February 11, 1999
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 December 31, 1998
File No. 0-17777
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, filed herewith is a copy subject report.
Very truly yours,
/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH2-Q3.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 December 31, 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 - December 31, 1998 (Unaudited)
and March 31, 1998 1
Combined Statements of Operations (Unaudited) - For the Three
and Nine Months Ended December 31, 1998 and 1997 2
Combined Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Nine Months Ended December 31,
1998 3
Combined Statements of Cash Flows (Unaudited) -
For the Nine Months Ended December 31, 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 13
SIGNATURE 14
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS, L.P. II
(A Limited Partnership)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
(Unaudited)
------------- -------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 189,209 $ 722,737
Marketable securities, at fair value 2,106,527 966,668
Accounts receivable 63,556 30,589
Tenant security deposits 65,650 46,223
Investments in Local Limited Partnerships (Note 1) 2,288,562 5,351,116
Rental property at cost, net of
accumulated depreciation 12,459,577 12,776,058
Mortgage escrow deposits 195,296 136,287
Operating reserves - 35,926
Replacement reserves 77,416 105,759
Deferred fees (net of accumulated amortization
of $191,715 and $172,729, respectively) 292,917 311,903
Other assets 102,773 63,472
------------- -------------
Total Assets $ 17,841,483 $ 20,546,738
============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ 11,228,664 $ 11,247,950
Note payable 6,533 3,266
Accounts payable to affiliates 27,501 566,352
Accounts payable and accrued expenses 303,904 162,072
Accrued interest payable 198,212 71,753
Security deposits payable 61,595 54,311
------------- -------------
Total Liabilities 11,826,409 12,105,704
------------- -------------
Minority interests in Local Limited Partnerships (166,539) (159,824)
------------- -------------
Commitments
General, Initial and Investor Limited Partners' Equity 6,160,269 8,592,833
Net unrealized gains on marketable securities 21,344 8,025
------------- -------------
Total Partners' Equity 6,181,613 8,600,858
------------- -------------
Total Liabilities and Partners' Equity $ 17,841,483 $ 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 Nine Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
-------------- ------------- ------------- -------------
Revenue:
<S> <C> <C> <C> <C>
Rental $ 546,762 $ 474,224 $ 1,601,147 $ 1,389,476
Investment 37,690 23,425 113,015 75,014
Other (157,143) 13,311 204,252 33,506
-------------- ------------- ------------- -------------
Total Revenue 427,309 510,960 1,918,414 1,497,996
-------------- ------------- ------------- -------------
Expenses:
Asset management fees,
related party 68,040 69,901 204,120 209,703
General and administrative
(includes reimbursements
to an affiliate of $72,329
and $85,852, respectively) 65,611 47,554 163,248 153,981
Bad debt expense (71,812) 68,776 (68,223) 68,776
Rental operations,
exclusive of depreciation 322,220 278,722 942,785 772,607
Property management fees,
related party 23,396 19,132 68,326 58,576
Interest 221,311 240,723 664,364 673,555
Depreciation 139,464 142,602 416,776 427,805
Amortization 30,672 37,266 92,023 111,799
-------------- ------------- ------------- -------------
Total Expenses 798,902 904,676 2,483,419 2,476,802
-------------- ------------- ------------- -------------
Loss before minority interests in losses of
Local Limited Partnerships and equity in
losses of Local Limited Partnerships (371,593) (393,716) (565,005) (978,806)
Minority interests in losses of
Local Limited Partnerships 2,017 2,005 6,715 5,310
Equity in losses of Local
Limited Partnerships (244,738) (429,547) (1,874,274) (1,496,464)
-------------- ------------- ------------- -------------
Net Loss $ (614,314) $ (821,258) $ (2,432,564) $ (2,469,960)
============== ============= ============= =============
Net Loss allocated:
To General Partners $ (6,144) $ (8,213) $ (24,326) $ (24,700)
To Limited Partners (608,170) (813,045) (2,408,238) (2,445,260)
-------------- ------------- ------------- -------------
$ (614,314) $ (821,258) $ (2,432,564) $ (2,469,960)
============== ============= ============= =============
Net Loss per Limited
Partnership Unit (60,000 Units) $ (10.15) $ (13.55) $ (40.14) $ (40.75)
============== ============= ============= =============
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 Nine Months Ended December 31, 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 (24,326) - (2,408,238) - (2,432,564)
Change in net unrealized
gains on marketable securities
available for sale - - - 13,319 13,319
----------- ------------- ------------- ------------- -------------
Comprehensive Loss (24,326) - (2,408,238) 13,319 (2,419,245)
----------- ------------- ------------- ------------- -------------
Balance at
December 31, 1998 $ (465,715) $ 5,000 $ 6,620,984 $ 21,344 $ 6,181,613
=========== ============= ============= ============= =============
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 Nine Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by (used for) operating activities $ (770,441) $ 92,404
------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (3,319,872) (548,828)
Proceeds from sales and maturities of
marketable securities 2,195,825 832,394
Cash distributions received from Local
Limited Partnerships 1,513,927 61,512
Additions to rental property (104,331) (316,794)
Reimbursements from affiliates 46,291 -
Disbursements from replacement reserves (19,899) (19,899)
------------- -------------
Net cash provided by investing activities 311,941 8,385
------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable (19,286) (17,641)
Proceeds from (repayment of) note payable 3,267 (3,267)
Mortgagee escrow deposits (59,009) (112,703)
Advances from affiliate - 62,902
------------- -------------
Net cash used for financing activities (75,028) (70,709)
------------- -------------
Net increase (decrease) in cash and cash equivalents (533,528) 30,080
Cash and cash equivalents, beginning of period 722,737 318,451
------------- -------------
Cash and cash equivalents, end of period $ 189,209 $ 348,531
============= =============
Supplemental Disclosure:
Cash paid for interest $ 537,905 $ 684,893
============= =============
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 September 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 December 31, 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 $3,281,020) (28,778,611)
Cumulative cash distributions received
from Local Limited Partnerships (2,538,104)
-------------
Investments in Local Limited Partnerships before adjustment (515,040)
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 3,917,757
Accumulated amortization of acquisition fees and expenses (1,114,155)
-------------
Investments in Local Limited Partnerships $ 2,288,562
=============
</TABLE>
The Partnership's share of the net losses of the Local Limited Partnerships,
excluding the Combined Entities, for the nine months ended December 31, 1998 is
$2,518,805. For the nine months ended December 31, 1998, the Partnership has not
recognized $1,039,179 of equity in losses relating to twenty-one 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. In January, the Managing General Partner was
successful in restructuring the mortgage for this property. As a result of the
successful mortgage restructuring, the Managing General Partner was able to
settle the litigation instituted by the projects general contractor and have the
involuntary bankruptcy petition dismissed.
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
<TABLE>
<CAPTION>
Balance Sheets
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 $ 111,333 $ 77,876 $ - $ 189,209
Marketable securities, at fair value 2,106,527 - - 2,106,527
Accounts receivable 1,238,546 56,179 (1,231,169) 63,556
Tenant security deposits - 65,650 - 65,650
Investments in Local Limited
Partnerships 2,720,484 - (431,922) 2,288,562
Rental property at cost, net of
accumulated depreciation - 11,829,364 630,213 12,459,577
Mortgage escrow deposits - 195,296 - 195,296
Replacement reserves - 77,416 - 77,416
Deferred fees, net - 292,917 - 292,917
Other assets 33,788 68,985 - 102,773
------------- ------------- ------------- -------------
Total Assets $ 6,210,678 $ 12,663,683 $ (1,032,878) $ 17,841,483
============= ============= ============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 11,228,664 $ - $ 11,228,664
Note payable - 6,533 - 6,533
Accounts payable to affiliates 8,599 18,902 - 27,501
Accounts payable and accrued
expenses 20,466 283,438 - 303,904
Advances from Limited Partner - 1,231,169 (1,231,169) -
Accrued interest payable - 198,212 - 198,212
Security deposits payable - 61,595 - 61,595
------------- ------------- ------------- -------------
Total Liabilities 29,065 13,028,513 (1,231,169) 11,826,409
------------- ------------- ------------- -------------
Minority interests in Local Limited
Partnerships - - (166,539) (166,539)
------------- ------------- ------------- -------------
General, Initial and Investor
Limited Partners' Equity 6,160,269 (364,830) 364,830 6,160,269
Net unrealized gains on
marketable securities 21,344 - - 21,344
------------- ------------- ------------- -------------
Total Partners' Equity 6,181,613 (364,830) 364,830 6,181,613
------------- ------------- ------------- -------------
Total Liabilities and Partners' Equity $ 6,210,678 $ 12,663,683 $ (1,032,878) $ 17,841,483
============= ============= ============= =============
</TABLE>
(A) December 31, 1998.
(B) September 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 December 31, 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 $ - $ 546,762 $ - $ 546,762
Investment 36,449 1,241 - 37,690
Other (179,641) 22,498 - (157,143)
------------- ------------- ------------- -------------
Total Revenue (143,192) 570,501 - 427,309
------------- ------------- ------------- -------------
Expenses:
Asset management fees, related party 68,040 - - 68,040
General and administrative 65,611 - - 65,611
Bad debt expense (71,812) - - (71,812)
Rental operations, exclusive
of depreciation - 322,220 - 322,220
Property management fees,
related party - 23,396 - 23,396
Interest - 221,311 - 221,311
Depreciation - 139,464 - 139,464
Amortization 24,345 6,327 - 30,672
------------- ------------- ------------- -------------
Total Expenses 86,184 712,718 - 798,902
------------- ------------- ------------- -------------
Loss before minority interests in losses of
Local Limited Partnerships and
equity in losses of Local Limited
Partnerships (229,376) (142,217) - (371,593)
Minority interests in losses of
Local Limited Partnerships - - 2,017 2,017
Equity in losses of Local
Limited Partnerships (384,938) - 140,200 (244,738)
------------- ------------- ------------- -------------
Net Loss $ (614,314) $ (142,217) $ 142,217 $ (614,314)
============= ============= ============= =============
</TABLE>
(A) For the three months ended December 31, 1998.
(B) For the three months ended September 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 (continued)
For the Nine Months Ended December 31, 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 $ - $ 1,601,147 $ - $ 1,601,147
Investment 109,231 3,784 - 113,015
Other 150,406 53,846 - 204,252
------------- ------------- ------------- -------------
Total Revenue 259,637 1,658,777 - 1,918,414
------------- ------------- ------------- -------------
Expenses:
Asset management fees, related party 204,120 - - 204,120
General and administrative 163,248 - - 163,248
Bad debt expense (68,223) - - (68,223)
Rental operations, exclusive
of depreciation - 942,785 - 942,785
Property management fees,
related party - 68,326 - 68,326
Interest - 664,364 - 664,364
Depreciation - 416,776 - 416,776
Amortization 73,037 18,986 - 92,023
------------- ------------- ------------- -------------
Total Expenses 372,182 2,111,237 - 2,483,419
------------- ------------- ------------- -------------
Loss before minority interests in losses of
Local Limited Partnerships and
equity in losses of Local Limited
Partnerships (112,545) (452,460) - (565,005)
Minority interests in losses of
Local Limited Partnerships - - 6,715 6,715
Equity in losses of Local
Limited Partnerships (2,320,019) - 445,745 (1,874,274)
------------- ------------- ------------- -------------
Net Loss $ (2,432,564) $ (452,460) $ 452,460 $ (2,432,564)
============= ============= ============= =============
(A) For the nine months ended December 31, 1998.
(B) For the nine months ended September 30, 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 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 $ (1,010,756) $ 240,315 $ - $ (770,441)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (3,319,872) - - (3,319,872)
Proceeds from sales and maturates
of marketable securities 2,195,825 - - 2,195,825
Cash distributions received from
Local Limited Partnerships 1,513,927 - - 1,513,927
Additions to rental property - (104,331) - (104,331)
Reimbursements from affiliates 46,291 - - 46,291
Disbursements from replacement
reserves - (19,899) - (19,899)
------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities 436,171 (124,230) - 311,941
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of mortgage payable - (19,286) - (19,286)
Proceeds from note payable - 3,267 - 3,267
Mortgage escrow deposits - (59,009) - (59,009)
------------- ------------- ------------- -------------
Net cash used for financing activities - (75,028) - (75,028)
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (574,585) 41,057 - (533,528)
Cash and cash equivalents, beginning 685,918 36,819 - 722,737
------------- ------------- ------------- -------------
Cash and cash equivalents, ending $ 111,333 $ 77,876 $ - $ 189,209
============= ============= ============= =============
</TABLE>
(A) For the nine months ended December 31, 1998.
(B) For the nine months ended September 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 December 31, 1998, the Partnership, including the Combined Entities, had cash
and cash equivalents of $189,209 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 $68,000 have been
paid from Reserves. The Partnership also advanced approximately $1,185,000 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 December 31, 1998,
approximately $1,851,000 of cash, cash equivalents and marketable securities has
been designated as Reserves.
At December 31, 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 December 31, 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 nine months ended December 31, 1998.
Results of Operations
The Partnership's results of operations for the three and nine months ended
December 31, 1998 resulted in net losses of $614,314 and $2,432,564,
respectively as compared to net losses of $821,258 and $2,469,960, respectively,
for the same periods in 1997. The decrease in net loss for the three months
ended December 31, 1998 is primarily due to a decrease in bad debt expense and
equity in losses of Local Limited Partnerships. This is partially offset by a
decrease in other income. The decrease in net loss for the nine months ended
December 31, 1998 is primarily due to a decrease in bad debt expense and an
increase in rental revenues resulting from increased occupancy at one of the
combined entities. This is partially offset by an increase in equity in losses
of Local Limited Partnerships.
<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 thirty-eight 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 December 31, 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. 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 ultimately transfer ownership of the property to the Local
General Partner. The plan includes provisions to minimize the risk of recapture.
As previously reported, Garden Cove, located in Huntsville, Alabama, has again
been involved in litigation. In this litigation, the project's general
contractor claimed there were 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. As we reported last quarter, it appeared that a favorable settlement of
the Saunders matter was achievable but only made sense in the broader context of
a mortgage restructuring for this property (which has been experiencing
substantial deficits). In January 1999, the Managing General Partner was
successful in the negotiations with the lender and recently closed on a mortgage
restructuring of the Garden Cove mortgage. This mortgage restructuring involves
a reduction of the first mortgage along with delinquent mortgage payments to be
included in a soft second mortgage.
As a result of the success in negotiating the restructuring of the Garden Cove
mortgage, the Managing General Partner was able to settle the litigation
instituted by the project's general contractor. The settlement included a
release of all claims in exchange for a payment to the general contractor of an
amount equal to less than half of the original contract sum. The Partnership
and one of the Former General Partners participated in paying the settlement
amount.
<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 December 31, 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: February 11, 1999 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 189,209
<SECURITIES> 2,106,527
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 12,459,577
<DEPRECIATION> 000
<TOTAL-ASSETS> 17,841,483<F1>
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 6,181,613
<TOTAL-LIABILITY-AND-EQUITY> 17,841,483 <F2>
<SALES> 000
<TOTAL-REVENUES> 1,918,414<F3>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,819,055<F4>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 664,364
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (2,432,564)<F5>
<EPS-PRIMARY> (40.14)
<EPS-DILUTED> 000
<FN>
<F1>Included in Total Assets: Tenant security deposits of $65,650, Accounts
receivable of $63,556, Investments in Local Limited Partnerships of $2,288,562,
Mortgage escrow deposits of $195,296, Replacement reserves of $77,416, Deferred
fees, net of accumulated amortization of $292,917 and Other assets of $102,773.
<F2>Included in Total Liabilities and Equity: Mortgage notes payable of
$11,228,664, Notes payable of $6,533, Accounts payable to affiliates of $27,501,
Accounts payable and accrued expenses of $303,904, Accrued interest payable of
$198,212, Security deposits payable of $61,595 and Minority interests in Local
Limited Partnerships of $166,539. <F3>Total Revenue includes: Rental of
$1,601,147, Investment of $113,015 and Other of $204,252. <F4>Included in Other
Expenses: Asset management fees of $204,120, General and administrative of
$163,248, Bad debt expense of ($68,223), Rental operations, exclusive of
depreciation of $942,785, Property management fees of $68,326, Depreciation of
$416,776 and Amortization of $92,023. <F5>Net loss reflects: Equity in losses of
Local Limited Partnerships of $1,874,274 and Minority interests in losses of
Local Limited Partnerships of $6,715
</FN>
</TABLE>
