June 29, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC. 20549
Boston Financial Qualified Housing Tax Credits L. P. II
Annual Report on Form 10-KSB for the Year Ended March 31, 2000
File Number 0-17777
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, filed herewith is one copy of subject report.
Very truly yours,
/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH210K-K.DOC
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
---------------------------------
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 Identification No.)
incorporation or organization)
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>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Subsection 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
State the aggregate sales price of partnership units held by nonaffiliates of
the registrant:
$60,000,000 as of March 31, 2000
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-KSB INTO WHICH THE
DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY
PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE
424(b) OR (c) UNDER THE SECURITIES ACT OF 1933.
<TABLE>
<CAPTION>
Part of Report on
Form 10-KSB into
Which the Document
Documents incorporated by reference is Incorporated
Post-Effective Amendment No. 1 to the
Form S-11 Registration Statement, dated
<S> <C>
November 8, 1988, File # 33-20719 Part I, Item 1
Report on Form 8-K filed on January 20, 1989 Part I, Item 1
June 21, 1990. November 20, 1990 and December 7, 1990
Acquisition Reports Part I, Item 1
Prospectus - Sections Entitled:
"Estimated Use of Proceeds" Part III, Item 13
"Management Compensation and Fees" Part III, Item 13
"Profits and Losses for Tax Purposes, Tax
Credits and Cash Distributions" Part III, Item 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page No.
PART I
<S> <C>
Item 1 Business K-3
Item 2 Properties K-5
Item 3 Legal Proceedings K-14
Item 4 Submission of Matters to a Vote of
Security Holders K-14
PART II
Item 5 Market for the Registrant's Units and
Related Security Holder Matters K-14
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations K-14
Item 7 Financial Statements and Supplementary Data K-17
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure K-17
PART III
Item 9 Directors and Executive Officers
of the Registrant K-17
Item 10 Management Remuneration K-19
Item 11 Security Ownership of Certain Beneficial
Owners and Management K-19
Item 12 Certain Relationships and Related Transactions K-19
PART IV
Item 13 Exhibits and Reports on Form 8-K K-21
SIGNATURES K-22
</TABLE>
<PAGE>
PART I
Item 1. Business
Boston Financial Qualified Housing Tax Credits L.P. II (the "Partnership") is a
limited partnership formed on March 10, 1988 under the Uniform Limited
Partnership Act of the State of Delaware. The Partnership's partnership
agreement ("Partnership Agreement") authorized the sale of up to 60,000 units of
Limited Partnership Interest ("Units") at $1,000 per Unit, adjusted for certain
discounts. The Partnership raised $59,981,240 ("Gross Proceeds"), net of
discounts of $18,760, through the sale of 60,000 Units. Such amounts exclude
five unregistered Units previously acquired for $5,000 by the Initial Limited
Partner, which is also one of the General Partners. The offering of Units
terminated on October 28, 1988. No further sale of Units is expected.
The Partnership is engaged solely in the business of real estate investment.
Accordingly, a presentation of information about industry segments is not
applicable and would not be material to an understanding of the Partnership's
business taken as a whole.
The Partnership originally invested as a limited partner in forty limited
partnerships ("Local Limited Partnerships") which own and operate forty
residential apartment complexes ("Properties") most of which benefit from some
form of federal, state or local assistance programs and all of which qualify for
the low-income housing tax credits ("Tax Credits") that were added to the
Internal Revenue Code (the "Code") by the Tax Reform Act of 1986. The investment
objectives of the Partnership include the following: (i) to provide current tax
benefits in the form of Tax Credits which qualified limited partners may use to
offset their federal income tax liability; (ii) to preserve and protect the
Partnership's capital; (iii) to provide limited cash distributions from property
operations which are not expected to constitute taxable income during the
expected duration of the Partnership's operations; and (iv) to provide cash
distributions from sale or refinancing transactions. There cannot be any
assurance that the Partnership will attain any or all of these investment
objectives. A more detailed discussion of these investment objectives, along
with the risks in achieving them, is contained in the section of the prospectus
entitled "Investment Objectives and Policies - Principal Investment Policies"
which is herein incorporated by this reference.
Table A on the following page lists the properties originally acquired by the
Local Limited Partnerships in which the Partnership has invested. Item 6 of this
Report contains other significant information with respect to such Local Limited
Partnerships. As required by applicable rules, the terms of the acquisition of
Local Limited Partnership interests have been described in supplements to the
Prospectus and collected in the post-effective amendment to the Registration
Statement and in a Form 8-K (collectively, the "Acquisition Reports"); such
descriptions are incorporated herein by this reference.
<PAGE>
<TABLE>
<CAPTION>
TABLE A
SELECTED LOCAL LIMITED
PARTNERSHIP DATA
(Unaudited)
Local Limited Date Interest
Partnerships* Location Acquired
-------------------------------------------- ------------------------- --------------------------
<S> <C> <C>
Americus Properties L.P. Americus, GA 10/01/88
Atlantic Terrace L.P. Washington, DC 12/01/88
B&C Housing II Assoc.** Tulsa, OK 12/01/88
B&C Housing III Assoc.** Moore, OK 10/01/88
Bamberg Properties L.P. Bamberg, SC 01/20/89
Birch Associates Reno, NV 07/10/88
Blair Senior Housing I, L.P. Blair, NE 01/03/89
Brighton Manor Apartments, L.P. Douglasville, GA 12/29/89
Buckfield Housing Assoc. Buckfield, ME 08/01/88
Chapparal Housing Assoc.** Midland, TX 12/01/88
DeSoto Associates L.P. DeSoto, MO 03/31/89
Durham Park L.P. Tigard, OR 12/29/88
Eastmont Estates Assoc. Greenburg, PA 12/01/88
Garden Cove Apartments, Ltd. Huntsville, AL 05/11/89
Grayton Pointe Assoc.** Macon, GA 12/27/88
La Center Associates, L.P. La Center, KY 03/31/89
Lamar Assoc., L.P. Lamar, AR 12/01/88
Linden Housing Assoc. Inc. Reno, NV 08/01/88
McKinley-Walker Ltd. Fitzgerald, GA 02/08/89
Milo Housing Assoc., L.P. Milo, ME 12/20/89
Monroe Properties L.P. Monroe, GA 12/01/88
Mulberry Assoc. I L.P. Mulberry, AR 12/01/88
Newport Housing Assoc. Newport, ME 08/01/88
Paragould Associates Paragould, AR 12/01/88
San Antonio Ltd., S.E. Aguadilla, PR 10/01/88
Shadow Wood Housing Ltd.** Chickasha, OK 12/01/88
Shannon Creste Apts. L.P. Union City, GA 07/10/89
Snapfinger Creste Apts. L.P.** Decatur, GA 12/30/88
Springhill Housing L.P. I Casper, WY 10/01/88
Springhill Housing L.P. II Casper, WY 10/01/88
Springhill Housing L.P. III Casper, WY 10/01/88
Strafford Assoc. L.P. Strafford, MO 03/31/89
Unity Family Housing Assoc. Unity, ME 08/01/88
Ward Manor Associates L.P. Ward, AR 12/01/88
Warrenton Assoc. L.P. Warrenton, MO 03/31/89
Wayne Apartment Project L.P. Boston, MA 12/22/88
Waynesboro Properties L.P. Waynesboro, GA 12/01/88
Willow Creek Housing L.P. Reno, NV 08/01/88
Willowpeg Lane II, L.P. Rincon, GA 10/01/88
Winona Associates I, L.P. Winona, MO 12/01/88
</TABLE>
* The Partnership's interest in profits and losses of each Local Limited
Partnership arising from normal operations is 99%. Profits and losses
arising from sale or refinancing transactions are allocated in accordance
with the respective Local Limited Partnership Agreements.
** The Partnership has transferred its interests in these investments.
<PAGE>
Although the Partnership's investments in Local Limited Partnerships are not
subject to seasonal fluctuations, the Partnership's equity in losses of Local
Limited Partnerships, to the extent it reflects the operations of individual
Properties, may vary from quarter to quarter based upon changes in occupancy and
operating expenses as a result of seasonal factors.
Each Local Limited Partnership has, as its general partners ("Local General
Partners"), one or more individuals or entities not affiliated with the
Partnership or its General Partners, with the exception of Garden Cove and
Shannon Creste. In accordance with the partnership agreements under which such
entities are organized ("Local Limited Partnership Agreements"), the Partnership
depends on the Local General Partners for the management of each Local Limited
Partnership. As of March 31, 2000, the following Local Limited Partnerships have
a common Local General Partner or affiliated group of Local General Partners
accounting for the specified percentage of the total capital contributions in
Local Limited Partnerships: (i) Waynesboro Properties, Monroe Properties,
Bamberg Properties, Americus Properties, McKinley-Walker Ltd. and Willowpeg
Village, representing 4.94%, have Norsouth Corporation as Local General Partner;
(ii) Lamar Associates, Mulberry Associates, Paragould Associates, Ward Manor
Associates, Blair Senior Housing, DeSoto Associates, La Center Associates,
Strafford Associates, Warrenton Associates and Winona Associates, representing
2.94%, have Joseph A. Shepard and the Lockwood Group as Local General Partners;
(iii) Buckfield Housing, Newport Housing, Milo Housing and Unity Family Housing,
representing 2.93%, have Charles B. Mattson and Todd J. Mattson as Local General
Partners; (iv) Birch Associates, Linden Housing and Willow Creek Housing,
representing 3.99%, have Robert F. Nielsen, Dennis F. Johnson and J. Michael
Queenan as Local General Partners; and (v) Springhill Housing I, Springhill
Housing II and Springhill Housing III, representing 4.85%, have Delwood
Ventures, Inc. as Local General Partner. The Local General Partners of the
remaining Local Limited Partnerships are identified in the Acquisition Reports,
which are incorporated herein by reference.
The Properties owned by Local Limited Partnerships in which the Partnership has
invested are and will continue to be subject to competition from existing and
future apartment complexes in the same areas. The continued success of the
Partnership will depend on many outside factors, most of which are beyond the
control of the Partnership and which cannot be predicted at this time. Such
factors include general economic and real estate market conditions, both on a
national basis and in those areas where the Properties are located, the
availability and cost of borrowed funds, real estate tax rates, operating
expenses, energy costs and government regulations. In addition, other risks
inherent in real estate investment may influence the ultimate success of the
Partnership, including: (i) possible reduction in rental income due to an
inability to maintain high occupancy levels or adequate rental levels; (ii)
possible adverse changes in general economic conditions and adverse local
conditions, such as competitive over-building, a decrease in employment or
adverse changes in real estate laws, including building codes; and (iii)
possible future adoption of rent control legislation which would not permit
increased costs to be passed on to the tenants in the form of rent increases or
which would suppress the ability of the Local Limited Partnerships to generate
operating cash flow. Since most of the Properties benefit from some form of
government assistance, the Partnership is subject to the risks inherent in that
area including decreased subsidies, difficulties in finding suitable tenants and
obtaining permission for rent increases. In addition, any Tax Credits allocated
to investors with respect to a Property are subject to recapture to the extent
that the Property or any portion thereof ceases to qualify for the Tax Credits.
Other future changes in federal and state income tax laws affecting real estate
ownership or limited partnerships could have a material and adverse affect on
the business of the Partnership.
The Partnership is managed by Arch Street, Inc., the Managing General Partner of
the Partnership. The other General Partner of the Partnership is Arch Street
Limited Partnership. The Partnership, which does not have any employees,
reimburses Lend Lease Real Estate Investments, Inc. an affiliate of the General
Partners, for certain expenses and overhead costs. A complete discussion of the
management of the Partnership is set forth in Item 9 of this Report.
<PAGE>
Item 2. Properties
The Partnership owns limited partnership interests in thirty Local Limited
Partnerships which own and operate thirty-four properties, some of which benefit
from some form of federal, state or local assistance programs and all of which
qualify for the Tax Credit added to the Code by the Tax Reform Act of 1986. The
Partnership's ownership interest in each Local Limited Partnership is 99%.
Each of the Local Limited Partnerships has received an allocation of Tax Credits
from its relevant state tax credit agency. In general, the Tax Credit runs for
ten years from the date the Property is placed in service. The required holding
period (the "Compliance Period") of the Properties is fifteen years. During
these fifteen years, the Properties must satisfy rent restrictions, tenant
income limitations and other requirements, as promulgated by the Internal
Revenue Service, in order to maintain eligibility for the Tax Credit at all
times during the Compliance Period. Once a Local Limited Partnership has become
eligible for the Tax Credits, it may lose such eligibility and suffer an event
of recapture if its Property fails to remain in compliance with the
requirements.
In addition, some of the Local Limited Partnerships have obtained one or a
combination of different types of loans such as: i) below market rate interest
loans; ii) loans provided by a redevelopment agency of the town or city in which
the property is located at favorable terms; or iii) loans that have repayment
terms that are based on a percentage of cash flow.
The schedules on the following pages provide certain key information on the
Local Limited Partnership interests acquired by the Partnership.
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
-------------------------------------- ---------- ------------- ------------ ---------------- -------- ---------
Americus Properties Limited Partnership
Meadowbrook
<S> <C> <C> <C> <C> <C> <C>
Americus, GA 55 $ 333,000 $ 333,000 $ 1,459,481 FmHA 100%
Atlantic Terrace Limited Partnership
Atlantic Terrace
Washington, DC 198 3,073,000 3,073,000 11,030,602 Section 8 100%
B&C Housing Associates, II, ( C )
A Limited Partnership
Patrick Henry
Tulsa, OK
B&C Housing Associates, III, ( C )
A Limited Partnership
Nottingham Square
Moore, OK
Bamberg Properties Limited Partnership
Bamberg Garden
Bamberg, SC 24 162,750 162,750 730,485 FmHA 100%
Birch Associates Limited Partnership
Reno Birchwood
Reno, NV 138 780,000 780,000 3,523,902 Section 8 98%
Blair Senior Housing L.P.
Rustic Oaks
Blair, NE 12 78,000 78,000 356,251 FmHA 91%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
--------------------------------------- ---------- ------------- ------------ --------------- -------- ---------
Brighton Manor Apartments,
A Limited Partnership
Brighton Manor
<S> <C> <C> <C> <C> <C> <C>
Douglasville, GA 40 1,050,000 1,050,000 1,183,082 None 93%
Buckfield Housing Associates
(A Limited Partnership)
Nezinscott Village
Buckfield, ME 20 234,000 234,000 1,077,330 FmHA 95%
Chapparal Housing Associates, Ltd., ( C )
An Oklahoma Limited Partnership
Chapparal
Midland, TX
DeSoto Associates III, L.P.
(A Limited Partnership)
Parkview II
DeSoto, MO 24 118,500 118,500 559,502 FmHA 100%
Durham Park Limited Partnership
Durham Park
Tigard, OR 224 4,100,000 4,100,000 9,342,828 None 91%
Eastmont Estates Associates
(A Limited Partnership)
Eastmont Estates
Greenburg, PA 103 950,000 950,000 2,619,532 Section 8 93%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
------------------------------------------- ---------- -------------- ------------ --------------- -------- ---------
Garden Cove Apartments, Ltd.
(A Limited Partnership)
Garden Cove
<S> <C> <C> <C> <C> <C> <C>
Huntsville, AL 200 3,264,264 3,264,264 5,378,512 None 80%
Grayton Pointe Apartments, L.P. (A)
Grayton Pointe
Macon, GA
La Center Associates Limited Partnership
La Center
La Center, KY 12 85,125 85,125 394,667 FmHA 92%
Lamar Associates Limited Partnership
Lamar
Lamar, AR 20 137,250 137,250 620,424 FmHA 90%
Linden Housing Associates, Ltd.
Linden
Reno, NV 40 342,750 342,750 1,168,511 Section 8 93%
McKinley-Walker Limited Partnership
(A Limited Partnership)
McKinley Lane
Fitzgerald, GA 48 330,000 330,000 1,403,250 FmHA 92%
Milo Housing Associates (A Limited Partnership)
Milo
Milo, ME 24 273,000 273,000 1,251,954 FmHA 96%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
----------------------------------------------- ---------- ------------ ----------- --------------- -------- ---------
Monroe Properties Limited Partnership
Highland Village
<S> <C> <C> <C> <C> <C> <C>
Monroe, GA 55 321,750 321,750 1,449,792 FmHA 100%
Mulberry Associates I Limited Partnership
Quail Run
Mulberry, AR 24 164,250 164,250 747,381 FmHA 92%
Newport Housing Associates (A Limited Partnership)
Newport Family
Newport, ME 24 271,500 271,500 1,252,272 FmHA 100%
Paragould Associates I, Limited Partnership
Paragould
Paragould, AR 14 101,625 101,625 462,792 FmHA 64%
San Antonio Limited Dividend Partnership S.E.
Nuevo San Antonio
Aguadilla, PR 100 800,250 800,250 3,823,473 FmHA 100%
Shadow Wood Housing Associates, Limited, ( C )
An Oklahoma Limited Partnership
Shadow Wood
Chickasha, OK
Shannon Creste Apartments, L.P.
Shannon Creste
Union City, GA 200 3,635,000 3,635,000 6,135,893 None 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
--------------------------------------- ---------- -------------- ------------- ------------------- -------- -------------
Snapfinger Creste Apartments, L.P.(B)
Snapfinger Creste
Decatur, GA
Spring Hill Housing Associates I, Ltd.
(A Limited Partnership)
Springhill I
<S> <C> <C> <C> <C> <C> <C>
Casper, WY 32 408,500 408,500 1,045,740 Section 8 100%
Spring Hill Housing Associates II, Ltd.
(A Limited Partnership)
Springhill II
Casper, WY 48 597,000 597,000 1,426,838 Section 8 100%
Spring Hill Housing Associates III, Ltd.
(A Limited Partnership)
Springhill III
Casper, WY 47 653,000 653,000 1,510,997 Section 8 100%
Strafford II Rural Housing L.P.
Strafford Arms
Strafford, MO 12 64,500 64,500 292,163 FmHA 67%
Unity Family Housing Associates
(A Limited Partnership)
Unity Family
Unity, ME 20 222,000 222,000 1,000,869 FmHA 95%
Ward Manor Associates I Limited Partnership
Ward Manor
Ward, AR 16 114,750 114,750 520,756 FmHA 88%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
----------------------------------------- ---------- -------------------------- ------------------- -------- ---------
Warrenton Associates I, L.P.
(A Limited Partnership)
Warrenton
<S> <C> <C> <C> <C> <C> <C>
Warrenton, MO 16 78,375 78,375 372,774 FmHA 95%
Wayne Apartments Project Limited Partnership
(A Massachusetts Limited Partnership)
Wayne
Boston, MA 349 10,937,500 10,600,000 12,912,931 Section 8 95%
Waynesboro Properties Limited Partnership
(A Limited Partnership)
Ashton Place
Waynesboro, GA 36 217,500 217,500 944,067 FmHA 100%
Willow Creek Housing Associates, Ltd.
(A Limited Partnership)
Willow Creek
Reno, NV 25 240,000 240,000 780,122 Section 8 100%
Willowpeg Lane Limited Partnership
(A Limited Partnership)
Willowpeg Lane
Rincon, GA 48 325,500 325,500 1,465,648 FmHA 88%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Contributions
Total Paid Mtge. loans
Local Limited Partnership Number committed at through payable at Type Occupancy at
Property Name of March 31, March 31, December 31, of March 31,
Property Location Apt. Units 2000 2000 1999 Subsidy* 2000
----------------------------- ---------- -------------- -------------- ------------------- -------- ---------
Winona Associates I, L.P.
Winona
<S> <C> <C> <C> <C> <C> <C>
Winona, MO 12 62,250 62,250 277,950 FmHA 100%
------- ------------ ----------- --------------
2,260 $34,526,889 $34,189,389 $ 78,522,771
======= ============ =========== ==============
* FmHA This subsidy, which is authorized under Section 515 of
the Housing Act of 1949, can be one or a combination of
different types of financing. For instance, FmHA may provide:
1) direct below-market-rate mortgage loans for rural rental
housing; 2) mortgage interest subsidies which effectively
lower the interest rate of the loan to 1%; 3) a rental
assistance subsidy to tenants which allows them to pay
no more than 30% of their monthly income as rent with the
balance paid by the federal government; or 4) a combination of
any of the above.
Section 8 This subsidy, which is authorized under Section 8 of Title
II of the Housing and Community Development Act of 1974,
allows qualified low-income tenants to pay 30% of their
monthly income as rent with the balance paid by the federal
government.
(A) The Partnership's investment in Grayton Pointe Apartments,
L.P. was written off as of October 7, 1997.
(B) The Partnership's investment in Snapfinger Creste Apartments,
L.P. was written off as of March 31, 1997.
(C) The Partnership's investment in B & C Housing Associates, II,
B & C Housing Associates, III, Chapparal Housing Associates,
Ltd., and Shadow Wood Housing Associates, Limited, were
written off as of February 2, 2000.
</TABLE>
<PAGE>
Two Local Limited Partnerships invested in by the Partnership each represent
more than 10% of the total capital contributions to be made to Local Limited
Partnerships by the Partnership. The first is Wayne Apartment Project Limited
Partnership. Wayne, representing 28.12% of the total capital contributions in
Local Limited Partnerships, is a 349-unit apartment complex located in Boston,
Massachusetts.
Wayne is financed by a combination of private and public sources, including a
first mortgage at 7% interest and financing for a completed rehabilitation
program at 10.75% interest. In addition to this, additional financing for the
rehabilitation program is being provided by the U.S. Housing and Urban
Development at an interest rate of 9.25%.
The other Local Limited Partnership which represents more than 10% of the total
capital contributions made to Local Limited Partnerships is Durham Park Limited
Partnership. Durham Park, representing 10.88% of the total capital contributions
in Local Limited Partnerships, is a 224 -unit apartment complex located in
Tigard, Oregon.
Durham Park is financed through a mortgage secured through Amresco Services,
L.P. at 6.96%. The loan is amortized over 30 years, with a balloon payment due
at maturity.
Duration of leases for occupancy in the Properties described above is six to
twelve months. The Managing General Partner believes the described herein are
adequately covered by insurance.
Additional information required under this Item, as it pertains to the
Partnership, is contained in Items 1, 6 and 7 of the Report.
Item 3. Legal Proceedings
The Partnership is not a party to any pending legal or administrative
proceeding, and to the best of its knowledge, no legal or administrative
proceeding is threatened or contemplated against it.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Units and Related Security Holder Matters
There is no public market for the Units, and it is not expected that a public
market will develop. If a Limited Partner desires to sell Units, the buyer of
those Units will be required to comply with the minimum purchase and retention
requirements and investor suitability standards imposed by applicable federal or
state securities laws and the minimum purchase and retention requirements
imposed by the Partnership. The price to be paid for the Units, as well as the
commissions to be received by any participating broker-dealers, will be subject
to negotiation by the Limited Partner seeking to sell his Units. Units will not
be redeemed or repurchased by the Partnership.
The Partnership Agreement does not impose on the Partnership or its General
Partners any obligation to obtain periodic appraisals of assets or to provide
Limited Partners with any estimates of the current value of Units.
As of June 15, 2000, there were 4,085 record holders of Units of the
Partnership.
Cash distributions, when made, are paid annually. For the years ended March 31,
2000 and 1999, no cash distributions were made.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements, and are including this
statement for purposes of complying with these safe harbor provisions. Although
the Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that their expectations will
be attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of $243,820 as
compared to $273,496 at March 31, 1999. The decrease is primarily attributable
to cash used for operating activities and purchases of marketable securities in
excess of proceeds from sales of marketable securities. These are partially
offset by cash distributions received from Local Limited Partnerships.
The Managing General Partner initially designated 3% of the Gross Proceeds to
Reserves as defined in the Partnership Agreement. 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 $72,000 have been paid from Reserves. The Partnership also
advanced approximately $1,221,000 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 March 31, 2000, approximately
$1,561,000 of cash, cash equivalents and marketable securities has been
designated as Reserves.
At March 31, 2000, 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 March 31, 2000, 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 in the years ended March 31, 2000 or 1999. It is
not expected that cash available for distribution, if any, will be significant
during the 2000 calendar year. Based on the results of 1999 operations, the
Local Limited Partnerships are not expected to distribute significant amounts of
cash to the Partnership because such amounts will be needed to fund Property
operating costs. In addition, many of the Properties benefit from some type of
federal or state subsidy and, as a consequence, are subject to restrictions on
cash distributions.
Results of Operations
2000 versus 1999
The Partnership's results of operations for the year ended March 31, 2000
resulted in a net loss of $2,453,290 as compared to a net loss of $3,224,727 for
the same period in 1999. The decrease in net loss is primarily due to decreases
in equity in losses of Local Limited Partnerships and an increase in provision
for valuation of investments in Local Limited Partnerships. The decrease in
equity in losses of Local Limited Partnerships is primarily due to the
Partnership not recognizing losses relating to Local Limited Partnerships where
cumulative equity in losses and cumulative distributions have exceeded its total
investment.
<PAGE>
Low-Income Housing Tax Credits
The 1999 and 1998 Low-Income Housing Tax Credits per Unit for individuals were
$81.32 and $120.87, respectively. The 1999 and 1998 Low-Income Housing Tax
Credits per Unit for corporations were $86.42 and $126.93, respectively. The Tax
Credits per Limited Partnership Unit stabilized in 1991 at approximately $146.00
per Unit for individuals and $153.00 per Unit for corporations. The credits were
expected to be stable for the six years subsequent to 1991 and then to decrease
as certain properties reached the end of the ten-year credit period. However,
because the compliance periods should extend significantly beyond the tax credit
periods, the Partnership is expected to retain most of its interests in the
Local Limited Partnerships for the foreseeable future.
Property Discussions
As previously reported, Chapparal, Nottingham Square, Patrick Henry and Shadow
Wood, which are all located in Oklahoma and have the same Local General Partner,
are experiencing operating difficulties. Due to concerns regarding the long-term
viability of these properties, the Managing General Partner negotiated a plan
with the Local General Partner that will ultimately transfer ownership of each
property to the Local General Partner. The plan includes provisions to minimize
the risk of recapture. HUD approved the plan and effective July 1, 1998, the
Managing General Partner consummated the transfer of 49.5% of the Partnership's
capital and profits in the properties to the Local General Partner. The Managing
General Partner was also granted the right to transfer the Partnership's
remaining interest in the properties to the Local General Partner any time after
one year had elapsed. The Partnership retained its full share of tax credits
until such time as the remaining interest was put to the Local General Partner.
In addition, the Local General Partner was granted the right to call the
remaining interest after the tax credit period had expired.
On February 28, 2000, due to concerns over the financial viability of Shadow
Wood, Chapparal, Nottingham Square and Patrick Henry, and to avoid the potential
risk of recapture of tax credits associated with these properties, the Managing
General Partner exercised its right to transfer the Partnership's remaining
interest in Shadow Wood, Chapparal, Nottingham Square and Patrick Henry to the
Local General Partner. These transfers will not trigger a recapture event for
the Partnership nor have any impact on the Partnership's financial statement.
However, for tax purposes, this event will result in both Section 1231 gain and
cancellation of indebtedness income for the 2000 tax year.
As previously reported, Garden Cove, located in Huntsville, Alabama, was
involved in litigation. In this litigation, the project's general contractor
claimed there were amounts due it 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. The Managing General Partner recently
closed on a mortgage restructuring of the Garden Cove mortgage. This mortgage
restructuring involved a reduction of the first mortgage along with delinquent
mortgage payments to be included in a soft second mortgage. As a result of 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 paid the settlement
amount.
Shannon Creste located in Union City, Georgia, has experienced operating
difficulties due to occupancy, security and capital improvement needs. The
Managing General Partner is working with the management agent to develop a plan
to address these issues. Occupancy as of March 31, 2000 was 100%.
The Local General Partner of Ashton Place, located in Waynesboro, Georgia,
Bamberg Garden, located in Bamberg, South Carolina, Highland Village, located in
Monroe, Georgia, McKinley Lane, located in Fitzgerald, Georgia Meadowbrook,
located in Americus, Georgia and Willowpeg Lane, located in Rincon, Georgia,
expressed to the Managing General Partner some concerns over the long-term
financial health of the properties. In response to these concerns and to reduce
possible future risk, the Managing General Partner is negotiating with the Local
General Partner to develop a plan that will ultimately transfer ownership of the
properties to the Local General Partner. The plan includes provisions to
minimize the risk of recapture.
<PAGE>
The Partnership has implemented policies and practices for assessing potential
impairment of its investments in Local Limited Partnerships. The investments are
analyzed by real estate experts to determine if impairment indicators exist. If
so, the carrying value is compared to the undiscounted future cash flows
expected to be derived from the asset. If there is a significant impairment in
carrying value, a provision to write down the asset to fair value will be
recorded in the Partnership's financial statements.
Inflation and Other Economic Factors
Inflation had no material impact on the operating or financial conditions of the
Partnership for the years ended March 31, 2000 and 1999.
Since some of the Properties benefit from some sort of government assistance,
the Partnership is subject to the risks inherent in that area including
decreased subsidies, difficulties in finding suitable tenants and obtaining
permission for rent increases. In addition, any Tax Credits allocated to
investors with respect to a Property are subject to recapture to the extent that
the Property or any portion thereof ceases to qualify for the Tax Credits.
Certain of the Properties listed in this Report are located in areas suffering
from poor economic conditions. Such conditions could have an adverse effect on
the rent or occupancy levels at such Properties. Nevertheless, management
believes that the generally high demand for below-market rate housing will tend
to negate such factors. However, no assurance can be given in this regard.
Other Development
Lend Lease Real Estate Investments, Inc.("Lend Lease"), the U.S. subsidiary
of Lend Lease Corporation and the leading U.S. institutional real estate
advisor, as ranked by assets under management, acquired The Boston Financial
Group Limited Partnership ("Boston Financial") on November 3, 1999.
Headquartered in New York and Atlanta, Lend Lease Corporation has regional
offices in 12 cities nationwide. The company ranks as the leading U.S. manager
of tax-exempt assets invested in real estate. Lend Lease is a subsidiary of Lend
Lease Corporation, an international real estate and financial services group
listed on the Australian Stock Exchange. Worldwide, Lend Lease Corporation
operates from more than 30 cities on five continents: North America, Europe,
Asia, Australia and South America. In addition to real estate investments, the
Lend Lease Group operates in the areas of property development, project
management and construction, and capital services (infrastructure).
Item 7. Financial Statements and Supplementary Data
Information required under this Item is submitted as a separate section of this
Report. See Index on page F-1 hereof.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
The Managing General Partner of the Partnership is Arch Street, Inc., a
Massachusetts corporation (the "Managing General Partner"), an affiliate of Lend
Lease Estate Investments, Inc. ("Lend Lease"). The Managing General Partner was
incorporated in February 1988. Randolph G. Hawthorne is the Chief Operating
Officer of the Managing General Partner and had the primary responsibility for
evaluating, selecting and negotiating investments for the Partnership. The
Investment Committee of the Managing General Partner approved all investments.
The names and positions of the principal officers and the directors of the
Managing General Partner are set forth below.
<PAGE>
Name Position
Jenny Netzer President, Managing Director
Michael H. Gladstone Vice President, Managing Director
Randolph G. Hawthorne Vice President, Managing Director
Paul F. Coughlan Vice President
William E. Haynsworth Vice President
The other General Partner of the Partnership is Arch Street Limited Partnership,
a Massachusetts limited partnership ("Arch Street L.P.") that was organized
in August 1988. The General Partner of Arch Street L.P. is Arch Street, Inc.
The Managing General Partner provides day-to-day management of the Partnership.
Compensation is discussed in Item 10 of this report. Such day-to-day management
does not include the management of the Properties.
The business experience of each of the persons listed above is described below.
There is no family relationship between any of the persons listed in this
section.
Jenny Netzer, age 44, Principal, Head of Housing and Community Investing. -
Responsible for tax credit investment programs to institutional clients. Joined
Lend Lease through its 1999 acquisition of Boston Financial, started with Boston
Financial in 1987. Previously, led Boston Financial's new business initiatives
and managed firm's Asset Management division, responsible for performance of 750
properties and providing service to 35,000 investors. Prior to joining Boston
Financial, served as Deputy Budget Director for Commonwealth of Massachusetts,
responsible for Commonwealth's health care and public pension program's budgets,
served as Assistant Controller at Yale University and former member of Watertown
Zoning Board of Appeals Officer of Affordable Housing Tax Credit Coalition and
frequent speaker on affordable housing and tax credit industry issues, BA
Harvard University; Master's in Public Policy Harvard's Kennedy School of
Government.
Michael H. Gladstone, age 43, Principal, Legal - Responsible for legal work in
the areas of affordable and conventional housing and investment products and
services. Joined Lend Lease through its 1999 acquisition of Boston Financial,
started with Boston Financial in 1985; served as firm's General Counsel. Prior
to joining Boston Financial, associated with law firm of Herrick & Smith, served
on advisory board of Housing and Development Reporter. Lectured at Harvard
University on affordable housing matters, Member, The National Realty Committee,
Cornell Real Estate Council, National Association of Real Estate Investment
Managers and Massachusetts Bar, BA Emory University; JD & MBA Cornell
University.
Randolph G. Hawthorne, age 50, Principal, Housing and Community Investing -
Responsible for structuring and acquiring real estate investments. Joined Lend
Lease through its 1999 acquisition of Boston Financial, started with Boston
Financial in 1973. Previously, served as Boston Financial's Treasurer, Past
Chairman of the Board of the National Multi Housing Council, having served on
the board since 1989, Past President of the National Housing and Rehabilitation
Association, Member, Multifamily Council of the Urban Land Institute, Frequent
speaker at industry conferences. Serves on the Editorial Advisory Boards of the
Tax Credit Advisor and Multi-Housing News, BS Massachusetts Institute of
Technology; MBA Harvard Graduate School of Business. Board of Directors National
Housing Conference. Graduated MIT 1971, HBS 1973.
Paul F. Coughlan, age 56, Principal, Housing and Community Investing -
Responsible for marketing and sales of institutional tax credit investments.
Joined Lend Lease through its 1999 acquisition of Boston Financial, started with
Boston Financial in 1975. Previously, served as sales manager for Boston
Financial's retail tax credit fund, AB Brown University.
William E. Haynsworth, age 60, Principal, Housing and Community Investing -
Responsible for the structuring of real estate investments and the acquisition
of property interests. Joined Lend Lease through its 1999 acquisition of Boston
Financial, started with Boston Financial in 1977. Prior to joining Boston
Financial, Acting Executive Director and General Counsel of the Massachusetts
Housing Finance Agency. Served as Director of Non-Residential Development of the
Boston Redevelopment Authority and Associate of Goodwin, Proctor & Hoar, Past
President and current Chairman of the Board of Directors of Affordable Housing
Tax Credit Coalition, BA Dartmouth College; LLB and LLM Harvard Law School.
<PAGE>
Item 10. Management Remuneration
Neither the directors nor officers of Arch Street, Inc., the partners of Arch
Street L.P. nor any other individual with significant involvement in the
business of the Partnership receives any current or proposed remuneration from
the Partnership.
Item 11. Security Ownership of Certain Beneficial Owners and Management
No person is known to the Partnership to be the beneficial owner of more than 5%
of the outstanding Units.
The equity securities registered by the Partnership under Section 12(g) of the
Act consist of 60,000 Units, all of which have been sold to the public. Holders
of Units are permitted to vote on matters affecting the Partnership only in
certain unusual circumstances and do not generally have the right to vote on the
operation or management of the Partnership.
Arch Street L.P. owns five (unregistered) Units not included in the 60,000 Units
sold to the public.
Except as described in the preceding paragraph, neither Arch Street, Inc., Arch
Street L.P., Lend Lease nor any of their executive officers, directors, partners
or affiliates is the beneficial owner of any Units. None of the foregoing
persons possesses a right to acquire beneficial ownership of Units.
The Partnership does not know of any existing arrangement that might at a later
date result in a change in control of the Partnership.
Item 12. Certain Relationships and Related Transactions
The Partnership was required to pay certain fees to and reimburse certain
expenses of the Managing General Partner or its affiliates (including Boston
Financial) in connection with the organization of the Partnership and the
offering of Units. The Partnership is also required to pay certain fees to and
reimburse certain expenses of the Managing General Partner or its affiliates
(including Boston Financial and Lend Lease) in connection with the
administration of the Partnership and its acquisition and disposition of
investments in Local Limited Partnerships. In addition, the General Partners are
entitled to certain Partnership distributions under the terms of the Partnership
Agreement. Also, an affiliate of the General Partners will receive up to $10,000
from the sale or refinancing proceeds of each Local Limited Partnership, if it
is still a limited partner at the time of such transaction. All such fees,
expenses and distributions paid in the two years ending March 31, 2000 are
described below and in the sections of the Prospectus entitled "Estimated Use of
Proceeds", "Management Compensation and Fees" and "Profits and Losses for Tax
Purposes, Tax Credits and Cash Distributions". Such sections are incorporated
herein by reference. In addition an affiliate of the General Partner managed
Garden Cove and Shannon Creste, two Local Limited Partnerships in which the
Partnership invests.
The Partnership is permitted to enter into transactions involving affiliates of
the Managing General Partner, subject to certain limitations established in the
Partnership Agreement, as follows:
Organizational fees and expenses and selling expenses
In accordance with the Partnership Agreement, the Partnership was required to
pay certain fees to and reimburse expenses of the General Partners and others in
connection with the organization of the Partnership and the offering of its
Limited Partnership Units. Selling commissions, fees and accountable expenses
related to the sale of the Units totaling $7,056,416 have been charged directly
to Limited Partners' equity. In connection therewith, $4,781,240 of selling
expenses and $2,275,176 of offering expenses incurred on behalf of the
Partnership have been paid to an affiliate of the General Partner. The
Partnership also capitalized an additional $50,000 of organizational costs which
was reimbursed to an affiliate of the General Partner. These costs are fully
amortized as of March 31, 2000. Total organization and offering expenses
exclusive of selling commissions and underwriting advisory fees did not exceed
5.5% of the Gross Proceeds and organizational and offering expenses, inclusive
of selling commissions and underwriting advisory fees, did not exceed 15.0% of
the Gross Proceeds. No organizational fees and expenses and selling expenses
were paid during the two years ended March 31, 2000.
<PAGE>
Acquisition fees and expenses
In accordance with the Partnership Agreement, the Partnership was required to
pay acquisition fees to and reimburse acquisition expenses of the Managing
General Partner or its affiliates for selecting, evaluating, structuring,
negotiating and closing the Partnership's investments in Local Limited
Partnerships. Acquisition fees totaled 8% of the gross offering proceeds.
Acquisition expenses include such expenses as legal fees and expenses, travel
and communications expenses, costs of appraisals and accounting fees and
expenses. Acquisition fees totaling $4,800,000 for the closing of the
Partnership's Local Limited Partnership Investments have been paid to an
affiliate of the Managing General Partner. Acquisition expenses totaling
$761,180 were incurred and have been reimbursed to an affiliate of the Managing
General Partner. No acquisition fees or expenses were paid during the two years
ended March 31, 2000.
Asset Management Fees
In accordance with the Partnership Agreement, an affiliate of the Managing
General Partner is paid an annual fee for services in connection with the
administration of the affairs of the Partnership. The affiliate currently
receives the base amount of $7,087 per property (as adjusted by the CPI factor)
of Gross Proceeds annually as the Asset Management Fee. Fees earned in each of
the two years ended March 31, 2000 are as follows:
2000 1999
------------- ----------
Asset Management Fees $ 274,370 $ 276,766
Salaries, benefits and administrative expense reimbursements
An affiliate of the Managing General Partner is reimbursed for the cost of the
Partnership's salaries and benefits. The reimbursements are based upon the size
and complexity of the Partnership's operations. Reimbursements paid or payable
in each of the two years ended March 31, 2000 are as follows:
2000 1999
------------- ------------
Salaries and benefits $ 137,847 $ 101,029
Property Management Fees
An affiliate of the Managing General Partner is the management agent for two
Local Limited Partnerships in which the Partnership has invested. The Property
Management Fee charged is equal to 5% and 4%, respectively, of cash receipts.
Fees earned by this affiliate for the years ended December 31, 1999 are as
follows:
1999 1998
------------- ----------
Property Management Fees $ 97,101 $ 92,438
Cash distributions paid to the General Partners
In accordance with the Partnership Agreement, the General Partners of the
Partnership, Arch Street, Inc. and Arch Street Limited Partnership, receive 1%
of cash distributions paid to partners. No cash distributions have been paid to
the General Partners during the two years ended March 31, 2000.
Additional information concerning cash distributions and other fees paid or
payable to the Managing General Partner and its affiliates and the reimbursement
of expenses paid or payable to Lend Lease and its affiliates during each of the
two years ended March 31, 2000 is presented in Note 5 to the Financial
Statements.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a)(1) and (a)(2) Documents filed as a part of this Report.
In response to this portion of Item 13, the financial statements and the
auditors' reports relating thereto are submitted as a separate section of this
Report. See Index to the Financial Statements on page F-1 hereof.
The reports of auditors of the Local Limited Partnerships relating to the audits
of the financial statements of such Local Limited Partnerships appear in Exhibit
28.1 of this Report.
All other financial statement schedules and exhibits for which provision is made
in the applicable accounting regulations of the Securities and Exchange
Commission are not required under related instructions or are inapplicable and
therefore have been omitted.
(a)(3) Exhibit Index contained herein
(a)(3)(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the year ended March 31,
2000.
(a)(3)(c) Exhibits
Number and Description in Accordance with
Item 601 of Regulation S-K
18. Letter on Change in Accounting Principle
27.Financial Data Schedule
28.Additional Exhibits
(a) 28.1 Reports of Other Independent Auditors
(a)(3)(d) None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
By: Arch Street Inc.
its Managing General Partner
By: /s/Randolph G. Hawthorne Date: June 29, 2000
------------------------ -------------
Randolph G. Hawthorne,
Managing Director, Vice President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Managing General
Partner of the Partnership and in the capacities and on the dates indicated:
By: /s/ Randolph G. Hawthorne Date: June 29, 2000
------------------------------ -------------
Randolph G. Hawthorne,
Managing Director, Vice President and
Chief Operating Officer
By: /s/Michael H. Gladstone Date: June 29, 2000
------------------------------ -------------
Michael H. Gladstone,
Managing Director, Vice President
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Annual Report on Form 10-KSB
for the Year Ended March 31, 2000
Index
Page No.
Reports of Independent Accountants
For the years ended March 31, 2000 and 1999 F-2
Financial Statements
Balance Sheet - March 31, 2000 F-3
Statements of Operations - Years Ended
March 31, 2000 and 1999 F-4
Statements of Changes in Partners' Equity (Deficiency)
Years Ended March 31, 2000 and 1999 F-5
Statements of Cash Flows - Years Ended
March 31, 2000 and 1999 F-6
Notes to the Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Boston Financial Qualified Housing Tax Credits L.P. II:
In our opinion, based on our audits and the reports of other auditors, the
financial statements listed in the accompanying index present fairly, in all
material respects, the financial position of Boston Financial Qualified Housing
Tax Credits L.P.II (the "Partnership") at March 31, 2000, and the results of its
operations and its cash flows for each of the two years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain local limited partnerships for which $28,341,467 of
cumulative equity in losses are included in the balance sheet as of March 31,
2000 and for which net losses of $371,045 and $2,735,479 are included in the
accompanying financial statements for the years March 31, 2000 and 1999,
respectively. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for the Local Limited Partnerships, is based
solely on the reports of the other auditors. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted
in the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for the
opinions expressed above.
As discussed in Note 2 to the financial statements, in 2000 the Partnership
changed the basis of presentation of its financial statements from a combined
basis to a stand-alone basis. The 1999 financial statements have been restated
to show the effects of this change in reporting entity.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
June 22, 2000
Boston, Massachusetts
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
BALANCE SHEET
March 31, 2000
<TABLE>
Assets
<S> <C>
Cash and cash equivalents $ 243,820
Marketable securities, at fair value (Note 3) 1,822,556
Investments in Local Limited Partnerships, net (Note 4) 1,433,990
Other assets 24,452
------------
Total Assets $ 3,524,818
Liabilities and Partners' Equity
Accounts payable to affiliates (Note 5) $ 133,681
Accounts payable and accrued expenses 34,440
-------------
Total Liabilities 168,121
Commitments (Note 6)
General, Initial and Investor Limited Partners' Equity 3,378,057
Net unrealized losses on marketable securities (21,360)
Total Partners' Equity 3,356,697
-------------
Total Liabilities and Partners' Equity $ 3,524,818
=============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 (Restated)
Revenue:
<S> <C> <C>
Investment $ 114,381 $ 139,183
Other 66,625 248,336
------------- -------------
Total Revenue 181,006 387,519
------------- -------------
Expenses:
Asset management fees - related party (Note 5) 274,370 276,766
General and administrative
(includes reimbursements to an affiliate
in the amount of $137,847 and $101,029, respectively) 219,248 213,042
Provision of valuation of investments in Local Limited Partnerships 1,194,155 11,861
Amortization 33,688 79,520
------------- -------------
Total Expenses 1,721,461 581,189
------------- -------------
Loss before equity in losses of Local Limited Partnerships and loss on transfer
of interests in Local Limited
Partnerships (1,540,455) (193,670)
Equity in losses of Local Limited
Partnerships (Note 4) (658,502) (3,031,057)
Loss on transfer of interests
in Local Limited Partnerships (Note 7) (254,333) -
------------- -------------
Net Loss $ (2,453,290) $ (3,224,727)
============= =============
Net Loss allocated:
General Partners $ (24,533) $ (32,247)
Limited Partners (2,428,757) (3,192,480)
------------- -------------
$ (2,453,290) $ (3,224,727)
============= =============
Net Loss per Limited Partnership Unit
(60,000 Units) $ (40.48) $ (53.21)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
For the Years Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Net
Initial Investor Unrealized
General Limited Limited Gains
Partners Partners Partners (Losses) Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 (restated) $ (436,757) $ 5,000 $ 9,487,831 $ 8,025 $ 9,064,099
----------- --------- ------------ ---------- --------------
Comprehensive Income (Loss):
Change in net unrealized gains
on marketable securities
available for sale - - - 2,413 2,413
Net Loss (32,247) - (3,192,480) - (3,224,727)
----------- --------- ------------ ---------- --------------
Comprehensive Income (Loss) (32,247) - (3,192,480) 2,413 (3,222,314)
----------- --------- ------------ ---------- --------------
Balance at March 31, 1999 (restated) (469,004) 5,000 6,295,351 10,438 5,841,785
----------- --------- ------------ ---------- --------------
Comprehensive Loss:
Change in net unrealized gains
on marketable securities
available for sale - - - (31,798) (31,798)
Net Loss (24,533) - (2,428,757) - (2,453,290)
----------- --------- ------------ ---------- --------------
Comprehensive Loss (24,533) - (2,428,757) (31,798) (2,485,088)
----------- --------- ------------ ---------- --------------
Balance at March 31, 2000 $ (493,537) $ 5,000 $ 3,866,594 $ (21,360) $ 3,356,697
=========== ========= ============ ========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
1999
2000 (Restated)
Cash flows from operating activities:
<S> <C> <C>
Net Loss $ (2,453,290) $ (3,224,727)
Adjustments to reconcile net loss to
net cash used for operating activities:
Equity in losses of Local Limited Partnerships 658,502 3,031,057
Cash distribution income included in cash
distributions received from Local Limited Partnerships (56,575) (491,408)
Net gains on sales and maturities of marketable securities (3,334) (2,691)
Provision of valuation of investments in Local Limited Partnerships 1,194,154 26,416
Loss on transfer of interests in Local Limited Partnerships 254,333 -
Amortization 33,688 79,520
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Other assets 2,944 (10,751)
Accounts payable to affiliates 41,379 (407,851)
Accounts payable and accrued expenses 6,370 (4,138)
------------- -------------
Net cash used for operating activities (321,829) (1,004,573)
------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (697,183) (3,419,369)
Proceeds from sales and maturities
of marketable securities 806,005 2,431,299
Cash distributions received from Local
Limited Partnerships 192,606 1,560,347
Advances to affiliates (9,275) 19,874
------------- -------------
Net cash provided by investing activities 292,153 592,151
------------- -------------
Net decrease in cash and cash
equivalents (29,676) (412,422)
Cash and cash equivalents, beginning 273,496 685,918
------------- -------------
Cash and cash equivalents, ending $ 243,820 $ 273,496
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
1. Organization
Boston Financial Qualified Housing Tax Credits L.P. II (the "Partnership") was
formed on March 10, 1988 under the laws of the State of Delaware for the primary
purpose of investing, as a limited partner, in other limited partnerships
("Local Limited Partnerships"), each of which owns and operates apartment
complexes benefiting from some form of federal, state or local assistance, and
each of which qualifies for low-income housing tax credits. The Partnership's
objectives are to: (i) provide current tax benefits in the form of tax credits
which qualified investors may use to offset their federal income tax liability;
(ii) preserve and protect the Partnership's capital; (iii) provide limited cash
distributions which are not expected to constitute taxable income during
Partnership operations; and (iv) provide cash distributions from sale or
refinancing transactions. The General Partners of the Partnership are Arch
Street, Inc., which serves as the Managing General Partner, and Arch Street
Limited Partnership, which also serves as the Initial Limited Partner. Both of
the General Partners are affiliates of Lend Lease Real Estate Investments, Inc.
("Lend Lease"). The fiscal year of the Partnership ends on March 31.
The Partnership's partnership agreement ("Partnership Agreement") authorized the
sale of up to 60,000 units of Limited Partnership Interest ("Units") at $1,000
per Unit, adjusted for certain discounts. The Partnership raised $59,981,240
("Gross Proceeds"), net of discounts of $18,760, through the sale of 60,000
Units. Such amounts exclude five unregistered Units previously acquired for
$5,000 by the Initial Limited Partner, which is also one of the General
Partners. The offering of Units terminated on October 28, 1988.
Generally, profits, losses, tax credits and cash flows from operations are
allocated 99% to the Limited Partners and 1% to the General Partners. Net
proceeds from a sale or refinancing will be allocated 95% to the Limited
Partners and 5% to the General Partners after certain priority payments.
Under the terms of the Partnership Agreement, the Partnership initially
designated 3% (subsequently increased to 4%) of the Gross Proceeds from the sale
of Units as a reserve for working capital of the Partnership and contingencies
related to ownership of Local Limited Partnership interests. At March 31, 2000,
the Managing General Partner has designated approximately $1,561,000 of cash,
cash equivalents and marketable securities as such Reserve.
2. Significant Accounting Policies
Basis of Presentation
The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting because the Partnership does not have control
over the major operating and financial policies of the Local Limited
Partnerships in which it invests. Under the equity method, the investment is
carried at cost, adjusted for the Partnership's share of income or loss of the
Local Limited Partnerships, additional investments in and cash distributions
from the Local Limited Partnerships. Equity in income or loss of the Local
Limited Partnerships is included in the Partnership's operations. The
Partnership has no obligation to fund liabilities of the Local Limited
Partnerships beyond its investment, therefore a Local Limited Partnership's
investment will not be carried below zero. To the extent that equity losses are
incurred when a Local Limited Partnership's respective investment balance has
been reduced to zero, the losses will be suspended to be used against future
income. Distributions received from Local Limited Partnerships whose respective
investment balance has been reduced to zero are included in income.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies (continued)
Basis of Presentation (continued)
Excess investment costs over the underlying net assets acquired have arisen from
acquisition fees paid and expenses reimbursed to an affiliate of the
Partnership. These fees and expenses are included in the Partnership's
Investments in Local Limited Partnerships and are being amortized on a
straight-line basis over 35 years.
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 financial
statements is as of December 31, 1999 and 1998.
The general partners of Garden Cove Apartments, Ltd. and Shannon Creste
Apartments, L.P. (the "Combined Entities") Local Limited Partnerships and the
General Partner of the Partnership are affiliated entities. In prior periods,
the Partnership combined its financial statements with those of the Combined
Entities. During 2000, the General Partner concluded that the presentation of
the financial position and results of operations of the Partnership, with the
Combined Entities accounted for using the equity method, resulted in a more
meaningful presentation. All prior period financial data has been restated to
show the effects of this change in reporting entity.
The Partnership recognizes a decline in the carrying value of its investments in
Local Limited Partnerships when there is evidence of a non-temporary decline in
the recoverable amount of the investment. There is a possibility that the
estimates relating to reserves for non-temporary declines in carrying value of
investments in Local Limited Partnerships may be subject to material near term
adjustments.
The Partnership, as a limited partner in the Local Limited Partnerships, is
subject to risks inherent in the ownership of property which are beyond its
control, such as fluctuations in occupancy rates and operating expenses,
variations in rental schedules, proper maintenance and continued eligibility for
tax credits. If the cost of operating a property exceeds the rental income
earned thereon, the Partnership may deem it in its best interest to voluntarily
provide funds in order to protect its investment.
Cash Equivalents
Cash equivalents consist of short-term money market investments with original
maturities of ninety days or less at acquisition and approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Marketable Securities
Marketable securities consists primarily of U.S. Treasury instruments and
mortgage-backed investment vehicles. The Partnership's marketable securities are
classified as "Available for Sale" securities and are reported at fair value as
reported by the brokerage firm at which the securities are held. Realized gains
and losses from the sales of securities are based on the specific identification
method. Unrealized gains and losses are excluded from earnings and reported as a
separate component of partners' equity.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies (continued)
Fair Value of Financial Instruments
Statements of Financial Accounting Standards No. 107 ("SFAS No. 107"),
Disclosures About Fair Value of Financial Instruments, requires disclosure for
the fair value of most on- and off-balance sheet financial instruments for which
it is practicable to estimate that value. The scope of SFAS No. 107 excludes
certain financial instruments, such as trade receivables and payables when the
carrying value approximates the fair value and investments accounted for under
the equity method, and all nonfinancial assets, such as real property. The fair
values of the Partnership's assets and liabilities which qualify as financial
instruments under SFAS No. 107 approximate their carrying amounts in the
accompanying balance sheet except as otherwise disclosed.
Income Taxes
No provision for income taxes has been made as the liability for such taxes is
the obligation of the partners of the Partnership.
3. Marketable Securities
A summary of marketable securities is as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities issued by
the US Treasury and
other US government
<S> <C> <C> <C> <C>
corporations and agencies $ 1,724,146 $ 183 $ (22,240) $ 1,702,089
Mortgage backed securities 119,770 773 (76) 120,467
------------- ----------- ----------- -------------
Marketable securities
at March 31, 2000 $ 1,843,916 $ 956 $ (22,316) $ 1,822,556
============= =========== ========== =============
</TABLE>
The contractual maturities at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Cost Fair Value
<S> <C> <C>
Due in less than one year $ 849,143 $ 844,032
Due in one year to five years 875,003 858,057
Mortgage backed securities 119,770 120,467
------------- -------------
$ 1,843,916 $ 1,822,556
============= =============
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
3. Marketable Securities (continued)
Actual maturities may differ from contractual maturities because some borrowers
have the right to call or prepay obligations. Proceeds from the sales of
marketable securities were approximately $411,000 and $823,000 during the fiscal
years ended March 31, 2000 and 1999, respectively. Proceeds from the maturities
of marketable securities were approximately $395,000 and $1,608,000 during the
fiscal years ended March 31, 2000 and 1999, respectively. Included in investment
income are gross gains of $3,388 and $2,776 and gross losses of $54 and $85
which were realized on the sales during the fiscal years ended March 31, 2000
and 1999, respectively.
4. Investments in Local Limited Partnerships
The Partnership uses the equity method to account for its limited partnership
interests in thirty-four Local Limited Partnerships 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, which contain certain operating and distribution
restrictions, 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.
The following is a summary of investments in Local Limited Partnerships at March
31, 2000:
<TABLE>
<CAPTION>
Capital contributions and advances paid to Local Limited Partnerships and
purchase price paid to withdrawing partners of Local
<S> <C>
Limited Partnerships $ 35,409,960
Cumulative equity in losses of Local Limited
Partnerships (excluding cumulative unrecognized
losses of $6,173,407) (33,276,961)
Cumulative cash distributions received
from Local Limited Partnerships (2,558,417)
Investments in Local Limited Partnerships -----------
before adjustment (425,418)
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 4,334,939
Accumulated amortization of acquisition
fees and expenses (1,254,960)
Investments in Local Limited Partnerships 2,654,561
Reserve for valuation of investments in Local Limited Partnerships (1,220,571)
-------------
$ 1,433,990
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
F-20
NOTES TO THE FINANCIAL STATEMENTS (continued)
4. Investments in Local Limited Partnerships (continued)
Summarized financial information as of December 31, 1999 and 1998 (due to the
Partnership's policy of reporting the financial information of its Local Limited
Partnership interests on a 90 day lag basis) of all Local Limited Partnerships
in which the Partnership has invested as of that date is as follows:
<TABLE>
<CAPTION>
Summarized Balance Sheets - as of December 31, 1998
----------------------------------------------
1999 (Restated)
------------- -----------
Assets:
<S> <C> <C>
Investment property, net $ 81,956,329 $ 86,005,895
Current assets 3,227,265 2,199,382
Other assets 4,898,335 5,428,753
------------- -------------
Total Assets $ 90,081,929 $ 93,634,030
============= =============
Liabilities and Partners' Equity (Deficiency):
Long-term debt $ 77,528,032 $ 88,037,671
Current liabilities (includes current
portion of long-term debt) 13,632,477 3,673,182
Other liabilities 10,403,252 10,403,182
------------- -------------
Total Liabilities 101,563,761 102,114,035
------------- -------------
Partners' Equity (Deficiency):
Partnership's Equity (Deficiency) (8,336,172) (5,754,058)
Less capital contributions receivable (337,501) (337,501)
------------- -------------
(8,673,673) (6,091,559)
Other Partners' Deficiency (2,808,159) (2,388,446)
------------- -------------
Total Partners' Equity (Deficiency) (11,481,832) (8,480,005)
------------- -------------
Total Liabilities and Partners' Equity (Deficiency) $ 90,081,929 $ 93,634,030
============= =============
Summarized Income Statements - for
the years ended December 31,
Rental and other income $ 18,862,310 $ 18,009,978
------------- -------------
Expenses:
Operating 10,313,808 10,888,979
Interest 6,739,927 6,578,424
Depreciation and amortization 4,622,096 5,002,911
------------- -------------
Total Expenses 21,675,831 22,470,314
------------- -------------
Net Loss $ (2,813,521) $ (4,460,336)
============= =============
Partnership's share of Net Loss $ (2,783,199) $ (4,413,228)
============= =============
Other partners' share of Net Loss $ (30,322) $ (47,108)
============= =============
</TABLE>
For the years ended March 31, 2000 and 1999, the Partnership has not recognized
$2,124,697 and $1,382,171, respectively, of equity in losses relating to
twenty-five Local Limited Partnerships where cumulative equity in losses exceeds
their total investment.
As previously reported, Snapfinger Creste and Grayton Pointe were written off
during 1997. In addition, as discussed in more detail in Note 7, the Partnership
has written off its interests in Chapparel, Nottingham, Patrick Henry and Shadow
Wood as of March 31, 2000.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
4. Investments in Local Limited Partnerships (continued)
The Partnership's deficiency as reflected by the Local Limited Partnerships of
$8,673,673 differs from the Partnership's Investments in Local Limited
Partnerships before adjustment of $425,418 principally because: a) the
Partnership has not recognized $6,184,954 of equity in losses relating to Local
Limited Partnerships whose cumulative equity in losses exceeded their total
investments; b) purchase prices paid to original Limited Partners by the
Partnership have not been reflected in the balance sheets of certain Local
Limited Partnerships; c) cash distributions paid to the Partnership and other
lag period activities during the quarter ended March 31, 2000 are not reflected
in the equity of certain Local Limited Partnerships at December 31, 1999; and d)
the Partnership has included advances of approximately $1,221,000 in investments
in Local Limited Partnerships which are included in liabilities in the balance
sheets of the Local Limited Partnerships.
5. Transactions with Affiliates
An affiliate of the Managing General Partner currently receives the base amount
of $7,242 (as adjusted by the CPI factor) per Local Limited Partnership annually
as the Asset Management Fee for administering the affairs of the Partnership.
Included in the Statements of Operations are Asset Management Fees of $274,370
and $276,766 for the years ended March 31, 2000 and 1999, respectively. Included
in accounts payable to affiliates is $70,608 and $72,646 of Asset Management
Fees due to an affiliate of the Managing General Partner at March 31, 2000 and
1999, respectively.
An affiliate of the Managing General Partner is reimbursed for the actual cost
of the Partnership's operating expenses. Included in general and administrative
expenses for the years ended March 31, 2000 and 1999 is $137,847 and $101,029,
respectively, that the Partnership has paid as reimbursement for salaries and
benefits. At March 31, 2000 and 1999, $63,073 and $19,656, respectively, is
payable to an affiliate of the Managing General Partner.
An affiliate of the General Partner is the management agent for two Local
Limited Partnerships. The property management fee charged is equal to 5% and 4%,
respectively, of cash receipts. Included in operating expenses in the summarized
income statements in Note 4 to the Financial Statements is $97,101 and $92,438
of fees earned by this affiliate for the years ended December 31, 1999 and 1998,
respectively.
6. Commitments
At March 31, 2000, 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.
7. Transfer of Interests in Local Limited Partnerships
As previously reported, Chapparal, Nottingham Square, Patrick Henry and Shadow
Wood, all located in Oklahoma and having the same Local General Partner, were
experiencing operating difficulties. In particular, Shadow Wood was experiencing
severe operating deficits due to high security costs, low Section 8 contract
rates and high debt service payments. Due to concerns regarding the long-term
viability of these properties, the Managing General Partner negotiated a plan
with the Local General Partner to ultimately transfer ownership of each property
to the Local General Partner. The plan included provisions to minimize the risk
of recapture. HUD approved the plan and effective July 1, 1998, the Managing
General Partner consummated the transfer of 49.5% of the Partnership's capital
and profits in the properties to the Local General Partner. The Managing General
Partner had the right to transfer the Partnership's remaining interest in the
properties to the Local General Partner any time after one year had elapsed. The
Partnership would retain its full share of tax credits until such time as the
remaining interest was put to the Local General Partner. In addition, the Local
General Partner had the right to call the remaining interest after the tax
credit period had expired. In February 2000, the remaining 49.5% interests in
each of the four properties were transferred to the Local General Partner. The
Partnership recognized a loss of $254,333 on the transfers and no longer has an
interest in these properties.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
8. Federal Income Taxes
The following schedule reconcilies of the reported financial statement loss for
the fiscal years ended March 31, 2000 and 1999 to the loss reported on the Form
1065, U.S. Partnership Return of Income for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999
2000 (Restated)
<S> <C> <C>
Net Loss per financial statements $ (2,453,290) $ (3,224,727)
Adjustment for equity in losses of Local
Limited Partnerships for financial
reporting purposes in excess of equity
in losses for tax purposes 160,300 347,378
Equity in losses of Local Limited Partnerships
not recognized for financial reporting purposes (2,181,272) (1,873,579)
Adjustment to reflect March 31 fiscal
year end to December 31 tax year end 72,908 142,123
Bad debt expense not deductible for tax purposes 1,194,154 -
Amortization of acquisition fees and expenses
for tax purposes in excess of amortization
for financial reporting purposes (142,828) (96,996)
Write-off of Investment in Local Limited
Partnership not recognized for tax purposes 254,333 14,555
Cash distributions included in loss for
financial reporting purposes (97,304) (399,951)
Related party expenses paid in current year but
expensed for financial reporting purposes in prior year - (414,940)
------------- -------------
Net Loss per tax return $ (3,192,999) $ (5,506,137)
============= =============
</TABLE>
The differences in the assets and liabilities of the Partnership for financial
reporting purposes and tax reporting purposes for the year ended March 31, 2000
are as follows:
<TABLE>
<CAPTION>
Financial Tax
Reporting Reporting
Purposes Purposes Differences
<S> <C> <C> <C>
Investments in Local Limited Partnerships $ 1,433,990 $ 227,942 $ 1,206,048
============ ============ ============
Other assets $ 2,090,828 $10,191,947 $ (8,101,119)
============ ============ ============
Liabilities $ 168,121 $ 39,454 $ 128,667
============ ============ ============
</TABLE>
The differences in the assets and liabilities of the Partnership for financial
reporting purposes are primarily attributable to: i) the cumulative equity in
losses from Local Limited Partnerships for tax reporting purposes is
approximately $1,211,000 greater than for financial reporting purposes,
including approximately $6,771,000 of losses the Partnership has not recognized
relating to twenty-three Local Limited Partnerships whose cumulative equity in
losses exceeded their total investments; ii) organizational and offering costs
of approximately $7,056,000 that have been capitalized for tax reporting
purposes are charged to Limited Partners' equity for financial reporting
purposes; and iii) for financial reporting purposes, the Partnership reserved
approximately $1,221,000 for valuation of investments in Local Limited
Partnerships.
<PAGE>
June 29, 2000
Boston Financial Qualified Housing Tax Credits L.P. II
101 Arch Street
Boston, MA 02110-1106
To the Partners of
Boston Financial Qualified Housing Tax Credits L.P. II:
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have audited the financial statements included in Boston Financial Qualified
Housing Tax Credits L.P. II's (the "Partnership") Annual Report on Form 10-K for
the year ended March 31, 2000 and issued our report thereon dated June 22, 2000.
Note 2 to the financial statements describes a change in reporting entity from a
combined basis presentation to a stand-alone basis presentation. It should be
understood that the preferability of one acceptable method of presenting
entities under common control over another has not been addressed in any
authoritative accounting literature, and in expressing our concurrence below we
have relied on management's determination that this change in reporting entity
is preferable. Based on our reading of management's stated reasons and
justification for this change in reporting entity in the Form 10-K, and our
discussions with management as to their judgment about the relevant business
planning and legal factors relating to the change, we concur with management
that such change represents, in the Partnership's circumstances, the adoption of
a preferable accounting principle in conformity with Accounting Principles Board
Opinion No. 20.
Very truly yours,
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<PAGE>
