FINANCIAL STATEMENTS AND


INDEPENDENT AUDITOR'S REPORT




DAVENPORT HOUSING VII, L.P.




DECEMBER 31, 2009


































DAVENPORT HOUSING VII, L.P.
 
 TABLE OF CONTENTS
   PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
3FINANCIAL STATEMENTS:BALANCE SHEET
4STATEMENT OF INCOME
5STATEMENT OF CHANGES IN PARTNERS' EQUITY
6STATEMENT OF CASH FLOWS
7NOTES TO FINANCIAL STATEMENTS
8
 
                     2






PAILET, MEUNIER andLeBLANC, L.L.P.
 
 Certified Public Accountants
 
 Management Consultants
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
 To the Partners
 Davenport Housing VII, L.P. Davenport, Iowa
  We have audited the accompanying balance sheet of Davenport Housing VII, L.P., 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 Davenport Housing VII, L.P. 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
 November 4, 2010
      3
 
   DAVENPORT HOUSING VII, L.P.
 
 BALANCE SHEET
 
 DECEMBER 31, 2009
   ASSETSCurrent AssetsCash and Equivalents

$
9,822Accounts Receivable - Related Party


24,746Total Current Assets


34,568Property and Equipment, Net of Accumulated Depreciation


6,267,382Organizational Costs, Net of Accumulated Amortization


76,873Total Assets

$
6,378,823LIABILITIES AND PARTNERS' CAPITALCurrent LiabilitiesConstruction Note Payable

$
2,543,600Accounts Payable Construction


188,451Accounts Payable


6,997Due to Related Party


719,829Accrued Expenses:Real Estate Taxes


15,135Interest


143,693Asset Management Fees


2,500Management Fees


11Total Current Liabilities


3,620,216Tenant Security Deposits Payable


297Mortgage Notes Payable


246,094Total Liabilities


3,866,607Partners' Capital


2,512,216Total Liabilities and Partners' Capital

$
6,378,823
  See Notes to Financial Statements
 4






DAVENPORT HOUSING VII, L.P.
  STATEMENT OF INCOME
  DECEMBER 31, 2009
  Operating IncomeRental income

$
182Tenant charges


-Other income


122Total Operating Income


304Operating ExpensesMaintenance and operating


691Utilities


5,334Administrative


1,116Taxes and Insurance


849Interest


28,004Depreciation and Amortization


13,835Total Operating Expenses


49,829Net Income from Operations


(49,525
)Other Income and (Expenses)


(2,500
)Asset Management FeesNet Other Income and (Expenses)


(2,500
)Net Income

$
(52,025
)
 
 See Notes to Financial Statements
  5




DAVENPORT HOUSING VII, L.P.
  STATEMENT OF CHANGES IN PARTNERS EQUITY
  DECEMBER 31, 2009
  General

Partner


Limited

Partners


Total

Partners'

EquityBalance - January 1, 2009

$
389,575


$
2,036,198


$
2,425,773Contributions by Members






227,005



227,005Net Income (Loss)


(5
)


(52,020
)


(52,025
)Syndication costs






(50,000
)


(50,000
)Distributions to Members


(38,537
)






(38,537
)Balance - December 31, 2009

$
351,033


$
2,161,183


$
2,512,216
 
  See Notes to Financial Statements
  6




DAVENPORT HOUSING VII, L.P.
  STATEMENT OF CHANGES IN PARTNERS EQUITY
  DECEMBER 31, 2009
  Cash flows from operating activities:Net Income

$
(52,025
)Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


13,835Increase (decrease) in accounts payable


6,997Increase (decrease) in accrued expenses


(28,583
)Increase (decrease) in tenant security deposits payable


297Total adjustments


(7,454
)Net cash provided (used) by operating activities


(59,479
)Cash flows from investing activities:Purchases of property and equipment


(1,392,562
)Net cash provided (used) by investing activities


(1,392,562
)Cash flows from financing activities:Purchase of other assets


(77,252
)Net advances from related parties


604,179Net proceeds from construction note payable


793,600Syndication costs


(50,000
)Equity distributions


(38,537
)Equity contributions


227,005Net cash provided (used) by financing activities


1,458,995Net increase (decrease) in cash and equivalents


6,954Cash and equivalents, beginning of year


2,868Cash and equivalents, end of year


9,822
 
  See Notes to Financial Statements
  7




DAVENPORT HOUSING VII, L.P.
 
 NOTES TO FINANCIAL STATEMENTS
 
 DECEMBER 31, 2009
  NOTE A - NATURE OF OPERATIONS
  Davenport Housing VII, L.P. (Partnership) was formed October 17, 2005, as a limited partnership under the laws of the State of Iowa and shall continue until December 31, 2500 or until certain events as defined in the partnership agreement occur. The partnership was formed for the purpose of owning and operating a 20-unit apartment complex in Davenport, Iowa for residents with low or moderate income. Rehabilitation of the historic project was substantially completed and operations began in December 2009. Substantially all of the Partnership's income is expected to be derived from the rental of its apartment units. All units within this project are expected to be subject to the contract restrictions regarding rental charges and other operating policies under the Low Income Housing Tax Credit Program.
  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Accounting
  The Partnership prepares its financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America. Under this method revenues are recognized when they are earned and expenses are recognized when they are incurred.
  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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
  Depreciation
  Depreciation is computed principally by the straight-line method over the following estimated useful lives:
  Building and improvements
40 yearsEquipment and furnishings
7 years
  Other Assets
  Other assets consist of tax credit fees that have been capitalized. Tax credit fees are being amortized over a 15-year life using the straight-line method of amortization.
  Capitalized Interest
  Interest costs of $115,689 were capitalized as part of the building costs.
  8




DAVENPORT HOUSING VII, L.P.
 
 NOTES TO FINANCIAL STATEMENTS
 
 DECEMBER 31, 2009
 
 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Income Taxes
  Income taxes on Partnership income are levied on the partners at the partner level. Accordingly, all profits and losses of the Partnership are recognized by each partner on its respective tax return. The Partnership has adopted provisions of FASB Accounting Standards Codification Topic ASC 740-10 (previously Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes), on January 1, 2009. The implementation of this standard had no impact on the financial statements. As of both the date of adoption, and as of December 31, 2009, the unrecognized tax benefit accrual was zero. The Partnership will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense, if incurred. The Partnership is no longer subject to Federal tax examinations by tax authorities for years before 2006 and state examinations for years before 2006.
  Advertising
  Costs incurred for advertising are expensed as incurred. Advertising expense totaled $453 for the year ended December 31, 2009.
  Subsequent Events
  The Partnership has evaluated subsequent events through November 4, 2010, the date which the financial statements were available to be issued.
  NOTE C - RESTRICTED DEPOSITS AND FUNDED RESERVES
  Replacement Reserve
  Pursuant to the partnership agreements, the Partnership is required to establish a replacement reserve account. The Partnership is to deposit $300 per unit per year commencing the month after issuance of a certificate of occupancy. The deposits are to increase at a rate of 3 percent every 12 months. The replacement reserve is to be used for working capital needs, improvements, replacements, and other contingencies of the Partnership. Withdrawals from the replacement reserve require the special limited partner's signature for withdrawals over $750 and over an aggregate total of $4,000 for the year. As of December 31, 2009, the Partnership had not yet established the replacement reserve account.
  Tax and Insurance Escrow
  Pursuant to the partnership agreement, the Partnership is required to maintain a tax and insurance escrow account. The escrow account is to be used to pay next year's insurance premium payments and real estate taxes. Withdrawals from the tax and insurance escrow shall require the joint signature of the special limited partner. As of December 31, 2009, the Partnership had not yet established the tax and insurance escrow.
 9




DAVENPORT HOUSING VII, L.P.
  NOTES TO FINANCIAL STATEMENTS
  DECEMBER 31, 2009
  
 
 NOTE C - RESTRICTED DEPOSITS AND FUNDED RESERVES (CONTINUED)
  Real Estate Tax Reserve
  Pursuant to the terms of the partnership agreement, the Partnership is required to purchase a Certificate of Deposit in the amount of $25,000 from a banking institution. The funds shall be used to pay the increased real estate taxes upon expiration of the Urban Revitalization tax exemption. The reserve shall require the joint signature of the special limited partner for any withdrawals. As of December 31, 2009, the Partnership had not yet established the real estate tax reserve.
  NOTE D - PROPERTY AND EQUIPMENT
  Property and equipment consists of the following:
 
 CostLand and improvements

$
50,000Building and improvements


6,187,505Equipment and furnishings


43,2836,280,788(13,406
)Total

$
6,267,382
 
  The Partnership entered into several construction contracts for the rehabilitation of the project. One of the contracts is with Snyder Construction in the amount of $1,554,482. As of December 31, 2009, the Partnership had incurred costs of $1,416,540 under the contract. As of December 31, 2009, the Partnership owed $145,078 to Snyder Construction.
  NOTE E - MANAGEMENT FEES
  The Partnership has entered into a management agreement with Conlin Properties, Inc. to provide management services for the project. Under the terms of the agreement, the management company is to be paid management fees of 6 percent of gross rent receipts. The Partnership incurred management fees of $11 for 2009. Subsequent to year end, Conlin Properties gave notice that it was terminating the management agreement for cause, effective 3/5/10. Pioneer Property Management replaced Conlin Properties as the management company in 2010.
   10
 
  DAVENPORT HOUSING VII, L.P.
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 2009
  
 
 NOTE F - RELATED PARTY TRANSACTIONS
  Due from Related Party
  As of December 31, 2009, the Partnership was owed $24,746 from Davenport Housing V, LP for loan interest paid by the Partnership on behalf of the related project in a prior year. The limited partner in Davenport Housing V, LP is WNC Institutional Tax Credit Fund XIV, L.P., which is a related entity to the Limited Partner.
  Due to Related Party
  As of December 31, 2009, the Partnership owed $719,829 to the Limited Partner for capital advances made to the Partnership during 2009.
  Operating Deficit Loans
  Pursuant to the partnership agreement, if at any time between when the first apartment unit is available and three consecutive months of breakeven operations, an operating deficit exists, the general partner shall fund the operating deficit as to amount through operating deficit loans up to $61,214. All operating loans are to be repayable out of 50% of the available Net Operating Income or Sale or Refinancing Proceeds, as defined in the partnership agreement.
  Developer Fee
  Developer fees of $180,000 to Signature Development Company have been capitalized as part of the building costs. Signature Development Company is an affiliate of Signature Holding Company, who was the previous administrative general partner. The developer fees of $180,000 had been paid to Signature Development Company prior to 2009. During 2009, Signature Holding Company was removed as the administrative general partner and replaced by Shelter Resource Corporation. Shelter Resource Corporation assumed all rights and obligations of the general partner and the developer.
  Tax Credit Compliance Fee
  Pursuant to the partnership agreement, the general partner is to receive an annual non-cumulative tax credit compliance fee of 40 percent of net operating income for ensuring compliance by the Partnership with all tax credit rules and regulations. There was no tax credit compliance fee incurred or paid in 2009.
  Incentive Management Fee
  Pursuant to the partnership agreement, the general partner is to receive an annual non-cumulative incentive management fee in the amount equal to 40% of net operating income for duties outlined in the partnership agreement. There was no incentive management fee incurred or paid in 2009.
   11
 
  DAVENPORT HOUSING VII, L.P.
 
 NOTES TO FINANCIAL STATEMENTS
 
 DECEMBER 31, 2009
  
 
 NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)
  Asset Management Fee
  Pursuant to the partnership agreement, the limited partner is to receive a cumulative asset management fee of $2,500 increasing annually at 3%. During 2009, the Partnership incurred $2,500 to the limited partner for the 2009 asset management fee. At December 31, 2009, the Partnership owes the limited partner $2,500 for the fee.
  NOTE G - MORTGAGE NOTE PAYABLE
 
 5.75% loan with Scott County Housing Council, due in monthly payments of $2,079, unpaid principal andinterest January 2026 - see (a) below

$
96,0640% HOME Loan, balance due January 2026, secured bya mortgage on property and equipment - see (b) below


150,030Total

$
246.094
  (a)  Total amount to be advanced on the loan is $296,064. As of December 31, 2009, the Partnership had drawn down funds of $96,064. Subsequent to year end, the Partnership drew down the remaining funds.
  (b)  Total amount to be advanced on the loan is $274,000. As of December 31, 2009, the Partnership had drawn down funds of $150,030. Subsequent to year end, the Partnership drew down the remaining funds.
  NOTE H - CONSTRUCTION NOTE PAYABLE
  The Partnership financed the construction of the project in part with a variable rate (5.5% at December 31, 2009) construction loan with Valley Bank in the amount of $2,650,000. As of December 31, 2009, the Partnership had drawn down funds in the amount of $2,543,600. As of December 31, 2009, the outstanding balance on the construction note payable was $2,543,600. The note is secured by a mortgage on property and equipment and unpaid principal and interest is due December 31, 2010. It is expected that the balance will be paid off from the receipt of syndication proceeds.
   12




DAVENPORT HOUSING VII, L.P.
  NOTES TO FINANCIAL STATEMENTS
  DECEMBER 31, 2009
  
 
 NOTE I - PARTNERS' EQUITY
 
 Partners

Ownership

PercentagesGeneral Partner - Shelter Resource Corporation


0.005
%Limited Partner - WNC Housing Tax Credit Fund VI, Series 13, Limited Partnership


99.980
%Class B Limited Partner - Iowa Tax Credit Fund X, Limited Partnership


0.005
%Special Limited Partner - WNC Housing Limited Partnership


0.010
%
 
 Pursuant to the partnership agreement, the Limited Partner is to make capital contributions of $2,253,208. During 2009, WNC Housing Tax Credit Fund VI, Series 13, Limited Partnership made capital contributions of $227,005. As of December 31, 2009, the Limited Partner had made capital contributions totaling $2,253,208. It is expected that an amendment to the Partnership Agreement will be executed in 2010 with the Limited Partner purchasing the additional federal low income housing tax credits in the amount of $2,268,952 and the federal historic credits for $221,471. It is expected that total equity by the Limited Partner will be $4,743,631. Subsequent to year end, the Limited Partner committed to contributing the additional equity.
  Pursuant to the partnership agreement, Shelter Resource Corporation, the General Partner, is to make capital contributions of $985,000. As of December 31, 2009, Shelter Resource Corporation had made capital contributions totaling $0.
  Pursuant to the partnership agreement, the Special Limited Partner is to make capital contributions of $226. As of December 31, 2009, the Special Limited Partner had made capital contributions totaling $226.
             13