SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission file: #0-16874
National Real Estate Limited Partnership
Income Properties-II
(Exact name of registrant as specified in its charter)
Wisconsin
39-1553195
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)
9800 West Bluemound Road, Milwaukee, Wisconsin
53226-4353
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:
(414) 453-3498
Securities registered pursuant to Section 12(b) of the
Act:
Title of Each Class
None
Names of Each Exchange on Which Registered
None
Securities registered pursuant to Section 12(g) of the
Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Sections 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. (X) Yes ( ) No
State the aggregate market value of the securities held
by non-affiliates of the Registrant as of February 28,
1996: indeterminate value as there is no market.*
*For purposes of this disclosure only.
The number of Limited Partnership interests outstanding
as of February 28, 1996: 20,653.69
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to Partners for the year
ended December 31, 1995 are incorporated by reference
into Parts I, II, III, and IV.
Definitive Prospectus dated August 18, 1986, as amended
to date, is incorporated by reference into Part IV.
<PAGE>
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business 3
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security
Holders 3
PART II
5. Market for Partnership's Securities and Related
Security Holder Matters 4
6. Selected Financial Data 5
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
8. Financial Statements and Supplementary Data 5
9. Disagreements on Accounting and Financial
Disclosure 5
PART III
10. Directors and Executive Officers of the
Partnership 6
11. Executive Compensation 9
12. Security Ownership of Certain Beneficial Owners
and
Management 10
13. Certain Relationships and Related Transactions 10
PART IV
14. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K 11
<PAGE>
PART I
Item 1. Business
"Business" on pages 1 and 2 of the Partnership's annual
report to Partners for the year ended December 31, 1995
is incorporated herein by reference.
Item 2. Properties
"Properties" on pages 2 and 3 of the Partnership's
annual report to Partners for the year ended December
31, 1995 is incorporated herein by reference.
Item 3. Legal Proceedings
"Legal Proceedings" on page 3 of the Partnership's
annual report to Partners for the year ended December
31, 1995, is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security
Holders for the Quarter ended December 31, 1995
No matters have been submitted to a vote of security
holders during the fourth quarter ending December 31,
1995.
By virtue of its organization as a limited partnership,
the Limited Partnership Interests do not possess
traditional voting rights. However, as provided in
Article 15 of the Limited Partnership Agreement,
Limited Partners have voting rights for, among other
things, the removal of the General Partners, the
approval of the sale of substantially all of the assets
under certain circumstances, and the initiation of the
dissolution of the Partnership.
<PAGE>
PART II
Item 5. Market for the Partnership's Securities and
Related Security Holder Matters
a) Market Information
The Partnership's only authorized equity securities are
Limited Partnership Interests ("Interests"). On
February 2, 1987, the Partnership satisfied the initial
escrow requirements and investors were admitted to the
Partnership as limited partners except for New York
investors who were admitted to the Partnership April
30, 1987, due to special escrow requirements for those
investors. The offering of such Interests by the
Partnership terminated on August 31, 1988, at which
time 20,653.69 had been sold to the public at a price
of $250 per Interest. Of the Interests sold, 16,699.69
Interests were sold during 1987 and 3,954 were sold
from January 1, 1988, to August 31, 1988. No additional
Interests have been sold. Management is not aware of a
public trading market having been developed for the
Interests.
b) Security Holders
Title of Class
Limited Partnership Interests
Number of Record Holders
(as of February 28, 1996)
645
Number of Interests
(as of February 28, 1996)
20,653.69
c) Dividends or Similar Distributions
The amount of cash distributions to Limited Partners
will depend upon attaining and thereafter maintaining
operating income and expenses of the Partnership at
levels permitting distributions. Distributions of cash,
if any, will be made from: (i) Cash Available for
Distribution; (ii) cash from property sales, and (iii)
cash from Partnership reserve accounts.
"Cash Available for Distribution" is defined in the
Partnership Agreement to include Net Cash Flow less
amounts set aside for Reserves plus the amount of any
General Partner Loan for such period. "Net Cash Flow"
is defined as the Partnership's cash funds provided
from operations and Reserves, including lease payments
on net leases from builders and sellers, without
deductions for depreciation, but after deducting funds
used to pay all Operating Expenses, deferred fees,
other expenses, debt payments, capital improvements and
replacements. The Partnership will make distributions
of Cash Available for Distribution within 30 days after
the end of each calendar quarter commencing at the end
of the first full calendar quarter following that in
which the Escrow Break occurs. Cash Available for
Distribution will be distributed 100% to the Limited
Partners until the earlier of (i) the first anniversary
of the date of the Prospectus or (ii) termination of
this offering. Thereafter, Cash Available for
Distribution will be distributed 95% to the Limited
Partners and 5% to the General Partners, provided that
the payment to the General Partners will be reduced and
paid to Limited Partners unless and until the
cumulative cash distributions to the Limited Partners
equal at least 8.5% of their Capital Investment on an
annualized basis (the "Subordination Rate"). The
General Partners anticipate that the Partnership will
continue to make cash distributions to its Limited
Partners in 1996, though the amount of Cash Available
for future Distributions will depend in part on the
performance of the Partnership's investments, and there
can be no assurance as to the amount, if any, that may
be distributed. The partnership continued cash
distributions in 1995 with an aggregate of $139,413 to
its Limited Partners. Distributions for 1995 were at a
rate that equaled 2.6% on their capital investment.
After repayment of any General Partner Loan, Sale
Proceeds will be distributed as follows: (i) to the
Limited Partners, an amount equal to 100% of their
Capital Investment; (ii) then 100% to the Limited
Partners until they have received an amount equal to
10% per annum simple interest cumulative on Capital
Investment, less prior distributions of Cash Available
for Distribution; (iii) then an amount to the General
Partners equal to 12% of the Sale Proceeds remaining
after return to all Partners of an amount equal to 100%
of their Capital Investment, but not more than an
amount equal to 15% of Sales Proceeds remaining after
return to the Partners of their Capital Investment and
an amount to the Limited Partners (including prior
distributions of Net Interest on Partnership
Subscriptions and Cash Available for Distribution)
equal to 6% simple interest per annum, cumulative,
commencing at the end of the calendar quarter in which
each Limited Partner's Original Capital Contribution is
made; and (iv) all remaining proceeds to the Limited
Partners. The Partnership will continue in existence
until December 31, 2006, unless terminated earlier by
disposition of all of its assets or certain other
events. The Partnership will commence liquidating its
properties as soon as feasibly possible, depending
upon, among other factors, whether the Partnership's
investment objectives are met including, potential
capital appreciation, cash flow, and federal income tax
consequences to its Limited Partners.
Item 6. Selected Financial Data
"Selected Financial Data" on page 4 of the
Partnership's annual report to Partners for the year
ended December 31, 1995 is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 4 through
6 of the Partnership's annual report to Partners for
the year ended December 31, 1995 is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements included on pages 7 through 20
of the Partnership's annual report to Partners for the
year ended December 31, 1995 are incorporated herein by
reference. The Partnership is not required to report
quarterly results of operations or supplementary
information on the effects of changing prices.
Item 9. Disagreements on Accounting and Financial
Disclosure
There were no disagreements with Ernst and Young LLP on
any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the
Partnership
(a-b) Identification of Directors and Executive
Officers
The Partnership has no directors or officers. The
General Partners of the Partnership are Mr. John
Vishnevsky; National Development and Investment, Inc.
("NDII"), a Wisconsin corporation of which Mr.
Vishnevsky is the majority stockholder; and EC Corp., a
Wisconsin corporation of which Mr. Stephen P. Kotecki
is the majority stockholder. The address of Mr.
Vishnevsky and NDII is 9800 West Bluemound Road,
Milwaukee, Wisconsin, 53226-4353, telephone
(414) 453-3498. The address of EC Corp. is 9800 West
Bluemound Road, Milwaukee, Wisconsin, 53226-4353,
telephone (414) 453-5117.
The General Partners manage and control the affairs of
the Partnership and have responsibility and ultimate
authority in all matters affecting its business. The
names of the directors and executive officers of NDII
and EC Corp. are as follows:
Name
Office
Term Held Office (since)
NDII:
John Vishnevsky
President, Director
09/30/74
Stephen P. Kotecki
Vice President, Secretary, Treasurer and Director
04/12/91
EC Corp.:
Stephen P. Kotecki
President, Treasurer, Director
10/30/92
Thomas Rielly
Vice President, Secretary, Director
12/17/92
Officers of the corporations are elected by their
respective Boards of Directors annually. There is no
arrangement or understanding between or among any of
said directors or officers and any other person
pursuant to which such individual was selected as a
director or officer.
(c) Identification of Certain Significant Persons
The General Partners, in conjunction with their
affiliates, believe that they have sufficient personnel
to fully discharge their responsibilities to the
Partnership. The Partnership employs various
individuals to oversee the Partnership affairs and
report to the General Partners, but, the Partnership
relies directly on the General Partners for the
management and control of the Partnership's affairs.
See Item 10, Subsection (e), for a description of the
business experience of officers, directors, and
personnel of the General Partners and affiliates.
There are four other organizations which are or were
affiliated with the Individual or Corporate General
Partners whose services are utilized by the
Partnership: National Realty Management, Inc. ("NRMI"),
which provides property and partnership management,
real estate acquisition, and real estate brokerage
through delegation of duties agreements with NDII;
Victor Construction, Inc., which has and may in the
future serve as general contractor and perform other
services in connection with renovation and remodeling
work of the Partnership's properties; National Selected
Securities Corp. (formerly NDII Securities Corp.),
which acted as the Managing Dealer for the offering of
Interests in the Partnership; and The John Vishnevsky
Company ("JVCO"), which has provided consulting
services in the areas of real estate investments, joint
ventures, financing, systems, accounting, and internal
controls.
<PAGE>
RELATIONSHIP OF GENERAL PARTNERS
AND THEIR AFFILIATES
The following diagram shows the relationship of the
Partnership to various prior or current affiliates:
NATIONAL REAL ESTATE LIMITED
PARTNERSHIP INCOME PROPERTIES-II
(1)
EC CORP
Corporate General Partner
JOHN VISHNEVSKY
Individual General Partner 100%
NATIONAL DEVELOPMENT AND INVESTMENT, INC.
Corporate General Partner
100%
JOHN VISHNEVSKY COMPANY
Financial and Real Estate Consulting and Services
100%
NATIONAL SELECTED SECURITIES CORP.
Security Sales
(2)NRMI
Partnership and Property Management Acquisition &
Brokerage
(3)VICTOR CONSTRUCTION INC.
Building Contractor
(1) The ownership of EC Corp. is held by Mr. Stephen
P. Kotecki (100%).
(2) The ownership of NRMI is held by Mr. Edward Carow
(51%), Ms. Stasia Vishnevsky (19%), and Mr.
Anthony Van Stralen (30%). It is anticipated that
the services of NRMI will continue to be available
to the Partnership under the terms and conditions
described in the prospectus.
(3) The ownership of Victor Construction, Inc. is held
by Mr. Edward J. Bushman (53%), Mr. Mark Clements
(9%), Mr. Mark Breuchel (2%), and Ms. Cindy
Bushman (36%). It is anticipated that the services
of Victor Construction will continue to be
available to the Partnership under the terms and
conditions described in the Prospectus.
<PAGE>
(d) Family Relationships
Ms. Stasia Vishnevsky, part owner and Vice President of
NRMI, is the daughter of John Vishnevsky.
(e) Business Experience
The experience of the officers and directors of the
Corporate General Partner includes the following:
John Vishnevsky, President and Director of NDII, (age
72) is a graduate of Marquette University. For over 37
years he has been involved in real estate related
activities such as land development, residential,
apartment, and commercial construction, property
management, and the structuring of limited
partnerships. Mr. Vishnevsky has directed companies
that have developed or constructed projects with a
current market value of over $100 million. He, or
corporate entities he controls, or both, act as general
partner for all NDII limited partnerships. These
partnerships have sold in excess of $160 million of
limited partnership interests. Mr. Vishnevsky is
licensed as an insurance broker, a real estate broker,
and a securities principal. He has lectured frequently
and has taught courses in real estate at the University
of Wisconsin-Milwaukee and he has appeared as a guest
on television and radio programs related to real estate
investments. Mr. Vishnevsky is author of the books: The
Art of Financial Independence, The Phantom Yield of
Real Estate Investment, The Great Real Estate
Disaster... The Greatest Real Estate Opportunity,
Getting to Know You, Releasing Your Creativity, and
Principles.
Stephen P. Kotecki, Vice President and Director of NDII
and President, Treasurer, and Director of EC Corp.,
(age 45), is a General Securities Registered
Representative, multi-line licensed insurance agent
and entrepreneur. He is the sole stockholder of EC
Corp. Mr. Kotecki holds a Bachelor of Science Degree
with a major in Political Science from the University
of Wisconsin-Whitewater, and a Master of Science Degree
in Urban Affairs from the University of
Wisconsin-Milwaukee. Mr. Kotecki directed research for
the American Federation of State, County and Municipal
Employees' District Council in Milwaukee County for
over four years. Mr. Kotecki further has experience as
a Regional Criminal Justice Planner and as a Housing
Evaluation Specialist. As a college instructor, Mr.
Kotecki lectured courses in Business and Industrial
Relations, Marketing and Investments for over three
years.
Thomas P. Rielly, Vice President, Secretary, and
Director of EC Corp., (age 48) is a licensed general
securities principal and a financial and operations
principal. Mr. Rielly has been an active participant in
the financial services industry for 22 years. His
diverse financial services experience includes
professional assignments in the areas of venture
capital, business planning and venture formation,
investment banking, asset management and securities
placement. Mr. Rielly has been associated with National
Development and Investment, Inc., related companies,
and Mr. Vishnevsky for over 10 years.
Other personnel of Affiliates of the General Partners
who were significantly involved in the Partnership's
affairs include the following:
Edward Carow, President of NRMI, (age 36), has over 17
years experience and an extensive background in
property management, acquisitions, partnership
management, loan workouts, refinancing, and property
sales. Mr. Carow is a licensed real estate broker and
also holds the CPM (Certified Property Manager)
designation. Mr. Carow attended the University of
Wisconsin for business, the Waukesha County Technical
College for real estate, and he continues to attend
trade conferences and lectures. He has taught courses
in property management and real estate investments for
Milwaukee Area Technical College. He is a member of the
Executive Council of the Institute of Real Estate
Management and was the 1992 president. Some of his
other current commitments include the International
Affairs Committee of the Institute of Real Estate
Management, the Publishing Committee of the Institute
of Real Estate Management, and the Advisory Board at
the Waukesha County Technical College.
Stasia Vishnevsky, Vice President and Media Director of
NRMI, (age 30), supervises marketing, public relations,
and advertising for NRMI-managed properties. Ms.
Vishnevsky also produces corporate training and
operations manuals, newsletters, and training seminars.
She attended Elmhurst College for English, and
Marquette University for Broadcast Communications.
Joan Jenstead, Director of Property Operations, (age
61) has been involved in the management of over ten
thousand apartment units in addition to commercial and
condominium management nationwide. She is a Certified
Property Manager and a Wisconsin licensed real estate
broker. Ms. Jenstead attended the University of North
Dakota, majoring in Business. In 1984, she was
responsible for the recognition of NRMI as an
Accredited Management Organization (AMO) by the
National Institute of Real Estate Management, (IREM).
In 1988, she served as President of the Institute of
Real Estate Management. She is also a member of the
national faculty of IREM, a faculty member of the
Milwaukee Area Technical College, and a past President
of the Board of Directors for the state of Wisconsin
Technical College Trustee Association. In 1990, Ms.
Jenstead was recognized for her accomplishments in
higher education in "Profiles in Success" published by
the National Center for Higher Education. In 1994 she
was elected to a three year term as a director on the
National Board of the Association of Community College
Trustees.
John Vishnevsky is or was the Individual General
Partner of National Real Estate Limited Partnership-II
(NRELP-II), National Real Estate Limited
Partnership-III (NRELP-III), National Real Estate
Limited Partnership-IV (NRELP-IV), National Real Estate
Limited Partnership-V (NRELP-V), National Real Estate
Limited Partnership-VI (NRELP-VI), National Real Estate
Limited Partnership Income Properties (NRELP-IP) and
the Partnership among others. NDII is or was a
corporate general partner of NRELP-IV, NRELP-V,
NRELP-VI, NRELP-IP, and the Partnership, among others.
EC Corp. is or was a corporate general partner of
NRELP-VI, NRELP-IP and the Partnership, among others.
The Boards of Directors of the Partnership's Corporate
General Partners, NDII and EC Corp., may be deemed to
be interlocking.
Item 11. Executive Compensation
As stated above, the Partnership has no officers or
directors. The officers and directors of the Corporate
General Partners receive no current or proposed direct
remuneration in such capacities, pursuant to any
standard arrangement or otherwise, from either the
Corporate General Partners or from the Partnership,
with the exception of those directors which are not
employees of NDII, EC Corp. and affiliates, to whom an
annual director's fee of $50 per director is paid by
NDII.
Pursuant to the terms of the Limited Partnership
Agreement, net profits and losses from operations and
Cash Available for Distribution are allocated 95% to
the Limited Partners and 5% to the General Partners.
For such 5% interest, the General Partners contributed
$1,000 to the Partnership. For the fiscal period ended
December 3l, 1995, this interest resulted in net
taxable income to the Individual General Partner of
approximately $6,342 There were no cash distributions
to the Individual General Partner during 1995, as
outlined in the Prospectus.
The Partnership will commence liquidating its
properties as soon as feasibly possible. This will be
dependent upon, among other factors, the then current
real estate and money markets, economic climate, and
income tax consequences to the Limited Partners. The
General Partners will be distributed an amount equal to
12% of the remaining sale proceeds after return to the
Limited Partners of an amount equal to 100% of their
Capital Investment, but not more than an amount equal
to 15% of sale proceeds remaining after return to the
partners of their Capital Investment and an amount to
the Limited Partners equal to 6% simple interest per
annum. This distribution to the General Partner is
subordinated to cumulative noncompounded distribution
of Sale proceeds and Cash Available for Distribution to
the Limited Partners equal to 10% per annum on their
Capital Investment. An affiliate may also receive real
estate commissions of up to 3% of the aggregate selling
price of the properties. Upon liquidation of the
Partnership, all liquidation proceeds will be
distributed to the Partners in proportion to their Net
Capital Accounts.
The Partnership is engaged in various transactions
involving affiliates of the General Partners as
described in the Prospectus. Notes 2, 6 and 7 of the
Partnership's financial statements of the annual report
to Partners for the year ended December 31, 1995 are
incorporated herein by reference.
The contracts between the Partnership and affiliates,
including the February 28, 1992 purchase of Amberwood
(as described in the Management's Discussion and
Analysis of Financial Condition and Results of
Operations section of the Partnership's annual report
to investors), provide that the compensation, price, or
fee must be comparable and competitive with the
compensation, price, or fee of any other person whose
services could reasonably be made available to the
Partnership. The General Partners believe compensation
to affiliates for services to the Partnership was on
terms no less favorable to the Partnership than would
have been available through arm's-length negotiations
for similar services from unrelated parties.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
(a) No person or group is known by the Partnership to
own beneficially more than 5% of the outstanding
Interests of the Partnership.
(b) By virtue of its organization as a limited
partnership, the Partnership has no officers or
directors. The General Partners are responsible for
management of the Partnership, subject to certain
limited democracy rights of the Limited Partners
described in the Limited Partnership Agreement. Persons
or entities performing functions similar to those of
officers and directors of the Partnership who
beneficially own in aggregate the following Interests
of the Partnership as of February 28, 1996.
Title of Class
Limited Partnership Interests
Name of Beneficial Owner
John Vishnevsky
Amount and Nature of Beneficial Ownership
8.69 Interests Sole Investment Power
Class
.04%
Item 13. Certain Relationships and Related Transactions
Neither the General Partners nor their affiliates were
indebted to the Partnership during the year ended
December 31, 1995.
On February 28, 1992 the Partnership purchased twelve
units of Amberwood Apartments from National Real Estate
Limited Partnership-VI ("NRELP-VI"). The General
Partners of NIP-II were the same General Partners of
NRELP-VI and therefore the Partnerships were
"affiliates" (as described in the Prospectus). A
detailed description of the purchase may be found in
the Business section of the annual report to Partners
for the year ended December 31, 1995 incorporated
herein by reference.
There were no other transactions with management other
than the Partnership's transactions with the General
Partners and affiliates as described in this report at
Items 10 and 11.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K
(A) 1. Financial Statements
a) Financial Statements and Report of Independent
Auditors (incorporated by reference from pages 7
through 20 of the Partnership's annual report to
Partners for the year ended December 31, 1995).
(i) Report of Independent Auditors
(ii) Balance Sheets, December 31, 1995 and 1994
(iii) Statements of Operations, Years Ended
December 31, 1995, 1994 and 1993
(iv) Statements of Changes in Partners' Capital, Years
Ended December 31, 1995, 1994 and 1993
(v) Statements of Cash Flows, Years Ended December 31,
1995, 1994 and 1993
(vi) Notes to Financial Statements
2. Financial Statement Schedules
All schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions, are inapplicable, or the information is
presented in the financial statements or related notes,
and therefore such schedules have been omitted.
3. Exhibits
See attached exhibit list which is incorporated by
reference.
(B) Reports on Form 8-K for the Quarter ended December
31, 1995
There were no reports on Form 8-K filed during the
fourth quarter ending December 31, 1995.
(C) Exhibits
3(a) Limited Partnership Agreement, incorporated by
reference from Prospectus previously filed with
Registration Statement 33-6337 on Form S-11
effective August 18, 1986.
3(b) Certificate of Limited Partnership incorporated by
reference from Exhibit 3B Registration Statement
33-6337 on Form S-11 effective August 18, 1986.
4 Subscription Agreement Evidencing Ownership of a
Partnership Interest, incorporated by reference
from Prospectus previously filed with Registration
Statement 33-6337 on Form S-11 effective August
18, 1986.
10(a) Consulting Fee Agreement between the
Partnership and NDII dated August 18, 1986.
Incorporated by reference from the 1986 10-K
filed March 30, 1987.
10(b) Acquisition Agreement between the Partnership
and NDII dated August 18, 1986. Incorporated
by reference from the 1986 10-K filed March
30, 1987.
10(c) Organization Expense Agreement between the
Partnership and NDII dated August 18, 1986.
Incorporated by reference from the 1986 10-K
filed March 30, 1987.
10(d) Contracts for Acquisition of Assets
(1) With respect to Cave Creek Mini-Warehouse,
Phoenix, Arizona (Phase I): Incorporated by
reference from Exhibit 2-1 to periodic report on
Form 8-K dated March 1, 1987.
(2) With respect to Cave Creek Mini-Warehouses,
Phoenix, Arizona (Phase II): Incorporate by
reference from Exhibit 2-1 to periodic report on
Form 8-K dated April 30, 1987.
(3) With respect to Amberwood Apartments, Holland,
Michigan (36 units): Incorporate by reference from
Exhibit 2-1 to periodic reports on Form 8-K dated
June 17, 1988, and August 8, 1988.
(4) With respect to Amberwood Apartments, Holland,
Michigan (8 units): Incorporate by reference from
Exhibit 2-1 to periodic reports on Form 8-K dated
September 16, 1988.
(5) With respect to Amberwood Apartments, Holland,
Michigan (12 units): Incorporate by reference from
Exhibit 2-1 to periodic reports on Form 8-K dated
February 28, 1992.
10(e) Escrow Agreement dated August 18, 1986,
incorporated by reference from Exhibit 10 to
Registration Statement 33-6337 effective
August 18, 1986.
10(f) Management Consulting Delegation of Duties
Agreement between the General Partners and
NRMI dated May 28, 1991. Incorporated by
reference from the 1991 10-K filed March 27,
1992.
10(g) Property Management Agreement between
Partnership and NRMI dated July 1, 1991.
Incorporated by reference from the 1991 10-K
filed March 27, 1992.
10(h) Co-General Partner Agreement incorporated by
reference from Exhibit 5-1 to periodic
reports on Form 8-K dated July 26, 1991.
11 Not applicable, see Item 6 of this report.
12 Not applicable
*13 National Real Estate Limited Partnership Income
Properties-II 1995 annual report to Partners is
included as an exhibit hereto for those portions
of such annual report specifically incorporated by
reference elsewhere herein. Such annual report is
deemed not to be filed as part of this Report.
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
*24 Consent of Independent Auditors filed with this
report.
25 Not applicable
(D) Financial Statement Schedule
There are no schedules to be included herein.
* Filed with this report.
<PAGE>
Exhibit 24
CONSENT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this
Annual Report (Form 10-K) of National Real Estate
Limited Partnership Income Properties-II of our report
dated January 19, 1996, included in the 1995 Annual
Report to Partners of National Real Estate Limited
Partnership - Income Properties II.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 27, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
(Registrant)
Dated: March 28, 1996
By: /S/ John Vishnevsky
John Vishnevsky
President and Chief Operating and Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Dated: March 28, 1996
By: /S/ John Vishnevsky
John Vishnevsky
Chief Financial and Accounting Officer
National Development and Investment, Inc.
Corporate General Partner
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report is signed below by the
following persons on behalf of the Registrant and in
the capacities* and on the dates indicated:
/S/ John Vishnevsky
John Vishnevsky
President and Director National Development and
Investment, Inc.
March 28, 1996
(dated)
/S/ Stephen P. Kotecki
Stephan P. Kotecki
Vice President, Secretary, Treasurer and Director
National Development and Investment, Inc.
March 28, 1996
(dated)
/S/ Stephen P. Kotecki
Stephen P. Kotecki
President, Treasurer and Director
EC Corp.
March 28, 1996
(dated)
/S/ Thomas Rielly
Thomas Rielly
Vice President, Secretary and Director
EC Corp.
March 28, 1996
(dated)
* The indicated positions are held in the Corporate
General Partners of the Registrant.
B:\NIP2ELE
<PAGE>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
Business
The Registrant, National Real Estate Limited
Partnership Income Properties-II (the "Partnership"),
is a limited partnership organized under the Wisconsin
Revised Uniform Limited Partnership Act pursuant to a
Certificate and an Agreement of Limited Partnership,
each dated May 28, 1986. As of December 31, 1994, the
Partnership consisted of an Individual General Partner,
two Corporate General Partners and 645 Limited Partners
owning 20,653.69 limited partnership interests (the
"Interests") acquired at a public offering price of
$250 per Interest ($5,163,423 net). On February 2,
1987, the Partnership satisfied its escrow requirements
and admitted Limited Partners to the Partnership except
for New York investors who were admitted as of April
30, 1987, due to special escrow requirements for those
investors. The Interests were sold commencing
August 18, 1986, and ending August 31, 1988, pursuant
to a Registration Statement on Form S-11 under the
Securities Act of 1933 (Registration #33-6337) as
amended. The Individual General Partner is John
Vishnevsky and the Corporate General Partners are
National Development and Investment, Inc. ("NDII"), a
Wisconsin corporation and EC Corp., a Wisconsin
corporation. All management decisions are the
responsibility of the General Partners.
The Partnership was organized to engage in the business
of investing in, operating, owning, leasing, and
improving interests in real estate, including developed
as well as undeveloped properties, particularly
apartment complexes. The Partnership's principal
investment objectives are to invest in real estate
properties which will:
1) preserve and protect the Limited Partners' capital
investment;
2) provide quarterly distributions of Cash Available
for Distribution;
3) provide capital appreciation through increases in
the value of the Partnership's real estate assets;
and
4) acquire, own, and operate its investment
properties with no use of borrowed funds.
The Partnership will continue in existence until
December 31, 2006, unless terminated earlier by
disposition of all of its assets or certain other
events. The Partnership will commence liquidating its
properties as soon as feasibly possible, depending
upon, among other factors, whether the Partnership's
investment objectives are met including, potential
capital appreciation, cash flow, and federal income tax
consequences to its Limited Partners.
On March 1, 1987, the Partnership acquired its first
investment property, a parcel of land containing three
of the five buildings of Cave Creek Mini-Warehouse, a
self storage mini-warehouse rental complex located in
Phoenix, Arizona. The Partnership acquired an
additional parcel of Cave Creek on April 30, 1987, that
consisted of part of a two-story building. On June 17,
1988, the Partnership purchased a portion of Amberwood
Apartments containing 36 apartment units located near
Holland, Michigan. The Partnership acquired an
additional portion of Amberwood Apartments on September
16, 1988, that consisted of eight apartment units by
exercising its option to purchase those units. On
February 28, 1992 the Partnership acquired the
remaining twelve units of Amberwood Apartments. The
properties are more fully described in this report at
Properties.
The real estate investment business is highly
competitive. The Partnership's properties are in
competition for tenants with numerous other alternative
sources for storage or housing, including properties
owned by the General Partners and their affiliates. The
Partnership does not have any plans to acquire
additional properties.
The Partnership is not dependent upon a single tenant
for its operating success. The Partnership does not
foresee any events or market trends which would have a
materially adverse affect upon the Partnership's
revenues, except for increased competition for tenants,
which is discussed more fully at Results of Operations.
During 1995, the Partnership employed three full-time
and five part-time on-site personnel in the following
capacities: two managers and six cleaning and
maintenance people. In addition, due to the centralized
nature of the Partnership's accounting and management
systems, another 18 employees provided various
accounting and management services to this and other
partnerships. These persons worked an average of
approximately 2 hours per week on this Partnership.
Detailed time records of all personnel are maintained
which form the basis for charges to the Partnership.
All on-site and partnership employees are supervised by
NRMI under its Management Consulting Delegation of
Duties and Property Management Agreements with the
Partnership.
The Partnership is engaged solely in the business of
investing in and managing real estate. Its business is
believed by management to fall entirely within a single
industry segment. The business of the Partnership is
not seasonal, although the Partnership's properties may
experience cyclical fluctuations in occupancy levels in
the rental markets where they are located.
Properties
The properties in which the Partnership has invested
are owned in fee simple. Upon the 1992 purchase of
twelve units of Amberwood Apartments the property is
owned in fee simple, subject to the mortgage. The
principal factors which the General Partners believe
affect rental rates and occupancy levels include
location, ease of access, amenities, and the quality of
property management. The Partnership's investment
properties are described below:
Cave Creek
Cave Creek Lock-It Lockers Mini-Warehouse (the
"Complex") is located on approximately 1.7 acres at
1201 East Cinnabar Avenue, Phoenix, Arizona. The 747
unit Complex consists of three individual one-story and
two individual two-story buildings of which
construction was completed in July 1985. When the
Partnership purchased Phase II on March 1, 1987, it
acquired one single-story and two-story buildings
located on approximately one acre of land. The
Partnership acquired Phase III on April 30, 1987, and
it consisted of part of a two-story building. A fee
simple title has been acquired for both Phase II and
III. In addition to the five warehouse buildings, there
is an on-site office/apartment located at the north end
of one of the buildings. Security in the Complex is
provided by a resident manager and a fenced perimeter
with double-gate access to the property. The
Partnership has an interest in the remaining portion of
the Complex for access and use of the business office
facilities.
Cave Creek Lock-It Lockers has an aggregate of
approximately 46,028 net rentable square feet. Units
may be subdivided as the market demands; therefore, the
total unit count fluctuates.
The Partnership acquired approximately 27,255 net
rentable square feet in the three buildings it
purchased in Phase II and approximately 11,424 net
rentable square feet in Phase III. Phase II and III
represent approximately 82% of the total net rentable
square feet of the Complex.
Amberwood Apartments
On June 17, 1988, the Partnership purchased Amberwood
Apartments, together with John Vishnevsky,
individually, and National Real Estate Limited
Partnership-VI ("NRELP-VI"), a Wisconsin limited
partnership affiliated with the General Partners, from
a corporation not related to the Partnership. The
Partnership's portion as tenants-in-common originally
encompassed 36 apartment units that were converted into
condominium units.
On September 16, 1988, the Partnership purchased from
John Vishnevsky, individually, his portion of Amberwood
Apartments, encompassing eight apartment units which
during the period of ownership by Mr. Vishnevsky had
been converted to two condominium units of four
individual apartments each.
The Partnership purchased from NRELP-VI its portion of
Amberwood Apartments, encompassing twelve apartment
units on February 28, 1992. During NRELP-VI's ownership
of the units, they were converted into condominium
units.
Amberwood is located on 5.753 acres at 39-152nd Avenue,
Holland, Michigan. Construction was completed in early
1988. The complex consists of seven two-story buildings
containing 56 apartment units with attached garages.
Each unit features a private garage, utility room with
washer/dryer hookups, woodburning fireplace, central
heating and air conditioning, range, refrigerator,
garbage disposal, dishwasher, microwave oven, walk-in
closets, and a wood deck. Gas and electric utilities
are paid by the tenants.
The apartment mix and asking rents of Amberwood as of
December, 1995 are as follows:
Description of Unit
Number of Units
Square Feet
Asking Rent Per Month
2 Bdrm/1 Bath
14
915
$603
2 Bdrm/1 Bath
14
923
$613
2 Bdrm/2 Bath
14
1,080
$688
3 Bdrm/2 Bath
14
1,231
$778
Amberwood is in Park Township on the north side of the
City of Holland, Michigan. The shores of Lake Michigan
and Lake Macatawa are only minutes away. The Project is
five minutes from the north side retail area and ten
minutes from the Holland business district.
The Phoenix and Holland real estate markets are
competitive. For a further discussion of occupancy
rates, see Management's Discussion and Analysis of
Financial Condition and Results of Operations contained
in this report. Additional real estate projects may be
built in these areas, which may compete directly with
the Partnership's properties.
Legal Proceedings
The Partnership is not a party to any material pending
legal proceedings other than ordinary routine
litigation incidental to its business.
<PAGE>
Selected Financial Data
Selected Operations
Statement Data:
And For The Year Ended
As of December 31(a)
1995 1994 1993
1992 1991
Operating Revenues
$739,165 $713,255 $648,358
$585,786 $457,901
Operating Expenses
624,276 606,114 586,890
579,468 358,886
Income from Operation
114,889 107,141 61,468
6,318 99,015
Other Income (Expense)
20,860 10,508 5,568
7,499 (8,712)
Net Income
$135,749 $117,649 $ 67,036
$13,817 $ 90,303
General Partners' Share of Net Income
$ 6,787 5,882 $ 3,352
$ 691 $ 4,515
Limited Partners' Share of Net Income
128,962 111,767 63,684
13,126 85,788
Net Income (Loss) per Limited Partnership Interest
6.24 5.41 3.08
.64 4.15
Distribution per Limited Partnership Interest
6.75 6.00 6.00
6.65 8.60
Selected Balance Sheet Data:
1995 1994 1993
1992 1991
Total Assets
$ 4,026,052 $4,077,115 $4,128,247
$4,237,038 $3,716,229
Long-Term Debt
491,333 535,333 579,333
623,333
Partners' Capital
3,497,726 3,501,390 3,507,663
3,564,549 3,688,079
(a) Portions of Amberwood Apartments were purchased in
1988 and 1992, therefore comparability from year
to year is restricted.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
On February 2, 1987, the Partnership attained
subscriptions from investors in excess of the minimum
offering amounts. All proceeds received in trust and
deposited with First Wisconsin Trust Company in
Milwaukee, Wisconsin, became available for Partnership
purposes (except for subscriptions from New York
investors, which became available on April 30, 1987).
The Partnership sold Interests in the aggregate amount
of $5,163,423. Such proceeds were used to pay offering
costs to purchase the properties described in this
report at Properties, to pay costs related to
purchasing such properties, and to meet capital
requirements for operations.
During 1995, the Partnership made cash distributions to
its limited partners totaling $139,143. Distributions
from 1995 were at a rate that equalled 2.6% on
investors' capital investment. The Partnership's
ability to maintain and/or increase distributions
during 1996 is dependent upon the results of
operations; therefore, no assurance as to the
distribution amount, if any, can be made. The
Partnership does not have any present or planned
material commitments for capital expenditures.
Results of Operations
During 1995, the Partnership operated two investment
properties: Cave Creek Lock-It-Lockers and Amberwood
Apartments. Since the Partnership commenced operations
in 1987, comparisons to prior year operating results
are limited as properties, or portions thereof, were
purchased in 1987 and 1988, and again in 1992.
Monthly rental rates at Cave Creek Lock-It Lockers
increased in April 1995. Asking monthly rental rents as
of December 31, 1995, ranged from $10 to $165 based on
unit size compared to $9 to $165 in 1994 and $9 to $98
in 1993. December's occupancy in 1995 was 96.2%, 98.5%
in 1994, and 98% in 1993. Average annual occupancy was
98%, 99%, and 97% in 1995, 1994, and 1993 respectively.
Marketing efforts are directed primarily toward Yellow
Pages advertising. Renovations planned for 1996 include
roof repairs, painting and fence replacements.
Average annual occupancy at the Amberwood Apartments
for 1995 was 98%, compared to 99% for 1994, and 96% for
1993. Rental rates were raised by management in 1995.
As of December 31, 1995, asking rents ranged from
$603 $613 for the two-bedroom, one-bath units
(depending on the size of the units); $688 for the
two-bedroom, two-bath units; and $788 for the
three-bedroom, two-bath units. Asking monthly rents at
December 31, 1994, ranged from $583 to $593 for the
two-bedroom, one-bath units (depending on the size of
the units); $668 for the two-bedroom, two-bath units;
and $758 for the three-bedroom, two-bath units. Asking
monthly rents at December 31, 1993 ranged from $570 to
$580 for the two-bedroom, one bath units; $655 for the
two-bedroom, two bath units; and $745 for the
three-bedroom, two bath units. Amberwood's monthly
rental rates are higher than the area average, due to
the significant quality and amenity differences
available on the property. Occupancy at Amberwood is
consistent with surrounding apartment communities.
Amberwood remains one of the most highly regarded
communities in Holland, offering a wooded setting,
garages, and fireplaces. Amberwood presently offers
fully furnished apartments with month to month leases.
Amberwood also offers flexible leases, such as month to
month and six month leases, to people who are building
homes in the area. The economy within the area has
remained stable. The rental market is strong and has
prompted several apartment communities to add
additional units.
Overall net income for the Partnership increased due to
high rental revenue caused by higher rental rates and
increased interest income due to higher interest rates
and increased cash balances. Partnership net income was
higher in 1994 compared to 1993 as the increase in
expenses was more than offset by the rise in revenues.
Reference is made to Notes 2 and 6 of the Partnership's
financial statements for a discussion of various fees
charged to the Partnership.
Inflation
The General Partners believe the Partnership's ability
to increase rental rates would offset any adverse
effects inflation might have on the Partnership's cost
of operations. Inflation may also tend to cause capital
appreciation of the Partnership's properties over a
period of time as rental rates and replacement costs of
properties continue to increase. However, the effects
of inflation on real estate may be influenced by
general or local economic conditions. Future results
are subject to uncertainty and the ability of the
Partnership to achieve certain results is largely
beyond the control of the General Partners and their
affiliates.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
(SFAS) No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 addresses situations where
information indicates that a company might be unable to
recover, through future operations or sale, the
carrying amount of long-lived assets. SFAS No. 121
requires that long-lived assets that are used in
operations be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. SFAS No.
121 is effective for the Partnership in 1996. The
impact to the Partnership's financial statements is not
expected to be material.
<PAGE>
Report of Independent Auditors
The Partners
National Real Estate Limited Partnership
Income Properties II
We have audited the accompanying balance sheets of
National Real Estate Limited Partnership Income
Properties II (the Partnership) as of December 31, 1995
and 1994, and the related statements of operations,
changes in partners' capital and cash flows for each of
the three years in the period ended December 31, 1995.
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 audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. 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 audits provide 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 the Partnership at December 31,
1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with
generally accepted accounting principles.
January 19, 1996
ERNST & YOUNG LLP
Milwaukee, Wisconsin
<PAGE>
Balance Sheets
December 31
1995 1994
Assets
Cash $ 478,326 $ 392,498
Other assets 9,671 8,346
Investment properties, at cost (Note 3):
Land 516,590 516,590
Buildings and improvements
4,145,090 4,140,774
4,661,680 4,657,364
Accumulated depreciation 1,125,982 985,470
3,535,698 3,671,894
Debt issue costs, net of accumulated amortization of
$7,740 1995 and $5,720 1994
2,357 4,377
$4,026,052 $4,077,115
Liabilities and Partners' capital
Liabilities:
Tenant security deposits $ 26,050 $27,924
Accrued expenses and other liabilities
926 1,500
Rents received in advance
10,017 10,968
Mortgage note payable (Note 4)
491,333 535,333
528,326 575,725
Partners' capital:
General Partners 33,579 26,792
Limited Partners (authorized 40,000 interests;
outstanding 20,653.69 interests)
3,464,147 3,474,598
3,497,726 3,501,390
$4,026,052 $4,077,115
<PAGE>
Statement of Operations
Year ended December 31
1995 1994 1993
Operating revenues:
Rentals $710,705 $685,926 $628,432
Other 28,460 27,329 19,926
739,165 713,255 648,358
Operating expenses:
Operating 160,663 164,564 154,520
Administrative 118,555 111,259 94,167
Building maintenance
61,389 42,868 39,571
Depreciation 140,657 140,229 151,475
Interest 53,942 48,858 45,821
Property taxes 81,099 90,614 90,146
Advertising 7,971 7,722 11,190
624,276 606,114 586,890
Income from operations
114,889 107,141 61,468
Other income (expense):
Interest income
23,673 12,528 7,588
Amortization of debt issue costs
(2,020) (2,020) (2,020)
Loss on disposal of investment properties
(793)
20,860 10,508 5,568
Net income $135,749 $117,649 $67,036
Net income attributable to General Partners (5%)
$ 6,787 $ 5,882 $ 3,352
Net income attributable to Limited Partners (95%)
128,962 111,767 63,684
$ 135,749 $ 117,649 $ 67,036
Net income per Limited Partnership Interest
$ 6.24 $ 5.41 $ 3.08
<PAGE>
Statements of Changes in Partners' Capital
General Partners Limited Partners Total
Balances at January 1, 1993
$17,558 $3,546,991 $3,564,549
Distributions to Limited Partners
(123,922) (123,922)
Net income for the year
3,352 63,684 67,036
Balances at December 31, 1993
20,910 3,486,753 3,507,663
Distributions to Limited Partners
(123,922) (123,922)
Net income for the year
5,882 111,767 117,649
Balances at December 31, 1994
26,792 3,474,598 3,501,390
Distributions to Limited Partners
(139,413) (139,413)
Net income for the year
6,787 128,962 135,749
Balances at December 31, 1995
$33,579 $3,464,147 $3,497,726
( ) Denotes deficit or deduction.
<PAGE>
Statements of Cash Flows
Year ended December 31
1995 1994 1993
Operating activities
Net income for the year
$135,749 $117,649 $67,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 140,657 140 ,229 151,475
Amortization of debt issue costs
2,020 2,020 2,020
Loss on disposal of investment properties
793
Changes in operating assets and liabilities:
Other assets (1,325) (7,764) 54
Tenant security deposits
(1,874) 2,950 (746)
Accrued expenses and other liabilities
(574) (5,251) 981
Rents received in advance
(951) 1,442 (8,140)
Net cash provided by operating activities
274,495 251,275 212,680
Investing activity
Additions to investment properties
(5,254) (1,239) (1,545)
Financing activities
Payments on mortgage note
(44,000) (44,000) (44,000)
Distributions to Limited Partners
(139,413) (123,922) (123,922)
Net cash used in financing activities
(183,413) (167,922) (167,922)
Increase in cash
85,828 82,114 43,213
Cash at beginning of year
392,498 310,384 267,171
Cash at end of year
$478,326 $392,498 $310,384
<PAGE>
Notes to Financial Statements
December 31, 1995
1. Organization and Basis of Accounting
Organization
National Real Estate Limited Partnership Income
Properties II (the Partnership) was organized as a
limited partnership under the laws of the State of
Wisconsin pursuant to a Certificate and an Agreement of
Limited Partnership (the Agreement) dated May 28, 1986,
for the purpose of investing primarily in commercial
and residential real property and began operations in
February 1987. The Partnership is to be dissolved on or
before December 31, 2006.
The Partnership consists of three General Partners,
National Development and Investment, Inc., John
Vishnevsky and EC Corp. and 645 Limited Partners at
December 31, 1995. Mr. Vishnevsky is the president and
majority stockholder of National Development and
Investment, Inc. EC Corp. was admitted to the
Partnership effective July 26, 1991, as approved by the
Limited Partners. See also Note 7.
Basis of Accounting
The Partnership records are maintained on the basis of
accounting utilized for federal income tax reporting
purposes. The accompanying financial statements have
been prepared from such records adjusted to the accrual
basis of accounting, including adjustments for
differences in depreciation methods. Certain accrual
and tax basis amounts are summarized as follows:
1995
Accrual Basis Tax Basis
1994
Accrual Basis Tax Basis
1993
Accrual Basis Tax Basis
(In Thousands)
Total assets
$4,026 $4,641
$4,077 $4,701
$4,128 $4,768
Partners' capital:
General Partners
34 32
27 26
21 21
Limited Partners
3,464 4,081
3,475 4,100
3,487 4,127
Net income:
General Partners
7 6
6 5
3 3
Limited Partners
129 121
112 97
64 58
<PAGE>
Notes to Financial Statements (continued)
2. Significant Accounting Policies
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
at the date of the financial statements. Estimates also
affect the reported amounts of revenue and expenses
during the reporting period. Although estimates are
considered to be fairly stated at the time that the
estimates are made, actual results could differ from
those estimates.
Depreciation
Depreciation is computed by the straight-line method
using estimated useful lives of 30 years for the
buildings and improvements and five years for related
equipment.
For federal income tax purposes, the Partnership has
adopted the Modified Accelerated Cost Recovery System,
which provides for depreciation of buildings and
improvements over 27.5 and 31.5 years and related
equipment over five and seven years using straight-line
and accelerated methods.
Fees to Affiliates
Acquisition fees and property management fees are
payable to the General Partners or affiliates of the
General Partners. These amounts are payable currently
and are charged to expense as follows:
Acquisition Fees
Real estate acquisition fees for selection, negotiation
and purchase of Partnership properties have been
capitalized and allocated to land and buildings and
improvements based on appraised values. The portions
allocated to buildings and improvements are being
depreciated over the respective useful lives of the
buildings and improvements.
Property Management Fees
Fees for property management and rental services are
being charged to expense over the period property
management services are being performed.
In addition, selling commissions, marketing expense
reimbursements and reallowances and other reimbursed
syndication costs paid to the General Partners or
affiliates of the General Partners have been recorded
as a charge to Limited Partners' capital.
<PAGE>
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Allocations and Distributions
Pursuant to the Agreement, net income and losses from
operations (exclusive of those from the sale or
disposition of Partnership properties) are to be
allocated 95% to the Limited Partners and 5% to the
General Partners. Any gains from the sale or
disposition of Partnership properties are to be
allocated first to the Limited Partners to eliminate
any deficit in their net capital accounts; then to the
General Partners to eliminate any deficit in their net
capital accounts; then to the Limited Partners in an
amount equal to their initial capital investment plus
any amount remaining to be paid under their cumulative
preference; then to the General Partners in an amount
equal to the proceeds of such sale distributed to them;
and all remaining amounts are to be allocated to the
Limited Partners provided that at least 1% of the gain
from sale or disposition is to be allocated to the
General Partners. Losses from the sale or other
disposition of Partnership properties are to be
allocated 88% to the Limited Partners and 12% to the
General Partners.
Cash available for distribution, as defined in the
Agreement, was distributed 100% to the Limited Partners
until August 1987 and, thereafter, such distributions
are to be made 95% to the Limited Partners and 5% to
the General Partners, except that the General Partners'
right to participate in such distributions is
subordinated to cumulative payments to the Limited
Partners of at least 8.5% of their capital investment
on an annualized basis.
After the repayment of any General Partner's loans and
subject to the right to reinvest such proceeds until
three years after termination of the Partnership's
initial offering of interests, proceeds of sale or
disposition of Partnership properties are to be
distributed as follows: (i) 100% to all partners until
they have received an amount equal to their capital
investment (first to the Limited Partners and then to
the General Partners); (ii) then 100% to the Limited
Partners until they have received an amount equal to
their cumulative preference of 10% simple interest per
annum; (iii) then an amount to the General Partners
equal to 12% of such proceeds remaining after return to
all Partners of an amount equal to 100% of their
capital investment, but not more than an amount equal
to 15% of such
<PAGE>
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
proceeds remaining after return to all partners of
their capital investment and an amount to the Limited
Partners (including prior distributions of cash
available for distribution) equal to 6% simple interest
per annum, cumulative; and (iv) all remaining amounts
to the Limited Partners.
Net Income Per Limited Partnership Interest
Net income per Limited Partnership interest is based on
net income as allocated to the Limited Partners divided
by the weighted average number of interests outstanding
during the year.
Reclassifications
Certain amounts as previously presented in the 1994 and
1993 financial statements have been reclassified to
conform with the 1995 presentation.
Pending Accounting Change
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
(SFAS) No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 addresses situations where
information indicates that a company might be unable to
recover, through future operations or sale, the
carrying amount of long-lived assets. SFAS No. 121
requires that long-lived assets that are used in
operations be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. SFAS No.
121 is effective for the Partnership in 1996. The
impact to the Partnership's financial statements is not
expected to be material.
3. Investment Properties
Investment properties consist of the following at
December 31, 1995:
Description
Initial Cost to Partnership
Land
Buildings and Improvements
Costs Capitalized Subsequent to Acquisition
Land
Buildings and Improvements
(In Thousands)
Cave Creek Mini-Warehouses Phoenix, Arizona
$405
$1,308
$ -
$ 7
Amberwood Condominiums Holland, Michigan
87
2,192
25
638
$492
$3,500
$25
$645
<PAGE>
Notes to Financial Statements (continued)
3. Investment Properties (continued)
Description
Gross Amount at Which Carried
Land Buildings and Improvements
Total Accumulated Depreciation
(In Thousands)
Cave Creek Mini-Warehouses Phoenix, Arizona
$405 $1,315
$1,720 $ 385
Amberwood Condominiums Holland, Michigan
112 2,830
2,942 741
$517 $4,145
$4,662 $1,126
Description
Date of Construction Date Acquired
Cave Creek Mini-Warehouses Phoenix, Arizona
1985 In phases in 1987
Amberwood Condominiums Holland, Michigan
1988 In phases in 1988 and 1992
The aggregate cost of the investment properties is the
same for financial reporting and federal income tax
purposes. The accumulated depreciation reported for
federal income tax purposes was $1,156,691 at
December 31, 1995.
A reconciliation of the cost and accumulated
depreciation of the investment properties follows:
Year ended December 31
1995 1994 1993
(In Thousands)
Cost:
Balance at beginning of year
$4,658 $4,656 $4,655
Additions to investment properties
5 2 1
Disposal of investment properties
(1)
Balance at end of year
$4,662 $4,658 $4,656
<PAGE>
Notes to Financial Statements (continued)
3. Investment Properties (continued)
Year ended December 31
1995 1994 1993
(In Thousands)
Accumulated depreciation:
Balance at beginning of year
$ 985 $845 $694
Provision for the year
141 140 151
Balance at end of year
$1,126 $985 $845
4. Mortgage Note Payable
Mortgage note payable consists of the following:
December 31
1995 1994
Mortgage note payable, due in monthly installments of
$3,667, plus interest at 1.5% over a bank's prime rate
adjusted annually each March 1 (10% at December 31,
1995), maturing March 1, 1997, collateralized by
Amberwood Condominiums and requiring a balloon payment
of $440,000 at maturity
$491,333 $535,333
Aggregate future maturities of long-term debt at
December 31, 1995, are as follows:
1996 $ 44,000
1997 447,333
$ 491,333
Interest payments were $53,942, $48,858 and $45,821 in
1995, 1994 and 1993, respectively.
<PAGE>
Notes to Financial Statements (continued)
5. Income Taxes
The Partnership has received an opinion from legal
counsel that it will be classified as a partnership for
federal income tax purposes. Therefore, Partnership
losses or income and taxes attributable thereto will be
the responsibility of the various Partners and no
provision for income taxes has been made in the
Partnership's financial statements.
Differences between the net income as reported herein
and the net income reported for federal income tax
purposes arise primarily from timing differences
related to depreciation. The following is a
reconciliation of the reported net income and the net
income reported for federal income tax purposes for the
year ended December 31:
1995 1994 1993
Net income as reported in the financial statements
$135,749 $117,649 $67,036
Add (deduct):
Depreciation
(9,221) (15,679) (6,454)
Other
302
Net income reported for federal income tax purposes
$126,830 $101,970 $60,582
6. Transactions with Affiliated Parties
The General Partners are general partners for other
limited partnerships which have invested in real
estate. The Partnership also shares certain management
and accounting employees and other expenses with the
Corporate General Partner and other entities that are
controlled by the Individual General Partner and has
executed contracts providing for the following fees
payable to such entities:
National Realty Management, Inc.
National Realty Management, Inc., was paid property
management fees ($40,181 1995; $38,570 1994;
$34,520 1993).
Charges by affiliated parties in 1996 are estimated by
management to approximate $40,000 for property
management fees.
<PAGE>
Notes to Financial Statements (continued)
6. Transactions with Affiliated Parties (continued)
National Real Estate Limited Partnership VI
In 1992, the Partnership purchased 12 units of
Amberwood Condominiums from National Real Estate
Limited Partnership VI (NRELP VI), an affiliated
partnership. The Partnership is contingently liable to
pay NRELP VI proceeds from a future sale of Amberwood
Condominiums as set forth in a Future Interest Proceeds
Agreement. Upon the future sale of Amberwood
Condominiums, NRELP VI is entitled to receive 50% of
the net sales price above $57,500 per unit (reduced by
normal selling costs) until the Partnership earns a
cumulative return of 20% on its investment. After that,
NRELP VI will receive 60% of the net sales price above
$57,500 per unit.
7. Financial Difficulties of Individual General Partner
The Individual General Partner had experienced
financial difficulties in prior years. Due to actions
taken by the Individual General Partner in 1995, his
financial difficulties, if any, no longer appear to be
a threat to the Partnership.
<PAGE>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
John Vishnevsky
Chief Operating and Executive Officer
John Vishnevsky
Chief Financial and Accounting Officer
General Partners:
John Vishnevsky
National Development and Investment, Inc.
John Vishnevsky
President and Director
Stephen P. Kotecki
Vice President, Secretary, Treasurer and Director
EC Corp.
Stephen P. Kotecki
President, Treasurer and Director
Thomas Rielly
Vice President, Secretary and Director
Of the above officers and directors of the Corporate
General Partners, Mr. Thomas Rielly is the only person
not an employee of National Development and Investment,
Inc., its affiliates, or EC Corp.
The Partnership Form 10-K for 1995, which is filed with
the Securities and Exchange Commission, will be
furnished at no charge to partners upon written request
directed to: National Development and Investment, Inc.,
Attn: Partnership Management, 9800 West Bluemound Road,
Milwaukee, WI 53226-4353.
B:\NIP2ELE
<PAGE>
