<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 JUNE 30, 2000
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 JUNE 30, 2000
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 2000 and December 31, 1999.........................1
Statements of Operations
Six and Three Months Ended June 30, 2000 and 1999....................2
Statement of Partners' Equity (Deficiency),
Six Months Ended June 30, 2000........................................3
Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999...............................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
JUNE 30, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $14,883,354 $16,153,744
CASH AND CASH EQUIVALENTS (Note 1) 1,407,700 1,296,513
OTHER ASSETS 209,682 120,479
RESTRICTED CASH (Note 3) 247,787 241,636
----------- -----------
TOTAL ASSETS $16,748,523 $17,812,372
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees due to partners (Notes 5 and 7) $ 3,478,513 $ 3,296,209
Capital contributions payable (Note 4) 1,076 1,076
Accounts payable and accrued expenses 99,623 113,878
----------- -----------
3,579,212 3,411,163
----------- -----------
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 13,169,311 14,401,209
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $16,748,523 $17,812,372
=========== ===========
</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, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 42,922 $ 24,937 $ 13,480 $ 6,679
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 382,304 197,188 382,306 191,153
General and administrative (Note 5) 65,953 47,414 53,011 28,787
Legal and accounting 84,405 27,556 121,787 92,804
----------- ----------- ----------- -----------
Total operating expenses 532,662 272,158 557,104 312,744
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (489,740) (247,221) (543,624) (306,065)
DISTRIBUTION RECOGNIZED
AS INCOME 13,998 6,999 1,464 1,464
GAIN ON TRANSFER OF PARTNERSHIP
INTEREST (Note 2) 448,844 - - -
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,205,000) (602,500) (1,288,000) (644,000)
----------- ----------- ----------- -----------
NET LOSS $(1,231,898) $ (842,722) $(1,830,160) $ (948,601)
=========== =========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (17) $ (12) $ (25) $ (13)
=========== =========== =========== ===========
</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)
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 72,404
============
PARTNERS' EQUITY (DEFICIENCY),
January 1, 2000 $ (484,912) $ 14,886,121 $ 14,401,209
Net loss for the six months
ended June 30, 2000 (12,319) (1,219,579) (1,231,898)
------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
June 30, 2000 $ (497,231) $ 13,666,542 $ 13,169,311
============ ============ ============
</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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,231,898) $(1,830,160)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in loss of limited partnerships
and amortization of acquisition costs 1,205,000 1,288,000
Gain on transfer of partnership interest (448,844)
Increase in other assets (89,203) -
Increase in restricted cash (6,151) (3,506)
Increase (decrease) in:
Accounts payable and accrued expenses (14,255) (62,242)
Accrued fees due to partners 182,304 382,305
----------- -----------
Net cash provided by (used in) operating activities (403,047) (225,603)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited partnerships:
Proceeds from transfer of partnership interest 448,844 -
Capital contributions (50,391)
Distributions from limited partnerships recognized
as a return of capital 65,390 1,406,397
Decrease in capital contributions payable - (75,000)
----------- -----------
Net cash provided by investing activities 514,234 1,281,006
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 111,187 1,055,403
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,296,513 515,522
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,407,700 $ 1,570,925
=========== ===========
</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, 2000
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, 1999 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, 2000 and the results of operations and
changes in cash flows for the six and 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 $9,412,521 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)
JUNE 30, 2000
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 accounting
principles generally accepted in the United States of America
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
6
<PAGE> 9
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 June 30, 2000, the Local Partnerships own 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.
During 2000, the Partnership received proceeds from a Local
Partnership's admission of a new limited partner in a prior year.
Proceeds of $448,844 were paid to the Partnership for its reduced
partnership interest.
7
<PAGE> 10
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
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
for the six months ended June 30, 2000:
<TABLE>
<S> <C>
Balance, beginning of period $16,153,744
Equity in losses of limited partnerships (1,128,000)
Distributions recognized as a return of capital (65,390)
Amortization of capitalized acquisition costs and fees (77,000)
-----------
Balance, end of period $14,883,354
===========
</TABLE>
The following are unaudited combined estimated statements of
operations for the six and three months ended June 30, 2000 and 1999
for the limited partnerships in which the Partnership has
investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 9,611,000 $ 4,805,000 $ 9,361,000 $ 4,681,000
------------ ------------ ------------ ------------
Expenses:
Depreciation 2,566,000 1,283,000 2,747,000 1,374,000
Interest 3,201,000 1,600,000 3,574,000 1,787,000
Operating 9,806,000 4,903,000 5,297,000 2,648,000
------------ ------------ ------------ ------------
15,573,000 7,786,000 11,618,000 5,809,000
------------ ------------ ------------ ------------
Net loss $ (5,962,000) $(2,981,000) $ (2,257,000) $ (1,128,000)
============ ============ ============ ============
</TABLE>
8
<PAGE> 11
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Foreclosure proceedings were commenced against the Paramount local
partnership in November 1998 and a receiver was appointed in May
1999. A decree of foreclosure was entered in January 2000, although
no foreclosure sale has been set. The local partnership is exploring
various alternatives to satisfy its indebtedness. The Partnership has
no investment balance related to this local partnership.
Foreclosure proceedings were commenced against the Westview local
partnership and a receiver was appointed in April 2000. The local
partnership is in negotiation with the lender to resolve the
proceedings.
Due to operating deficits, the Wade Walton local partnership which
owns a property in Clarksdale, Mississippi commenced a bankruptcy
case in order to reorganize under Chapter 11 of the United States
Bankruptcy Code. The local partnership has filed a reorganization
plan which proposes to pay all creditors in full. The Partnership has
no investment balance related to this local 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. However, the IRS has indicated that it has closed
the audit and will not pursue adjustments to the low income housing
tax credits taken for the 1993 tax year.
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.
9
<PAGE> 12
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
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 six months ended June 30, 2000 and
1999, approximately $382,000 has been expensed. The unpaid
balance at June 30, 2000 is approximately $3,479,000.
(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. For the
six months ended June 30, 2000 and 1999 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.
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 $90,000 for the six months ended June 30,
2000 and 1999.
10
<PAGE> 13
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 6 - CONTINGENCIES
The General Partner of the Partnership and the Partnership are
involved in various lawsuits arising from transactions in the
ordinary course of business. In the opinion of management and the
General Partner, the claims will not result in any material liability
to the Partnership.
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. 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.
11
<PAGE> 14
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 2000
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 and/or sale as refinancing proceeds, if
any, which is available for distribution to the Limited Partners may
be affected accordingly.
12
<PAGE> 15
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 may not 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.
13
<PAGE> 16
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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.
14
<PAGE> 17
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 2000
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 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.
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.
Foreclosure proceedings were commenced against the Westview local partnership
and a receiver was appointed in April 2000. The local partnership is in
negotiation with the lender to resolve the proceedings.
The Wade Walton local partnership commenced proceedings under Chapter 11 of the
United States Bankruptcy Code on July 20, 1999. The local partnership has filed
a reorganization plan which proposes to pay all creditors in full.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 1 of regulation
S-K and no reports on Form 8-K were filed during the quarter ended
June 30, 2000.
15
<PAGE> 18
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 2000
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
/s/ BRUCE NELSON
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Bruce Nelson
President
Date: August 21, 2000
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/s/ PAUL PATIERNO
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Paul Patierno
Chief Financial Officer
Date: August 21, 2000
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