<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1999
Commission File Number 0-20610
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
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed 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 SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1999 and December 31, 1998....................1
Statements of Operations
Nine and Three Months Ended September 30, 1999 and 1998 ..............2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 1999..................................3
Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998.........................4
Notes to Financial Statements ..............................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................15
Item 6. Exhibits and Reports on Form 8-K ........................................15
Signatures .......................................................................16
</TABLE>
<PAGE> 3
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $17,863,545 $21,167,503
CASH AND CASH EQUIVALENTS (Note 1) 1,346,630 515,522
RESTRICTED CASH (Note 3) 238,901 232,822
----------- -----------
TOTAL ASSETS $19,449,076 $21,915,847
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees due to partners (Notes 5 and 7) $ 3,205,056 $ 2,831,597
Capital contributions payable (Note 4) 281,985 356,985
Accounts payable and accrued expenses 72,444 112,672
----------- -----------
3,559,485 3,301,254
----------- -----------
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 15,889,591 18,614,593
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $19,449,076 $21,915,847
=========== ===========
</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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 1999 Sept 30, 1999 Sept 30, 1998 Sept 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 29,371 $ 15,891 $ 24,950 $ 10,291
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 573,459 191,153 573,459 191,153
General and administrative (Note 5) 99,897 46,886 72,094 16,697
Legal and accounting 150,481 28,694 136,204 40,953
----------- ----------- ----------- -----------
Total operating expenses 823,837 266,733 781,757 248,803
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (794,466) (250,842) (756,807) (238,512)
DISTRIBUTION RECOGNIZEDS
AS INCOME 1,464 -- -- --
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,932,000) (644,000) (2,457,000) (819,000)
----------- ----------- ----------- -----------
NET LOSS $(2,725,002) $ (894,842) $(3,213,807) $(1,057,512)
=========== =========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (37) $ (12) $ (44) $ (14)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 72,404
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 1999 $ (442,778) $ 19,057,371 $ 18,614,593
Net loss for the nine months
ended September 30, 1999 (27,250) (2,697,752) (2,725,002)
------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
September 30, 1999 $ (470,028) $ 16,359,619 $ 15,889,591
============ ============ ============
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,725,002) $(3,213,807)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in loss of limited partnerships
and amortization of acquisition costs 1,932,000 2,457,000
Increase in other assets -- (42,500)
Increase in restricted cash (6,079) (8,277)
(Decrease) increase in:
Accounts payable and accrued expenses (40,228) 12,232
Accrued fees due to partners 373,459 573,459
----------- -----------
Net cash used in operating activities (465,850) (221,893)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited partnerships:
Capital contributions (138,339) --
Distributions from limited partnerships recognized
as a return of capital 171,797 533,045
Proceeds from partners admission 1,338,500 --
Decrease in capital contributions payable (75,000) --
----------- -----------
Net cash provided by investing activities 1,296,958 533,045
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 831,108 311,152
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 515,522 216,939
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,346,630 $ 528,091
=========== ===========
</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
SEPTEMBER 30, 1999
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, 1998 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 September 30,
1999 and the results of operations for the nine and three months then ended and
changes in cash flows for the nine 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 $9,412,521 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.
5
<PAGE> 8
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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.
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.
6
<PAGE> 9
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been any
permanent impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If the sum of the
expected future cash flows is less than the carrying amount of the assets, the
Partnership recognizes an impairment loss.
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 September 30, 1999, the Local Partnerships owned residential projects
consisting of 3,716 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.
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.
7
<PAGE> 10
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 for the nine
months ended September 30, 1999:
<TABLE>
<S> <C>
Balance, beginning of period $ 21,167,503
Capital contributions 138,339
Equity in losses of limited partnerships (1,800,000)
Proceeds from partners admission (1,338,500)
Distributions recognized as a return of capital (171,797)
Amortization of capitalized acquisition costs and fees (132,000)
------------
Balance, end of period $ 17,863,545
============
</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.
8
<PAGE> 11
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
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:
(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 nine months
ended September 30, 1999 and 1998, approximately $573,000 has been
expensed. The unpaid balance at September 30, 1999 is approximately
$3,205,000. The fees and expenses due the General Partner and Special
Limited Partner exceeded the Partnership's cash. The partners, during
the forthcoming year, will not demand payment of amounts due in excess
of such cash or such that the Partnership would not have sufficient
operating cash; however, the Partnership will remain liable for all such
amounts.
(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. For the six
months ended September 30, 1999 and 1998 there were no reimbursements to
NAPICO.
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 each Local Partnership.
9
<PAGE> 12
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 5 - RELATED-PARTY TRANSACTIONS (CONTINUED)
An affiliate of the General Partner is currently managing five properties owned
by Local Partnerships. The Local Partnerships pay the affiliate property
management fees in the amount of 5 percent of their gross rental revenues and
data processing fees. The amounts paid were approximately $128,900 and $120,600
for the nine months ended September 30, 1999 and 1998, respectively.
NOTE 6 - CONTINGENCIES
The General Partner of the Partnership is involved in various 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.
The Partnership has received notification form the Internal Revenue Service
("IRS") in April, 1998, that the low income housing tax credits generated during
1992 and 1993 by the Wedgewood Commons local partnership were subject to
recapture due to the local partnership's alleged failure to properly comply with
federal tax credit guidelines. The Partnership has filed an administrative
appeal of the IRS notification. In addition, the local general partner and its
affiliated management agent are currently attempting to negotiate a settlement
with the IRS that reportedly includes a proposal to rescind the IRS
notification.
Due to operating deficits, the Wade Walton local partnership filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in July 1999 in
order to restructure its indebtedness.
Foreclosure proceedings were commenced against the Paramount local partnership
in November 1998 and a receiver was appointed in May 1999. The local partnership
is exploring various alternatives to satisfy its indebtedness.
The Partnership has assessed the potential impact of the Year 2000 computer
systems issue on its operations. The Partnership believes that no significant
actions are required to be taken by the Partnership to address the issue and
that the impact of the Year 2000 computer systems issue will not materially
affect the Partnership's future operating results or financial condition.
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.
10
<PAGE> 13
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
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.
The Partnership does not have the ability to assess Limited Partners for
additional capital contributions to provide capital if needed by the Partnership
or Local Partnerships. Accordingly, if circumstances arise that cause the Local
Partnerships to require capital in addition to that contributed by the
Partnership and any equity of the local general partners, the only sources from
which such capital needs will be able to be satisfied (other than the limited
reserves available at the Partnership level) will be (i) third-party debt
financing (which may not be available if, as expected, the Apartment Complexes
owned by the Local Partnerships are already substantially leveraged), (ii) other
equity sources (which could reduce the amount of Tax Credits being allocated to
the Partnership, adversely affect the Partnership's interest in operating cash
flow and/or proceeds of sale or refinancing of the Apartment Complexes and
possibly even result in adverse tax consequences to the Limited Partners), or
(iii) the sale or disposition of Apartment Complexes. There can be no assurance
that any of such sources would be readily available in sufficient proportions to
fund the capital requirements of the Local Partnerships. If such sources are not
available, the Local Partnerships would risk foreclosure on their Apartment
Complexes if they were unable to renegotiate the terms of their first mortgages
and any other debt secured by the Apartment Complexes, which would have
significant adverse tax consequences to the Limited Partners.
Reserves of the Partnership and reserves of the Local Partnerships may be
increased or decreased from time to time by the General Partner or the local
general partner, as the case may be, in order to meet anticipated costs and
expenses. The amount of cash flow available for distributions
11
<PAGE> 14
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
and/or sale as refinancing proceeds, if any, which is available for distribution
to the Limited Partners may be affected accordingly.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its Limited Partners.
It is not expected that any of the Local Partnerships in which the Partnership
has invested will generate cash flow sufficient to provide for distributions to
Limited Partners in any material amount. 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.
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.
12
<PAGE> 15
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 limited partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the Local Partnerships.
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.
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 General Partner for its continuing management of Partnership
affairs.
The Partnership has received notification form the Internal Revenue Service
("IRS") in April, 1998, that the low income housing tax credits generated during
1992 and 1993 by the Wedgewood Commons local partnership were subject to
recapture due to the local partnership's alleged failure to properly comply with
federal tax credit guidelines. The Partnership has filed an administrative
appeal of the IRS notification. In addition, the local general partner and its
affiliated management agent are currently attempting to negotiate a settlement
with the IRS that reportedly includes a proposal to rescind the IRS
notification.
Due to operating deficits, the Wade Walton local partnership filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in July 1999 in
order to restructure its indebtedness.
Foreclosure proceedings were commenced against the Paramount local partnership
in November 1998 and a receiver was appointed in May 1999. The local partnership
is exploring various alternatives to satisfy its indebtedness.
13
<PAGE> 16
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership has assessed the potential impact of the Year 2000 computer
systems issue on its operations. The Partnership believes that no significant
actions are required to be taken by the Partnership to address the issue and
that the impact of the Year 2000 computer systems issue will not materially
affect the Partnership's future operating results or financial condition.
14
<PAGE> 17
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NTCI-II's General Partner is involved in various lawsuits. In addition, the
Partnership is involved in the following lawsuits arising from transactions in
the ordinary course of business. In the opinion of management and the General
Partner, these claims will not result in any material liability to the
Partnership.
Due to operating deficits, the Wade Walton local partnership filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in July 1999 in
order to restructure its indebtedness.
Foreclosure proceedings were commenced against the Paramount local partnership
in November 1998 and a receiver was appointed in May 1999. The local partnership
is exploring various alternatives to satisfy its indebtedness.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of regulation S-K.
15
<PAGE> 18
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
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.,
its General Partner
By: /s/ BRUCE NELSON
-----------------------------------
Bruce Nelson
President
Date: November 17, 1999
---------------------------------
By: /s/ CHARLES H. BOXENBAUM
-----------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: November 17, 1999
---------------------------------
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,346,630
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,346,630
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,449,076
<CURRENT-LIABILITIES> 72,444
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,889,591
<TOTAL-LIABILITY-AND-EQUITY> 19,449,076
<SALES> 0
<TOTAL-REVENUES> 30,835
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,755,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,725,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,725,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,725,002)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
