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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2O549
FORM 1O-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the Fiscal year ended December 31, 2003
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the Transaction Period from ________ to ________
Commission File Number 2-90654
AMRECORP REALTY FUND II
(Exact name of registrant as specified in its charter)
Texas 75-1956009
(State or Other Jurisdiction of (I.R.S. Employer
(Incorporation or Organization) (Identification Number)
2800 N Dallas Pkwy #100 Plano, Texas 75093-5994
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including area code(972) 836-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-k or any Amendment to the Form 10-k. _______
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 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 .
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act).
Yes___ No X.
Documents Incorporated by Reference
The Prospectus dated July 6, 1985 filed pursuant to Rule 424(b) as
supplemented pursuant to Rule 424(b) on December 11, 1985
Part I
Item 1. Business
The Registrant, Amrecorp Realty Fund II, (the "Partnership"), is a
limited partnership organized under the Texas Uniform Limited
Partnership Act pursuant to a Certificate of Limited Partnership
dated April 16, 1984 and amended on July 5, 1984. As of December
31, 2003, the Partnership consisted of an individual general
partner, Mr. Robert J. Werra (the "General Partner") and 1,538
limited partners owning 14,544 limited partnership interests at
$1,000 per interest. The distribution of limited partnership
interests commenced pursuant to a Registration Statement on Form
S-11 under the Securities Act of 1933 (Registration #2-90654) as
amended.
The Partnership was organized to acquire a diversified portfolio of
income-producing real properties, primarily apartments, as well as
office buildings, industrial buildings, and other similar
properties. The Partnership intends to continue until December 31,
2014 unless terminated by an earlier sale of its Properties.
The General Partner manages the affairs of the Partnership and acts
as the Managing Agent with respect to the Partnership's properties.
The General Partner may also engage other on-site property managers
and other agents, to the extent the General Partner considers
appropriate. The General Partner makes all decisions regarding
investments in and disposition of properties and has ultimate
authority regarding all property management decisions.
The Partnership competes in the residential and commercial rental
markets. The General Partner prepared market analyses for the
property areas and determined these areas contain other like
properties which may be considered competitive on the basis of
location, amenities and rental rates.
No material expenditure has been made or is anticipated for either
Partnership-sponsored or consumer research and development
activities relating to the development or improvement of facilities
or services provided by the Partnership. There neither has been,
nor are any anticipated, material expenditures required to comply
with any Federal, State or local environmental provisions which
would materially affect the earnings or competitive position of the
Partnership.
The Partnership is engaged solely in the business of real estate
investments. Its business is believed by management to fall
entirely within a single industry segment. Management does not
anticipate that there will be any material seasonal effects upon
the operation of the Partnership.
Competition and Other Factors
The majority of the Properties' leases are of six to twelve month
terms. Accordingly, operating income is highly susceptible to
varying market conditions. Occupancy and local market rents are
driven by general market conditions which include job creation, new
construction of single and multi-family projects, and demolition
and other reduction in net supply of apartment units.
On the property owned at December 31, 2003, the Partnership has
been able to maintain a generally high occupancy level and
increasing rents primarily due to the positive relationship between
apartment unit supply and demand in the market. However, the
property is subject to substantial competition from similar and
often newer properties in the vicinity in which they are located.
In addition, operating expenses and capitalized expenditures have
increased as units are updated and made more competitive in the
market place.
In 1996, the Partnership sold its commercial shopping center
located in Lancaster, Texas, receiving net proceeds of $949,649 and
recognizing a loss of $10,177. In addition, in January 1997 the
Partnership sold its apartment complex located in Charlotte, North
Carolina, for net proceeds of $4,149,635 and recognizing a gain of
$1,287,391.
Item 2. Properties
At December 31, 2003 the Partnership owned one property, Chimney
Square Apartments.
Name and Location General Description of the Property
Chimney Square A fee simple interest in seventeen
Apartments two-story residential buildings
located in Abilene, Texas purchased
in 1984, containing approximately
126,554 net rentable square feet on
approximately 7.18 acres of land.
The community consists of 128
apartment units and twenty-four
townhouse units.
Occupancy Rates
Percent
1999 2000 2001 2002 2003
Chimney Square 97.0% 96.9% 97.9% 96.1% 94.5%
The property is encumbered by a non-recourse mortgage payable. For
information regarding the encumbrances to which the property is
subject and the status of the related mortgage loan, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" contained
in Item 7 hereof and Note B to the Financial Statements and
Schedule Index contained in Item 8.
Item 3. Legal Proceedings
The Partnership is not engaged in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Unit Holders
There were no matters submitted to a vote of unit holders during
the fourth quarter of the fiscal year.
By virtue of its organization as a limited partnership, the
Partnership has outstanding no securities possessing traditional
voting rights. However, as provided and qualified in the Limited
Partnership Agreement, limited partners have voting rights for,
among other things, the removal of the General Partner and
dissolution of the Partnership.
PART II
Item 5. Market for Registrant's Units and Related Unit-holders
Matters
The Partnerships outstanding securities are in the form of Limited
Partnership Interests ("Interests"). As of December 31, 2003 there
were approximately 1,538 limited partners owning 14,544 limited
partnership interests at $1,000 per interest. A public market for
trading Interests has not developed and none is expected to
develop. In addition, transfer of an Interest is restricted
pursuant to Article X, Section 2, of the Limited Partnership
Agreement.
Although a public market for trading Interests has not developed,
74-Mackenzie Patterson Fund ("Mackenzie") acquired 732,
approximately 5%, of the outstanding Interests of the partnership
in 1998 (as reported in Item 12(b)). Mackenzie Patterson Special
Fund 4 L.L.C. ("Mackenzie") acquired 441, approximately 3%, of the
outstanding Interests of the partnership in 1999 (as reported in
Item 12(b)). During 2003 Mackenzie sold all of its positions in
the fund to individuals none of which comprise over 1% of the fund.
Currently the general partner is aware of an ongoing tender offer
to the unit-holder to purchase 4.9% of the fund at $120 per unit.
The registrant knows of no other activity involving the sale or
acquisition of Interest.
The General Partner continues to review the Partnership's ability
to make distributions on a quarter-by-quarter basis. In 2002 the
partnership distributed $15 per limited partnership unit. In 2001
the partnership distributed $20 per limited partnership unit. In
2000 the partnership distributed $25 per limited partnership unit.
In 1998 the Partnership distributed $35 per $1000 unit due to the
refinancing of Chimney Square Apartments. In 1997 the Partnership
distributed $100 per $1000 unit due to the sale of Shorewood
Apartments. In 1996 the Partnership distributed $50 per $1000 unit
due to the sale of Lancaster Place.
An analysis of tax income or loss allocated and cash distributed to
Investors per $1,000 unit is as follows:
YEARS TAXABLE INCOME OR TAXABLE LOSS CASH
GAIN DISTRIBUTED
1984 - 1993 $0 $910 $30
1994 0 $27 0
1995 0 $28 0
1996 $62 0 $50
1997 $143 0 $100
1998 0 $1 $35
1999 0 $0 $0
2000 $2 $0 $25
2001 $10 $0 $20
2002 $15 $0 $15
2003 $17 $0 $0
Item 6. Selected Financial Data
The following table sets forth selected financial data regarding
the Partnership's results of operations and financial position as
of the dates indicated. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 hereof and
the Financial Statements and notes thereto contained in Item 8.
2003 2002 2001 2000 1999
Limited Partner Units 14,544 14,544 14,544 14,544 14,544
Outstanding
Statement of Operations
Total Revenues $911 $886 $892 $869 $833
Net Income (Loss) $78 $65 72 77 41
Limited Partner Net 5.32 4.45 4.45 4.78 2.81
Income(Loss) per
Unit-Basic
Cash Distributions to 0 15 20 25 0
Limited Partners per
Unit-Basic
Balance Sheet:
Real Estate, net 1,694 1,872 1,955 2,119 2,275
Total Assets 2,158 2,169 2,339 2,586 2,901
Mortgages and Notes 2,138 2,191 2,240 2,285 2,325
Payable
Partner's Equity (173) (251) (98) 121 407
Item 7 Management's Discussion and Analysis of Financial
Conditions and Results of Operations
This discussion should be read in conjunction with Item 6 -
"Selected Financial Data" and Item 8 - "Financial Statements and
Supplemental Information."
Results of Operations: 2003 VERSUS 2002
Revenue from Property Operations increased $24,179 or 2.73% as
compared to 2002, due to increased rental rates. Additionally,
interest income decreased $2,215 resulting from lower cash
balances. Other income for 2003 increased $2,098 primarily due to
increased fee income. The following table illustrates the
increases:
Increase/
(Decrease)
Rental income 24,296 2.81%
Interest (2,215) (10.79%)
Fees & Other 2,098 10.22%
Net Increase 24,179 2.73%
Property operating expenses for 2003 increased $11,363 from 2002 or
1.38%. Utilities increased $9,312 or 30.10% due to higher electric
rates as a result of higher natural gas prices. Payroll increased
$9,783 or 12.48% due to higher salaries. Real estate taxes
decreased $3,594 or 3.06% primarily due to decreased assessed
valuations. The following table illustrates the increases or
(decreases):
Increase
(Decrease)
Utilitities 9,312 30.10%
Payroll 9,783 12.48%
Property management fee 1,320 2.99%
Depreciation and amortization 674 0.34%
General and administrative (274) (0.37%)
Repairs and maintenance (1,423) (2.10%)
Interest (4,435) (2.15%)
Real estate taxes (3,594) (3.06%)
Total operating expenses 11,363 1.38%
Results of Operations: 2002 VERSUS 2001
Revenue from Property Operations decreased $5,863 or 0.66% as
compared to 2001, due to decreased occupancy and rental rates.
Additionally, interest income decreased $9,949 resulting from lower
cash balances and interest rates. Other income for 2002 decreased
$3,454 primarily due to decreased fees and vending income. The
following table illustrates the increases:
Increase/
(Decrease)
Rental income 7,540 0.88%
Interest (9,949) (81.70%)
Fees & Other (3,454) (14.41%)
Net Increase (5,863) (0.66%)
Property operating expenses for 2002 increased $632 from 2001 or
0.08%. General & administrative increased $12,008 or 19.12%
primarily due to increased insurance costs. Real estate taxes rose
$1,444 or 1.24% primarily due to increased assessed valuations.
Repairs and Maintenance decreased $5,574 or 7.60% due to lower
overall maintenance costs. Utilities decreased $3,249 or 9.50% due
to lower electric rates. The following table illustrates the
increases or (decreases):
Increase
(Decrease)
General and administrative 12,008 19.12%
Real estate taxes 1,444 1.24%
Payroll 426 0.55%
Property management fee 201 0.46%
Depreciation (241) (0.12%)
Interest (4,383) (2.08%)
Repairs and maintenance (5,574) (7.60%)
Utilities (3,249) (9.50%)
Total operating expenses 632 0.08%
Liquidity and Capital Resources
While it is the General Partners primary intention to operate and
manage the remaining real estate investment, the General Partner
also continually evaluates this investment in light of current
economic conditions and trends to determine if this asset should be
considered for disposal.
In 1996 the Partnership sold its investment in the shopping center
located in Lancaster, Texas , recognizing a loss of $10,177.
Shorewood Apartments, an apartment complex located in Charlotte,
North Carolina was sold in January 1997. Net gain from the sale
was $1,287,391.
As of December 31, 2003, the Partnership had $240,219 in cash and
cash equivalents as compared to $7,833 as of December 31, 2002.
The net increase in cash of $232,386 is principally due to cash
flow from operations.
The remaining property is encumbered by a non-recourse mortgage as
of December 31, 2003, with an interest rate of 9.325%. Required
principal payments on this mortgage note for the two years ended
December 31, 2005, are $59,039 and $2,079,227 respectively.
For the foreseeable future, the Partnership anticipates that
mortgage principal payments (excluding balloon mortgage payments),
improvements and capital expenditures will be funded by net cash
from operations. The primary source of capital to fund the balloon
mortgage payment will be proceeds from the sale, financing or
refinancing of the properties.
Item 7a - Quantitative and Qualitative Disclosure about Market
Risk
Market Risk
The Partnership is exposed to interest rate changes primarily as a
result of its real estate mortgages. The Partnerships interest
rate risk management objective is to limit the impact of interest
rate changes on earnings and cash flows and to lower it's overall
borrowing costs. To achieve its objectives, the partnership
borrows primarily at fixed rates. The partnership does not enter
into derivative or interest rate transactions for any purpose.
The Partnerships' activities do not contain material risk due to
changes in general market conditions. The partnership invests only
in fully insured bank certificates of deposits, and mutual funds
investing in United States treasury obligations.
Risk Associated with Forward-Looking Statements Included in this
Form 10-K This Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934,
which are intended to be covered by the safe harbors created
thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives
relating to capital expenditures and rehabilitation costs on the
Properties. The forward-looking statements included herein are
based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions,
all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-
looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this Form 10-K will prove to
be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the
Company will be achieved.
AMRECORP REALTY FUND II
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORTS
December 31, 2003 and 2002
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Reports 1
Financial Statements
Balance Sheets as of December 31, 2003 and 2002 3
Statements of Income for the years ended December 31, 2003,
2002 and 2001 4
Statements of Partners' Equity (Deficit) for the years ended
December 31, 2003, 2002 and 2001 5
Statements of Cash Flows for the years ended December 31,
2003, 2002 and 2001 6
Notes to Financial Statements 7
Schedule III - Real Estate and Accumulated Depreciation 14
All other schedules have been omitted because they are not
applicable, not required or the information has been supplied
in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partners of
Amrecorp Realty Fund II
We have audited the accompanying balance sheets of Amrecorp
Realty Fund II, a Texas limited partnership (the "Partnership")
as of December 31, 2003 and 2002, and the related statements of
income, partners' equity (deficit), and cash flows for the years
ended December 31, 2003, 2002 and 2001. 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 U.S. generally
accepted auditing standards. 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 presentation of the financial
statements. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the December 31, 2003 and 2002 financial
statements referred to above present fairly, in all material
respects, the financial position of Amrecorp Realty Fund II as of
December 31, 2003 and 2002, and the results of its operations and
its cash flows for the years ended December 31, 2003, 2002 and
2001 in conformity with U.S. generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule III for
the year ended December 31, 2003 is presented for the purpose of
complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion,
fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic
financial statements taken as a whole.
January 14, 2004
Plano, Texas
AMRECORP REALTY FUND II
BALANCE SHEETS
December 31, 2003 and 2002
ASSETS
2003 2002
Investments in real estate at cost
Land $580,045 $580,045
Buildings, improvements and
furniture and fixtures 4,794,733 4,783,433
5,374,778 5,363,478
Accumulated depreciation (3,680,782) (3,491,552)
1,693,996 1,871,926
Cash and cash equivalents 240,219 7,833
Deferred financing costs, net of
accumulated amortization of $72,747
and $65,906, respectively 7,983 14,825
Escrow deposits
Other assets 202,842 259,836
13,320 14,966
TOTAL ASSETS 2,158,360 2,169,386
LIABILITIES AND PARTNERS' EQUITY
Mortgage payable 2,137,546 2,191,348
Accounts payable and accrued expenses 128,101 141,979
Due to affiliates 320 24,152
Accrued interest payable 16,611 17,028
Distributions payable 25,185 25,435
Security deposits 23,213 20,271
TOTAL LIABILITIES 2,330,976 2,420,213
PARTNERS' EQUITY (172,616) (250,827)
TOTAL LIABILITIES AND PARTNERS' EQUITY $2,158,360 $2,169,386
AMRECORP REALTY FUND II
STATEMENTS OF INCOME
For the Years Ended December 31, 2003, 2002, and 2001
2003 2002 2001
INCOME
Rentals $887,936 $863,640 $856,100
Fees and other 22,618 20,520 23,974
Interest 13 2,228 12,177
Total income 910,567 886,388 892,251
OPERATING EXPENSES
Interest 202,039 206,474 210,857
Depreciation and amortization 196,072 195,398 195,639
Real estate taxes 113,907 117,501 116,057
Payroll 88,183 78,400 77,974
Repairs and maintenance 66,356 67,779 73,353
General and administrative 74,547 74,821 62,813
Property management fee to affiliate 45,528 44,208 44,007
Utilities 40,252 30,940 34,189
Administrative services fees to
affiliate 5,472 5,472 5,472
Total operating expenses 832,356 820,993 820,361
NET INCOME $78,211 $65,395 $71,890
NET INCOME PER LIMITED PARTNERSHIP
UNIT - BASIC
Net income per unit - basic $ 5.32 $ 4.45 $ 4.45
LIMITED PARTNERSHIP UNITS
OUTSTANDING - BASIC 14,544 14,544 14,544
AMRECORP REALTY FUND II
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2003, 2002 and 2001
General Limited
Partner Partners Total
Balance, January 1, 2001 $(81,445) $202,373 $120,928
Distributions --- (290,880) (290,880)
Net income 7,189 64,701 71,890
Balance, December 31, 2001 (74,256) (23,806) (98,062)
Distributions --- (218,160) (218,160)
Net income 654 64,741 65,395
Balance, December 31, 2002 (73,602) (177,225) (250,827)
Net income 782 77,429 78,211
Balance, December 31, 2003 $(72,820) $(99,796) $(172,616)
AMRECORP REALTY FUND II
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $78,211 $65,395 $71,890
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 196,072 195,398 195,639
Changes in assets and liabilities:
Escrow deposits (18,098) (34,928) 14,180
Other assets 1,646 (4,522) (2,482)
Accrued interest payable (417) (382) (347)
Due to affiliates (23,832) 22,910 1,560
Accounts payable and accrued expenses (13,878) 7,130 13,981
Security deposits 2,942 770 1,200
Net cash provided by operating activities 222,646 251,771 295,621
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in real estate (11,300) (105,162) (25,215)
Deposits to reserve for replacements (32,220) (32,220) (32,298)
Disbursements from reserve for
replacements 107,312 15,826 30,056
Net cash provided by investing activities 63,792 (121,556) (27,457)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on mortgages and notes payable (53,802) (49,029) (44,680)
Distributions --- (218,160) (290,880)
Distributions payable (250) 2,010 ---
Net cash used for financing activities (54,052) (265,179) (335,560)
Net increase in cash and
cash equivalents 232,386 (134,964) (67,396)
Cash and cash equivalents at beginning
of period 7,833 142,797 210,193
Cash and cash equivalents at end of
period $240,219 $7,833 $142,797
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $202,082 $206,855 $211,204
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Amrecorp Realty Fund II (the "Partnership"), a Texas limited
partnership, was formed on April 16, 1984, under the laws of
the state of Texas, for the purpose of acquiring,
maintaining, developing, operating, and selling buildings
and improvements. The Partnership owns and operates rental
apartments in Abilene, Texas. The Partnership will be
terminated by December 31, 2014, although this date can be
extended if certain events occur. The general partner is
Mr. Robert J. Werra.
An aggregate of 25,000 units at $1,000 per unit are
authorized, of which 14,544 were outstanding for each of the
three years ended December 31, 2003. Under the terms of the
offering, no additional units will be offered.
Allocation of Net Income (Loss) and Cash
Net operating income and loss are allocated 1% to general
partners and 99% to limited partners. Net operating cash
flow, as defined in the partnership agreement, shall be
distributed to the limited and general partners first to the
limited partners in an amount equal to a variable
distribution preference on capital contributions for the
current year and then to the extent the preference has not
been satisfied for all preceding years, and, thereafter, 10%
to the general partner and 90% to the limited partners.
Net income from the sale of property is allocated first, to
the extent there are cumulative net losses, 1% to the
general partner and 99% to the limited partners; second, to
the limited partners in an amount equal to their
distribution preference as determined on the date of the
partners' entry into the Partnership; and, thereafter, 15%
to the general partner and 85% to the limited partners.
Cash proceeds from the sale of property or refinancing are
allocated first to the limited partners to the extent of
their capital contributions and distribution preference as
determined on the date of the partners' entry into the
Partnership; and, thereafter, 15% to the general partner and
85% to the limited partners.
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Basis of Accounting
The Partnership maintains its books on the basis of
accounting used for federal income tax reporting purposes.
Memorandum entries have been made to present the
accompanying financial statements in accordance with U.S.
generally accepted accounting principles.
Investments in Real Estate and Depreciation
Buildings, improvements, and furniture and fixtures are
recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets ranging
from 5 to 25 years.
Income Taxes
No provision for income taxes has been made since the
partners report their respective share of the results of
operations on their individual income tax return.
Revenue Recognition
The Partnership has leased substantially all of its rental
apartments under cancelable leases for periods generally
less than one year. Rental revenue is recognized on a
monthly basis as earned.
Deferred Financing Costs
Costs incurred to obtain mortgage financing are being
amortized over the life of the mortgage using the straight-
line method, which approximates the interest method.
Syndication Costs
Costs or fees incurred to raise capital for the Partnership
are netted against the respective partners' equity accounts.
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments with
a maturity of three months or less to be cash equivalents.
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Long-Lived Assets
In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting For the Impairment
of Long-Lived Assets and For Long-Lived Assets to be
Disposed Of", the Partnership records impairment losses on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be
disposed of. Based on current estimates, management does
not believe impairment of operating properties is present.
Computation of Earnings Per Unit
The Partnership has adopted Statement of Financial
Accounting Standards ("SFAS") No.128, "Earnings per Share".
Basic earnings per unit is computed by dividing net income
(loss) attributable to the limited partners' interests by
the weighted average number of units outstanding. Earnings
per unit assuming dilution would be computed by dividing net
income (loss) attributable to the limited partners'
interests by the weighted average number of units and
equivalent units outstanding. The Partnership has no
equivalent units outstanding for any period presented.
Concentration of Credit Risk
Financial instruments, which potentially subject the
Partnership to concentrations of credit risk, consist
primarily of cash. The Partnership places its cash with
various financial institutions. The Partnership's exposure
to loss should any of these financial institutions fail
would be limited to any amount in excess of the amount
insured by the Federal Deposit Insurance Corporation or
Securities Investor Protection Corporation, where
applicable. Management does not believe significant credit
risk exists at December 31, 2003.
Use of Estimates
The preparation of financial statements in conformity with
U.S. 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 the reported amounts of revenues
and expenses during that reporting period. Actual results
could differ from those estimates.
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Environmental Remediation Costs
The Partnership accrues for losses associated with
environmental remediation obligations when such losses are
probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally
are recognized no later than completion of the remedial
feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of
future expenditures for environmental remediation
obligations are not discounted to their present value.
Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed
probable. Project management is not aware of any
environmental remediation obligations that would materially
affect the operations, financial position or cash flows of
the Project.
Comprehensive Income
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, (SFAS 130), requires that
total comprehensive income be reported in the financial
statements. For the years ended December 31, 2003, 2002,
2001, the Partnership's comprehensive income was equal to
its net income and the Partnership does not have income
meeting the definition of other comprehensive income.
Segment Information
The Partnership is in one business segment, the real estate
investments business, and follows the requirements of FAS
131, "Disclosures about Segments of an Enterprise and
Related Information."
NOTE B - MORTGAGE PAYABLE
Mortgage payable of $2,137,546 and $2,191,348 at December
31, 2003 and 2002, respectively, bears interest at a rate of
9.325% and is payable in monthly installments of principal
and interest of $21,324 through March 2005, at which time a
lump sum payment of approximately $2,069,000 is due. This
mortgage note is secured by real estate with a net book
value of $1,683,503.
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE B - MORTGAGE PAYABLE - CONTINUED
At December 31, 2003, required principal payments due under
the stated terms of the Partnership's mortgage note payable
are as follows
2004 $ 59,039
2005 2,078,507
2006 ---
2007 ---
2008 ---
$2,137,546
NOTE C - RELATED PARTY TRANSACTIONS
The Partnership agreement specifies that certain fees be
paid to the general partner or his designee. An affiliate
of the general partner receives a property management fee
that is 5% of the Partnership's gross receipts.
Additionally, the Partnership reimburses the affiliate for
administrative expenditures. The following fees and
reimbursements earned by an affiliate of the general partner
in 2003, 2002 and 2001:
2003 2002 2001
Property management fee $45,528 $44,208 $44,007
Administrative service fee 5,472 5,472 5,472
Resulting from the above transactions, amounts due an
affiliate of the general partner as of December 31, 2003 and
2002 totaled $320 and $24,152, respectively.
NOTE D - ACCUMULATED AMORTIZATION
At December 31, 2003, amortization expense for deferred
financing costs over the next five years is as follows:
2004 6,842
2005 1,141
2006 ---
2007 ---
Thereafter ---
$7,983
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE E - COMMITMENTS
The Partnership will pay a real estate commission to the
general partner or his affiliates in an amount not exceeding
the lessor of 50% of the amounts customarily charged by
others rendering similar services or 3% of the gross sales
price of a property sold by the Partnership.
NOTE F - RECONCILIATION OF BOOK TO TAX LOSS (UNAUDITED)
If the accompanying financial statements had been prepared
in accordance with the accrual income tax basis of
accounting rather than U.S. generally accepted accounting
principals ("GAAP"), the excess of revenues over expenses
for 2003 would have been as follows:
Net income per accompanying financial statements $78,211
Add - book basis depreciation using 189,230
straight-line method
Deduct - income tax basis depreciation
expense using ACRS method (27,169)
Excess of revenues over expenses,
accrual income tax basis $240,272
NOTE G - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been
determined using available market information or other
appropriate valuation methodologies that require
considerable judgement in interpreting market data and
developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that
the Partnership could realize in a current market exchange.
The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated
fair value amounts.
The fair value of financial instruments that are short-term
or reprice frequently and have a history of negligible
credit losses is considered to approximate their carrying
value. These include cash and cash equivalents, accounts
payable and other liabilities.
Management has reviewed the carrying values of its mortgages
payable and notes payable to related parties in connection
with interest rates currently available to the Partnership
for borrowings with similar characteristics and maturities
and has determined that their estimated fair value would
approximate their carrying value as of December 31, 2003 and
2002.
AMRECORP REALTY FUND II
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE G - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
The fair value information presented herein is based on
pertinent information available to management. Although
management is not aware of any factors that would
significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and
therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
AMRECORP REALTY FUND II
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2003
Initial Cost
to Partnership
Description Encumbrances Land Buildings Total Cost
And Subsequent to
Improvements Acquisition
A 128-unit
two-story
apartment
community of
wooden frame
construction
and a combination
brick veneer
and wood siding
exterior located
in Abilene, Texas (b) $580,045 $4,341,569 $453,164
Gross Amounts at Which
Carried at Close of Year
Description Land Buildings
And Accumulated
Improvements Total Depreciation
A 128-unit (c)(d) (c)
two-story
apartment
community of
wooden frame
construction
and a combination
brick veneer
and wood siding
exterior located
in Abilene, Texas $580,045 $4,797,733 $5,374,778 $3,680,782
Life on Which
Description Date of Date Depreciation
Construction Acquired is Computed
A 128-unit
two-story
apartment
community of
wooden frame
construction
and a combination
brick veneer
and wood siding
exterior located Complete at
in Abilene, Texas Date acquired 11/1/84 (a)
See notes to Schedule III.
AMRECORP REALTY FUND II
Schedule III - Real Estate and Accumulated Depreciation (Continued)
December 31, 2003
NOTES TO SCHEDULE III:
(a) See Note A to financial statements outlining depreciation
methods and lives.
(b) See description of mortgages and notes payable in Note B to
the financial statements.
(c) The reconciliation of investments in real estate and accumulated
depreciation for the years ended December 31, 2003,
2002 and 2001 is as follows:
Investments Accumulated
in Real Depreciation
Estate
Balance, January 1, 2001 $5,233,101 $3,114,199
Acquisitions 25,215 ---
Depreciation expense --- 188,797
Balance, December 31, 2002 $5,258,316 $3,302,996
Acquisitions 105,162 ---
Depreciation expense --- 188,556
Balance, December 31, 2003 5,363,478 3,491,552
Acquisitions 11,300 ---
Depreciation expense --- 189,230
Balance, December 31, 2002 $5,374,778 $3,680,782
(d) Aggregate cost for federal income tax purposes is $5,392,369
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure
On November 6, 1998, an 8-K was filed to disclose the change in
auditors. No financial statements were issued in conjunction with
this filing. The Registrant has not been involved in any
disagreements on accounting and financial disclosure.
Item 9a. Controls and Procedures
Based on their most recent evaluation, which was completed within
90 days of the filing of this Form 10-K, our Principal Financial
Officer and Principal Executive Officer, believe our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) are effective. There were not any significant changes
in internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
and there has not been any corrective action with regard to
significant deficiencies and material weaknesses.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership itself has no officers or directors. Robert J.
Werra is the General Partner of the Partnership.
Robert J. Werra, 65, the General Partner, Mr. Werra joined Loewi &
Co., Incorporated ("Loewi") in 1967 as a Registered Representative.
In 1971, he formed the Loewi real estate department, and was
responsible for its first sales of privately placed real estate
programs. Loewi Realty was incorporated in 1974, as a wholly owned
subsidiary of Loewi & Co., with Mr. Werra as President. In 1980,
Mr. Werra along with three others formed Amrecorp Inc. to purchase
the stock of Loewi Real Estate Inc., and Loewi Realty. In 1991
Univesco, Inc. became the management agent for the Partnership.
Limited Partners have no right to participate in management of the
Partnership.
Item 11. Management Remuneration and Transactions
As stated above, the Partnership has no officers or directors.
Pursuant to the terms of the Limited Partnership Agreement, the
General Partner receives 1% of Partnership income and loss up to
15% of the net proceeds received from sale or refinancing of
Partnership properties (after return of Limited Partner capital
contributions and payments of a 6% Current Distribution Preference
thereon).
Univesco, Inc., an affiliate of the General Partner, is entitled to
receive a management fee with respect to the properties actually
managed of 5% of actual gross receipts from a property or an amount
competitive in price or terms for comparable services available
from a non-affiliated persons. The Partnership is also permitted
to engage in various transactions involving affiliates of the
General Partner as described under the caption "Compensation and
Fees" at pages 6-8, "Management" at page 17 "Allocation of Net
Income and Losses and Cash Distributions" at pages 34-36 of the
Prospectus as supplemented, incorporated in the Form S-11
Registration Statement which was filed with the Securities and
Exchange Commission and made effective on May 2, 1983.
For the Fiscal year ended December 31, 2003, 2002, and 2001,
property management fees earned totaled $45,528, $44,208, and
$44,007, respectively. An additional administration service fee
was paid to the general partner of $5,472, $5,472, and $5,472, for
the years ended December 31, 2003, 2002, and 2001, respectively.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) No one owns of record, except as noted in Item (b) below, and
the General Partner knows of no one who owns beneficially, more
than five percent of the Interests in the Partnership, the only
class of securities outstanding.
(b) By virtue of its organization as a limited partnership, the
Partnership has no officers or directors. Persons performing
functions similar to those of officers and directors of the
Partnership, beneficially own, the following units of the
Partnership as of March 1, 2004.
Title Name of Amount and Nature Percent
of Class Beneficial Owner of Beneficial Ownership of Interest
Limited Robert J. Werra 86 units 0.59%
Partnership 2800 N Dallas Pkwy #100
Interests Plano, Texas 75093
(c) There is no arrangement, known to the Partnership, which may,
at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
As stated Item 11, the Partnership has no officers or directors.
Pursuant to the terms of the Limited Partnership Agreement, the
General Partner receives 1% of Partnership income and loss up to
15% of the net proceeds received from sale or refinancing of
Partnership properties (after return of Limited Partner capital
contributions and payments of a 6% Current Distribution Preference
thereon).
Univesco, Inc., an affiliate of the General Partner, is entitled to
receive a management fee with respect to the properties actually
managed by the corporate general partner. For nonresidential
properties (including all leasing and releasing fees and fees for
leasing related services) the management fee is lessor of 6% of
gross receipts from the Partnership from such properties or an
amount which is competitive in price and terms with other non-
affiliated persons rendering comparable services which would
reasonably be made available to the Partnership. For residential
properties ( including all leasing and releasing fees and fees for
leasing related services), the lessor of 5% of gross receipts of
the Partnership from such properties or an amount which is
competitive in price or terms with other non-affiliated persons
rendering comparable services which could reasonably be made
available to the Partnership. The Partnership is also permitted to
engage in various transactions involving affiliates of the General
Partner as described under the caption "Compensation and Fees" at
pages 6-8, "Management" at page 17 "Allocation of Net Income and
Losses and Cash Distributions" at pages 34-36 of the Prospectus as
supplemented, incorporated in the Form S-11 Registration Statement
which was filed with the Securities and Exchange Commission and
made effective on July 6,1984 and incorporated herein by reference.
See Note C to the Financial Statements for detailed information
concerning fees paid to Univesco, Inc. (an affiliate of the General
Partner).
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees for professional
services rendered to the Partnership for the years 2003 and 2002 by
the Partnership's principal accounting firm, Farmer, Fuqua, & Huff,
P.C.
Type of Fees 2003 2002
Audit Fees $,8500 $8,500
Audit related fees --- ---
Tax fees --- ---
All other fees --- ---
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(A) 1. See accompanying Financial Statements Index
2. Additional financial information required to be furnished:
Schedule III- Real Estate and Accumulate Depreciation.
3. Exhibits
None.
(B) Reports on Forms 8-K for the quarter ended December 31, 2003.
November 6, 1998, an 8-K was filed to disclose the change
in auditors. No financial statements were issued in conjunction
with this filing.
(C) Exhibits
3. Certificate of Limited Partnership, incorporated by reference
to Registration Statement No. 2-90654 effective July 6, 1984.
4. Limited Partnership Agreement, incorporated by reference to
Registration Statement No. 2-90654 effective July 6, 1984.
9. Not Applicable
10. Not Applicable
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Code of Ethics for Senior Financial Officers
18. Not Applicable
19. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. Power of Attorney, incorporated by reference to Registration
Statement No. 2-90654 effective July 5, 1984.
28. None
31. Certification
32. Officers Section 1350 Certifications
(d) Financial Statement Schedules excluded from the annual report
None
EXHIBIT 14
Code of Ethics for Senior Financial Officers
The principal executive officer, president, principal financial
officer, chief financial officer, principal accounting officer and
controller (all, the partnership's "Senior Financial Officers") hold
an important and elevated role in corporate governance, vested with
both the responsibility and authority to protect, balance, and
preserve the interests of all of the enterprise stakeholders,
including shareholders, customers, employees, suppliers, and citizens
of the communities in which business is conducted. Senior Financial
Officers fulfill this responsibility by prescribing and enforcing the
policies and procedures employed in the operation of the enterprise's
financial organization and by acting in good faith and in the
partnership's best interests in accordance with the Partnership's Code
of Business Conduct and Ethics.
1 Honest and Ethical Conduct
Senior Financial Officers will exhibit and promote
honest and ethical conduct through the establishment and
operation of policies and procedures that:
Encourage and reward professional integrity in all
aspects of the financial organization, by eliminating
inhibitions and barriers to responsible behavior, such
as coercion, fear of reprisal, or alienation from the
financial organization or the enterprise itself.
Promote the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships.
Provide a mechanism for members of the finance
organization to inform senior Management of deviations
in the practice from policies and procedures governing
honest and ethical behavior.
Respect the confidentiality of information acquired in
the course of work, except when authorized or otherwise
legally obligated to disclose such information, and
restrict the use of confidential information acquired
in the course of work for personal advantage.
Demonstrate their personal support for such policies
and procedures through periodic communication
reinforcing these ethical standards throughout the
finance organization.
2 Financial Records and Periodic Reports
Senior Financial Officers will establish and manage the
enterprise transaction and reporting systems and procedures
to provide that:
Business transactions are properly authorized and
accurately and timely recorded on the partnership's
books and records in accordance with Generally Accepted
Accounting Principles ("GAAP") and established
partnership financial policy.
No false or artificial statements or entries for any
purpose are made in the partnership's books and
records, financial statements and related
communications.
The retention or proper disposal of partnership records
shall be in accordance with established records
retention policies and applicable legal and regulatory
requirements.
Periodic financial communications and reports will
include full, fair, accurate, timely and understandable
disclosure.
3 Compliance with Applicable Laws, Rules and Regulations.
Senior Financial Officers will establish and maintain
mechanisms to:
Educate members of the finance organization about any
federal, state or local statute, regulation or
administrative procedure that affects the operation of
the finance organization and the enterprise generally.
Monitor the compliance of the finance organization with
any applicable federal, state or local statute,
regulation or administrative rule.
Identify, report and correct in a swift and certain
manner, any detected deviations from applicable
federal, state or local statute or regulation.
4 Reporting of Non-Compliance
Senior Financial Officers will promptly bring to the attention of
the Audit Committee:
Material information that affects the disclosures made
by the partnership in its public filings.
Information concerning significant deficiencies in the
design or operation of internal controls that could
adversely affect the partnership's ability to record,
process, summarize and report financial data.
Senior Financial Officers will promptly bring to the attention
of the General Counsel and to the Audit Committee:
Fraud, whether or not material, that involves
management or other employees who have a significant
role in the partnership's financial reporting,
disclosures or internal controls.
Information concerning a violation of this Code or
the partnership's Code of Business and Ethics
Conduct, including any actual or apparent conflicts
of interest between personal and professional
relationships, involving management or other
employees who have a significant role in the
partnership's financal reporting, disclosures or
internal controls.
Evidence of a material violation by the partnership
or its employees or agents of applicable laws, rules
or regulations.
5 Disciplinary Action
In the event of violation by Senior Financial
Officers of this Code or the partnerhip's Code of
Business Conduct and Ethics, the Audit Committee of the
Board of Directors shall recommend appropriate
disciplinary and remedial actions.
Exhibit 31
CERTIFICATION
I, Robert J. Werra, certify that:
1 . I have reviewed this annual report on Form 10-K of
Amrecorp Realty Fund II;
2 . Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3 . Based on my knowledge, the financial statements, and
other financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4 . The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13-15(e) and 15d-
15e) and have internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant
and have:
(a) designed such disclosure controls and
procedures to ensure that material information relating
to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
annual report is being prepared;
(b) designed such internal control over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principals; and
(c) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
controls and procedures as of the end of the period
covered by this report based on such evaluation; and
(d) disclosed in this report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
(e) presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material
weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal controls.
Dated: March 30, 2004.
/s/ Robert W. Werra
General Partner
Exhibit 32
Officers' Section 1350 Certifications
The undersigned officer of Amrecorp Realty Fund II, a Texas
limited Partnership (the "Partnership"), hereby certifies that
(i) the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2003 fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934, and (ii) the
information contained in the Partnerhip's Annual Report on Form 10-
K for the year ended December 31, 2003 fairly presents, in all
material respects, the financial condition and results of
operations of the Partnerhip's, at and for the periods indicated.
Dated: March 30, 2004.
/s/ Robert J. Werra
General Partner