<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 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
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed 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 SEPTEMBER 30, 1996
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . 1
Statements of Operations,
Nine and Three Months Ended, September 30, 1996 and 1995 . . . . . . . . . . . . . . 2
Statement of Partners' Equity
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Nine Months Ended September 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
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 2,623,806 $ 1,959,173
CASH AND CASH EQUIVALENTS (Note 1) 1,928,838 1,862,711
------------- -------------
TOTAL ASSETS $ 4,552,644 $ 3,821,884
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 4,206 $ 42,386
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (172,611) (180,300)
Limited partners 4,721,049 3,959,798
------------- -------------
4,548,438 3,779,498
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY
(DEFICIENCY) $ 4,552,644 $ 3,821,884
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1996 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 58,425 $ 17,638 $ 56,415 $ 22,404
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Legal and accounting 56,612 4,852 - -
Management fees - general partner 298,260 99,420 298,260 99,420
Administrative (Note 3) 41,015 13,161 96,927 18,282
-------------- -------------- -------------- --------------
Total operating expenses 395,887 117,433 395,187 117,702
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (337,462) (99,795) (338,772) (95,298)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME (Note 2) 302,402 149,771 166,313 78,646
EQUITY IN INCOME OF
LIMITED PARTNERSHIPS
AND AMORTIZATION OF
ACQUISITION COSTS (Note 2) 804,000 268,000 540,000 180,000
-------------- -------------- -------------- --------------
NET INCOME $ 768,940 $ 317,976 $ 367,541 $ 163,348
============== ============== ============== ==============
NET INCOME PER LIMITED
PARTNERSHIP INTEREST
(Note 1) $ 72 $ 30 $ 34 $ 15
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1996 10,693
============
EQUITY (DEFICIENCY),
January 1, 1996 $ (180,300) $ 3,959,798 $ 3,779,498
Net income for the nine months
ended September 30, 1996 7,689 761,251 768,940
------------ ------------ ------------
EQUITY (DEFICIENCY),
September 30, 1996 $ (172,611) $ 4,721,049 $ 4,548,438
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 768,940 $ 367,541
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (804,000) (540,000)
Decrease in accounts payable (38,180) (6,919)
--------- ----------
Net cash used in operating activities (73,240) (179,378)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as return of capital 139,367 303,640
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 66,127 124,262
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,862,711 1,781,254
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,928,838 $1,905,516
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1996 and the results of operations for
the nine and three months then ended and changes in cash flows 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.
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.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
The following is a summary of the investments in limited partnerships
as of September 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $1,959,173
Amortization of acquisition costs (6,000)
Cash distribution recognized as return of capital (139,367)
Equity in income of limited partnerships 810,000
----------
Balance, end of period $2,623,806
==========
</TABLE>
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 1996 and 1995 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, 1996 Sept. 30, 1996 Sept. 30, 1995 Sept. 30,1995
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $17,112,000 $5,704,000 $16,803,000 $5,601,000
----------- ---------- ----------- ----------
EXPENSES
Depreciation 2,403,000 801,000 2,421,000 807,000
Interest 5,001,000 1,667,000 5,010,000 1,670,000
Operating 9,168,000 3,056,000 8,985,000 2,995,000
----------- ---------- ----------- ----------
16,572,000 5,524,000 16,416,000 5,472,000
----------- ---------- ----------- ----------
NET INCOME $ 540,000 $ 180,000 $ 387,000 $ 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.
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. 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. For the nine months ended September 30,
1996 and 1995, the fee was $298,260.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $24,121 and $22,419 for
the nine months ended September 30, 1996 and 1995, respectively, 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.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
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.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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 $810,000 and
$546,000 for the nine months ended September 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.
9
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REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE PARTNERSHIP'S STATEMENT 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,826,718
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,928,838
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,552,644
<CURRENT-LIABILITIES> 4,206
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,548,438
<TOTAL-LIABILITY-AND-EQUITY> 4,552,644
<SALES> 0
<TOTAL-REVENUES> 1,164,827
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 395,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 768,940
<INCOME-TAX> 0
<INCOME-CONTINUING> 768,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 768,940
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
