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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
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Commission file number: 0-25600
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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 Interests ("BACs")
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 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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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
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 September 30, 1996 and December 31, 1995,
the Statements of Income for the three- and nine-month periods
ended September 30, 1996, the three- and four-month periods ended
September 30, 1995 for OTEF II and five-month period ended May
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 September 30, 1996, and the Statements of
Cash Flows for the nine-month period ended September 30, 1996,
and the four-month period ended September 30, 1995 for OTEF II,
and the five-month period ended May 31, 1995 for OTEF, and the
notes thereto, in accordance with generally accepted accounting
principles, are incorporated by reference to sequentially
numbered pages 15 through 27 of OTEF II's Quarterly Report
(Unaudited) dated September 30, 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 and the
Statements of Cash Flows representing pro forma information for
the nine-month period ended September 30, 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 from the Statements
of Income and the Statements of Cash Flows 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
refunding of the Bonds, which the Managing General Partner
anticipates will be completed during 1996. 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.
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- and nine-month periods ended
September 30, 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).
<PAGE> 3
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Five lawsuits were filed with respect to the 1995 OTEF
Restructuring Plan as of September 30, 1996. 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
putative 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 and consolidated
with the first case. On January 23, 1996 and January 25, 1996,
two additional putative class actions were filed by BAC Holders
in the 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. Another putative class and derivative
action was filed by a BAC Holder in the Circuit Court of
Montgomery County, Maryland on July 3, 1996. Both the federal
and the state courts have issued pretrial orders coordinating
discovery, the effect of rulings and related matters in these
cases.
The Managing General Partner believes that these actions are
without merit, although it cannot predict the outcome of this
litigation. The Managing General Partner does not believe that
these suits will have a material adverse effect on the operations
of OTEF II. However, after considering the expense and time
involved with, and the uncertainties regarding the outcome of,
such complex litigation, the Managing General Partner has
determined that it is in the best interests of OTEF II and the
OTEF II BAC Holders to agree to a settlement of this litigation.
The parties expect to file with the United States District Court
for the District of Maryland ("Court") a stipulation of
settlement that will resolve all pending litigation. A notice
of the proposed settlement, that will describe the settlement
in detail, will be mailed to the OTEF II BAC Holders shortly
following a preliminary approval hearing before the Court
which is currently anticipated to occur later this month.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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.
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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: 11/7/96 By: /s/ Richard R. Singleton
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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: 11/7/96 By: /s/ Leo E. Zickler
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Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 11/7/96 By: /s/ Francis P. Lavin
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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 September 30, 1996, follows on
sequentially numbered pages 6 through 29 of this report.
(27) Financial Data Schedule.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
September 30, 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
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Report of Management
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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 September 30, 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 previously discussed, the managing general partners of
OTEF II (the "Managing General Partner") and Oxford Tax Exempt
Fund Limited Partnership, a Maryland limited partnership ("OTEF,"
"predecessor," or "OTEF II's predecessor"), adopted and have
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 Bonds are collateralized by mortgages on the 10
underlying apartment properties and four senior living properties
which are owned by 14 limited partnerships (collectively, the
"Operating Partnerships"), all of which are all controlled by
affiliates of the Managing General Partner. Pursuant to the 1995
OTEF Restructuring Plan, the Managing General Partner currently
is completing the refunding of the Bonds.
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 refunding of the Bonds and to permit 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 implementation
of 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 better liquidity and a more efficient trading
market for the OTEF II BACs.
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Report of Management
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Liquidity and Capital Resources
Current Position. OTEF II uses the interest payments it
receives under the terms of the Bonds 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. OTEF II has no commitments for capital or other
expenditures, except as may be required in connection with the
1995 OTEF Restructuring Plan as discussed below and
expenditures that may be incurred in connection with the
settlement of the lawsuits described in Note 5 to the Financial
Statements. A distribution for the quarter ended September 30,
1996, in the amount of $3,643,000, or $11.90 per BAC (4.76%
per annum on the original $1,000 invested per BAC), will be made
on November 14, 1996.
As of September 30, 1996, OTEF II held $12,019,000 in cash and
cash equivalents, representing an increase of $2,321,000, or
23.9%, 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 increasing interest paid on the
Bonds during the nine-month period ended September 30, 1996. The
increase in OTEF II's cash and cash equivalents was offset by
administrative and governance costs associated with the
development of the 1995 OTEF Restructuring Plan. (See Results of
Operations-The Partnership's Operations.)
Bond Refunding Costs. These costs 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 Amended and Restated Debt
Modification Agreement, the Operating Partnerships are obligated
to reimburse OTEF II for up to $1.5 million of such costs. To
the extent the actual costs exceed this amount, the Operating
Partnerships will use any of their available cash sources to
cover the excess, which in certain cases may reduce the amount of
interest paid to OTEF II, or OTEF II will fund the expenses from
its existing reserves. 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 to OTEF II
by the Operating Partnerships from the proceeds of advances made
by Oxford Development Corporation and its affiliates ("Oxford").
In September 1996, Oxford paid additional Bond refunding costs on
behalf of certain Operating Partnerships totaling $21,000, which
represent Oxford Advances to the applicable Operating
Partnerships. (See "Other Sources" below.)
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
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Report of Management
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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 September 30, 1996, the 14 Operating Partnerships had
cumulative unpaid Base Interest and interest on unpaid Base
Interest of $104 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 Bond refunding. 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
base interest to OTEF II and OTEF, as the case may be, from
advances made by Oxford, pursuant to operating deficit guarantees
and obligations under a Yield Maintenance Reserve ("YMR")
Agreement, as amended. Through September 30, 1996, Oxford had
advanced a total of $17.8 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 September 30, 1996, the remaining YMR
obligations of Oxford and the Operating Partnerships totaled
$2 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 in August 1995 and
an additional $2 million face amount U.S. Treasury strip bond
that matured in August 1996. Oxford will satisfy the $2 million
of remaining YMR obligations either by advancing these funds to
the Operating Partnerships or by paying for their Bond refunding
expenses and recording such payments as advances to the
applicable Operating Partnerships. From the $1.7 million U.S.
Treasury strip bond that matured on August 15, 1995, Oxford
advanced, in the aggregate, $310,000 to certain Operating
Partnerships in March 1996 and paid additional Bond refunding
costs totaling $21,000 on behalf of certain Operating
Partnerships in September 1996. Certain Operating Partnerships,
in turn, reimbursed OTEF II $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 Treasury
strip bond received in August 1995, as well as the $2 million
Treasury strip bond received in August 1996, is being held in an
interest-bearing account pending a determination as to which
Operating Partnerships these funds should be allocated, which
will be based on their individual Bond refunding costs and their
individual reserve requirements, or upon the completion of
Oxford's paying Bond refunding expenses on behalf of the
Operating Partnerships.
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Report of Management
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These sources of funds are nonrecurring in nature, and
therefore, 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.
Results of Operations
The Partnership's Operations
Distributions. Distributions to Partners amounted to $3,643,000
or $11.90 per BAC (4.76% per annum on the original $1,000
invested per BAC) to BAC Holders of record as of September 30,
1996. This distribution is consistent with the distribution made
for the previous six quarters. The Managing General Partner
anticipates that the amount of the quarterly distribution will be
increased following implementation of the new business plan.
The Partnership's Three-Month Operations. For financial
statement purposes, Net Income and Net Income per BAC were
$4,237,000 and $13.84, respectively, for the three-month period
ended September 30, 1996, and $3,983,000 and $13.01,
respectively, for the three-month period ended September 30,
1995.
Administrative Expenses. These normal recurring costs of
OTEF II, other than the governance costs discussed below, totaled
$330,000 for the three-month period ended September 30, 1996,
compared to $126,000 for the three-month period ended
September 30, 1995. The increase is primarily attributable to an
increase in legal fees relating to the general operations of
OTEF II.
Governance Costs. These costs, which are included in
administrative expenses in the Statements of Income for the three-
month period ended September 30, 1996, are accounting, legal and
consultation costs primarily relating to: (i) the development of
the 1995 OTEF Restructuring Plan; and (ii) legal defense against
certain lawsuits described in Note 5 to Financial Statements.
Such costs incurred during the three-month periods ended
September 30, 1996 and 1995 totaled $204,000 and $754,000,
respectively. As of September 30, 1995, these costs were
included in deferred costs on the balance sheet and reclassified
to governance costs during the fourth quarter of 1995. Deferred
costs as of September 30, 1995 totaled $2,645,000 and included
$754,000 of governance costs and $1,891,000 of BAC Issuance
Costs. (See BAC Issuance Costs below.) Beginning in the fourth
quarter of 1995, governance costs have been consistently
presented as administrative expenses and the BAC Issuance Costs
have been reclassified for financial statement purposes as a
reduction in Partners' Capital.
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Report of Management
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Other revenues for the three-month period ended September 30,
1996 relate to the interest income earned on cash accounts held
by OTEF II. Other revenues for the three-month period ended
September 30, 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 Property, as well as
interest income earned on cash accounts held by OTEF II.
The Partnership's Nine-Month Operations. For financial
statement purposes, Net Income and Net Income per BAC were
$12,700,000 and $41.49, respectively, for the nine-month period
ended September 30, 1996 for OTEF II. Net Income and Net Income
per BAC were $5,188,000 and $16.95, respectively, for the four-
month period ended September 30, 1995 for OTEF II under SFAS No.
115, and $2,277,000 and $7.44, respectively, for the five-month
period ended May 31, 1995 under the equity method of accounting
for OTEF.
Administrative Expenses. These normal recurring costs of
OTEF II, other than governance costs discussed below, totaled
$579,000 for the nine-month period ended September 30, 1996,
compared to $388,000 for the nine-month period ended
September 30, 1995 for OTEF II and OTEF. The increase is
primarily attributable to an increase in legal fees relating to
the general operations of OTEF II.
Governance Costs. These costs, which are included in
administrative expenses in the Statements of Income for the nine-
month period ended September 30, 1996, are accounting, legal and
consultation costs primarily relating to: (i) the development of
the 1995 OTEF Restructuring Plan; and (ii) legal defense against
certain lawsuits described in Note 5 to Financial Statements.
Such costs incurred during the nine-month periods ended
September 30, 1996 and 1995 totaled $856,000 and $754,000,
respectively. As of September 30, 1995, these costs were
included in deferred costs on the balance sheet and reclassified
to governance costs during the fourth quarter of 1995. Deferred
costs as of September 30, 1995 totaled $2,645,000 and included
$754,000 of governance costs and $1,891,000 of BAC Issuance
Costs. (See BAC Issuance Costs below.) Beginning in the fourth
quarter of 1995, governance costs have been consistently
presented as administrative expenses and the BAC Issuance Costs
have been reclassified for financial statement purposes as a
reduction in Partners' Capital.
Other revenues for the nine-month period ended September 30,
1996 relate to the interest income earned on cash accounts held
by OTEF II. Other revenues for the nine-month period ended
September 30, 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 Property, as well as
interest income earned on cash accounts held by OTEF and OTEF II.
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Report of Management
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BAC Issuance Costs. Costs associated with issuing the OTEF II
BACs, in the amount of $1,891,000 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
September 30, 1996, nor are any expected to be incurred in the
future.
The Partnership's Pro forma Operations. For purposes of
clarity, the Managing General Partner has included an additional
column in the Statements of Income and the Statements of Cash
Flows representing pro forma information for the nine-month
period ended September 30, 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
from the Statements of Income and the Statements of Cash Flows
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 refunding of the Bonds, which the
Managing General Partner anticipates will be completed during
1996.
The Partnership's Pro forma Nine-Month Operations. For pro
forma financial statement purposes, Net Income and Net Income per
BAC were $12,700,000 and $41.49, respectively, for the nine-month
period ended September 30, 1996, compared to $12,032,000 and
$39.31, respectively, for the nine-month period ended
September 30, 1995. The $668,000, or 5.6%, increase for the nine-
month period ended September 30, 1996, compared to the nine-month
period ended September 30, 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 the Ocala and Tidewater
partnerships, none of the Operating Partnerships was able to pay
fully its current Base Interest from operations for the nine-
month period ended September 30, 1996, and the Managing General
Partner anticipates, based on information available to it, that
none of the remaining 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 and Tidewater
partnerships are expected to pay fully all of their current Base
<PAGE> 13
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Report of Management
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Interest from operations for 1996, they have accrued unpaid Base
Interest and interest on unpaid Base Interest of $7,518,000 and
$4,437,000, respectively. Based on the current and anticipated
performance of the Properties, the Managing General Partner
expects each Operating Partnership to meet its payment
obligations once the Bonds are refunded.
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 periods ended
September 30, 1996 and 1995.
The Operating Partnerships reported an aggregate net operating
income before property improvements of $5,538,000 for the three-
month period ended September 30, 1996, representing an increase
of $82,000, or 1.5%, from the aggregate net operating income
before property improvements reported for the same period in
1995. In addition, during the three-month period ended
September 30, 1996, overall property improvement expenditures
were $802,000, representing a decrease of $106,000, or 11.7%,
compared to the same period in 1995.
Senior Living Properties. The Operating Partnerships that own
the four Senior Living Properties reported an aggregate net
operating income before property improvements of $1,493,000 for
the three-month period ended September 30, 1996, representing an
increase of $137,000, or 10.1%, from the aggregate net operating
income before property improvements reported for the same period
in 1995. In addition, during the three-month period ended
September 30, 1996, overall property improvement expenditures for
the four Senior Living Properties were $225,000, representing an
increase of $10,000, or 4.6%, compared to the same period in
1995.
Apartment Properties. The Operating Partnerships that own the
10 garden apartments reported an aggregate net operating income
before property improvements of $4,045,000 for the three-month
period ended September 30, 1996, representing a decrease of
$55,000, or 1.4%, from the aggregate net operating income before
property improvements reported for the same period in 1995. In
addition, during the three-month period ended September 30, 1996,
overall property improvement expenditures for the 10 garden
apartments were $577,000, representing a decrease of $116,000, or
16.8%, compared to the same period in 1995.
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Report of Management
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Set forth below is a discussion of the Properties which compares
their respective operations for the nine-month periods ended
September 30, 1996 and 1995.
The Operating Partnerships reported an aggregate net operating
income before property improvements of $16,032,000 for the nine-
month period ended September 30, 1996, representing an increase
of $501,000, or 3.2%, from the aggregate net operating income
before property improvements reported for the same period in
1995. In addition, during the nine-month period ended
September 30, 1996, overall property improvement expenditures
were $1,683,000, representing a decrease of $182,000, or 9.8%,
compared to the same period in 1995.
Senior Living Properties. The Operating Partnerships that own
the four Senior Living Properties reported an aggregate net
operating income before property improvements of $4,211,000 for
the nine-month period ended September 30, 1996, representing an
increase of $479,000, or 12.8%, from the aggregate net operating
income before property improvements reported for the same period
in 1995. In addition, during the nine-month period ended
September 30, 1996, overall property improvement expenditures for
the four Senior Living Properties were $447,000, representing an
increase of $37,000, or 9.1%, compared to the same period in
1995.
Apartment Properties. The Operating Partnerships that own the
10 garden apartments reported an aggregate net operating income
before property improvements of $11,821,000 for the nine-month
period ended September 30, 1996, representing an increase of
$22,000, or less than 1%, from the aggregate net operating income
before property improvements reported for the same period in
1995. In addition, during the nine-month period ended
September 30, 1996, overall property improvement expenditures for
the 10 garden apartments were $1,236,000, representing a decrease
of $219,000, or 15.1%, compared to the same period in 1995.
Summary
Based upon actual results through September 30, 1996, and the
current outlook for the remainder of 1996, the Managing General
Partner believes there will be sufficient interest payments from
the Operating Partnerships to fund anticipated expenses and to
maintain the current level of distributions to the OTEF II BAC
Holders. The Managing General Partner anticipates that the
amount of the quarterly distribution will be increased following
implementation of the new business plan.
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------
Balance Sheets (in thousands)
- ------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $164,000 $164,000
Cash and cash equivalents 12,019 9,698
Interest receivable 29 26
Due from affiliates - 310
- ------------------------------------------------------------------------
Total Assets $176,048 $174,034
========================================================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses $ 735 $ 492
Distributions payable 3,643 3,643
- ------------------------------------------------------------------------
Total Liabilities 4,378 4,135
- ------------------------------------------------------------------------
Partners' Capital
General Partners (2,365) (2,400)
Limited Partners' Interests (Beneficial
Assignee Interests-299,995 interests
issued and outstanding) 163,067 161,331
Unrealized Gain on Investments 10,968 10,968
- ------------------------------------------------------------------------
Total Partners' Capital 171,670 169,899
- ------------------------------------------------------------------------
Total Liabilities and Partners' Capital $176,048 $174,034
========================================================================
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE> 16
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
Statements of Income (in thousands, except per BAC amounts)
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended September 30, Nine months ended September 30,
----------------------------------- ------------------------------------------------------------
OTEF II OTEF II OTEF II Pro forma<5> | OTEF II || OTEF
Three Three Nine Nine | Four || Five
months months months months | months || months
ended ended ended ended | ended || ended
September 30, September 30, September 30, September 30, | September 30, || May 31,
1996 1995 1996 1995 | 1995 || 1995
- ----------------------------------------------------------- -------------------------------|---------------||-------------
<S> <C> <C> <C> <C> | <C> || <C>
Revenues | ||
Interest on Bonds<F1> $4,684 $4,024 $13,879 $12,159 | $5,287 || $ -
Equity income on - - - - | - || 2,305
investments in Bonds<F2> | ||
Other, primarily interest | ||
on short-term investments 87 85 256 261 | 114 || 147
- ----------------------------------------------------------- -------------------------------|---------------||-------------
4,771 4,109 14,135 12,420 | 5,401 || 2,452
Expenses | ||
Administrative expenses 534<F3> 126<F4> 1,435<F3> 388<F4> | 213<F4> || 175
- ----------------------------------------------------------- -------------------------------|---------------||-------------
Net income $4,237 $3,983 $12,700 $12,032 | $5,188 || $2,277
=========================================================== ===============================|===============||=============
Net income allocated to $ 85 $ 80 $ 254 $ 241 | $ 104 || $ 45
General Partners | ||
=========================================================== ===============================|===============||=============
Net income allocated to $4,152 $3,903 $12,446 $11,791 | $5,084 || $2,232
BAC Holders | ||
=========================================================== ===============================|===============||=============
Net income per BAC $13.84 $13.01 $ 41.49 $ 39.31 | $16.95 || $ 7.44
=========================================================== ===============================|===============||=============
Distribution per BAC $11.90 $11.90 $ 35.70 $ 35.70 | $23.80 || $11.90
=========================================================== ===============================|===============||=============
<PAGE> 17
<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.
<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- and nine-month periods ended September 30, 1996,
administrative expenses also included $204,000 and $856,000, respectively,
of governance costs associated with the accounting, legal and consultation
fees primarily relating to: (i) the development of the 1995 OTEF
Restructuring Plan; and (ii) legal defense against certain lawsuits
described in Note 5 to Financial Statements.
<F4> Excludes governance costs totaling $754,000 for the three-, four- and
pro forma nine-month periods ended September 30, 1995. As of September 30,
1995, these costs were included in deferred costs on the balance sheet.
Deferred costs as of September 30, 1995 totaled $2,645,000 and included
$754,000 of governance costs and $1,891,000 of BAC Issuance Costs.
Beginning in the fourth quarter of 1995, governance costs have been
consistently presented as administrative expenses and the BAC issuance costs
have been reclassified for financial statement purposes as a reduction in
Partners' Capital.
<F5> 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 from
the Statements of Income and the Statements of Cash Flows 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
<TABLE>
- -----------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- -----------------------------------------------------------------------------
<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 254 12,446 - 12,700
Distributions to Partners,
including $35.70 per BAC (219) (10,710) - (10,929)
- -----------------------------------------------------------------------------
Balance, September 30, 1996 $(2,365) $163,067 $10,968 $171,670
(Unaudited)
=============================================================================
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE> 19
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Statements of Cash Flows (in thousands) (Note 3)
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
OTEF II | ||
OTEF II Pro forma<F3> | OTEF II || OTEF
Nine Nine | Four || Five
months ended months ended |months ended ||months ended
September 30, September 30, |September 30,|| May 31,
1996 1995 | 1995 || 1995
- ------------------------------------------------------------------------------|-------------||-------------
<S> | ||
Operating Activities <C> <C> | <C> || <C>
Net income<F1> $ 12,700 $ 12,032 | $ 5,188 || $ 2,277
Adjustments to reconcile net income | ||
to net cash provided by operating | ||
activities: | ||
Equity income from investments | ||
in Bonds<F2> - - | - || (2,305)
Changes in assets and liabilities: | ||
Interest receivabe (3) (9) | - || (9)
Due from affiliates 310 - | - || -
Accounts payable 243 266 | 169 || 97
- ------------------------------------------------------------------------------|-------------||--------------
Net cash provided by operating activities 13,250 12,289 | 5,357 || 60
- ------------------------------------------------------------------------------|-------------||--------------
Investing activities | ||
Working capital reserve - 1,518 | - || 1,518
Payments received from investments | ||
in Bonds<F1> - - | - || 7,872
Project loans - 534 | 123 || 411
Capital contributions - 1 | 1 || -
- ------------------------------------------------------------------------------|-------------||--------------
Net cash provided by investing activities - 2,053 | 124 || 9,801
- ------------------------------------------------------------------------------|-------------||--------------
Financing activities | ||
Distributions paid to Partners and BAC Holders (10,929) (10,730) | (3,643) || (7,087)
Deferred costs paid - (2,057) | (1,386) || (671)
- ------------------------------------------------------------------------------|-------------||--------------
Net cash used by financing activities (10,929) (12,787) | (5,029) || (7,758)
- ------------------------------------------------------------------------------|-------------||--------------
Net increase in cash and cash equivalents 2,321 1,555 | 452 || 2,103
Cash and cash equivalents, beginning of period 9,698 7,338 | 9,441 || 7,338
- ------------------------------------------------------------------------------|-------------||--------------
Cash and cash equivalents, end of period $ 12,019 $ 8,893 | $ 9,893 || $ 9,441
==============================================================================|=============||==============
<PAGE> 20
<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.
<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> 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 from the
Statements of Income and the Statements of Cash Flows since these
payments are nonrecurring in nature.
</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 September 30, 1996 and
December 31, 1995, the Statements of Income for the three- and
nine-month periods ended September 30, 1996 and the three- and
four-month periods ended September 30, 1995 for OTEF II and five-
month period ended May 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 September 30, 1996, and
the Statements of Cash Flows for the nine-month period ended
September 30, 1996, and the four-month period ended September 30,
1995 for OTEF II, and the five-month period ended May 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 and the
Statements of Cash Flows representing pro forma information for
the nine-month period ended September 30, 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 from the Statements
of Income and Statements of Cash Flows 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 refunding of
the Bonds, which the Managing General Partner anticipates will be
completed during 1996. 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.
<PAGE> 22
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
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 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 Bonds are
collateralized by mortgages on the 10 underlying apartment
properties and four senior living properties which are owned by
14 limited partnerships (collectively, the "Operating
Partnerships"), all of which are all controlled by affiliates of
the Managing General Partner. Pursuant to the 1995 OTEF
Restructuring Plan, the Managing General Partner currently is
completing the refunding of the Bonds.
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 refunding of the Bonds and to permit 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 implementation
of 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 better liquidity and a more efficient trading
market for the OTEF II BACs.
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.
<PAGE> 23
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
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 approximately $11 million of unrealized gain on
investments. As of September 30, 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 the 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.
<PAGE> 24
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
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 and the Statements of Cash
Flows 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 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 from the Statements of Income
and Statements of Cash Flows 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 purposes.
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 $3,643,000 at September 30, 1996 and September 30,
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.
<PAGE> 25
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
Governance Costs. These costs, which are included in
administrative expenses in the Statements of Income for the nine-
month period ended September 30, 1996, are accounting, legal and
consultation costs primarily relating to: (i) the development of
the 1995 OTEF Restructuring Plan; and (ii) legal defense against
certain lawsuits described in Note 5 to Financial Statements.
Such costs incurred during the nine-month periods ended
September 30, 1996 and 1995 totaled $856,000 and $754,000,
respectively. As of September 30, 1995, these costs were
included in deferred costs on the balance sheet and reclassified
to governance costs during the fourth quarter of 1995. Deferred
costs as of September 30, 1995 totaled $2,645,000 and included
$754,000 of governance costs and $1,891,000 of BAC Issuance
Costs. (See BAC Issuance Costs below.) Beginning in the fourth
quarter of 1995, governance costs have been consistently
presented as administrative expenses and the BAC Issuance Costs
have been reclassified for financial statement purposes as a
reduction in Partners' Capital.
BAC Issuance Costs. Costs associated with issuing the OTEF II
BACs, in the amount of $1,891,000 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
September 30, 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
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 September 30, 1996 and
1995 totaled $73,000 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. For the nine-month periods ended
September 30, 1996 and 1995, the Operating Partnerships paid
total property and asset management fees of $1,759,000 and
$1,701,000, respectively. The increase of $58,000, or 3.4%,
between the two periods is due to improved operating revenues of
<PAGE> 26
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
the Operating Partnerships for the nine-month period ended
September 30, 1996. During the nine-month periods ended
September 30, 1996 and 1995, the Operating Partnerships also paid
ORFG, in the aggregate, $523,000 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 Loans. As of September 30, 1996, none of
the Operating Partnerships had any taxable project loan
obligations to OTEF II, and no such additional project loans are
anticipated. On July 28, 1995, the Operating Partnership that
owns the Chambrel at Club Hill Senior Living Property 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 II. Total reimbursements to the General
Partners and their affiliates for the quarters ended
September 30, 1996 and 1995 were $54,000 and $79,000,
respectively, for administrative expenses (excluding expenses
relating to the 1995 OTEF Restructuring Plan).
Bond Refunding Costs. These costs 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 Amended and Restated Debt
Modification Agreement, the Operating Partnerships are obligated
to reimburse OTEF II for up to $1.5 million of such costs. To
the extent the actual costs exceed this amount, the Operating
Partnerships will use any of their available cash sources to
cover the excess, which in certain cases may reduce the amount of
interest paid to OTEF II, or OTEF II will fund the expenses from
its existing reserves. 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 to OTEF II
by the Operating Partnerships from the proceeds of advances made
by Oxford Development Corporation and its affiliates ("Oxford").
In September 1996, Oxford paid additional Bond refunding costs on
behalf of certain Operating Partnerships totaling $21,000, which
represent Oxford Advances to the applicable Operating
Partnerships.
Note 5. Other
Five lawsuits were filed with respect to the 1995 OTEF
Restructuring Plan as of September 30, 1996. 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
<PAGE> 27
- -------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------
putative 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 and consolidated
with the first case. On January 23, 1996 and January 25, 1996,
two additional putative class actions were filed by BAC Holders
in the 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. Another putative class and derivative
action was filed by a BAC Holder in the Circuit Court of
Montgomery County, Maryland on July 3, 1996. Both the federal
and the state courts have issued pretrial orders coordinating
discovery, the effect of rulings and related matters in these
cases.
The Managing General Partner believes that these actions are without
merit, although it cannot predict the outcome of this litigation. The
Managing General Partner does not believe that these suits will have a
material adverse effect on the operations of OTEF II. However, after
considering the expense and time involved with, and the
uncertainties regarding the outcome of, such complex litigation,
the Managing General Partner has determined that it is in the
best interests of OTEF II and the OTEF II BAC Holders to agree to
a settlement of this litigation. The parties expect to file with
the United States District Court for the District of Maryland
("Court") a stipulation of settlement that will resolve all pending
litigation. A notice of the proposed settlement, that will
describe the settlement in detail, will be mailed to the OTEF II
BAC Holders shortly following a preliminary approval hearing before
the Court which is currently anticipated to occur later this month.
<PAGE> 28
- -------------------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs
- -------------------------------------------------------------------------
Please follow the instructions below to expedite the
reregistration or transfer of ownership of any Oxford Tax Exempt
Fund II Limited Partnership ("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 OTEF II 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 OTEF II 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 OTEF II 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> 29
- -------------------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs
- -------------------------------------------------------------------------
Please remember to notify OTEF II 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
September 30, 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 September 30, 1996 (Unaudited) and the Statements of Income for the
nine months ended September 30, 1996 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,019
<SECURITIES> 164,000
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,048
<CURRENT-LIABILITIES> 4,378
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 171,670
<TOTAL-LIABILITY-AND-EQUITY> 176,048
<SALES> 0
<TOTAL-REVENUES> 14,135
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,700
<EPS-PRIMARY> 41.49
<EPS-DILUTED> 41.49
</TABLE>
