Item 1. Business --------
Formation - ---------
American Tax Credit Properties II L.P. ("Registrant"), a Delaware limited partnership, was formed on October 26, 1988 to invest primarily in leveraged low-income multifamily residential complexes (the "Property" or "Properties") that qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"), through the acquisition of limited partnership equity interests in partnerships (the "Local Partnership" or "Local Partnerships") that are the owners of the Properties. Registrant invested in fifty such Local Partnerships, including one whose Property also qualifies for the historic rehabilitation tax credit in accordance with Section 48(g) of the Internal Revenue Code of 1986 (the "Historic Rehabilitation Tax Credit"). Registrant considers its activity to constitute a single industry segment.
Richman Tax Credit Properties II L.P. (the "General Partner"), a Delaware limited partnership, was formed on October 26, 1988 to act as the general partner of Registrant. The general partner of the General Partner is Richman Tax Credits Inc. ("Richman Tax Credits"), a Delaware corporation that is wholly-owned by Richard Paul Richman. Richman Tax Credits is an affiliate of The Richman Group, Inc. ("Richman Group"), a Delaware corporation founded by Richard Paul Richman in 1988.
The Amendment No. 2 to the Registration Statement on Form S-11 was filed with the Securities and Exchange Commission (the "Commission") on April 21, 1989 pursuant to the Securities Act of 1933 under Registration Statement File No. 33-25337, and was declared effective on May 9, 1989. Reference is made to the prospectus dated May 10, 1989, as supplemented by Supplement No. 1 and Supplement No. 2 dated July 25, 1989 and September 18, 1989, respectively, filed with the Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 (the "Prospectus"). Pursuant to Rule 12b-23 of the Commission's General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the description of Registrant's business set forth under the heading "Investment Objectives and Policies" at pages 47 through 70 of the Prospectus is incorporated herein by reference.
On June 14, 1989, Registrant commenced, through Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the offering of up to 100,000 units of limited partnership interest ("Unit") at $1,000 per Unit to investors. On June 28, 1989, July 31, 1989 and September 22, 1989, the closings for 13,533, 20,560 and 21,653 Units, respectively, took place, amounting to aggregate limited partners' capital contributions of $55,746,000.
Competition - -----------
Pursuant to Rule 12b-23 of the Commission's General Rules and Regulations promulgated under the Exchange Act, the description of Registrant's competition, general risks, tax risks and partnership risks set forth under the heading "Risk Factors" at pages 20 through 33 of the Prospectus is incorporated herein by reference.
Employees - ---------
Registrant employs no personnel and incurs no payroll costs. All management activities of Registrant are conducted by the General Partner. An affiliate of the General Partner employs individuals who perform the management activities of Registrant. This entity also performs similar services for other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous Revenue - -------------------------------------------------------------------------------- Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus Budget - ---------------------------------------------------------------------- Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus Budget - --------------------------------------------------------------------- Reconciliation Act of 1993, Uruguay Round Agreements Act, Tax and Trade Relief - ------------------------------------------------------------------------------ Extension Act of 1998, Tax and Trade Relief Extension Act of 1999, Community - ---------------------------------------------------------------------------- Renewal Tax Relief Act of 2000, Economic Growth and Tax Relief Reconciliation - ----------------------------------------------------------------------------- Act of 2001 and Job Creation and Worker Assistance Act of 2002 (collectively the - -------------------------------------------------------------------------------- "Tax Acts") - -----------
Registrant is organized as a limited partnership and is a "pass through" tax entity which does not, itself, pay federal income tax. However, the partners of Registrant who are subject to federal income tax may be affected by the Tax Acts. Registrant will consider the effect of certain aspects of the Tax Acts on the partners when making decisions regarding its investments. Registrant does not anticipate that the Tax Acts will currently have a material adverse impact on Registrant's business operations, capital resources and plans or liquidity.
Item 2.
Item 2. Properties ----------
The executive offices of Registrant and the General Partner are located at 599 West Putnam Avenue, 3rd floor, Greenwich, Connecticut 06830. Registrant does not own or lease any properties. Registrant pays no rent; all charges for leased space are borne by an affiliate of the General Partner.
Registrant's primary objective is to provide Low-income Tax Credits to limited partners generally over a ten year period. The relevant state tax credit agency has allocated each of Registrant's Local Partnerships an amount of Low-income Tax Credits, which are generally available for a ten year period from the year the Property is placed in service (the "Ten Year Credit Period"). The Ten Year Credit Period is expected to be exhausted by the Local Partnerships as of December 31, 2001. The required holding period of each Property, in order to avoid Low-income Tax Credit recapture, is fifteen years from the year in which the Low-income Tax Credits commence on the last building of the Property (the "Compliance Period"). In addition, certain of the Local Partnerships have entered into agreements with the relevant state tax credit agencies whereby the Local Partnerships must maintain the low-income nature of the Properties for a period which exceeds the Compliance Period, regardless of any sale of the Properties by the Local Partnerships after the Compliance Period. The Properties must satisfy various requirements including rent restrictions and tenant income limitations (the "Low-income Tax Credit Requirements") in order to maintain eligibility for the recognition of the Low-income Tax Credit at all times during the Compliance Period. Once a Local Partnership has become eligible for the Low-income Tax Credit, it may lose such eligibility and suffer an event of recapture if its Property fails to remain in compliance with the Low-income Tax Credit Requirements. Through December 31, 2001, none of the Local Partnerships have suffered an event of recapture of Low-income Tax Credits.
Although Registrant generally owns a 98.9%-99% limited partnership interest ("Local Partnership Interest") in the Local Partnerships, Registrant and American Tax Credit Properties L.P. ("ATCP"), a Delaware limited partnership and an affiliate of Registrant, together, in the aggregate, own a 99% Local Partnership Interest in Santa Juanita Limited Dividend Partnership L.P. ("Santa Juanita"); the ownership percentages of Registrant and ATCP of Santa Juanita are 64.36% and 34.64%, respectively. In addition, Registrant and American Tax Credit Properties III L.P. ("ATCP III"), a Delaware limited partnership and an affiliate of Registrant, together, in the aggregate, own a 99% Local Partnership Interest in the following Local Partnerships:
Registrant ATCP III ---------- --------
Batesville Family, L.P. 37.25% 61.75% Bruce Housing Associates, L.P. 37.25 61.75 Carrington Limited Dividend Housing Association Limited Partnership 33.05 65.95 Ivy Family, L.P. 37.25 61.75 Lawrence Road Properties, Ltd. 37.25 61.75 Mirador del Toa Limited Partnership 39.94 59.06 Purvis Heights Properties, L.P. 37.25 61.75 Queen Lane Investors 50.50 48.50
Many of the Local Partnerships receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8") (see descriptions of subsidies on pages 7 and 8). The subsidy agreements expire at various times during and after the Compliance Periods of the Local Partnerships. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. Registrant cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income before debt service ("NOI") and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. Six Local Partnerships' Section 8 contracts, certain of which cover only certain rental units, are currently subject to renewal under applicable HUD guidelines. In addition, two Local Partnerships have entered into restructuring agreements, resulting in both a lower rent subsidy (resulting in lower NOI) and lower mandatory debt service with no anticipated material adverse impact to the operating results of the Properties through the respective Compliance Periods.
Item 2. Properties (continued)
(1) Description of subsidies:
(a) Section 8 of Title II of the Housing and Community Development Act of 1974 allows qualified low-income tenants to pay thirty percent of their monthly income as rent with the balance paid by the federal government.
(b) King County Housing Authority provided an interest subsidy through issuance of tax exempt bonds, which provided first and second mortgage loans for the acquisition and rehabilitation of the complex.
(c) The Local Partnership's debt structure includes a principal or interest payment subsidy.
Item 2. Properties (continued) ---------------------
(d) The Rural Housing Service (formerly the Farmers Home Administration) of the United States Department of Agriculture Rental Assistance Program allows qualified low-income tenants to receive rental subsidies.
(e) The Michigan State Housing Development Authority allows tenants, who would otherwise pay more than 40% of their income for rent and utilities, to receive rental subsidies.
(f) The City of Philadelphia Housing Authority allows qualified low-income tenants to receive rental certificates.
(g) The Local Partnership's Section 8 contracts, certain of which cover only certain rental units, are subject to renewal under applicable HUD guidelines.
(h) The Local Partnership has entered into a restructuring agreement of its Section 8 contracts and debt structure under applicable HUD guidelines.
(2) Reflects amount attributable to Registrant only.
(3) The underlying Property was sold subsequent to March 30, 2002. See discussion herein under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Item 3. Legal Proceedings -----------------
Registrant is not aware of any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
There were no matters submitted to a vote of the limited partners of Registrant during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters ----------------------------------------------------------------
Market Information and Holders - ------------------------------
There is no established public trading market for Registrant's Units. Accordingly, accurate information as to the market value of a Unit at any given date is not available. The number of owners of Units as of May 31, 2002 was approximately 3,255, holding 55,746 Units.
Merrill Lynch follows internal guidelines for providing estimated values of limited partnerships and other direct investments reported on client account statements. Pursuant to such guidelines, estimated values for limited partnership interests reported on Merrill Lynch client account statements (such as Registrant's Units) are provided to Merrill Lynch by independent valuation services. These estimated values are based on financial and other information available to the independent services (i) on the prior August 15th for reporting on December year-end and subsequent client account statements through the following May's month-end client account statements and (ii) on March 31st for reporting on June month-end and subsequent client account statements through the November month-end client account statements of the same year. In addition, Registrant may provide an estimate of value to Unit holders from time to time in Registrant's reports to limited partners. The estimated values provided by the independent services and Registrant, which may differ, are not market values and Unit holders may not be able to sell their Units or realize either amount upon a sale of their Units. In addition, Unit holders may not realize such estimated values upon the liquidation of Registrant.
Distributions - -------------
Registrant owns a limited partnership interest in Local Partnerships that are the owners of Properties that are leveraged and receive government assistance in various forms of rental and debt service subsidies. The distribution of cash flow generated by the Local Partnerships may be restricted, as determined by each Local Partnership's financing and subsidy agreements. Accordingly, Registrant does not anticipate that it will provide significant cash distributions to its partners. There were no cash distributions to the partners during the years ended March 30, 2002 and 2001.
Low-income Tax Credits and Historic Rehabilitation Tax Credits (together, the "Tax Credits"), which are subject to various limitations, may be used by partners to offset federal income tax liabilities. The Tax Credits per Unit generated by Registrant and allocated to the limited partners for the tax years ended December 31, 2001 and 2000 and the cumulative Tax Credits allocated from inception through December 31, 2001 are as follows:
Historic Rehabilitation Low-income Tax Credits Tax Credits -------------- -----------
Tax year ended December 31, 2001 $ -- $ 2.02 Tax year ended December 31, 2000 -- 46.94
Cumulative totals $ 6.56 $ 1,494.22
Registrant generated total Tax Credits from investments in Local Partnerships of approximately $1,501 per Unit through December 31, 2001, notwithstanding future circumstances which may give rise to recapture and loss of future benefits (see Part I, Item 2 - Properties and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, herein). The Ten Year Credit Period for all of the Properties was fully exhausted as of December 31, 2001.
Item 6.
Item 6. Selected Financial Data -----------------------
The information set forth below presents selected financial data of Registrant. Additional detailed financial information is set forth in the audited financial statements included under Part II, Item 8 herein.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------------------
Capital Resources and Liquidity - -------------------------------
Registrant admitted limited partners in three closings with aggregate limited partners' capital contributions of $55,746,000. In connection with the offering of the sale of units, Registrant incurred organization and offering costs of approximately $6,534,000 and established a working capital reserve of approximately $3,345,000. The remaining net proceeds of approximately $45,867,000 (the "Net Proceeds") were available to be applied to the acquisition of limited partnership interests in local partnerships (the "Local Partnerships") that own low-income multifamily residential complexes (the "Property" or "Properties") that qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"); one Local Partnership owns a Property that also qualified for the historic rehabilitation tax credit in accordance with Section 48(g) of the Internal Revenue Code of 1986. The Net Proceeds were utilized in acquiring an interest in fifty Local Partnerships.
As of March 30, 2002, Registrant has cash and cash equivalents and investments in bonds totaling $2,803,365 which is available for operating expenses of Registrant and circumstances that may arise in connection with the Local Partnerships. As of March 30, 2002, Registrant's investments in bonds represent corporate bonds of $2,144,708 U.S. Treasury bonds of $636,439 and U.S. government agency bonds of $11,698 with various maturity dates ranging from 2002 to 2008. Registrant acquired such investments in bonds with the intention of utilizing proceeds generated by such investments to meet its annual obligations. Future sources of Registrant funds are expected to be primarily from interest earned on working capital and limited cash distributions from Local Partnerships.
During the year ended March 30, 2002, Registrant received cash from interest revenue, maturity/redemption and sale of bonds and distributions from Local Partnerships and utilized cash for operating expenses and investments in Local Partnerships. Cash and cash equivalents and investments in bonds decreased, in the aggregate, by approximately $433,000 during the year ended March 30, 2002 (which includes the amortization of net premium on investments in bonds of approximately $6,000 and the accretion of zero coupon bonds of approximately $39,000). Notwithstanding circumstances that may arise in connection with the Properties, Registrant does not expect to realize significant gains or losses on its investments in bonds, if any.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) -----------------------------------------------------------------------
During the year ended March 30, 2002, the investment in local partnerships decreased as a result of Registrant's equity in the Local Partnerships' net loss for the year ended December 31, 2001 of $927,455 (including an adjustment to Registrant's carrying value of its investment in a Local Partnership of $279,273 in accordance with applicable accounting guidelines) (see discussion below under Results of Operations) and cash distributions received from Local Partnerships of $200,343 (exclusive of distributions from Local Partnerships of $26,093 classified as other income), partially offset by investments in Local Partnerships of $192,242 (see discussion below under Local Partnership Matters). Accounts payable and accrued expenses and payable to general partner and affiliate in the accompanying balance sheet as of March 30, 2002 include cumulative deferred administration fees and management fees of $1,523,513.
Results of Operations - ---------------------
Registrant's operating results are dependent upon the operating results of the Local Partnerships and are significantly impacted by the Local Partnerships' policies. In addition, the operating results herein are not necessarily the same for tax reporting. Registrant accounts for its investment in local partnerships in accordance with the equity method of accounting. Accordingly, the investment is carried at cost and is adjusted for Registrant's share of each Local Partnership's results of operations and by cash distributions received. Equity in loss of each investment in Local Partnership allocated to Registrant is recognized to the extent of Registrant's investment balance in each Local Partnership. Equity in loss in excess of Registrant's investment balance in a Local Partnership is allocated to other partners' capital in any such Local Partnership. As a result, the reported equity in loss of investment in local partnerships is expected to decrease as Registrant's investment balances in the respective Local Partnerships become zero. However, the combined statements of operations of the Local Partnerships reflected in Note 5 to Registrant's financial statements include the operating results of all Local Partnerships, irrespective of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in local partnerships may result from a variety of circumstances, including a Local Partnership's accounting policies, subsidy structure, debt structure and operating deficits, among other things. In addition, the carrying value of Registrant's investment in local partnerships may be reduced if the book value (the "Local Partnership Carrying Value") is considered to exceed the estimated value derived by management. Accordingly, cumulative losses and cash distributions in excess of the investment or an adjustment to a Local Partnership's Carrying Value are not necessarily indicative of adverse operating results of a Local Partnership. See discussion below under Local Partnership Matters regarding certain Local Partnerships currently operating below economic break even levels.
Registrant's operations for the years ended March 30, 2002, 2001 and 2000 resulted in net losses of $1,396,994, $3,375,703 and $2,048,082, respectively. The decrease in net loss from fiscal 2001 to fiscal 2002 is primarily attributable to a decrease in equity in loss of investment in local partnerships of approximately $1,950,000. The increase in net loss from fiscal 2000 to fiscal 2001 is primarily attributable to an increase in equity in loss of investment in local partnerships of approximately $1,279,000. Equity in loss of investment in local partnerships has fluctuated over the last three years as a result of (i) Registrant adjusting the Local Partnership Carrying Value in connection with its investments in certain Local Partnerships during each of the three years in the period ended March 30, 2002 as reflected in Note 5 to the financial statements, (ii) fluctuations in the nonrecognition of losses in accordance with the equity method of accounting and (iii) changes in the net operating losses of those Local Partnerships in which Registrant continues to have an investment balance.
The Local Partnerships' net loss of approximately $3,114,000 for the year ended December 31, 2001 includes depreciation and amortization expense of approximately $4,541,000 and interest on non-mandatory debt of approximately $739,000, and does not include principal payments on permanent mortgages of approximately $1,274,000. The Local Partnerships' net loss of approximately $4,191,000 for the year ended December 31, 2000 includes depreciation and amortization expense of approximately $5,239,000 and interest on non-mandatory debt of approximately $709,000, and does not include principal payments on permanent mortgages of approximately $1,263,000. The Local Partnerships' net loss of approximately $2,839,000 for the year ended December 31, 1999 includes depreciation and amortization expense of approximately $4,828,000 and interest on non-mandatory debt of approximately $692,000, and does not include principal payments on permanent mortgages of approximately $1,278,000. The results of operations of the Local Partnerships for the year ended December 31, 2001 are not necessarily indicative of results that may be expected in future periods.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) -----------------------------------------------------------------------
Local Partnership Matters - -------------------------
Registrant's primary objective is to provide Low-income Tax Credits to limited partners generally over a ten year period. The relevant state tax credit agency has allocated each of Registrant's Local Partnerships an amount of Low-income Tax Credits, which are generally available for a ten year period from the year the Property is placed in service (the ("Ten Tear Credit Period"). The Ten Year Credit Period has been fully exhausted by the Local Partnerships as of December 31, 2001. The required holding period of each Property, in order to avoid Low-income Tax Credit recapture, is fifteen years from the year in which the Low-income Tax Credits commence on the last building of the Property (the "Compliance Period"). In addition, certain of the Local Partnerships have entered into agreements with the relevant state tax credit agencies whereby the Local Partnerships must maintain the low-income nature of the Properties for a period which exceeds the Compliance Period, regardless of any sale of the Properties by the Local Partnerships after the Compliance Period. The Properties must satisfy various requirements including rent restrictions and tenant income limitations (the "Low-income Tax Credit Requirements") in order to maintain eligibility for the recognition of the Low-income Tax Credit at all times during the Compliance Period. Once a Local Partnership has become eligible for the Low-income Tax Credit, it may lose such eligibility and suffer an event of recapture if its Property fails to remain in compliance with the Low-income Tax Credit Requirements.
The Properties are principally comprised of subsidized and leveraged low-income multifamily residential complexes located throughout the United States and Puerto Rico. Many of the Local Partnerships receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"). The subsidy agreements expire at various times during and after the Compliance Periods of the Local Partnerships. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. Registrant cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future NOI and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. Six Local Partnerships' Section 8 contracts, certain of which cover only certain rental units, are currently subject to renewal under applicable HUD guidelines. In addition, two Local Partnerships entered into restructuring agreements, resulting in both a lower rent subsidy (resulting in lower NOI) and lower mandatory debt service with no anticipated material adverse impact to the operating results of the Properties through the respective Compliance Periods.
The Local Partnerships have various financing structures which include (i) required debt service payments ("Mandatory Debt Service") and (ii) debt service payments which are payable only from available cash flow subject to the terms and conditions of the notes, which may be subject to specific laws, regulations and agreements with appropriate federal and state agencies ("Non-Mandatory Debt Service or Interest"). During the year ended December 31, 2001, revenue from operations of the Local Partnerships has generally been sufficient to cover operating expenses and Mandatory Debt Service. Substantially all of the Local Partnerships are effectively operating at or above break even levels, although certain Local Partnerships' operating information reflects operating deficits that do not represent cash deficits due to their mortgage and financing structure and the required deferral of property management fees. However, as discussed below, certain Local Partnerships' operating information indicates below break even operations after taking into account their mortgage and financing structure and any required deferral of property management fees.
As a result of increasing deficits and declining occupancy caused by deteriorating physical conditions, Forest Village Housing Partnership ("Forest Village") filed for protection under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court, Western District of Washington (the "Court") on March 25, 1999. Forest Village filed a plan of reorganization (the "Plan") that was confirmed by the Court on December 14, 1999. The terms of the Plan called for Registrant to provide up to $500,000 (the "Bankruptcy Advance"), all of which was funded as of March 30, 2000, which Forest Village utilized to pay certain obligations including all first mortgage arrears and certain secured and unsecured creditors and to make necessary repairs to the complex. The Plan also resulted in recasting the second mortgage and cumulative arrears over a new 30 year amortization period that reduced Forest Village's mandatory debt service by approximately $77,000 per annum. In addition to the Bankruptcy Advance, Registrant has provided additional advances of $282,874 to Forest Village as of March 30, 2002, of which $9,419 was advanced during the year then ended. Registrant's investment balance in Forest Village, after cumulative equity losses, became zero during the year ended March 30, 1995 and advances made by Registrant, including the Bankruptcy Advance, have been offset by additional equity in loss of investment in local partnerships. Forest Village generated approximately $1.5 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) ----------------------------------------------------------------------
In May 2002, Forest Village sold its underlying Property for $2,600,000. The sale proceeds were utilized to repay the outstanding mortgages in full, post a bond for the purpose of avoiding Low-income Tax Credit Recapture and repay Registrant for advances noted above. Under the terms of the sale, the purchaser is required to continue to operate the Property as low-income pursuant to Section 42 through the remainder of the Compliance Period. In connection with the sale, Registrant received $700,000, while Forest Village is maintaining a reserve to pay for certain expenses incurred in connection with the transaction and other expenses to be incurred in connection with the termination of Forest Village. Any remaining funds after the payment of all such expenses will be returned to Registrant. The financial statements as of and for the year ended March 30, 2002 do not include the results of the sale.
Christian Street Associates Limited Partnership ("Christian Street") and 2000-2100 Christian Street Associates ("2000 Christian Street"), which Local Partnerships have certain common general partner interests and a common first mortgage lender, have experienced ongoing operating deficits. Under terms of the partnership agreements, the Local General Partners exceeded their respective operating deficit guarantees and, as of September 30, 1998, had advanced in excess of $1,000,000 in the aggregate to Christian Street and 2000 Christian Street. The Local General Partners approached the lender with the intention to restructure the loans; however the lender indicated that in connection with any such restructuring, the respective Local Partnerships would be responsible for certain costs, which may be significant. If the Local General Partners were to cease funding the operating deficits, Registrant would likely incur substantial recapture of Low-income Tax Credits. Effective October 1, 1998, in an attempt to avoid potential adverse tax consequences, Registrant and the Local General Partners agreed to equally share the funding of operating deficits through June 30, 2000 in the case of Christian Street and through September 30, 2000 in the case of 2000 Christian Street (the respective "Funding Agreements"). The Funding Agreements have been extended through June 30, 2002. The Local General Partners agreed to cause the management agent to accrue and defer its management fees during the period of the Funding Agreements and the accrued management fees are excluded when determining the operating deficits. Christian Street and 2000 Christian Street reported a combined operating deficit of approximately $147,000, excluding accrued management fees of approximately $42,000, for the year ended December 31, 2001. Under the terms of the Funding Agreements, Registrant has advanced $195,217 as of March 31, 2002, of which $90,646 was advanced during the year then ended. Payments on the mortgages and real estate taxes are current. Registrant's investment balances in Christian Street and 2000 Christian Street, after cumulative equity losses, became zero during the year ended March 30, 1997 and advances made by Registrant have been offset by additional equity in loss of investment in local partnerships. Christian Street and 2000 Christian Street generated approximately $8.2 and approximately $4.4 per Unit per year to the limited partners upon the expiration of their Low-income Tax Credit allocations in 2000 and 2001, respectively.
During the year ended December 31, 2001, Ann Ell Apartments Associates, Ltd. ("Ann Ell") reported an operating deficit of approximately $46,000. Registrant has made cumulative advances to Ann Ell of $342,545 as of March 31, 2002, of which $81,027 was advanced during the year then ended. Payments on the mortgage and real estate taxes are current. Registrant's investment balance in Ann Ell, after cumulative equity losses, became zero during the year ended March 30, 1994 and advances made by Registrant have been offset by additional equity in loss of investment in local partnerships. Ann Ell generated approximately $1.7 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2001.
The terms of the partnership agreement of College Avenue Apartments Limited Partnership ("College Avenue") require the management agent to defer property management fees in order to avoid a default under the mortgage. College Avenue reported an operating deficit of approximately $34,000 for the year ended December 31, 2001, which includes property management fees of approximately $14,000. Registrant advanced $11,150 during the year ended March 30, 2002. Payments on the mortgage and real estate taxes are current. Registrant's investment balance in College Avenue, after cumulative equity losses, became zero during the year ended March 30, 1999 and advances made by Registrant have been offset by additional equity in loss of investment in local partnerships. College Avenue generated approximately $1.2 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2000.
Inflation - ---------
Inflation is not expected to have a material adverse impact on Registrant's operations during its period of ownership of the Local Partnership Interests.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) ----------------------------------------------------------------------
Critical Accounting Policies and Estimates - ------------------------------------------
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires Registrant to make certain estimates and assumptions. A summary of significant accounting policies is provided in Note 1 to the financial statements. The following section is a summary of certain aspects of those accounting policies that may require subjective or complex judgments and are most important to the portrayal of Registrant's financial condition and results of operations. Registrant believes that there is a low probability that the use of different estimates or assumptions in making these judgments would result in materially different amounts being reported in the financial statements.
o Registrant accounts for its investment in local partnerships in accordance with the equity method of accounting since Registrant cannot control the operations of a Local Partnership.
o If the book value of Registrant's investment in a Local Partnership exceeds the estimated value derived by management, Registrant reduces its investment in any such Local Partnership and includes such reduction in equity in loss of investment in local partnerships.
Recent Accounting Pronouncement Not Yet Adopted - -----------------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. SFAS No. 144 supersedes and provides additional clarification under the guidelines established by SFAS No. 121. Registrant does not anticipate that the adoption of SFAS No. 144 will have a material impact on its financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ---------------------------------------------------------
Registrant has invested a significant portion of its working capital reserves in corporate bonds, U.S. Treasury instruments and U.S. government and agency securities. The market value of such investments is subject to fluctuation based upon changes in interest rates relative to each investment's maturity date. Since Registrant's investments in bonds have various maturity dates through 2008, the value of such investments may be adversely impacted in an environment of rising interest rates in the event Registrant decides to liquidate any such investment prior to its maturity. Although Registrant may utilize reserves to assist an under performing Property, it otherwise intends to hold such investments to their respective maturities. Therefore, Registrant does not anticipate any material adverse impact in connection with such investments.
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
----------------- Page ----
Independent Auditors' Report..................................................16
Balance Sheets................................................................17
Statements of Operations......................................................18
Statements of Changes in Partners' Equity (Deficit)...........................19
Statements of Cash Flows......................................................20
Notes to Financial Statements.................................................22
No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Partners American Tax Credit Properties II L.P.
We have audited the accompanying balance sheets of American Tax Credit Properties II L.P. as of March 30, 2002 and 2001, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended March 30, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Tax Credit Properties II L.P. as of March 30, 2002 and 2001, and the results of its operations, changes in partners' equity (deficit) and its cash flows for each of the three years in the period ended March 30, 2002, in conformity with accounting principles generally accepted in the United States of America.
/s/ Reznick Fedder and Silverman
Bethesda, Maryland June 24, 2002
See Notes to Financial Statements.
See Notes to Financial Statements.
See Notes to Financial Statements.
See Notes to Financial Statements.
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS MARCH 30, 2002, 2001 AND 2000
1. Organization, Purpose and Summary of Significant Accounting Policies
American Tax Credit Properties II L.P. (the "Partnership") was formed on October 26, 1988 and the Certificate of Limited Partnership of the Partnership was filed under the Delaware Revised Uniform Limited Partnership Act. There was no operating activity until admission of the limited partners on June 28, 1989. The Partnership was formed to invest primarily in leveraged low-income multifamily residential complexes (the "Property" or "Properties") that qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"), through the acquisition of limited partnership equity interests (the "Local Partnership Interests") in partnerships (the "Local Partnership" or "Local Partnerships") that are the owners of the Properties. The Partnership has invested in one Local Partnership whose Property also qualifies for the historic rehabilitation tax credit in accordance with Section 48(g) of the Internal Revenue Code of 1986. Richman Tax Credit Properties II L.P. (the "General Partner") was formed on October 26, 1988 to act as a general partner of the Partnership.
Basis of Accounting and Fiscal Year -----------------------------------
The Partnership's records are maintained on the accrual basis of accounting for both financial reporting and tax purposes. For financial reporting purposes, the Partnership's fiscal year ends March 30 and its quarterly periods end June 29, September 29 and December 30. The Local Partnerships have a calendar year for financial reporting purposes. The Partnership and the Local Partnerships each have a calendar year for income tax purposes.
Investment in Local Partnerships --------------------------------
The Partnership accounts for its investment in local partnerships in accordance with the equity method of accounting, under which the investment is carried at cost and is adjusted for the Partnership's share of each Local Partnership's results of operations and by cash distributions received. Equity in loss of each investment in Local Partnership allocated to the Partnership is recognized to the extent of the Partnership's investment balance in each Local Partnership. Equity in loss in excess of the Partnership's investment balance in a Local Partnership is allocated to other partners' capital in any such Local Partnership. Previously unrecognized equity in loss of any Local Partnership is recognized in the fiscal year in which equity in income is earned by such Local Partnership or additional investment is made by the Partnership. Distributions received subsequent to the elimination of an investment balance for any such investment in a Local Partnership are recorded as other income from local partnerships.
The Partnership regularly assesses the carrying value of its investments in local partnerships. If the carrying value of an investment in a Local Partnership exceeds the estimated value derived by management, the Partnership reduces its investment in any such Local Partnership and includes such reduction in equity in loss of investment in local partnerships.
Advances made to Local Partnerships are recorded as investments in local partnerships. Such advances are considered by the Partnership to be voluntary loans to the respective Local Partnerships and the Partnership may be reimbursed at a future date to the extent such Local Partnerships generate distributable cash flow or receive proceeds from sale or refinancing. The Partnership recognizes additional equity in loss of investment in local partnerships to the extent of such advances.
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 as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications -----------------
Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents -------------------------
The Partnership considers all highly liquid investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates market value.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
1. Organization, Purpose and Summary of Significant Accounting Policies (continued)
Investments in Bonds --------------------
Investments in bonds are classified as available-for-sale and represent investments that the Partnership intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell an investment would be based on various factors, including significant movements in interest rates and liquidity needs. Investments in bonds are carried at estimated fair value and unrealized gains or losses are included as items of comprehensive income (loss) and are reported as a separate component of partners' equity (deficit).
Premiums and discounts on investments in bonds are amortized (accreted) using the straight-line method over the life of the investment. Amortized premiums offset interest revenue, while the accretion of discounts and zero coupon bonds are included in interest revenue. Realized gain (loss) on redemption or sale of investments in bonds are included in, or offset against, interest revenue on the basis of the adjusted cost of each specific investment redeemed or sold.
Income Taxes ------------
No provision for income taxes has been made because all income, losses and tax credits are allocated to the partners for inclusion in their respective tax returns. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes," the Partnership has included in Note 7 disclosures related to differences in the book and tax bases of accounting.
Recent Accounting Pronouncement Not Yet Adopted -----------------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. SFAS No. 144 supersedes and provides additional clarification under the guidelines established by SFAS No. 121. The Partnership does not anticipate that the adoption of SFAS No. 144 will have a material impact on its financial statements.
2. Capital Contributions
On June 14, 1989, the Partnership commenced the offering of units (the "Units") through Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Selling Agent"). On June 28, 1989, July 31, 1989 and September 22, 1989, under the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"), the General Partner admitted limited partners to the Partnership in three closings. At these closings, subscriptions for a total of 55,746 Units representing $55,746,000 in limited partners' capital contributions were accepted. In connection with the offering of Units, the Partnership incurred organization and offering costs of $6,534,064, of which $75,000 was capitalized as organization costs and $6,459,064 was charged to the limited partners' equity as syndication costs. The Partnership received a capital contribution of $100 from the General Partner.
Net loss is allocated 99% to the limited partners and 1% to the General Partner in accordance with the Partnership Agreement.
3. Cash and Cash Equivalents
As of March 30, 2002, the Partnership has $10,520 in cash and cash equivalents that are deposited in interest-bearing accounts with an institution that is not insured by the Federal Deposit Insurance Corporation.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
4. Investments in Bonds
The Partnership carries its investments in bonds as available-for-sale because such investments are used to facilitate and provide flexibility for the Partnership's obligations, including resolving circumstances that may arise in connection with the Local Partnerships. Investments in bonds are reflected in the accompanying balance sheets at estimated fair value.
As of March 30, 2002 certain information concerning investments in bonds is as follows:
As of March 30, 2001, certain information concerning investments in bonds is as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships
As of March 30, 2002, the Partnership owns a limited partnership interest in the following Local Partnerships:
1. 1989 Westview Arms Limited Partnership; 2. 2000-2100 Christian Street Associates ("2000 Christian Street"); 3. Ann Ell Apartments Associates, Ltd. ("Ann Ell")*; 4. Auburn Hills Apartments Limited Partnership; 5. Auburn Hills Townhouses Limited Partnership; 6. Batesville Family, L.P.; 7. Browning Road Phase I, L.P.; 8. Bruce Housing Associates, L.P.; 9. Canton Partners, L.P.; 10. Carrington Limited Dividend Housing Association Limited Partnership; 11. Christian Street Associates Limited Partnership ("Christian Street"); 12. Cityside Apartments, Phase II, L.P.*; 13. Cleveland Square, Ltd.; 14. College Avenue Apartments Limited Partnership ("College Avenue"); 15. Corrigan Square, Ltd.; 16. De Queen Villas Limited Partnership; 17. Dermott Villas Limited Partnership; 18. Eagle View, Ltd.; 19. Elm Hill Housing Limited Partnership; 20. Eudora Manor Limited Partnership; 21. Forest Village Housing Partnership ("Forest Village")*; 22. Harborside Housing Limited Partnership; 23. Hill Com I Associates Limited Partnership ("Hill Com I"); 24. Hill Com II Associates Limited Partnership ("Hill Com II"); 25. Hughes Manor Limited Partnership; 26. Ivy Family, L.P.; 27. Lakeside Housing Limited Partnership; 28. Lawrence Road Properties, Ltd.; 29. Lexington Estates Ltd., A Mississippi Limited Partnership; 30. Littleton Avenue Community Village, L.P.; 31. Lula Courts Ltd., L.P.; 32. Magee Elderly, L.P.; 33. Mirador del Toa Limited Partnership; 34. Nixa Heights Apartments, L.P.; 35. North Hills Farms Limited Partnership; 36. Patton Place Limited Partnership ("Patton Place"); 37. Plantersville Family, L.P.; 38. Powelton Gardens Associates ("Powelton Gardens"); 39. Purvis Heights Properties, L.P.; 40. Queen Lane Investors; 41. Renova Properties, L.P.; 42. Santa Juanita Limited Dividend Partnership L.P. ("Santa Juanita"); 43. Simpson County Family, L.P.; 44. Summers Village Limited Partnership; 45. Tchula Courts Apartments, L.P.; 46. The Pendleton (A Louisiana Partnership in Commendam); 47. Trenton Heights Apartments, L.P.; 48. Twin Pine Family, L.P.; 49. Village Creek Limited Partnership; and 50. York Park Associates Limited Partnership*.
*An affiliate of the General Partner is a general partner of and/or provides services to the Local Partnership.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
Although the Partnership generally owns a 98.9%-99% limited partnership interest in the Local Partnerships, the Partnership and American Tax Credit Properties L.P. ("ATCP"), a Delaware limited partnership and an affiliate of the Partnership, together, in the aggregate, own a 99% Local Partnership Interest in Santa Juanita; the ownership percentages of the Partnership and ATCP of Santa Juanita are 64.36% and 34.64%, respectively. In addition, the Partnership and American Tax Credit Properties III L.P. ("ATCP III"), a Delaware limited partnership and an affiliate of the Partnership, together, in the aggregate, own a 99% Local Partnership Interest in the following Local Partnerships:
The Partnership ATCP III ----------- --------
Batesville Family, L.P. 37.25% 61.75% Bruce Housing Associates, L.P. 37.25 61.75 Carrington Limited Dividend Housing Association Limited Partnership 33.05 65.95 Ivy Family, L.P. 37.25 61.75 Lawrence Road Properties, Ltd. 37.25 61.75 Mirador del Toa Limited Partnership 39.94 59.06 Purvis Heights Properties, L.P. 37.25 61.75 Queen Lane Investors 50.50 48.50
The Properties are principally comprised of subsidized and leveraged low-income multifamily residential complexes located throughout the United States and Puerto Rico. The required holding period of each Property, in order to avoid Low-income Tax Credit recapture, is fifteen years from the year in which the Low-income Tax Credits commence on the last building of the Property (the "Compliance Period"). The rents of the Properties are controlled by federal and state agencies pursuant to applicable laws and regulations. Under the terms of each of the Local Partnership's partnership agreements, the Partnership has made capital contributions in the aggregate amount of $47,024,448, which includes advances made to certain Local Partnerships. As of December 31, 2001, the Local Partnerships have outstanding mortgage loans payable totaling approximately $88,454,000 and accrued interest payable on such loans totaling approximately $6,959,000, which are secured by security interests and liens common to mortgage loans on the Local Partnerships' real property and other assets.
Equity in loss of investment in local partnerships is limited to the Partnership's investment balance in each Local Partnership; any excess is applied to other partners' capital in any such Local Partnership (see Note 1). The amount of such excess losses applied to other partners' capital was $2,125,501, $1,916,796 and $1,457,955 for the years ended December 31, 2001, 2000 and 1999, respectively, as reflected in the combined statements of operations of the Local Partnerships reflected herein Note 5.
As a result of management's assessment of the carrying value of the investment in local partnerships under applicable accounting guidelines (see Note 1), the Partnership has reduced its investment in Hill Com I by $279,273 for the year ended March 30, 2002, in Hill Com I, Hill Com II and Powelton Gardens by $387,000, $409,511 and $141,000, respectively, for the year ended March 30, 2001 and in Patton Place and Powelton Gardens by $107,000 and $73,000, respectively, for the year ended March 30, 2000. Such losses are included in equity in loss of investment in local partnerships in the accompanying statements of operations of the Partnership for the years indicated.
The combined balance sheets of the Local Partnerships as of December 31, 2001 and 2000 and the combined statements of operations of the Local Partnerships for the years ended December 31, 2001, 2000 and 1999 are reflected on pages 27 and 28, respectively.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of December 31, 2001 and 2000 are as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the years ended December 31, 2001, 2000 and 1999 are as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
Investment activity with respect to each Local Partnership for the year ended March 30, 2002 is as follows:
(1) The Partnership's equity in loss of an investment in a Local Partnership is limited to the remaining investment balance.
(2) Additional equity in loss of investment is not allocated to the Partnership until equity in income is earned or additional investment is made by the Partnership.
(3) The Partnership has adjusted the investment's carrying value in accordance with applicable accounting guidelines. (4) The total excludes $26,093 of distributions received classified as other income from local partnerships.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
Investment activity with respect to each Local Partnership for the year ended March 30, 2001 is as follows:
(1) The Partnership's equity in loss of an investment in a Local Partnership is limited to the remaining investment balance.
(2) Additional equity in loss of investment is not allocated to the Partnership until equity in income is earned or additional investment is made by the Partnership.
(3) The Partnership has adjusted the investment's carrying value in accordance with applicable accounting guidelines.
(4) The total excludes $4,158 of distributions received classified as other income from local partnerships.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
Property information for each Local Partnership as of December 31, 2001 is as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
Property information for each Local Partnership as of December 31, 2000 is as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
The summary of property activity during the year ended December 31, 2001 is as follows:
Effective October 1, 1998, in an attempt to avoid potential adverse tax consequences, the Partnership and the local general partners of 2000-2100 Christian Street Associates ("2000 Christian Street") and Christian Street Associates Limited Partnership ("Christian Street") agreed to equally share the funding of operating deficits through June 30, 2000 in the case of Christian Street and through September 30, 2000 in the case of 2000 Christian Street (the respective "Funding Agreements"). The Funding Agreements have been extended through June 30, 2002. Under the terms of the Funding Agreements, the Partnership has advanced $195,217 as of March 30, 2002, of which $90,646 and $39,834, respectively, was advanced during the years ended March 30, 2002 and 2001. Such advances have been recorded as investment in local partnerships and have been offset by additional equity in loss of investment in local partnerships (see Note 1).
The Partnership advanced $81,027 and $58,000 during the years ended March 30, 2002 and 2001, respectively, to Ann Ell to fund operating deficits. Cumulative advances as of March 30, 2002 are $342,545. Such advances have been recorded as investment in local partnerships and have been offset by additional equity in loss of investment in local partnerships (see Note 1).
The Partnership advanced $11,150 during the year ended March 30, 2002 to College Avenue to fund operating deficits. Such advances have been recorded as investment in local partnerships and have been offset by additional equity in loss of investment in local partnerships (see Note 1).
As a result of increasing deficits and declining occupancy caused by deteriorating physical conditions, Forest Village filed for protection under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court, Western District of Washington (the "Court") on March 25, 1999. Forest Village filed a plan of reorganization (the "Plan") which was confirmed by the Court on December 14, 1999. The terms of the Plan called for the Partnership to provide up to $500,000 (the "Bankruptcy Advance"), all of which was funded as of March 31, 2000, which Forest Village utilized to pay certain obligations including all first mortgage arrears and certain secured and unsecured creditors and to make necessary repairs to the complex. The Plan also resulted in recasting the second mortgage and cumulative arrears over a new 30 year amortization period that reduced Forest Village's mandatory debt service by approximately $77,000 per annum. In addition to the Bankruptcy Advance, the Partnership has provided additional advances of $282,874 to Forest Village as of March 30, 2002, of which $9,419 and $155,652 was advanced during the years ended March 30, 2002 and 2001, respectively. Such advances, including the Bankruptcy Advance, have been recorded as investment in local partnerships and have been offset by additional equity in loss of investment in local partnerships (see Note 1). Of all such amounts advanced by the Partnership, $534,500 bears interest at 8.5% and is repayable out of net cash flow from the operations of the Property. No interest has been recorded by the Partnership as of March 30, 2002.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
5. Investment in Local Partnerships (continued)
In May 2002, Forest Village sold its underlying Property for $2,600,000. The sale proceeds were utilized to repay the outstanding mortgages in full, post a bond for the purpose of avoiding Low-income Tax Credit Recapture and repay the Partnership for advances discussed above. Under the terms of the sale, the purchaser is required to continue to operate the Property as low-income pursuant to Section 42 through the remainder of the Compliance Period. In connection with the sale, the Partnership received $700,000, while Forest Village is maintaining a reserve to pay for certain expenses incurred in connection with the transaction and other expenses to be incurred in connection with the termination of Forest Village. Any remaining funds after the payment of all such expenses will be returned to the Partnership.
An affiliate of the General Partner is the temporary local general partner of Forest Village. Since March 30, 1995, the Partnership has had a zero investment balance in Forest Village and continues to account for such investment under the equity method of accounting. The mortgage loans of Forest Village are nonrecourse to the Partnership. Selected balance sheet data of Forest Village as of December 31, 2001 includes land and building of $1,504,124 net of accumulated depreciation of $1,019,330, total assets of $1,603,066, mortgage loans and accrued interest of $1,590,394, total liabilities of $2,059,088 (of which $378,101 represents advances due to the Partnership) and partners' deficit of $456,022. Selected balance sheet data of Forest Village as of December 31, 2000 includes land and building of $1,609,844 net of accumulated depreciation of $913,610, total assets of $1,651,768, mortgage loans and accrued interest of $1,587,033, total liabilities of $2,046,768 (of which $378,101 represents advances due to the Partnership) and partners' deficit of $395,000. Selected balance sheet data of Forest Village as of December 31, 1999 includes land and building of $1,696,786 net of accumulated depreciation of $826,668, total assets of $1,730,629, mortgage loans and accrued interest of $1,728,543, total liabilities of $2,200,819 (of which $378,101 represents advances due to the Partnership) and partners' deficit of $470,190. Selected statement of operations data for the year ended December 31, 2001 includes rental income of $477,874, interest and other revenue of $15,285, interest expense of $130,745, depreciation and amortization expenses of $108,706, operating and maintenance expenses of $119,909, administrative expenses of $92,836, utilities expenses of $43,154 and taxes and insurance expenses of $58,144. Selected statement of operations data for the year ended December 31, 2000 includes rental income of $309,045, interest and other revenue of $61,519, interest expense of $134,444, depreciation and amortization expenses of $89,928, operating and maintenance expenses of $459,170, administrative expenses of $83,243, utilities expenses of $38,480 and taxes and insurance expenses of $63,769. Selected statement of operations data for the year ended December 31, 1999 includes rental income of $163,712, interest and other revenue of $8,797, interest expense of $134,297, depreciation and amortization expenses of $89,928, operating and maintenance expenses of $106,721, administrative expenses of $75,088, utilities expenses of $42,786 and taxes and insurance expenses of $66,553.
6. Transactions with General Partner and Affiliates
For the years ended March 30, 2002, 2001 and 2000, the Partnership paid and/or incurred the following amounts to the General Partner and/or affiliates in connection with services provided to the Partnership:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
6. Transactions with General Partner and Affiliates (continued)
For the years ended December 31, 2001, 2000 and 1999, the Local Partnerships paid and/or incurred the following amounts to the General Partner and/or affiliates in connection with services provided to the Local Partnerships:
7. Taxable Loss
A reconciliation of the financial statement net loss of the Partnership for the years ended March 30, 2002, 2001 and 1999 to the tax return net loss for the years ended December 31, 2001, 2000 and 1999 is as follows:
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
7. Taxable Loss (continued)
The differences between the investment in local partnerships for tax and financial reporting purposes as of December 31, 2001 and 2000 are as follows:
2001 2000 ---------- ----------
Investment in local partnerships - financial reporting $8,076,136 $8,967,809
Investment in local partnerships - tax 2,281,776 6,153,671 ---------- ---------- $5,794,360 $2,814,138 ========== ==========
Payable to general partner and affiliate in the accompanying balance sheets represents accrued management and administration fees not deductible for tax purposes pursuant to Internal Revenue Code Section 267.
8. Commitments and Contingencies
Pursuant to the Partnership Agreement, the Partnership incurs an annual management fee ("Management Fee") and an annual additional management fee ("Additional Management Fee") payable to the General Partner for its services in connection with the management of the affairs of the Partnership. The annual Management Fee is equal to .14% of all proceeds as of December 31 of any year, invested or committed for investment in Local Partnerships plus all debts of the Local Partnerships related to the Properties ("Invested Assets"). The Partnership incurred a Management Fee of $209,514 for each of the three years ended March 30, 2002. The annual Additional Management Fee is equal to .06% of Invested Assets. The Partnership incurred an Additional Management Fee of $89,793 for each of the three years ended March 30, 2002. Such amounts are aggregated and reflected under the caption management fees in the accompanying financial statements. Unpaid Additional Management Fees in the amount of $765,179 and $735,388 are included in payable to general partner and affiliate in the accompanying balance sheets as of March 30, 2002 and 2001, respectively.
In addition, pursuant to the Partnership Agreement, the Partnership is authorized to contract for administrative services provided to the Partnership. From the inception of the Partnership through November 23, 1999, such administrative services were provided by ML Fund Administrators Inc. ("MLFA"), an affiliate of the Selling Agent, pursuant to an Administrative Services Agreement. MLFA resigned the performance of its basic services under the Administrative Services Agreement effective November 23, 1999, with certain transitional services continuing through April 30, 2000. The General Partner transitioned the administrative services to an affiliate of the General Partner without any changes to the terms of the Administrative Services Agreement. Pursuant to such agreement, the Partnership incurs an annual administration fee ("Administration Fee") and an annual additional administration fee ("Additional Administration Fee") for administrative services provided to the Partnership. The annual Administration Fee is equal to .14% of Invested Assets. The Partnership incurred an Administration Fee of $209,514 for each of the three years ended March 30, 2002. The annual Additional Administration Fee is subject to certain provisions of the Partnership Agreement and is equal to .06% of Invested Assets. The Partnership incurred an Additional Administration Fee of $89,793 for each of the three years ended March 30, 2002. Such amounts are aggregated and reflected under the caption administration fees in the accompanying financial statements. Unpaid Additional Administration Fees due to MLFA in the amount of $593,740 and $643,740 are included in accounts payable and accrued expenses as of March 30, 2002 and 2001, respectively, in the accompanying balance sheets. Cumulative unpaid Administration Fees and Additional Administration Fees due to an affiliate of the General Partner in the cumulative amount of $164,594 and $120,113 are included in due to general partner and affiliate in the accompanying balance sheets as of March 30, 2002 and 2001, respectively.
AMERICAN TAX CREDIT PROPERTIES II L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2002, 2001 AND 2000
8. Commitments and Contingencies (continued)
The rents of the Properties, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreements expire at various times during and after the Compliance Periods of the Local Partnerships. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income before debt service ("NOI") and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. Six Local Partnerships' Section 8 contracts, certain of which cover only certain rental units, are currently subject to renewal under applicable HUD guidelines. In addition, two Local Partnerships entered into restructuring agreements, resulting in both a lower rent subsidy (resulting in lower NOI) and lower mandatory debt service with no anticipated material adverse impact to the operating results of the Properties through the respective Compliance Periods.
9. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information, assumptions, estimates and valuation methodologies.
Cash and cash equivalents -------------------------
The carrying amount approximates fair value.
Investments in bonds --------------------
Fair value is estimated based on market quotes provided by an independent service as of the balance sheet dates.
Interest receivable -------------------
The carrying amount approximates fair value due to the terms of the underlying investments.
The estimated fair value of the Partnership's financial instruments as of March 30, 2002 and 2001 are disclosed elsewhere in the financial statements.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ---------------------------------------------------------------
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
Registrant has no officers or directors. The General Partner manages Registrant's affairs and has general responsibility and authority in all matters affecting its business. The responsibilities of the General Partner are currently carried out by Richman Tax Credits. The executive officers and directors of Richman Tax Credits are:
Served in present Name capacity since (1) Position held ---------------------- -------------------- -------------------------------
Richard Paul Richman October 26, 1988 Director David A. Salzman February 1, 2001 President Neal Ludeke October 26, 1988 Vice President and Treasurer Gina S. Dodge October 26, 1988 Secretary
- -------------------------------------------------------------------------------- (1) Director holds office until his successor is elected and qualified. All officers serve at the pleasure of the Director.
Richard Paul Richman, age 54, is the sole Director of Richman Tax Credits. Mr. Richman is the Chairman and principal stockholder of Richman Group. Mr. Richman is involved in the syndication, development and management of residential property. Mr. Richman is also a director of Wilder Richman Resources Corp., an affiliate of Richman Tax Credits and the general partner of Secured Income L.P., a director of Wilder Richman Historic Corporation, an affiliate of Richman Tax Credits and the general partner of Wilder Richman Historic Properties II, L.P., a director of Richman Tax Credit Properties Inc., an affiliate of Richman Tax Credits and the general partner of the general partner of American Tax Credit Properties L.P., a director of Richman Housing Credits Inc., an affiliate of Richman Tax Credits and the general partner of the general partner of American Tax Credit Properties III L.P. and a director of Richman American Credit Corp., an affiliate of Richman Tax Credits and the manager of American Tax Credit Trust, a Delaware statutory business trust.
David A. Salzman, age 41, is the President of Richman Tax Credits and is a minority stockholder and the President of Richman Group. Mr. Salzman is responsible for the acquisition and development of residential real estate for syndication for Richman Group.
Neal Ludeke, age 44, is a Vice President and the Treasurer of Richman Tax Credits. Mr. Ludeke, a Vice President and the Treasurer of Richman Group, is engaged primarily in the syndication, asset management and finance operations of Richman Group. In addition, Mr. Ludeke is a Vice President and the Treasurer of Richman Asset Management, Inc. ("RAM"), an affiliate of Richman Tax Credits. Mr. Ludeke's responsibilities in connection with RAM include various partnership management functions.
Gina S. Dodge, age 46, is the Secretary of Richman Tax Credits. Ms. Dodge is a Vice President and the Secretary of Richman Group. As the Director of Investor Services, Ms. Scotti is responsible for communications with investors.
Item 11.
Item 11. Executive Compensation ----------------------
Registrant has no officers or directors. Registrant does not pay the officers or director of Richman Tax Credits any remuneration. During the year ended March 30, 2002, Richman Tax Credits did not pay any remuneration to any of its officers or its director.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
As of May 31, 2002, no person or entity was known by Registrant to be the beneficial owner of more than five percent of the Units. Richman Tax Credits is wholly owned by Richard Paul Richman.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
The General Partner and certain of its affiliates are entitled to receive certain fees and reimbursement of expenses and have received/earned fees for services provided to Registrant as described in Notes 6 and 8 to the audited financial statements included in Item 8 - "Financial Statements and Supplementary Data" herein.
Transactions with General Partner and Affiliates - ------------------------------------------------
The net tax loss and Low-income Tax Credits generated by Registrant during the year ended December 31, 2001 allocated to the General Partner were $40,275 and $1,139, respectively. The net tax losses and Low-income Tax Credits generated by the General Partner during the year ended December 31, 2001 (from the allocation of Registrant discussed above) and allocated to Richman Tax Credits were $25,537 and $721, respectively.
Indebtedness of Management - --------------------------
No officer or director of the General Partner or any affiliate of the foregoing was indebted to Registrant at any time during the year ended March 30, 2002.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K ----------------------------------------------------------------
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements
See Item 8 - "Financial Statements and Supplementary Data."
(2) Financial Statement Schedules
No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto.
(3) Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the last quarter of the period covered by this report.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN TAX CREDIT PROPERTIES II L.P. (a Delaware limited partnership)
By: Richman Tax Credit Properties II L.P., General Partner
by: Richman Tax Credits Inc., general partner
Dated: June 28, 2002 /s/ Richard Paul Richman ------------- ------------------------------------ by: Richard Paul Richman Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
/s/ Richard Paul Richman Director of the general June 28, 2002 - --------------------------------- partner of the General ------------- (Richard Paul Richman) Partner
/s/ Neal Ludeke Vice President and June 28, 2002 - --------------------------------- Treasurer of the ------------- (Neal Ludeke) general partner of the General Partner (Principal Financial and Accounting Officer of Registrant)