Partner and/or its affiliates (see “Future Contractual Cash Obligations” below).

 

Results of Operations

 

Year Ended March 31, 2012 Compared to Year Ended March 31, 2011 The Partnership’s net loss for the year ended March 31, 2012 was $(1,234,000), reflecting a decrease of $173,000 from the net loss of $(1,407,000) experienced for the year ended March 31, 2011. The change was largely due to a decrease of $216,000 in impairment loss for the year ended March 31, 2012. Impairment loss can vary from year to year depending on the operations of the Local Limited Partnerships and the amount of Low Income Housing Tax Credits that are allocated each year to the Partnership. The equity in losses of Local Limited Partnership decreased by $32,000 for the year ended March 31, 2012. Equity in losses can vary from year to year depending on the operations of the underlying Housing Complexes of the Local Limited Partnerships. During the year ended March 31, 2012, $140,000 was advanced to one Local Limited Partnership and reserved for fully compared to $75,000 advanced and reserved for during the year ended March 31, 2011. The advances made to the troubled Local Limited Partnerships can vary each year depending on the operations of the individual Local Limited Partnerships. Additionally, during the year ended March 31, 2012, other assets were written off in the amount of $(23,000). Legal and accounting fees decreased by $33,550 for the year ended March 31, 2012 due to the timing of the accounting work performed. Asset management fees decreased by $3,000 during the year ended March 31, 2012 due to the sale of one Local Limited Partnership. Amortization decreased by $6,000 due to the impairment of intangible assets during the year ended March 31, 2012. Additionally, the Partnership recorded a $(25,000) loss on sale of Local Limited Partnership during the year ended March 31, 2012 compared to no loss or gain on sale of Local Limited Partnership for during the year ended March 31, 2011. The Partnership sold one Local Limited Partnership due to the fact it was experiencing serious operational issues. Lastly, reporting fees increased by $3,000 for the year ended March 31, 2012. Reporting fees can fluctuate from year to year due to the fact that Local Limited Partnerships pay those fees to the Partnership when the Local Limited Partnerships’ cash flow will allow for the payment.

 

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Year Ended March 31, 2011 Compared to Year Ended March 31, 2010 The Partnership’s net loss for the year ended March 31, 2011 was $(1,407,000), reflecting an increase of $145,000 from the net loss of $(1,262,000) experienced for the year ended March 31, 2010. The increase in net loss was largely due to an increase of $(82,000) in legal and accounting expenses for the year ended March 31, 2011 due to the timing of the accounting work performed. There was also an increase of $(60,000) in write off of advances to Local Limited Partnerships for the year ended March 31, 2011 compared to the year ended March 31, 2010. Advances of $(75,000) were made during the year ended March 31, 2011 and reserved for fully in the same year compared to $(15,000) of advances being made and reserved for during the year ended March 31, 2010. The Partnership experienced a $32,000 decrease in equity in losses of Local Limited Partnerships for the year ended March 31, 2011 compared to the year ended March 31, 2010. The equity in losses of Local Limited Partnerships can vary from year to year depending on the operations of the Local Limited Partnerships. There was also a $9,000 decrease in impairment loss for the year ended March 31, 2011 compared to the year ended March 31, 2010. Impairment loss can vary from year to year depending on the operations of the Local Limited Partnerships and the amount of the Low Income Housing Tax Credits that are allocated each year to the Partnership. Interest income decreased by $(21,000) for the year ended March 31, 2011 due to an interest payment received from one Local Limited Partnership, ACN Southern Hills II, L.P, during the year ended March 31, 2010 compared to no such payments received during the year ended March 31, 2011. Interest payments on the loan can fluctuate from year to year due to the fact that the Local Limited Partnership makes payments to the Partnership based on available cash flow.

 

Liquidity and Capital Resources

 

Year Ended March 31, 2012 Compared to Year Ended March 31, 2011. The net decrease in cash during the year ended March 31, 2012 was $(135,000) compared to a net decrease in cash for the year ended March 31, 2011 of $(178,000). The change was partially due to the fact that during the year ended March 31, 2012 there was a $(114,000) reimbursement of operating advances paid to the General Partner or an affiliate compared to $(75,000) paid during the year ended March 31, 2011. The Partnership also paid $25,000 to the purchaser of a Local Limited Partnership during the year ended March 31, 2012. No such payments were made during the year ended March 31, 2011. Additionally, the Partnership made advances of $(140,000) during the year ended March 31, 2012 to a Local Limited Partnership that was experiencing operational issues compared to $(75,000) advanced during the year ended March 31, 2011. The General Partner or an affiliate had advanced $135,000 to the Partnership which in turn advanced it to a Local Limited Partnership’s mortgage holder as part of a debt restructuring. The Partnership also received $46,000 in distributions and reporting fees from Local Limited Partnerships during the year ended March 31, 2012 compared to $28,000 received during the year ended March 31, 2011. Distributions and reporting fees vary depending on when the Local Limited Partnerships’ cash flow will allow for the payment. The Partnership also received $10,000 as payment for interest from one Local Limited Partnership during the year ended March 31, 2012 compared to no such receipts during the year ended March 31, 2011.

 

Year Ended March 31, 2011 Compared to Year Ended March 31, 2010 The net decrease in cash during the year ended March 31, 2011 was $(178,000) compared to net increase in cash for the year ended March 31, 2010 of $15,000. The variance was partially due to $(75,000) advanced to a Local Limited Partnership during the year ended March 31, 2011 compared to $(15,000) advanced during the year ended March, 31, 2010. The Partnership reimbursed the General Partner or an affiliate for expenses paid on its behalf $(85,000) during the year ended March 31, 2011 compared to $(5,000) reimbursed during the year ended March 31, 2010. The Partnership paid $(45,000) of accrued asset management fees during the year ended March 31, 2011 compared to $(23,000) paid during the year ended March 31, 2010. The Partnership also received $21,000 as payment for interest from one Local Limited Partnership during the year ended March 31, 2010 compared to no such receipts during the year ended March 31, 2011.

 

Accrued payables, which consist primarily of related party asset management fees due to the General Partner, increased by approximately $123,000, $55,000, and $56,000 for the years ended March 31, 2012, 2011 and 2010, respectively. The General Partner does not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership.

 

The Partnership currently has insufficient working capital to fund its operations. Associates have agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through November 30, 2013.

 

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Other Matters

 

The Partnership is not obligated to fund advances to the Local Limited Partnerships. Occasionally, when Local Limited Partnerships encounter operational issues the Partnership may decide to advance funds to assist the Local Limited Partnership with its operational issues. During the year ended March 31, 2002, Associates was advised that Lake Village Apartments, a Local Limited Partnership, was in default of certain covenants relating to certain loans advanced for the construction of the apartments. The defaults were primarily caused by the general contractor failing to complete the construction of the development according to the terms of the Lake Village Apartment’s loans. As a result of the foregoing, on June 30, 2002, the Local General Partner of Lake Village Apartments was replaced by an entity wholly owned by two minority shareholders and officers of Associates and a workout agreement was executed with the lender (the “Agreement”), whereby the Local General Partner of Lake Village Apartments was replaced by the aforementioned entity. Pursuant to the terms of the Agreement, the new Local General Partner would contribute additional equity to the Local Limited Partnership if necessary, a new general contractor would complete the construction of the development, and the lender, upon satisfaction of certain conditions of the Agreement as defined, would continue to fund the completion of the construction and other costs. In addition, pursuant to the Agreement, the Partnership Agreement was amended, and the Partnership committed and paid additional capital contributions of $855,628 as a result of obtaining additional Low Income Housing Tax Credits. Construction of the development was completed as of June 2002, at which time all construction loans converted to permanent financing.

 

Beginning in November 2005, the Lake Village Apartments are being managed by the Henry County Housing Development Group, Inc. (HCHD). HCHD is the local housing authority serving Kewanee, Illinois. HCHD currently manages numerous apartment units in Kewanee and brings substantial knowledge of property management and knowledge of the local community. HCHD also administers the tenant housing choice voucher program and may be able to provide Lake Village Apartments occupants with rental assistance payments to help defer the cost of their rent thereby making it more attractive for a prospective tenant to remain at Lake Village Apartments. As of the report date, the Partnership has advanced Lake Village Apartments $431,098, all of which has been reserved for and written off as bad debt as management has deemed the collectability to be questionable. These advances were used to fund certain recurring and nonrecurring operating expenses consisting primarily of property taxes and insurance.

 

Beginning in April 2006, Lake Village Apartments did not make its regularly schedule principal and interest payment to the mortgage holder, Illinois Development Housing Authority (IHDA) and began negotiations with IHDA at that time to restructure the debt. In April 2011, IHDA filed a summons and complaint for foreclosure in the 14th Judicial Circuit, Cambridge, Henry County, Illinois against Lake Village Apartments. Lake Village Apartments through counsel, filed an answer to the complaint denying the material allegations contained in the complaint. No further action by IHDA has been taken in the lawsuit. Notwithstanding, IHDA continues to negotiate with Lake Village Apartments regarding some type of partnership and debt restructuring.

 

An appraisal received in April 2008 indicated a current market value of $480,000. The Partnership has not had another appraisal prepared since that date. As of December 31, 2010, the current mortgage balance to be paid for Lake Village Apartments was $2,009,895. Through the bankruptcy court, the Local General Partner and IHDA agreed on a debt pay-off amount of $600,000. The General Partner or an affiliate thereof has paid the $600,000 to IHDA. This will prevent the property from foreclosure and possible recapture events.

 

On April 9, 2010, Stroud was inspected by the Oklahoma Housing Finance Agency (“OHFA”) and it was concluded that Stroud had fallen below the minimum set-aside requirements due to the number of down units, vacancies and the overall condition of the property. The set-aside requirement for this property is that 40 percent or more of the building’s aggregate units be occupied by individuals with incomes of 60 percent or less of the area median gross income. The OHFA requested that all corrections to be made no later than June 7, 2010. The Local General Partner engaged legal counsel to help rectify this situation. Stroud’s legal counsel asked for an extension to get all the corrections made. OHFA granted an extension and is currently receiving bi-weekly progress reports on the issues and the corrections being made. On December 14, 2010 the Local General Partner received a letter from OHFA stating that all corrections had been made and the final close out letter included copies of the corrected forms from the Internal Revenue Service.

 

On April 1, 2011, the Partnership sold its Local Limited Partnership Interest in Stroud to an affiliate of the Local General Partner. The Local General Partner had overfunded its contractual obligations as General Partner. The Partnership offered to pay $5,000 if the Local General Partner would purchase its Local Limited Partnership interest. The Local General Partner countered at $25,000 which the Partnership accepted.

 

The Local Limited Partnership will complete its 15-year Compliance Period in 2015; therefore there is a risk of tax credit recapture. The last year in which Low Income Housing Tax Credits will be generated by this Local Limited Partnership is 2011. The maximum exposure of recapture along with the interest and penalties related to the recapture is $408,914, which equates to $21.69 per Partnership Unit. The executed Purchase Agreement states that Stroud must remain in compliance with Section 42 of the IRS code. Until the completion of the Compliance Period, the purchaser must furnish the Partnership with certain reports proving that the Housing Complex is still in compliance with the IRS code.

 

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Future Contractual Cash Obligations

 

The following table summarizes the Partnership’s future contractual cash obligations as of March 31, 2011:

 

   2013   2014   2015   2016   2017   Thereafter   Total 
                             
Asset management fees (1)  $299,626   $55,176   $55,176   $55,176   $55,176   $2,372,568   $2,892,898 
Total contractual cash obligations  $299,626   $55,176   $55,176   $55,176   $55,176   $2,372,568   $2,892,898 

 

(1)Asset Management Fees are payable annually until termination of the Partnership, which is to occur no later than 2060. The estimate of the fees payable included herein assumes the retention of the Partnership’s interest in all Housing Complexes until 2060. Amounts due to the General Partner as of March 31, 2011 have been included in the 2012 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 asset management fees, see Note 3 to the financial statements included elsewhere herein.

 

Off-Balance Sheet Arrangements

 

The Partnerships has no off-balance sheet arrangements.

 

Exit Strategy

 

See Item 1 for information in this regard.

 

Impact of Recent Accounting Pronouncements

 

See footnote 1 to the financial statements.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

NOT APPLICABLE

 

Item 8. Financial Statements and Supplementary Data

 

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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

To the Partners

WNC Housing Tax Credit Fund VI, L.P., Series 7

 

We have audited the accompanying balance sheets of WNC Housing Tax Credit Fund VI, L.P., Series 7 (a California Limited Partnership) (the Partnership) as of March 31, 2012 and 2011, and the related statements of operations, partners’ equity (deficit) and cash flows for each of the years in the three-year period ended March 31, 2012. The Partnership’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain Local Limited Partnerships which investments represent $0 and $0 of the total Partnership assets as of March 31, 2012 and 2011, respectively, and $0, $0 and $(105,302) of the total Partnership loss for the years ended March 31, 2012, 2011 and 2010, respectively. Those statements were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to those Local Limited Partnerships, is based solely on the reports of the other auditors.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of WNC Housing Tax Credit Fund VI, L.P., Series 7 as of March 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

 

- 1 -
 

 

 

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed under Item 15(a)(2) in the index related to years above are presented for the purpose of complying with the Securities and Exchange Commission’s rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied to the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial statement data required to be set forth therein in relation to the basic financial statements taken as a whole.

 

/s/ CohnReznick LLP  
   
Bethesda, Maryland  
November 05, 2012  

 

- 2 -
 

  

PAILET, MEUNIER and LeBLANC, L.L.P.

Certified Public Accountants

Management Consultants

  

INDEPENDENT AUDITOR’S REPORT

 

To the Partners

UNITED DEVELOPMENT CO., L.P.-2000

 

We have audited the accompanying balance sheet of UNITED DEVELOPMENT CO., L.P.-2000, as of December 31, 2009 and the related statements of operations, changes in partners’ capital and cash flows for the year then ended. These financial statements are the responsibility of the partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the Standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership’s internal control over financial reporting. Accordingly, we express no such opinion. 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 UNITED DEVELOPMENT CO., L.P.-2000 as of December 31, 2009 and the results of its operations, changes in partners’ capital and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

  

/s/ PAILET, MEUNIER and LeBLANC, L.L.P.  
Metairie, Louisiana  
September 3, 2010  

 

 
 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

BALANCE SHEETS

 

   March 31, 
   2012   2011 
         
ASSETS          
           
Cash  $26,139   $160,878 
Investments in Local Limited Partnerships, net (Notes 2 and 3)   472,226    1,426,216 
Due from affiliates, net (Note 5)   75,394    75,394 
Other assets   -    22,964 
           
Total Assets  $573,759   $1,685,452 
           
LIABILITIES AND PARTNERS’ EQUITY (DEFICIT)          
           
Liabilities:          
Accrued expenses  $-   $2,295 
Accrued fees and expenses due to General Partner and affiliates (Note 3)   379,294    254,330 
           
Total Liabilities   379,294    256,625 
           
Partners’ Equity (Deficit):          
General Partner   (17,807)   (16,573)
Limited Partners (25,000 Partnership Units authorized; 18,850 Partnership Units issued and outstanding)   212,272    1,445,400 
           
Total Partners’ Equity (Deficit)   194,465    1,428,827 
           
Total Liabilities and Partners’ Equity (Deficit)  $573,759   $1,685,452 

 

See accompanying notes to financial statements

 

F-1
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

STATEMENTS OF OPERATIONS

 

   For the Years Ended March 31, 
   2012   2011   2010 
             
Reporting fees  $11,713   $8,520   $20,056 
Distribution income   -    -    1,029 
Other income   -    -    102 
                
Total income   11,713    8,520    21,187 
                
Operating expenses and loss:               
Amortization   33,272    39,236    39,236 
Asset management fees (Note 3)   55,176    58,456    58,456 
Impairment loss (Note 2)   638,150    853,991    863,041 
Legal and accounting   55,894    89,444    7,362 
Write off of other  assets   22,964    -    - 
Write off of advances to Local Limited Partnerships (Note 6)   140,344    75,250    15,000 
Other   36,534    19,587    9,670 
                
 Total operating expenses and loss   982,334    1,135,964    992,765 
                
Loss from operations   (970,621)   (1,127,444)   (971,578)
                
Equity in losses of Local Limited Partnerships (Note 2)   (247,905)   (279,911)   (311,581)
                
Loss on sale of Local Limited Partnership   (25,377)   -    - 
                
Interest income   9,541    165    21,190 
                
Net loss  $(1,234,362)  $(1,407,190)  $(1,261,969)
                
Net loss allocated to:               
General Partner  $(1,234)  $(1,407)  $(1,262)
                
Limited Partners  $(1,233,128)  $(1,405,783)  $(1,260,707)
                
Net loss per Partnership Unit  $(65.42)  $(74.58)  $(66.88)
                
Outstanding weighted Partnership Units   18,850    18,850    18,850 

 

See accompanying notes to financial statements

 

F-2
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

STATEMENTS OF PARTNERS’ EQUITY (DEFICIT)

 

For the Years Ended March 31, 2012, 2011 and 2010

 

   General
Partner
   Limited
Partners
   Total 
             
Partners’ equity (deficit) at March 31, 2009  $(13,904)  $4,111,890   $4,097,986 
                
Net loss   (1,262)   (1,260,707)   (1,261,969)
                
Partners’ equity (deficit) at March 31, 2010   (15,166)   2,851,183    2,836,017 
                
Net loss   (1,407)   (1,405,783)   (1,407,190)
                
Partners’ equity (deficit) at March 31, 2011   (16,573)   1,445,400    1,428,827 
                
Net loss   (1,234)   (1,233,128)   (1,234,362)
                
Partners’ equity (deficit) at March 31, 2012  $(17,807)  $212,272   $194,465 

 

See accompanying notes to financial statements

 

F-3
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

STATEMENTS OF CASH FLOWS

 

   For the Years Ended March 31, 
   2012   2011   2010 
             
Cash flows from operating activities:               
Net loss  $(1,234,362)  $(1,407,190)  $(1,261,969)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:               
Amortization   33,272    39,236    39,236 
Impairment loss   638,150    853,991    863,041 
Equity in losses of Local Limited Partnerships   247,905    279,911    311,581 
(Increase) decrease in other assets   -    (18,164)   (4,800)
Decrease in due from affiliates   -    -    3,413 
Decrease in accrued expenses   (2,295)   -    (3,205)
Increase (decrease) in accrued fees and expenses due to General Partner and affiliates   (9,880)   55,167    55,746 
Write off of other assets   22,964    -    - 
Loss on sale of Local Limited Partnership   25,377    -    - 
                
Net cash provided by (used in) operating activities   (278,869)   (197,049)   3,043 
                
Cash flows from investing activities:               
Distributions from Local Limited Partnerships   34,663    19,397    12,244 
Advances to Local Limited Partnerships   (140,344)   (75,250)   (15,000)
Write off of advances to Local Limited Partnerships   140,344    75,250    15,000 
Net payment made on sale of Local Limited Partnership   (25,377)   -    - 
                
Net cash provided by (used in) investing activities   9,286    19,397    12,244 
                
Cash flows from financing activities:               
Advances received from General Partner and affiliates   134,844    -    - 
                
Net cash provided by financing activities   134,844    -    - 
                
Net increase (decrease) in cash   (134,739)   (177,652)   15,287 
                
Cash, beginning of period   160,878    338,530    323,243 
                
Cash, end of period  $26,139   $160,878   $338,530 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:               
Taxes paid  $800   $800   $800 
                
SIGNIFICANT NONCASH INVESTING AND FINANCING ACTIVITIES:               
The Partnership has decreased its investments in Local Limited Partnerships and decreased its payables to Local Limited Partnerships due to negative tax credit adjuster  $-   $-   $12,081 

  

F-4
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

WNC Housing Tax Credit Fund VI, L.P., Series 7, a California Limited Partnership (the “Partnership”) was formed on June 16, 1997 under the laws of the State of California, and commenced operations on September 3, 1999. 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 Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the “Local Limited Partnership Agreement”).

 

WNC & Associates, Inc. is the general partner of the Partnership (the “General Partner” or “Associates”). The chairman and president owns all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through Associates, as the Partnership has no employees of its own.

 

The Partnership shall continue to be in full force and effect until December 31, 2060 unless terminated prior to that date pursuant to the partnership agreement or law.

 

The financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners.

 

The Partnership Agreement authorized the sale of up to 25,000 units of limited partnership interest (“Partnership Units”) at $1,000 per Partnership Unit. The offering of Partnership Units has concluded and 18,850 Partnership Units, representing subscriptions in the amount of $18,828,790, net of dealer discounts of $21,210 had been accepted. The General Partner has a 0.1% interest in operating profits and losses, taxable income and losses, cash available for distribution from the Partnership and Low Income Housing Tax Credits of the Partnership. The investors (the “Limited Partners”) in the Partnership will be allocated the remaining 99.9% of these items in proportion to their respective investments.

 

The proceeds from the disposition of any of the Local Limited Partnership 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 Partnership. 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 equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner would then be entitled to receive proceeds equal to its 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.

 

Risks and Uncertainties

 

An investment in the Partnership and the Partnership’s investments in Local Limited Partnerships and their Housing Complexes are subject to risks. These risks may impact the tax benefits of an investment in the Partnership, and the amount of proceeds available for distribution to the Limited Partners, if any, on liquidation of the Partnership’s investments. Some of those risks include the following:

 

F-5
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Low Income Housing Tax Credit rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Tax Credits and the fractional recapture of Low Income Housing Tax Credits already taken. In most cases the annual amount of Low Income Housing Tax Credits that an individual can use is limited to the tax liability due on the person’s last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a price which would result in the Partnership realizing cash distributions or proceeds from the transaction. Accordingly, the Partnership may be unable to distribute any cash to its Limited Partners. Low Income Housing Tax Credits may be the only benefit from an investment in the Partnership.

 

The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership’s ability to satisfy its investment objectives. Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years (the “Compliance Period”), the loss of any remaining future Low Income Housing Tax Credits, a fractional recapture of prior Low Income Housing Tax Credits, and a loss of the Partnership’s investment in the Housing Complex would occur. The Partnership is a limited partner or non-managing member of each Local Limited Partnership. Accordingly, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships. The Partnership will rely totally on the Local General Partners. Neither the Partnership’s investments in Local Limited Partnerships, nor the Local Limited Partnerships’ investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Tax Credits and recapture of Low Income Housing Tax Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar properties, and neighborhood conditions, among others.

 

The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Tax Credits and tax losses allocable to the Limited Partners could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership. Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes.

 

Substantially all of the Low Income Housing Tax Credits anticipated to be realized from the Local Limited Partnerships have been realized. The Partnership does not anticipate being allocated any Low Income Housing Tax Credits from the Local Limited Partnerships in the future.

 

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. 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 then existing contractual obligations and then 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.

 

F-6
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 November 30, 2013.

 

No trading market for the Partnership Units exists or is expected to develop. Limited Partners may be unable to sell their Partnership Units except at a discount and should consider their Partnership Units to be a long-term investment. Individual Limited Partners will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners.

 

Exit Strategy

 

The 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.

 

Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. A sale prior to the end of the Compliance Period could result in recapture if certain conditions are not met.

 

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.

 

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, 2012.

 

Upon management of the Partnership identifying a Local Limited Partnership for disposition, costs incurred by the Partnership in preparation for the disposition are deferred. Upon the sale of the Local Limited Partnership Interest, the Partnership nets the costs that had been deferred against the proceeds from the sale in determining the gain or loss on the sale of the Local Limited Partnership. Deferred disposition costs are included in other assets on the balance sheets.

 

On April 1, 2011, the Partnership sold its Local Limited Partnership interest in Stroud Housing Associates, L.P. (“Stroud”) to an affiliate of the Local General Partner. Stroud had been experiencing several operational issues including extremely low occupancy. The Local General Partner had overfunded its contractual obligations as General Partner. The Partnership offered to pay $5,000 if the Local General Partner would purchase its Local Limited Partnership Interest. The Local General Partner countered at $25,000 which the Partnership accepted.

 

The Local Limited Partnership will complete its 15-year compliance period in 2015; therefore there is a risk of tax credit recapture. The last year in which Low Income Housing Tax Credits were generated by this Local Limited Partnership is 2011. The maximum exposure of recapture along with the interest and penalties related to the recapture is $408,914, which equates to $21.69 per Partnership Unit. The executed Purchase Agreement states that Stroud must remain in compliance with Section 42 of the IRS code. Until the completion of the Compliance Period, the purchaser must furnish the Partnership with certain reports proving that the Housing Complex is still in compliance with the IRS code.

  

F-7
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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, as the proceeds first would be used to pay Partnership obligations and funding of reserves.

 

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 at least annually or 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 sum of the remaining future Low Income Housing Tax Credits estimated to be allocated to the Partnership and any 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 and were being amortized over 30 years (See Notes 2 and 3).

 

“Equity in losses of Local Limited Partnerships” for each year ended March 31 has been recorded by the Partnership based on the twelve months of reported results provided by the Local Limited Partnerships for each year ended December 31. Equity in losses of Local Limited Partnerships allocated to the Partnership is not recognized to the extent that the investment balance would be adjusted below zero. If the Local Limited Partnerships reported 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 (see Note 2).

 

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.

 

In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.

 

F-8
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership’s interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership’s balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership’s exposure to loss on these 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 and their guarantee against credit recapture to the investors in the Partnership.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

 

Cash and Cash Equivalents

 

The Partnership considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. As of March 31, 2012 and 2011, the Partnership had no cash equivalents.

 

Concentration of Credit Risk

 

At March 31, 2012, the Partnership maintained cash balances at a certain financial institution in excess of the federally insured maximum. The Partnership believes it is not exposed to any significant financial risk on cash.

 

Reporting Comprehensive Income

 

The Partnership had no items of other comprehensive income for all periods presented.

 

Net Loss Per Partnership Unit

 

Net loss per Partnership Unit includes no dilution and is computed by dividing loss available to Limited Partners by the weighted average number of Partnership Units outstanding during the period. Calculation of diluted net loss per Partnership Unit is not required.

 

Income Taxes

 

The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, there financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure.

 

F-9
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Revenue Recognition

 

The Partnership is entitled to receive reporting fees from the Local Limited Partnerships. The intent of the reporting fees is to offset (in part) administrative costs incurred by the Partnership in corresponding with the Local Limited Partnerships. Due to the uncertainty of the collection of these fees, the Partnership recognizes reporting fees as collections are made.

 

Amortization

 

Acquisition fees and costs were being amortized over 30 years using the straight-line method. Amortization expense for each of the years ended March 31, 2012, 2011, and 2010 was $33,272, $39,236, and $39,236, respectively. Future estimated annual amortization expense for each of the years through March 31, 2017 is $27,308.

 

Impairment

 

The Partnership reviews its investments in Local Limited Partnerships for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of such investments may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the investment to the sum of the total amount of the remaining Low Income Housing Tax Credits allocated to the Partnership and any estimated residual value of the investment. As of March 31, 2009, all Local Limited Partnerships were not considered to have any residual value in consideration of the current economic circumstances. For the years ended March 31, 2012, 2011 and 2010 impairment loss related to investments in Local Limited Partnerships was $344,426, $853,991, and $863,041, respectively.

 

The Partnership also evaluated its intangibles for impairment in connection with its investments in Local Limited Partnerships. Impairment on the intangibles is measured by comparing the Partnership’s total investment balance after impairment of investments in Local Limited Partnerships to the sum of the total of remaining Low Income Housing Tax Credits allocated to the Partnership and the estimated residual value of the investment. As of March 31, 2009, all Local Limited Partnerships were not considered to have any residual value in consideration of the current economic circumstances. During the years ended March 31, 2012, 2011 and 2010, impairment loss of $293,724, $0, and $0, was recorded against the related intangibles.

 

Impact of Recent Accounting Pronouncements

 

In September 2006, the FASB issued accounting guidance for Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007 and shall be applied prospectively except for very limited transactions. In February 2008, the FASB delayed for one year implementation of the guidance as it pertains to certain non-financial assets and liabilities. The Partnership adopted GAAP for Fair Value Measurements effective April 1, 2008, except as it applies to those non-financial assets and liabilities, for which the effective date was April 1, 2009. The Partnership has determined that adoption of this guidance has no material impact on the Partnership’s financial statements.

 

In November 2008, the FASB issued accounting guidance on Equity Method Investment Accounting Considerations that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. This guidance is effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Partnership adopted the guidance for the interim quarterly period beginning April 1, 2009. The impact of adopting it did not have a material impact on the Partnership’s financial condition or results of operations.

 

F-10
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

In April 2009, the FASB issued accounting guidance for Interim Disclosures about Fair Value of Financial Instruments. This requires disclosure about the method and significant assumptions used to establish the fair value of financial instruments for interim reporting periods as well as annual statements. It became effective for as of and for the interim period ended June 30, 2009 and had no impact on the Partnership’s financial condition or results of operations.

 

In May 2009, the FASB issued guidance regarding subsequent events, which was subsequently updated in February 2010. This guidance established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009, and was therefore adopted by the Partnership for the quarter ended June 30, 2009. The adoption did not have a significant impact on the subsequent events that the Partnership reports, either through recognition or disclosure, in the financial statements. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and therefore the Partnership did not include the disclosure in this Form 10-K.

 

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (VIEs). The amended guidance modifies the consolidation model to one based on control and economics, and replaced quantitative primary beneficiary analysis with a qualitative analysis. The primary beneficiary of a VIE will be the entity that has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the amended guidance requires continual reconsideration of the primary beneficiary of a VIE and adds an additional reconsideration event for determination of whether an entity is a VIE. Additionally, the amendment requires enhanced and expanded disclosures around VIEs. This amendment is effective for fiscal years beginning after November 15, 2009. The adoption of this guidance on April 1, 2010 did not have a material effect on the Partnership’s financial statements.

 

In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The Codification is intended to reorganize, rather than change, existing GAAP. Accordingly, all references to currently existing GAAP have been removed and have been replaced with plain English explanations of the Partnership’s accounting policies. The adoption of the Codification did not have a material impact on the Partnership’s financial position or results of operations.

 

F-11
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS

 

As of March 31, 2012 and 2011, the Partnership owns Local Limited Partnership interests in 12 and 13 Local Limited Partnerships, respectively, each of which owns one Housing Complex consisting of an aggregate 440 and 476 apartment units, respectively. The respective Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a limited partner, is generally entitled to 99.98%, as specified in the Local Limited Partnership Agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.

 

The Partnership’s investments in Local Limited Partnerships as shown in the balance sheets at March 31, 2012 and 2011 are approximately $3,715,000 and $2,007,000 respectively, less than the Partnership’s equity at the preceding December 31 as shown in the Local Limited Partnerships’ combined condensed financial statements presented below. This difference is primarily due to unrecorded losses as discussed below, and acquisition, selection and other costs related to the acquisition of the investments which have been capitalized in the Partnership’s investment account along with impairment losses recorded in the Partnership’s investment account.

 

The Partnership reviews its investments in Local Limited Partnerships for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of such investments may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the investment to the sum of the total amount of the remaining Low Income Housing Tax Credits allocated to the Partnership and any estimated residual value of the investment. As of March 31, 2009, all Local Limited Partnerships were not considered to have any residual value in consideration of the current economic circumstances. For the years ended March 31, 2012, 2011 and 2010 impairment loss related to investments in Local Limited Partnerships was $344,426, $853,991, and $863,041, respectively.

 

The Partnership also evaluated its intangibles for impairment in connection with its investments in Local Limited Partnerships. Impairment on the intangibles is measured by comparing the Partnership’s total investment balance after impairment of investments in Local Limited Partnerships to the sum of the total of remaining Low Income Housing Tax Credits allocated to the Partnership and the estimated residual value of the investment. As of March 31, 2009, all Local Limited Partnerships were not considered to have any residual value in consideration of the current economic circumstances. During the years ended March 31, 2012, 2011 and 2010, impairment loss of $293,724, $0, and $0 were recorded on the related intangibles.

 

At March 31, 2012 and 2011, the investment accounts for ten and seven of the Local Limited Partnerships, respectively, have reached a zero balance. Consequently, a portion of the Partnership’s estimate of its share of (income) losses for the years ended March 31, 2012, 2011 and 2010, amounting to $(1,075,180), $347,628, and $271,477, respectively, have not been recognized. As of March 31, 2012, the aggregate share of net losses not recognized by the Partnership amounted to approximately $915,000.

 

F-12
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued

 

The following is a summary of the equity method activity of the investments in Local Limited Partnerships for periods presented:

 

   For the Years
Ended March 31,
 
   2012   2011   2010 
             
Investments per balance sheet, beginning of period  $1,426,216   $2,618,751   $3,856,934 
Tax credit adjustment   -    -    (12,081)
Impairment loss   (638,150)   (853,991)   (863,041)
Distributions received from Local Limited Partnerships   (34,663)   (19,397)   (12,244)
Equity in losses of Local Limited Partnerships   (247,905)   (279,911)   (311,581)
Amortization of paid acquisition fees and costs   (33,272)   (39,236)   (39,236)
                
Investments per balance sheet, end of period  $472,226   $1,426,216   $2,618,751 

 

   For the Years
Ended March 31,
 
   2012   2011   2010 
             
Investments in Local Limited Partnerships, net  $43,346   $670,340   $1,823,639 
Acquisition fees and costs, net of accumulated amortization of $23,463, $940,624, and $901,388   428,880    755,876    795,112 
Investments per balance sheet, end of period  $472,226   $1,426,216   $2,618,751 

 

F-13
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2011, 2010 and 2009

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued

 

The financial information from the individual financial statements of the Local Limited Partnerships includes rental and interest subsidies. Rental subsidies are included in total revenues and interest subsidies are generally netted against interest expense. Approximate combined condensed financial information from the individual financial statements of the Local Limited Partnerships as of December 31 and for the years then ended is as follows:

 

COMBINED CONDENSED BALANCE SHEETS

 

   2011   2010 
         
ASSETS          
           
Buildings and improvements (net of accumulated depreciation as of December 31, 2011, and 2010 of $9,805,000, and $9,451,000, respectively)  $18,781,000   $20,817,000 
Land   1,031,000    995,000 
Other assets   2,635,000    2,291,000 
           
Total assets  $22,447,000   $24,103,000 
           
LIABILITIES          
           
Mortgage loans payable  $14,254,000   $16,017,000 
Due to related parties   1,240,000    1,718,000 
Other liabilities   564,000    1,294,000 
           
Total liabilities   16,058,000    19,029,000 
           
PARTNERS’ EQUITY          
           
WNC Housing Tax Credit Fund VI, L.P., Series 7   4,187,000    3,433,000 
Other partners   2,202,000    1,641,000 
           
Total partners’ equity   6,389,000    5,074,000 
           
Total liabilities and partners’ equity  $22,447,000   $24,103,000 

 

F-14
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued

 

COMBINED CONDENSED STATEMENTS OF OPERATIONS

 

   2011    2010   2009 
             
Revenues  $5,006,000   $3,003,000   $2,954,000 
                
Expenses:               
Operating expenses   2,449,000    2,145,000    1,881,000 
Interest expense   777,000    685,000    764,000 
Depreciation and amortization   953,000    801,000    935,000 
                
Total expenses   4,179,000    3,631,000    3,580,000 
                
Net operating  income (loss)  $827,000   $(628,000)  $(626,000)
                
Net income (loss) allocable to the Partnership  $827,000   $(628,000)  $(585,000)
                
Net loss recorded by the Partnership  $(248,000)  $(280,000)  $(312,000)

 

Certain Local Limited Partnerships have incurred significant operating losses and/or have working capital deficiencies. In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership and/or the Local General Partners may be required to sustain operations of such Local Limited Partnerships. If additional capital contributions are not made when they are required, the Partnership’s investment in certain of such Local Limited Partnerships could be impaired, and the loss and recapture of the related Low Income Housing Tax Credits could occur.

 

NOTE 3 - RELATED PARTY TRANSACTIONS

 

Under the terms of the Partnership Agreement, the Partnership has paid or is obligated to the General Partner or its affiliates for the following items:

 

Acquisition fees equal to 7% of the gross proceeds from the sale of Partnership Units as compensation for services rendered in connection with the acquisition of Local Limited Partnerships. At the end of all periods presented, the Partnership incurred acquisition fees of $1,319,500. Accumulated amortization of these capitalized costs was $23,463, and $563,624, as of March 31, 2012 and 2011, respectively. Impairment of the intangibles is measured by comparing the Partnership’s total investment balance after impairment of investments in Local Limited Partnerships to the sum of the total of the remaining Low Income Housing Tax Credits allocated to the Partnership and any estimated residual value of the investments. If an impairment loss related to the acquisition fees is recorded, the accumulated amortization is reduced to zero at that time.

 

Reimbursement of costs incurred by the General Partner or an affiliate in connection with the acquisition of the Local Limited Partnerships. These reimbursements have not exceeded 2% of the gross proceeds. As of the end of all periods presented, the Partnership had incurred acquisition costs of $377,000 which have been included in investments in Local Limited Partnerships. The acquisition costs were fully amortized for all periods presented.

 

F-15
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 3 - RELATED PARTY TRANSACTIONS, continued

 

An annual asset management fee equal to 0.2% of the Invested Assets of the Partnership, as defined. ”Invested Assets” means the sum of the Partnership’s investment in Local Limited Partnership interests and the Partnership’s allocable share of mortgage loans on and other debts related to the Housing Complexes owned by such Local Limited Partnerships. Asset management fees of $55,176, $58,456 and $58,456 were incurred during the years ended March 31, 2012, 2011 and 2010, respectively, of which $45,000, $45,000 and $22,500 was paid during the years ended March 31, 2012, 2011 and 2010, respectively.

 

The Partnership reimbursed the General Partner or its affiliates for operating expenses incurred by the Partnership and paid for by the General Partner or its affiliates on behalf of the Partnership. Operating expense reimbursements were $113,998, $85,484, and $5,081 during the years ended March 31, 2012, 2011 and 2010, respectively.

 

A subordinated disposition fee in an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the limited partners receiving a return on investment (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. No such fee was incurred for all the periods presented.
   
  During the year ended March 31, 2012, 2011 and 2010, the Partnership had received cash advances from the General Partner or affiliates totaling $134,844, $0, and $0, respectively, which were in turn advanced to Lake Village Apartments to aid the property with its operational issues.

  

The accrued fees and expenses due to the General Partner and affiliates consist of the following at:

 

   March 31, 
   2012   2011 
         
Expenses paid by the General Partner or an affiliate on behalf of the Partnership  $42,286   $62,343 
Asset management fee payable   202,164    191,987 
Payable to General Partner or an affiliate   134,844    - 
           
Total  $379,294   $254,330 

 

The General Partner and/or its affiliates do not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of the future foreseeable working capital requirements of the Partnership.

 

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 November 30, 2013.

 

F-16
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 4 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

 

The following is a summary of the quarterly operations for the years ended March 31 (rounded):

 

   June 30   September 30    December 31   March 31 
                  
2012                 
Income  $-   $5,000    $2,000   $5,000 
                      
Operating expenses   (735,000)   (37,000)    (27,000)   (184,000)
                      
Loss from operations   (735,000)   (32,000)    (25,000)   (179,000)
                      
Equity in losses of Local Limited Partnerships   (50,000)   (31,000)    (31,000)   (136,000)
                      
Loss on sale of Local Limited Partnerships   (25,000)   -     -    - 
                      
Interest income   -    -     -    10,000 
                      
Net loss   (810,000)   (63,000)    (56,000)   (305,000)
                      
Net loss available to Limited Partners   (809,000)   (63,000)    (56,000)   (305,000)
                      
Net loss per Partnership Unit   (43)   (3)    (3)   (16)

 

   June 30   September 30   December 31   March 31 
                 
2011                
Income  $-   $1,000   $-   $8,000 
                     
Operating expenses   (893,000)   (97,000)   (99,000)   (47,000)
                     
Loss from operations   (893,000)   (96,000)   (99,000)   (39,000)
                     
Equity in losses of Local Limited Partnerships   (75,000)   (64,000)   (57,000)   (84,000)
                     
Net loss   (968,000)   (160,000)   (156,000)   (123,000)
                     
Net loss available to Limited Partners   (967,000)   (160,000)   (156,000)   (123,000)
                     
Net loss per Partnership Unit   (51)   (9)   (8)   (7)

 

F-17
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 4 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), continued

 

   June 30   September 30   December 31   March 31 
                 
2010                
Income  $4,000   $16,000   $-   $1,000 
                     
Operating expenses   (889,000)   (33,000)   (43,000)   (28,000)
                     
Loss from operations   (885,000)   (17,000)   (43,000)   (27,000)
                     
Equity in losses of Local Limited Partnerships   (97,000)   (91,000)   (89,000)   (34,000)
                     
Interest income   -    -    -    21,000 
                     
Net loss   (982,000)   (108,000)   (132,000)   (40,000)
                     
Net loss available to Limited Partners   (981,000)   (108,000)   (132,000)   (40,000)
                     
Net loss per Partnership Unit   (52)   (6)   (7)   (2)

 

NOTE 5 - DUE FROM AFFILIATES, NET

 

At March 31, 2012 and 2011, loans receivable of $75,394 were due from one Local Limited Partnership, ACN Southern Hills II, L.P. (“Southern Hills”) in which the Partnership owns a 99.98% interest. The loan receivable is in the form of a 20 year promissory note, is subordinate to the first mortgage on the respective property, due in full on August 30, 2022 and earns interest at a rate of 8% per annum. Southern Hills had a construction loan payable aggregating approximately $1,100,000 as of December 31, 2001, which was due in March 2002 and was not repaid at that time. In September 2002 the $1.1 million loan was refinanced. The General Partner paid off $557,000 of the loan with investment money received from the Partnership. The remaining balance was converted to a $463,000 first mortgage with a bank and an $80,000 promissory note due in 20 years to the Partnership. The payments are to be made monthly and at the end of the year from available cash flow. The Partnership expects this loan to be collectible in full. The mortgage note has covenants requiring the DCR to be maintained at 1.20 or greater. In such cases where the DCR would fall below 1.20, no payments on the note would be made. The most recent payments of $9,516 and $20,002 were received on March 16, 2012 and 2010, respectively.

 

At March 31, 2012 and 2001, advances due from one Local Limited Partnership were $431,098 and $290,754 due from Lake Village Apartments in which the Partnership owns a 99.98% interest. In April 2006, Lake Village Apartments, did not make its regularly scheduled principal and interest payment to the mortgage holder, Illinois Development Housing Authority (IHDA) and began negotiations with IHDA to restructure the debt. IHDA filed a summons and complaint for foreclosure in the 14th Judicial Circuit, Cambridge, Henry County, Illinois against Lake Village Apartments. Lake Village Apartments through counsel, filed an answer to the complaint denying the material allegations contained in the complaint. No further action by IHDA had been taken in the lawsuit. Notwithstanding, IHDA continued to negotiate with Lake Village Apartments regarding some type of partnership and debt restructuring. Through the bankruptcy court, the Local General Partner and IHDA agreed on a debt pay-off amount of $600,000. The General Partner or an affiliate thereof has paid the $600,000 to IHDA. The Local Limited Partnership is working towards a refinance which will most likely occur in 2013 at which time the affiliate of the General Partner will be repaid. All advances made to Lake Village Apartments were reserved for in full in the year they were advanced.

 

F-18
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

The Partnership is not obligated to fund advances to the Local Limited Partnerships. Occasionally, when Local Limited Partnerships encounter operational issues the Partnership may decide to advance funds to assist the Local Limited Partnership with its operational issues. During the year ended March 31, 2002, Associates was advised that Lake Village Apartments, a Local Limited Partnership, was in default of certain covenants relating to certain loans advanced for the construction of the apartments. The defaults were primarily caused by the general contractor failing to complete the construction of the development according to the terms of the Lake Village Apartment’s loans. As a result of the foregoing, on June 30, 2002, the Local General Partner of Lake Village Apartments was replaced by an entity wholly owned by two minority shareholders and officers of Associates and a workout agreement was executed with the lender (the “Agreement”), whereby the Local General Partner of Lake Village Apartments was replaced by the aforementioned entity. Pursuant to the terms of the Agreement, the new Local General Partner would contribute additional equity to the Local Limited Partnership if necessary, a new general contractor would complete the construction of the development, and the lender, upon satisfaction of certain conditions of the Agreement as defined, would continue to fund the completion of the construction and other costs. In addition, pursuant to the Agreement, the Partnership Agreement was amended, and the Partnership committed and paid additional capital contributions of $855,628 as a result of obtaining additional Low Income Housing Tax Credits. Construction of the development was completed as of June 2002, at which time all construction loans converted to permanent financing.

 

Beginning in November 2005, the Lake Village Apartments are being managed by the Henry County Housing Development Group, Inc. (HCHD). HCHD is the local housing authority serving Kewanee, Illinois. HCHD currently manages numerous apartment units in Kewanee and brings substantial knowledge of property management and knowledge of the local community. HCHD also administers the tenant housing choice voucher program and may be able to provide Lake Village Apartments occupants with rental assistance payments to help defer the cost of their rent thereby making it more attractive for a prospective tenant to remain at Lake Village Apartments. As of the report date, the Partnership has advanced Lake Village Apartments approximately $431,098 all of which has been reserved for and written off as bad debt as management has deemed the collectability to be questionable. These advances were used to fund certain recurring and nonrecurring operating expenses consisting primarily of property taxes and insurance.

 

Beginning in April 2006, Lake Village Apartments did not make its regularly schedule principal and interest payment to the mortgage holder, Illinois Development Housing Authority (IHDA) and began negotiations with IHDA at that time to restructure the debt. In April 2011, IHDA filed a summons and complaint for foreclosure in the 14th Judicial Circuit, Cambridge, Henry County, Illinois against Lake Village Apartments. Lake Village Apartments through counsel, filed an answer to the complaint denying the material allegations contained in the complaint. No further action by IHDA has been taken in the lawsuit. Notwithstanding, IHDA continues to negotiate with Lake Village Apartments regarding some type of partnership and debt restructuring.

 

An appraisal received in April 2008 indicated a current market value of $480,000. The Partnership has not had another appraisal prepared since that date. As of December 31, 2010, the current mortgage balance to be paid for Lake Village Apartments was $2,009,895. Through the bankruptcy court, the Local General Partner and IHDA agreed on a debt pay-off amount of $600,000. The General Partner or an affiliate thereof has paid the $600,000 to IHDA. This will prevent the property from foreclosure and possible recapture events.

 

On April 9, 2010, Stroud was inspected by the Oklahoma Housing Finance Agency (“OHFA”) and it was concluded that Stroud had fallen below the minimum set-aside requirements due to the number of down units, vacancies and the overall condition of the property. The set-aside requirement for this property is that 40 percent or more of the building’s aggregate units be occupied by individuals with incomes of 60 percent or less of the area median gross income. The OHFA requested that all corrections to be made no later than June 7, 2010. The Local General Partner engaged legal counsel to help rectify this situation. Stroud’s legal counsel asked for an extension to get all the corrections made. OHFA granted an extension and is currently receiving bi-weekly progress reports on the issues and the corrections being made. On December 14, 2010 the Local General Partner received a letter from OHFA stating that all corrections had been made and the final close out letter included copies of the corrected forms from the Internal Revenue Service.

 

F-19
 

 

WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 7

(A California Limited Partnership)

 

NOTES TO FINANCIAL STATEMENTS – CONTINUED

 

For the Years Ended March 31, 2012, 2011 and 2010

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES, continud

 

On April 1, 2011, the Partnership sold its Local Limited Partnership Interest in Stroud to an affiliate of the Local General Partner. The Local General Partner had overfunded its contractual obligations as General Partner. The Partnership offered to pay $5,000 if the Local General Partner would purchase its Local Limited Partnership interest. The Local General Partner countered at $25,000 which the Partnership accepted.

 

The Local Limited Partnership will complete its 15-year Compliance Period in 2015; therefore there is a risk of tax credit recapture. The last year in which Low Income Housing Tax Credits will be generated by this Local Limited Partnership is 2011. The maximum exposure of recapture along with the interest and penalties related to the recapture is $408,914, which equates to $21.69 per Partnership Unit. The executed Purchase Agreement states that Stroud must remain in compliance with Section 42 of the IRS code. Until the completion of the Compliance Period, the purchaser must furnish the Partnership with certain reports proving that the Housing Complex is still in compliance with the IRS code.

 

F-20
 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

NONE

 

Item 9A. Controls and Procedures

 

(a)Disclosure controls and procedures

 

As of the end of the period covered by this report, the Partnership’s General Partner, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of Associates, carried out an evaluation of the effectiveness of the 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)Management’s annual report on internal control over financial reporting

 

The management of Associates is responsible for establishing and maintaining for the Partnership adequate internal control over financial reporting as that term is defined in Securities Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2012. The internal control process of Associates, as it is applicable to the Partnership, was designed to provide reasonable assurance to Associates regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:

 

(1)Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;
(2)Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Partnership’s receipts and expenditures are being made only in accordance with authorization of the management of Associates; and
(3)Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

 

All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

28
 

 

Management of Associates assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Partnership, as of the end of the Partnership’s most recent fiscal year. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management of Associates concluded that, for the reasons set forth above under “Disclosure controls and procedures”, the internal control over financial reporting, as it is applicable to the Partnership, was not effective as of March 31, 2012.

 

For purposes of the Securities Exchange Act of 1934, the term “material weakness” is a deficiency, or a combination of deficiencies, in a reporting company’s internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. For the reasons discussed above in this Item 9A, sub-section (a) under the caption “Disclosure controls and procedures,” the Partnership’s internal control over financial reporting has not been effective in permitting timely reporting of the Partnership’s financial information. Accordingly, the management of Associates believes that this inability to generate timely reports constitutes a material weakness in its internal control over financial reporting.

 

(c)Changes in internal controls

 

There were no changes in the Partnership’s internal control over financial reporting that occurred during the quarter ended March 31, 2012 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

Item 9B. Other Information

 

NONE

 

PART III.

 

Item 10. Directors and Executive Officers and Corporate Governance

 

(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, Chief Executive Officer and Secretary
Michael J. Gaber   Executive Vice President and Chief Operating Officer
David N. Shafer, Esq.   Executive Vice President
Darrick Metz   Senior Vice President – Originations
Christine A. Cormier   Senior Vice President – Fund Management
Melanie R. Wenk, CPA   Vice President – Chief Financial Officer
Kelly Henderson   Senior Vice President – Legal Affairs
Anand Kannan   Senior Vice President – Development
Paula Hall   Vice President – Asset Management
Gregory S. Hand   Vice President – Acquisitions
Thomas F. Maxwell   Vice President – Originations
Kay L. Cooper   Director of WNC & Associates, Inc.
Jennifer E. Cooper   Director of WNC & Associates, Inc.

 

29
 

 

In addition to Wilfred N. Cooper, Sr., the directors of WNC & Associates, Inc. are Wilfred N. Cooper, Jr., Kay L. Cooper and Jennifer E. Cooper.

 

Wilfred N. Cooper, Sr., age 81, is the founder and Chairman of the Board of Directors of WNC & Associates, Inc., a Director of WNC Capital Corporation, and a general partner in some of the partnerships previously sponsored by WNC & Associates, Inc. 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 WNC & Associates, Inc., 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 (“NAHB”), 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 co-founder and Director Emeritus 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 49, is President, Chief Executive Officer, Secretary, a Director, and a member of the Acquisition Committee, of WNC & Associates, Inc. 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 WNC & Associates, Inc. Previously, he served as a Government Affairs Assistant with Honda North America in Washington, D.C. Mr. Cooper serves on the Orange County Advisory Board of U.S. Bank, the Board of Trustees of NHC, the Editorial Advisory Board of Tax Credit Advisor, and the Tax Policy Council of the National Trust for Historic Preservation. He is a member of the Urban Land Institute and 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.

 

Michael J. Gaber, age 45, is an Executive Vice President, Chief Operating Officer, chair of the Acquisition Committee, and oversees the Property Acquisition and Investment Management groups, of WNC & Associates, Inc. Mr. Gaber has been involved in real estate acquisition, valuation and investment activities since 1989 and has been associated with WNC & Associates, Inc. since 1997. Prior to joining WNC & Associates, Inc., he was involved in the valuation and classification of major assets, restructuring of debt and analysis of real estate taxes with a large financial institution. Mr. Gaber is a member of the Housing Credit Group of NAHB and of National Housing and Rehabilitation Association (“NH&RA”). Mr. Gaber graduated from the California State University, Fullerton in 1991 with a Bachelor of Science degree in business administration – finance.

 

David N. Shafer, age 59, is an Executive Vice President, a member of the Acquisition Committee, and oversees the New Markets Tax Credit group, of WNC & Associates, Inc. Mr. Shafer has been active in the real estate industry since 1984. Before joining WNC & Associates, Inc. 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, a Director of the Council for Affordable and Rural 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 Laws degree in taxation.

 

Darrick Metz, age 41, is Senior Vice President – Originations of WNC & Associates, Inc. He has been involved in multifamily property underwriting, acquisition and investment activities since 1991. Prior to joining WNC in 1999, he was employed by a Minnesota development company specializing in tax credit and market rate multifamily projects. Mr. Metz also worked with the Minnesota Housing Finance Agency (“MHFA”), where he held the position of Senior Housing Development Officer. While at MHFA, he was responsible for the allocation of tax credits, HOME funds and state loan products. Mr. Metz is active in the Qualified Allocation Plan Tax Credit Advisory Committee for the Wisconsin Housing and Economic Development Authority, a member of MHFA’s Multifamily Technical Assistance and a board member of NH&RA. He graduated from St. Cloud State University in 1993 with a Bachelor of Science degree in finance/economics.

 

Christine A. Cormier, age 53, is Senior Vice President – Fund Management and, accordingly, oversees the fund management group, of WNC & Associates, Inc. Ms. Cormier has been active in the real estate industry since 1985. Prior to joining WNC in 2008, Ms. Cormier was with another major tax credit syndicator for over 12 years where she was the Managing Director of investor relations. Ms. Cormier graduated from Bentley University in 1982 with a Bachelor of Science degree (summa cum laude) in accounting and computer science.

 

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Melanie R. Wenk, age 43, is Vice President – Chief Financial Officer of WNC & Associates, Inc. She oversees WNC’s corporate and partnership accounting group, which is responsible for SEC reporting and New Markets Tax Credit compliance. 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.

 

Kelly Henderson, age 40, is Senior Vice President – Legal Affairs of WNC & Associates, Inc. She is responsible for structuring local limited partnership letters of understanding and local limited partnership agreements, coordinating closings with outside counsel and reviewing local limited partnership loan documents. Prior to joining WNC in 2006, she was Vice President – Acquisitions and Senior Counsel with a national tax credit syndicator. Ms. Henderson has been underwriting tax credit properties since 1999. She graduated from the State University of New York at Geneseo in 1993 with a Bachelor of Arts degree in political science and from the New England School of Law in 1996 with a Juris Doctor degree. She is licensed to practice law in the States of New York and Massachusetts.

 

Anand Kannan, age 32, is Senior Vice President – Development of WNC & Associates, Inc. and leads the preservation and development teams for Community Preservation Partners, LLC. Prior to joining WNC in 2011, Mr. Kannan served as Associate Director at Vitus Group (previously Pacific Housing Advisors, Inc.), where he developed or consulted on affordable housing projects across the country. His expertise is in the acquisition and rehabilitation of existing low-income housing projects that are or will be financed by tax-exempt bonds, tax credits, and other government subsidies. Prior to his tenure at Vitus Group, Mr. Kannan was associated with Novogradac & Company LLP. Mr. Kannan graduated from the University of California at Berkeley in 2002 with a Bachelor of Arts degree in Economics with an emphasis in Accounting.

 

Paula Hall, age 45, is Vice President – Asset Management, a member of the Acquisition Committee, and oversees the asset management group, of WNC & Associates, Inc. She joined WNC in 1997 and has more than 21 years of property management experience. Ms. Hall is a Certified Occupancy Specialist (CPO), Housing Credit Certified Professional (HCCP), and Certified Property Manager (CPM) candidate. Prior to joining WNC, she was a property manager for NHP Property Management (AIMCO) where she oversaw operations, training and development.

 

Gregory S. Hand, age 48, is Vice President – Acquisitions, and oversees the property underwriting activities, of the Irvine office of WNC & Associates, Inc. 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.

 

Thomas F. Maxwell, age 60, is Vice President – Originations of the Northeast Region. He has 17 years of experience in the tax credit industry, and more than 30 years of real estate experience, including originating, structuring and closing all types of affordable housing developments. Prior to joining WNC in 2009, he served as a team leader for a national tax credit syndicator for nine years. Mr. Maxwell graduated from Case Western Reserve University in 1974 with a Bachelor of Arts degree in English and from Boston University in 1980 with a Master of Business Administration degree.

 

Kay L. Cooper, age 75, 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 49, 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

 

None.

 

(g)Promoters and Control Persons

 

Inapplicable.

 

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(h)Audit Committee Financial Expert, and (i) Identification of the Audit Committee

 

Neither the Partnership nor the General Partner has an audit committee.

 

(j)Changes to Nominating Procedures

 

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 in an amount equal to 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 original investment in Local Limited Partnerships and the Partnership’s allocable share of mortgage loans on and other debts related to the Housing Complexes owned by such 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. Asset management fees of $55,176, $58,456, and $58,456 were incurred during the years ended March 31, 2012, 2011 and 2010, respectively, of which $45,000, $45,000, and $22,500, was paid during the years ended March 31, 2012, 2011 and 2010, 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 $93,941, $127,196, and $25,037, during the years ended March 31, 2012, 2011 and 2010, respectively. The Partnership reimbursed the General Partner or its affiliates for operating expenses of $113,998, $85,484, and $5,081 during the years ended March 31, 2012, 2011 and 2010, respectively.

 

32
 

 

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

 

“ . . . 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, on-site property personnel, 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 0.1% of the Partnership’s allocated Low Income Housing Tax Credits, which approximated $1,156, $1,707, and $1,798, for the General Partner for the years ended December 31, 2012, 2011, and 2010, respectively. The General Partner is also entitled to receive 0.1% 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, 2012, 2011 and 2010. 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, 2012, 2011 and 2010.

 

(d)Subordinated Disposition Fee

 

A subordinated disposition fee in an amount equal to 1% of the sale price of real estate sold by the Local Limited Partnerships. Payment of this fee is subordinated to the Limited Partners receiving distributions equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and is payable only if services are rendered in the sales effort. No such fee was incurred for all periods presented.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

(a)Securities Authorized for Issuance Under Equity Compensation Plans

 

The Partnership has no compensation plans under which interests in the Partnership are authorized for issuance.

 

33
 

 

(b)Security Ownership of Certain Beneficial Owners

 

No person is known to own beneficially in excess of 5% of the outstanding Partnership Units.

 

(c)Security Ownership of Management

 

Neither the General Partner nor any of the affiliates, officers or directors, own directly or beneficially any Partnership Units.

 

(d)Changes in Control

 

The management and control of Associates may be changed at any time in accordance with its respective organizational documents, without the consent or approval of the Limited Partners. In addition, the Partnership Agreement provides for the admission of one or more additional and successor General Partners in certain circumstances.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

(a)The General Partner manages all of the Partnership’s affairs. The transactions with the General Partner are primarily in the form of fees paid by the Partnership for services rendered to the Partnership, reimbursement of expenses, and the General Partner’s interests in the Partnership, as discussed in Item 11 and in the notes to the Partnership’s financial statements.

 

(b)The Partnership has no directors.

 

Item 14. Principal Accountant Fees and Services

 

The following is a summary of fees paid to the Partnership’s principal independent registered public accounting firm for the years ended March 31:

 

   2012    2011 
         
Audit Fees  $26,215   $78,355 
Audit-related Fees   -    - 
Tax Fees   3,035    3,035 
All Other Fees   -    - 
TOTAL  $29,250   $81,390 

 

The Partnership has no Audit Committee. All audit services and any permitted non-audit services performed by the Partnership’s independent auditors are pre-approved by the General Partner.

 

PART IV.

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)(1)List of financial statements included in Part II hereof:

 

Balance Sheets, March 31, 2012 and 2011
Statements of Operations for the years ended March 31, 2012, 2011 and 2010
Statements of Partners’ Equity (Deficit) for the years ended March 31, 2012, 2011 and 2010
Statements of Cash Flows for the years ended March 31, 2012, 2011 and 2010
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

 

34
 

 

(a)(3)Exhibits

 

3.1Articles of incorporation and by-laws: The registrant is not incorporated. The Partnership Agreement dated May 10, 1991 filed as Exhibit 28.1 to Form 10 K for the year ended December 31, 1996 is hereby incorporated by reference as Exhibit 3.1.

 

31.1Certification 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)

 

31.2Certification 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)

 

32.1Section 1350 Certification of the Chief Executive Officer. (filed herewith)

 

32.2Section 1350 Certification of the Chief Financial Officer. (filed herewith)

 

101.Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets at March 31, 2012 and 2011, (ii) the Statements of Operations for the years ended March 31, 2012, 2011 and 2010, (iii) the Statements of Cash Flows for the years ended March 31, 2012, 2011 and 2010 and (iv) the Notes to Financial Statements

 

Exhibits 32.1, 32.2 and 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.

 

35
 

 

WNC Housing Tax Credit Fund VI, L.P., Series 7

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2012

 

      As of March 31, 2012        Initial Cost to Partnership             As of December 31, 2011 
      Total                  Cost   Mortgage                     
      Investment                  Capitalized   Balances of                     
      in Local   Amount of             Subsequent   Local                     
Local Limited     Limited   Investment        Building &   to   Limited        Building &   Accumulated   Net Book 
Partnership Name  Location  Partnership   Paid to Date   Land   Improvements   Acquisition   Partnerships   Land   Improvements   Depreciation   Value 
                                                      
2nd Fairhaven, LLC  Federalsburg, Maryland  $360,000   $360,000   $105,000   $1,140,000   $27,000   $963,000   $105,000   $1,170,000   $381,000   $894,000 
                                                      
ACN Southern Hills Partners II, L.P.  Oskaloosa, Oklahoma   1,284,000    1,284,000    120,000    2,021,000    -    415,000    120,000    2,021,000    883,000    1,258,000 
                                                      
Hickory Lane
Partners, L.P.
  Sioux City, Iowa   988,000    988,000    129,000    3,875,000    54,000    2,977,000    129,000    3,942,000    985,000    3,086,000 
                                                      
Lake Village
Apartments, L.P.
  Kewanee,
Illinois
   3,834,000    3,834,000    111,000    6,327,000    (3,331,000) (1)   2,010,000    111,000    2,978,000    1,537,000    1,552,000 
                                                      
Montrose County Estates Limited Dividend Housing Association, L.P.  Montrose, Michigan   487,000    487,000    64,000    1,180,000    8,000   670,000    64,000    1,197,000    335,000    926,000 
                                                      
Ozark Properties III  Ozark, Arkansas   300,000    300,000    62,000    1,175,000    -    768,000    62,000    1,175,000    422,000    815,000 
                                                      
Pierce Street
Partners, L.P.
  Sioux City, Iowa   2,389,000    2,389,000    -    7,086,000    145,000    3,364,000    -    7,253,000    1,963,000    5,290,000 
                                                      
Red Oaks
Estates, L.P.
  Holly Springs,
Mississippi
   242,000    242,000    49,000    967,000    -    674,000    49,000    967,000    438,000    578,000 
                                                      
School Square, L.P.  Albany, Minnesota   286,000    286,000    -    1,290,000    11,000    936,000    82,000    1,237,000    618,000    701,000 

  

36
 

 

WNC Housing Tax Credit Fund VI, L.P., Series 7

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2012 

 

      As of March 31, 2012       Initial Cost to Partnership       As of December 31, 2011 
Local Limited
Partnership
Name
  Location  Total
Investment in
Local Limited
Partnership
   Amount of
Investment
Paid to Date
   Land   Building &
Improvements
   Cost
Capitalized
Subsequent to
Acquisition
   Mortgage
Balances of
Local Limited
Partnerships
   Land   Building &
Improvements
   Accumulated
Depreciation
   Net Book
Value
 
Tahlequah Properties IV  Tahlequah, Oklahoma   375,000    375,000    42,000    1,396,000    -    771,000    42,000    1,396,000    467,000    971,000 
Timberwolf Townhomes, L.P.  Deer River, Minnesota   469,000    469,000    72,000    1,707,000    -    1,355,000    72,000    1,707,000    531,000    1,248,000 
United Development L.P., 2000  West Memphis, Arkansas   2,249,000    2,249,000    195,000    3,544,000    -    955,000    195,000    3,543,000    1,245,000    2,493,000 
      $13,263,000   $13,263,000   $949,000   $31,708,000   $(3,040,000)  $14,254,000   $1,031,000   $28,586,000   $9,805,000   $19,812,000 

 

(1)Impairment charge recorded as a result of a permanent decline in value.

 

37
 

 

WNC Housing Tax Credit Fund III, L.P.

Schedule III

Real Estate Owned by Local Limited Partnerships

March 31, 2011

 

   For the year ended December 31, 2011 
Local Limited Partnership Name  Rental
Income
   Net
Loss
   Year
Investment
Acquired
   Status   Estimated
Useful
Life (Years)
 
                     
2nd Fairhaven, LLC  $138,000   $(23,000)   2000    Completed    40 
                          
ACN Southern Hills Partners II, L.P.   171,000    (55,000)   2000    Completed    27.5 
                          
Hickory Lane Partners, L.P.   476,000    (86,000)   2000    Completed    40 
                          
Lake Village Apartments, L.P.   132,000    1,396,000    2000    Completed    27.5 
                          
Montrose County Estates Limited Dividend Housing Association, L.P.   163,000    (36,000)   2001    Completed    40 
                          
Ozark Properties III   126,000    (18,000)   2001    Completed    40