<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 2-66171
REAL ESTATE ASSOCIATES LIMITED II
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. EMPLOYER IDENTIFICATION NO. 95-3547609
9090 Wilshire Blvd., Suite 201,
Beverly Hills, Calif. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Securities Registered Pursuant to
Section 12(b) or 12(g) of the Act
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations,
Nine and Three Months Ended, September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 2
Statement of Partners' Equity
Nine Months Ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6: Exhibits and Reports and Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
(Unaudited) (Audited)
----------- ----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS $1,372,342 $1,135,982
CASH AND CASH EQUIVALENTS 1,905,516 1,781,254
---------- ----------
TOTAL ASSETS $3,277,858 $2,917,236
========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
ACCOUNTS PAYABLE $ 1,720 $ 8,639
PARTNERS' EQUITY 3,276,138 2,908,597
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $3,277,858 $2,917,236
========== ==========
</TABLE>
The accompanying notes are an integral part of these finanical statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1995 Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 56,415 $ 22,404 $ 15,781 $ 12,045
--------- -------- --------- ---------
OPERATING EXPENSES:
Management fees-general partner 298,260 99,420 298,260 99,420
General and administrative 96,927 18,282 91,452 13,900
--------- -------- --------- ---------
395,187 117,702 389,712 113,320
--------- -------- --------- ---------
LOSS FROM OPERATIONS (338,772) (95,298) (373,931) (101,275)
DISTRIBUTIONS RECOGNIZED
AS INCOME 166,313 78,646 575,255 559,203
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND
AMORTIZATION OF
ACQUISITION COSTS 540,000 180,000 602,500 187,500
--------- -------- --------- ---------
NET INCOME $ 367,541 $163,348 $ 803,824 $ 645,428
========= ======== ========= =========
NET INCOME PER LIMITED
PARTNERSHIP INTEREST $ 34 $ 15 $ 75 $ 60
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these finanical statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1995 10,693
==========
EQUITY (DEFICIENCY),
at January 1, 1995 $(189,009) $3,097,606 $2,908,597
Net income for nine months
ended September 30, 1995 3,675 363,866 367,541
--------- ---------- ----------
EQUITY (DEFICIENCY),
at September 30, 1995 $(185,334) $3,461,472 $3,276,138
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these finanical statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 367,541 $ 803,824
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships (546,195) (610,000)
Amortization of acquisition costs 6,195 7,500
Increase (decrease) in accounts payable (6,919) (1,364)
---------- ----------
Net cash (used in) provided by operating activities (179,378) 199,960
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution recognized as return of capital 303,640 1,212,826
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 124,262 1,412,786
CASH AND CASH EQUIVALENTS, beginning of period 1,781,254 465,020
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $1,905,516 $1,877,806
========== ==========
</TABLE>
The accompanying notes are an integral part of these finanical statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report
for the year ended December 31, 1994 prepared by Real Estate
Associates Limited II (the "Partnership"). Accounting measurements
at interim dates inherently involve greater reliance on estimates than
at year end. The results of operations for the interim period
presented are not necessarily indicative of the results for the entire
year.
In the opinion of the Partnership, the accompanying unaudited
financial statements contain all adjustments (consisting primarily of
normal recurring accruals) necessary to present fairly the financial
position as of September 30, 1995 and the results of operations for
the three and nine months then ended and changes in cash flow for the
nine months then ended.
The general partners have a 1 percent interest in profits and losses
of the Partnership. The limited partners have the remaining 99
percent interest which is allocated in proportion to their respective
individual investments. National Partnership Investments Corp.
(NAPICO) is the corporate general partner of the Partnership.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition fees, selection fees and other costs related to
the acquisition of the projects were capitalized as part of the
investment account.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing
the limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests was 10,693 for the periods presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of
the individual partners.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership has limited partnership interests in 21 limited
partnerships. The limited partnerships own residential rental
projects consisting of 2,430 apartment units. The mortgage loans of
these projects are insured by various governmental agencies.
The Partnership, as a limited partner, is entitled to between 75
percent and 99 percent of the profits and losses of the limited
partnerships.
Equity in losses of limited partnerships is recognized in the
financial statements until the limited partnership investment account
is reduced to a zero balance. Losses incurred after the limited
partnership investment account is reduced to zero are not recognized.
Distributions from the limited partnerships are accounted for as a
return of capital until the investment balance is reduced to zero or
to a negative amount equal to further capital contributions required.
Subsequent distributions received are recognized as income.
In 1994, the Partnership refinanced two mortgages of two properties
(Cherrywood and Saturn) in a limited partnership (Cherrywood
Associates) with a combination of taxable and tax exempt bonds issued
by the Idaho Housing Agency. Proceeds from the refinancing were
utilized to retire the existing mortgages and the Partnership received
excess cash of approximately $1,618,000, of which $689,000 was
included in income and the balance as a return of capital. The
limited partnership now have two mortgage amounts of $1,654,000 and
$1,759,300, for a term of 16 years at the taxable rate of 9.125
percent and a tax rate of 7.3 percent.
The following is a summary of the investments in limited partnerships
as of September 30, 1995:
<TABLE>
<S> <C>
Balance, beginning of period $1,135,982
Cash distributions recognized as a return of capital (303,640)
Amortization of acquisition costs (6,195)
Equity in income of limited partnerships 546,195
----------
Balance, end of period $1,372,342
==========
</TABLE>
The following are unaudited combined estimated statements of
operations for the limited partnerships in which the Partnership has
investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1995 Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCOME
Rental and other $16,803,000 $5,601,000 $16,689,000 $5,563,000
----------- ---------- ----------- ----------
EXPENSES
Depreciation 2,421,000 807,000 2,433,000 811,000
Interest 5,010,000 1,670,000 5,262,000 1,754,000
Operating 8,985,000 2,995,000 8,892,000 2,964,000
----------- ---------- ----------- ----------
16,416,000 5,472,000 16,587,000 5,529,000
----------- ---------- ----------- ----------
Net income $ 387,000 $ 129,000 $ 102,000 $ 34,000
=========== ========== =========== ==========
</TABLE>
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
NOTE 3 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partners, the Partnership is liable to NAPICO for an annual management
fee equal to .4% of the original invested assets of the limited
partnerships. For the nine months ended September 30, 1995 and 1994,
the fee was $298,260.
The Partnership reimburses NAPICO for certain expenses. In 1995, the
reimbursement to NAPICO of $22,419 was paid and included in the
Partnership's operating expenses.
NOTE 4 - CONTINGENCIES
The corporate general partner is a plaintiff in various lawsuits and
has also been named a defendant in other lawsuits arising from
transactions in the ordinary course of business. In addition, the
Partnership and the limited partnerships in which the Partnership has
invested are defendants in lawsuits. In the opinion of management and
the corporate general partner, the claims will not result in any
material liability to the Partnership.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income
earned from investing available cash and distributions from limited
partnerships in which the Partnership has invested. It is not
expected that any of the local limited partnerships in which the
Partnership has invested will generate cash flow sufficient to provide
for distributions to limited partners in any material amount.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in
an amount equal to .4 percent of invested assets is payable to the
corporate general partner.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships.
Equity in income of limited partnerships is approximately $540,000 and
$602,500 for the nine months ended September 30, 1995 and 1994,
respectively. The income is principally attributable to the fact that
equity in losses of limited partnerships are recognized in the
financial statements until the limited partnership investment accounts
are reduced to a zero balance. Losses incurred after the limited
partnership investment account is reduced to zero are not recognized.
Distributions received from limited partnerships are recognized as
return of capital until the investment balance has been reduced to
zero or to a negative amount equal to future capital contributions
required. Subsequent distributions received are recognized as income.
Except for certificates of deposit and money market funds the
Partnership's investments are entirely interests in other limited
partnerships owning government assisted projects. Available cash is
invested in these funds earning interest income as reflected in the
statements of operations. These investments can be converted to cash
to meet obligations as they arise.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Joseph Alizio v. Peter Perpignano, New Haven Plaza Associates, Real
Estate Associates Limited II, National Partnership Investments Corp.
and National Partnership Associate, Supreme Court of the State of New
York, County of Nassau, Case No. 1776-94. On January 21, 1994, the
Plaintiff filed a lawsuit seeking to dissolve the Partnership,
alleging that he was denied his pro rata share of the capital
contribution, management fees, consultants fees and profits. REAL II
filed a motion to dismiss the complaint which motion was granted on
November 10, 1994. The case, however, is now on appeal.
Manuel Rivera v. New Haven Plaza Associates, and Tort Security of New
York, Inc. Supreme Court of the State of New York, County of Queens,
Index No. 007421/94. On April 11, 1994, the Plaintiff filed a lawsuit
alleging he was assaulted and shot while he was visiting the property.
According to the on-site manager and security report, the Plaintiff
was not on the subject property when he was assaulted and shot. The
Plaintiff is seeking judgment for damages in the amount of $5,000,000.
The case was turned over to Crumb & Forester, the insurance agency,
and subsequently sent to Patrick McDonnell, Esq. The Plaintiff and
Defendant have been deposed.
The corporate general partner is a plaintiff or defendant in several
lawsuits. None of these are related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of
regulation S-K.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1995
SIGNATURES
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.
REAL ESTATE ASSOCIATES LIMITED II
(a California limited partnership)
By: National Partnership Investments
Corp., General Partner
Date:_____________________________________
By:_______________________________________
Bruce Nelson
President
Date:_____________________________________
By:_______________________________________
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,905,516
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,905,516
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,277,858
<CURRENT-LIABILITIES> 1,720
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,276,138
<TOTAL-LIABILITY-AND-EQUITY> 3,277,858
<SALES> 0
<TOTAL-REVENUES> 762,728
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 395,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 367,541
<INCOME-TAX> 0
<INCOME-CONTINUING> 367,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 367,541
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
