SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2004
OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17793
Wilder Richman Historic Properties II, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3481443
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part I - Financial Information
Table of Contents
Item 1. Financial Statements Page
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Balance Sheets as of May 31, 2004 (Unaudited)
and February 29, 2004 3
Statements of Operations for the three months
ended May 31, 2004 and 2003 (Unaudited) 4
Statements of Cash Flows for the three months
ended May 31, 2004 and 2003 (Unaudited) 5
Notes to Financial Statements as of May 31, 2004
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations 9
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Item 3. Quantitative and Qualitative Disclosure about Market Risk 11
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Item 4. Controls and Procedures 11
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
May 31, 2004
(Unaudited) February 29, 2004
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ASSETS
Cash and cash equivalents $ 89,099 $ 14,982
Investment in operating partnerships 1,495,099 1,649,646
Other assets 39,681 11,181
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$ 1,623,879 $ 1,675,809
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LIABILITIES AND PARTNERS' EQUITY
Liabilities
Other liabilities $ 14,919 $ 11,700
State of New Jersey filing fee 56,100
Due to related parties 251,264 245,239
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266,183 313,039
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Partners' equity (deficit)
General Partner (143,093) (143,042)
Limited Partner 1,500,789 1,505,812
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1,357,696 1,362,770
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$ 1,623,879 $ 1,675,809
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See notes to financial statements.
3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
2004 2003
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REVENUE
Interest $ 27 $ 324
EXPENSES
Operating 22,504 10,045
State of New Jersey filing fee 28,050 28,050
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Loss from operations (50,527) (37,771)
Equity in income of operating partnerships 45,453 139,448
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NET EARNINGS $ (5,074) $ 101,677
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NET EARNINGS PER UNIT OF LIMITED
PARTNERSHIP INTEREST
(800 units of limited partnership) $ (6.28) $ 125.83
========= =========
See notes to financial statements.
4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 2004 AND 2003
(Unaudited)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ (5,074) $ 101,677
Adjustments to reconcile net earnings to net
cash used in operating activities
Equity in income of operating partnerships (45,453) (139,448)
Increase in other assets (28,500) (28,050)
Payment of State of New Jersey filing fee (56,100) (112,200)
Increase in other liabilities 3,219 3,125
Increase in due to related parties 6,025 6,290
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Net cash used in operating activities (125,883) (168,606)
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CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from operating partnerships 200,000 168,300
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Net cash provided by investing activities 200,000 168,300
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Net decrease in cash and cash equivalents 74,117 (306)
Cash and cash equivalents at beginning of period 14,982 85,169
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Cash and cash equivalents at end of period $ 89,099 $ 84,863
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See notes to financial statements.
5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2004
(Unaudited)
1. The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. They do not include
all information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Operating Partnerships, which are provided on
an unaudited basis during interim periods. Accordingly, the accompanying
financial statements are dependent on such unaudited information. In the
opinion of the General Partner, the financial statements include all
adjustments necessary to reflect fairly the results of the interim periods
presented. All adjustments are of a normal recurring nature. No
significant events have occurred subsequent to February 29, 2004 and no
material contingencies exist which would require additional disclosures in
the report under Regulation S-X, Rule 10-01 paragraph A-5.
The results of operations for the three months ended May 31, 2004 are not
necessarily indicative of the results to be expected for the entire year.
2. The investment in Operating Partnerships as of May 31, 2004 and February
29, 2004 are as follows:
Amount paid to investee through February 29, 2004 $ 16,388,000
Accumulated cash distributions from Operating Partnerships
through February 29, 2004 (3,180,441)
Equity in accumulated loss of Operating Partnerships
through February 29, 2004 (11,557,913)
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Balance, February 29, 2004 1,649,646
Cash distribution from Operating Partnerships for the three
months ended May 31, 2004 (200,000)
Equity in income of operating partnerships for the three months
ended May 31, 2004 45,453
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Balance, May 31, 2004 $ 1,495,099
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
MAY 31, 2004
(Unaudited)
Note 2 - continued
The combined balance sheets of the Operating Partnerships as of March
31, 2004 and December 31, 2003 are as follows:
March 31, 2004
(Unaudited) December 31, 2003
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ASSETS
Land $ 1,150,473 $ 1,150,473
Buildings and equipment (net of accumulated
depreciation of $20,182,251 and $19,793,840) 35,253,283 35,641,694
Cash and cash equivalents 6,751,788 6,788,271
Deferred costs 779,614 787,039
Mortgage escrow deposits 2,981,266 2,456,607
Tenant security deposits 711,493 711,493
Other assets 5,610 35,234
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$47,633,527 $47,570,811
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LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgages payable $28,600,000 $28,600,000
Accounts payable and accrued expenses 288,456 318,182
Accrued interest 24,482 13,754
Tenant security deposits payable 711,493 711,493
Due to general partner and affiliates 1,721,655 1,685,854
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31,346,086 31,329,283
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Partners' equity
General partner 14,592,342 14,591,882
Limited partner 1,695,099 1,649,646
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16,287,441 16,241,528
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$47,633,527 $47,570,811
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
MAY 31, 2004
(Unaudited)
Note 2 - Continued
The unaudited statements of the operations of the Operating
Partnerships for the three months ended March 31, 2004 and 2003 are as follows:
2004 2003
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REVENUE
Rent $1,685,193 $1,773,405
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1,685,193 1,773,405
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EXPENSES
Administrative 205,125 189,231
Operating 830,314 845,392
Management fees 68,617 74,421
Interest 139,389 136,335
Depreciation and amortization 395,835 387,169
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1,639,280 1,632,548
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NET EARNINGS $ 45,913 $ 140,857
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NET EARNINGS ALLOCATED TO
Wilder Richman Historic Properties II, L.P. $ 45,453 $ 139,448
General partner 460 1,409
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$ 45,913 $ 140,857
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3. The Partnership is contractually liable for amounts that were partially
omitted from the prior year's financial statements for Investor Services
Fees payable to an affiliate of the General Partner. The adjustment is
$2,465 for the three months ended May 31, 2003. In addition, the Operating
Partnerships are contractually liable for amounts that were wholly or
partially omitted from the prior year's financial statements for Investor
Services Fees payable to an affiliate of the General Partner and for
interest on loans payable to the Operating General Partner. Net income of
the Operating Partnerships has been reduced by $5,933 for the three months
ending March 31, 2003. Net income per unit of limited partnership interest
has been reduced by $10 for the three months ended May 31, 2003.
4. Additional information, including the audited February 29, 2004 Financial
Statements and the Summary of Significant Accounting Policies, is included
in the Partnership's Annual Report on Form 10-K for the fiscal year ended
February 29, 2004 on file with the Securities and Exchange Commission.
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Liquidity and Capital Resources
As of May 31, 2004, Wilder Richman Historic Properties II, L.P. (the
"Partnership") experienced few changes in its financial condition as compared to
February 29, 2004, with the exception of the investment in the Operating
Partnerships resulting from the equity in income of operating partnerships for
the three months ended March 31, 2004, net of a distribution received in the
amount of $200,000.
The Operating Partnerships refinanced their respective outstanding mortgage
liabilities as of April 28, 2001 (the "Refinancing"). Prior to the Refinancing,
the annual fixed interest rate of the mortgage was approximately 6.74%. The
total new indebtedness in the amount of $28,600,000 for a term of 30 years was
provided by (a) variable-rate tax-exempt bonds in the amount of $26,435,000, and
(b) variable-rate taxable bonds in the amount of $2,165,000. The initial
interest rates on the tax-exempt and taxable bonds were 5.1% and 6.15%,
respectively. The Operating Partnerships purchased an interest cap which would
limit the interest rates to 6.97% for five years on the tax-exempt portion, and
9.15% for five and one-half years on the taxable portion.
As a result of the reduction of the mortgage interest rate, the Operating
Partnerships have generated greater cash flow. However, the Partnership's
ability to make distributions is dependent upon the level of interest rates and
future operating results of the Complex, which is extremely dependent on
competition, market conditions and needed capital improvements and repairs.
Accordingly, there can be no assurance as to whether or not the Partnership may
be able to make distributions, nor the timing or amount of any potential
distributions to Limited Partners. The Operating General Partner and the General
Partner plan to periodically assess the feasibility of making cash flow
distributions, based on the results of operations, the physical condition of the
Property (see discussion below), the then current and anticipated interest
rates, and local market conditions, among other things. To the extent cash flow
is generated by the Operating Partnerships, such cash flow may be retained by
the Operating Partnerships or may be distributed at the discretion of
management, pursuant to the terms of the limited partnership agreements of the
Operating Partnerships.
The Property is reporting cash flow for the three months ended March 31, 2004
(see Results of Operations, below) and the Operating Partnerships' cash and cash
equivalents as of March 31, 2004 have decreased by approximately $36,000
compared to December 31, 2003, while accounts payable and accrued expenses have
decreased by approximately $30,000. The replacement reserve account, which is
controlled by the lender for the purpose of funding planned capital improvements
and needed repairs, is approximately $877,000, as of March 31, 2004. The
principal reserve, which is controlled by the lender for purposes of amortizing
the debt, is approximately $1,393,000 as of March 31, 2004. Each of the
foregoing reserves and escrows are reflected in the Operating Partnerships'
balance sheet under the caption mortgage escrow deposits.
Because the rehabilitation of the Property was completed more than ten years
ago, management has been addressing the need for extensive capital improvements.
As a result of the Refinancing, significant capital improvements have been
completed. The improvements that were contemplated as part of the Refinancing
include roof replacement, replacement of the fire/smoke alarm system, elevator
repairs, new entry doors and other repairs throughout the Complex. In addition,
the Operating General Partner has identified other potential significant capital
improvements and repairs throughout the Complex, which it intends to address
over the next few years. Such capital improvements and repairs would
significantly reduce the Operating Partnerships' cash flow available for
distribution. The Operating General Partner anticipates spending approximately
$2.1 million in 2004 for capital needs, including structural work on the pump
house building, roof and balcony repairs, steel restoration and windows. The
Operating General Partner believes that other improvements, whose timing may be
discretionary but which may be important to remain competitive in the rental
market, should be made over time and include kitchen and bath renovations, new
appliances, and replacement of doors and windows. Furthermore, the local rental
market has softened; as a result, the local competition has reduced their rental
rates. Management has implemented rental reductions and concessions over the
past one to two years in order to maintain its position in the market, which has
adversely affected cash flow; such affect has been partially offset by changes
in the low floater mortgage interest rates, but would be exacerbated by an
increase in the low floater rates. Depending on market conditions, rents may
need to be further adjusted.
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (continued)
During 2002, the Partnership agreed with the Operating General Partner to hire a
national brokerage and marketing firm to privately solicit offers from major
apartment owners to purchase the Property (on a confidential basis) in order to
determine the current market value of the Property. Two of those solicitations
resulted in initial non-binding offers to purchase the Property.
Under the terms of the Partnership Agreement of the Partnership, a sale of the
Property would require the consent of a majority in interest of the Unit
Holders. Accordingly, on July 1, 2003, the Partnership presented proxy materials
by which Unit Holders were asked to vote as to whether or not they wanted to
pursue a sale of the Property. Unit Holders holding 48% of the outstanding Units
voted in favor of the proposed sale. The General Partner believes the fact that
48% of the Units voted in favor of pursuing a sale of the Property is a clear
indication that the Partnership should review various sale options. Subsequent
to initiating the proxy, at least two tender offers to purchase the Units
provided Unit Holders an opportunity to sell Units at prices equal to or above
the net sales proceeds estimated in the proxy materials. The General Partner
recently commenced a process to receive proposals for the sale of the Property
and will not know the highest bid until the process is completed.
The Operating General Partner's objective has been to build up reserves to a
level sufficient to reasonably offset the potential adverse impact of future
increases in the low floater rates in addition to other contingencies, including
capital improvements and potential significant increases in real estate taxes.
The Operating General Partner intends to take into account, among other factors,
a similar analysis when considering making future annual distributions.
The Partnership's operating results are dependent upon the operating results of
the Operating Partnerships and are significantly impacted by the Operating
Partnerships' policies. The Partnership accounts for its investment in the
Operating 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 the Operating Partnerships' results of operations and by any cash
distributions received.
Results of Operations
For the three months ended May 31, 2004, the statement of operations of the
Partnership reflects net loss of $(5,074), which includes equity in income of
operating partnerships of $45,453. The Operating Partnerships reported net
earnings during the three months ended March 31, 2004 of $45,913, inclusive of
depreciation and amortization expense of $395,835. The Operating Partnerships
generated cash flow after required debt service payments and required
replacement reserve deposits during the three months ended March 31, 2004 of
approximately $234,000, which includes required deposits to the principal
reserve under the mortgages (approximately $106,000) and deposits to required
escrows (approximately $19,000). The Operating Partnerships' results of
operations for the three months ended March 31, 2004 reflect a reduction in
rental income of approximately $88,000 (see discussion above under Liquidity and
Capital Resources); operating expenses include approximately $143,000 of costs
associated with planned maintenance and improvements. Interest expense remained
low for the three months ended March 31, 2004 as a result of the average low
floater interest rates. The average interest rates on the low floater bonds for
the three months ended March 31, 2004 were 1.05% for the tax exempt bonds and
1.19% for the taxable bonds. The average occupancy for the three months ended
March 31, 2004 was approximately 95%.
For the three months ended May 31, 2003, the statement of operations of the
Partnership reflects net earnings of $101,677, which includes equity in income
of operating partnerships of $139,448. The Operating Partnerships reported net
earnings during the three months ended March 31, 2003 of $140,857, inclusive of
depreciation and amortization expense of $387,169. The Operating Partnerships
generated cash flow after required debt service payments and required
replacement reserve deposits during the three months ended March 31, 2003 of
approximately $411,000, which includes required deposits to the principal
reserve under the mortgages (approximately $97,000) and deposits to required
escrows (approximately $19,000). The Operating Partnerships' results of
operations for the three months ended March 31, 2003 reflect a reduction in
rental income (see discussion above under Liquidity and Capital Resources) and
an increase in operating expenses resulting from planned maintenance and
improvements. Interest expense remained low for the three months ended March 31,
2003 as a result of the average low floater interest rates. The average interest
rates on the low floater bonds for the three months ended March 31, 2003 were
1.03% for the tax exempt bonds and 1.36% for the taxable bonds. The average
occupancy for the three months ended March 31, 2003 was approximately 94%.
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions 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 the
Partnership to make certain estimates and assumptions. 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 the
Partnership's financial condition and results of operations. The Partnership
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 The Partnership accounts for its investment in operating
partnerships in accordance with the equity method of accounting
since the Partnership does not control the operations of an
Operating Partnership.
o If the book value of the Partnership's investment in an Operating
Partnership exceeds the estimated value derived by management, the
Partnership reduces its investment in any such Operating Partnership
and includes such reduction in equity in income (loss) of investment
in operating partnerships.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Operating Partnerships' mortgages. Although an
interest rate cap has been purchased, a change in the low-floater interest rates
of .25% would have an annualized impact of approximately $70,000 on the
Operating Partnerships' results of operations.
Item 4. Controls and Procedures
As of May 31, 2004, under the direction of the Chief Executive Officer and Chief
Financial Officer, Registrant evaluated the effectiveness of its disclosure
controls and procedures and internal controls over financial reporting and
concluded that (i) Registrant's disclosure controls and procedures were
effective as of May 31, 2004 and (ii) no changes occurred during the quarter
ended May 31, 2004 that materially affected, or are reasonably likely to
materially affect, such internal controls.
11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part II - Other Information
Item 1. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer
Exhibit 32.2 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
12
Wilder Richman Historic Properties II, L.P.
Form 10-Q
May 31, 2004
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on it behalf by the
undersigned thereunto duly authorized.
WILDER RICHMAN HISTORIC PROPERTIES II,
L.P.
By: Wilder Richman Historic Corporation
General Partner
Dated: July 15, 2004 /s/ Richard Paul Richman
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Richard Paul Richman
Chief Executive Officer
/s/ Neal Ludeke
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Neal Ludeke
Chief Financial Officer
13