SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file: #0-16874
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(Name of small business issuer in its charter)
Wisconsin 39-1553195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification No.)
1155 Quail Court, Pewaukee, Wisconsin 53072-3703
(Address of principal executive offic (Zip Code)
Issuer's telephone number (414) 691-3122
Securities registered under to Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interests
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorterperiod 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and no disclosure will be contained
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
Issuer's total gross rental revenues for its most recent fiscal year
ended December 31, 1997, were $740,050. State the aggregate market value of the
securities held by non-affiliates of the Registrant as of February 28, 1998:
indeterminate value as there is no market.*
*For purposes of this disclosure only.
The number of Limited Partnership interests outstanding as of February
28, 1998: 20,653.69
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to Partners for the year ended December 31,
1997 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.
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. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .5
7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .5
8. Disagreements on Accounting and Financial Disclosure. . . . . . . .5
PART III
9. Directors and Executive Officers of the Partnership . . . . . . . .6
10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .9
11. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Certain Relationships and Related Transactions. . . . . . . . . . 10
13. Exhibits, Financial Statements, Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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, 1997 is incorporated herein by reference.
ITEM 2. PROPERTIES
"Properties" on pages 2 through 3 of the Partnership's annual report to
Partners for the year ended
December 31, 1997 is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
"Legal Proceedings" on page 4 of the Partnership's annual report to Partners
for the year ended
December 31, 1997, is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS FOR THE QUARTER
ENDED DECEMBER 31, 1997
No matters have been submitted to a vote of security holders during the
fourth quarter ending
December 31, 1997.
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.
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 formal public trading market, however, there has
been an emergence of
activity through partnership matching services.
b) Security Holders
NUMBER OF RECORD HOLDERS NUMBER OF INTERESTS
TITLE OF CLASS (AS OF FEBRUARY 28, 1998) (AS OF FEBRUARY 28, 1998)
Limited Partnership
Interests 655 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 1998, 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 1997 with an aggregate of $185,883 to its Limited Partners.
Distributions for 1997 were
at a rate that equaled 3.6% 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 feasiblely 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. 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 and 5 of the Partnership's annual report to Partners for the year
ended December 31, 1997 is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The financial statements included on pages 6 through 17 of the Partnership's
annual report to
Partners for the year ended December 31, 1997 are incorporated herein by
reference.
ITEM 8. 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.
PART III
ITEM 9. 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 1155 Quail
Court, Pewaukee, Wisconsin, 53072-3703, telephone (414) 691-3122. The address
of EC Corp. is 1155
Quail Court, Pewaukee, Wisconsin, 53072-3703, telephone (414) 691-3122.
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:
Term Held
Name Office Office (since)
NDII:
John Vishnevsky President, Director 09/30/74
Stephen P. Kotecki Vice President, Secretary, Treasurer 04/12/91
and Director
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.
RELATIONSHIP OF GENERAL PARTNERS
AND THEIR AFFILIATES
The following diagram shows the relationship of the Partnership to various
prior or current affiliates:
<TABLE>
<S> <C> <C> <C> <C><C> <C> <C> <C><C><C><C><C> <C><C> <C>
NATIONAL REAL ESTATE LIMITEDPARTNERSHIP INCOME PROPERTIES-II
(1)
EC CORPCorporateGeneral PartnerJOHNVISHNEVSKYIndividualGeneral
Partner100%NATIONALDEVELOPMENT ANDINVESTMENT, INC.Corporate General Partner
100% 100% (2) (3)
JOHN VISHNEVSKY COMPANY Financial and RealEstate Consulting and Services
NATIONAL SELECTEDSECURITIES CORP.NRMIVICTOR
Security Sales Partnershipand PropertyManagementCONSTRUCTIONINC.
Acquisition &Brokerage
Building
Contractor
</TABLE>
(1) The ownership of EC Corp. is held by Mr. Stephen P. Kotecki (100%).
(2) Until February 6, 1998, the ownership of NRMI was held by Mr. Edward
Carow (51%), Ms.
Stasia Vishnevsky (25%), and Mr. Jeffrey Wussow (24%). Since February 6,
1998, the company
is under the 100% ownership of John Vishnevsky. 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%), Ms. Niomi
Bushman (18%), Mr. Clayton Bushman (18%), Mr. Mark Clements (9%), and
Mr. Mark
Breuchel (2%). 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.
(d) Family Relationships
Ms. Stasia Vishnevsky, former part owner and Secretary of NRMI, is the
daughter of
John Vishnevsky, and is married to Jeffrey Wussow, former part owner and
Vice President of
NRMI.
(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, and as of February 6, 1998,
100% owner of
NRMI, (age 74) is a graduate of Marquette University. For over 39 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 taught courses in real estate at the University of Wisconsin-Milwaukee. He
has appeared as a guest
on television and radio programs related to real estate investments. Mr.
Vishnevsky is author of the
following 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, Principles, and Don't Feed the Crocodiles.
Stephen P. Kotecki, Vice President and Director of NDII and President,
Treasurer, and Director
of EC Corp., (age 47), 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
50) 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 24 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 11 years.
Other personnel of Affiliates of the General Partners who were significantly
involved in the
Partnership's affairs include the following:
David A. Hoeller, National Director of Operations of NRMI as of February 6,
1998, (age 41).
Previously, Mr. Hoeller was Chief Financial Officer of a diversified financial
services corporation which
specialized in commercial and consumer installment lending and servicing, and
mortgage banking. Mr.
Hoeller was also manager of its independent automobile installment servicing
division which serviced in
excess of 15,000 loans with debtors located across the country. Mr. Hoeller
has a total of over 18 years
of financial and operational experience in the financial services industry.
Mr. Hoeller was also with
Security Bank SSB, a $3 billion financial institution. His business and
management experience and
responsibilities have included the areas of operations, financial management,
financial reporting, treasury,
taxes, and cost analysis. His banking experience has included lead development
of prospectus materials,
including establishment of a bank holding company structure and conversion of
a mutual bank to stock
ownership. He has also been involved in real estate sales, partnership
syndication, ownership, and
management through various banking subsidiaries. He was also associated with
the accounting firm of
Ernst & Young. He is active in local civic organizations, including as Trustee
of the Boys and Girls Club.
Mr. Hoeller is a certified public accountant and holds undergraduate degrees
in accounting and finance
and an MBA degree from the University of Wisconsin
Edward Carow, President of NRMI until February 6, 1998. Mr. Carow, (age 38),
has over 19
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 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, who, until February 6, 1998, served as Secretary and Media
Director of
NRMI. Ms. Vishnevsky (age 32), supervised marketing, public relations, and
advertising for NRMI-
managed properties. Ms. Vishnevsky also produced 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 63) 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 licensed
Wisconsin 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
local chapter 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 10. 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 31, 1997, this interest resulted in net taxable income
to the Individual General
Partner of approximately $867. There were no cash distributions to the
Individual General Partner during
1997, as outlined in the Prospectus.
The Partnership will commence liquidating its properties as soon as
feasiblely 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 and 6 of the Partnership's financial
statements of the annual report
to Partners for the year ended December 31, 1997 are incorporated herein by
reference.
The contracts between the Partnership and affiliates, including the February
28, 1992 purchase
of Amberwood (as described in the Business 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 11. 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, 1998.
Name of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
Limited Partnership John Vishnevsky 8.69 Interests .04%
Interests Sole Investment Power
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Neither the General Partners nor their affiliates were indebted to the
Partnership during the year
ended December 31, 1997.
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, 1997 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 9,
10, 11 and 12.
ITEM 13. 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 6 through 17 of the Partnership's annual report
to Partners
for the year ended December 31, 1997).
(i) Report of Independent Auditors
(ii) Balance Sheet, December 31, 1997
(iii) Statements of Income, Years Ended December 31, 1997, and 1996
(iv) Statements of Partners' Capital, Years Ended December 31,
1997, and 1996
(v) Statements of Cash Flows, Years Ended December 31, 1997, and 1996
(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, 1997
There were no reports on Form 8-K filed during the fourth quarter ending
December 31, 1997.
(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 1997 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.
Exhibit 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of National Real
Estate Limited Partnership Income Properties-II of our report dated January
20, 1998, included in the
1997 Annual Report to Partners of National Real Estate Limited Partnership -
Income Properties II.
/S/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 30, 1998
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 30, 1998 By: /S/ John Vishnevsky
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Dated: March 30, 1998 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 President and Director March 30, 1998
John Vishnevsky National Development and (dated)
Investment, Inc.
/S/ Stephen P. Kotecki Vice President, Secretary, March 30,
1998
Stephen P. Kotecki Treasurer and Director (dated)
National Development and
Investment, Inc.
/S/ Stephen P. Kotecki President, Treasurer and March 30, 1998
Stephen P. Kotecki Director (dated)
EC Corp.
/S/ Thomas Rielly Vice President, Secretary March 30, 1998
Thomas Rielly and Director (dated)
EC Corp.
* The indicated positions are held in the Corporate General Partners of
the Registrant.
J:\WPDOCS\REPORTS\10K-NIP2.SJG
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: 3/30/98 By:
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Dated: 3/30/98 By:
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:
President and Director 3/30/98
John Vishnevsky National Development and (dated)
Investment, Inc.
Vice President, Secretary, 3/30/98
Stephen P. Kotecki Treasurer and Director (dated)
National Development and
Investment, Inc.
President, Treasurer and 3/30/98
Stephen P. Kotecki Director (dated)
EC Corp.
Vice President, Secretary 3/30/98
Thomas Rielly and Director (dated)
EC Corp.
* The indicated positions are held in the Corporate General Partners of the
Registrant.
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,
1997, the Partnership consisted of an Individual General Partner, two
Corporate General Partners and 656
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 feasiblely 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 1997, the Partnership employed one full-time and six part-time on-site
personnel in the
following capacities: two managers, 2.5 rental agents, and 2.5 cleaning and
maintenance people. In
addition, due to the centralized nature of the Partnership's accounting and
management systems, another
16 employees provided various accounting and management services to this and
other partnerships. These
persons worked an average of approximately 1.9 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.
The General Partners are general partners for other limited partnerships that
have invested in real
estate which may be competitive with the Partnership. There may be conflicts
of interest between the
Partnership and the General Partners at such time as the Partnership attempts
to sell its properties or may
compete for tenants with the Partnership's investments. If properties are
being sold, the General Partners
will attempt to give equal exposure to competing properties and will sell
solely on the basis of purchaser
preference. The General Partners will establish asking prices based upon
market conditions. The General
Partners will follow a policy of renting first on the basis of the tenants'
preference and then on the basis
of greatest vacancy. In the hiring of resident building managers, the General
Partners will follow a policy
of filling the oldest vacancy first.
The Partnership, by virtue of the ownership in real estate, is subject to
federal and state laws and
regulations covering various environmental issues. The General Partners are
not aware of any potential
liability related to environmental issues or conditions that would be material
to the Partnership.
The Partnership has developed a plan to modify its information technology to
recognize the year
2000 and has begun converting critical data processing systems. The
Partnership currently expects the
project to be substantially complete by early 1999 and the cost to be
immaterial. The Partnership does
not expect this project to have a material adverse effect on the operations of
the Partnership.
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. National Real Estate
Limited Partnership Income Properties, another partnership of which the
General Partners are general
partners, owns the other portion.
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, 1997 are as
follows:
SQUARE ASKING
DESCRIPTION OF UNIT NUMBER OF UNITS FEET RENT PER MONTH
2 Bdrm/1 Bath 14 915 $620
2 Bdrm/1 Bath 14 923 $630
2 Bdrm/2 Bath 14 1,080 $695
3 Bdrm/2 Bath 14 1,231 $740
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.
The General Partners feel that the Partnership is adequately covered by
insurance on the
properties.
LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings
other than ordinary
routine litigation incidental to its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information contained in this Annual Report on Form 10-KSB contains -looking
statements'
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by
the use of forward-looking terminology such as -looking statements, including
certain risks and
uncertainties, that could cause actual results to differ materially from those
contemplated in such forward-
looking statements. Such factors, which could adversely affect the
Partnership's ability to obtain these
results, include, among other things, (i) the volume of transactions and
prices for real estate in the real
estate markets generally, (ii) a general or regional economic downturn which
could create a recession in
the real estate markets, (iii) the Partnership's debt level and its ability to
make interest and principal
payments, (iv) an increase in expenses related to new initiatives, investments
in people and technology,
and service improvements, (v) the success of the new initiatives and
investments and (vi) other factors
described elsewhere in this Annual Report.
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 1997, the Partnership made cash distributions to its limited partners
totaling $185,883.
Distributions from 1997 were at a rate that equaled 3.6% on investors' capital
investment. The
Partnership's ability to maintain and/or increase distributions during 1998 is
dependent upon the results
of operations; therefore, no assurance as to the distribution amount, if any,
can be made. The Partnership
is planning to expend from operating cash flow about $30,000 for various
painting projects and asphalt
work at both properties and for some roofing at Cave Creek
RESULTS OF OPERATIONS
During 1997, the Partnership operated two investment properties: Cave Creek
Lock-It-Lockers and
Amberwood Apartments.
At Cave Creek Lock-It Lockers asking rents remained the same as 1996 and as
of December 31,
1997 ranged from $15 to $135, based on unit size. Average annual occupancy was
95%, and 94% in
1997, and 1996 respectively. Marketing efforts are directed primarily through
the use of Yellow Pages
advertising, which is the main source of traffic. Management uses resident
referral coupons for all current
tenants, offering a discount if they send us new clients. The managers are
marketing the lockers to
neighboring businesses and apartment communities, using neighborhood business
coupon flyers. Their
marketing efforts and excellent customer service will continue to help
occupancy remain strong.
At Amberwood, average occupancy during the fourth quarter of 1997 was 95% as
compared to 87%
for the same period in 1996. Year to date occupancy for 1997 is 91% as
compared to 93% in 1996. The
year to date occupancy percentage for 1997 is heavily influenced by the first
five months of the year with
average occupancy from June 1 through December 31 being at 97%.
Amberwood advertises in the Holland Sentinel, Select Living (apartment
guide), and the yellow
pages, both Ameritech and TDI. Periodic mailings are made to area real estate
agents and brokers, and
the leasing consultants keep in close contact with the Human Resource
Departments of area businesses
and industry. Lease expiration dates have been staggered to avoid leases
expiring during slower periods.
There is a strong emphasis on customer service because in a small community
such as Holland word
travels fast when you have a nice, well maintained community and satisfied
residents. Current residents
and real estate brokers can receive a $50 rent credit or referral fee for new
rentals. All new residents
receive a welcome gift basket and a personalized card from the staff at
Amberwood upon move in. The
area economy is stabilizing with some companies adding staff while some are
laying off or implementing
hiring freezes. Extra effort has been given to having the property in A+
condition because of all the new
competition.
For the Partnership, operating revenues increased 5.2% in 1997 as compared to
1996 due to the
factors noted above. Amberwood's total revenues were $445,660 in 1997 as
compared to $425,583 in
1996. Amberwood's revenues increased 3.6%, mostly due to increased Redi-Home
income. Cave Creek's
total revenue was $295,204 in 1997 as compared to $278,320 in 1996. Cave
Creek's revenues increased
6% compared to 1996 due to an increase in rental rates. Operating expenses
increased 26% primarily due
to expenses associated with Amberwood's increased Redi-Home activity (9%) and
personnel increases
associated with Amberwood (8%) and Cave Creek (3%). Maintenance costs
increased 15% due to costs
associated with a drainage ditch clean up project (5%) and HVAC work (2.5%) at
Cave Creek; and
interior painting, asphalt work, and other common area repairs (9%) at
Amberwood. Advertising costs
increased 66% due to increased marketing at Amberwood necessary to attract
residents in a softening
market.
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.
Report of Independent Auditors
The Partners
National Real Estate Limited Partnership Income Properties
We have audited the accompanying balance sheet of National Real Estate Limited
Partnership Income
Properties 31, 1997. 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, 1997, and the results of
its operations and its cash
flows for each of the two years in the period ended December 31, 1997, in
conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
January 20, 1998
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIESII
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $ 490,973
Other assets 142
Investment properties, at cost:
Land 516,590
Buildings and improvements 4,151,846
4,668,436
Accumulated depreciation 1,402,262
3,266,174
Debt issue costs, net of accumulated amortization of $2,441 30,139
$3,787,428
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Tenant security deposits $ 24,920
Accrued real estate tax 2,333
Accrued expenses and other liabilities 536
Deferred rent 12,339
Mortgage note payable 546,217
586,345
Partners' capital:
General Partners 37,336
Limited Partners (authorized 3,163,747
3,201,083
$3,787,428
National Real Estate Limited Partnership
Income PropertiesII
Statements of Income
YEAR ENDED DECEMBER 31
1997 1996
Operating revenues:
Rentals $706,739 $678,859
Other 33,311 24,373
740,050 703,232
Operating expenses:
Operating 212,635 168,862
Administrative 144,535 137,396
Building maintenance 89,686 78,098
Depreciation 134,821 141,459
Interest 47,336 50,103
Property taxes 82,598 87,439
Advertising 25,673 15,443
737,284 678,800
Income from operations 2,766 24,432
Other income:
Interest income 23,766 24,159
23,766 24,159
Net income $ 26,532 $ 48,591
Net income attributable to General
Partners (5%) $ 1,327 $ 2,430
Net income attributable to Limited
Partners (95%) 25,205 46,161
$ 26,532 $ 48,591
Net income per Limited Partnership Interest $ 1.22
$ 2.24
See accompanying notes.
National Real Estate Limited Partnership
Income PropertiesII
Statements of Partners' Capital
General Limited
Partners Partners Total
Balances at January 1, 1996 $33,579 $3,464,147 $3,497,726
Distributions to Limited Partners (185,883)(185,883)
Net income for the year 2,430 46,161 48,591
Balances at December 31, 1996 36,009 3,324,425 3,360,434
Distributions to Limited Partners (185,883)(185,883)
Net income for the year 1,327 25,205 26,532
Balances at December 31, 1997 $37,336 $3,163,747 $3,201,083
National Real Estate Limited Partnership
Income PropertiesII
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1997 1996
OPERATING ACTIVITIES:
Net income for the year $26,532 $ 48,591
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 134,821 141,459
Amortization of debt issue costs 2,778 2,020
Changes in operating assets and liabilities:
Other Assets 5,458 4,071
Tenant security deposits 2,540 (3,670)
Accrued real estate taxes (1,652) 3,985
Accrued expenses and other liabilities (607) 217
Deferred rent (1,377) 3,699
Net cash provided by operating activities 168,493 200,372
INVESTING ACTIVITY
Additions to investment properties (6,756)
FINANCING ACTIVITY
Payment of debt issue costs (32,580) ---
Proceeds from mortgage note 550,000 ---
Payments on mortgage note (451,804) (43,312)
Distributions to Limited Partners (185,883) (185,883)
Cash used in financing activities (120,267) (229,195)
Increase (decrease) in cash and cash equivalents48,226 (35,579)
Cash and cash equivalents at beginning of year442,747 478,326
Cash and cash equivalents at end of year $ 490,973 $ 442,747
See accompanying notes.
National Real Estate Limited Partnership
Income PropertiesII
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION AND BASIS OF ACCOUNTING
ORGANIZATION
National Real Estate Limited Partnership Income PropertiesII (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 656 Limited Partners at December 31, 1997. 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.
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 generally accepted accounting principles (GAAP) basis of
accounting, including
adjustments for differences in depreciation methods. Certain accrual and tax
basis amounts are
summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
GAAP Tax GAAP Tax
Basis Basis Basis Basis
(In Thousands)
Total assets $3,787 $4,390 $3,850 $4,462
Partner's capital:
General Partners 37 35 36 34
Limited Partners 3,164 3,769 3,324 3,938
Net income:
General Partners 1 1 2 2
Limited Partners 25 16 46 43
</TABLE>
National Real Estate Limited Partnership
Income PropertiesII
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 amounts
reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Partnership considers all short-term investments which have original
maturities of three months or less
when purchased to be cash equivalents.
INVESTMENT PROPERTIES
Investment properties are stated at cost. Depreciation is computed by the
straight-line method using
estimated useful lives of 30 years for the buildings and improvements and 5
years for related equipment.
The Partnership evaluates the investment property periodically for indication
of impairment, including
recurring operating losses and other significant adverse changes in the
business climate that affect the
recovery of the recorded asset value. If investment property is considered
impaired, a loss is provided to
reduce the net carrying value of the asset to its estimated fair value.
Management is not aware of any
indicator that would result in any significant impairment loss.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the agreement and
are included as a component of interest expense on the financial statements.
FEES TO AFFILIATES
Poperty management fees are payable currently to the General Partners or
affiliates of the General
Partners.
Fees for property management and rental services are being charged to expense
over the period property
management services are being performed.
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
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
3. INVESTMENT PROPERTIES
Investment properties consist of the following at December 31, 1997:
3. INVESTMENT PROPERTIES (continued)
<TABLE>
<S> <C> <C> <C> <C>
Costs CapitalizedSubsequent to Acquisition
Initial Cost to Partnership
Description Land Buildings Land Buildings
and Improvements and Improvements
(In Thousands)
Cave Creek Mini-WarehousesPhoenix, Arizona
$405 $1,308 $ $ 12
Amberwood Apartments
Holland, Michigan 87 2,192 25 640
$492 $3,500 $25 $652
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Gross Amount at Which Carried
Buildings and Accumulated
Description Land improvements Total Depreciation
</TABLE>
<TABLE>
<S> <C>
(In Thousands)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Cave Creek Mini-
Warehouses Phoenix, $405 $1,320 $1,725 $ 430
Arizona
Amberwood Apartments
Holland, Michigan 112 2,832 2,944 927
$517 $4,152 $4,669$1,402
</TABLE>
<TABLE>
<S> <C> <C>
Description Date of Construction Date Acquired
Cave Creek Mini-Warehouses
Phoenix, Arizona 1985 In phases in 1987
Amberwood Apartments In phases in
Holland, Michigan 1988 1988
and 1992
</TABLE>
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 $1,444,983 at
December 31, 1997.
3. INVESTMENT PROPERTIES (CONTINUED)
A reconciliation of the cost and accumulated depreciation of the investment
properties follows:
<TABLE>
<S> <C> <C>
YEAR ENDED DECEMBER 31
1997 1996
(In Thousands)
Cost:
Balance at beginning of year $4,669 $4,662
Additions to investment properties --- 7
Balance at end of year $4,669 $4,669
Accumulated depreciation:
Balance at beginning of year $1,267 $1,126
Provision for the year 135 141
Balance at end of year $1,402 $1,267
</TABLE>
4. MORTGAGE NOTE PAYABLE
During 1997, the mortgage note payable was refinanced. The new loan for
$550,000 bears interest at a
variable rate of interest (based on five year Treasury securities) plus 2.25%
adjusting to 2.35% on May 1,
2002 (8.4% at December 31, 1997). Monthly payments of principal and interest
are due based on a twenty-
five year amortization schedule, which also adjusts on May 1, 2002. All unpaid
principal and interest is due
on April 1, 2007. The mortgage loan payable is collateralized by Amberwood
Apartments with a carrying
value of $546,217 at December 31, 1997. Interest paid was $44,587 and $48,083
in 1997 and 1996,
respectively.
Annual maturities of notes payable are as follows:
1998 $ 7,100
1999 7,700
2000 8,400
2001 9,100
2002 9,900
Thereafter 504,000
5. INCOME TAXES
The Partnership pays no income taxes. Partnership losses or income and taxes
attributable thereto will be the
responsibility of the various Partners.
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
5. INCOME TAXES (CONTINUED)
of the reported net income and the net income reported for federal income tax
purposes for the year ended
December 31:
<TABLE>
<S> <C> <C>
1997 1996
Net income as reported in
the financial $26,532 $48,591
statements
Add (deduct):
Depreciation (9,194) (2,817)
Other
Net income reported for
federal income $17,338 $45,774
tax purposes
</TABLE>
6. TRANSACTIONS WITH AFFILIATED PARTIES
The General Partners are general partners for other limited partnerships which
have invested in real estate.
The Partnership reimburses affiliates of the General Partners for the actual
cost of goods and materials used
by or for the Partnership in the course of performing the general functions of
the Partnership. These general
functions include management, accounting and other expenses. The Partnership
has executed contracts
providing for the following fees payable to such entities:
NATIONAL REALTY MANAGEMENT, INC.
National Realty Management, Inc. (NRMI) was paid property management fees
($40,345-It-Lockers Mini-Warehouse and
5% of gross receipts from Amberwood Apartments.
The Partnership also paid $61,964 and $64,791, in 1997 and 1996 respectively,
for the reimbursement of
accounting and administrative expenses incurred by NRMI on behalf of the
Partnership.
NATIONAL DEVELOPMENT AND INVESTMENT, INC.
The Partnership paid National Development and Investment, Inc. (NDII) for the
reimbursement of expenses
totaling $61,499, and $50,099 in 1997 and 1996, respectively, for
administrative expenses incurred on behalf
of the Partnership.
NATIONAL REAL ESTATE LIMITED PARTNERSHIPSHIP IS CONTINGENTLY LIABLE TO PAY
NRELPAPARTMENTS AS SET FORTH IN A FUTURE INTEREST PROCEEDS
AGREEMENT. UPON THE FUTURE SALE OF AMBERWOOD APARTMENTS, NRELP6. TRANSACTIONS
WITH AFFILIATED PARTIES (CONTINUED)
a cumulative return of 20% on its investment. After that, NRELP-term nature.
The fair value of the variable rate mortgage note payable approximates its
carrying value.
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-KSB for 1997, 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, 1155 Quail Court, Pewaukee,
Wisconsin 53072-3703.
.
J:\WPDOCS\REPORTS\10K-NIP2.SJG
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 491115
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 491115
<PP&E> 4668436
<DEPRECIATION> 1402262
<TOTAL-ASSETS> 3787428
<CURRENT-LIABILITIES> 40128
<BONDS> 546217
0
0
<COMMON> 0
<OTHER-SE> 3201083
<TOTAL-LIABILITY-AND-EQUITY> 3787428
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<TOTAL-REVENUES> 763816
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<OTHER-EXPENSES> 689948
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<INTEREST-EXPENSE> 47336
<INCOME-PRETAX> 0
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