10-Q 1 c441200.txt QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 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: 33-76970 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 California 33-0601852 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3158 Redhill Avenue, Suite 120 Costa Mesa, CA 92626 (714) 662-5565 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 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) INDEX TO FORM 10-Q For the Quarter Ended December 31, 2000 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets December 31, 2000 and March 31, 2000..................................2 Statements of Operations For the Three and Nine Months Ended December 31, 2000 and 1999........3 Statement of Partners' Equity (Deficit) For the Nine Months Ended December 31, 2000...........................4 Statements of Cash Flows For the Nine Months Ended December 31, 2000 and 1999..................5 Notes to Financial Statements...........................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................13 Item 3. Quantitative and Qualitative Disclosures About Market Risks.............................................15 PART II. OTHER INFORMATION Item 1. Legal Proceedings...............................................15 Item 6. Exhibits and Reports on Form 8-K................................15 Signatures..............................................................16 1 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) BALANCE SHEETS

See accompanying notes to financial statements 2 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) STATEMENTS OF OPERATIONS For the Three and Nine Months Ended December 31, 2000 and 1999 (unaudited)

See accompanying notes to financial statements 3 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) STATEMENT OF PARTNERS' EQUITY (DEFICIT) For the Nine Months Ended December 31, 2000 (unaudited)

See accompanying notes to financial statements 4 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Nine Months Ended December 31, 2000 and 1999 (unaudited)

See accompanying notes to financial statements 5 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The accompanying condensed unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-K for the fiscal year ended March 31, 2000. Organization WNC California Housing Tax Credits IV, L.P., Series 4 a California Limited Partnership (the "Partnership"), was formed on February 16, 1994 under the laws of the State of California, and began operations on July 26, 1994. The Partnership was formed to invest primarily in other limited partnerships (the "Local Limited Partnership") which own and operate multi-family housing complexes (the "Housing Complex") that are eligible for low income housing credits. The local general partners (the "Local General Partners") of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complex. The general partner is WNC California Tax Credit Partners, IV, L.P. (the "General Partner"), a California limited partnership. WNC & Associates, Inc. ("WNC") is the general partner of the General Partner. Wilfred N. Cooper, Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding stock of WNC. John B. Lester, Jr. was the original limited partner of the Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding stock of WNC. Wilfred N. Cooper, Jr., President of WNC, owns 2.1% of the outstanding stock of WNC. The Partnership shall continue to be in full force and effect until December 31, 2050 unless terminated prior to that date pursuant to the partnership agreement or law. The financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners. The Partnership Agreement authorized the sale of up to 25,000 units at $1,000 per Unit ("Units"). The offering of Units concluded in August 1995 at which time 11,500 Units representing subscriptions, net of discounts of $400,950 for purchases of 100 units or more, in the amount of $11,099,050 had been accepted. The General Partner has a 1% interest in operating profits and losses, taxable income and losses, in cash available for distribution from the Partnership and tax credits of the Partnership. The limited partners will be allocated the remaining 99% of these items in proportion to their respective investments. 6 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued After the limited partners have received proceeds from a sale or refinancing equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner has received proceeds equal to its capital contribution and a subordinated disposition fee (as described in Note 4) from the remainder, any additional sale or refinancing proceeds will be distributed 90% to the limited partners (in proportion to their respective investments) and 10% to the General Partner. Risks and Uncertainties The Partnership's investments in Local Limited Partnerships are subject to the risks incident to the management and ownership of low-income housing and to the management and ownership of multi-unit residential real estate. Some of these risks are that the low income housing credit could be recaptured and that neither the Partnership's investments nor the Housing Complexes owned by the Local Limited Partnerships will be 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 Local Limited Partnership Interests; limitations on removal of Local General Partners; limitations on subsidy of Local Limited Partnership Interests; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. The Housing Complexes are or will be subject to mortgage indebtedness. If a Local Limited Partnership does not make its mortgage payments, the lender could foreclose resulting in a loss of the Housing Complex and low income housing credits. As a limited partner of the Local Limited Partnerships, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships, and will rely totally on the Local General Partners of the Local Limited Partnerships for management of the Local Limited Partnerships. The value of the Partnership's investments will be subject to changes in national and local economic conditions, including unemployment conditions, which could adversely impact vacancy levels, rental payment defaults and operating expenses. This, in turn, could substantially increase the risk of operating losses for the Housing Complexes and the Partnership. In addition, each Local Limited Partnership is subject to risks relating to environmental hazards and natural disasters which might be uninsurable. Because the Partnership's operations will depend on these and other factors beyond the control of the General Partner and the Local General Partners, there can be no assurance that the anticipated low income housing credits will be available to Limited Partners. In addition, Limited Partners are subject to risks in that the rules governing the low income housing credit are complicated, and the use of credits can be limited. The only material benefit from an investment in Units may be the low income housing credits. There are limits on the transferability of Units, and it is unlikely that a market for Units will develop. All management decisions will be made by the General Partner. Method of Accounting For Investments in Limited Partnerships The Partnership accounts for its investments in limited partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnership's results of operations and for any distributions received. The accounting policies of the Local Limited Partnership's are consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investment in limited partnerships are capitalized as part of the investment account and are being amortized over 30 years (see Note 3). 7 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Offering Expenses Offering expenses consist of underwriting commissions, legal fees, printing, filing and recordation fees, and other costs incurred with selling limited partnership interests in the Partnership. The General Partner is obligated to pay all offering and organization costs in excess of 15% (including sales commissions) of the total offering proceeds. Offering expenses are reflected as a reduction of partners' capital and amounted to $1,312,054, at the end of all periods presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Cash and Cash Equivalents The Partnership considers highly liquid investments with remaining maturities of three months or less when purchased to be cash equivalents. As of December 31, 2000 and March 31, 2000 the Partnership had cash equivalents of $425,000 and $450,000, respectively. Concentration of Credit Risk At December 31, 2000, the Partnership maintained a cash balance at a certain financial institution in excess of the maximum federally insured amounts. Net Loss Per Limited Partner Unit Net loss per limited partner unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit includes no dilution and is computed by dividing loss available to limited partners by the weighted average number of units outstanding during the period. Calculation of diluted net loss per unit is not required. Reporting Comprehensive Income In September 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of Partners' equity and bypass net income. The Partnership adopted the provisions of this statement in 1998. For the periods presented, the Partnership has no elements of other comprehensive income, as defined by SFAS No. 130. 8 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENT IN CHADRON The Partnership has an investment, accounted for under the equity method, consisting of a 99% limited partnership investment in Chadron Apartments I, Limited Partnership ("Chadron"), a Nebraska limited partnership. The investment in Chadron carried on the Partnership's balance sheet at December 31, 2000 and March 31, 2000 totals $271,463 and $329,597 (which represent approximately 5% and 5% of total investments in limited partnerships of the Partnership), respectively. The Partnership has reflected equity in the net losses of Chadron totaling $58,134 ($5.06 per limited partner unit) for the nine months ended December 31, 2000. Chadron, together with five other Local Limited Partnerships in two other low income housing tax credit funds sponsored by WNC (collectively referred to as the "Defendants"), is a defendant in a lawsuit. The lawsuit has been filed by eight partnerships (the "Plaintiffs") and seeks recovery of $811,715. All of the Defendants involved in the lawsuit had the same general partner and the Plaintiffs allege that the local general partner accepted funds from them and improperly loaned those funds to the Defendants. The Defendants have filed actions against the general partner for violating the limited partnership agreements and for breach of fiduciary duties. During 1999, the Defendants held a partners' meeting and voted to remove the local general partner. A receiver was appointed by the District Court of Douglas County, Nebraska to oversee the operations of the Defendants as a result of an injunction filed against the local general partner by the defendants to prevent the local general partner from further acting as the general partner of the Defendants. Legal costs in the amount of $31,645 were incurred through March 31, 2000, including an accrual for management's estimate of future legal costs of $16,667, which is the Partnership's prorated portion of the collective accrual of $100,000 booked across the three affected WNC sponsored low income housing tax credit funds. In addition, the Partnership has accrued $5,000 for estimated additional audit fees and recognized approximately $3,300 for estimated costs related to the receivership, which is included in other expenses. No additional legal costs were incurred during the nine months ended December 31, 2000. The independent auditors engaged to perform an audit of Chadron's financial statements as of and for the year ended December 31, 1999 were unable to form an opinion on those financial statements due to the lack of general ledger information for a period of approximately three months, the inability to obtain reliable confirmations of advances to/notes receivable from the former general partner and the inability to obtain a management representation letter from the former management company which is an affiliate of the former general partner. As a result, the Partnership has not included the financial information of Chadron in the combined condensed statement of operations presented in Note 3. The combined condensed financial information for previous periods presented in Note 3 has been restated to exclude the accounts of Chadron. The Partnership has recognized equity in losses of Chadron totaling $58,134 for the nine months ended December 31, 2000 as pro-rated from the amount of $82,794 for the year ended March 31, 2000 based on nine months of reported results provided by Chadron and on three months of results estimated by management of the Partnership. Such estimates may be materially misstated due to the lack of corroborative financial information, as discussed above. 9 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENT IN CHADRON, continued The accompanying financial statements have been prepared assuming that the Partnership will be able to realize its investment in Chadron. Chadron is a defendant in the litigation described above and may owe substantial liabilities not currently reflected in its financial statements in the event a judgment is rendered against Chadron. Chadron has and is currently experiencing negative cash flows from operations and is currently in default on its construction loan. Chadron may not be able to refinance its construction loan into a permanent loan, which would increase cash flow from operations. Furthermore, the Partnership may have to sell its investment in Chadron. If the construction loan is not refinanced, the construction lender may foreclose on Chadron. In addition, Chadron may not be successful in its defense of the aforementioned litigation. As a result, the Partnership may lose its investment in Chadron and be subject to tax credit recapture. There is an uncertainty as to the amounts the Partnership will ultimately realize from its investment in Chadron. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS As of the periods presented, the Partnership had acquired limited partnership interests in ten Local Limited Partnerships each of which owns one Housing Complex consisting of an aggregate of 314 apartment units. The respective general partners of the Local Limited Partnerships manage the day-to-day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a limited partner, is generally entitled to 99%, as specified in the Local Limited Partnership agreements, of the operating profits and losses, taxable income and losses and tax credits of the Local Limited Partnerships. Equity in losses of the Local Limited Partnerships is recognized in the financial statements until the related investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended. Distributions received by limited partners are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as income. During the nine months ended December 31, 2000 and the year ended March 31, 2000, no investment accounts in Local Limited Partnerships reached a zero balance. Following is a summary of the equity method activity of the investments in Local Limited Partnerships for the periods presented:

10 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued Selected financial information for the nine months ended December 31 from the unaudited combined financial statements of the limited partnerships in which the Partnership has invested as follows: (Combined condensed financial information for Chadron Apartments I Limited Partnership has been excluded from the presentations below. See Note 2 for further discussion):

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 impaired and the loss and recapture of the related tax credits could occur. 11 WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2000 (unaudited) NOTE 4 - 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: (a) An annual asset management fee equal to the greater amount of (i) $2,000 for each Housing Complex, or (ii) 0.275% of gross proceeds. In either case, the fee will be decreased or increased annually based on changes to the Consumer Price Index. However, in no event will the maximum amount exceed 0.2% of the invested assets of the Local Limited Partnerships, including the Partnership's allocable share of the mortgages. Asset management fees of $23,718 were incurred during each of the nine months ended December 31, 2000 and 1999, of which $20,861 and $7,513 were paid during the nine months ended December 31, 2000 and 1999, respectively. (b) A subordinated disposition fee in an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the limited partners receiving a preferred return of 14% through December 31, 2005 and 6% thereafter (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. The accrued fees and expenses due to General Partner and affiliates consisted of the following at:

NOTE 5 - PAYABLES TO LIMITED PARTNERSHIPS Payables to limited partnerships represent amounts which are due at various times based on conditions specified in the limited partnership agreements. These contributions are payable in installments and are due upon the limited partnership achieving certain operating and development benchmarks (generally within two years of the Partnership's initial investment). NOTE 6 - INCOME TAXES No provision for income taxes has been recorded in the accompanying financial statements as any liability for income taxes is the obligation of the partners of the Partnership. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report contains forward-looking statements concerning the Partnership's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words "expect", "believe", "will", "may", "should", "project", "estimate", and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements, including competition, as well as those risks described in the Partnership's SEC reports, including the Partnership's Form 10-K filed pursuant to the Securities and Exchange Act of 1934 on August 3, 2000. The following discussion and analysis compares the results of operations for the three and nine months ended December 31, 2000 and 1999, and should be read in conjunction with the condensed financial statements and accompanying notes included within this report. Financial Condition The Partnership's assets at December 31, 2000 consisted primarily of $429,000 in cash and cash equivalents and aggregate investments in the ten Local Limited Partnerships of $5,430,000. Liabilities at December 31, 2000 primarily consisted of $15,000 in accrued expenses and $11,000 due to the General Partner and affiliates. Results of Operations Three Months Ended December 31, 2000 Compared to Three Months Ended December 31, 1999. The Partnership's net loss for the three months ended December 31, 2000 was $(215,000), reflecting a decrease of $6,000 from the net loss experienced for the three months ended December 31, 1999 of $(221,000). The decrease in net loss is due to operating losses which decreased by $38,000 to $(14,000) for the three month period ended December 31, 2000 from $(52,000) for the three month period ended December 31, 1999. The $38,000 change was primarily due to market fluctuations that reduced the values of certain tax-exempt investments by $(24,000)in 1999. In order to avoid future losses, these investments were liquidated in October 1999. The cash generated from the sale of these investments was reinvested in tax-exempt, auction rate preferred instruments that are highly liquid and diversified securities backed by 200% collateral. Accordingly, losses from investing activities are not expected to recur in the future. The decrease was offset by equity in losses of limited partnerships which increased by $32,000 to $(201,000) for the three month period ended December 31, 2000 from $(169,000) for the three month period ended December 31, 1999. Nine Months Ended December 31, 2000 Compared to Nine Months Ended December 31, 1999. The Partnership's net loss for the nine months ended December 31, 2000 was $(656,000), reflecting an increase of $71,000 from the net loss experienced for the nine months ended December 31, 1999 of $(585,000). The increase in net loss was due to equity in losses of limited partnerships which increased by $115,000 to $(603,000) for the nine month period ended December 31, 2000 from $(488,000) for the nine month period ended December 31, 1999. This was partially offset by a decrease in operating losses of $43,000 to $(54,000) for the period ended December 31, 2000 from $(97,000) for the period ended December 31, 1999. The $43,000 change was primarily due to market fluctuations that reduced the values of certain tax-exempt investments by $(30,000) in 1999. In order to avoid future losses, these investments were liquidated in October 1999. The cash generated from the sale of these investments was reinvested in tax-exempt, auction rate preferred instruments that are highly liquid and diversified securities backed by 200% collateral. Accordingly, losses from investing activities are not expected to recur in the future. 13 Cash Flows Nine Months Ended December 31, 2000 Compared to Nine Months Ended December 31, 1999. Net cash used during the nine months ended December 31, 2000 was $(68,000) compared to cash used for the nine months ended December 31, 1999 of $(139,000). The change was due to a decrease in capital contributions paid to limited partnerships of $78,000, offset by an increase in cash paid for operating expenses of $7,000. During the nine months ended December 31, 2000, accrued fees and expenses due to General Partner and affiliates, which consist primarily of operating advances due to the General Partner, increased by $3,000. The General Partner does not anticipate that these accrued fees and expenses will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the partnership. The Partnership expects its future cash flows, together with its net available assets at December 31, 2000, to be sufficient to meet all currently forseeable future cash requirements. 14 Item 3. Quantitative and Qualitative Disclosures About Market Risks NOT APPLICABLE Part II. Other Information Item 1. Legal Proceedings NONE Item 6. Exhibits and Reports on Form 8-K NONE 15 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WNC CALIFORNIA HOUSING TAX CREDITS IV, L.P., Series 4 By: WNC & ASSOCIATES, INC. General Partner of the Registrant By: /s/ Will N. Cooper, Jr. Will N Cooper, Jr., President - Chief Operating Officer of WNC & Associates, Inc. Date: May 15, 2001 By: /s/ Tom J. Riha Tom J. Riha, Vice-President - Chief Financial Officer of WNC & Associates, Inc. Date: May 15, 2001 16

WNC CALIFORNIA HOUSING TAX CREDITS IV LP SERIES 4 10-Q