10-Q 1 d91943e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ COMMISSION FILE NO. 0-17183 MURRAY INCOME PROPERTIES II, LTD. (Exact Name of Registrant as Specified in its Charter) TEXAS 75-2085586 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 13615 NEUTRON ROAD, DALLAS, TEXAS 75244-4411 (Address of principal executive offices) (Zip Code) (972) 991-9090 Registrant's Telephone Number, including Area Code 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 [ ] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) BALANCE SHEETS

~~June~~September 30, December 31, 2001 2000 ------------ ------------ (unaudited) ASSETS Investment in joint venture, at equity $ 1,~~350~~354,~~096~~800 $ 1,362,094 Cash and cash equivalents 8,~~095~~086,~~763~~299 10,290,961 Accounts receivable -0- 78,663 Other assets, at cost ~~714~~17,592 34,212 ------------ ------------ $ 9,~~446~~458,~~573~~691 $ 11,765,930 ============ ============ LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 166,~~606~~711 $ 19,385 State excise tax payable and other liabilities 231,006 522,346 ------------ ------------ Total liabilities ~~247~~237,~~612~~717 541,731 ------------ ------------ Partners' equity: General Partners: Capital contributions 1,000 1,000 Cumulative net earnings 1,~~194~~202,~~605~~401 1,179,186 Cumulative cash distributions (1,~~158~~164,~~865~~460) (1,091,686) ------------ ------------ 3638,~~740~~941 88,500 ------------ ------------ Limited Partners (314,687 Interests): Capital contributions, net of offering costs 27,029,395 27,029,395 Cumulative net earnings 23,~~301~~372,~~838~~000 23,163,066 Cumulative cash distributions (41,~~169~~219,~~012~~362) (39,056,762) ------------ ------------ 9,~~162~~182,~~221~~033 11,135,699 ------------ ------------ Total partners' equity 9,~~198~~220,~~961~~974 11,224,199 ------------ ------------ $ 9,~~446~~458,~~573~~691 $ 11,765,930 ============ ============

See accompanying notes to financial statements. 2 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF EARNINGS (UNAUDITED)

Three Months Ended ~~Six~~Nine Months Ended ~~June~~September 30, ~~June~~September 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- INCOME: Rental $ ~~477~~636 $~~768~~ 801,~~150~~852 $ 31,~~348~~984 $12,~~588~~390,~~286~~138 Interest 9073,~~001~~953 2123,~~768~~399 ~~218~~292,~~433~~386 4366,~~582~~981 Equity in earnings of joint venture 4851,~~342~~954 3433,~~253~~928 84135,~~002~~956 ~~195~~229,~~626~~554 ---------- ---------- ---------- ---------- ~~138~~126,~~820~~543 ~~824~~859,~~171~~179 ~~333~~460,~~783~~326 12,~~827~~686,~~494~~673 ---------- ---------- ---------- ---------- EXPENSES: Depreciation -0- 1,202 -0- ~~122~~124,~~860~~062 Property operating -0- ~~232~~188,~~158~~094 1,936 ~~422~~610,~~205~~299 General and administrative 8148,~~154~~585 7688,~~187~~058 ~~177~~226,~~656~~241 ~~178~~266,~~792~~850 ---------- ---------- ---------- ---------- 8148,~~154~~585 ~~309~~277,~~547~~354 ~~179~~248,~~592~~177 ~~723~~1,~~857~~001,211 ---------- ---------- ---------- ---------- Earnings before state excise taxes 5777,~~666~~958 ~~514~~581,~~624~~825 ~~154~~232,~~191~~149 1,~~103~~685,~~637~~462 State excise tax -0- 1619,~~700~~500 -0- 3252,~~900~~400 ---------- ---------- ---------- ---------- Net earnings $ 5777,~~666~~958 $~~497~~ 562,~~924~~325 $ ~~154~~232,~~191~~149 $1,~~070~~633,~~737~~062 ========== ========== ========== ========== Net earnings allocated to Limited Partners $ 5170,~~899~~162 $~~487~~ 551,~~942~~054 $ ~~138~~208,~~772~~934 $1,~~046~~597,~~655~~709 ========== ========== ========== ========== Basic earnings per limited partnership interest $ 0.1622 $ 1.5575 $ 0.4466 $ 35.3308 ========== ========== ========== ==========

See accompanying notes to financial statements. 3 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)

General Limited Partners Partners Total ------------ ------------ ------------ ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2000 Balance at December 31, 1999 $ 5,995 $ 17,794,610 $ 17,800,605 Net earnings 2435,~~082~~353 1,~~046~~597,~~655~~709 1,~~070~~633,~~737~~062 Cash distributions ($34.0075 per limited partnership interest) (1930,~~266~~505) (~~944~~1,~~064~~494,767) (~~963~~1,~~330~~525,272) ------------ ------------ ------------ Balance at ~~June~~September 30, 2000 $ 10,~~811~~843 $ 17,897,~~201~~552 $ 17,908,~~012~~395 ============ ============ ============ ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2001 Balance at December 31, 2000 $ 88,500 $ 11,135,699 $ 11,224,199 Net earnings 1523,~~419~~215 ~~138~~208,~~772~~934 ~~154~~232,~~191~~149 Cash distributions ($6.7187 per limited partnership interest, including $5.27 in distributions of net sales proceeds) (6772,~~179~~774) (2,~~112~~162,~~250~~600) (2,~~179~~235,~~429~~374) ------------ ------------ ------------ Balance at ~~June~~September 30, 2001 $ 3638,~~740~~941 $ 9,~~162~~182,~~221~~033 $ 9,~~198~~220,~~961~~974 ============ ============ ============

See accompanying notes to financial statements. 4 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED)

~~Six~~Nine Months Ended ~~June~~September 30, ----------------------------------- 2001 2000 ------------ ------------ Cash flows from operating activities: Net earnings $ ~~154~~232,~~191~~149 $ 1,~~070~~633,~~737~~062 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation -0- ~~122~~124,~~860~~062 Equity in earnings of joint venture (84135,~~002~~956) (~~195~~229,~~626~~554) Amortization of other assets -0- 3756,~~366~~324 Amortization of deferred income -0- (34,~~249~~874) Change in assets and liabilities: Accounts receivable 78,663 (~~100~~88,~~040~~713) Other assets 3316,~~498~~620 (84112,~~430~~376) Accounts payable (212,~~779~~674) 1(2,~~859~~222) Accrued property taxes, security deposits, state excise tax payable, other liabilities and deferred income (291,340) (~~140~~80,~~489~~342) ------------ ------------ Net cash provided by (used in) operating activities (~~111~~112,~~769~~538) ~~708~~1,~~988~~295,367 ------------ ------------ Cash flows from investing activities: Additions to investment properties -0- (1317,~~176~~701) Purchases of certificates of deposit -0- (198,000) Proceeds from redemptions of certificates of deposit -0- ~~694~~793,986 Distributions from joint venture 96143,~~000~~250 49106,500 ------------ ------------ Net cash provided by investing activities 96143,~~000~~250 ~~533~~684,~~310~~785 ------------ ------------ Cash flows from financing activities - cash distributions (2,~~179~~235,~~429~~374) (~~963~~1,~~330~~525,272) ------------ ------------ Net (decrease) increase in cash and cash equivalents (2,~~195~~204,~~198~~662) ~~278~~454,~~968~~880 Cash and cash equivalents at beginning of period 10,290,961 908,676 ------------ ------------ Cash and cash equivalents at end of period $ 8,~~095~~086,~~763~~299 $ 1,~~187~~363,~~644~~556 ============ ============

See accompanying notes to financial statements. 5 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 1. BASIS OF ACCOUNTING The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. On March 10, 2000, in a special meeting of the Limited Partners, the Limited Partners approved the proposed sale of the Partnership's properties, in one or a series of sale transactions, the subsequent dissolution and liquidation of the Partnership upon the sale of the Partnership's last property, and an amendment to the Partnership Agreement to permit the proposed asset sale, dissolution and liquidation on the terms set forth in a proxy statement mailed to the Limited Partners on or about January 14, 2000. As a result, the Partnership began marketing the properties for sale, and after the sale of the last property and the winding up of all other business affairs, the Partnership will be liquidated and dissolved. Each of the Partnership's directly owned properties were sold during the fourth quarter of 2000. The only remaining property is the Partnership's 15% interest in Tower Place Joint Venture, a joint venture which owns the Tower Place Festival Shopping Center. No provision for federal income taxes has been made as the liabilities for such taxes are those of the individual Partners rather than the Partnership. The Partnership files its tax return on the accrual basis used for Federal income tax purposes. During 2000, the Partnership owned and operated two shopping centers (Germantown Collection and Paddock Place) located in the state of Tennessee. In 1999, Tennessee passed the "Tax Revision and Reform Act of 1999" that imposes state taxes on limited partnerships doing business within the state. This law was applicable to the Partnership effective January 1, 2000. For the six months ended June 30, 2000, the Partnership accrued state excise tax expense to the state of Tennessee in the amount of $32,900. In the accompanying balance sheet at December 31, 2000, state excise tax payable and other liabilities included $256,682 in state excise/franchise tax payable. Because both Tennessee shopping centers were sold during the year ended December 31, 2000, the Partnership no longer has operations or assets in that state as of the end of 2000. Therefore, no future state excise/franchise taxes will be due or payable to the state of Tennessee. The outstanding amount of state excise/franchise taxes at December 31, 2000 was paid during the quarter ended March 31, 2001. Basic earnings per limited partnership interest are based upon the weighted average Limited Partnership Interests outstanding during the period and the net earnings and cash distributions are allocated to the Limited Partners in accordance with the terms of the Partnership Agreement, as amended. The following information relates to estimated fair values of the Partnership's financial instruments as of September 30, 2001 and December 31, 2000. For cash and cash equivalents, accounts receivable and accounts payable, the carrying amounts approximate fair market value because of the short maturity of these instruments. 6 2. PARTNERSHIP AGREEMENT Pursuant to the terms of the Partnership Agreement, Cash Distributions from Operations ("Operating Distributions") are allocated and paid 7% to the Non-corporate General Partner, 3% to the Corporate General Partner and 90% to the Limited Partners. An amount equal to 5% of Operating Distributions out of the 7% allocated to the Non-corporate General Partner and the entire amount of Operating Distributions allocated to the Corporate General Partner is subordinated to the prior receipt by the Limited Partners of a non-cumulative 7% annual return from either Operating Distributions or Cash Distributions from Sales or Refinancings. Net profits or losses, excluding depreciation and gain or loss from sales or refinancing, are allocated to the General Partners and Limited Partners in the same proportions as the Operating Distributions for the year. All depreciation is allocated to those Limited Partners subject to Federal income taxes. Cash Distributions from the sale or refinancing of a property are allocated as follows: (a) First, all Cash Distributions from Sales or Refinancings shall be allocated 99% to the Limited Partners and 1% to the Non-corporate General Partner until the Limited Partners have been returned their Original Invested Capital from Cash Distributions from Sales or Refinancings, plus their Preferred Return from either Cash Distributions from Operations or Cash Distributions from Sales or Refinancings. (b) Next, all Cash Distributions from Sales or Refinancings shall be allocated 99% to the General Partners and 1% to the Non-corporate General Partner in an amount equal to any unpaid Cash Distributions from Operations subordinated to the Limited Partners' 7% non-cumulative annual return. Such 99% shall be allocated 62-1/2% to the Non-corporate General Partner and 37-1/2% to the Corporate General Partner. (c) Next, all Cash Distributions from Sales or Refinancings shall be allocated 1% to the Non-corporate General Partner and 99% to the Limited Partners and the General Partners. Such 99% will be allocated 85% to the Limited Partners and 15% to the General Partners. Such 15% shall be allocated 62-1/2% to the Non-corporate General Partner and 37-1/2% to the Corporate General Partner. (d) Upon the sale of the last property owned by the Partnership, Cash Distributions from Sales or Refinancings shall be allocated and paid to the Partners in an amount equal to, and in proportion with, their existing capital account balances. Such distributions shall be made only after distribution of all Cash Distributions from Operations and only after all allocations of Partnership income, gain, loss, deduction and credit (including net gain from the sale or other disposition of the properties) have been closed to the Partners' respective capital accounts. 3. INVESTMENT IN JOINT VENTURE The Partnership owns a 15% interest in Tower Place Joint Venture, a joint venture that owns and operates Tower Place Festival Shopping Center located in Pineville (Charlotte), North Carolina. The Partnership accounts for the joint venture using the equity method. The remaining 85% interest in the joint venture is owned by Murray Income Properties I, Ltd, an affiliated real estate limited partnership ("MIP I"). The Tower Place Joint Venture Agreement provides that the Partnership will share profits, losses and cash distributions according to the Partnership's 15% ownership interest in the joint venture. The joint venture discontinued depreciation on the shopping center on March 10, 2000, the date on which the joint venture changed the classification of the shopping center to property held for sale. 7 4. TRANSACTIONS WITH AFFILIATES Murray Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner, entered into a property management agreement with the Partnership for the management of 1202 Industrial Place, effective January 1, 1996. Pursuant to this agreement, MRI IX earned property management fees in the amount of $13,765 during the nine months ended September 30, 2000. This property was sold on December 1, 2000, and the Corporate General Partner no longer earns any fees under this agreement. 5. OTHER Information furnished in this interim report reflects all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary to reflect a fair presentation of the results for the periods presented. The financial information included in this interim report as of September 30, 2001 and for the three and nine months ended September 30, 2001 and 2000 has been prepared by management without audit by independent public accountants. The Partnership's 2000 annual report contains audited financial statements including the notes to the financial statements and should be read in conjunction with the financial information contained in this interim report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources On March 10, 2000, in a special meeting of the Limited Partners, the Limited Partners approved the proposed sale of the Partnership's properties, in one or a series of sale transactions, the subsequent dissolution and liquidation of the Partnership upon the sale of the Partnership's last property, and an amendment to the Partnership Agreement to permit the proposed asset sale, dissolution and liquidation on the terms set forth in a proxy statement mailed to the Limited Partners on or about January 14, 2000. In April 2000, the Partnership's properties were put on the market and the General Partners began actively soliciting offers. During the second quarter of 2001, two potential buyers entered into non-binding letters of intent to purchase Tower Place and one of these resulted in a signed contract. While the General Partners believed that these offers represented acceptable sales prices, the prospective purchasers decided to pursue other opportunities, and neither of the transactions closed. Management implemented a new marketing plan which included new marketing materials and targeting new prospective purchasers. Management did not receive any new offers until after the September 11th terrorist attacks on the United States. Between September 14 and September 25, 2001, the General Partners received five offers to purchase the shopping center. All of these offers were for significantly lower prices than the previous offers, and were for prices substantially lower than any prior year appraisals obtained from independent appraisal firms. Although it is impossible to predict future events, management believes that the terrorist attacks, coupled with an already softening economy, have created uncertainty in the marketplace that has adversely impacted the current real estate investment market. Management believes that these five offers, all received after September 11, reflect the desire of certain speculators to capitalize on the uncertainty in the market and to purchase real estate at below market prices. Therefore, management rejected the five offers and continues to aggressively market the property with the goal of achieving a fair price reflecting the property's tenant base and the location of the shopping center within the Charlotte metropolitan area. Subsequent to the end of the third quarter of 2001, a new offer to purchase Tower Place was received at a price the General Partners deemed acceptable, and on October 31, 2001, the Tower 8 Place Joint Venture entered into a non-binding letter of intent to sell Tower Place. A formal definitive purchase agreement must still be negotiated and executed, and a number of contingencies must be satisfied before the property is sold. There can be no assurance that the Tower Place Joint Venture will be able to successfully negotiate and enter into a definitive agreement, or that Tower Place will be sold at all or under the proposed terms in the non-binding letter of intent. If the Partnership is successful in selling its interest in Tower Place Joint Venture, the Partnership will be liquidated and dissolved. Effective March 10, 2000, the Partnership's properties were reported as properties held for sale at the lower of carrying value or fair value less estimated cost to sell. Management of the Partnership expects no loss to result from the sale of its interest in Tower Place Joint Venture. As of September 30, 2001, the Partnership had cash and cash equivalents of $8,086,299, which included $8,060,974 invested in money market instruments. Such amounts represent cash generated from operations, sales of properties held for sale and working capital reserves. As of September 30, 2001, the Partnership's only significant asset, other than cash, is its 15% interest in Tower Place Joint Venture, accounted for on the equity method. The decrease in state excise tax payable and other liabilities of $291,340 from December 31, 2000 to September 30, 2001 is primarily due to the payment of the 2000 state of Tennessee excise/franchise taxes and severance benefits paid to one Partnership employee whose employment was terminated on February 28, 2001. The remaining $231,006 at September 30, 2001 in state excise tax payable and other liabilities primarily represents severance benefits accrued but not yet paid. During the three months ended September 30, 2001, the Partnership made Cash Distributions from Operations of $55,944 relating to the three-month period ended June 30, 2001. Subsequent to September 30, 2001, the Partnership made Cash Distributions from Operations of $94,406 relating to the three months ended September 30, 2001. The funds distributed were derived from the net cash flow generated from operations of the Partnership's interest in Tower Place Joint Venture and from interest earned, net of administrative expenses, on funds invested in short-term money market instruments. Future liquidity is currently expected to result from cash generated from the Partnership's investment in joint venture (which could be affected negatively in the event of weakened occupancies and/or rental rates), interest earned on funds invested in short-term money market instruments, and ultimately through the sale of the Partnership's final interest in Tower Place Joint Venture. Results of Operations Rental income decreased $2,358,154 for the nine months ended September 30, 2001 as compared to the same period in 2000 because the Partnership sold its three properties during the year ended December 31, 2000. The small amount of rental income collected during the nine months ended September 30, 2001 related to percentage rent received from two tenants attributable to the period during 2000 prior to the property sales. "Equity in earnings of joint venture" represents the Partnership's 15% interest in the earnings of Tower Place Joint Venture. Rental income at Tower Place in Pineville (Charlotte), North Carolina increased $283,457 for the nine months ended September 30, 2001 as compared to the same period in 2000 primarily due to higher occupancy. On February 14, 2000, the joint venture executed a lease termination agreement with General Cinema. Pursuant to the agreement, General Cinema paid Tower Place Joint Venture a termination fee as consideration 9 for Tower Place Joint Venture releasing the tenant from its future lease obligations. The termination fee of $898,562, net of the book value of the theater which was demolished to allow for construction of the Bally Total Fitness facility, was recognized as income during the quarter ended March 31, 2000. Tower Place's total operating expenses increased primarily because of higher repair and maintenance costs, property management fees and amortization of deferred leasing costs. The following information details rental income generated, bad debt expense incurred and average occupancy for the periods shown for Tower Place.

Three Months Ended ~~Six~~Nine Months Ended ~~June~~September 30, ~~June~~September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Tower Place Shopping Center Rental income $ ~~406~~439,~~440~~322 $ ~~271~~274,~~051~~964 $ ~~733~~1,~~137~~172,459 $ ~~614~~889,~~038~~002 Termination fee income -0- -0- -0- 898,562 Bad debt expense -0- ~~-0-~~26 -0- 10,~~238~~264 Average occupancy 91% 7677% 9392% 77%

The Partnership's share of income from the joint venture decreased $93,598 for the nine months ended September 30, 2001 as compared to the same period in 2000 for the reasons stated above. The Partnership's share of income excluding the gain on termination of lease increased $41,186 for the nine months ended September 30, 2001, as compared to the same period in 2000. Tower Place averaged 91% occupancy during the third quarter of 2001, unchanged from the previous quarter. A new tenant who signed a lease for 2,100 square feet during the second quarter of 2001 took occupancy of its space in August. During the quarter, asphalt repairs were completed and the parking lot was striped in August. Also, the pylon sign at the entrance of the shopping center was refurbished. As of September 30, 2001, Tower Place was 97% leased. Depreciation, prior to March 10, 2000, was provided over the estimated useful lives of the respective assets using the straight line method. The estimated useful lives of the buildings and improvements ranged from three to twenty-five years. No depreciation was provided on properties held for sale after March 10, 2000, the date on which the Partnership changed the classification of its properties to properties held for sale. Total property operating expenses decreased substantially for the nine months ended September 30, 2001 as compared to the same period in 2000 because the Partnership's directly owned properties were sold during calendar year 2000. The small amount of expenses reported during the nine months ended September 30, 2001 related to utility charges and service contract costs received after the close of the prior year end. General and administrative expenses incurred are related to legal and accounting costs, rent, investor services costs, salaries and benefits and various other costs required for the administration of the Partnership, after reimbursements of shared direct operating costs by Murray Income Properties I, Ltd. ("MIP I"). The Partnership and MIP I entered into the sharing arrangement relating to shared operating costs in 1990 in conjunction with the changeover to self management. The cost sharing arrangement was based upon the amount of capital raised by each partnership, the number of investors, the nature and value of their respective properties, the time and responsibility involved in supervising the on-site property managers and other factors. It was agreed at that time that if there was a significant change in the business, affairs or operations of either partnership, then the two partnerships would agree to a change in the percentage allocated to the two partnerships in a manner that the respective General Partners believe is fair, just and equitable to each partnership. From 1990 through 2000, this original sharing ratio was appropriate. Furthermore, because both partnerships were active in 2000 and 2001 with sales activity ongoing, no change was made in the sharing ratio through June of 2001. At July 1, 2001, the only remaining property owned was Tower Place Festival, which is owned in a joint venture 10 (Tower Place Joint Venture) owned 15% by the Partnership and 85% by MIP I. Because of the uncertainty in the real estate market since the September 11th terrorist attack on the United States, management believes it is likely to take longer to sell the remaining property than was originally anticipated. Therefore, the General Partners of the Partnership and MIP I decided to re-evaluate the expense sharing relationship for shared expenses. Based on a review of the remaining outstanding capital (net of retained net sale proceeds to be distributed prior to liquidation) and the other factors described above, the General Partners of the Partnership and MIP I have changed the cost sharing arrangement for common expenses as follows. The cost of the asset manager will be shared 15% by the Partnership and 85% by MIP I, effective May 1, 2001, since the only property owned by either partnership is Tower Place Festival. All other shared costs will be shared in the ratio of 33% by the Partnership and 67% by MIP I, effective July 1, 2001. There will be no change in the partnerships' sharing of any severance benefits paid (53% by the Partnership and 47% by MIP I), since these costs are in recognition of the employees' service to the partnerships during the entire holding period. General and administrative expenses decreased $40,609 for the nine months ended September 30, 2001 as compared to the same period in 2000 primarily due to the decrease in the percentage of shared costs described above. In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), establishing financial accounting and reporting for the impairment or disposal of long-lived assets. The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001. The Partnership is currently assessing the impact of such adoption and currently believes the effect, if any, will not be material to the Partnership's financial position or operating results. Words or phrases when used in the Form 10-Q or other filings with the Securities and Exchange Commission, such as "does not believe" and "believes" or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Partnership's financial instruments consist of cash and cash equivalents and accounts payable. The carrying amount of these instruments approximate fair value due to the short-term nature of these instruments. Therefore, the Partnership believes it is relatively unaffected by interest rate changes or other market risks except for the potential increase or decrease in interest income from its funds invested in short-term money market funds. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the third quarter of the year covered by this report through the solicitation of proxies or otherwise. 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 2a Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on January 13, 2000. (File No. 0-17183) 2b Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 9, 2000. (File No. 0-17183) 2c Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 23, 2000. (File No. 0-17183) 3a Agreement of Limited Partnership of Murray Income Properties II, Ltd. Reference is made to Exhibit A of the Prospectus dated February 20, 1986 contained in Amendment No. 1 to Partnership's Form S-11 Registration Statements filed with the Securities and Exchange Commission on February 13, 1986. (File No. 33-2294) 3b Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 15, 1989. Reference is made to Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1990. (File No. 0-17183) 3c Amended and Restated Certificate and Agreement of Limited Partnership dated as of January 10, 1990. Reference is made to Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1990. (File No. 0-17183) 3d Amendment to Amended and Restated Certificate and Agreement of Limited Partnership, dated March 22, 2000. Reference is made to Exhibit 3d to the 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2000. (File No. 0-17183) 10a Management Agreement with Murray Realty Investors IX, Inc. for management and operation services described in the Management Agreement dated January 1, 1996 at 1202 Industrial Place. Reference is made to Exhibit 10a to the 1996 Form 10-Q filed with the Securities and Exchange Commission on May 13, 1996. (File No. 0-17183) 99a Glossary as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99b Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to 12 Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99c Amendment number nine to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989. Filed herewith. 99d Management Compensation as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. (b) Reports on Form 8-K filed during the quarter ended September 30, 2001: None 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MURRAY INCOME PROPERTIES II, LTD. By: Murray Realty Investors IX, Inc. A General Partner Dated: November 12, 2001 By: /s/ Mitchell Armstrong -------------------------------- Mitchell Armstrong President Chief Financial Officer 14 INDEX TO EXHIBITS

~~EXHIBIT~~Exhibit ~~NUMBER~~Number ~~DESCRIPTION~~Description ------- ----------- 2a Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on January 13, 2000. (File No. 0-17183) 2b Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 9, 2000. (File No. 0-17183) 2c Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 23, 2000. (File No. 0-17183) 3a Agreement of Limited Partnership of Murray Income Properties II, Ltd. Reference is made to Exhibit A of the Prospectus dated February 20, 1986 contained in Amendment No. 1 to Partnership's Form S-11 Registration Statements filed with the Securities and Exchange Commission on February 13, 1986. (File No. 33-2294) 3b Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 15, 1989. Reference is made to Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1990. (File No. 0-17183) 3c Amended and Restated Certificate and Agreement of Limited Partnership dated as of January 10, 1990. Reference is made to Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1990. (File No. 0-17183) 3d Amendment to Amended and Restated Certificate and Agreement of Limited Partnership, dated March 22, 2000. Reference is made to Exhibit 3d to the 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2000. (File No. 0-17183) 10a Management Agreement with Murray Realty Investors IX, Inc. for management and operation services described in the Management Agreement dated January 1, 1996 at 1202 Industrial Place. Reference is made to Exhibit 10a to the 1996 Form 10-Q filed with the Securities and Exchange Commission on May 13, 1996. (File No. 0-17183) 99a Glossary as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99b Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99c Amendment number nine to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989. Filed herewith. 99d Management Compensation as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith.

15 99b Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99c Amendment number nine to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989. Filed herewith. 99d Management Compensation as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith.

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