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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 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 number: 0-25600
--------------------------------
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 52-1394232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
(Address of principal executive offices) (Zip Code)
(301) 654-3100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interest
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 / /
There is no public trading market for the Beneficial Assignee
Interests ("BACs"). Therefore, the BACs had neither a market
selling price nor an average bid or asked price within the 60
days prior to the date of this filing.
Index to Exhibits is found on page 5.
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<PAGE> 2
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The Balance Sheets for Oxford Tax Exempt Fund II Limited
Partnership ("Oxford Tax Exempt Fund II," "OTEF II," or the
"Partnership") as of March 31, 1996 and December 31, 1995, the
Statements of Income for the three-month period ended March 31,
1996 for OTEF II and the three-month period ended March 31, 1995
for OTEF II's predecessor, Oxford Tax Exempt Fund Limited
Partnership, a Maryland limited partnership ("OTEF,"
"Predecessor," or "OTEF II's predecessor"), the Statement of
Partners' Capital as of March 31, 1996, and the Statements of
Cash Flows for the three-month period ended March 31, 1996 for
OTEF II and the three-month period ended March 31, 1995 for OTEF
and the notes thereto, are incorporated by reference to
sequentially numbered pages 15 through 26 of OTEF II's Quarterly
Report (Unaudited) dated March 31, 1996, attached hereto as
Exhibit 20 (the "Quarterly Report").
For purposes of clarity, the Managing General Partner has
included an additional column in the Statements of Income
representing pro forma information as of March 31, 1995. This
pro forma information has been prepared as if: (i) OTEF II had
been in existence during the period presented; (ii) OTEF II had
acquired the assets of OTEF in exchange for OTEF II BACs on
January 1, 1995; and (iii) OTEF II had begun accounting for its
investments in the mortgage revenue bonds ("Bonds") on that date
under the new accounting method. Under the pro forma
presentation, $1 million in Oxford advances, which were made to
the Operating Partnerships in December 1994 from the U.S.
Treasury strip bond that matured November 15, 1994 and paid to
OTEF as additional interest in January 1995, have been excluded,
since these payments are nonrecurring in nature.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three-month period ended March 31, 1996 is
incorporated herein by reference to sequentially numbered pages 7
through 14 entitled "Report of Management" included in OTEF II's
Quarterly Report (Unaudited).
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Four lawsuits were filed with respect to the 1995 OTEF
Restructuring Plan. In general, the complaints allege violations
of certain provisions of the securities laws, breach of
partnership agreement and breach of fiduciary duty, and seek
unspecified monetary damage and various forms of equitable
relief. On November 29, 1995, a putative class and derivative
action was filed by a BAC Holder in U.S. District Court for the
District of Maryland against Oxford Tax Exempt Fund I Corporation
and certain affiliates. A similar class action was filed by
another BAC Holder on the same date in U.S. District Court for
the Northern District of California, and subsequently transferred
<PAGE> 3
to the U.S. District Court of Maryland by agreement of the
parties for consolidation with the first case. On January 23,
1996 and January 25, 1996, two additional putative class actions
were filed by BAC Holders in Circuit Court of Montgomery County,
Maryland alleging similar claims against Oxford Tax Exempt Fund,
L.P., certain affiliates and officers and directors. These
latter two actions have been consolidated. It is anticipated
that a motion for a pre-trial order will be filed to coordinate
discovery, the effect of rulings and related matters.
The Managing General Partner believes that these actions are
without merit, although it cannot predict the outcome of this
litigation. The Managing General Partner intends to vigorously
contest and defend against these suits. The Managing General
Partner does not believe that these suits will have a material
adverse effect on the operations of OTEF II.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting of the OTEF II BAC Holders is expected to be
held later this year for the OTEF II BAC Holders to consider and
vote upon a new business plan.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of Regulation
S-K, see Exhibit Index on page 5 of this report.
(b) Reports on Form 8-K. None.
No other items were applicable.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the Registrant
Date: 5/13/96 By: Richard R. Singleton
-------- ------------------------------------------
Richard R. Singleton
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: 5/13/96 By: Leo E. Zickler
-------- ------------------------------------------
Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 5/13/96 By: Francis P. Lavin
-------- ------------------------------------------
Francis P. Lavin
Director and President
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K.)
(20) Report furnished to security holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly
Report (Unaudited) dated March 31, 1996, follows on
sequentially numbered pages 6 through 28 of this report.
(27) Financial Data Schedule
<PAGE> 6
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
March 31, 1996
CONTENTS
Report of Management
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Instructions for Investors who wish to reregister or transfer
OTEF II BACs
<PAGE> 7
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Report of Management
- - -----------------------------------------------------------------
The following report provides additional information about the
financial condition of Oxford Tax Exempt Fund II Limited
Partnership ("Oxford Tax Exempt Fund II," "OTEF II," or the
"Partnership") as of March 31, 1996, and its results of
operations and cash flows for the period then ended. This report
and analysis should be read together with the financial
statements and related notes thereto and the selected financial
data appearing elsewhere in this Quarterly Report.
Recent Developments
As discussed more fully in prior reports and in the Information
Statement dated June 26, 1995, the managing general partner of
OTEF II (the "Managing General Partner") and Oxford Tax Exempt
Fund Limited Partnership ("OTEF" or "predecessor"), a Maryland
limited partnership, have adopted and taken significant steps to
consummate a plan (the "1995 OTEF Restructuring Plan") to
restructure OTEF. We will keep you apprised in future reports.
1995 OTEF Restructuring Plan. Under the terms of the 1995 OTEF
Restructuring Plan, on June 1, 1995, OTEF transferred all of its
assets, including its portfolio of 15 tax-exempt mortgage revenue
bonds ("Bonds"), to OTEF II, in exchange for all of the existing
beneficial assignee interests ("OTEF II BACs") representing
assignments of limited partnership interests in OTEF II, and the
agreement of OTEF II to assume all rights, obligations and
liabilities of OTEF. On June 30, 1995, OTEF distributed the
OTEF II BACs to the holders ("OTEF BAC Holders") of beneficial
assignee certificates representing assignments of limited
partnership interests in OTEF, who thereby became holders of
OTEF II BACs ("OTEF II BAC Holders"). See Note 5 to Financial
Statements.
The business of OTEF II initially consists of holding the
assets it acquired from OTEF and consummating the refunding of
the Bonds. The Bonds were transferred by OTEF to OTEF II to
facilitate refundings of the Bonds and to permit, subject to the
approval of the OTEF II BAC Holders, the development of a new
business plan. In general, the purpose of the new business plan
is: (i) to enable OTEF II to increase its asset base; (ii) to
increase its earnings and the level of distributions to the OTEF
II BAC Holders; and (iii) to improve the resale value of the
OTEF II BACs. Following an affirmative vote of the OTEF II BAC
Holders with respect to the new business plan, OTEF II will also
apply for listing of the OTEF II BACs for trading on a national
securities exchange or NASDAQ to provide liquidity and a trading
market for the OTEF II BACs. A special meeting of the OTEF II
BAC Holders is expected to be held later this year for the OTEF
II BAC Holders to consider and vote upon a new business plan.
Investment in Bonds and Change in Accounting Method. As
previously reported, on June 1, 1995, the Bonds were transferred
from OTEF to OTEF II at their book value of $153 million. The
Managing General Partner estimated at December 31, 1995 that the
fair value of the Bonds, in the aggregate, was $164 million and,
<PAGE> 8
accordingly, OTEF II recorded a credit to Partners' Capital in an
amount equal to $11 million of unrealized gain on investments.
As of March 31, 1996, the fair value of the Bonds remained
unchanged. The current fair value of the Bonds was determined by
the Managing General Partner using the same cash flow methodology
applied by a major investment banking firm in connection with
structuring advice rendered to OTEF II and its predecessor with
respect to the 1995 OTEF Restructuring Plan. In accordance with
this methodology, the applicable cash flows are based on certain
assumptions concerning the Properties and the markets in which
they are located, including the timing and realization of such
cash flows.
In connection with the transfer of the Bonds to OTEF II and the
change in the Managing General Partner from Oxford Tax Exempt
Fund I Corporation to Oxford Tax Exempt Fund II Corporation,
OTEF II adopted a new accounting method governed by the
provisions of Statement of Financial Accounting Standards No.
115-"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Under this method, (i) the Bonds
are reflected at their current fair value on the face of the
Balance Sheet, with cumulative unrealized gains or losses being
charged or credited as unrealized gains or losses on investments
and included in capital as applicable, rather than reflected in
the Statements of Income, and (ii) cash payments on the Bonds
received from the Operating Partnerships are treated as interest
income on the Bonds.
From October 1, 1987 to May 31, 1995, OTEF's investments in the
Bonds were accounted for under the equity method, in accordance
with Financial Release No. 28 and a notice issued to
practitioners, dated February 10, 1986, by the Accounting
Standards Executive Committee, which provides guidance on
accounting for real estate acquisition, development and
construction lending arrangements. Under this method, OTEF's
investments in the Bonds were: (i) reduced for interest payments
(Base Interest) received; (ii) increased or decreased by OTEF's
equity, which was based on its participation percentages
(generally 50%, except when it had outstanding project advances
to an Operating Partnership) in the income or losses of the
related Operating Partnerships; and (iii) written down to the
fair value of the Properties with such fair value representing
the present value of the projected cash flows from the
Properties. Since OTEF had outstanding project loans to certain
senior living Operating Partnerships from 1989 to 1995, OTEF's
participation percentages were increased to 100% for these
Operating Partnerships during these years.
The change in accounting treatment for financial reporting
purposes is technical in nature and does not affect the amount of
payments received by OTEF II or the level of distributions to
OTEF II BAC Holders. In addition, this change has no effect on
the tax-exempt nature of OTEF II's net income or the obligation
of the Operating Partnerships to make all payments due on the
Bonds. To permit OTEF II BAC Holders to evaluate the results of
operations of OTEF II, as reported under the new accounting
method, the Managing General Partner has included an additional
column in the Statements of Income which reflects the operations
<PAGE> 9
of OTEF II as if: (i) OTEF II had been in existence during the
period presented; (ii) OTEF II had acquired the assets of OTEF in
exchange for OTEF II BACs on January 1, 1995; and (iii) OTEF II
had begun accounting for its investments in the Bonds on that
date under the new accounting method. Under the pro forma
presentation, $1 million in Oxford advances, which were made to
the Operating Partnerships in December 1994 from the U.S.
Treasury strip bond that matured November 15, 1994 and paid to
OTEF as additional interest in January 1995, have been excluded,
since these payments are nonrecurring in nature.
Liquidity and Capital Resources
Current Position. OTEF II uses the payments it receives from
the Operating Partnerships to: (i) make distributions to its
General Partners and OTEF II BAC Holders; (ii) pay administrative
expenses; (iii) pay for costs associated with the development of
the 1995 OTEF Restructuring Plan; and (iv) fund reserves. Except
as may be required in connection with the 1995 OTEF Restructuring
Plan, as discussed below, OTEF II has no commitments for capital
expenditures. A distribution for the quarter ended March 31,
1996, in the amount of $3,642,796, or $11.90 per BAC (4.76% per
annum on the original $1,000 invested per BAC), will be made on
May 15, 1996. This distribution is consistent with the
distribution made for the previous four quarters.
As of March 31, 1996, OTEF II held $10,465,000 in cash and cash
equivalents, representing an increase of $767,000, or 7.9%, from
$9,698,000 in cash and cash equivalents as of December 31, 1995.
The increase in OTEF II's cash and cash equivalents is due
primarily to payments received, in the aggregate, from its
investments in Bonds during the three-month period ended March
31, 1996. The increase in OTEF II's cash and cash equivalents
was offset by administrative, governance and bond refunding costs
associated with the development of the 1995 OTEF Restructuring
Plan, as discussed below. (See Results of Operations-The
Partnership's Operations.)
Bond refunding costs. These costs, which are associated with
the refunding of the Operating Partnerships' individual Bonds,
totaled $310,000 as of December 31, 1995. During 1995, OTEF II
paid for such costs on behalf of the Operating Partnerships to
facilitate the Bond refunding process. Under the Debt
Modification Agreement dated April 12, 1995, the Operating
Partnerships are obligated to reimburse OTEF II for up to $1.5
million of such costs. Consequently, these costs totaling
$310,000 were classified by OTEF II as receivables from
affiliates as of December 31, 1995. In March 1996, these
receivables were extinguished through a payment made by the
Operating Partnerships from the proceeds of advances made by
Oxford in March 1996 (see "Other Sources" below). As of March
31, 1996, OTEF II paid additional Bond refunding costs totaling
$2,000 which will be reimbursed by the Operating Partnerships
later this year.
March 31, 1995 Pro forma Information. As previously reported,
on June 1, 1995, OTEF II began accounting for its investments in
Bonds in accordance with SFAS No. 115. OTEF II now records cash
<PAGE> 10
receipts from the Operating Partnerships as interest income
rather than as a reduction of the investment in Bonds. For
purposes of clarity, the Managing General Partner has included a
"Pro forma" column in the "Statements of Income" representing pro
forma information as of March 31, 1995.
Bond Interest. The primary source of cash receipts for OTEF II
is tax-exempt interest received from the Operating Partnerships
pursuant to their debt service obligations under the Bond
documents and interest earned on OTEF II's cash reserves. Under
the 1988 OTEF Restructuring Plan (discussed in prior reports),
the Bonds and the underlying Mortgage Loans continue to provide
for the payment of interest at an aggregate annual rate of up to
16%, consisting of Base Interest and additional Contingent
Interest. Base Interest is owed at the rate of 8.25% per annum,
but is payable only to the extent funds are available from cash
flow and sale or refinance proceeds. Unpaid Base Interest is
deferred, with additional interest charged on such deferred
amounts at the rate of 8.25% per annum, compounded monthly and
payable from future cash flow and sale or refinancing proceeds.
As of March 31, 1996, the 14 Operating Partnerships had
cumulative unpaid Base Interest and interest on unpaid Base
Interest of $97.7 million. Under the applicable method of
accounting, this unpaid interest was not reflected in the
financial statements of OTEF II or OTEF. Under the 1995 OTEF
Restructuring Plan, this unpaid interest will be forgiven upon
completion of the refundings. The Managing General Partner
believes interest payments received from the Operating
Partnerships, together with OTEF II's existing cash reserves,
should be adequate to fund anticipated expenses and maintain the
current level of distributions to the OTEF II BAC Holders.
Other Sources. The Operating Partnerships have paid additional
interest to OTEF and OTEF II, as the case may be, from advances
made by Oxford Development Corporation and its affiliates
("Oxford"), pursuant to operating deficit guarantees and
obligations under a Yield Maintenance Reserve ("YMR") Agreement.
Through March 31, 1996, Oxford had advanced a total of $17.9
million to the Operating Partnerships, which, in turn, have used
substantially all of these funds to make interest payments on the
Bonds. During 1994, Oxford satisfied all of its remaining
obligations under the operating deficit guarantees. As of March
31, 1996, the remaining YMR obligations of Oxford and the
Operating Partnerships total $2.1 million. As part of the
Oxford/NHP transaction purchase price (discussed in prior
reports), Oxford received a $1.7 million face amount U.S.
Treasury strip bond that matured on August 15, 1995 and will
receive an additional $2 million that will mature in August 1996.
Oxford has committed to satisfy the remaining YMR obligations by
advancing all of these funds to the Operating Partnerships. In
accordance with the 1995 OTEF Restructuring Plan, the Operating
Partnerships will use these funds totaling $3.7 million to pay
aggregate refunding expenses up to a maximum of $l.5 million and
to create reserves with the remaining balance of $2.2 million.
Of the $1.7 million U.S. Treasury strip bond that matured on
August 15, 1995, Oxford advanced, in the aggregate, approximately
$310,000 to the Operating Partnerships in March 1996. The
Operating Partnerships, in turn, reimbursed OTEF II approximately
<PAGE> 11
$310,000 in March 1996 for costs previously incurred in
connection with the refunding of the Bonds. The remaining $1.4
million of the $1.7 million advanced in August 1995 is being held
in an interest-bearing account pending a determination as to
which Operating Partnerships these funds will be allocated. The
allocation will be based on the Bond refunding costs they incur
individually. These sources of funds are nonrecurring in nature,
and the Managing General Partner anticipates the ability of the
Operating Partnerships to make interest payments will, in the
future, depend to a greater degree on the operations and
performance of the Properties.
Operating Partnership Loan. As of March 31, 1996, none of the
Operating Partnerships had any taxable project loan obligations
to OTEF II. No additional project loans were made by OTEF II to
the Operating Partnerships during the three-month period ended
March 31, 1996, and no such additional project loans are
anticipated. On July 28, 1995, the Operating Partnership that
owns the Chambrel at Club Hill Senior Living Community paid its
project loan in full.
Results of Operations
The Partnership's Operations
The Partnerships' Three-Month Operations. Distributions to
Partners amounted to $3,642,796 or $11.90 per BAC (4.76% per
annum on the original $1,000 invested per BAC) to BAC Holders of
Record as of March 31, 1996. This distribution is consistent
with the distribution made for the previous four quarters. For
financial statement purposes, Net Income and Net Income per BAC
were $4,073,000 and $13.31, respectively, for the three-month
period ended March 31, 1996 for OTEF II under SFAS No. 115. For
the three-month period ended March 31, 1995, Net Income and Net
Income per BAC for OTEF were $1,386,000 and $4.53, respectively,
under the equity method of accounting.
Administrative expenses. These normal recurring costs of OTEF
II, other than governance costs totaling $487,000, totaled
$127,000 for the three-month period ended March 31, 1996, as
compared to $120,000 for the three-month period ended March 31,
1995 for OTEF.
Governance costs. Costs included in administrative expenses in
the Statements of Income are accounting, legal and consultation
costs relating to: (i) the preparation of the proxy to be sent
to BAC holders; (ii) the development of the 1995 OTEF
Restructuring Plan; and (iii) legal defense against certain
lawsuits described in Note 5 to Financial Statements. Such costs
incurred during the three-month period ended March 31, 1996
totaled $487,000. No such costs were incurred as of March 31,
1995.
BAC Issuance Costs. Costs associated with the cost of issuing
the OTEF II BACs, in the amount of $1,891,234 as of December 31,
1995, were reclassified for financial statement purposes from
deferred costs to a reduction in Partners' Capital during the
fourth quarter of 1995. No additional BAC issuance costs were
<PAGE> 12
incurred as of March 31, 1996, nor are any expected to be
incurred in the future.
Other revenues for the three-month period ended March 31, 1996
relate to the interest income earned on cash accounts held by
OTEF II. Other revenues for the three-month period ended March
31, 1995 include interest associated with the repayment of the
project loan made to the Operating Partnership that owns the
Chambrel at Club Hill Senior Living Community, as well as
interest income earned on cash accounts held by OTEF.
The Partnership's Pro forma Operations. For purposes of
clarity, the Managing General Partner has included an additional
pro forma column in the Statements of Income representing pro
forma information as of March 31, 1995. This pro forma
information has been prepared as if: (i) OTEF II had been in
existence during the period presented; (ii) OTEF II had acquired
the assets of OTEF in exchange for OTEF II BACs on January 1,
1995; and (iii) OTEF II had begun accounting for its investments
in the Bonds on that date under the new accounting method. Under
the pro forma presentation, $1 million in Oxford advances, which
were made to the Operating Partnerships in December 1994 from the
U.S. Treasury strip bond that matured November 15, 1994 and paid
to OTEF as additional interest in January 1995, have been
excluded, since these payments are nonrecurring in nature. The
pro forma presentation reflects the interest paid by the
Operating Partnerships from available cash flows without taking
into account the effects of the refundings of the Bonds, which
the Managing General Partner anticipates will be completed during
1996.
The Partnership's Pro forma Three-Month Operations. For pro
forma financial statement purposes, Net Income and Net Income per
BAC were $4,073,000 and $13.31, respectively, for the three-month
period ended March 31, 1996, compared to $3,785,000 and $12.36,
respectively, for the three-month period ended March 31, 1995.
The $288,000, or 7.6%, increase for the three-month period ended
March 31, 1996 compared to the three-month period ended
March 31, 1995 is primarily attributable to improvements in the
aggregate operations of the Operating Partnerships and their
ability to pay more interest on the Bonds.
The Properties' Operations
The primary source of funds for the payment of interest on the
Bonds is the aggregate net operating income of the Operating
Partnerships. Except with respect to Ocala, none of the
Operating Partnerships was able to pay fully its Base Interest
from operations for the three-month period ended March 31, 1996,
and the Managing General Partner anticipates, based on
information available to it, that none of the Operating
Partnerships will be able to pay all of its respective Base
Interest from operations until the related Bond is refunded in
accordance with the 1995 OTEF Restructuring Plan. Although the
Ocala partnership is expected to pay fully all of its current
Base Interest from operations for 1996, it has accrued unpaid
Base Interest and interest on unpaid Base Interest of $7,218,285.
The Managing General Partner expects each Operating Partnership
<PAGE> 13
to be able to pay currently all of the debt service obligations
due under its respective bond after the refunding.
The operating performance of each of the Properties depends
primarily on: (i) occupancy and rental rates; (ii) the amount of
rent actually collected; and (iii) the expenditures for property
improvements and operating expenses. The occupancy and rental
rates, in turn, depend on a number of factors, including: (i) the
location of a Property in its particular community; (ii) local
economic conditions and changes in neighborhood characteristics;
(iii) demand for similar housing; and (iv) competition from
existing and future housing complexes in the vicinity of each
Property.
Set forth below is a discussion of the Properties which
compares their respective operations for the three-month period
ended March 31, 1996 and March 31, 1995.
The Operating Partnerships reported an aggregate net operating
income before property improvements of $5,224,000 for the three-
month period ended March 31, 1996, representing an increase of
$252,000, or 5.1%, over the aggregate net operating income before
property improvements reported for the same period in 1995. In
addition, during the three-month period ended March 31, 1996,
overall property improvement expenditures were $409,000,
representing an increase of $189,000, or 86.1%, compared to the
same period in 1995. The Managing General Partner anticipates
the level of property improvements will decrease by year end,
compared to the year ended December 31, 1995.
The Operating Partnerships that own the four Senior Living
Communities reported an aggregate net operating income before
property improvements of $1,420,000 for the three-month period
ended March 31, 1996, representing an increase of $284,000, or
25%, over the aggregate net operating income before property
improvements reported for the same period in 1995. The weighted
average occupancy rate for these four properties at March 31,
1996 was 89%, compared to 90% at March 31, 1995. The weighted
average rent collected for the month ended March 31, 1996 for the
four Senior Living Communities increased by 7% to $1,723,
compared to $1,610 for the same period in 1995. In addition,
during the three-month period ended March 31, 1996, overall
property improvement expenditures for the four Senior Living
Communities were $113,000, representing an increase of $74,000,
or 189.8%, compared to the same period in 1995. The Managing
General Partner anticipates the level of property improvements
will decrease by year end, compared to the year ended December
31, 1995.
The Operating Partnerships that own the 10 garden apartments
reported an aggregate net operating income before property
improvements of $3,804,000 for the three-month period ended
March 31, 1996, representing a decrease of $32,000, or less than
1%, over the aggregate net operating income before property
improvements reported for the same period in 1995. The weighted
average occupancy rate for the 10 garden apartment communities
was 94% at March 31, 1996, which is consistent with the average
occupancy rate reported for the same period in 1995. The
<PAGE> 14
weighted average monthly rent collected for March 1996 for the 10
garden apartments increased by 3% to $720, compared to $698 for
the same period in 1995. In addition, during the three-month
period ended March 31, 1996, overall property improvement
expenditures for the 10 garden apartments were $296,000,
representing an increase of $115,000, or 63.8%, compared to the
same period in 1995. The Managing General Partner anticipates
the level of property improvements will decrease by year end,
compared to the year ended December 31, 1995.
Summary
Based upon actual results through March 31, 1996 and the
current outlook for the remainder of 1996, the Managing General
Partner anticipates there will be sufficient interest payments
from the Operating Partnerships to fund anticipated expenses and
maintain the current level of distributions to the OTEF II BAC
Holders. The Managing General Partner will reassess the ability
to increase the level of distributions on a quarterly basis.
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
- - --------------------------------------------------------------------------
Balance Sheets (in thousands)
- - --------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
- - --------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $164,000 $164,000
Cash and cash equivalents 10,465 9,698
Interest receivable 23 26
Due from affiliates 2 310
- - --------------------------------------------------------------------------
Total Assets $174,490 $174,034
==========================================================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses $ 518 $ 492
Distributions payable 3,643 3,643
- - --------------------------------------------------------------------------
Total Liabilities 4,161 4,135
- - --------------------------------------------------------------------------
Partners' Capital
General Partners (2,392) (2,400)
Limited Partners' Interests (Beneficial
Assignee Interests-299,995 interests
issued and outstanding) 161,753 161,331
Unrealized Gain on Investments 10,968 10,968
- - --------------------------------------------------------------------------
Total Partners' Capital 170,329 169,899
- - --------------------------------------------------------------------------
Total Liabilities and Partner's Capital $174,490 $174,034
==========================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 16
Oxford Tax Exempt Fund II Limited Partnership
- - -----------------------------------------------------------------------------
Statements of Income (in thousands, except per BAC amounts)
(Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTEF II<F4> ||
OTEF II Pro forma || OTEF<F2>
Three Three || Three
months ended months ended || months ended
March 31, 1996 March 31, 1995 || March 31, 1995
- - -----------------------------------------------------------||----------------
<S> <C> <C> || <C>
Revenues ||
Interest on Bonds<F1> $4,602 $3,824 || $ 0
Equity income on investments ||
in Bonds<F2> 0 0 || 1,425
Other, primarily interest on ||
short-term investments 85 81 || 81
- - -----------------------------------------------------------||----------------
4,687 3,905 || 1,506
Expenses ||
Administrative expenses 614<F3> 120 || 120
- - -----------------------------------------------------------||----------------
Net income $4,073 $3,785 || $1,386
===========================================================||================
Net income allocated to ||
General Partners $ 81 $ 76 || $ 28
===========================================================||================
Net income allocated to ||
BAC holders $3,992 $3,709 || $1,358
===========================================================||================
Net income per BAC $13.31 $12.36 || $ 4.53
===========================================================||================
Distribution per BAC $11.90 $11.90 || $11.90
===========================================================||================
<FN>
<F1> On June 1, 1995, OTEF II adopted the provisions of SFAS
No. 115-Accounting for Certain Investments in Debt and Equity
Securities in connection with the transfer of all assets and
liabilities from OTEF to OTEF II. Under this method, payments
on the Bonds by the Operating Partnerships are treated as
interest income.
<PAGE> 17
<F2> From October 1, 1987 to May 31, 1995, OTEF's investments
in the Bonds were accounted for under the equity method, in
accordance with Financial Release No. 28 and a notice issued
to practitioners, dated February 10, 1986, by the Accounting
Standards Executive Committee, which provides guidance on
accounting for real estate acquisition, development and
construction lending arrangements. Under this method, OTEF's
investments in Bonds were: (i) reduced for interest payments
(Base Interest) received; (ii) increased or decreased by
OTEF's equity, which was based on its participation
percentages (generally 50%, except when it had outstanding
project advances to an Operating Partnership) in the income or
losses of the related Operating Partnerships; and (iii)
written down to the fair value of the Properties with such
fair value representing the present value of the projected
cash flows from the Properties. Since OTEF had outstanding
project loans to certain senior living Operating Partnerships
from 1989 to 1995, OTEF's participation percentages were
increased to 100% for these Operating Partnerships during
these years.
<F3> For the three-month period ended March 31, 1996,
administrative expenses also included $487,000 of governance
costs associated with the accounting, legal and consultation
fees relating to: (i) the preparation of the proxy to be sent
to BAC holders; (ii) the development of the 1995 OTEF
Restructuring Plan; and (iii) legal defense against certain
lawsuits described in Note 5 to Financial Statements.
<F4> This pro forma column has been prepared as if: (i) OTEF II
had been in existence during the period presented; (ii)
OTEF II had acquired the assets of OTEF in exchange for OTEF
II BACs on January 1, 1995; and (iii) OTEF II had begun
accounting for its investments in the Bonds on that date under
the new accounting method. Under the pro forma presentation,
$1 million in Oxford advances, which were made to the
Operating Partnerships in December 1994 from the U.S. Treasury
strip bond that matured November 15, 1994 and paid to OTEF as
additional interest in January 1995, have been excluded, since
these payments are nonrecurring in nature.
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 18
Oxford Tax Exempt Fund II Limited Partnership
- - -----------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited
Partners'
Interests
-----------
Beneficial Unrealized
General Assignee Gain on
Partners Interests Investments Total
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $(2,400) $161,331 $10,968 $169,899
- - -----------------------------------------------------------------------------
Net income 81 3,992 0 4,073
Distributions payable to Partners,
including $11.90 per BAC (73) (3,570) 0 (3,643)
- - -----------------------------------------------------------------------------
Balance, March 31, 1996 (Unaudited) $(2,392) $161,753 $10,968 $170,329
=============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 19
Oxford Tax Exempt Fund II Limited Partnership
- - -----------------------------------------------------------------------------
Statements of Cash Flows (in thousands) (Note 3)
(Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTEF II || OTEF
Three || Three
months ended || months ended
March 31, 1996 || March 31, 1995
- - ------------------------------------------------------------||---------------
<S> <C> || <C>
Operating Activities ||
Net income<F1> $ 4,073 || $ 1,386
Adjustments to reconcile net income to net cash ||
provided by (used in) operating activities: ||
Equity income from investments in Bonds <F2> 0 || (1,425)
Changes in assets and liabilities: ||
Interest receivable 3 || (3)
Due from affiliates 308 || 0
Accounts payable 26 || (38)
- - ------------------------------------------------------------||---------------
Net cash provided by (used in) operating activities 4,410 || (80)
- - ------------------------------------------------------------||---------------
Investing activities ||
Working capital reserve 0 || (11)
Payments received from investments in Bonds<F1> 0 || 4,891
Project loans 0 || 189
- - ------------------------------------------------------------||---------------
Net cash provided by investing activities 0 || 5,069
- - ------------------------------------------------------------||---------------
Financing activities ||
Distributions paid to Partners and BAC Holders (3,643) || (3,444)
Deferred costs paid 0 || (200)
- - ------------------------------------------------------------||---------------
Net cash used by financing activities (3,643) || (3,644)
- - ------------------------------------------------------------||---------------
Net increase in cash and cash equivalents 767 || 1,345
Cash and cash equivalents, beginning of period 9,698 || 7,338
- - ------------------------------------------------------------||---------------
Cash and cash equivalents, end of period $10,465 || $ 8,683
============================================================||===============
<FN>
<F1> On June 1, 1995, OTEF II adopted the provisions of SFAS No.
115-Accounting for Certain Investments in Debt and Equity
Securities in connection with the transfer of all assets and
liabilities from OTEF to OTEF II. Under this method, payments
on the Bonds by the Operating Partnerships are treated as
interest income.
<PAGE> 20
<F2> From October 1, 1987 to May 31, 1995, OTEF's investments in
the Bonds were accounted for under the equity method, in
accordance with Financial Release No. 28 and a notice issued to
practitioners, dated February 10, 1986, by the Accounting
Standards Executive Committee, which provides guidance on
accounting for real estate acquisition, development and
construction lending arrangements. Under this method, OTEF's
investments in Bonds were: (i) reduced for interest payments
(Base Interest) received; (ii) increased or decreased by OTEF's
equity, which was based on its participation percentages
(generally 50%, except when it had outstanding project advances
to an Operating Partnership) in the income or losses of the
related Operating Partnerships; and (iii) written down to the
fair value of the Properties with such fair value representing
the present value of the projected cash flows from the
Properties. Since OTEF had outstanding project loans to certain
senior living Operating Partnerships from 1989 to 1995, OTEF's
participation percentages were increased to 100% for these
Operating Partnerships during these years.
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 21
- - -----------------------------------------------------------------
Notes to Financial Statements
- - -----------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in the
opinion of the Managing General Partner of Oxford Tax Exempt Fund
II Limited Partnership ("Oxford Tax Exempt Fund II," "OTEF II,"
or the "Partnership"), are necessary to present fairly OTEF II's
financial position as of March 31, 1996 and December 31, 1995,
the Statements of Income for the three-month period ended March
31, 1996 for OTEF II and three-month period ended March 31, 1995
for OTEF II's predecessor, Oxford Tax Exempt Fund Limited
Partnership, a Maryland limited partnership ("OTEF,"
"Predecessor," or "OTEF II's predecessor"), the Statement of
Partners' Capital as of March 31, 1996, and the Statements of
Cash Flows for the three-month period ended March 31, 1996 for
OTEF II and the three-month period ended March 31, 1995 for OTEF,
and the notes thereto, in accordance with generally accepted
accounting principles.
For purposes of clarity, the Managing General Partner has
included an additional column in the Statements of Income
representing pro forma information as of March 31, 1995. This pro
forma information has been prepared as if: (i) OTEF II had been
in existence during the period presented; (ii) OTEF II had
acquired the assets of OTEF in exchange for OTEF II BACs on
January 1, 1995; and (iii) OTEF II had begun accounting for its
investments in the mortgage revenue bonds ("Bonds") on that date
under the new accounting method. Under the pro forma
presentation, $1 million in Oxford advances, which were made to
the Operating Partnerships in December 1994 from the U.S.
Treasury strip bond that matured November 15, 1994 and paid to
OTEF as additional interest in January 1995, have been excluded,
since these payments are nonrecurring in nature. These
statements should be read in conjunction with the audited
financial statements and the notes included in the Partnership's
Annual Report for the year ended December 31, 1995.
Note 2. Business
OTEF II was formed under the laws of the State of Maryland on
February 9, 1995 in connection with a plan (the "1995 OTEF
Restructuring Plan") to restructure OTEF. Oxford Tax Exempt Fund
II Corporation, a Maryland corporation, is the Managing General
Partner of OTEF II ("Managing General Partner"). OTEF II
Associates Limited Partnership, a Maryland limited partnership,
is the associate general partner of OTEF II (together with the
Managing General Partner, the "General Partners"). There is
currently no established public market in which the OTEF II BACs
are traded.
1995 OTEF Restructuring Plan. Under the terms of the 1995 OTEF
Restructuring Plan, on June 1, 1995, OTEF transferred all of its
assets, including its portfolio of 15 tax-exempt mortgage revenue
bonds ("Bonds"), to OTEF II, in exchange for all of the existing
beneficial assignee interests ("OTEF II BACs") representing
<PAGE> 22
assignments of limited partnership interests in OTEF II, and the
agreement of OTEF II to assume all rights, obligations and
liabilities of OTEF. On June 30, 1995, OTEF distributed the
OTEF II BACs to the holders ("OTEF BAC Holders") of beneficial
assignee certificates representing assignments of limited
partnership interests in OTEF, who thereby became holders of
OTEF II BACs ("OTEF II BAC Holders"). See Note 5 to Financial
Statements.
The business of OTEF II initially consists of holding the
assets it acquired from OTEF and consummating the refunding of
the Bonds. The Bonds were transferred by OTEF to OTEF II to
facilitate refundings of the Bonds and to permit, subject to the
approval of the OTEF II BAC Holders, the development of a new
business plan. In general, the purpose of the new business plan
is: (i) to enable OTEF II to increase its asset base; (ii) to
increase its earnings and the level of distributions to the OTEF
II BAC Holders; and (iii) to improve the resale value of the
OTEF II BACs. Following an affirmative vote of the OTEF II BAC
Holders with respect to the new business plan, OTEF II will also
apply for listing of the OTEF II BACs for trading on a national
securities exchange or NASDAQ to provide liquidity and a trading
market for the OTEF II BACs. A special meeting of the OTEF II
BAC Holders is expected to be held later this year for the OTEF
II BAC Holders to consider and vote upon a new business plan.
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners and OTEF II, formerly OTEF, BAC Holders
(collectively, "BAC Holders") are required to report on their
individual tax returns their allocable share of taxable income,
gains, losses, deductions, and credits of OTEF II.
Investment in Bonds and Change in Accounting Method. As
previously reported, on June 1, 1995, the Bonds were transferred
from OTEF to OTEF II at their book value of $153 million. The
Managing General Partner estimated at December 31, 1995 that the
fair value of the Bonds, in the aggregate, was $164 million and,
accordingly, OTEF II recorded a credit to Partners'
Capital in an amount equal to $11 million of unrealized gain on
investments. As of March 31, 1996, the fair value of the Bonds
remained unchanged. The current fair value of the Bonds was
determined by the Managing General Partner using the same cash
<PAGE> 23
flow methodology applied by a major investment banking firm in
connection with structuring advice rendered to OTEF II and its
predecessor with respect to the 1995 OTEF Restructuring Plan. In
accordance with this methodology, the applicable cash flows are
based on certain assumptions concerning the Properties and the
markets in which they are located, including the timing and
realization of such cash flows.
In connection with the transfer of the Bonds to OTEF II and
the change in the Managing General Partner from Oxford Tax Exempt
Fund I Corporation to Oxford Tax Exempt Fund II Corporation, OTEF
II adopted a new accounting method governed by the provisions of
Statement of Financial Accounting Standards No. 115-"Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). Under this method, (i) the Bonds are reflected at their
current fair value on the face of the Balance Sheet, with
cumulative unrealized gains or losses being charged or credited
as unrealized gains or losses on investments and included in
capital as applicable, rather than reflected in the Statements of
Income, and (ii) cash payments on the Bonds received from the
Operating Partnerships are treated as interest income on the
Bonds.
From October 1, 1987 to May 31, 1995, OTEF's investments in
the Bonds were accounted for under the equity method, in
accordance with Financial Release No. 28 and a notice issued to
practitioners, dated February 10, 1986, by the Accounting
Standards Executive Committee, which provides guidance on
accounting for real estate acquisition, development and
construction lending arrangements. Under this method, OTEF's
investments in the Bonds were: (i) reduced for interest payments
(Base Interest) received; (ii) increased or decreased by OTEF's
equity, which was based on its participation percentages
(generally 50%, except when it had outstanding project advances
to an Operating Partnership) in the income or losses of the
related Operating Partnerships; and (iii) written down to the
fair value of the Properties with such fair value representing
the present value of the projected cash flows from the
Properties. Since OTEF had outstanding project loans to certain
senior living Operating Partnerships from 1989 to 1995, OTEF's
participation percentages were increased to 100% for these
Operating Partnerships during these years.
The change in accounting treatment for financial reporting
purposes is technical in nature and does not affect the amount of
payments received by OTEF II or the level of distributions to
OTEF II BAC Holders. In addition, this change has no effect on
the tax-exempt nature of OTEF II's net income or the obligation
of the Operating Partnerships to make all payments due on the
Bonds. To permit OTEF II BAC Holders to evaluate the results of
operations of OTEF II, as reported under the new accounting
method, the Managing General Partner has included an additional
column in the Statements of Income which reflects the operations
of OTEF II as if: (i) OTEF II had been in existence during the
period presented; (ii) OTEF II had acquired the assets of OTEF in
exchange for OTEF II BACs on January 1, 1995; and (iii) OTEF II
had begun accounting for its investments in the Bonds on that
<PAGE> 24
date under the new accounting method. Under the pro forma
presentation, $1 million in Oxford advances, which were made to
the Operating Partnerships in December 1994 from the U.S.
Treasury strip bond that matured November 15, 1994 and paid to
OTEF as additional interest in January 1995, have been excluded,
since these payments are nonrecurring in nature.
Net Income and Distributions per Beneficial Assignee Interest
(BAC). Net income and distributions per BAC are based upon the
weighted average number of BACs outstanding during the applicable
year.
Working Capital Reserve. OTEF II invests in tax-exempt money
market funds stated at cost, which approximates market value.
The partnership agreement for OTEF provided for additions to the
reserve as deemed advisable by the Managing General Partner of
OTEF. The reserve was used at the discretion of OTEF's Managing
General Partner to pay operating expenses and/or future
distributions. The Managing General Partner of OTEF II has
determined that a separate working capital reserve is no longer
warranted and, accordingly, the proceeds have been combined with
cash and cash equivalents for financial statement presentation.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity.
The statements do not reflect investing and financing activity
that affect recognized assets or liabilities that do not result
in cash receipts or cash payments. This non-cash activity
consists of distributions payable to Partners and OTEF II BAC
Holders of $3,642,796 at March 31, 1996 and March 31, 1995.
Cash and cash equivalents. Cash and cash equivalents consist
of all demand deposits and tax-exempt money market funds stated
at cost, which approximates market value with original maturities
of three months or less.
Governance costs. Costs included in administrative expenses in
the Statements of Income are accounting, legal and consultation
costs relating to: (i) the preparation of the proxy to be sent
to BAC holders; (ii) the development of the 1995 OTEF
Restructuring Plan; and (iii) legal defense against certain
lawsuits described in Note 5 to Financial Statements. Such costs
incurred during the three-month period ended March 31, 1996
totaled $487,000. No such costs were incurred as of March 31,
1995.
BAC Issuance Costs. Costs associated with the cost of issuing
the OTEF II BACs, in the amount of $1,891,234 as of December 31,
1995, were reclassified for financial statement purposes from
deferred costs to a reduction in Partners' Capital during the
fourth quarter of 1995. No additional BAC issuance costs were
incurred as of March 31, 1996, nor are any expected to be
incurred in the future.
Note 4. Related Party Transactions
Interests in OTEF II and the Operating Partnerships. The
<PAGE> 25
General Partners own interests in OTEF II that entitle them to
receive a share of OTEF II cash flow and possibly of sale,
refinancing and liquidation proceeds. The percentage interests
of the General Partners in OTEF II are the same as the percentage
interests of the General Partners in OTEF. Distributions to the
General Partners for the quarters ended March 31, 1996 and 1995
totaled $72,856 for each period.
Affiliates of the Managing General Partner that are general and
limited partners of the Operating Partnerships have an interest
in the Operating Partnerships that entitles them to receive a
share of any cash flow and sale, refinancing and liquidation
proceeds of the Operating Partnerships. Since inception, the
Operating Partnerships have not been able to make any
distributions of cash flow to their respective partners. In
addition, in connection with the 1995 OTEF Restructuring Plan and
after the Bonds are refunded, it is anticipated that all or a
portion of any cash distributions attributable to these interests
will be pledged for the benefit of OTEF II.
Compensation and Fees. Oxford Development Corporation and
certain affiliates (collectively, "Oxford") and NHP, Inc. and
certain affiliates (collectively, "NHP") entered into a Purchase
Agreement (the "Purchase Agreement"), pursuant to which NHP
acquired, among other things, Oxford's property management
assets. The transactions contemplated by the Purchase Agreement
were consummated effective December 10, 1993. In connection with
such transactions, the Operating Partnerships executed property
management agreements with NHP Management Company for the
management of the Properties and asset management agreements with
Oxford Realty Financial Group, Inc. ("ORFG"), the parent of the
Managing General Partner of OTEF II. The Operating Partnerships
also entered into a Capital Improvement Consulting, Oversight and
Administration ("CICOA") Agreement with a NHP affiliate to
provide services relating to property improvements. These
agreements provide for substantially the same level of fees as
were paid previously by the Operating Partnerships to Oxford
affiliates that provided these services prior to December 10,
1993.
For the three-month periods ended March 31, 1996 and 1995, the
Operating Partnerships paid total property and asset management
fees of $564,000 and $537,000, respectively. The increase of
$27,000, or 5%, between the two periods is due to improved
operating revenues of the Operating Partnerships for the three-
month period ended March 31, 1996. During the three-month period
ended March 31, 1996 and 1995, the Operating Partnerships also
paid ORFG, in the aggregate, $174,184 of fees pursuant to the
OTEF Restructuring Plan Administration/Asset Management Fee
Agreement, which amount is equal to .25% per annum of the
principal amount of the Bonds.
Operating Partnership Loan. As of March 31, 1996, none of the
Operating Partnerships had any taxable project loan obligations
to OTEF II. No additional project loans were made by OTEF II to
the Operating Partnerships during the three-month period ended
March 31, 1996, and no such additional project loans are
anticipated. On July 28, 1995, the Operating Partnership that
<PAGE> 26
owns the Chambrel at Club Hill Senior Living Community paid its
project loan in full.
Reimbursement for Expenses. The General Partners and their
affiliates are entitled to be reimbursed for expenses they incur
on behalf of OTEF and OTEF II. Total reimbursements to the
General Partners and their affiliates for the quarters ended
March 31, 1996 and 1995 were $22,900, and $29,700, respectively,
for administrative expenses (excluding expenses relating to the
1995 OTEF Restructuring Plan).
Bond refunding costs. These costs, which are associated with
the refunding of the Operating Partnerships' individual Bonds,
totaled $310,000 as of December 31, 1995. During 1995, OTEF II
paid for such costs on behalf of the Operating Partnerships to
facilitate the Bond refunding process. Under the Debt
Modification Agreement dated April 12, 1995, the Operating
Partnerships are obligated to reimburse OTEF II for up to $1.5
million of such costs. Consequently, these costs totaling
$310,000 were classified by OTEF II as receivables from
affiliates as of December 31, 1995. In March 1996, these
receivables were extinguished through a payment made by the
Operating Partnerships from the proceeds of advances made by
Oxford in March 1996 (see "Other Sources" below). As of March
31, 1996, OTEF II paid additional Bond refunding costs totaling
$2,000 which will be reimbursed by the Operating Partnerships
later this year.
Note 5. Other Events
Four lawsuits were filed with respect to the 1995 OTEF
Restructuring Plan. In general, the complaints allege violations
of certain provisions of the securities laws, breach of
partnership agreement and breach of fiduciary duty, and seek
unspecified monetary damage and various forms of equitable
relief. On November 29, 1995, a putative class and derivative
action was filed by a BAC Holder in U.S. District Court for the
District of Maryland against Oxford Tax Exempt Fund I Corporation
and certain affiliates. A similar class action was filed by
another BAC Holder on the same date in U.S. District Court for
the Northern District of California, and subsequently transferred
to the U.S. District Court of Maryland by agreement of the
parties for consolidation with the first case. On January 23,
1996 and January 25, 1996, two additional putative class actions
were filed by BAC Holders in Circuit Court of Montgomery County,
Maryland alleging similar claims against Oxford Tax Exempt Fund,
L.P., certain affiliates and officers and directors. These
latter two actions have been consolidated. It is anticipated
that a motion for a pre-trial order will be filed to coordinate
discovery, the effect of rulings and related matters.
The Managing General Partner believes that these actions are
without merit, although it cannot predict the outcome of this
litigation. The Managing General Partner intends to vigorously
contest and defend against these suits. The Managing General
Partner does not believe that these suits will have a material
adverse effect on the operations of OTEF II.
<PAGE> 27
- - -----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs
- - -----------------------------------------------------------------
Your OTEF BACs were automatically transferred to OTEF II and no
action by you is required in this regard.
Please follow the instructions below to expedite the
reregistration or transfer of ownership of any OTEF II Beneficial
Assignee Interests ("BACs") that you may own. Note that no
transfers or sales can be effected without the consent of the
Managing General Partner and the completion of the proper
documents.
To cover the costs associated with processing transfers, MMS
Escrow & Transfer Agency, Inc. ("MMS"), the transfer agent for
OTEF II, charges $25 for each transfer of OTEF II BACs between
related parties and $50 per seller for each transfer for
consideration (sale). The only exception is a transfer to a
surviving joint holder of BACs when the other joint holder
dies, in which case no fee is charged. MMS will continue to
charge $150 for the conversion of a BAC into a limited partner
interest.
To transfer ownership of BACs held in a Merrill Lynch account,
please have your Merrill Lynch financial consultant contact
Merrill Lynch Partnership Operations in New Jersey at (201)
557-1619 to request the necessary transfer documents. Merrill
Lynch Partnership Operations will only accept calls from your
financial consultant. YOU MUST HAVE THE PROPER TRANSFER
DOCUMENTS FROM MERRILL LYNCH TO EFFECT A TRANSFER. You must
have your financial consultant contact Partnership Operations,
as OTEF II Investor Services does not send out transfer papers
for BACs held in a Merrill Lynch account.
Investors who no longer hold OTEF II BACs in a Merrill Lynch
account should contact Investor Services at (810) 614-4550 or
P.O. Box 7090, Troy, Michigan 48007-9921, to obtain transfer
documents. YOU MUST OBTAIN THE PROPER TRANSFER DOCUMENTS FROM
INVESTOR SERVICES TO EFFECT A TRANSFER OF BACs WHICH YOU HOLD
PERSONALLY.
MMS does not issue paper certificates to investors who take
their OTEF II BACs out of their Merrill Lynch accounts. Paper
confirmations are issued instead. (Please note that
previously-issued OTEF paper certificates are no longer valid.
Investors who hold OTEF certificates may retain or discard
them, as they choose. It is no longer necessary to return
certificates to MMS when transferring ownership interests.)
If an individual who holds his or her OTEF II BACs directly
wishes to redeposit the BACs into a Merrill Lynch account, he
or she should send written instructions to Investor Services
after the Merrill Lynch account has been opened. OTEF II
Investor Services will then instruct Merrill Lynch to deposit
the BACs into the account.
<PAGE> 28
Please remember to notify Investor Services in writing at the
address below or by calling (810) 614-4550 in the event you
change your mailing address or your financial consultant. We
can then continue to provide you and your representative with
timely information about your investment in OTEF II.
The Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, filed with the Securities and Exchange Commission,
is available to BAC Holders and may be obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
P.O. Box 7090
Troy, Michigan 48007-9921
(810) 614-4550
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1996 (Unaudited) and the Statements of Income
for the three months ended March 31, 1996 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,465
<SECURITIES> 164,000
<RECEIVABLES> 25
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 174,490
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0
0
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<EPS-DILUTED> 13.31
</TABLE>
