UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1999
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-24660
LIBERTY TAX CREDIT PLUS II L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3458180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignment Certificates (including underlying Limited Partner-
ship Interests)
(Title of Class)
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 reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be con-
tained, to the best of Registrant's knowledge, in definitive proxy or infor-
mation statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
None
Index to exhibits may be found on page 114
Page 1 of 127
<PAGE>
PART I
Item 1. Business.
General
Liberty Tax Credit Plus II L.P. (the "Partnership") is a limited partnership
which was formed under the laws of the State of Delaware on March 25, 1988.
The general partners of the Partnership are Related Credit Properties II
L.P., a Delaware limited partnership (the "Related General Partner"), Liberty
Associates II L.P., a Delaware limited partnership ("Liberty Associates"),
and Liberty GP II Inc. (formerly Shearson Liberty GP II Inc.), a Delaware
corporation (the "Liberty General Partner" and together with the Related Gen-
eral Partner and Liberty Associates, the "General Partners"). The general
partner of the Related General Partner is Related Credit Properties II Inc.,
a Delaware corporation. The general partners of Liberty Associates are Re-
lated Credit Properties II Inc., and the Liberty General Partner. On Novem-
ber 25, 1997, an affiliate of the Related General Partner, purchased 100% of
the stock of the Liberty General Partner (the "Transfer"). In addition to
the Transfer, by acquiring the stock of the Liberty General Partner, an af-
filiate of the Related General Partner also acquired the Liberty General
Partner's general partner interest in Liberty Associates, which is also the
special limited partner of the Partnership. Pursuant to the Partnership's
Amended and Restated Partnership Agreement, the consent of the limited part-
ners was not required to approve the Transfer.
Liberty Associates is the Special Limited Partner in all 27 Local Partner-
ships, as well as a general partner of the Partnership. Liberty Associates
has certain rights and obligations in its role as Special Limited Partner,
which permit this affiliate of the registrant to execute control over the
management and policies of the subsidiaries.
On July 20, 1988 the Partnership commenced a public offering (the "Offering")
of Beneficial Assignment Certificates ("BACs") representing assignments of
limited partnership interests in the Partnership ("Limited Partnership Inter-
ests").
As of January 9, 1989 (the date on which the Partnership held the final clos-
ing of the sale of BACs and on which the Offering was terminated), the Part-
nership had received $115,917,500 of gross proceeds of the Offering from
8,431 investors.
The Partnership was formed to invest, as a limited partner, in other limited
partnerships (referred to herein as "Local Partnerships" or "subsidiary part-
nerships") each of which owns one or more leveraged low-income multifamily
residential complexes ("Apartment Complexes") that are eligible for the low-
income housing tax credit ("Tax Credit") enacted in the Tax Reform Act of
1986, and to a lesser extent, in Local Partnerships owning properties that
are eligible for the historic rehabilitation tax credit ("Rehabilitation Pro-
jects"; and together with the Apartment Complexes, the "Properties"). Some
of the Apartment Complexes benefit from one or more other forms of federal
and state housing assistance. The Partnership's investment in each Local
Partnership represents from 20% to 98% of the partnership interests in the
Local Partnership. As of March 31, 1999, the Partnership had acquired inter-
ests in 27 Local Partnerships and does not anticipate making any additional
investments. See Item 2, Properties. The Partnership sold 24.98% of its
limited partnership interest in United-Glenarden I Limited Partnership and
sold 32.32% of its limited partnership interest in Property Development Asso-
ciates, L.P. (See Results of Operations of Certain Local Partnerships).
Investment Objectives, Tax Credits
The investment objectives of the Partnership are to:
1. Entitle qualified BACs holders to Tax Credits (and to a lesser extent
historic rehabilitation tax credits) over the period of the Partnership's en-
titlement to claim Tax Credits (for each Property, ten years from the date of
investment or, if later, the date the Property is placed in service.)
2. Preserve and protect the Partnership's capital.
3. Participate in any capital appreciation in the value of the Properties
and provide distributions of sale or refinancing proceeds upon the disposi-
tion of the Properties.
4. Provide cash distributions when available from the operations of Apart-
ment Complexes and Rehabilitations Projects.
5. Allocate passive losses to individual BACs holders to offset passive in-
come that they may realize from rental real estate investments and other pas-
sive activities, and allocate passive losses to corporate BACs holders to
offset active business income.
One of the Partnership's objectives is to entitle qualified BACs holders to
Tax Credits over the period of the Partnership's entitlement to claim Tax
Credits (for each Property, ten years from the date of investment or, if
later, the date the Property is placed in service; referred to herein as the
"Credit Period"). Each of the Local Partnerships in which the Partnership
has acquired an interest has been allocated by the relevant state credit
agency the authority to recognize Tax Credits during the Credit Period pro-
vided that the Local Partnership satisfies the rent restriction, minimum set-
aside and other requirements for recognition of the Tax Credits at all times
during the 15-year period commencing at the beginning of the Credit Period.
Once a Local Partnership has become eligible to recognize Tax Credits, it may
lose such eligibility and suffer an event of "recapture" if (i) the Local
Partnership ceases to meet qualification requirements , (ii) there is a de-
crease in the qualified basis of the Projects, or (iii) there is a reduction
in the taxpayer's interest in the Project at any time during the 15-year Com-
pliance Period that began with the first tax year of the Credit Period. None
of the Local Partnerships in which the Partnership has acquired an interest
has suffered an event of recapture.
The Tax Credits are available for a ten-year period which commences when the
property is placed into service. However, the annual Tax Credits available
in the year in which the Apartment Complex is placed in service must be pro-
rated based upon the months remaining in the year. The amount of the annual
Tax Credits not available in the first year will be available in the eleventh
year. In certain cases, the Partnership acquired its interest in a Local
Partnership after the Local Partnership had placed its Apartment Complex in
service. In these cases, the Partnership may be allocated Tax Credits only
beginning in the month following the month in which it acquired its interest
and Tax Credits allocated in any prior period may not be claimed by the Part-
nership.
The General Partners generally required in connection with certain invest-
ments in Local Partnerships that the general partner of the Local Partnership
("Local General Partners") undertake to fund operating deficits (up to a
stated maximum amount) of the Local Partnership during a limited period of
time following the Partnership's investment ("Guarantee Period"). As of
March 31, 1999, all operating deficit guarantees have expired. Generally the
amounts funded pursuant to the Operating Deficit Guarantee have been treated
as Operating Loans, do not bear interest and will be repaid only out of 50%
of available cash flow or out of available net sale or refinancing proceeds.
See Item 8, Note 8 - Related Party Transactions.
The Partnership continues to meet its primary objective of generating Tax
Credits to qualified BACs holders. To date, none of the Local Partnerships
has failed to remain in compliance with the Tax Credit requirements, and
therefore none has suffered an event of recapture of Tax Credits. The Part-
nership generated $16,707,661, $17,061,894, and $17,193,735 in Tax Credits
during the 1998, 1997 and 1996 Fiscal Years, respectively.
The Partnership also continues to meet its objective of allocating passive
losses to individual BACs holders to offset passive income that they may re-
alize from rental real estate investments and other passive activities, and
allocating passive losses to corporate BACs holders to offset business in-
come.
As of March 31, 1999, cash distributions received from the Local Partnerships
have been relatively immaterial. Management expects that the distributions
received from the Local Partnerships will increase, although not to a level
sufficient to permit cash distributions to BACs holders. The Partnership
does not anticipate providing cash distributions to BACs holders in circum-
stances other than refinancings or sales.
Government Regulations
In September 1997, Congress enacted the Multi-Family Assisted Housing Reform
and Affordability Act of 1997 ("MAHRA") which provides for the renewal of
Section 8 Housing Assistance Payments Contracts ("Section 8 Contracts") to be
based upon market rentals instead of the above-market rentals which is gener-
ally the case under existing Section 8 Contracts. As a result, Section 8
Contracts that are renewed in the future in projects insured by the Federal
Housing Administration ("FHA") may not provide sufficient cash flow to permit
owners of properties to meet the debt service requirements of the existing
FHA-insured mortgages. MAHRA also provides for the restructuring of these
mortgage loans so that the annual debt service on the restructured loan (or
loans) can be supported by Section 8 rents established at the market rents.
The restructured loans will be held by the current lender or another lender.
There can be no assurance that a property owner will be permitted to restruc-
ture its mortgage indebtedness pursuant to the new rules implementing MAHRA
or that an owner, or the holder of the mortgage, would choose to restructure
the mortgage if it were able to participate. MAHRA went into effect on Sep-
tember 11, 1998 when interim regulations implementing the program were pub-
lished. It should be noted that there are many uncertainties as to the eco-
nomic and tax impact on a property owner because of the combination of the
reduced Section 8 contract rents and the restructuring of the existing FHA-
insured mortgage loan under MAHRA.
On October 21, 1998, President Clinton signed the fiscal year 1999 Depart-
ments of Veteran Affairs, Housing and Urban Development and Independent Agen-
cies Appropriation Legislation into law. The bill provides, among other
things, that owners of a property that was eligible for prepayment had to
give notice of such prepayment to HUD tenants and to the chief executive of
the state or local government for the jurisdiction in which the housing is
located. The notice must be provided not less than 150 days, but not more
than 270 days, before such payment. Moreover, the owner may not increase the
rent charged to tenants for a period of 60 days following such prepayment.
The bill also provides for tenant-based vouchers for eligible tenants (gener-
ally below 80% of area median income) at the true comparable market rents for
unassisted units in order to protect current residents from substantial in-
creases in rent.
Effective January 1, 1999, the State of California now requires owners of a
property benefiting from FHA insured mortgages under Section 236 or 221(a)(3)
to provide a nine month notice of contract termination or prepayment of the
FHA insured loan. In addition, the owner must offer the properties for sale
to those entities who agree to maintain the property as affordable housing.
The Partnership is subject to the risks incident to potential losses arising
from the management and ownership of improved real estate. The Partnership
can also be affected by poor economic conditions generally, however no more
than 33% of the properties are located in any single state. There are also
substantial risks associated with owning properties receiving government as-
sistance, for example the possibility that Congress may not appropriate funds
to enable the U.S. Department of Housing and Urban Development ("HUD") to
make rental assistance payments. HUD also restricts annual cash distribu-
tions to partners based on operating results and a percentage of the owner's
equity contribution. The Partnership cannot sell or substantially liquidate
its investments in Local Partnerships during the period that the subsidy
agreements are in existence, without HUD's approval. Furthermore there may
not be market demand for apartments at full market rents when the rental as-
sistance contracts expire.
Competition
The real estate business is highly competitive and substantially all of the
Properties acquired by the Partnership are subject to competition from simi-
lar properties in their respective vicinities. In addition, various other
limited partnerships may, in the future, be formed by the General Partners
and/or their affiliates to engage in business which may compete with the
Partnership.
Employees
The Partnership does not have any direct employees. All services are per-
formed for the Partnership by its General Partners and their affiliates. The
General Partners receive compensation in connection with such activities as
set forth in Items 11 and 13. In addition, the Partnership reimburses the
General Partners and certain of their affiliates for expenses incurred in
connection with the performance by their employees of services for the Part-
nership in accordance with the Partnerships Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement").
Item 2. Properties.
The Partnership has acquired an interest as a limited partner in 27 Local
Partnerships. Set forth below is a schedule of these Local Partnerships in-
cluding certain information concerning the Apartment Complexes (the "Local
Partnership Schedule"). Further information concerning these Local Partner-
ships and their properties, including any encumbrances affecting the proper-
ties, may be found in Item 14, Schedule III.
Except for the seven limited partnerships listed below, the following is the
allocation of ownership percentage for each of the Local Partnerships:
Local General Partner 1%
Special Limited Partner 1%
Limited Partner - Liberty Tax Credit Plus II L.P. 98%
<TABLE>
<CAPTION>
Local
General Special Liberty Tax Other
Partner(s) Limited Partner Credit Plus II L.P. Limited Partners
<S> <C> <C> <C> <C>
Concourse Artists 1% 1% 19% *79%
Grand Concourse 1% 1% 19% *79%
Robin Housing 1% 1% 19% *79%
Willoughby-Wyckoff 1% 1% 19% *79%
Penn Alto 1% 1% 78.40% *19.60%
United Glen Arden I 1% 1% 73.52% *24.48%
Property Development
Associates 1% 1% 66.33% *31.67%
*Affiliate of Liberty Tax Credit Plus II L.P. with same management
</TABLE>
<TABLE>
Local Partnership Schedule
<CAPTION>
Name and Location % of Units Occupied at May 1,
(Number of Units) Date Acquired 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Polynesian Apartments Associates,
Ltd. (a Limited Partnership)
Homestead, FL (84) July 1988 99 96 100 94 99
Seagrape Village Associates, Ltd.
(a Limited Partnership)
Homestead, FL (112) July 1988 98 96 100 96 100
Metropolitan Towers Associates, L.P.
Rio Piedras, PR (150) December 1988 99 99 95 99 100
Westminster Place II - Olive Site, L.P.
St. Louis, MO (84) October 1988 95 93 90 88 93
Property Development Associates, L.P.
Kansas City, MO (232) December 1988 97 95 98 98 99
Whittier Plaza Associates
Limited Partnership
St. Louis, MO (27) December 1988 96 78 81 81 88
United-Glen Arden I
Limited Partnership
Glen Arden, MD (354) December 1988 96 96 91 90 95
United-Glen Arden II
Limited Partnership
Glen Arden, MD (238) December 1988 98 98 95 98 98
Rolling Green Limited Partnership
Chicago, IL (224) December 1988 75 97 96 87 92
Santa Juanita II Limited Partnership
Bayamon, PR (46) December 1988 97 96 100 100 100
Spring Creek Associates, L.P.
(a Delaware Limited Partnership)
Brooklyn, NY (582) December 1988 98 99 97 97 95
East Two Thirty-Five Associates
(a Delaware Limited Partnership)
New York, NY (17) December 1988 100 100 100 94 94
Upper Fifth Avenue Residential
Associates, L.P.
New York, NY (151) January 1989 99 98 96 97 93
West 107th Street Associates, L.P.
(a Delaware Limited Partnership)
New York, NY (25) January 1989 100 96 100 100 100
General Atlantic Second Avenue
Associates, L.P.
(a Delaware Limited Partnership)
New York, NY (18) January 1989 100 100 95 94 100
Church Lane Associates
Germantown, PA (40) February 1989 100 98 98 95 92
Campeche Isle Apartments
Limited Partnership
Galveston, TX (208) May 1989 87 78 70 65 85
Robin Housing Associates
(a Limited Partnership)
Bronx, NY (100) November 1988 99 95 99 97 92
Concourse Artists Housing
Associates (a Limited Partnership)
Bronx, NY (23) November 1988 96 91 96 96 100
2051 Grand Concourse Housing
Associates (a Limited Partnership)
Bronx, NY (63) November 1988 97 94 97 97 98
Willoughby-Wyckoff Housing
Associates (a Limited Partnership)
Bronx, NY (68) November 1988 91 91 93 97 88
Goodfellow Place Limited Partnership
St. Louis, MO (71) May 1989 99 96 99 91 96
Penn Alto Associates
Limited Partnership
Altoona, PA (150) June 1989 89 87 81 87 81
Gramco Development
Limited Dividend
Partnership, L.P.
Bayamon, PR (300) July 1989 99 98 94 99 93
Alexis Park Apartments
A Louisiana Partnership
in Commendam
Bossier City, LA (280) July 1989 93 95 92 93 95
Williamsburg Residential, L.P.
Witchita, KS (76) August 1989 92 78 74 93 91
Victory Apartments
Chicago, IL (107) September 1989 93 93 97 96 98
</TABLE>
All leases are generally for periods not exceeding one to two years and no
tenant occupies more than 10% of the rentable square footage.
Rents from commercial tenants (to which average rental per square foot ap-
plies) comprise less than 5% of the rental revenues of the Partnership.
Maximum rents for the residential units are determined annually by HUD and
reflect increases/decreases in consumer price indices in various geographic
areas.
Management annually reviews the physical state of the properties and suggests
to the respective Local General Partners budget improvements, which are gen-
erally funded from cash flow, from operations or release of replacement re-
serve escrows.
Management annually reviews the insurance coverage of the properties and sub-
ject to budget constraints recommends to the respective Local General Part-
ners additional coverage if warranted.
See Item 1, Business, above for the general competitive conditions to which
the Local Partnerships and properties described above are subject.
Real estate taxes are calculated using rates and assessed valuations deter-
mined by the township or city in which the property is located. Such taxes
have approximated 1% of the aggregate cost of the properties as shown in
Schedule III to the financial statements included herein.
Item 3. Legal Proceedings.
This information is incorporated by reference to the discussions of Alexis,
Metropolitan, Santa Juanita, Robin Housing, Campeche and Bayamon in the Re-
sults of Operations of Certain Local Partnerships contained in Item 7. Man-
agement's Discussion and Analysis of Financial Condition and Results of Op-
erations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Security
Holder Matters.
The Partnership has issued and outstanding 115,917.5 Limited Partnership In-
terests, each representing a $1,000 capital contribution to the Partnership,
or an aggregate capital contribution of $115,917,500. All of the issued and
outstanding Limited Partnership Interests have been issued to Liberty Credit
Assignor Inc. (the "Assignor Limited Partner"), which has in turn issued
115,917.5 BACs to the purchasers thereof for an aggregate purchase price of
$115,917,500. Each BAC represents all of the economic and virtually all of
the ownership rights attributable to a Limited Partnership Interest held by
the Assignor Limited Partner. BACs may be converted into Limited Partnership
Interests at no cost to the holder (other than payment of transfer costs not
to exceed $100), but Limited Partnership Interests so acquired are not there-
after convertible into BACs.
Neither the BACs nor the Limited Partnership Interests are traded on any es-
tablished public trading market. Because of the provisions of the Revenue
Act of 1987, unless there are further changes in such law, the Partnership
does not intend to include the BACs for quotation on NASDAQ or for listing on
any national or regional stock exchange or any other established securities
market. The Revenue Act of 1987 contained provisions which have an adverse
impact on investors in "publicly traded partnerships." Accordingly, the Gen-
eral Partners have imposed limited restrictions on the transferability of the
BACs and the Limited Partnership Interests in secondary market transactions.
Implementation of the restrictions should prevent a public trading market
from developing and may adversely affect the ability of an investor to liqui-
date his or her investment quickly. It is expected that such procedures will
remain in effect until such time, if ever, as further revision of the Revenue
Act of 1987 may permit the Partnership to lessen the scope of the restric-
tions.
As of June 6, 1999, the Partnership had 8,430 registered holders of an aggre-
gate of 115,917.5 BACs.
All of the Partnership's general partnership interests, representing an ag-
gregate capital contribution of $2,000, are held by the three General Part-
ners.
There are no material provisions in the Partnership Agreement that restrict
the ability of the Partnership to make distributions.
The Partnership has not made any distributions to the BACs holders as of
March 31, 1999. The Partnership does not anticipate providing cash distribu-
tions to its BACs holders other than from net refinancings or sales proceeds.
<TABLE>
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Part-
nership. Additional financial information is set forth in the audited finan-
cial statements in Item 8 hereof.
<CAPTION>
OPERATIONS
Year Ended March 31,
1999 1998 1997* 1996* 1995*
<S> <C> <C> <C> <C>
Revenues $26,705,795 $26,563,918 $25,919,807 $25,386,930 $25,074,695
Operating
expenses (35,058,03) (35,799,640) (39,490,613) (32,104,631) (32,403,689)
Loss before
minority interest
and extraordinary
items (8,352,238) (9,235,722) (13,570,806) (6,717,701) (7,328,994)
Minority interest
in loss of
subsidiaries 414,579 404,890 163,680 185,143 418,892
Net loss $(7,937,659) $(8,830,832) $(13,407,126) $(6,532,558) $(6,910,102)
Per unit
amounts:
Net loss
per BAC $ (67.79) $ (75.42) $ (114.50) $ (55.79) $ (59.01)
*Reclassified for comparative purposes.
<CAPTION>
FINANCIAL POSITION
Year Ended March 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C>
Total
assets $185,526,512 $192,850,536 $200,269,263 $212,829,666 $218,920,596
Total
liabili-
ties $146,563,631 $145,266,475 $145,257,171 $143,880,937 $143,305,749
Minority
interest $ 4,017,226 $ 4,700,747 $ 3,297,946 $ 3,827,457 $ 3,961,017
Total
partners'
capital $34,945,655 $ 42,883,314 $ 51,714,146 $ 65,121,272 $ 71,653,830
During the years ended March 31, 1995 through 1999, total assets decreased
primarily due to depreciation, partially offset by net additions to property
and equipment. For the year ended March 31, 1997, there was also a decrease
in assets due to a loss on impairment of assets.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations.
Liquidity and Capital Resources
Through March 31, 1999, the Partnership has invested all of the net proceeds
in twenty-seven Local Partnerships. Approximately $368,000 of the purchase
price remains to be paid (none of which is held in escrow). During the year
ended March 31, 1999, $32,000 was paid.
During the year ended March 31, 1999, the primary sources of funds included:
(i) working capital reserves; (ii) interest earned on the working capital re-
serves; and (iii) cash distributions from operations of the Local Partner-
ships. All these sources of funds are available to meet obligations of the
Partnership.
The Partnership is not expected to have access to additional sources of fi-
nancing, and in particular will not have the ability to access BACs holders
for additional capital contributions to provide capital if needed by the
Partnership. There can be no assurance that additional funds will be avail-
able to the Partnership or any Local Partnership, nor that, if any property
is sold, the proceeds of the sale will be sufficient to pay outstanding bal-
ances due on mortgage loans or other outstanding indebtedness to which the
property is subject.
During the years ended March 31, 1999, 1998 and 1997, respectively, cash dis-
tributions received from operations of the Local Partnerships were approxi-
mately $334,000, $272,000, and $621,000. The General Partners believe that
cash distributions received from the operations of the Local Partnerships are
sufficient to fund the Partnership's ongoing operations for the foreseeable
future (assuming the General Partners continue to defer payment of their man-
agement fees).
During the year ended March 31, 1999, cash and cash equivalents of the Part-
nership and its 27 Local Partnerships decreased approximately $843,000. This
decrease was the result of an increase in acquisitions of property and equip-
ment ($1,259,000), repayments of mortgage loans ($1,351,000), a net decrease
in due to local general partners and affiliates ($90,000) and a decrease in
capitalization of consolidated subsidiaries attributable to minority interest
($269,000) which exceeded cash flows provided by operating activities
($1,718,000), a decrease in cash held in escrow ($258,000), an increase in
due to selling partners ($78,000) and a decrease in deferred costs ($71,000).
Included in the adjustments to reconcile the net loss to cash provided by op-
erating is depreciation and amortization ($7,993,000).
The Partnership has negotiated Operating Deficit Guarantee Agreements all of
which have expired with all Local Partnerships, pursuant to which the general
partners of the Local Partnerships had agreed to fund operating deficits for
a specified period of time. As of March 31, 1999, approximately $5,800,000
had been funded by the Local General Partners to meet such obligations. Of
the total amount funded through March 31, 1999, approximately $1,033,000 has
been recorded as a capital contribution, $136,000 was funded by the Partner-
ship, $60,000 has been recognized as income during the 1992 Fiscal Year, and
the remaining balance of approximately $4,571,000 is recorded as noninterest-
bearing operating advances to be repaid from operating cash flow.
Partnership management fees owed to the General Partners amounting to ap-
proximately $5,370,000 and $3,874,000 were accrued and unpaid as of March 31,
1999 and 1998, respectively. Without the General Partner's continued accrual
without payment the Partnership will not be in a position to meet its obliga-
tions. The General Partners have continued allowing the accrual without pay-
ment of these amounts but are under no obligation to continue to do so.
For a discussion of contingencies affecting certain Local Partnerships, see
Results of Operations of Certain Local Partnerships below. Since the maxi-
mum loss the Partnership would be liable for is its net investment in the re-
spective Local Partnerships, the resolution of the existing contingencies is
not anticipated to impact future results of operations, liquidity or finan-
cial condition in a material way. However, the Partnership's loss of its in-
vestment in a Local Partnership will eliminate the ability to generate future
Tax Credits from such Local Partnership and may also result in recapture of
Tax Credits if the investment is lost before the expiration of the Credit Pe-
riod.
Except as described above, management is not aware of any trends or events,
commitments or uncertainties which have not otherwise been disclosed, that
will or are likely to impact liquidity in a material way. Management be-
lieves the only impact would be from laws that have not yet been adopted.
The portfolio is diversified by the location of the properties around the
United States so that if one area of the country is experiencing downturns in
the economy, the remaining properties in the portfolio may be experiencing
upswings. However, the geographic diversification of the portfolio may not
protect against a general downturn in the national economy. The Partnership
has fully invested the proceeds of its offerings in 27 Local Partnerships,
all of which fully have their Tax Credits in place. The Tax Credits are at-
tached to the project for a period of ten years and are transferable with the
property during the remainder of the ten-year period. If trends in the real
estate market warranted the sale of a property, the remaining tax credits
would transfer to the new owner, thereby adding significant value to the
property on the market, which are not included in the financial statement
carrying amount.
Results of Operations
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period inter-
est and any other costs incurred in acquiring the properties. The cost of
property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and mainte-
nance are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. A loss on impairment of assets is re-
corded when management estimates amounts recoverable through future opera-
tions and sale of the property on an undiscounted basis are below depreciated
cost. At that time, property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is con-
sidered to be impaired and the depreciated cost exceeds estimated fair value.
Through March 31, 1999, the Partnership has recorded approximately $4,727,000
as a loss on impairment of assets.
At the time management commits to a plan to dispose of assets, said assets
are adjusted to the lower of carrying amount or fair value less costs to
sell. These assets are classified as property and equipment-held for sale
and are not depreciated. There are no assets classified as property and
equipment-held for sale through March 31, 1999.
The following is a summary of the results of operations of the Partnership
for the years ended
March 31, 1999, 1998 and 1997 (the 1998, 1997 and 1996 Fiscal Years, respec-
tively).
The majority of the Local Partnerships' revenues continue to be in the form
of rental income with the corresponding expenses divided among operations,
depreciation and mortgage interest.
The net loss for the 1998, 1997 and 1996 Fiscal Years totaled $7,937,659,
$8,830,832 and $13,407,126, respectively. The net loss for the 1996 Fiscal
Year includes a loss on impairment of assets of approximately $4,727,000 (see
Note 4 in Item 8, Financial Statements and Supplementary Data).
The Partnership continues to meet its primary objective of generating Tax
Credits to qualified BACs holders. To date, none of the Local Partnerships
have failed to remain in compliance with the Tax Credit requirements, and,
therefore, none have suffered an event of recapture of Tax Credits. The
Partnership generated $16,707,661, $17,061,894 and $17,193,735 in Tax Credits
during the 1998, 1997 and 1996 Fiscal Years, respectively.
1998 vs. 1997
Rental income increased approximately 2% for the 1998 Fiscal Year as compared
to the 1997 Fiscal Year primarily due to rental rate increases.
Other income decreased approximately $283,000 for the 1998 Fiscal Year as
compared to the 1997 Fiscal Year primarily due to a settlement of an esti-
mated liability of water and sewer expenses in 1996 which was written off and
recognized as other income in 1997 at one Local Partnership partially offset
by local grants received in the 1998 Fiscal Year at two other Local Partner-
ships.
Total expenses remained fairly consistent with a decrease of approximately 2%
for the 1998 Fiscal Year as compared to 1997 Fiscal Year.
1997 vs. 1996
Rental income remained fairly consistent with a decrease of less than 1% for
the 1997 Fiscal Year as compared to the 1996 Fiscal Year.
Other income increased approximately $520,000 for the 1997 Fiscal Year as
compared to the 1996 Fiscal Year primarily due to a settlement of an esti-
mated liability for water and sewer expenses in 1996 which was written off
and recognized as other income in 1997 at one Local Partnership, partially
offset by small decreases at two other Local Partnerships.
A gain on sale of interests of approximately $155,000 was realized during the
1997 Fiscal Year (see Note 10 in Item 8. Financial Statements and Supplemen-
tary Data).
Total expenses excluding general and administrative, general and administra-
tive-related parties, repairs and maintenance, operating, insurance and loss
on impairment of assets remained fairly consistent with a decrease of ap-
proximately 2% for the 1997 Fiscal Year as compared to the 1996 Fiscal Year.
General and administrative expense increased approximately $724,000 for the
1997 Fiscal Year as compared to the 1996 Fiscal Year primarily due to an in-
crease in number of employees and related payroll and benefits, an increase
in legal fees, and an increase in advertising expense at one Local Partner-
ship, along with the opening of a management and leasing office at a second
Local Partnership as well as general increases in general and administrative
expenses at three other Local Partnerships. General and administrative ex-
penses increased at the Partnership level due to increased legal costs per-
taining to the Campeche Isle restructuring and the partial sale of interests
in two Local Partnerships.
General and administrative expenses-related parties increased approximately
$314,000 for the 1997 Fiscal Year as compared to the 1996 Fiscal Year primar-
ily due to a change at one Local Partnership from an unaffiliated property
manager to one which is an affiliate.
Repairs and maintenance increased approximately $1,087,000 for the 1997 Fis-
cal Year as compared to the 1996 Fiscal Year primarily due to an extensive
repair and maintenance program to correct neglected conditions at one Local
Partnership, a repainting of the building at a second Local Partnership and
increases in general repairs at four other Local Partnerships.
Operating expenses decreased approximately $452,000 for the 1997 Fiscal Year
as compared to the 1996 Fiscal Year primarily due to overaccrual of estimated
water and sewer charges in 1996 at one Local Partnership, decreases in costs
of supplies at a second Local Partnership as well as general decreases in op-
erating expenses at three other Local Partnerships.
Insurance decreased approximately $218,000 primarily due to a change of in-
surance carriers at two Local Partnerships as well as a general decrease in
insurance expense at a third Local Partnership.
Results of Operations of Certain Local Partnerships
(a) Subsidiary Partnerships - Going Concerns and Uncertainties
Whittier Plaza Associates
The financial statements for Whittier Plaza Associates Limited Partnership
("Whittier") have been prepared assuming that Whittier will continue as a go-
ing concern. Whittier has sustained continuous losses since commencement of
operations in 1988, including losses of approximately $38,000, $25,000 and
$550,000 for the 1998, 1997 and 1996 Fiscal Years, respectively. Whittier
has experienced higher vacancies and lower rents than those originally pro-
jected, resulting in increased difficulty in meeting both operating and debt
service obligations. The Local General Partner, pursuant to a development
deficit guarantee agreement, has advanced $42,262 and $50,292 in the 1998 and
1997 Fiscal Years, respectively, and $384,548 since 1988 to fund operating
cash shortfalls. In addition, Whittier's management company, an affiliate of
the Local General Partner, has deferred receipt of various fees since 1991
totaling $56,757. These items raise substantial doubt about Whittier's abil-
ity to continue as a going concern. The Partnership's investment in
Whittier at March 31, 1999 and 1998 was reduced to zero as a result of prior
years' losses and the minority interest balance was $0 at each date.
Whittier's net loss after minority interest amounted to approximately
$38,000, $25,000 and $550,000 (after loss on impairment of assets of approxi-
mately $490,000), for the 1998, 1997 and 1996 Fiscal Years.
Alexis Park Apartments
During 1990, vapor fumes were discovered in several apartments at Alexis Park
Apartments, a Louisiana Partnership in Commendam ("Alexis"). As a result, 47
of the 280 units were vacated as ordered by the Louisiana Department of Envi-
ronmental Quality ("LDEQ"). At December 31, 1998, all but one of these units
have been cleared for occupancy by the Louisiana Department of Health and
Hospital.
The United States Environmental Protection Agency (EPA) has placed the site
on the list of proposed Superfund sites. The EPA performed indoor air tests
at the site on 28 units and issued a draft report on January 2, 1997, which
found that none of the units had acute air pollution levels, but further
states that two units were found to have sufficient amounts of air pollutants
to possibly cause health concerns after years of continual exposure. The re-
port recommended the installation of mechanical systems to reduce air pollut-
ant levels to acceptable amounts and the sealing of penetrations or openings
in the floor slab and walls. During the year ended December 31, 1997, such
remediation was performed. During the year ended December 31, 1998, the EPA
performed additional tests of the project site and found that all removal ac-
tions for lead contaminated soils have been fully performed in accordance
with EPA standards. At December 31, 1998, management is unaware of any addi-
tional or potential remediation or clean-up costs that will be required and
accordingly, is unable to estimate the possible cost to Alexis of any reme-
diation or clean-up that may be required in the future.
Management believes the testing conducted by the LDEQ and the EPA has pro-
vided sufficient evidence that there is no significant environmental hazard
at the Alexis Park Apartments site. Management, along with the mayor of
Bossier City, has been active in requesting that the EPA remove the site from
the list of proposed Superfund sites and that no further tests be conducted.
Alexis has also requested assistance with bringing this issue to closure from
its congressman and U.S. senators who have been responsive.
Although the environmental issue is in many respects beyond its control, man-
agement intends to continue its efforts in bringing this issue to a close and
believes the favorable test results thus far reduce the chances of a disrup-
tive action by the EPA and provide an opportunity for Alexis to continue as a
going concern. Nonetheless, Alexis has sustained losses and its current li-
abilities exceed its current assets by approximately $187,000. Management of
Alexis expects operating income to improve for 1999 from both increased occu-
pancy and slightly reduced expenses and also believes cash flows for 1999
will be sufficient to meet liabilities and subject to the environmental un-
certainty enable Alexis to continue as a going concern. These items raise
substantial doubt about Alexis' ability to continue as a going concern. The
maximum loss which the Partnership would be liable for is its net investment
in Alexis. The Partnership's investment in Alexis at March 31, 1999 and 1998
was approximately $357,000 and $620,000, respectively, and the minority in-
terest balance was approximately $0 and $1,200, respectively. Alexis' net
loss after minority interest amounted to approximately $263,000, $259,000 and
$137,000, for the 1998, 1997 and 1996 Fiscal Years, respectively.
Goodfellow Place Limited Partnership
The financial statements for Goodfellow Place Limited Partnership ("Goodfel-
low") have been prepared assuming that Goodfellow will continue as a going
concern. Goodfellow has sustained substantial operating losses in recent
years, has used substantial amounts of working capital in its operations and
has depleted the operating deficit escrow in the amount of $163,000. Fur-
ther, at December 31, 1998, current liabilities exceed current assets by
$65,924.
A prepayment of $163,000 was due on the promissory note payable to St. Louis
Community Development Agency ("CDA") in August 1996, upon release of the Op-
erating Deficit Guarantee Escrow. The Local General Partners have defaulted
on this requirement and placed $163,000 in an interest-bearing money market
account in the name of the project. This account has been voluntarily re-
stricted by the Local General Partners and has a balance of $178,883 at De-
cember 31, 1998. If CDA requires the prepayment of the loan, the general
partners of Goodfellow plan to negotiate with CDA in an attempt to restruc-
ture the agreement to allow the project to place those funds in the operating
deficit escrow account. These funds would then be used to fund future oper-
ating deficits. In addition, management has increased rents $15 per month
beginning in January 1998, as leases renew to help meet cash flow needs.
In view of these matters, realization of a major portion of the assets in the
balance sheet of Goodfellow is dependent upon continued operations, which in
turn is dependent upon Goodfellow's ability to negotiate an agreement with
CDA, and the success of its future operations. Management believes that ac-
tions presently being taken to review Goodfellow's operating and financial
requirements provide the opportunity for Goodfellow to continue as a going
concern, however, the outcome of the planned negotiations with CDA is uncer-
tain.
The Partnership's investment in Goodfellow at March 31, 1999 and 1998 was re-
duced to zero by prior years' losses, and the minority interest balance was
zero at each date. Goodfellow's net income (loss) after minority interest
amounted to approximately ($13,000), $200 and ($2,829,000) (after loss on im-
pairment of assets of approximately $2,649,000) for the 1998, 1997 and 1996
Fiscal Years, respectively.
Willoughby-Wyckoff Housing Associates
The financial statements for Willoughby-Wyckoff Housing Associates ("Wil-
loughby") have been prepared assuming that Willoughby will continue as a go-
ing concern. There are certain conditions that raise substantial doubt about
Willoughby's ability to continue as a going concern. Willoughby has had op-
erating losses, operating cash flow deficiencies and equity deficiencies.
Management plans to continue to minimize costs within its control and seek
additional funding sources to supplement project operations. Continuance of
Willoughby as a going concern is dependent upon Willoughby's ability to ob-
tain additional funding to supplement project operations and enable Wil-
loughby to meet its obligations as they become due. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties. The Partnership's investment in Willoughby at March 31, 1999
and 1998 has been reduced to zero by prior years' losses and the minority in-
terest balance amounted to approximately $178,000 and $180,000, respectively.
Willoughby's net loss after minority interest amounted to approximately
$220,000, $141,000 and $273,000 for the 1998, 1997 and 1996 Fiscal Years, re-
spectively.
Campeche Isle Apartments, L.P.
On July 24, 1997, Campeche Isle Apartments Limited Partnership ("Campeche")
emerged from Chapter 11 bankruptcy proceedings. While in bankruptcy, Cam-
peche completed a restructuring of its mortgage debt and satisfied its
$4,200,000 mortgage debt through the following transactions: Bank of Boston
made a $4,000,000 loan to Campeche and the Partnership as co-borrowers. Such
loan is secured by a first mortgage on Campeche Isle Apartments, a pledge of
the Partnership's interest in Spring Creek and recourse guarantees of the
Partnership and one of its General Partners, Campeche, and Campeche's Local
General Partner. In addition to satisfying the mortgage, the restructuring
agreement requires Campeche to make approximately $800,000 of required re-
pairs to the project. The Partnership raised approximately $1,400,000 in
June 1997 by selling a portion of its limited partnership interest in two
subsidiary partnerships to Related Glenport Associates, an affiliate of the
General Partner. The Partnership sold 24.98% of its limited partnership in-
terest in United-Glenarden I Limited Partnership for $600,000 resulting in a
gain of $224,482 and sold 32.32% of its limited partnership interest in
Property Development Associates, L.P. for $800,000 resulting in a loss of
$69,905. A portion of the proceeds were used to repay the Mortgagee, pay
closing costs on the new loan and to fund debt service and an escrow account
for repairs. Monthly debt service on the new loan will be paid by the net
income of Campeche and the balance by the Partnership. In addition, any dis-
tributions received by the Partnership from Spring Creek must be placed in
escrow at Bank of Boston. The new loan matured on December 31, 1998, was ex-
tended until June 30, 1999 and was subsequently extended to September 30,
1999. On or prior to the maturity of the new loan, a refinancing will be
completed which will have a term of at least equal to the remaining compli-
ance period of the project which ends 2004. In addition, management has
taken efforts to increase occupancy by retaining several tenant locator serv-
ices, refurbishing the apartments and improving the overall condition of the
property. In view of these matters, realization of a major portion of the
assets in the balance sheet is dependent upon continued operations of the
partnership, which in turn is dependent upon the partnership's ability to
meet its financing requirements, and the success of its future operations.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. As of December 31, 1998, total ad-
vances to Campeche from the Partnership totaled approximately $2,043,000.
The financial statements for the 1996 Fiscal Year for this Local Partnership
were not audited. The Partnership's investment in Campeche at March 31, 1999
and 1998 was $0 and the minority interest balance was $0 at each date. Cam-
peche's net loss after minority interest amounted to approximately $518,000,
$845,000 and $334,000 for the 1998, 1997 and 1996 Fiscal Years, respectively.
Santa Juanita II Limited Dividend Partnership
Santa Juanita II Limited Dividend Partnership ("Santa Juanita") had first
mortgage payments of $303,176 in arrears at December 31, 1998. In addition,
the last payment recorded to mortgage principal by the bank was July 1995.
As of February 28, 1999, uncertainties exist regarding the accuracy of the
balance of interest, penalties due and a confirmation of balances had not
been received from the bank.
As of December 31, 1998, Santa Juanita was not in compliance with its second
mortgage loan and is in arrears on payment of principal and interest of ap-
proximately $419,000.
The last audited financial information was for the year ended December 31,
1994. The financial records available for the period January 1, 1995 through
June 30, 1997 were not complete or reliable. Further adjustments that could
have resulted to the beginning balance of partners' equity and other ac-
counts, if all financial records had been available, cannot be determined at
this time.
Management of Santa Juanita is in negotiations with lenders of the first and
second mortgages. The effects of the adjustment that could have resulted to
the ending balance of mortgages payable and partners' equity may not be de-
termined at this time.
The auditors for Santa Juanita qualified their report on the 1998 Fiscal Year
financial statements for the effects of the above uncertainties. The maximum
loss which the Partnership would be liable for is its net investment in Santa
Juanita. The Partnership's investment in Santa Juanita at March 31, 1999 and
1998 was approximately $285,000 and $405,000, respectively, and the minority
interest balance was zero at each date.
b) Subsidiary Partnerships - Other
Gramco Development Limited Dividend Partnership, L.P.
Gramco Development Limited Dividend Partnership, L.P. ("Gramco") was granted
net funds of $4,867,000. In the event of a substantial violation to the pro-
visions of certain agreements between Gramco and the Municipality of Bayamon
(the "Municipality") and between the Municipality and HUD, the funds shall
become immediately due and payable at the election of HUD and the Municipal-
ity. Otherwise, the principal amount of the obligation together with any in-
terest will be forgiven. Proceeds from the loan have been deducted from
fixed assets. The Partnership's investment in Gramco at March 31, 1999 and
1998 was approximately $690,000 and $974,000 and the minority interest bal-
ance was approximately $420,000 and $423,000, respectively. Gramco's net loss
after minority interest amounted to approximately, $284,000, $257,000 and
$275,000 for the 1998, 1997 and 1996 Fiscal Years, respectively.
Robin Housing Associates
Robin Housing Associates ("Robin Housing") is a defendant in a personal in-
jury lawsuit. The Partnership's insurance carrier intends to defend the
Partnership vigorously. Counsel believes that the insurance coverage is ade-
quate to cover any liability arising from this action. It is management's
opinion that no accrual for potential losses is currently warranted in the
financial statements. The maximum loss which the Partnership would be liable
for is its net investment in Robin Housing. The Partnership's investment in
Robin Housing at March 31, 1999 and 1998 was approximately $66,000 and
$123,000 and the minority interest balance was $360,000 and $544,000, respec-
tively. Robin Housing's net loss after minority interest amounted to ap-
proximately $30,000, $24,000 and $30,000 for the 1998, 1997 and 1996 Fiscal
Years, respectively.
Metropolitan Towers Associates, L.P.
The subsidiary partnership, Metropolitan Towers Associates, L.P. ("Metropoli-
tan"), is a defendant in a legal proceeding brought about by one of its ten-
ants for damages suffered. It is management's opinion that the claim should
be covered by Metropolitan's insurance policy. The maximum loss which the
Partnership would be liable for is its net investment in Metropolitan. The
Partnership's investment in Metropolitan at March 31, 1999 and 1998 was ap-
proximately $1,108,000 and $1,228,000, respectively, and the minority inter-
est was zero at each date. Metropolitan's net loss after minority interest
amounted to approximately $119,000, $113,000 and $131,000 for the 1998, 1997
and 1996 Fiscal Years, respectively.
Rolling Green Limited Partnership
Rolling Green Limited Partnership ("Rolling Green") operates and is regulated
by HUD under Section 221(d)(3) of the National Housing Act. Rents received
by Rolling Green are subsidized by Section 8 Housing Assistance Payments.
Rental income from such Assistance Payments totaled $1,511,794 and $1,406,915
in the 1998 and 1997 Fiscal Years, respectively. In September 1999, the
three Section 8 contracts will expire. However, uncertainties regarding the
future of HUD Programs exist. It is not practical to estimate the impact
upon Rolling Green's operations if the rents were to revert to market value.
Williamsburg Residential , L.P.
In November 1996, the Local General Partner of Williamsburg Residential ,
L.P. ("Williamsburg ") stopped making the mortgage note payments which con-
stituted an event of default. On January 1, 1997 the Local General Partner
was replaced.
A Reinstatement and Modification Agreement, dated July 24, 1997, and effec-
tive March 1, 1997 was entered into between Williamsburg and Federal National
Mortgage Association ("FNMA"). Terms of the agreement include: 1. Interest
only on the loan for 36 months; 2. Replacement reserve escrow payments waived
during 1997; 3. Net operating income is to be turned over to the loan
servicer monthly; and 4. Execution of a debt service reserve agreement.
The Debt Service Agreement, dated July 24, 1997, called for $275,000 to be
deposited into a debt service escrow account for the mutual benefit of Wil-
liamsburg and Williamsburg Residential II, L.P. (an adjoining and affiliated
project). If the monthly net operating income turned over to the loan
servicer is less than the required mortgage and escrow payment, the debt
service escrow account is drawn upon. At December 31, 1998, balances in the
two entities accounts totaled $0. The limited partner has advanced Williams-
burg the necessary funds to keep the mortgage and escrows current during 1998
and is expected to continue to do so during 1999.
In 1997, the Partnership advanced Williamsburg funds to pay legal costs, de-
linquent mortgage payments, and to set up a debt service escrow account, all
of which were required as part of the Reinstatement and Modification Agree-
ment dated July 24, 1997 with FNMA. The advances do not bear interest and
are short-term in nature.
The Partnership's investment in Williamsburg has been written down to $0 by
prior years' losses and the minority interest balance was approximately
$733,000 and $736,000 at March 31, 1999 and 1998, respectively. Williamsburg
net loss after minority interest amounted to approximately $285,000, $220,000
and $1,667,000 (after provision for impairment of assets of approximately
$1,588,000) for the years ended March 31, 1999, 1998 and 1997, respectively.
Year 2000 Compliance
The Partnership utilizes the computer services of an affiliate of the General
Partners. The affiliate of the General Partners has upgraded its computer in-
formation systems to be year 2000 compliant and beyond. The year 2000 compli-
ance issue concerns the inability of a computerized system to accurately rec-
ord dates after December 31, 1999. The affiliate of the General Partners con-
verted its financial systems applications and upgraded all of its non-
compliant in-house software and hardware inventory. The work stations that
experienced problems from the testing process were corrected with an upgrade
patch. The costs incurred by the affiliate of the General Partners are not
being charged to the Partnership. The most likely worst case scenario that
the General Partners face is that computer operations will be suspended for a
few days to a week commencing on January 1, 2000. The Partnership contingency
plan is to (i) have a complete backup done on December 31, 1999 and (ii) both
electronic and printed reports generated for all critical data up to and in-
cluding December 31, 1999.
In regard to third parties, the General Partners are in the process of evalu-
ating the potential adverse impact that could result from the failure of mate-
rial service providers to be year 2000 compliant. A detailed survey and as-
sessment was sent to material third parties in the fourth quarter of 1998.
The Partnership has received assurances from a majority of the material serv-
ice providers with which it interacts that they have addressed the year 2000
issues and is evaluating these assurances for their adequacy and accuracy. In
cases where the Partnership has not received assurances from third parties, it
is initiating further mail and/or phone correspondence. The Partnership re-
lies heavily on third parties and is vulnerable to the failures of third par-
ties to address their year 2000 issues. There can be no assurance given that
the third parties will adequately address their year 2000 issues.
Other
The Partnership's investment, as a limited partner in the Local Partnerships,
is subject to the risks incident to the potential losses arising from manage-
ment and ownership of improved real estate. The Partnership's investments
also could be adversely affected by poor economic conditions generally, which
could increase vacancy levels, rental payment defaults, and increased operat-
ing expenses, any or all of which could threaten the financial viability of
one or more of the Local Partnerships.
There also are substantial risks associated with the operation of Apartment
Complexes receiving government assistance. These include governmental regu-
lations concerning tenant eligibility, which may make it more difficult to
rent apartments in the complexes; difficulties in obtaining government ap-
proval for rent increases; limitations on the percentage of income which low
and moderate-income tenants may pay as rent; the possibility that Congress
may not appropriate funds to enable HUD to make the rental assistance pay-
ments it has contracted to make; and that when the rental assistance con-
tracts expire, there may not be market demand for apartments at full market
rents in a Local Partnership's Apartment Complex.
The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of
higher operating and replacement costs. Inflation also affects the Local
Partnerships adversely by increasing operating costs as, for example, for
such items as fuel, utilities and labor.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Sequential
Page
(a) 1. Consolidated Financial Statements
Independent Auditors' Report 21
Consolidated Balance Sheets at March 31, 1999 and 1998 87
Consolidated Statements of Operations for the Years Ended March
31, 1999, 1998 and 1997 88
Consolidated Statements of Changes in Partners' Capital (Defi-
cit) for the Years Ended March 31, 1999, 1998 and 1997 89
Consolidated Statements of Cash Flows for the Years Ended March
31, 1999, 1998 and 1997 90
Notes to Consolidated Financial Statements 92
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Liberty Tax Credit Plus II L.P. and Subsidiaries
(A Delaware Limited Partnership)
We have audited the consolidated balance sheets of Liberty Tax Credit Plus II
L.P. and Subsidiaries (a Delaware Limited Partnership) as of March 31, 1999
and 1998, and the related consolidated statements of operations, changes in
partners' capital (deficit), and cash flows for the years ended March 31,
1999, 1998 and 1997 (the 1998, 1997 and 1996 Fiscal Years). 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 for 27 (1998, 1997 and
1996 Fiscal Years) subsidiary partnerships whose losses aggregated $6,407,403,
$6,318,514 and $10,828,750 for the 1998, 1997 and 1996 Fiscal Years,
respectively, and whose assets constituted 98% of the Partnership's assets at
March 31, 1999 and 1998, presented in the accompanying consolidated financial
statements. The financial statements for 27 (1998 Fiscal Year), 26 (1997
Fiscal Year) and 25 (1996 Fiscal Year) of these subsidiary partnerships 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 these subsidiary partnerships, is based solely upon the reports of the
other auditors. The financial statements of one (Fiscal 1997) and two (Fiscal
1996) of these subsidiary partnerships were unaudited.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based upon our audits, and the reports of the other auditors
referred to above, the accompanying consolidated financial statements re-
ferred to in the first paragraph present fairly, in all material respects,
the financial position of Liberty Tax Credit Plus II L.P. and Subsidiaries at
March 31, 1999 and 1998, and the results of their operations and their cash
flows for the years ended March 31, 1999, 1998 and 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 10(a), the consolidated financial statements include the
financial statements of six limited partnerships with significant contingen-
cies and uncertainties. The financial statements of five of these subsidiary
partnerships were prepared assuming that each will continue as a going con-
cern. The auditors' opinion on the financial statements for the 1998 Fiscal
Year for one of these subsidiary partnerships was qualified due to uncertain-
ties relating to balances in replacement reserves, mortgage balances and the
related accrued interest. In addition, this subsidiary partnership was not
audited in prior years and there are uncertainties as to whether any adjust-
ments were necessary to be made to partners' equity at January 1, 1998. The
six subsidiary partnerships' net losses aggregated $1,209,164 (Fiscal 1998),
$1,385,347 (Fiscal 1997) and $4,217,106 (Fiscal 1996) and their assets aggre-
gated $21,033,273 and $22,138,567 at March 31, 1999 and 1998, respectively.
These matters raise substantial doubt about these subsidiary partnerships'
abilities to continue as going concerns. Management's plans in regard to
these matters are also described in Note 10(a). The accompanying consoli-
dated financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI, LLP
New York, New York
June 24, 1999
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31,
1999 1998
ASSETS
<S> <C> <C>
Property and equipment, at cost,
less accumulated
depreciation (Notes 2, 4 and 7) $167,205,538 $173,036,778
Construction in progress 0 604,411
Cash and cash equivalents
(Notes 2, 3 and 10) 3,334,363 4,177,583
Cash held in escrow (Notes 2, 3 and 5) 6,902,143 6,823,943
Deferred costs - less accumulated
amortization (Notes 2 and 6) 3,751,361 4,121,038
Other assets 4,333,107 4,086,783
Total assets $185,526,512 $192,850,536
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Mortgage notes payable (Note 7) $116,033,679 $117,331,318
Accounts payable and other liabilities
(Note 10) 9,521,924 9,339,821
Due to local general partners and
affiliates (Note 8) 10,045,549 10,135,658
Due to general partners and
affiliates (Note 8) 7,383,024 4,957,989
Due to selling partners 3,579,455 3,501,689
Total liabilities 146,563,631 145,266,475
Minority interests (Note 2) 4,017,226 4,700,747
Commitments and contingencies (Notes 8 and 10)
Partners' capital
Limited partners ( 115,917.5 BACs
issued and outstanding) (Note 1) 35,626,882 43,485,164
General partners (681,227) (601,850)
Total partners' capital 34,945,655 42,883,314
Total liabilities and partners'
capital $185,526,512 $192,850,536
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Revenues
Rental income $25,736,121 $25,156,685 $25,187,403
Other (Note 10) 969,674 1,252,656 732,404
Gain on sale of interests 0 154,577 0
26,705,795 26,563,918 25,919,807
Expenses
General and administrative 6,280,636 6,199,421 5,474,850
General and administrative-
related parties
(Note 8) 2,648,941 2,592,241 2,283,782
Repairs and maintenance 4,929,821 5,365,245 4,278,462
Operating and other 2,752,456 2,664,912 3,116,779
Real estate taxes 1,066,433 1,037,475 1,035,225
Insurance 1,144,811 1,126,788 1,344,916
Financial, primarily
interest 8,241,779 8,109,996 8,381,581
Depreciation and
amortization 7,993,156 8,703,562 8,847,941
Loss on impairment
of assets (Note 4) 0 0 4,727,077
Total expenses 35,058,033 35,799,640 39,490,613
Loss before minority
interest (8,352,238) (9,235,722) (13,570,806)
Minority interest in
loss of subsidiaries 414,579 404,890 163,680
Net loss $(7,937,659) $(8,830,832) $(13,407,126)
Net loss - limited
partners $(7,858,282) $(8,742,524) $(13,273,055)
Number of BACs
outstanding 115,917.5 115,917.5 115,917.5
Net loss per BAC $ (67.79) $ (75.42) $ (114.50)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<CAPTION>
Limited General
Total Partners Partners
<S> <C> <C> <C>
Partners' capital (deficit) -
April 1, 1996 $ 65,121,272 $ 65,500,743 $(379,471)
Net loss (13,407,126) (13,273,055) (134,071)
Partners' capital (deficit) -
March 31, 1997 51,714,146 52,227,688 (513,542)
Net loss (8,830,832) (8,742,524) (88,308)
Partners' capital (deficit) -
March 31, 1998 42,883,314 43,485,164 (601,850)
Net loss (7,937,659) (7,858,282) (79,377)
Partners' capital (deficit) -
March 31, 1999 $34,945,655 $35,626,882 $(681,227)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss $(7,937,659) $(8,830,832) $(13,407,126)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Gain on sale of interests 0 (154,577) 0
Present value of legal settlement 0 0 75,905
Loss on sale of property
and equipment 0 7,251 21,061
Depreciation and
amortization 7,993,156 8,703,562 8,847,941
Loss on impairment of assets 0 0 4,727,077
Minority interest in
loss of subsidiaries (414,579) (404,890) (163,680)
Accrued interest added
to principal of
mortgage note payable 52,873 52,879 52,872
(Increase) decrease in assets
Cash held in escrow (336,227) (155,978) (350,708)
Deferred costs 0 0 (23,625)
Other assets (246,324) 37,478 864,340
Increase in liabilities
Accounts payable and
other liabilities 182,103 7,882 778,253
Due to general partners
and affiliates 2,425,035 2,172,448 1,568,577
Total adjustments 9,656,037 10,266,055 16,398,013
Net cash provided by
operating activities 1,718,378 1,435,223 2,990,887
Cash flows from
investing activities:
Acquisitions of
property and equipment (1,258,853) (792,036) (1,463,525)
Construction in progress 0 (604,411) 0
Decrease (increase) in
cash held in escrow 258,027 (363,451) 429,045
Net cash used in
investing activities (1,000,826) (1,759,898) (1,034,480)
Cash flows from
financing activities:
Decrease (increase) in
deferred costs 71,025 (192,733) (33,140)
Proceeds from mortgage notes 0 4,000,000 0
Repayments of mortgage
notes (1,350,512) (5,504,992) (1,164,748)
Increase in due to
local general partners
and affiliates 890,189 397,477 735,853
Decrease in due to
local general partners
and affiliates (980,298) (1,188,216) (441,677)
Increase (decrease) in due
to selling partners 77,766 71,826 (228,801)
Decrease (increase) in
capitalization of
consolidated subsidiaries
attributable to
minority interest (268,942) 562,268 (365,831)
Proceeds from sale of
interests 0 1,400,000 0
Net cash used in
financing activities (1,560,772) (454,370) (1,498,344)
Net (decrease) increase
in cash and
cash equivalents (843,220) (779,045) 458,063
Cash and cash equivalents at
beginning of year 4,177,583 4,956,628 4,498,565
Cash and cash equivalents
at end of year $ 3,334,363 $ 4,177,583 $ 4,956,628
Supplemental disclosure
of cash flows
information:
Cash paid during
the year for interest $ 8,088,271 $ 6,663,972 $ 7,356,078
Supplemental disclosures
of noncash
investing and
financing activities:
Construction in progress
reclassified to
property and equipment 604,411 0 0
Increase in accounts
payable and other
liabilities from
present value of
legal settlement 0 0 75,905
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - General
Liberty Tax Credit Plus II L.P., a Delaware limited partnership (the "Part-
nership"), was organized on March 25, 1988, but had no activity until July 1,
1988 (which date is considered to be inception for financial accounting pur-
poses). The Partnership had no operations until commencement of the public
offering on July 20, 1988.
The Partnership's business is to invest in other limited partnerships ("Local
Partnerships", "subsidiaries" or "subsidiary partnerships") owning leveraged
Apartment Complexes that are eligible for the low-income housing tax credit
("Tax Credit") enacted in the Tax Reform Act of 1986, and to a lesser extent
in Local Partnerships owning properties that are eligible for the historic
rehabilitation tax credit. The Partnership's investment in each Local Part-
nership represents a 20% to 98% interest in that Local Partnership.
The Partnership had acquired interests in 27 Local Partnerships as of March
31, 1999, and does not anticipate making any additional investments.
The Partnership was authorized to issue a total of 200,000 Beneficial Assign-
ment Certificates ("BACs"), of which 120,000 have been registered with the
Securities and Exchange Commission for sale to the public. The public offer-
ing was completed on January 9, 1989 with a total of 115,917.5 BACs sold and
$115,917,500 of proceeds received by the Partnership.
The terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") provide, among other things, that
net profits or losses and distributions of cash flow are, in general, allo-
cated 99% to the limited partners and BACs holders and 1% to the general
partners.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Consolidation
The consolidated financial statements include the accounts of the Partnership
and 27 subsidiary partnerships in which the Partnership is a limited partner.
Through the rights of the Partnership and/or a General Partner, which General
Partner has a contractual obligation to act on behalf of the Partnership, to
remove the general partner of the subsidiary local partnerships and to ap-
prove certain major operating and financial decisions, the Partnership has a
controlling financial interest in the subsidiary local partnerships.
For financial reporting purposes, the Partnership's fiscal year ends on March
31. The Partnership's fiscal year ends on March 31 in order to allow ade-
quate time for the subsidiaries' financial statements to be prepared and con-
solidated. The books and records of the Partnership are maintained on the
accrual basis of accounting, in accordance with generally accepted accounting
principles ("GAAP"). All subsidiaries have fiscal years ending December 31.
Accounts of the subsidiaries have been adjusted for intercompany transactions
from January 1 through March 31. All intercompany accounts and transactions
with the subsidiary partnerships have been eliminated in consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries at-
tributable to minority interest arise from cash contributions and cash dis-
tributions to the minority interest partners.
The Partnership's investment in each subsidiary partnership is equal to the
respective subsidiary partners' equity less minority interest capital, if
any. Losses attributable to minority interests which exceed the minority in-
terest's investment in a subsidiary partnership have been charged to the
Partnership. Such losses aggregated $431,000, $391,000 and $524,000 for the
years ended March 31, 1999, 1998 and 1997 (the 1998, 1997 and 1996 Fiscal
Years), respectively. In consolidation, all subsidiary partnership losses
are included in the Partnership's capital account except for losses allocated
to minority interest capital.
b) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and invest-
ments in short-term highly liquid instruments purchased with original maturi-
ties of three months or less.
c) Property and Equipment
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period inter-
est and any other costs incurred in acquiring the properties. The cost of
property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and mainte-
nance are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. A loss on impairment of assets is re-
corded when management estimates amounts recoverable through future opera-
tions and sale of the property on an undiscounted basis are below depreciated
cost. At that time, property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is con-
sidered to be impaired and the depreciated cost exceeds estimated fair value.
Through March 31, 1999, the Partnership has recorded approximately $4,727,000
as a loss on impairment of assets.
At the time management commits to a plan to dispose of assets, said assets
are adjusted to the lower of carrying amount or fair value less costs to
sell. These assets are classified as property and equipment-held for sale
and are not depreciated. There are no assets classified as property and
equipment-held for sale through March 31, 1999.
d) Organization and Offering Costs
Costs incurred to organize the Partnership, including but not limited to le-
gal, accounting, and registration fees, are considered deferred organization
expenses. These costs have been capitalized and are being amortized over a
60-month period. Costs incurred to sell BACs, including brokerage and the
nonaccountable expense allowance, are considered selling and offering ex-
penses. These costs are charged directly to limited partners' capital.
e) Income Taxes
The Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed through to
the partners and is required to be reported by them. The Partnership may be
subject to state and local taxes in jurisdictions in which it operates. For
income tax purposes, the Partnership has a fiscal year ending December 31
(Note 9).
f) Loss Contingencies
The Partnership records loss contingencies as a charge to income when infor-
mation becomes available which indicates that it is probable that an asset
has been impaired or a liability has been incurred as of the date of the fi-
nancial statements and the amount of loss can be reasonably estimated. In
addition, the Partnership evaluates a potential environmental liability inde-
pendently from any potential claim for recovery.
g) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 3 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments (all of which are held for non-trading
purposes) for which it is practicable to estimate that value:
Cash and Cash Equivalents, and Cash Held in Escrow
The carrying amount approximates fair value.
Mortgage Notes Payable
The fair value of mortgage notes payable is estimated, where practicable,
based on the borrowing rate currently available for similar loans.
<TABLE>
The estimated fair values of the Partnership's mortgage notes payable are as
follows:
<CAPTION>
March 31, 1999 March 31, 1998
Carrying Carrying
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Mortgage Notes Payable for
which it is:
Practicable to
estimate fair value $31,802,893 $31,278,134 $54,134,394 $53,443,892
Not Practicable $84,230,786 * $63,196,924 *
</TABLE>
*Management believes it is not practical to estimate the fair value of the
mortgage notes payable because mortgage programs with similar characteristics
are not currently available to the partnerships.
The carrying amount of other financial instruments that require such disclo-
sure approximates fair value.
<TABLE>
NOTE 4 - Property and Equipment
The components of property and equipment are as follows:
<CAPTION>
Estimated
March 31, Useful Lives
1999 1998 (Years)
<S> <C> <C> <C>
Land $ 14,444,085 $ 14,444,085 -
Building and improvements 219,417,040 217,110,837 15 to 40
Other 5,555,224 6,026,878 5 to 15
239,416,349 237,581,800
Less: Accumulated
depreciation (72,210,811) (64,545,022)
$167,205,538 $173,036,778
</TABLE>
Included in property and equipment is $6,955,050 of acquisition fees paid or
accrued to the general partners and $1,606,014 of acquisition expenses as of
March 31, 1999 and 1998. In addition, as of March 31, 1999 and 1998, build-
ings and improvements include $7,015,991 of capitalized interest.
Depreciation expense for the years ended March 31, 1999, 1998 and 1997
amounted to $7,694,504, $8,358,728 and $8,584,497, respectively.
In connection with the rehabilitation of the properties, the subsidiary part-
nerships have incurred developer's fees of $20,563,695 to the Local General
Partners and affiliates. Such fees have been included in the cost of prop-
erty and equipment.
During the 1998 and 1997 Fiscal Years, there was a decrease in accumulated
depreciation in the amounts of $28,715 and $113,286 and, respectively, due to
write-offs on dispositions.
On December 31, 1996, the buildings at Whittier Plaza Associates, L.P. were
deemed to be impaired and written down to estimated fair value. Fair value
was determined based on forecasted net operating income, capitalized at a
rate of 10%. Carrying value exceeded estimated fair value by approximately
$490,000. Accordingly, a loss of that amount was charged to operations in
the 1996 Fiscal Year.
Williamsburg Residential L.P. had experienced significant losses and cash
flow problems and was in default on the mortgage note. As a result of the
operating losses and cash flow problems, management of Williamsburg deter-
mined that an impairment of the property existed at December 31, 1996. The
impairment loss was determined to be $1,588,193 and was charged to operations
in the 1996 Fiscal Year. The amount of the impairment loss was determined
based on the difference in the carrying value of the property and the valua-
tion of the property based on capitalized cash flows.
As a result of cash flow deficiencies described in Note 10, land and apart-
ment buildings at Goodfellow Place Limited Partnership have been deemed to be
impaired and written down to their fair value. The fair value at December
31, 1996 was estimated by management to be $1,140,000. Management estimated
the fair value by capitalizing estimated annual cash flows before debt serv-
ice using a 13% capitalization rate. The carrying value of the apartment
buildings at December 31, 1996 exceeded their fair value by $2,648,894. An
impairment loss of that amount was charged to operations in the 1996 Fiscal
Year.
<TABLE>
NOTE 5 - Cash Held in Escrow
Cash held in escrow is restricted and consists of the following:
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Real estate taxes, insurance,
reconstruction and other $3,798,078 $3,404,024
Reserve for replacements 2,219,587 2,477,614
Tenant security deposits 884,478 942,305
$6,902,143 $6,823,943
</TABLE>
<TABLE>
NOTE 6 - Deferred Costs
The components of other deferred costs and their periods of amortization are
as follows:
<CAPTION>
March 31,
1999 1998 Period
<S> <C> <C> <C>
Financing expenses $ 4,912,529 $ 5,031,372 *
Organization expenses 1,582,896 1,615,521 60 months
Other 741,253 741,253 Various
7,236,678 7,388,146
Less: Accumulated
amortization (3,485,317) (3,267,108)
$ 3,751,361 $ 4,121,038
*Over the life of the respective related mortgages.
Amortization expense for the years ended March 31, 1999, 1998 and 1997
amounted to $298,652, $344,834 and $263,444, respectively. During the year
ended March 31, 1999, $79,892 of unamortized deferred costs and $80,443 of
fully amortized deferred costs were written off and during the year ended
March 31, 1998, $44,626 of fully amortized deferred costs were written off.
</TABLE>
NOTE 7 - Mortgage Notes Payable
The mortgage notes are payable in aggregate monthly installments of approxi-
mately $685,000, including principal and interest at rates varying from 1% to
15% per annum, through 2030. Each subsidiary partnership's mortgage note
payable is collateralized by the land and buildings of the respective sub-
sidiary partnership and the assignment of certain subsidiary partnership's
rents and leases and is without further recourse.
Annual principal payment requirements for each of the next five fiscal years
and thereafter are as follows:
Fiscal Year Ending Amount
1999 $ 6,569,124
2000 1,771,727
2001 1,909,391
2002 2,009,135
2003 2,127,527
Thereafter 101,646,775
$116,033,679
One subsidiary partnership, United Glen Arden II Limited Partnership, holds a
mortgage note which is eligible for an interest reduction subsidy under Sec-
tion 236 of the National Housing Act. At December 31, 1998, said note, which
bears interest at 7.5% per annum through April 1, 2011, had a balance of
$2,504,918.
<TABLE>
NOTE 8 - Related Party Transactions
A) Related Party Fees
One of the General Partners has a 1% interest as a special limited partner in
each of the Local Partnerships. An affiliate of the General Partners also
has a minority interest in certain Local Limited Partnerships.
The General Partners and their affiliates perform services for the Partner-
ship. The costs incurred for the years ended March 31, 1999, 1998 and 1997
are as follows:
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Partnership management
fees (a) $1,496,000 $1,496,000 $1,496,000
Expense reimbursement (b) 156,680 135,010 92,872
Property management fees
incurred to affiliates
of the General Partners (c) 335,031 350,474 102,869
Local administrative fee (d) 49,000 51,500 51,500
Total general and
administrative-
General Partners 2,036,711 2,032,984 1,743,241
Property management fees
incurred to affiliates
of the subsidiary
partnerships
general partners (c) 612,230 559,257 540,541
Total general and
administrative-
related parties $2,648,941 $2,592,241 $2,283,782
</TABLE>
(a) The General Partners are entitled to receive a partnership management
fee, after payment of all Partnership expenses, which together with the local
annual administrative fees will not exceed a maximum of 0.5% per annum of in-
vested assets (as defined in the Partnership Agreement), for administering
the affairs of the Partnership. The partnership management fee, subject to
the foregoing limitation, will be determined by the General Partners in their
sole discretion based upon their review of the Partnership's investments.
Partnership management fees owed to the General Partners amounting to ap-
proximately $5,370,000 and $3,874,000 were accrued and unpaid as of March 31,
1999 and March 31, 1998. Without the General Partner's continued accrual
without payment, the Partnership will not be in a position to meet its obli-
gations. The General Partners have continued allowing the accrual without
payment of these amounts but are under no obligation to do so.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and
their affiliates on the Partnership's behalf. The amount of reimbursement
from the Partnership is limited by the provisions of the Partnership Agree-
ment. Another affiliate of the General Partners performs asset monitoring
for the Partnership. These services include site visits and evaluations of
the subsidiary partnerships' performance.
(c) Property management fees incurred by subsidiary partnerships amounted to
$1,537,420, $1,521,339 and $1,497,138 for the 1998, 1997 and 1996 Fiscal
Years, respectively. Of these fees $947,261, $909,731 and $643,410 were in-
curred to affiliates of the subsidiary partnerships' general partners. In-
cluded in amounts incurred to affiliates of the subsidiary partnerships' gen-
eral partners are $335,031, $350,474 and $102,869, respectively, which were
also incurred to affiliates of the Partnership.
(d) Liberty Associates II L.P., a special limited partner of the subsidiary
partnerships, is entitled to receive a local administrative fee of up to
$2,500 per year from each subsidiary partnership.
Liberty Associates II L.P. has a 1% interest as the special limited partner
in each of the subsidiary partnerships. Liberty Associates II L.P. received
cash distributions of approximately $4,900, $5,700 and $500 during the 1999,
1998 and 1997 Fiscal Years, respectively.
Pursuant to the Partnership Agreement and the Local Partnership Agreements,
the General Partners and Liberty Associates II L.P. received their allocable
share of profits, losses and tax credits allocated by the Partnership and the
Local Partnerships, respectively.
During the 1996 Fiscal Year, Related G.P. Holdings, Inc., an affiliate of the
Related General Partner, purchased the general partner interest in the Local
General Partner of four subsidiary partnerships: Spring Creek Associates,
L.P., East Two Thirty-Five Associates, West 107th Street Associates, L.P. and
General Atlantic Second Ave. Associates, L.P. As of November 1, 1996 and
January 1, 1997, Related Management Company, L.P., an affiliate of the Re-
lated General Partner, became the managing agent of Spring Creek Associates,
L.P. and East Two Thirty-Five Associates, respectively.
<TABLE>
(e) Due to Local General Partners and affiliates at March 31, 1999 and 1998
consists of the following:
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Operating advances $ 968,957 $ 1,175,243
Development fee payable 2,526,087 2,553,084
Operating deficit advances 4,570,747 4,297,397
Management and other fees 530,423 647,015
Long-term notes payable (f) 965,541 965,541
Interest long-term notes payable 483,794 497,378
$10,045,549 $10,135,658
(f) Long-term notes payable consist of the following:
Polynesian $ 316,370 $ 316,370
This promissory note bears interest at 11% with a matur-
ity date of June 1, 2003. Interest expense of $34,800
was incurred for the years ended March 31, 1999 and 1998.
Seagrape 649,171 649,171
This promissory note bears interest at 11% with a matur-
ity date of July 1, 2002. Interest expense of $71,606
and $71,409 was incurred for the years ended March 31,
1999 and 1998.
$ 965,541 $ 965,541
</TABLE>
B) Guarantees
The Partnership negotiated Operating Deficit Guarantee Agreements all of
which have expired with all Local Partnerships, pursuant to which the general
partners of the Local Partnerships had agreed to fund operating deficits for
a specified period of time. As of March 31, 1999, approximately $5,800,000,
had been funded by the Local General Partners to meet such obligations. Of
the total amount funded through March 31, 1999, approximately $1,033,000 has
been recorded as a capital contribution, $136,000 was funded by the Partner-
ship, $60,000 has been recognized as income during the 1992 Fiscal Year, and
the remaining balance of approximately $4,571,000 is recorded as noninterest-
bearing operating advances to be repaid from operating cash flow.
<TABLE>
NOTE 9 - Income Taxes
A reconciliation of the financial statement net loss to the income tax loss
for the Partnership and its consolidated subsidiaries is as follows:
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Financial
statement
Net
loss $(7,937,659) $(8,830,832) $(13,407,126)
Difference resulting from
parent company having a different fiscal year
for income tax and financial reporting
purposes 17,468 (1,128,089) 1,272,589
Difference between depreciation
and amortization expense recorded for financial
reporting purposes and the accelerated cost
recovery system utilized for income tax
purposes (1,894,545) (1,613,036) (1,354,876)
Difference between gain
on sale of interests for financial reporting
purposes and income tax
purposes 0 (200,101) 0
Loss on impairment of
assets recorded for financial reporting
purposes 0 0 4,727,077
Non-deductible litigation
settlement 0 0 55,042
Excess losses allocated to
minority interest for income tax
purposes 896,524 1,202,905 863,663
Other (163,393) 190,143 412,996
Net loss as shown on the
income tax return for the calendar year
ended $(9,081,605) $(10,379,010) $(7,430,635)
</TABLE>
NOTE 10 - Commitments and Contingencies
a) Subsidiary Partnerships - Going Concerns and Uncertainties
The auditors for five subsidiary Partnerships, Whittier Plaza Associates Lim-
ited Partnership, Alexis Park Apartments, Goodfellow Place Limited Partner-
ship, Willoughby-Wyckoff Housing Associates, and Campeche Isle Apartments Lim-
ited Partnership modified their reports on the 1998 Fiscal Year financial
statements due to the uncertainty of each subsidiary partnership's ability to
continue as a going concern. The financial statements do not include any ad-
justments that would be necessary in the event the subsidiary partnerships
are unable to continue as going concerns. The auditors for one subsidiary
partnership, Santa Juanita II Limited Dividend Partnership modified their re-
port on the 1998 Fiscal Year financial statements due to the uncertainty of
certain amounts reported in the balance sheet.
Whittier Plaza Associates
The financial statements for Whittier Plaza Associates Limited Partnership
("Whittier") have been prepared assuming that Whittier will continue as a go-
ing concern. Whittier has sustained continuous losses since commencement of
operations in 1988, including losses of approximately $38,000, $25,000 and
$550,000 for the 1998, 1997 and 1996 Fiscal Years, respectively. Whittier
has experienced higher vacancies and lower rents than those originally pro-
jected, resulting in increased difficulty in meeting both operating and debt
service obligations. The Local General Partner, pursuant to a development
deficit guarantee agreement, has advanced $42,262 and $50,292 in the 1998 and
1997 Fiscal Years, respectively, and $384,548 since 1988 to fund operating
cash shortfalls. In addition, Whittier's management company, an affiliate of
the Local General Partner, has deferred receipt of various fees since 1991
totaling $56,757. These items raise substantial doubt about Whittier's abil-
ity to continue as a going concern. The Partnership's investment in
Whittier at March 31, 1999 and 1998 was reduced to zero as a result of prior
years' losses and the minority interest balance was $0 at each date.
Whittier's net loss after minority interest amounted to approximately
$38,000, $25,000 and $550,000 (after loss on impairment of assets of approxi-
mately $490,000), for the 1998, 1997 and 1996 Fiscal Years.
Alexis Park Apartments
During 1990, vapor fumes were discovered in several apartments at Alexis Park
Apartments, a Louisiana Partnership in Commendam ("Alexis"). As a result, 47
of the 280 units were vacated as ordered by the Louisiana Department of Envi-
ronmental Quality ("LDEQ"). At December 31, 1998, all but one of these units
have been cleared for occupancy by the Louisiana Department of Health and
Hospital.
The United States Environmental Protection Agency (EPA) has placed the site
on the list of proposed Superfund sites. The EPA performed indoor air tests
at the site on 28 units and issued a draft report on January 2, 1997, which
found that none of the units had acute air pollution levels, but further
states that two units were found to have sufficient amounts of air pollutants
to possibly cause health concerns after years of continual exposure. The re-
port recommended the installation of mechanical systems to reduce air pollut-
ant levels to acceptable amounts and the sealing of penetrations or openings
in the floor slab and walls. During the year ended December 31, 1997, such
remediation was performed. During the year ended December 31, 1998, the EPA
performed additional tests of the project site and found that all removal ac-
tions for lead contaminated soils have been fully performed in accordance
with EPA standards. At December 31, 1998, management is unaware of any addi-
tional or potential remediation or clean-up costs that will be required and
accordingly, is unable to estimate the possible cost to Alexis of any reme-
diation or clean-up that may be required in the future.
Management believes the testing conducted by the LDEQ and the EPA has pro-
vided sufficient evidence that there is no significant environmental hazard
at the Alexis Park Apartments site. Management, along with the mayor of
Bossier City, has been active in requesting that the EPA remove the site from
the list of proposed Superfund sites and that no further tests be conducted.
Alexis has also requested assistance with bringing this issue to closure from
its congressman and U.S. senators who have been responsive.
Although the environmental issue is in many respects beyond its control, man-
agement intends to continue its efforts in bringing this issue to a close and
believes the favorable test results thus far reduce the chances of a disrup-
tive action by the EPA and provide an opportunity for Alexis to continue as a
going concern. Nonetheless, Alexis has sustained losses and its current li-
abilities exceed its current assets by approximately $187,000. Management of
Alexis expects operating income to improve for 1999 from both increased occu-
pancy and slightly reduced expenses and also believes cash flows for 1999
will be sufficient to meet liabilities and subject to the environmental un-
certainty enable Alexis to continue as a going concern. These items raise
substantial doubt about Alexis' ability to continue as a going concern. The
maximum loss which the Partnership would be liable for is its net investment
in Alexis. The Partnership's investment in Alexis at March 31, 1999 and 1998
was approximately $357,000 and $620,000, respectively, and the minority in-
terest balance was approximately $0 and $1,200, respectively. Alexis' net
loss after minority interest amounted to approximately $263,000, $259,000 and
$137,000, for the 1998, 1997 and 1996 Fiscal Years, respectively.
Goodfellow Place Limited Partnership
The financial statements for Goodfellow Place Limited Partnership ("Goodfel-
low") have been prepared assuming that Goodfellow will continue as a going
concern. Goodfellow has sustained substantial operating losses in recent
years, has used substantial amounts of working capital in its operations and
has depleted the operating deficit escrow in the amount of $163,000. Fur-
ther, at December 31, 1998, current liabilities exceed current assets by
$65,924.
A prepayment of $163,000 was due on the promissory note payable to St. Louis
Community Development Agency ("CDA") in August 1996, upon release of the Op-
erating Deficit Guarantee Escrow. The Local General Partners have defaulted
on this requirement and placed $163,000 in an interest-bearing money market
account in the name of the project. This account has been voluntarily re-
stricted by the Local General Partners and has a balance of $178,883 at De-
cember 31, 1998. If CDA requires the prepayment of the loan, the general
partners of Goodfellow plan to negotiate with CDA in an attempt to restruc-
ture the agreement to allow the project to place those funds in the operating
deficit escrow account. These funds would then be used to fund future oper-
ating deficits. In addition, management has increased rents $15 per month
beginning in January 1998, as leases renew to help meet cash flow needs.
In view of these matters, realization of a major portion of the assets in the
balance sheet of Goodfellow is dependent upon continued operations, which in
turn is dependent upon Goodfellow's ability to negotiate an agreement with
CDA, and the success of its future operations. Management believes that ac-
tions presently being taken to review Goodfellow's operating and financial
requirements provide the opportunity for Goodfellow to continue as a going
concern, however, the outcome of the planned negotiations with CDA is uncer-
tain.
The Partnership's investment in Goodfellow at March 31, 1999 and 1998 was re-
duced to zero by prior years' losses, and the minority interest balance was
zero at each date. Goodfellow's net income (loss) after minority interest
amounted to approximately ($13,000), $200 and ($2,829,000) (after loss on im-
pairment of assets of approximately ($2,649,000) for the 1998, 1997 and 1996
Fiscal Years, respectively.
Willoughby-Wyckoff Housing Associates
The financial statements for Willoughby-Wyckoff Housing Associates ("Wil-
loughby") have been prepared assuming that Willoughby will continue as a go-
ing concern. There are certain conditions that raise substantial doubt about
Willoughby's ability to continue as a going concern. Willoughby has had op-
erating losses, operating cash flow deficiencies and equity deficiencies.
Management plans to continue to minimize costs within its control and seek
additional funding sources to supplement project operations. Continuance of
Willoughby as a going concern is dependent upon Willoughby's ability to ob-
tain additional funding to supplement project operations and enable Wil-
loughby to meet its obligations as they become due. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties. The Partnership's investment in Willoughby at March 31, 1999
and 1998 has been reduced to zero by prior years' losses and the minority in-
terest balance amounted to approximately $178,000 and $180,000, respectively.
Willoughby's net loss after minority interest amounted to approximately
$220,000, $141,000 and $273,000 for the 1998, 1997 and 1996 Fiscal Years, re-
spectively.
Campeche Isle Apartments, L.P.
On July 24, 1997, Campeche Isle Apartments Limited Partnership ("Campeche")
emerged from Chapter 11 bankruptcy proceedings. While in bankruptcy, Cam-
peche completed a restructuring of its mortgage debt and satisfied its
$4,200,000 mortgage debt through the following transactions: Bank of Boston
made a $4,000,000 loan to Campeche and the Partnership as co-borrowers. Such
loan is secured by a first mortgage on Campeche Isle Apartments, a pledge of
the Partnership's interest in Spring Creek and recourse guarantees of the
Partnership and one of its General Partners, Campeche, and Campeche's Local
General Partner. In addition to satisfying the mortgage, the restructuring
agreement requires Campeche to make approximately $800,000 of required re-
pairs to the project. The Partnership raised approximately $1,400,000 in
June 1997 by selling a portion of its limited partnership interest in two
subsidiary partnerships to Related Glenport Associates, an affiliate of the
General Partner. The Partnership sold 24.98% of its limited partnership in-
terest in United-Glenarden I Limited Partnership for $600,000 resulting in a
gain of $224,482 and sold 32.32% of its limited partnership interest in
Property Development Associates, L.P. for $800,000 resulting in a loss of
$69,905. A portion of the proceeds were used to repay the Mortgagee, pay
closing costs on the new loan and to fund debt service and an escrow account
for repairs. Monthly debt service on the new loan will be paid by the net
income of Campeche and the balance by the Partnership. In addition, any dis-
tributions received by the Partnership from Spring Creek must be placed in
escrow at Bank of Boston. The new loan matured on December 31, 1998, was ex-
tended until June 30, 1999 and was subsequently extended to September 30,
1999. On or prior to the maturity of the new loan, a refinancing will be
completed which will have a term of at least equal to the remaining compli-
ance period of the project which ends 2004. In addition, management has
taken efforts to increase occupancy by retaining several tenant locator serv-
ices, refurbishing the apartments and improving the overall condition of the
property. In view of these matters, realization of a major portion of the
assets in the balance sheet is dependent upon continued operations of the
partnership, which in turn is dependent upon the partnership's ability to
meet its financing requirements, and the success of its future operations.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. As of December 31, 1998, total ad-
vances to Campeche from the Partnership totaled approximately $2,043,000.
The financial statements for the 1996 Fiscal Year for this Local Partnership
were not audited. The Partnership's investment in Campeche at March 31, 1999
and 1998 was $0 and the minority interest balance was $0 at each date. Cam-
peche's net loss after minority interest amounted to approximately $518,000,
$845,000 and $334,000 for the 1998, 1997 and 1996 Fiscal Years, respectively.
Santa Juanita II Limited Dividend Partnership
Santa Juanita II Limited Dividend Partnership ("Santa Juanita") had first
mortgage payments of $303,176 in arrears at December 31, 1998. In addition,
the last payment recorded to mortgage principal by the bank was July 1995.
As of February 28, 1999, uncertainties exist regarding the accuracy of the
balance of interest, penalties due and a confirmation of balances had not
been received from the bank.
As of December 31, 1998, Santa Juanita was not in compliance with its second
mortgage loan and is in arrears on payments of principal and interest of ap-
proximately $419,000.
The last audited financial information was for the year ended December 31,
1994. The financial records available for the period January 1, 1995 through
June 30, 1997 were not complete or reliable. Further adjustments that could
have resulted to the beginning balance of partners' equity and other ac-
counts, if all financial records had been available, cannot be determined at
this time.
Management of Santa Juanita is in negotiations with lenders of the first and
second mortgages. The effects of the adjustment that could have resulted to
the ending balance of mortgages payable and partners' equity may not be de-
termined at this time.
The auditors for Santa Juanita qualified their report on the 1998 Fiscal Year
financial statements for the effects of the above uncertainties. The maximum
loss which the Partnership would be liable for is its net investment in Santa
Juanita. The Partnership's investment in Santa Juanita at March 31, 1999 and
1998 was approximately $285,000 and $405,000, respectively, and the minority
interest balance was zero at each date.
b) Subsidiary Partnerships - Other
Gramco Development Limited Dividend Partnership, L.P.
Gramco Development Limited Dividend Partnership, L.P. ("Gramco") was granted
net funds of $4,867,000. In the event of a substantial violation to the pro-
visions of certain agreements between Gramco and the Municipality of Bayamon
(the "Municipality") and between the Municipality and HUD, the funds shall
become immediately due and payable at the election of HUD and the Municipal-
ity. Otherwise, the principal amount of the obligation together with any in-
terest will be forgiven. Proceeds from the loan have been deducted from
fixed assets. The Partnership's investment in Gramco at March 31, 1999 and
1998 was approximately $690,000 and $974,000 and the minority interest bal-
ance was approximately $420,000 and $423,000, respectively. Gramco's net loss
after minority interest amounted to approximately, $284,000, $257,000 and
$275,000 for the 1998, 1997 and 1996 Fiscal Years, respectively.
Robin Housing Associates
Robin Housing Associates ("Robin Housing") is a defendant in a personal in-
jury lawsuit. The Partnership's insurance carrier intends to defend the
Partnership vigorously. Counsel believes that the insurance coverage is ade-
quate to cover any liability arising from this action. It is management's
opinion that no accrual for potential losses is currently warranted in the
financial statements. The maximum loss which the Partnership would be liable
for is its net investment in Robin Housing. The Partnership's investment in
Robin Housing at March 31, 1999 and 1998 was approximately $66,000 and
$123,000 and the minority interest balance was $360,000 and $544,000, respec-
tively. Robin Housing's net loss after minority interest amounted to ap-
proximately $30,000, $24,000 and $30,000 for the 1998, 1997 and 1996 Fiscal
Years, respectively.
Metropolitan Towers Associates, L.P.
The subsidiary partnership, Metropolitan Towers Associates, L.P. ("Metropoli-
tan"), is a defendant in a legal proceeding brought about by one of its ten-
ants for damages suffered. It is management's opinion that the claim should
be covered by Metropolitan's insurance policy. The maximum loss which the
Partnership would be liable for is its net investment in Metropolitan. The
Partnership's investment in Metropolitan at March 31, 1999 and 1998 was ap-
proximately $1,108,000 and $1,228,000, respectively, and the minority inter-
est was zero at each date. Metropolitan's net loss after minority interest
amounted to approximately $119,000, $113,000 and $131,000 for the 1998, 1997
and 1996 Fiscal Years, respectively.
Rolling Green Limited Partnership
Rolling Green Limited Partnership ("Rolling Green") operates and is regulated
by HUD under Section 221(d)(3) of the National Housing Act. Rents received
by Rolling Green are subsidized by Section 8 Housing Assistance Payments.
Rental income from such Assistance Payments totaled $1,511,794 and $1,406,915
in the 1998 and 1997 Fiscal Years, respectively. In September 1999, the
three Section 8 contracts will expire. However, uncertainties regarding the
future of HUD Programs exist. It is not practical to estimate the impact
upon Rolling Green's operations if the rents were to revert to market value.
Williamsburg Residential , L.P.
In November 1996, the Local General Partner of Williamsburg Residential ,
L.P. ("Williamsburg ") stopped making the mortgage note payments which con-
stituted an event of default. On January 1, 1997, the Local General Partner
was replaced.
A Reinstatement and Modification Agreement, dated July 24, 1997, and effec-
tive March 1, 1997 was entered into between Williamsburg and Federal National
Mortgage Association ("FNMA"). Terms of the agreement include: 1. Interest
only on the loan for 36 months; 2. Replacement reserve escrow payments waived
during 1997; 3. Net operating income is to be turned over to the loan
servicer monthly; and 4. Execution of a debt service reserve agreement.
The Debt Service Agreement, dated July 24, 1997, called for $275,000 to be
deposited into a debt service escrow account for the mutual benefit of Wil-
liamsburg and Williamsburg Residential II, L.P. (an adjoining and affiliated
project). If the monthly net operating income turned over to the loan
servicer is less than the required mortgage and escrow payment, the debt
service escrow account is drawn upon. At December 31, 1998, balances in the
two entities accounts totaled $0. The limited partner has advanced Williams-
burg the necessary funds to keep the mortgage and escrows current during 1998
and is expected to continue to do so during 1999.
In 1997, the Partnership advanced Williamsburg funds to pay legal costs, de-
linquent mortgage payments, and to set up a debt service escrow account, all
of which were required as part of the Reinstatement and Modification Agree-
ment dated July 24, 1997 with FNMA. The advances do not bear interest and
are short-term in nature.
The Partnership's investment in Williamsburg has been written down to $0 by
prior years' losses and the minority interest balance was approximately
$733,000 and $736,000 at March 31, 1999 and 1998, respectively. Williamsburg
net loss after minority interest amounted to approximately $285,000, $220,000
and $1,667,000 (after provision for impairment of assets of approximately
$1,588,000) for the years ended March 31, 1999, 1998 and 1997, respectively.
c) Uninsured Cash and Cash Equivalents
The Partnership maintains its cash and cash equivalents in various banks.
Accounts at each bank are guaranteed by the Federal Deposit Insurance Corpo-
ration (FDIC) up to $100,000. As of March 31, 1999, uninsured cash and cash
equivalents approximated $4,400,000.
d) Line of Credit
Included in accounts payable and other liabilities at March 31, 1999, is ap-
proximately $636,000 borrowed by one subsidiary partnership, Rolling Green,
against a $1,000,000 line of credit. Rolling Green is required to pay forty-
eight monthly installments of $10,602 including interest at an annual rate of
10.25% due on April 15, 1999. Subsequently, the line of credit was paid off
as part of a HUD mortgage refinancing.
e) Year 2000 Compliance
The Partnership utilizes the computer services of an affiliate of the General
Partners. The affiliate of the General Partners has upgraded its computer in-
formation systems to be year 2000 compliant and beyond. The year 2000 compli-
ance issue concerns the inability of a computerized system to accurately rec-
ord dates after December 31, 1999. The affiliate of the General Partners con-
verted its financial systems applications and upgraded all of its non-
compliant in-house software and hardware inventory. The work stations that
experienced problems from the testing process were corrected with an upgrade
patch. The costs incurred by the affiliate of the General Partners are not
being charged to the Partnership. The most likely worst case scenario that
the General Partners face is that computer operations will be suspended for a
few days to a week commencing on January 1, 2000. The Partnership contingency
plan is to (i) have a complete backup done on December 31, 1999 and (ii) both
electronic and printed reports generated for all critical data up to and in-
cluding December 31, 1999.
In regard to third parties, the General Partners are in the process of evalu-
ating the potential adverse impact that could result from the failure of mate-
rial service providers to be year 2000 compliant. A detailed survey and as-
sessment was sent to material third parties in the fourth quarter of 1998.
The Partnership has received assurances from a majority of the material serv-
ice providers with which it interacts that they have addressed the year 2000
issues and is evaluating these assurances for their adequacy and accuracy. In
cases where the Partnership has not received assurances from third parties, it
is initiating further mail and/or phone correspondence. The Partnership re-
lies heavily on third parties and is vulnerable to the failures of third par-
ties to address their year 2000 issues. There can be no assurance given that
the third parties will adequately address their year 2000 issues.
f) Other
The Partnership is subject to the risks incident to potential losses arising
from the management and ownership of improved real estate. The Partnership
can also be affected by poor economic conditions generally, however no more
than 33% of the properties are located in any single state. There are also
substantial risks associated with owning properties receiving government as-
sistance, for example the possibility that Congress may not appropriate funds
to enable HUD to make rental assistance payments. HUD also restricts annual
cash distributions to partners based on operating results and a percentage of
the owner's equity contribution. The Partnership cannot sell or substan-
tially liquidate its investments in subsidiary partnerships during the period
that the subsidy agreements are in existence, without HUD's approval. Fur-
thermore, there may not be market demand for apartments at full market rents
when the rental assistance contracts expire.
g) Tax Credits
The Partnership and BACs holders began recognizing Housing Tax Credits with
respect to a Property when the Credit Period for such Property began. Be-
cause of the time required for the acquisition, completion and rent-up of
Properties, the amount of Tax Credits per BAC gradually increased over the
first three years of the Partnership. Housing Tax Credits not recognized in
the first three years will be recognized in the 11th through 13th years. For
the 1998, 1997 and 1996 tax years, Housing Tax Credits of $16,707,661,
$17,061,894 and $17,193,735, were generated.
A portion of the low-income housing tax credits are subject to recapture in
future years if (i) the Partnership ceases to meet qualification require-
ments, (ii) there is a decrease in the qualified basis of the projects, or
(iii) there is a reduction in the taxpayer's interest in the project at any
time during the 15-year Compliance Period that began with the first tax year
of the credit period.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and Fi-
nancial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
On November 25, 1997, an affiliate of the Related General Partner, purchased
100% of the stock of the Liberty General Partner (the "Transfer"). In addi-
tion to the Transfer, by acquiring the stock of the Liberty General Partner,
an affiliate of the Related General Partner also acquired the Liberty General
Partner general partner interest in Liberty Associates, which is also the
special limited partner of the Partnership. Pursuant to the Partnership's
Amended and Restated Partnership Agreement, the consent of the limited part-
ners was not required to approve the Transfer.
The Partnership has no directors or executive officers. The Partnership's
affairs are managed and controlled by the General Partners. Certain informa-
tion concerning the directors and executive officers of the Liberty General
Partner and of Related Credit Properties II Inc., the general partner of the
Related General Partner, is set forth below.
Related Credit Properties II, Inc.
Name Position
Stephen M. Ross Director
J. Michael Fried President, Chief Executive Officer and Director
Alan P. Hirmes Vice President
Stuart J. Boesky Vice President
Glenn F. Hopps Treasurer
Teresa Wicelinski Secretary
STEPHEN M. ROSS, 59, is President, Director and shareholder of The Related
Realty Group, Inc., the General Partner of The Related Companies, L.P. He
graduated from the University of Michigan School of Business Administration
with a Bachelor of Science degree and from Wayne State University School of
Law with a Juris Doctor degree. Mr. Ross then received a Master of Laws de-
gree in taxation from New York University School of Law. He joined the ac-
counting firm of Coopers & Lybrand in Detroit as a tax specialist and later
moved to New York, where he worked for two large Wall Street investment bank-
ing firms in their real estate and corporate finance departments. Mr. Ross
formed the predecessor of The Related Companies, L.P. in 1972 to develop,
manage, finance and acquire subsidized and conventional apartment develop-
ments.
J. MICHAEL FRIED, 55, is the sole shareholder of one of the general partners
of Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is the chief
executive officer of Capital 's syndication, finance, acquisition and inves-
tor reporting activities. Mr. Fried practiced corporate law in New York City
with the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he
joined Capital in 1979. Mr. Fried graduated from Brooklyn Law School with a
Juris Doctor degree, magna cum laude; from Long Island University Graduate
School with a Master of Science degree in Psychology; and from Michigan State
University with a Bachelor of Arts degree in History.
ALAN P. HIRMES, 44, has been a Certified Public Accountant in New York since
1978. Prior to joining Capital in October 1983, Mr. Hirmes was employed by
Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice Presi-
dent of Capital. Mr. Hirmes graduated from Hofstra University with a Bache-
lor of Arts degree.
STUART J. BOESKY, 43, practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein from 1984 until February 1986 when he
joined Capital. From 1983 to 1984 Mr. Boesky practiced law with the Boston
law firm of Kaye, Fialkow, Richard & Rothstein (which subsequently merged
with Strook & Strook & Lavan), and from 1978 to 1980 was a consultant spe-
cializing in real estate at the accounting firm of Laventhol & Horwath. Mr.
Boesky graduated from Michigan State University with a Bachelor of Arts de-
gree and from Wayne State School of Law with a Juris Doctor degree. He then
received a Master of Laws degree in Taxation from Boston University School of
Law.
GLENN F. HOPPS, 36, prior to joining Related in December 1990, was employed
by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified
public accountants. Mr. Hopps graduated from New York State University at
Albany with a Bachelor of Science Degree in Accounting.
TERESA WICELINSKI, 33, joined Related in June 1992, and prior to that date
was employed by Friedman, Alpren & Green, certified public accountants. Ms.
Wicelinski graduated from Pace University with a Bachelor of Arts Degree in
Accounting.
Liberty GP II Inc.
Name Position
J. Michael Fried President and Director
Alan P. Hirmes Vice President
Stuart J. Boesky Vice President
Marc D. Schnitzer Vice President
Denise L. Kiley Vice President
Glenn F. Hopps Treasurer
Teresa Wicelinski Secretary
MARC D. SCHNITZER, 38, joined Related in January 1988 after receiving his
Master of Business Administration degree from The Wharton School of The Uni-
versity of Pennsylvania in December 1987. From 1983 to 1986, Mr. Schnitzer
was a Financial Analyst with The First Boston Corporation in New York, an in-
ternational investment banking firm. Mr. Schnitzer received a Bachelor of
Science degree, summa cum laude, in Business Administration, from the School
of Management at Boston University in May 1983.
DENISE L. KILEY, 39, is responsible for overseeing the due diligence and as-
set management of all multifamily residential properties invested in RCC
sponsored corporate, public and private equity and debt funds. Prior to
joining Related in 1990, Ms. Kiley had experience acquiring, financing and
asset managing multifamily residential properties. From 1981 through 1985
she was an auditor with Price Waterhouse. Ms. Kiley holds a Bachelor of Sci-
ence in Accounting from Boston College.
Biographical information with respect to Messrs. Fried, Hirmes, Boesky, Hopps
and Ms. Wicelinski is set forth above.
Item 11. Executive Compensation.
The Partnership has no officers or directors. The Partnership does not pay
or accrue any fees, salaries or other forms of compensation to directors or
officers of the Liberty General Partner or the general partner of the Related
General Partner for their services. Certain directors and executive officers
of the Liberty General Partner and the general partner of the Related General
Partner receive compensation from the General Partners and their affiliates
for services performed for various affiliated entities which may include
services performed for the Partnership.
Under the terms of the Partnership Agreement, the General Partners and their
affiliates are entitled to receive compensation from the Partnership in con-
sideration of certain services rendered to the Partnership by such parties.
Such arrangements include, but are not limited to, the payment of an account-
able operating expense reimbursement, an annual partnership management fee
not to exceed 0.5% of invested assets and subordinated disposition fees. In
addition, the General Partners are entitled to 1% of all cash distributions
and Tax Credit allocations and a subordinated 15% interest in Net Sales or
Refinancing Proceeds. See also Note 8 to the Financial Statements in Item 8
for a presentation of the types and amounts of compensation paid to the Gen-
eral Partners and their affiliates, which is incorporated by reference
thereto.
Tabular information concerning salaries, bonuses and other types of compensa-
tion payable to executive officers has not been included in this annual re-
port. As noted above, the Partnership has no executive officers. The levels
of compensation payable to the General Partners and/or their affiliates is
limited by the terms of the Partnership Agreement and may not be increased
therefrom on a discretionary basis.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The general partnership interest and BACs in the Partnership are owned in the
manner indicated on the chart below.
Liberty Associates II L.P. holds a 1% limited partnership interest in each
Local Partnership.
No person is known by the Partnership to be the beneficial owner of more than
5% percent of the Limited Partnership Interests and/or the BACs; and none of
the General Partners nor any director or executive officer of the Liberty
General Partner or of the general partner of the Related General Partner owns
any Limited Partnership Interests or BACs.
<TABLE>
<CAPTION
Name and Address of Amount and Nature of Percentage
Title of Class Beneficial Ownership Beneficial Ownership of Class
<S> <C> <C> <C>
General Partnership Related Credit $500 capital
contribution 49%
Interest in the Properties II L.P. - directly owned
Partnership 625 Madison Avenue
New York, NY 10022
Liberty GP II, Inc. $500 capital
contribution 49%
625 Madison Avenue - directly owned
New York, NY 10022
Liberty Associates II L.P. $1,000 capital
contribution 2%
625 Madison Avenue - directly owned
New York, NY 10022
</TABLE>
<TABLE>
<CAPTION
Name and Address of Amount and Nature of Percentage
Title Beneficial Ownership Beneficial Ownership of Class
<S> <C> <C> <C>
BACs Lehigh Tax Credit 2,239 (1) 1.9%
Partners, Inc.
625 Madison Avenue
New York, NY 10022
BACs J. Michael Fried 2,239 (1)(2) 1.9%
625 Madison Avenue
New York, NY 10022
BACs Alan P. Hirmes 2,239 (1)(2) 1.9%
625 Madison Avenue
New York, NY 10022
BACs Stuart J. Boesky 2,239 (1)(2) 1.9%
625 Madison Avenue
New York, NY 10022
BACs Marc D. Schnitzer 0 0%
625 Madison Avenue
New York, NY 10022
BACs Denise L. Kiley 0 0%
625 Madison Avenue
New York, NY 10022
BACs Glenn F. Hopps 0 0%
625 Madison Avenue
New York, NY 10022
BACs Teresa Wicelinski 0 0%
625 Madison Avenue
New York, NY 10022
BACs All directors and 2,239 (1)(2) 1.9%
executive officers of
the general partner
of the Related General
Partner as a group
(seven persons)
625 Madison Avenue
New York, NY 10022
(1) All such BACs represent BACs owned directly by Lehigh Tax Credit Part-
ners L.L.C. ("Lehigh I") and Lehigh Tax Credit Partners II L.L.C. ("Lehigh
II") for which Lehigh Tax Credit Partners, Inc. (the "Managing Member")
serves as managing member. As of June 25, 1999, Lehigh I held 1,080.5 BACs
and Lehigh II held 1,158.5 BACs.
(2) Each such party serves as a director and executive officer of the Manag-
ing Member, and owns an equity interest therein.
</TABLE>
Item 13. Certain Relationships and Related Transactions.
The Partnership has and will continue to have certain relationships with the
General Partners and their affiliates, as discussed in Item 11 and also Note
8 to the Financial Statements in Item 8 above, which is incorporated herein
by reference thereto. However, there have been no direct financial transac-
tions between the Partnership and the directors and executive officers of the
Liberty General Partner and the general partner of the Related General Part-
ner.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
(a) 1. Financial Statements
Independent Auditors' Report 21
Consolidated Balance Sheets at March 31, 1999 and 1998 87
Consolidated Statements of Operations for the Years Ended March
31, 1999, 1998 and 1997 88
Consolidated Statements of Changes in Partners' Capital (Defi-
cit) for the Years Ended March 31, 1999, 1998 and 1997 89
Consolidated Statements of Cash Flows for the Years Ended March
31, 1999, 1998 and 1997 90
Notes to Consolidated Financial Statements 92
(a) 2. Financial Statement Schedules
Independent Auditors' Report 118
Schedule I - Condensed Financial Information of Registrant 119
Schedule III - Real Estate and Accumulated Depreciation and
Mortgage Loans on Real Estate 122
All other schedules have been omitted because they are not re-
quired or because the required information is contained in the
financial statements and notes thereto.
(a) 3. Exhibits
(3B) Form of Amended and Restated Agreement of Limited Partnership
of Liberty Tax Credit Plus II L.P. (incorporated by reference
to exhibits filed with Amendment No. 1 to Liberty Tax Credit
Plus II L.P.'s Registration Statement on Form S-11 Registration
No. 33-21429) 115
(21) Subsidiaries of the Registrant 126
(27) Financial date schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Item 14. Exhibits, Financial Statement Schedules, and Re-
ports on Form 8-K. (continued)
Jurisdiction
(c) Subsidiaries of the Registrant (Exhibit 21) of Organization
Polynesian Apartments Associates, Ltd. (a Limited Partnership) FL
Seagrape Village Associates, Ltd. (a Limited Partnership) FL
Metropolitan Towers Associates, L.P. PR
Westminster Place II - Olive Site, L.P. MO
Property Development Associates, L.P. (Bridgeport) MO
Whittier Plaza Associates Limited Partnership MO
United-Glen Arden I Limited Partnership MD
United-Glen Arden II Limited Partnership MD
Rolling Green Limited Partnership IL
Santa Juanita II Limited Partnership NY
Spring Creek Associates, L.P. (a Delaware Limited Partnership) DE
East Two Thirty-Five Associates L.P.
(a Delaware Limited Partnership)
(14th Street) DE
Upper Fifth Avenue Residential Associates, L.P. DE
West 107th Street Associates, L.P.
(a Delaware Limited Partnership) DE
General Atlantic Second Avenue Associates, L.P.
(a Delaware Limited Partnership) (96th Street) NY
Church Lane Associates PA
Campeche Isle Apartments Limited Partnership TX
Robin Housing Associates (a Limited Partnership) NY
Concourse Artists Housing Associates (a Limited Partnership) NY
2051 Grand Concourse Housing Associates
(a Limited Partnership) NY
Willoughby-Wyckoff Housing Associates (a Limited Partnership) NY
Goodfellow Place Limited Partnership MO
Penn Alto Associates Limited Partnership PA
Gramco Development Limited Dividend Partnership, L.P. (Bayamon)PR
Alexis Park Apartments, a Louisiana Partnership in Commendam LA
Williamsburg Residential, L.P. KS
Victory Apartments IL
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LIBERTY TAX CREDIT PLUS II L.P.
(Registrant)
By: RELATED CREDIT PROPERTIES II L.P.,
a General Partner
By: Related Credit Properties II Inc.,
its general partner
Date: June 28, 1999
By: /s/ J. Michael Fried
J. Michael Fried
President, Chief Executive Officer
and Director
(Principal Executive Officer)
and
By: LIBERTY G.P. II INC.,
a General Partner
Date: June 28, 1999
By: /s/ J. Michael Fried
J. Michael Fried
President and Director
and
By: LIBERTY ASSOCIATES II, L.P.,
a General Partner
By: Related Credit Properties II, Inc.,
its General Partner
Date: June 28, 1999
By: /s/ J. Michael Fried
J. Michael Fried
President and Director
By: LIBERTY G.P. II INC.,
its General Partner
By: /s/ J. Michael Fried
J. Michael Fried
President and Director
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this re-
port has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated:
Signature Title Date
President, Chief Executive Officer
(Principal Executive Officer)
and Director of Related Credit
Properties Inc., (general partner
of Related Credit Properties II L.P.
and Liberty Associates II, L.P.,
General Partners of Registrant)
and Liberty GP II, Inc.
(general partner of Liberty
/s/ J. Michael Fried Associates II, L.P.)
J. Michael Fried (a General Partner of Registrant) June 28, 1999
Vice President (Principal Financial
Officer) of Related Credit Properties
II Inc., (general partner
of Related Credit Properties II L.P.
and Liberty Associates II, L.P.,
General Partners of Registrant)
and Liberty GP II, Inc.
(general partner of Liberty
/s/ Alan P. Hirmes Associates II, L.P.)
Alan P. Hirmes (a General Partner of Registrant) June 28, 1999
Treasurer (Principal Accounting
Officer) of Related Credit Properties
II Inc., (general partner
of Related Credit Properties II L.P.
and Liberty Associates II, L.P.,
General Partners of Registrant)
and Liberty GP II, Inc.
(general partner of Liberty.
/s/ Glenn F. Hopps Associates II, L.P.)
Glenn F. Hopps (a General Partner of Registrant) June 28, 1999
Director of Related Credit Properties
II Inc., (general partner
of Related Credit Properties II L.P.
/s/ Stephen M. Ross and Liberty Associates II, L.P.,
Stephen M. Ross (General Partners of Registrant) June 28, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Liberty Tax Credit Plus II L.P. and Subsidiaries
(A Delaware Limited Partnership)
In connection with our audits of the consolidated financial statements of
Liberty Tax Credit Plus II L.P. and Subsidiaries (a Delaware Limited Partner-
ship) included in this Form 10-K as presented in our opinion dated June 24,
1999 on pages 21 and 22, and based on the reports of other auditors, we have
also audited supporting Schedule I for the 1998, 1997 and 1996 Fiscal Years
and Schedule III at March 31, 1999. In our opinion, and based on the reports
of the other auditors, these consolidated schedules present fairly, when read
in conjunction with the related consolidated financial statements, the finan-
cial data required to be set forth therein.
As discussed in Note 10(a), the consolidated financial statements include the
financial statements of six limited partnerships with significant contingen-
cies and uncertainties. The financial statements of five of these subsidiary
partnerships were prepared assuming that each will continue as a going con-
cern. The auditors' opinion on the financial statements for the 1998 Fiscal
Year for one of these subsidiary partnerships was qualified due to uncer-
tainties relating to balances in replacement reserves, mortgage balances and
the related accrued interest. In addition, this subsidiary partnership was
not audited in prior years and there are uncertainties as to whether any
adjustments were necessary to be made to partners' equity at January 1, 1998.
The six subsidiary partnerships' net losses aggregated $1,209,164(Fiscal 1998)
$1,385,347 (Fiscal 1997) and $4,217,106 (Fiscal 1996) and their assets aggre-
gated $21,033,273 and $22,138,567 at March 31, 1999 and 1998, respectively.
These matters raise substantial doubt about these subsidiary partnerships'
abilities to continue as going concerns. Management's plans in regard to
these matters are also described in Note 10(a). The accompanying consoli-
dated financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI, LLP
New York, New York
June 24, 1999
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summarized condensed financial information of registrant (not including con-
solidated subsidiary partnerships)
CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
March 31,
1999 1998
<S> <C> <C>
Cash and cash equivalents $ 282,009 $ 261,592
Cash held in escrow 501,219 157,581
Investment and advances in
subsidiary partnerships 50,387,769 54,621,758
Other assets 153,197 153,197
Total assets $51,324,194 $55,194,128
LIABILITIES AND PARTNERS' EQUITY
Due to general partner
and affiliates $ 6,643,203 $ 4,152,220
Other liabilities 103,347 111,242
Total liabilities 6,746,550 4,263,462
Partners' equity 44,577,644 50,930,666
Total liabilities and
partners' equity $51,324,194 $55,194,128
Investments in subsidiary partnerships are recorded in accordance with the
equity method of accounting, wherein the investments are not reduced below
zero. Accordingly, partners' equity on the consolidated balance sheet will
differ from partners' equity shown above.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Revenues
Other $ 16,869 $ 14,021 $ 30,188
Gain on sale of
investments in subsidiary
partnerships 0 154,577 0
16,869 168,598 30,188
Expenses
Administrative and
management 169,819 595,300 358,444
Administrative and
management-
related parties 1,652,680 1,631,010 1,588,872
Total Expenses 1,822,499 2,226,310 1,947,316
Loss from operations (1,805,630) (2,057,712) (1,917,128)
Equity in loss of subsidiary
partnerships (*) (4,547,392) (5,066,504) (7,235,061)
Net loss $(6,353,022) $(7,124,216) $(9,152,189)
(*) Includes suspended prior year losses in excess of investment in accor-
dance with the equity method of accounting amounting to $(207,946),
$(176,296) and $0 for 1999, 1998, and 1997, respectively.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(6,353,022) $(7,124,216) $(9,152,189)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Equity in loss of
subsidiary partnerships 4,547,392 5,066,504 7,235,061
Gain on sale of
investments in subsidiary
partnerships 0 (154,577) 0
Increase (decrease)
in liabilities
Due to general partners
and affiliates 2,490,983 1,731,718 1,523,577
Other liabilities (7,895) (25,271) (3,377)
Total adjustment 7,030,480 6,618,374 8,755,261
Net cash provided by (used in)
operating activities 677,458 (505,842) (396,928)
Cash flows from
investing activities:
Distributions from
subsidiaries 334,217 272,052 621,476
(Increase) decrease in
cash held in escrow (343,638) (157,581) 294,250
Advances and investments in
subsidiary
partnerships (647,620) (1,706,173) (400,835)
Proceeds from sale of
investments in subsidiary
partnerships 0 1,400,000 0
Net cash (used in)
provided by investing
activities (657,041) (191,702) 514,891
Net increase (decrease)
in cash and
cash equivalents 20,417 (697,544) 117,963
Cash and cash equivalents,
beginning of year 261,592 959,136 841,173
Cash and cash equivalents,
end of year $ 282,009 $ 261,592 $ 959,136
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 1999
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Partnership Acquisition:
Buildings and Improvements
Description Encumbrances Land Improvements (Disposals)
<S> <C> <C> <C> <C>
Apartment Complexes
Polynesian Apartments
Associates, Ltd.
Homestead, FL $2,609,419 $386,180 $4,195,068 $ (10,325)
Seagrape Village
Associates, LTD.
Homestead, FL 4,596,078 1,270,000 6,123,373 709,189
Metropolitan Towers
Associates, Ltd.
Rio Piedras, PR 4,887,754 322,000 2,434,303 5,650,400
Westminster Place II-
Olive Site, L.P.
St. Louis, MO 4,469,707 928,979 5,382,740 166,670
Property
Development
Associates, L.P.
Kansas City, MO 5,600,000 624,858 7,228,721 5,197,946
Whittier Plaza
Associates, L.P.
St. Louis, MO 1,714,720 26,920 2,015,030 (391,316)
United-Glen
Arden I L.P.
Glen Arden, MO 12,358,853 1,770,000 6,577,720 12,718,482
United-Glen
Arden II L.P.
Glen Arden, MO 9,430,982 1,190,000 4,837,436 9,039,089
Rolling Green L.P.
Chicago, IL 1,670,785 466,683 4,533,670 3,471,458
Santa Juanita II L.P.
Bayamon, PR 1,718,238 115,000 2,085,485 1,770,324
Spring Creek
Associates, L.P.
Brooklyn, NY 0 3,343,549 16,216,700 18,736,442
East Two Thirty-Five
Associates L.P.
(14th Street)
New York, NY 0 950,000 2,542,604 (527,787)
Concourse Artists
Housing
Associates, L.P.
Bronx, NY 1,564,285 5,750 2,246,560 52,924
2051 Grand
Concourse
Housing
Associates
Bronx, NY 3,963,581 31,500 5,221,117 52,924
Robin Housing
Associates
Bronx, NY 5,384,484 26,750 8,186,055 52,925
Willoughby-Wyckoff
Housing
Associates
Bronx, NY 4,206,264 17,000 6,126,088 52,925
Upper Fifth
Avenue
Residential
Associates, L.P.
Bronx, NY 19,245,100 159,861 21,096,862 1,157,027
West 107th Street
Associates, L.P.
Bronx, NY 0 305,813 3,850,928 132,299
General Atlantic
Second Avenue
Associates, L.P.
(96th Street)
Bronx, NY 0 246,495 2,689,395 167,710
Church Lane
Associates
Germantown, PA 1,853,363 20,000 4,009,983 (12,205)
Campeche Isle
Apartments L.P.
Galveston, TX 4,000,000 450,000 6,792,005 469,822
Goodfellow
Place L.P.
St. Louis, MO 3,934,968 160,000 4,581,787 (3,532,767)
Penn Alto
Associates L.P.
Altoona, PA 4,899,450 60,000 2,731,082 8,991,246
Gramco
Development
Limited Dividend
Partnership, L.P.
(Bayamon)
Bayamon, PR 4,590,034 1,322,887 7,609,024 (200,985)
Alexis Park
Apartments
Bossier City, LA 5,027,364 640,000 7,297,925 457,005
Williamsburg
Residential
Witchita, KS 1,998,926 136,974 831,584 1,878,957
Victory
Apartments
Chicago, IL 6,309,324 161,500 4,929,133 5,050,484
$116,033,679 $15,138,699 $152,372,378 $71,300,863
<CAPTION>
Gross Amount at which Carried At Close of Period
Buildings and
Description Land Improvements Total
<S> <C> <C> <C>
Apartment Complexes
Polynesian Apartments
Associates, Ltd.
Homestead, FL $ 388,192 $ 4,182,731 $ 4,570,923
Seagrape Village
Associates, LTD.
Homestead, FL 1,275,292 6,827,270 8,102,562
Metropolitan Towers
Associates, Ltd.
Rio Piedras, PR 327,292 8,079,411 8,406,703
Westminster Place II-
Olive Site, L.P.
St. Louis, MO 916,669 5,561,720 6,478,389
Property
Development
Associates, L.P.
Kansas City, MO 606,704 12,444,821 13,051,525
Whittier Plaza
Associates, L.P.
St. Louis, MO 32,261 1,618,373 1,650,634
United-Glen
Arden I L.P.
Glen Arden, MO 1,775,293 19,290,909 21,066,202
United-Glen
Arden II L.P.
Glen Arden, MO 1,195,293 13,871,232 15,066,525
Rolling Green L.P.
Chicago, IL 471,975 7,999,836 8,471,811
Santa Juanita II L.P.
Bayamon, PR 120,293 3,850,516 3,970,809
Spring Creek
Associates, L.P.
Brooklyn, NY 2,595,782 35,700,909 38,296,691
East Two Thirty-Five
Associates L.P.
(14th Street)
New York, NY 462,662 2,502,155 2,964,817
Concourse Artists
Housing
Associates, L.P.
Bronx, NY 11,042 2,294,192 2,305,234
2051 Grand
Concourse
Housing
Associates
Bronx, NY 36,792 5,268,749 5,305,541
Robin Housing
Associates
Bronx, NY 32,042 8,233,688 8,265,730
Willoughby-Wyckoff
Housing
Associates
Bronx, NY 22,292 6,173,721 6,196,013
Upper Fifth
Avenue
Residential
Associates, L.P.
Bronx, NY 166,763 22,246,987 22,413,750
West 107th Street
Associates, L.P.
Bronx, NY 312,715 3,976,325 4,289,040
General Atlantic
Second Avenue
Associates, L.P.
(96th Street)
Bronx, NY 253,397 2,850,203 3,103,600
Church Lane
Associates
Germantown, PA 26,902 3,990,876 4,017,778
Campeche Isle
Apartments L.P.
Galveston, TX 456,902 7,859,334 8,316,236
Goodfellow
Place L.P.
St. Louis, MO 41,102 1,167,918 1,209,020
Penn Alto
Associates L.P.
Altoona, PA 97,907 11,684,421 11,782,328
Gramco
Development
Limited Dividend
Partnership, L.P.
(Bayamon)
Bayamon, PR 1,329,788 7,401,138 8,730,926
Alexis Park
Apartments
Bossier City, LA 646,902 7,748,028 8,394,930
Williamsburg
Residential
Witchita, KS 673,429 2,174,086 2,847,515
Victory
Apartments
Chicago, IL 168,402 9,972,715 10,141,117
$14,444,085 $224,972,264 $239,416,349
<CAPTION>
Life on which
Depreciation in
Year of Latest Income
Accumulated Construction/ Date Statements is
Description Depreciation Renovation Acquired Computed (a)(b)
<S> <C> <C> <C> <C>
Apartment Complexes
Polynesian Apartments
Associates, Ltd.
Homestead, FL $ 915,909 1988 July 1988 27.5 years
Seagrape Village
Associates, LTD.
Homestead, FL 1,590,569 1988 July 1988 27.5 years
Metropolitan Towers
Associates, Ltd.
Rio Piedras, PR 1,779,908 1987 Dec. 1988 40 years
Westminster Place II-
Olive Site, L.P.
St. Louis, MO 1,521,526 1988 Oct. 1988 20-40 years
Property
Development
Associates, L.P.
Kansas City, MO 3,506,305 1988 Dec. 1988 40 years
Whittier Plaza
Associates, L.P.
St. Louis, MO 564,607 1987 Dec. 1988 20-40 years
United-Glen
Arden I L.P.
Glen Arden, MO 7,694,206 1988 Dec. 1988 8-25 years
United-Glen
Arden II L.P.
Glen Arden, MO 5,478,944 1988 Dec. 1988 15-25 years
Rolling Green L.P.
Chicago, IL 2,396,838 1988 Dec. 1988 7-39 years
Santa Juanita II L.P.
Bayamon, PR 1,251,343 1988 Dec. 1988 27.5 years
Spring Creek
Associates, L.P.
Brooklyn, NY 11,876,541 1987 Dec. 1988 15-27.5 years
East Two Thirty-Five
Associates L.P.
(14th Street)
New York, NY 950,296 1988 Dec. 1988 27.5-31.5 years
Concourse Artists
Housing
Associates, L.P.
Bronx, NY 859,442 1988 Nov. 1988 27.5 years
2051 Grand
Concourse
Housing
Associates
Bronx, NY 1,960,092 1988 Nov. 1988 27.5 years
Robin Housing
Associates
Bronx, NY 3,049,675 1988 Nov. 1988 27.5 years
Willoughby-Wyckoff
Housing
Associates
Bronx, NY 2,292,158 1988 Nov. 1988 27.5 years
Upper Fifth
Avenue
Residential
Associates, L.P.
Bronx, NY 5,497,575 1987 Jan. 1989 40 years
West 107th Street
Associates, L.P.
Bronx, NY 1,486,037 1987 Jan. 1989 27.5-31.5 years
General Atlantic
Second Avenue
Associates, L.P.
(96th Street)
Bronx, NY 1,066,996 1988 Jan. 1989 27.5-31.5 years
Church Lane
Associates
Germantown, PA 1,509,267 1988 Feb. 1989 15 - 27.5 years
Campeche Isle
Apartments L.P.
Galveston, TX 2,618,846 1988 May 1989 27.5 years
Goodfellow
Place L.P.
St. Louis, MO 129,123 1988 May 1989 10 - 40 years
Penn Alto
Associates L.P.
Altoona, PA 3,381,118 1989 June 1989 27.5 - 40 years
Gramco
Development
Limited Dividend
Partnership, L.P.
(Bayamon)
Bayamon, PR 3,056,077 1989 July 1989 25 years
Alexis Park
Apartments
Bossier City, LA 2,763,066 1986 July 1989 27.5 years
Williamsburg
Residential
Witchita, KS 749,781 1989 Aug. 1989 40 years
Victory
Apartments
Chicago, IL 2,264,566 1988 Sept. 1989 40 years
$72,210,811
(a) Since all properties were acquired as operating properties, depre-
ciation is computed using primarily the straight line method over the
estimated useful lives determined by the partnership date of acquisi-
tion.
(b) Furniture and fixtures, included in building improvements, are de-
preciated primarily by the straight line method over the estimated use-
ful lives ranging from 5 to 15 years.
<CAPTION>
Cost of Property and Equipment
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of period $237,581,800 $236,910,301 $241,223,589
Additions during period:
Improvements 1,866,699 792,036 1,463,525
Depreciation expense
Deductions during period:
Loss on impairment 0 0 (5,694,314)
Dispositions (32,150) (120,537) (82,499)
Balance at close of period $239,416,349 $237,581,800 $236,910,301
<CAPTION>
Accumulated Depreciation
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of period $64,545,022 $56,299,580 $48,743,758
Additions during period:
Improvements
Depreciation expense 7,694,504 8,358,728 8,584,497
Deductions during period:
Loss on impairment 0 0 (967,237)
Dispositions (28,715) (113,286) (61,438)
Balance at close of period $72,210,811 $64,545,022 $56,299,580
At the time the local partnerships were acquired by Liberty Tax Credit
Plus II Limited Partnership, the entire purchase price paid by Liberty Tax
Credit Plus II Limited Partnership was pushed down to the local partner-
ships as property and equipment with an offsetting credit to capital.
Since the projects were in the construction phase at the time of acquisi-
tion, the capital accounts were insignificant at the time of purchase.
Therefore, there are no material differences between the original cost ba-
sis for tax and GAAP.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the finan-
cial statements for Liberty Tax Credit Plus L.P. II and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000832141
<NAME> Liberty Tax Credit Plus L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> MAR-31-1999
<CASH> 10,236,506
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,333,107
<PP&E> 239,416,349
<DEPRECIATION> 72,210,811
<TOTAL-ASSETS> 185,526,512
<CURRENT-LIABILITIES> 26,950,497
<BONDS> 119,613,134
0
0
<COMMON> 0
<OTHER-SE> 38,962,881
<TOTAL-LIABILITY-AND-EQUITY> 185,526,512
<SALES> 0
<TOTAL-REVENUES> 26,705,795
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,816,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,241,779
<INCOME-PRETAX> (8,352,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,352,238)
<EPS-BASIC> (67.79)
<EPS-DILUTED> 0
</TABLE>
