<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 JUNE 30, 1996
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______
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Balance Sheets, June 30, 1996 and December 31, 1995 . . . . 1
Statements of Operations,
Six and Three Months Ended, June 30, 1996 and 1995 2
Statement of Partners' Equity
Six Months Ended June 30, 1996 . . . . . . . . . . . 3
Statements of Cash Flows,
Six Months Ended June 30, 1996 and 1995 . . . . . . 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>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
------------ -------------
<S> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 2,405,551 $ 1,959,173
CASH AND CASH EQUIVALENTS (Note 1) 1,826,718 1,862,711
------------- -------------
TOTAL ASSETS $ 4,232,269 $ 3,821,884
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 1,807 $ 42,386
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (175,790) (180,300)
Limited partners 4,406,252 3,959,798
------------ ------------
4,230,462 3,779,498
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIENCY) $ 4,232,269 $ 3,821,884
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 40,787 $ 20,217 $ 34,011 $ 30,435
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Legal and accounting 51,761 12,738 47,079 9,138
Management fees - general partner 198,840 99,420 198,840 99,420
Administrative (Note 3) 27,853 14,129 31,567 16,198
----------- ------------ ------------ ------------
Total operating expenses 278,454 126,287 277,486 124,756
----------- ------------ ------------ ------------
LOSS FROM OPERATIONS (237,667) (106,070) (243,475) (94,321)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME (Note 2) 152,631 145,311 87,668 87,668
EQUITY IN INCOME OF
LIMITED PARTNERSHIPS
AND AMORTIZATION OF
ACQUISITION COSTS (Note 2) 536,000 268,000 360,000 180,000
----------- ------------ ------------ ------------
NET INCOME $ 450,964 $ 307,241 $ 204,193 $ 173,347
=========== ============ ============ ============
NET INCOME PER LIMITED
PARTNERSHIP INTEREST
(Note 1) $ 42 $ 29 $ 19 $ 16
=========== ============ ============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
June 30, 1996 10,693
==========
EQUITY (DEFICIENCY),
January 1, 1996 $ (180,300) $ 3,959,798 $ 3,779,498
Net income for the six months
ended June 30, 1996 4,510 446,454 450,964
----------- ----------- -----------
EQUITY (DEFICIENCY),
June 30, 1996 $ (175,790) $ 4,406,252 $ 4,230,462
=========== =========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 450,964 $ 204,193
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (536,000) (360,000)
Increase (decrease) in accounts payable (40,579) 5,127
------------- -------------
Net cash used in operating activities (125,615) (150,680)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as return of capital 89,622 -
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (35,993) (150,680)
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,862,711 1,781,254
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,826,718 $ 1,630,574
============= =============
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 450,964 $ 204,193
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (536,000) (360,000)
Increase (decrease) in accounts payable (40,579) 5,127
------------ ------------
Net cash used in operating activities (125,615) (150,680)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as return of capital 89,622 -
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (35,993) -
------------ ------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,862,711 1,781,254
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,826,718 $ 1,630,574
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
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, 1995 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 June 30, 1996 and the results of operations and changes in cash
flows for the six 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.
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 reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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.
5
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
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.
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.
The following is a summary of the investments in limited partnerships as
of June 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $1,959,173
Amortization of acquisition costs (4,000)
Cash distribution recognized as return of capital 89,622
Equity in income of limited partnerships 540,000
------------
Balance, end of period $ 2,405,551
============
</TABLE>
The following are unaudited combined estimated statements of
operations for the six months ended June 30, 1996 and 1995 for the
limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME
Rental and other $11,407,000 $5,704,000 $11,202,000 $5,601,000
----------- ---------- ----------- ----------
EXPENSES
Depreciation 1,602,000 801,000 1,614,000 807,000
Interest 3,334,000 1,667,000 3,340,000 1,670,000
Operating 6,112,000 3,056,000 5,990,000 2,995,000
--------- --------- ------------ -----------
11,048,000 5,524,000 10,944,000 5,472,000
---------- --------- ----------- -----------
NET INCOME $ 359,000 $ 180,000 $ 258,000 $ 129,000
============ =========== ============ ============
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
6
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
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 originals invested assets of the limited
partnerships. For the six months ended June 30, 1996 and 1995, the
fee was $198,840.
Invested assets are defined as the costs of acquiring project
interests, including the proportionate amount of the mortgage loans
related to the Partnership's interests in the capital accounts of the
respective partnerships.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $15,000 for the six
months ended June 30, 1996 and 1995, and is included in administrative
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 the opinion of
management and the corporate general partner, the claims will not
result in any material liability to the Partnership.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair
value information about financial instruments. The carrying amount of
assets and liabilities reported on the balance sheets that require
such disclosure approximates fair value due to their short-term
maturity.
7
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1996
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. Operating expenses are consistent with the
prior year.
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
$360,000 for the six months ended June 30, 1996 and 1995,
respectively. The increase 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> 12
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1996
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 Associates, 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 New Haven Local
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 counsel for the insurer.
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> 13
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1996
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,826,718
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,826,718
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,232,269
<CURRENT-LIABILITIES> 1,807
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,230,462
<TOTAL-LIABILITY-AND-EQUITY> 4,232,269
<SALES> 0
<TOTAL-REVENUES> 729,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 278,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 450,964
<INCOME-TAX> 0
<INCOME-CONTINUING> 450,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 450,964
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
