August 13, 1998
Securities and Exchange Commission
Filer Support, Edgar
Operation Center, Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: Boston Financial Qualified Housing Tax Credits L.P. II
Report on Form 10-Q for Quarter Ended June 30, 1998
File No. 0-17777
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, there is filed herewith a copy of subject report.
Very truly yours,
/s/Dianne Groark
Dianne Groark
Assistant Controller
QH2-10Q1.DOC
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------------
For Quarter Ended June 30, 1998 Commission file number 0-17777
-------------------- ----------
Boston Financial Qualified Housing Tax Credits L.P. II
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3002607
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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.
Yes X No .
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Combined Balance Sheets - June 30, 1998 (Unaudited)
and March 31, 1998 1
Combined Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 1998 and 1997 2
Combined Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30,
1998 3
Combined Statements of Cash Flows (Unaudited) -
For the Three Months Ended June 30, 1998 and 1997 4
Notes to Combined Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Items 1-6 13
SIGNATURE 14
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 1,111,832 $ 722,737
Marketable securities, at fair value 2,036,976 966,668
Accounts receivable 58,115 30,589
Tenant security deposits 53,885 46,223
Investments in Local Limited Partnerships (Note 1) 3,878,117 5,985,365
Rental property at cost, net of
accumulated depreciation 12,112,603 12,141,809
Mortgage escrow deposits 117,268 136,287
Operating reserves 35,926 35,926
Replacement reserves 112,392 105,759
Deferred fees (net of accumulated amortization
of $179,058 and $172,729, respectively) 305,574 311,903
Other assets 97,385 63,472
------------- -------------
Total Assets $ 19,920,073 $ 20,546,738
============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ 11,241,664 $ 11,247,950
Notes payable 86,533 3,266
Accounts payable to affiliates 575,796 566,352
Accounts payable and accrued expenses 276,951 162,072
Accrued interest payable 120,194 71,753
Security deposits payable 58,410 54,311
------------- -------------
Total Liabilities 12,359,548 12,105,704
------------- -------------
Minority interests in Local Limited Partnerships (161,892) (159,824)
------------- -------------
Commitments
General, Initial and Investor Limited Partners' Equity 7,713,119 8,592,833
Net unrealized gains on marketable securities 9,298 8,025
------------- -------------
Total Partners' Equity 7,722,417 8,600,858
------------- -------------
Total Liabilities and Partners' Equity $ 19,920,073 $ 20,546,738
============= =============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
Revenue:
<S> <C> <C>
Rental $ 522,409 $ 444,719
Investment 31,990 29,667
Other 17,606 4,062
------------- -------------
Total Revenue 572,005 478,448
------------- -------------
Expenses:
Asset management fees, related party 68,040 69,901
General and administrative (includes reimbursements
to an affiliate of $23,459 and $37,110, respectively) 51,829 64,937
Bad debt expense 3,788 -
Rental operations, exclusive of depreciation 295,478 241,107
Property management fees, related party 22,227 19,880
Interest 221,597 222,093
Depreciation 137,846 142,601
Amortization 34,300 37,266
------------- -------------
Total Expenses 835,105 797,785
------------- -------------
Loss before minority interests in losses of Local Limited
Partnerships and equity in losses of
Local Limited Partnerships (263,100) (319,337)
Minority interests in losses of
Local Limited Partnerships 2,068 1,842
Equity in losses of Local Limited
Partnerships (618,682) (598,875)
------------- -------------
Net Loss $ (879,714) $ (916,370)
============= =============
Net Loss allocated:
To General Partners $ (8,797) $ (9,164)
To Limited Partners (870,917) (907,206)
------------- -------------
$ (879,714) $ (916,370)
============= =============
Net Loss per Limited
Partnership Unit (60,000 Units) $ (14.52) $ (15.12)
============= =============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
(Unaudited)
For the Three Months Ended June 30, 1998
<TABLE>
<CAPTION>
Initial Investor Net
General Limited Limited Unrealized
Partners Partners Partners Gains Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $ (441,389) $ 5,000 $ 9,029,222 $ 8,025 $ 8,600,858
Net change in net unrealized
gains on marketable securities
available for sale - - - 1,273 1,273
Net Loss (8,797) - (870,917) - (879,714)
----------- ------------- ------------- ------------- -------------
Balance at June 30, 1998 $ (450,186) $ 5,000 $ 8,158,305 $ 9,298 $ 7,722,417
=========== ============= ============= ============= =============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by (used for) operating activities $ 15,735 $ (49,701)
------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (1,389,439) (349,066)
Proceeds from sales and maturities of
marketable securities 320,926 427,324
Cash distributions received from Local
Limited Partnerships 1,461,146 11,512
Purchases of rental property (108,640) -
Advances to affiliates - (48,107)
Disbursements from replacement reserves (6,633) (6,633)
------------- -------------
Net cash provided by investing activities 277,360 35,030
------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable (6,286) (10,523)
Mortgage escrow deposits 19,019 (16,665)
Advances of notes payable 83,267 -
Advances from affiliate - 55,790
------------- -------------
Net cash provided by financing activities 96,000 28,602
------------- -------------
Net increase in cash and cash equivalents 389,095 13,931
Cash and cash equivalents, beginning of period 722,737 318,451
------------- -------------
Cash and cash equivalents, end of period $ 1,111,832 $ 332,382
============= =============
Supplemental Disclosure:
Cash paid for interest $ 173,156 $ 193,228
============= =============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included with the Partnership's 10-K for the year
ended March 31, 1998. In the opinion of management, these financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Partnership's financial position and results of
operations. The results of operations for the periods may not be indicative of
the results to be expected for the year.
The Managing General Partner has elected to report results of the Local Limited
Partnerships on a 90 day lag basis, because the Local Limited Partnerships
report their results on a calendar year basis. Accordingly, the financial
information about the Local Limited Partnerships that is included in the
accompanying combined financial statements is as of June 30, 1998 and 1997.
1. Investments in Local Limited Partnerships
The Partnership has acquired limited partner interests in thirty-six Local
Limited Partnerships (excluding Snapfinger Creste and Grayton Pointe, which have
been written off, and the Combined Entities) which own and operate multi-family
housing complexes, most of which are government-assisted. The Partnership, as
Investor Limited Partner pursuant to the various Local Limited Partnership
Agreements, has acquired a 99% interest in the profits, losses, tax credits and
cash flows from operations of each of the Local Limited Partnerships. Upon
dissolution, proceeds will be distributed according to each respective
partnership agreement.
A summary of investments in Local Limited Partnerships, excluding the Combined
Entities, Snapfinger Creste and Grayton Pointe, at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital contributions paid to Local Limited Partnerships and purchase price
paid to withdrawing partners of Local Limited Partnerships $ 30,801,675
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $2,425,656) (27,917,116)
Cumulative cash distributions received
from Local Limited Partnerships (2,471,055)
Investments in Local Limited Partnerships before adjustment 413,504
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 4,771,921
Accumulated amortization of acquisition fees and expenses (1,307,308)
-------------
Investments in Local Limited Partnerships $ 3,878,117
=============
</TABLE>
The Partnership's share of the net losses of the Local Limited Partnerships,
excluding the Combined Entities, for the three months ended June 30, 1998 is
$801,946. For the three months ended June 30, 1998, the Partnership has not
recognized $183,815 of equity in losses relating to nineteen Local Limited
Partnerships where cumulative equity in losses and cumulative distributions
exceeded its total investment in these Local Limited Partnerships.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Effect of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. The Partnership
has adopted the new standard effective April 1, 1998. The adoption of this
standard had no effect on the Partnership's net income or partner's equity.
Comprehensive loss was ($878,441) and ($913,852) for the quarters ended June 30,
1998 and 1997, respectively. Comprehensive loss includes the change in net
unrealized gains and losses on marketable securities available for sale of
$1,273 and $2,518 for the quarters ended June 30, 1998 and 1997, respectively.
3. Litigation
As previously reported, Garden Cove is again involved in litigation. In the
current matter, the project's general contractor claims that there are amounts
due it (approximately $225,000 plus interest) under the construction contract.
The Partnership was aware of this potential claim when it settled the previous
dispute with the former managing general partners and did not release them from
liability with respect to it. It appears that a favorable settlement of the
Saunders matter is achievable but only makes sense in the broader context of a
mortgage restructuring for this property (which is experiencing substantial
deficits). The Managing General Partner now believes a mortgage restructuring is
feasible and a settlement can be obtained. However, workout negotiations with
the lender have taken longer than expected. The Managing General Partner
recently learned that in order to put pressure on the Partnership, Saunders
filed an involuntary bankruptcy petition against Garden Cove.
The Partnership is not a party to any other pending legal or administrative
proceeding, and to the best of its knowledge, no other legal or administrative
proceeding is threatened or contemplated against it.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Supplemental Combining Schedules
Balance Sheets
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,028,157 $ 83,675 $ - $ 1,111,832
Marketable securities, at fair value 2,036,976 - - 2,036,976
Accounts receivable 1,231,169 58,115 (1,231,169) 58,115
Tenant security deposits - 53,885 - 53,885
Investments in Local Limited
Partnerships 3,981,426 - (103,309) 3,878,117
Rental property at cost, net of
accumulated depreciation - 12,112,603 - 12,112,603
Mortgage escrow deposits - 117,268 - 117,268
Operating reserves - 35,926 - 35,926
Replacement reserves - 112,392 - 112,392
Deferred fees, net - 305,574 - 305,574
Other assets 30,150 67,235 - 97,385
------------- ------------- ------------- -------------
Total Assets $ 8,307,878 $ 12,946,673 $ (1,334,478) $ 19,920,073
============= ============= ============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 11,241,664 $ - $ 11,241,664
Notes payable - 86,533 - 86,533
Accounts payable to affiliates 558,775 17,021 - 575,796
Accounts payable and accrued
expenses 26,686 250,265 - 276,951
Advances from Limited Partner - 1,231,169 (1,231,169) -
Accrued interest payable - 120,194 - 120,194
Security deposits payable - 58,410 - 58,410
------------- ------------- ------------- -------------
Total Liabilities 585,461 13,005,256 (1,231,169) 12,359,548
------------- ------------- ------------- -------------
Minority interests in Local Limited
Partnerships - - (161,892) (161,892)
------------- ------------- ------------- -------------
General, Initial and Investor
Limited Partners' Equity 7,713,119 (58,583) 58,583 7,713,119
Net unrealized gains on
marketable securities 9,298 - - 9,298
------------- ------------- ------------- -------------
Total Partners' Equity 7,722,417 (58,583) 58,583 7,722,417
------------- ------------- ------------- -------------
Total Liabilities and Partners' Equity $ 8,307,878 $ 12,946,673 $ (1,334,478) $ 19,920,073
============= ============= ============= =============
(A) June 30, 1998.
(B) March 31, 1998.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
Statements of Operations
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Revenue:
<S> <C> <C> <C> <C>
Rental $ - $ 522,409 $ - $ 522,409
Investment 30,780 1,210 - 31,990
Other 3,961 13,645 - 17,606
------------- ------------- ------------- -------------
Total Revenue 34,741 537,264 - 572,005
------------- ------------- ------------- -------------
Expenses:
Asset management fees, related party 68,040 - - 68,040
General and administrative 51,829 - - 51,829
Bad debt expense 3,788 - - 3,788
Rental operations, exclusive
of depreciation - 295,478 - 295,478
Property management fees,
related party - 22,227 - 22,227
Interest - 221,597 - 221,597
Depreciation - 137,846 - 137,846
Amortization 27,971 6,329 - 34,300
------------- ------------- ------------- -------------
Total Expenses 151,628 683,477 - 835,105
------------- ------------- ------------- -------------
Loss before minority interests in losses
of Local Limited Partnerships and
equity in losses of Local Limited
Partnerships (116,887) (146,213) - (263,100)
Minority interests in losses of
Local Limited Partnerships - - 2,068 2,068
Equity in losses of Local
Limited Partnerships (762,827) - 144,145 (618,682)
------------- ------------- ------------- -------------
Net Loss $ (879,714) $ (146,213) $ 146,213 $ (879,714)
============= ============= ============= =============
</TABLE>
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Supplemental Combining Schedules (continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
<S> <C> <C> <C> <C>
Net cash provided by
(used for) operating activities $ (50,394) $ 66,129 $ - $ 15,735
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (1,389,439) - - (1,389,439)
Proceeds from sales and maturities
of marketable securities 320,926 - - 320,926
Cash distributions received from
Local Limited Partnerships 1,461,146 - - 1,461,146
Purchases of rental property - (108,640) - (108,640)
Disbursements from replacement
reserves - (6,633) - (6,633)
------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities 392,633 (115,273) - 277,360
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable - (6,286) - (6,286)
Mortgage escrow deposits - 19,019 - 19,019
Advances of notes payable - 83,267 - 83,267
------------- ------------- ------------- -------------
Net cash provided by financing activities - 96,000 - 96,000
------------- ------------- ------------- -------------
Net increase in cash and cash
equivalents 342,239 46,856 - 389,095
Cash and cash equivalents, beginning 685,918 36,819 - 722,737
------------- ------------- ------------- -------------
Cash and cash equivalents, ending $ 1,028,157 $ 83,675 $ - $ 1,111,832
============= ============= ============= =============
</TABLE>
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1998, the Partnership, including the Combined Entities, had cash and
cash equivalents of $1,111,832 as compared to $722,737 at March 31, 1998. The
increase is primarily attributable to cash provided by operating activities and
cash distributions received from Local Limited Partnerships and is offset by
purchases of marketable securities in excess of proceeds from sales and
maturities of marketable securities and purchases of rental property.
The Managing General Partner initially designated 3% of the Gross Proceeds to
Reserves. The Reserves were established to be used for working capital of the
Partnership and contingencies related to the ownership of Local Limited
Partnership interests. The Managing General Partner may increase or decrease
such Reserves from time to time, as it deems appropriate. During the year ended
March 31, 1993, the Managing General Partner decided to increase the reserve
level to 4%, and it transferred the additional funds to the Reserve account. To
date, approximately $149,000 has been withdrawn from the Reserve account to pay
legal and other costs related to the Mod Rehab issue. Additionally, legal fees
relating to various property issues totaling approximately $41,000 have been
paid from Reserves. The Partnership also advanced approximately $1,235,000 to
four Local Limited Partnerships.
Management believes that the investment income earned on the Reserves, along
with cash distributions received from Local Limited Partnerships, to the extent
available, will be sufficient to fund the Partnership's ongoing operations.
Reserves may be used to fund Partnership operating deficits, if the Managing
General Partner deems funding appropriate. At June 30, 1998, approximately
$2,142,000 of cash, cash equivalents and marketable securities has been
designated as Reserves.
At June 30, 1998, the Partnership has committed to make future capital
contributions and to pay future purchase price installments on its investments
in Local Limited Partnerships. These future payments are contingent upon the
achievement of certain criteria as set forth in the Local Limited Partnership
Agreements and total $337,500.
Since the Partnership invests as a limited partner, the Partnership has no
contractual duty to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, as of June 30, 1998, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for, except as disclosed above.
In the event a Local Limited Partnership encounters operating difficulties
requiring additional funds, the Partnership's management might deem it in its
best interest to provide such funds, voluntarily, in order to protect its
investment.
Cash Distributions
No cash distributions were made during the three months ended June 30, 1998.
Results of Operations
The Partnership's results of operations for the three months ended June 30, 1998
resulted is a net loss of $879,714 as compared to a net loss of $916,370 for the
same period in 1997. The decrease in net loss is primarily due to an increase in
rental and other income and a decrease in general and administrative expenses.
These decreases to net loss are offset by increases to rental operations and
equity in losses of Local Limited Partnerships. The increases in rental income,
other income and rental operations are due to increased occupancy at one of the
combined entities. The decrease in general and administrative expenses is due to
a decrease in salary reimbursement expense due to the timing of payments. Equity
in losses of Local Limited Partnerships increased due to the write off of
Grayton Pointe on October 7, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Discussions
Prior to the transfer of two Local Limited Partnerships, Limited Partnership
interests had been acquired in forty Local Limited Partnerships which own and
operate forty rental properties located in fifteen states, Washington, D.C. and
Puerto Rico. Thirty of the properties with 2,325 apartments were newly
constructed, and eight properties with 733 apartments were rehabilitated. All of
the properties have completed construction or rehabilitation and initial
rent-up. Most of the forty properties have stable operations and are operating
at break-even or generating operating cash flow.
Some of the properties are experiencing operating difficulties and cash flow
deficits due to a variety of reasons. The Local General Partners of those
properties have funded operating deficits through project expense loans,
subordinated loans or payments from operating escrows. In instances where the
Local General Partners have stopped funding deficits because their obligation to
do so has expired or otherwise, the Managing General Partner is working with the
Local General Partners to increase operating income, reduce expenses or
refinance the debt at lower interest rates in order to improve cash flow.
As previously reported, Atlantic Terrace, located in Washington, D.C., continues
to experience unstable operations due primarily to costs associated with unit
turnover, increased maintenance and utility expenses. Deteriorating market
conditions are also impacting the property. The managing agent is working with
the local housing authority to improve tenant screening, social programs and
expense monitoring.
Chapparal, Nottingham Square, Patrick Henry and Shadow Wood, all located in
Oklahoma and have the same Local General Partner, are experiencing operating
difficulties. In particular, Shadow Wood has experienced severe operating
deficits due to high security costs, low Section 8 contract rates and high debt
service payments. Given the severity of the operating deficits for Shadow Wood,
it is possible that the Partnership will not be able to retain its interest in
the property through 1998. A foreclosure would result in recapture for investors
of one third of the cumulative tax credit benefits, plus interest, the
allocation of taxable income to the Partnership and loss of future benefits
associated with this property. The Local General Partner is working to improve
operating results through contract rent increases and debt service relief. Due
to the Managing General Partner's concerns regarding the long term viability of
these properties, negotiations are underway with the Local General Partner to
develop a plan that will address these concerns.
Garden Cove, located in Huntsville, Alabama, is again involved in litigation. In
the current matter, the project's general contractor claims there are amounts
due it (approximately $225,000 plus interest) under the construction contract.
The Partnership was aware of this potential claim when it settled the previous
dispute in 1996 with the former managing general partners and did not release
them from liability with respect to it. It appears that a favorable settlement
of the Saunders matter is achievable but only makes sense in the broader context
of a mortgage restructuring for this property (which is experiencing substantial
deficits). The Managing General Partner now believes a mortgage restructuring is
feasible and a settlement can be obtained. However, workout negotiations with
the lender have taken longer than expected. The Managing General Partner
recently learned that in order to put pressure on the Partnership, Saunders
filed an involuntary bankruptcy petition against Garden Cove.
As previously reported, Garden Cove continues to experience debt service
deficits. These deficits are being funded from Partnership Reserves. The
Managing General Partner continues to work with the management agent to find
further ways to decrease the operating deficits while implementing capital
improvement strategies that will improve property marketability. As previously
reported, the Managing General Partner has entered into workout negotiations
which include exploring opportunities to restructure the first mortgage. It is
likely that without a modification, the lender will exercise its right to
foreclose on the property. A foreclosure would result in recapture for investors
of one third of the cumulative tax credit benefits, plus interest.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Discussions (continued)
In accordance with Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which is effective for fiscal years beginning after December 15, 1995, the Fund
has implemented policies and practices for assessing impairment of its real
estate assets and investments in Local Limited Partnerships. Each asset is
analyzed by real estate experts to determine if an impairment indicator exists.
If so, the carrying value is compared to the future cash flows expected to be
derived from the asset. If the total undiscounted cash flows are less than the
carrying value, a provision to write down the asset to fair value will be
charged against income.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a)Exhibits - None
(b)Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 1998.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: August 13, 1998 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. II
By: Arch Street, Inc.,
its Managing General Partner
/s/Randolph G. Hawthorne
Randolph G. Hawthorne
Managing Director, Vice President and
Chief Operating Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 1,111,832
<SECURITIES> 2,036,976
<RECEIVABLES> 58,115
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 12,112,603
<DEPRECIATION> 000
<TOTAL-ASSETS> 19,920,073 <F1>
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 7,722,417
<TOTAL-LIABILITY-AND-EQUITY> 19,920,073<F2>
<SALES> 000
<TOTAL-REVENUES> 572,005<F3>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 613,508<F4>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 221,597
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (879,714)<F5>
<EPS-PRIMARY> (14.52)
<EPS-DILUTED> 000
<FN>
<F1>Included in Total Assets: Tenant security deposits of $53,885, Investments
in Local Limited Partnerships of $3,878,117, Mortgage escrow deposits of
$117,268, Operating reserves of $35,926, Replacement reserves of $112,392,
Deferred fees, net of $305,574 and Other assets of $97,385. <F2>Included in
Total Liabilities and Equity: Mortgage notes payable of $11,241,664, Notes
payable of $86,533, Accounts payable to affiliates of $575,796, Accounts payable
and accrued expenses of $276,951, Accrued interest payable of $120,194, Security
deposits payable of $58,410 and Minority interests in Local Limited Partnerships
of $161,892. <F3>Total Revenue includes: Rental of $522,409, Investment of
$31,990 and Other of $17,606. <F4>Included in Other Expenses: Asset management
fees of $68,040, General and administrative of $51,829, Bad debt expense of
$3,788, Rental operations, exclusive of depreciation of $295,478, Property
management fees of $22,227, Depreciation of $137,846 and Amortization of
$34,300. <F5>Net loss reflects: Equity in losses of Local Limited Partnerships
of $618,682 and minority interests in losses of Local Limited Partnerships of
$2,068.
</FN>
</TABLE>
