<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 JUNE 30, 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 JUNE 30, 1996
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1996 and December 31, 1995 . . . 1
Statements of Operations
Six and Three Months Ended June 30, 1996 and 1995 . . 2
Statement of Partners' Equity (Deficiency),
Six Months Ended June 30, 1996 . . . . . . . . . . . 3
Statements of Cash Flows
Six Months Ended June 30, 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
</TABLE>
<PAGE> 3
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
------------ ------------
<S> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $ 33,665,956 $ 36,116,847
CASH AND CASH EQUIVALENTS (Note 1) 351,444 731,131
RESTRICTED CASH (Note 3) 205,274 205,274
OTHER ASSETS 136,395 -
------------ ------------
TOTAL ASSETS $ 34,359,069 $ 37,053,252
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees due to partners (Notes 5 and 7) $ 978,894 $ 687,768
Capital contributions payable (Note 4) 356,985 356,985
Accounts payable and accrued expenses 45,886 168,275
------------ ------------
1,381,765 1,213,028
------------ ------------
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 32,977,304 35,840,224
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 34,359,069 $ 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
SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 12,424 $ 4,934 $ 123,833 $ 104,594
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Management fees - partners (Note 5) 382,303 191,151 382,305 191,152
General and administrative (Note 5) 65,514 22,490 67,856 39,912
Legal and accounting 73,527 36,445 137,118 56,211
------------- ------------- ------------- -------------
Total operating expenses 521,344 250,086 587,279 287,275
------------- ------------- ------------- -------------
LOSS FROM PARTNERSHIP
OPERATIONS (508,920) (245,152) (463,446) (182,681)
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND
AMORTIZATION OF
ACQUISITION COSTS (Note 2) (2,354,000) (1,177,000) (2,504,840) (1,252,420)
------------- ------------- ------------- -------------
NET LOSS $ (2,862,920) $ (1,422,152) $ (2,968,286) $ (1,435,101)
============= ============= ============= =============
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (40) $ (20) $ (41) $ (20)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------- ------------- -------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
June 30, 1996 72,404
=============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1996 $ (270,522) $ 36,110,746 $ 35,840,224
Net loss for the six months
ended June 30, 1996 (28,629) (2,834,291) (2,862,920)
------------- ------------- -------------
PARTNERS' EQUITY (DEFICIENCY),
June 30, 1996 $ (299,151) $ 33,276,455 $ 32,977,304
============= ============= =============
</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
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,862,920) $ (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 2,354,000 1,252,420
Decrease in other receivables - 15,095
Increase in other assets (136,395) -
Increase (decrease) in:
Accounts payable and accrued expenses (122,389) 26,578
Accrued fees due to partners 291,126 164,084
------------ ------------
Net cash used in operating activities (476,578) (75,008)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited partnerships:
Capitalized acquisition costs and fees - (13,797)
Distributions recognized as a return of capital 96,891 77,449
Decrease in capital contributions payable - (12,696)
Maturity of short-term investments - 1,000,000
------------ ------------
Net cash provided by investing activities 96,891 1,050,956
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (379,687) 975,948
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 731,131 426,702
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 351,444 $ 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
JUNE 30, 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 June 30, 1996 and the results of operations for the six
and three months then ended and changes in cash flows for the six
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)
JUNE 30, 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 June 30, 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)
JUNE 30, 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 June 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $36,116,847
Equity in losses of limited partnerships (2,242,000)
Distributions recognized as a return of capital (96,891)
Amortization of capitalized acquisition costs and fees (112,000)
--------
Balance, end of period $ 33,665,956
============
</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)
JUNE 30, 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 six months ended June 30, 1996 and
1995, approximately $382,000 has been expensed. The unpaid
balance at June 30, 1996 is approximately $979,000.
(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 approximately $19,000 for the
six months ended June 30, 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 $31,375 and $58,600 for
the six months ended June 30, 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)
JUNE 30, 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
$1,686,000 at June 30, 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)
JUNE 30, 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)
JUNE 30, 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, 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. 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
11
<PAGE> 14
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS(Continued)
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
June 30, 1996, Rental Achievement has not been attained and the
accrued interest on the capital contributions has not yet been paid.
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.
12
<PAGE> 15
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1996
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 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.
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 $1,686,000 at June 30, 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)
JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 556,718
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 693,113
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,359,069
<CURRENT-LIABILITIES> 45,886
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,977,304
<TOTAL-LIABILITY-AND-EQUITY> 34,359,069
<SALES> 0
<TOTAL-REVENUES> 12,424
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,875,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,862,920)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,862,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,862,920)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
