November 9, 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 September 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/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH2-Q2.DOC
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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
--------------- ---------------------
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 - September 30, 1998 (Unaudited)
and March 31, 1998 1
Combined Statements of Operations (Unaudited) - For
the Three and Six Months Ended September 30, 1998 and 1997 2
Combined Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Six Months Ended September 30,
1998 3
Combined Statements of Cash Flows (Unaudited) -
For the Six Months Ended September 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 11
PART II - OTHER INFORMATION
Items 1-6 14
SIGNATURE 15
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 177,299 $ 722,737
Marketable securities, at fair value 2,404,793 966,668
Accounts receivable 39,352 30,589
Tenant security deposits 66,592 46,223
Investments in Local Limited Partnerships (Note 1) 2,496,713 5,351,116
Rental property at cost, net of
accumulated depreciation 12,598,287 12,776,058
Mortgage escrow deposits 157,925 136,287
Operating reserves 35,926 35,926
Replacement reserves 119,025 105,759
Deferred fees, net of accumulated amortization
of $185,388 and $172,729, respectively 299,245 311,903
Other assets 107,763 63,472
------------- -------------
Total Assets $ 18,502,920 $ 20,546,738
============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ 11,235,237 $ 11,247,950
Notes payable 86,533 3,266
Accounts payable to affiliates 22,580 566,352
Accounts payable and accrued expenses 287,523 162,072
Accrued interest payable 166,265 71,753
Security deposits payable 56,895 54,311
------------- -------------
Total Liabilities 11,855,033 12,105,704
------------- -------------
Minority interests in Local Limited Partnerships (164,522) (159,824)
------------- -------------
Commitments
General, Initial and Investor Limited Partners' Equity 6,774,583 8,592,833
Net unrealized gains on marketable securities 37,826 8,025
------------- -------------
Total Partners' Equity 6,812,409 8,600,858
------------- -------------
Total Liabilities and Partners' Equity $ 18,502,920 $ 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 and Six Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-------------- ------------- ------------- -------------
Revenue:
<S> <C> <C> <C> <C>
Rental $ 531,976 $ 470,533 $ 1,054,385 $ 915,252
Investment 43,335 21,922 75,325 51,589
Other 343,789 16,133 361,395 20,195
-------------- ------------- ------------- -------------
Total Revenue 919,100 508,588 1,491,105 987,036
-------------- ------------- ------------- -------------
Expenses:
Asset management fees,
related party 68,040 69,901 136,080 139,802
General and administrative
(includes reimbursements
to an affiliate of $47,013
and $61,776, respectively) 45,808 41,490 97,637 106,427
Rental operations,
exclusive of depreciation 324,888 252,778 624,154 493,885
Property management fees,
related party 22,703 19,564 44,930 39,444
Interest 221,456 210,739 443,053 432,832
Depreciation 139,466 142,602 277,312 285,203
Amortization 27,051 37,267 61,351 74,533
-------------- ------------- ------------- -------------
Total Expenses 849,412 774,341 1,684,517 1,572,126
-------------- ------------- ------------- -------------
Income (Loss) before minority interests
in losses in Local Limited Partnerships
and equity in losses of Local Limited
Partnerships 69,688 (265,753) (193,412) (585,090)
Minority interests in losses of
Local Limited Partnerships 2,630 1,463 4,698 3,305
Equity in losses of Local
Limited Partnerships (1,010,854) (468,042) (1,629,536) (1,066,917)
-------------- ------------- ------------- -------------
Net Loss $ (938,536) $ (732,332) $ (1,818,250) $ (1,648,702)
============== ============= ============= =============
Net Loss allocated:
To General Partners $ (9,385) $ (7,323) $ (18,182) $ (16,487)
To Limited Partners (929,151) (725,009) (1,800,068) (1,632,215)
-------------- ------------- ------------- -------------
$ (938,536) $ (732,332) $ (1,818,250) $ (1,648,702)
============== ============= ============= =============
Net Loss per Limited
Partnership Unit
(60,000 Units) $ (15.48) $ (12.08) $ (30.00) $ (27.20)
============= ============= ============= =============
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 Six Months Ended September 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
----------- ------------- ------------- ------------- -------------
Comprehensive Loss:
Net Loss (18,182) - (1,800,068) - (1,818,250)
Change in net unrealized
gains on marketable securities
available for sale - - - 29,801 29,801
----------- ------------- ------------- ------------- -------------
Comprehensive Loss (18,182) - (1,800,068) 29,801 (1,788,449)
----------- ------------- ------------- ------------- -------------
Balance at
September 30, 1998 $ (459,571) $ 5,000 $ 7,229,154 $ 37,826 $ 6,812,409
=========== ============= ============= ============= =============
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 Six Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net cash used for operating activities $ (574,035) $ (20,256)
------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (3,120,012) (399,066)
Proceeds from sales and maturities of
marketable securities 1,712,668 658,282
Cash distributions received from Local
Limited Partnerships 1,497,765 41,512
Additions to rental property (97,474) (67,667)
Advances to affiliates - (151,604)
Disbursements from replacement reserves (13,266) (13,266)
-------------- -------------
Net cash provided by (used for) investing activities (20,319) 68,191
------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable (12,713) (11,629)
Proceeds from (repayment of) note payable 83,267 (3,267)
Mortgage escrow deposits (21,638) (54,303)
Advances of notes payable - 62,902
------------- -------------
Net cash provided by (used for) financing activities 48,916 (6,297)
------------- -------------
Net increase (decrease) in cash and cash equivalents (545,438) 41,638
Cash and cash equivalents, beginning of period 722,737 318,451
------------- -------------
Cash and cash equivalents, end of period $ 177,299 $ 360,089
============= =============
Supplemental Disclosure:
Cash paid for interest $ 348,541 $ 418,989
============= =============
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. Certain reclassifications have been
made to conform to current year presentation.
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 of 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 September 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 $3,033,882) (28,604,864)
Cumulative cash distributions received
from Local Limited Partnerships (2,521,942)
Investments in Local Limited Partnerships before adjustment (325,131)
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 3,917,757
Accumulated amortization of acquisition fees and expenses (1,095,913)
-------------
Investments in Local Limited Partnerships $ 2,496,713
=============
</TABLE>
The Partnership's share of the net losses of the Local Limited Partnerships,
excluding the Combined Entities, for the six months ended September 30, 1998 is
$2,097,920. For the six months ended September 30, 1998, the Partnership has not
recognized $792,041 of equity in losses relating to twenty 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
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Statement, which is effective for fiscal years beginning after December 15,
1997, requires that the Partnership display an amount representing total
comprehensive income for the period in its financial statements. The Partnership
adopted the new standard effective April 1, 1998.
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 $ 89,039 $ 88,260 $ - $ 177,299
Marketable securities, at fair value 2,404,793 - - 2,404,793
Accounts receivable 1,234,958 35,563 (1,231,169) 39,352
Tenant security deposits - 66,592 - 66,592
Investments in Local Limited
Partnerships 3,074,938 - (578,225) 2,496,713
Rental property at cost, net of
accumulated depreciation - 11,961,971 636,316 12,598,287
Mortgage escrow deposits - 157,925 - 157,925
Operating reserves - 35,926 - 35,926
Replacement reserves - 119,025 - 119,025
Deferred fees, net - 299,245 - 299,245
Other assets 34,648 73,115 - 107,763
------------- ------------- ------------- -------------
Total Assets $ 6,838,376 $ 12,837,622 $ (1,173,078) $ 18,502,920
============= ============= ============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 11,235,237 $ - $ 11,235,237
Notes payable - 86,533 - 86,533
Accounts payable to affiliates 8,055 14,525 - 22,580
Accounts payable and accrued
expenses 17,912 269,611 - 287,523
Advances from Limited Partner - 1,231,169 (1,231,169) -
Accrued interest payable - 166,265 - 166,265
Security deposits payable - 56,895 - 56,895
------------- ------------- ------------- -------------
Total Liabilities 25,967 13,060,235 (1,231,169) 11,855,033
------------- ------------- ------------- -------------
Minority interests in Local Limited
Partnerships - - (164,522) (164,522)
------------- ------------- ------------- -------------
General, Initial and Investor
Limited Partners' Equity 6,774,583 (222,613) 222,613 6,774,583
Net unrealized gains on
marketable securities 37,826 - - 37,826
------------- ------------- ------------- -------------
Total Partners' Equity 6,812,409 (222,613) 222,613 6,812,409
------------- ------------- ------------- -------------
Total Liabilities and Partners' Equity $ 6,838,376 $ 12,837,622 $ (1,173,078) $ 18,502,920
============= ============= ============= =============
</TABLE>
(A) September 30, 1998.
(B) June 30, 1998.
<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
For the Three Months Ended September 30, 1998
<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 $ - $ 531,976 $ - $ 531,976
Investment 42,002 1,333 - 43,335
Other 326,086 17,703 - 343,789
------------- ------------- ------------- -------------
Total Revenue 368,088 551,012 - 919,100
------------- ------------- ------------- -------------
Expenses:
Asset management fees, related party 68,040 - - 68,040
General and administrative 45,808 - - 45,808
Bad debt expense (199) - 199 -
Rental operations, exclusive
of depreciation - 325,087 (199) 324,888
Property management fees,
related party - 22,703 - 22,703
Interest - 221,456 - 221,456
Depreciation - 139,466 - 139,466
Amortization 20,721 6,330 - 27,051
------------- ------------- ------------- -------------
Total Expenses 134,370 715,042 - 849,412
------------- ------------- ------------- -------------
Income (Loss) before minority interests in
losses of Local Limited Partnerships and
equity in losses of Local Limited
Partnerships 233,718 (164,030) - 69,688
Minority interests in losses of
Local Limited Partnerships - - 2,630 2,630
Equity in losses of Local
Limited Partnerships (1,172,254) - 161,400 (1,010,854)
------------- ------------- ------------- -------------
Net Loss $ (938,536) $ (164,030) $ 164,030 $ (938,536)
============= ============= ============= =============
</TABLE>
(A) For the three months ended September 30, 1998.
(B) For the three months ended June 30, 1998.
<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
For the Six Months Ended September 30, 1998
<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 $ - $ 1,054,385 $ - $ 1,054,385
Investment 72,782 2,543 - 75,325
Other 330,047 31,348 - 361,395
------------- ------------- ------------- -------------
Total Revenue 402,829 1,088,276 - 1,491,105
------------- ------------- ------------- -------------
Expenses:
Asset management fees, related party 136,080 - - 136,080
General and administrative 97,637 - - 97,637
Bad debt expense 3,589 - (3,589) -
Rental operations, exclusive
of depreciation - 620,565 3,589 624,154
Property management fees,
related party - 44,930 - 44,930
Interest - 443,053 - 443,053
Depreciation - 277,312 - 277,312
Amortization 48,692 12,659 - 61,351
------------- ------------- ------------- -------------
Total Expenses 285,998 1,398,519 - 1,684,517
------------- ------------- ------------- -------------
Income (Loss) before minority interests in
losses of Local Limited Partnerships and
equity in losses of Local Limited
Partnerships 116,831 (310,243) - (193,412)
Minority interests in losses of
Local Limited Partnerships - - 4,698 4,698
Equity in losses of Local
Limited Partnerships (1,935,081) - 305,545 (1,629,536)
------------- ------------- ------------- -------------
Net Loss $ (1,818,250) $ (310,243) $ 310,243 $ (1,818,250)
============= ============= ============= =============
</TABLE>
(A) For the six months ended September 30, 1998.
(B) For the six months ended June 30, 1998.
<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 Cash Flows
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Net cash provided by
<S> <C> <C> <C> <C>
(used for) operating activities $ (687,300) $ 113,265 $ - $ (574,035)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (3,120,012) - - (3,120,012)
Proceeds from sales and maturities
of marketable securities 1,712,668 - - 1,712,668
Cash distributions received from
Local Limited Partnerships 1,497,765 - - 1,497,765
Additions to rental property - (97,474) - (97,474)
Disbursements from replacement
reserves - (13,266) - (13,266)
------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities 90,421 (110,740) - (20,319)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable - (12,713) - (12,713)
Proceeds from note payable - 83,267 - 83,267
Mortgage escrow deposits - (21,638) - (21,638)
------------- ------------- ------------- -------------
Net cash provided by financing activities - 48,916 - 48,916
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (596,879) 51,441 - (545,438)
Cash and cash equivalents, beginning 685,918 36,819 - 722,737
------------- ------------- ------------- -------------
Cash and cash equivalents, ending $ 89,039 $ 88,260 $ - $ 177,299
============= ============= ============= =============
</TABLE>
(A) For the six months ended September 30, 1998.
(B) For the six months ended June 30, 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 September 30, 1998, the Partnership, including the Combined Entities, had
cash and cash equivalents of $177,299 as compared to $722,737 at March 31, 1998.
The decrease is primarily attributable to purchases of marketable securities in
excess of proceeds from sales and maturities of marketable securities, additions
to rental property and cash used for operations. These decreases are partially
offset by cash distributions received from Local Limited Partnerships.
The Managing General Partner initially designated 3% of Gross Proceeds as
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 $47,000 have been
paid from Reserves. The Partnership also advanced approximately $1,253,000 to
various 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 such funding appropriate. At September 30, 1998,
approximately $2,130,000 of cash, cash equivalents and marketable securities has
been designated as Reserves.
At September 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 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 September 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 six months ended September 30, 1998.
Results of Operations
The Partnership's results of operations for the six months ended September 30,
1998 resulted in a net loss of $1,818,250 as compared to a net loss of
$1,648,702 for the same period in 1997. The increase in net loss is primarily
due to increases in equity in losses of Local Limited Partnerships and rental
operations expenses. These increases to net loss are partially offset by an
increase in distributions received from Local Limited Partnerships whose
cumulative equity in losses and cumulative distributions exceeded the
Partnership's total investment and to an increase in rental revenue resulting
from increased occupancy at one of the combined entities.
<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.
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., has been
experiencing unstable operations due primarily to costs associated with unit
turnover, increased maintenance and utility expenses. Deteriorating market
conditions are also impacting the property. As of September 30, 1998, the
occupancy is 100%. 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 having 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. As previously reported, the Managing
General Partner has entered into workout negotiations which include exploring
opportunities to restructure the first mortgage. 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. 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
Impact of Year 2000
The Managing General Partner has assessed the Partnership's exposure to date
sensitive computer software programs that may not be operative subsequent to
1999 and has executed a requisite course of action to minimize Year 2000 risk
and ensure that neither significant costs nor disruption of normal business
operations are encountered. However, due to the inherent uncertainty that all
systems of outside vendors or other companies on which the Partnership and/or
Local Limited Partnerships rely will be compliant, the Partnership remains
susceptible to consequences of the Year 2000 issue.
<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 September 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: November 9, 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 177,299
<SECURITIES> 2,404,793
<RECEIVABLES> 39,352
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 12,598,287
<DEPRECIATION> 000
<TOTAL-ASSETS> 18,502,920<F1>
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 6,812,409
<TOTAL-LIABILITY-AND-EQUITY> 18,502,920<F2>
<SALES> 000
<TOTAL-REVENUES> 1,491,105<F3>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,241,464<F4>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 443,053
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,818,250)<F5>
<EPS-PRIMARY> (30.00)
<EPS-DILUTED> 000
<FN>
<F1>Included in Total Assets: Tenant security deposits of $66,592, Investments
in Local Limited Partnerships of $2,496,713, Mortgage escrow deposits of
$157,925, Operating reserves of $35,926, Replacement reserves of $119,025,
Deferred fees, net of accumulated amortization of $299,245 and Other assets of
$107,763. <F2>Included in Total Liabilities and Equity: Mortgage notes payable
of $11,235,237, Notes payable of $86,533, Accounts payable to affiliates of
$22,580, Accounts payable and accrued expenses of $287,523, Accrued interest
payable of $166,265, Security deposits payable of $56,895 and Minority interests
in Local Limited Partnerships of $164,522 <F3>Total Revenue includes: Rental of
$1,054,385, Investment of $75,325 and Other of $361,395. <F4>Included in Other
Expenses: Asset management fees of $136,080, General and administrative of
$97,637, Rental operations, exclusive of depreciation of $624,154, Property
management fees of $44,930, Depreciation of $277,312 and Amortization of
$61,351. <F5>Net loss reflects: Equity in losses of Local Limited Partnerships
of $1,629,536 and Minority interests in losses of Local Limited Partnerships of
$4,698.
</FN>
</TABLE>
