<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR QUARTER ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 33-33216
NATIONAL TAX CREDIT INVESTORS II
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. EMPLOYER IDENTIFICATION NO. 93-1017959
9090 Wilshire Blvd., Suite 201
Beverly Hills, Calif. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Securities Registered Pursuant to
Section 12(b) or 12(g) of the Act
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 2
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1996 and December 31, 1995...............1
Statements of Operations
Three Months Ended March 31, 1996 and 1995.................2
Statement of Partners' Equity
Three Months Ended March 31, 1996..........................3
Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995.................4
Notes to Financial Statements .....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................13
Item 6. Exhibits and Reports on Form 8-K ..................................13
Signatures ................................................................14
<PAGE> 3
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $35,037,808 $36,116,847
CASH AND CASH EQUIVALENTS (Note 1) 399,282 731,131
RESTRICTED CASH (Note 3) 205,274 205,274
----------- -----------
TOTAL ASSETS $35,642,364 $37,053,252
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees due to partners (Notes 5 and 7) $ 811,272 $ 687,768
Capital contributions payable (Note 4) 356,985 356,985
Accounts payable and accrued expenses 74,650 168,275
----------- -----------
1,242,907 1,213,028
----------- -----------
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 34,399,457 35,840,224
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $35,642,364 $37,053,252
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME $ 7,491 $ 19,239
----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 191,153 191,153
General and administrative (Note 5) 43,023 27,944
Legal and accounting 37,082 80,907
----------- -----------
Total operating expenses 271,258 300,004
----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (263,767) (280,765)
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,177,000) (1,252,420)
----------- -----------
NET LOSS $(1,440,767) $(1,533,185)
=========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (20) $ (21)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statemen
2
<PAGE> 5
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
March 31, 1996 72,404
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1996 $ (270,522) $ 36,110,746 $ 35,840,224
Net loss for the three months
ended March 31, 1996 (14,408) (1,426,359) (1,440,767)
------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
March 31, 1996 $ (284,930) $ 34,684,387 $ 34,399,457
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 6
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,440,767) $(1,533,185)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in loss of limited partnerships
and amortization of acquisition costs 1,177,000 1,252,420
Decrease in other receivables 0 15,095
Increase (decrease) in:
Accounts payable and accrued expenses (93,625) 26,578
Accrued fees due to partners 123,504 164,084
----------- -----------
Net cash used in operating activities (233,888) (75,008)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited partnerships:
Capital contributions (143,687) 0
Capitalized acquisition costs and fees 0 (13,797)
Distributions recognized as a return of capital 45,726 77,449
Decrease in capital contributions payable 0 (12,696)
Maturity of short-term investments 0 1,000,000
----------- -----------
Net cash provided by (used in) investing activities (97,961) 1,050,956
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (331,849) 975,948
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 731,131 426,702
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 399,282 $ 1,402,650
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report for
the year ended December 31, 1995 prepared by National Tax Credit
Investors II (the "Partnership"). Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are
not necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and changes in cash
flow for the three months then ended.
ORGANIZATION
The Partnership was formed under the California Revised Limited
Partnership Act on January 12, 1990. The Partnership was formed to
invest primarily in other limited partnerships ("Local Partnerships")
which own and operate multifamily housing complexes that are eligible
for low income housing tax credits. ("Tax Credits"). The general
partner of the Partnership (the "General Partner") is National
Partnership Investments Corp. ("NAPICO"), a California corporation. The
special limited partner of the Partnership (the "Special Limited
Partner") is PaineWebber TC Partners, L.P., a Virginia limited
partnership.
The Partnership offered up to 100,000 units of limited partnership
interests ("Units") at $1,000 per Unit. The offering terminated on
April 22, 1992, at which date a total of 72,404 Units had been sold
amounting to $72,404,000 in capital contributions. Offering expenses of
$9,412,868 were incurred in connection with the sale of such limited
partner interests.
The General Partner has a one percent interest in operating profits and
losses of the Partnership. The limited partners will be allocated the
remaining 99 percent interest in proportion to their respective
investments.
The Partnership shall continue in full force and in effect until
December 31, 2030 unless terminated earlier pursuant to the terms of
its Amended and Restated Agreement of Limited Partnership (a
"Partnership Agreement") or operation of law.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
5
<PAGE> 8
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership's investment in Local Partnerships are accounted for on
the equity method. Acquisition, selection and other costs related to
the Partnership's investments are capitalized and are being amortized
on a straight line basis over the estimated lives of the underlying
assets, which is generally 30 years. Acquisition, selection and other
costs related to Local Partnerships for which the Partnership has not
consummated its investment, have been expensed currently.
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the
limited partners' share of net loss by the weighted average number of
limited partnership interests outstanding during the year. The weighted
average number of limited partner interests was 72,404 for the periods
presented.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the responsibility
of the individual partners.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 37 local
partnerships (the "Local Partnerships"). As a limited partner of the
Local Partnerships, the Partnership does not have authority over
day-to-day management of the Local Partnerships or their properties
(the "Apartment Complexes"). The general partners responsible for
management of the Local Partnerships (the "Local Operating General
Partners") are not affiliated with the General Partner of the
Partnership, except as discussed below.
At March 31, 1996, the Local Partnerships own residential projects
consisting of 3,715 apartment units.
The Partnership, as a limited partner, is generally entitled to 99
percent of the operating profits and losses of the Local Partnerships.
National Tax Credit, Inc. II ("NTC-II") an affiliate of the General
Partner, serves either as a special limited partner or non-managing
administrative general partner in which case it receives .01 percent of
operating profits and losses of the Local Partnership, or as the Local
Operating General Partner of the Local Partnership in which case it is
entitled to .09 percent of the operating profits and losses of the
Local Partnership. The Partnership is generally entitled to receive 50
percent of the net cash flow generated by the Apartment Complexes,
subject to repayment of any loans made to the Local Partnerships
(including loans made by NTC-II or an affiliate), repayment for funding
of development deficit and operating deficit guarantees by the Local
Operating General Partners or their affiliates (excluding NTC-II and
its affiliates), and certain priority payments to the Local Operating
General Partners other than NTC-II or its affiliates.
6
<PAGE> 9
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The Partnership's allocable share of losses from Local Partnerships are
recognized in the financial statements until the related investment
account is reduced to a zero balance. Losses incurred after the
investment account is reduced to zero will not be recognized.
Distributions received by the Partnership from the Local Partnerships
are accounted for as a return of capital until the investment balance
is reduced to zero or to a negative amount equal to further capital
contributions required. Subsequent distributions received will be
recognized as income.
The following is a summary of the investments in Local Partnerships as
of March 31, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $ 36,116,847
Equity in losses of limited partnerships (1,121,.000)
Capital contributions to limited partnerships 143,687
Distributions recognized as a return of capital (45,726)
Amortization of capitalized acquisition costs and fees (56,000)
------------
Balance, end of period $ 35,037,808
============
</TABLE>
NOTE 3 - RESTRICTED CASH
Restricted cash represents funds in escrow to be used, to fund
operating deficits, if any, of one of the Local Partnership, as defined
in the Local Partnership Agreement.
NOTE 4 - CAPITAL CONTRIBUTIONS PAYABLE
Capital contributions payable represent amounts which are due at
various times based on conditions specified in the respective Local
Partnership agreements. The capital contributions payable unsecured and
non-interest bearing. These amounts are generally due upon the Local
Partnership achieving certain operating or financing benchmarks and are
expected to be paid generally within three years of the Partnership's
original investment date.
NOTE 5 - RELATED-PARTY TRANSACTIONS
Under the terms of its Partnership Agreement, the Partnership is
obligated to the General Partner and the Special Limited Partner for
the following fees:
7
<PAGE> 10
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 5 - RELATED-PARTY TRANSACTIONS (CONTINUED)
(a) An annual Partnership management fee in an amount equal to 0.5
percent of invested assets (as defined in the Partnership
Agreement) is payable to the General Partner and Special Limited
Partner. For the three months ended March 31, 1996 and 1995,
approximately $191,000 has been expensed. The unpaid balance at
March 31, 1996 is approximately $811,000.
(b) A property disposition fee is payable to the General Partner in an
amount equal to the lesser of (i) one-half of the competitive real
estate commission that would have been charged by unaffiliated
third parties providing comparable services in the area where the
apartment complex is located, or (ii) 3 percent of the sale price
received in connection with the sale or disposition of the
apartment complex or local partnership interest, but in no event
will the property disposition fee and all amounts payable to
affiliated real estate brokers in connection with any such sale
exceed in the aggregate, the lesser of the competitive rate (as
described above) or 6 percent of such sale price. Receipt of the
property disposition fee will be subordinated to the distribution
of sale or refinancing proceeds by the Partnership until the
limited partners have proceeds in an aggregate amount equal to (i)
their 6 percent priority return for any year not theretofore
satisfied (as defined in the Partnership Agreement) and (ii) an
amount equal to the aggregate adjusted investment (as defined in
the Partnership Agreement) of the limited partners. No disposition
fees have been paid.
(c) The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was $9,678 for the three months ended
March 31, 1996 and 1995, and is included in general and
administrative expenses.
NTC II is the Local Operating General Partner in four of the
Partnership's 37 Local Partnerships. In addition, NTC II is either a
special limited partner or an administrative general partner in the
other Local Partnerships.
An affiliate of the General Partner is currently managing four
properties owned by Local Partnerships. Local Partnerships pay the
affiliate property management fees in the amount of 5 percent of their
gross rental revenues. The amounts paid were $32,818 and $15,359 for
the three months ended March 31, 1996 and 1995, respectively.
NOTE 6 - CONTINGENCIES
The General Partner of the Partnership is a plaintiff in various
lawsuits and has also been named a defendant in other lawsuits arising
from transactions in the ordinary course of business. In addition, the
Partnership was involved in the following lawsuit. In the opinion of
management and the General Partner, the claims will not result in any
material liability to the Partnership.
Michigan Beach/City of Chicago Litigation. The City of Chicago (the
"City") filed a complaint against the Michigan Beach Local Partnership
and others in an action know as The City of Chicago v. Michigan Beach
Housing Cooperative, et al., No. 91 CH 5558 (the "Litigation"). The
complaint alleged, among other things, that Michigan Beach is in
default on a junior mortgage held by the City and that the prior owners
of Michigan Beach fraudulently induced the City to enter into the
second mortgage. The complaint also alleged that Michigan Beach's
acquisition of the property was a fraudulent conveyance, and that,
accordingly, the City can look to the property to satisfy any judgment
it may get on its fraud claim against the prior owner. The court
granted summary judgment against the City
8
<PAGE> 11
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 6 - CONTINGENCIES (CONTINUED)
on all counts by order dated January 26, 1996. The City filed a notice
of appeal. NTCI intends to vigorously defend the appeal. It is not
possible, however, to predict the outcome of the Litigation. The
Partnership's investment in Michigan Beach is approximately $1,796,000
at March 31, 1996. The Partnership also has a counterclaim against the
City, which remains pending, for the City's refusal to consent to the
refinancing of the Michigan Beach property.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The operations generated by the investee limited
partnerships, which accounts for the Partnership's primary source of
revenues, are subject to various government rules, regulations and
restrictions which make it impracticable to estimate the fair value of
the accrued fees due to partners. The carrying amount of other assets
and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
9
<PAGE> 12
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership raised $72,404,000 from investors by a public offering.
The Partnership's public offering ended April 22, 1992. The proceeds
have been used to invest in Local Partnerships which own and operate
Apartment Complexes that are eligible for Tax Credits.
It is not expected that any of the Local Partnerships in which the
Partnership invests will generate cash from operations sufficient to
provide distributions to the Limited Partners in any material amount.
Such cash from operations, if any, would first be used to meet
operating expenses of the Partnership. The Partnership's investments
will not be readily marketable and may be affected by adverse general
economic conditions which, in turn, could substantially increase the
risk of operating losses for the Apartment Complexes, the Local
Partnerships and the Partnership. These problems may result from a
number of factors, many of which cannot be controlled by the General
Partner.
RESULTS OF OPERATIONS
In general, in order to avoid recapture of Housing Tax Credits, the
Partnership does not expect that it will dispose of its Local
Partnership Interests or approve the sale by a Local Partnership of any
Apartment Complex prior to the end of the applicable 15-year Compliance
Period. Because of (i) the nature of the Apartment Complexes, (ii) the
difficulty of predicting the resale market for low-income housing 15 or
more years in the future, and (iii) the inability of the Partnership to
directly cause the sale of Apartment Complexes by local general
partners, but generally only to require such local general partners to
use their respective best efforts to find a purchaser for the Apartment
Complexes, it is not possible at this time to predict whether the
liquidation of substantially all of the Partnership's assets and the
disposition of the proceeds, if any, in accordance with the partnership
agreement will be able to be accomplished promptly at the end of the
15-year period. If a Local Partnership is unable to sell an Apartment
Complex, it is anticipated that the local general partner will either
continue to operate such Apartment Complex or take such other actions
as the local general partner believes to be in the best interest of the
Local Partnership. In addition, circumstances beyond the control of the
General Partner may occur during the Compliance Period which would
require the Partnership to approve the disposition of an Apartment
Complex prior to the end of the Compliance Period.
Except for interim investments in highly liquid debt investments, the
Partnership's investments are entirely interests in other Local
Partnerships owning Apartment Complexes. Funds temporarily not required
for such investments in projects are invested in these highly liquid
debt investments earning interest income as reflected in the statements
of operations. These interim investments can be easily converted to
cash to meet obligations as they arise.
The Partnership, as a Limited Partner in the Local Partnerships in
which it has invested, is subject to the risks incident to the
construction, management, and ownership of improved real estate. The
Partnership investments are also subject to adverse general economic
conditions, and accordingly, the status of the national economy,
including substantial unemployment and concurrent inflation, could
increase vacancy levels, rental payment defaults, and operating
expenses, which in turn, could substantially increase the risk of
operating losses for the Apartment Complexes.
The Partnership accounts for its investments in the Local Partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the Local Partnerships.
10
<PAGE> 13
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Distributions received from limited partnerships are recognized as
return of capital until the investment balance has been reduced to zero
or to a negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
The Partnership's income consists primarily of interest income earned
on certificates of deposit and other temporary investment of funds not
required for investment in Local Partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual partnership management fee in
an amount equal to 0.5 percent of invested assets is payable to the
General Partner and Special Limited Partner. The management fee
represents the annual recurring fee which will be paid to the partners
for their continuing management of Partnership affairs.
The Palms Springs View property, a 119-unit apartment complex located
in Palm Springs, California, operated at a deficit of approximately
$203,000 for the year ended December 31, 1995. The deficit has been
attributable to a soft local rental market and high leverage. The
property is encumbered by a mortgage note insured by the United States
Department of Housing and Urban Development (HUD) which matures in
August 2030. The Local Partnership was in default on the monthly
principal and interest installment payments during 1995. In January
1996, HUD paid to the lender a "partial payment of insurance claim",
which modified the mortgage note, including a reduction of the interest
rate and the creation of a second deed of trust to HUD with required
payments restricted to a proportion of available property cash flow.
The completion of the partial payment of insurance claim, in addition
to the application of reserve funds already held by the lender, served
to cure the default. The Local Operating General Partner of the Local
Partnership anticipates that due to the reduction of the required
monthly debt service payment, the property will attain breakeven
operations during 1996.
In December 1993, Local Partnership, PSVA Joint Venture, was admitted
as an additional limited partner of the Palm Springs Local Partnership
by its acquisition of 49% of the existing limited partner's 99%
ownership interest. In exchange for the ownership interest, the
additional limited partner originally agreed to invest $577,200, which
was to be paid in seventy-eight installments of $7,400 per month. In
January 1996, in conjunction with the partial payment of insurance
claim, the additional limited partner made a lump-sum contribution of
$150,000 in lieu of the payment of the twenty-four installments payable
during 1996 and 1997.
The Parkwood Landing Local Partnership obtained permanent financing of
$4,700,000 in October 1994, the proceeds of which were used to repay
the then-outstanding construction loan in the amount of $6,386,000. The
remaining outstanding loan balance was paid primarily with the
Partnership's investment of the second and third capital contributions
(approximately $1,200,000 and $400,000, respectively), with the
remainder being funded by the Local Operating General Partner. Pursuant
to a letter agreement dated October 13, 1994 between the Partnership
and the Local Operating General Partner, the third capital contribution
was advanced in order to facilitate the funding of the permanent loan.
This capital contribution bears interest at the prime rate of plus 2%
per annum, and the interest was to be due and payable upon the earlier
of June 30, 1995 or the attainment of Rental Achievement.
11
<PAGE> 14
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The Michigan Beach property, a 240-unit apartment complex located in
Chicago, Illinois, operated at a deficit of approximately $215,000 for
the year ended December 31, 1995. The deficit has been attributable to
a soft local rental market, high leverage and deferred maintenance.
In consideration of the Partnership's advance of the third capital
contribution, the Local Operating General Partner agreed to redefine
the benchmarks of the fourth and final capital contribution of $355,909
so as to be payable in two separate installments. The final capital
contribution shall now be payable in two installments: (a) $100,000
upon the attainment of breakeven operations and 95% occupancy for six
consecutive months, as defined in the letter agreement, and (b)
$255,909 upon an additional three months of breakeven operations and
95% occupancy. In addition, the management agent, which is an affiliate
of the Local Operating General Partner, shall subordinate its property
management fees in the event the project operates at a deficit during
the guaranty period. As of March 31, 1996, Rental Achievement has not
been attained and the accrued interest on the capital contributions has
not yet been paid.
12
<PAGE> 15
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1996, NTCI-II's General Partner was a plaintiff or a defendant
in several suits. None of these suits were related to NTCI-II.
In addition, one of the Local Partnerships is involved in the following lawsuit:
Michigan Beach/City of Chicago Litigation. The City of Chicago (the "City")
filed a complaint against the Michigan Beach Local Partnership and others in an
action know as The City of Chicago v. Michigan Beach Housing Cooperative, et
al., No. 91 CH 5558 (the "Litigation"). The complaint alleged, among other
things, that Michigan Beach is in default on a junior mortgage held by the City
and that the prior owners of Michigan Beach fraudulently induced the City to
enter into the second mortgage. The complaint also alleged that Michigan Beach's
acquisition of the property was a fraudulent conveyance, and that, accordingly,
the City can look to the property to satisfy any judgment it may get on its
fraud claim against the prior owner. The Michigan Beach Local Partnership filed
a counterclaim against the City for interfering with the Local Partnership's
efforts to modify the first mortgage loan on the property. The court granted
summary judgment against the City on all counts of the City's Complaint by order
dated January 26, 1996. The City filed a notice of appeal and prosecute its
counterclaim. NTCI intends to vigorously defend the appeal. The Local
Partnership's counterclaim is still pending. It is not possible, however, to
predict the outcome of the Litigation. The Partnership's investment in Michigan
Beach is estimated at $1,796,000 at March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of regulation
S-K.
13
<PAGE> 16
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL TAX CREDIT INVESTORS II
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
Date: ______________________________________
By: ______________________________________
Bruce Nelson
President
Date: ______________________________________
By: ______________________________________
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS, THE STATEMENTS OF OPERATIONS, AND STATEMENTS OF CASH FLOW, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 604,556
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,642,364
<CURRENT-LIABILITIES> 74,650
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,399,457
<TOTAL-LIABILITY-AND-EQUITY> 35,642,364
<SALES> 0
<TOTAL-REVENUES> 7,491
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,448,258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,440,767)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,440,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,440,767)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
