<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, 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 SEPTEMBER 30, 2000
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 2000 and December 31, 1999 .................... 1
Statements of Operations
Nine and Three Months Ended September 30, 2000 and 1999 .............. 2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 2000 .................................. 3
Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 ......................... 4
Notes to Financial Statements .............................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 12
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, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $14,378,700 $16,153,744
CASH AND CASH EQUIVALENTS (Note 1) 1,123,995 1,296,513
OTHER ASSETS 149,740 120,479
RESTRICTED CASH (Note 3) 263,827 241,636
----------- -----------
TOTAL ASSETS $15,916,262 $17,812,372
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accrued fees due to partners (Notes 5 and 7) $ 3,484,890 $ 3,296,209
Capital contributions payable (Note 4) 1,076 1,076
Accounts payable and accrued expenses 33,079 113,878
----------- -----------
3,519,045 3,411,163
----------- -----------
CONTINGENCIES (Note 6)
PARTNERS' EQUITY 12,397,217 14,401,209
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $15,916,262 $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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 2000 Sept 30, 2000 Sept 30, 1999 Sept 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 64,436 $ 21,514 $ 29,371 $ 15,891
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - partners (Note 5) 555,347 173,043 573,459 191,153
General and administrative (Note 5) 79,167 13,214 99,897 46,886
Legal and accounting 96,255 11,850 150,481 28,694
----------- ----------- ----------- -----------
Total operating expenses 730,769 198,107 823,837 266,733
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (666,333) (176,593) (794,466) (250,842)
DISTRIBUTION RECOGNIZEDS
AS INCOME 469,841 6,999 1,464 --
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (1,807,500) (602,500) (1,932,000) (644,000)
----------- ----------- ----------- -----------
NET LOSS $(2,003,992) $ (772,094) $(2,725,002) $ (894,842)
=========== =========== =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (27) $ (11) $ (37) $ (12)
=========== =========== =========== ===========
</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, 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 nine months
ended September 30, 2000 (20,040) (1,983,952) (2,003,992)
------------ ------------ ------------
PARTNERS' EQUITY (DEFICIENCY),
September 30, 2000 $ (504,952) $ 12,902,169 $ 12,397,217
============ ============ ============
</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, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,003,992) $(2,725,002)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in loss of limited partnerships
and amortization of acquisition costs 1,807,500 1,932,000
Gain on transfer of partnership interests (448,844) --
Increase in other assets (29,261) --
Increase in restricted cash (22,191) (6,079)
Decrease accounts payable and accrued expenses (80,799) (40,228)
Increase in accrued fees due to partners 188,681 373,459
----------- -----------
Net cash used in operating activities (588,906) (465,850)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited partnerships:
Capital contributions (139,461) (138,339)
Distributions from limited partnerships recognized
as a return of capital 107,005 171,797
Proceeds from partners admission 448,844 1,338,500
Decrease in capital contributions payable -- (75,000)
----------- -----------
Net cash provided by investing activities 416,388 1,296,958
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (172,518) 831,108
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,296,513 515,522
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,123,995 $ 1,346,630
=========== ===========
</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, 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 September 30, 2000 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, 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 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.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with accounting principles generally in the United States of America.
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.
6
<PAGE> 9
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, 2000, 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
7
<PAGE> 10
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
(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.
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 nine months ended September 30, 2000:
<TABLE>
<S> <C>
Balance, beginning of period $ 16,153,744
Capital contributions 139,461
Equity in losses of limited partnerships (1,692,000)
Distributions recognized as a return of capital (107,005)
Amortization of capitalized acquisition costs and fees (115,500)
------------
Balance, end of period $ 14,378,700
============
</TABLE>
8
<PAGE> 11
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 2000 and 1999 for the
limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 2000 Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 14,416,000 $ 4,805,000 $ 14,042,000 $ 4,681,000
------------ ------------ ------------ ------------
Expenses:
Depreciation 3,849,000 1,283,000 4,121,000 1,374,000
Interest 4,801,000 1,600,000 5,361,000 1,787,000
Operating 14,709,000 4,903,000 7,945,000 2,648,000
------------ ------------ ------------ ------------
23,359,000 7,786,000 17,427,000 5,809,000
------------ ------------ ------------ ------------
Net loss $ (8,943,000) $ (2,981,000) $ (3,385,000) $ (1,128,000)
============ ============ ============ ============
</TABLE>
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.
9
<PAGE> 12
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
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:
(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, 2000 and 1999,
approximately $555,000 and $573,000, respectively, has been
expensed. The unpaid balance at September 30, 2000 is
approximately $3,485,000.
(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.
10
<PAGE> 13
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 5 - RELATED-PARTY TRANSACTIONS (CONTINUED)
(c) The Partnership reimburses NAPICO for certain expenses. For the
nine months ended September 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 $147,000 and $128,900 for the nine months ended September
30, 2000 and 1999, 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.
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 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)
SEPTEMBER 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
12
<PAGE> 15
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
distributions 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.
13
<PAGE> 16
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
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.
14
<PAGE> 17
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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 6 of
regulation S-K and no reports on Form 8-K were filed during the
quarter ended September 30, 2000.
15
<PAGE> 18
NATIONAL TAX CREDIT INVESTORS II
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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.,
its General Partner
By: /s/ BRUCE NELSON
----------------------------------
Bruce Nelson
President
Date: November 14, 2000
--------------------------------
By: /s/ BRIAN H. SHUMAN
----------------------------------
Brian H. Shuman
Chief Financial Officer
Date: November 14, 2000
--------------------------------
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