<PAGE> 1
=================================================================
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 September 30, 1997
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)
Registrant's telephone number, including area code (301) 654-3100
Securities registered pursuant to Section 12(b) of the Act:
Beneficial Assignee Interests
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interests
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 / /
At September 30, 1997, the following classes of beneficial
assignee interests of Oxford Tax Exempt Fund II Limited
Partnership were outstanding: (i) 7,185,200 beneficial assignee
interests ("BACs") with an aggregate market value of
$189,060,575, and (ii) 7,103 Status Quo BACs ("SQBs").
Index to Exhibits is found on page 3.
=================================================================
<PAGE> 2
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 13 through 16 of OTEF
II's Quarterly Report (Unaudited).
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 nine-month period ended September 30, 1997 is
incorporated herein by reference to sequentially numbered pages 6
through 12 entitled "Report of Management" included in OTEF II's
Quarterly Report (Unaudited).
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Information responsive to this Item regarding putative class
and derivative lawsuits is contained in Note 8 to Financial
Statements of the Form 10-K for the year ended December 31, 1996
filed by OTEF II.
Item 2. Changes in Securities.
Information responsive to this Item regarding changes in
securities is contained in Item 2 of the Form 10-Q/A for the
quarter ended March 31, 1997, filed by OTEF II.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Form 8-A/A was filed with the SEC on July 21, 1997, for
registration of certain classes of securities pursuant to Section
12(b) of the Securities Exchange Act of 1934.
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 3 of this report.
(b) Reports on Form 8-K.
Form 8-K dated July 1, 1997 was filed with the SEC on
July 3, 1997, disclosing information pertaining to the new
registrar and transfer agent, listing of OTEF II BACs on
the American Stock Exchange, 25-for-1 split of the OTEF II
BACs, and new investor services telephone number.
No other items were applicable.
<PAGE> 3
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, 1997, follows on
sequentially numbered pages 5 through 22 of this report.
(27) Financial Data Schedule.
<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: 11/14/97 By: /S/ 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: 11/14/97 By: /S/ Francis P. Lavin
-------- ------------------------------------------
Francis P. Lavin
Director and President
Date: 11/14/97 By: /S/ Robert B. Downing
-------- ------------------------------------------
Robert B. Downing
Director and Executive Vice President
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
September 30, 1997
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> 6
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("OTEF II" or the "Partnership"), as
of September 30, 1997, and its results of operations for the
three and nine month periods ended and cash flows as of September
30, 1997. 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
Distribution for the Quarter ended September 30, 1997. The
Managing General Partner declared, on September 18, 1997, a 4%
increase in the quarterly distribution for holders of record as
of September 30, 1997, which will be paid on November 14, 1997.
The increase in the distribution, which was the first increase in
nine consecutive quarters, is consistent with the increase
discussed in the previously issued Information Memorandum. The
amount of this quarterly distribution is $0.495 per BAC for the
Liquidity BAC holders, up from $0.476 the previous quarter, and
$12.38 per Status Quo BAC (SQB) holders, up from $11.90 the
previous quarter.
A final distribution of $4.13 per SQB will be made on November
14, 1997 to those holders whose SQBs were redeemed on July 31,
1997. This represents a prorated amount of the distribution that
was declared for the SQB holders for the quarter ended September
30, 1997, payable on November 14, 1997.
Status Quo BACs. Approximately 4.2% of the OTEF II BAC
Holders made a timely election to convert their OTEF II BACs to
SQBs. Effective April 1, 1997, OTEF II issued the SQBs,
representing 12,587 shares, in uncertificated, book-entry form.
Under the Optional Sale Plan described in prior reports, the
original SQB Holders had the option to elect to tender all or a
portion of their SQBs for purchase or redemption by OTEF II by
June 20, 1997. Effective July 31, 1997, OTEF II redeemed 5,484
SQBs for approximately $2.96 million.
OTEF II BAC Split. In anticipation of listing the OTEF II
BACs with a national securities exchange, the Managing General
Partner of OTEF II declared a 25-for-1 split of the BACs as of
July 1, 1997 for Liquidity BAC Holders of record as of June 30,
1997. This split of the outstanding OTEF II BACs was to divide
or "split" the outstanding OTEF II BACs into smaller
denominations to enhance trading in, and liquidity of, the OTEF
II BACs and encourage a broader range of investors. For
comparative financial statement purposes, prior periods have been
restated to reflect this 25 to 1 split. No split was effectuated
for the SQBs.
<PAGE> 7
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Stock Exchange Listing. On July 22, 1997, the American Stock
Exchange began trading OTEF II BACs. New certificates were
issued by OTEF II's registrar and transfer agent to all OTEF II
Liquidity BAC Holders whose OTEF II BACs were not held by a
brokerage firm in street name for the benefit of such holders.
The SQBs were not listed for trading, and will continue to be
reflected on OTEF II's books and records in uncertificated, book-
entry form.
Refunding and Financing. Prior to January 1, 1997, ten of the
fifteen existing mortgage revenue bonds ("Existing MRBs") were
refunded. Through September 30, 1997 two more Existing MRBs were
refunded for a total of twelve MRBs refunded or 88% of the
portfolio. As a result of these refundings, the estimated value
of the bonds held by OTEF II, as shown on the Balance Sheet,
increased by approximately $8.7 million as of September 30, 1997,
compared to December 31, 1996.
The Refunding Bonds currently held by OTEF II are structured
so as to consist of senior bonds ("Series A Bonds") and
subordinated bonds ("Series B Bonds"). This senior/subordinated
structure will permit OTEF II to undertake one or more
financings, pursuant to which it will sell all or a portion of
the Series A Bonds, or interests therein, that are allocable to
the OTEF II BACs ("Liquidity Assets"), or issue debt that may be
secured by such assets, new assets or both. The net proceeds
from these financings will be invested in new assets, as
discussed below. OTEF II will retain the related Series B Bonds
for the benefit of the Liquidity BAC Holders, and will retain
both the senior Series A Bonds and the subordinated Series B
Bonds, or interests therein, allocable to the SQBs ("Status Quo
Assets") for the benefit of the SQB Holders.
Investment in New Assets. The Managing General Partner intends
to invest primarily in additional tax exempt mortgage revenue
bonds and securities of other entities, which primarily hold tax-
exempt mortgage revenue bonds. OTEF II also may invest in
multifamily real estate, senior living facilities or residential
health care facilities, or other direct or indirect debt or
equity interests in such real estate, some of which may give rise
to taxable income (all of the foregoing are referred to
collectively as "New Assets").
OTEF II generally will acquire additional mortgage revenue
bonds and taxable bonds that are not rated by any of the
nationally recognized rating agencies (such as Moody's Investor
Services, Inc. or Standard & Poor's Ratings Group) and that are
not credit-enhanced at the time of acquisition, although OTEF II
may seek to have all or a portion of such bonds credit-enhanced
or rated at a future date. It also is expected that OTEF II may
invest in bonds, including bonds that may be secured by bonds or
mortgages that are subordinated to senior bonds or mortgages held
by third parties, on terms that may permit it, in some cases, to
participate (either through stepped interest rates or otherwise)
<PAGE> 8
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
in the future growth and increase in value of the properties
financed by such bonds. No New Assets have yet been acquired by
OTEF II, other than in connection with the financing transaction
described below.
Liquidity & Growth Plan Financing Transaction. On August 22,
1997 OTEF II closed the first of a series of transactions that
will enable it to acquire additional assets in accordance with
the Liquidity and Growth Plan. OTEF II securitized approximately
$39 million of Series A Bonds collateralized by four properties.
OTEF II retained all of its interest in the corresponding Series
B Bonds. In addition, OTEF II applied approximately $12 million
of the proceeds to the purchase of a subordinated interest in the
securitization transaction. It is anticipated that a substantial
portion of the net proceeds to OTEF II of approximately $27
million cash will be invested in New Assets in the near future.
These funds are temporarily invested in liquid tax-exempt money
market securities which earned interest ranging from 2.9 % to
4.05% during the period. OTEF II also retained certain rights to
reacquire the securitized assets.
In connection with this transaction, OTEF II converted the
interest rate mode on these four Series A Bonds from an annual
reset to weekly floaters. OTEF II also purchased a three-year
interest rate cap on a notional amount of approximately $27
million to minimize the effects of interest rate volatility.
Under this arrangement, if the average short-term, tax-exempt
interest rates for any month during the term of the cap increase
above a specified level (6%), the counter-party to the interest
rate cap transaction is required to pay directly to OTEF II the
amount by which such rates exceed the specified level.
For financial statement purposes, this transaction is
accounted for as a financing transaction and, accordingly, the
amount of the Series A Bonds financed of $39 million is reflected
as Securities Held in Trust, the net cash proceeds are classified
as Cash and Cash Equivalents and the difference between the
principal amount of the Series A Bonds financed and the principal
amount of the subordinated interest acquired by OTEF is
classified as financing debt. The financing debt bears interest
at the Public Securities Association weekly floating bond rate
("PSA") plus approximately 80 to 85 basis points which averaged
4.46% from the date of closing through September 30, 1997. Costs
associated with this financing transaction are being amortized
over 10 years for financial statement purposes, and costs
associated with the interest rate cap are being amortized over
the life of the interest rate agreement, which is 3 years. For
federal income tax purposes, this transaction will be treated as
a sale by OTEF II of the Series A Bonds and a purchase of the
subordinated interests, which is expected to result in a small
capital loss.
<PAGE> 9
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Liquidity and Capital Resources
Current Position. OTEF II uses the interest income it
receives from the Refunding Bonds, Existing MRBs, and cash
reserves to make periodic cash distributions to its General
Partners, OTEF II BAC Holders and SQB Holders, pay administrative
expenses and fund reserves, as well as the costs associated with
the implementation of the 1995 OTEF Restructuring Plan, and
acquire New Assets. Except as discussed below and as otherwise
required in connection with the implementation of the 1995 OTEF
Restructuring Plan, OTEF II has no commitments for capital
expenditures.
As of September 30, 1997, OTEF II held approximately $36
million in cash and cash equivalents, an increase of $24
million, or approximately 200%, from the $12 million in cash and
cash equivalents held as of December 31, 1996. This increase in
OTEF II's cash and cash equivalents was primarily the result of
the $27 million of net proceeds generated from the financing
transaction described above which are being held for investment
by OTEF II in accordance with the Liquidity and Growth Plan.
This increase was partially offset by approximately $2.96
million paid by OTEF II on July 31, 1997 to redeem 5,484 SQBs
pursuant to its obligation under the Optional Sale Plan discussed
above and a $0.9 million advance to plaintiff's counsel made in
connection with the settlement of the OTEF II litigation
described in the 1996 Annual Report.
Total liabilities of OTEF II shown on the balance sheet
increased to approximately $34 million as of September 30, 1997
from $7 million at December 31, 1996. This increase is
attributed to the financing transaction described above, and the
4% increase in quarterly distributions made by OTEF II.
Existing MRBs. As of September 30, 1997, OTEF II held
Existing MRBs for two of the Operating Partnerships. It is
expected that the refunding of at least one of the Operating
Partnership's Existing MRBs will close during the balance of 1997
or early 1998.
Refunding Bonds
Series A Bonds. The term of each Refunding Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding. The Series A Bonds require interest only payments
during the first three years and, thereafter, are subject to
annual sinking fund redemptions that will result in full
amortization of the Series A Bonds during the 27-year remaining
term.
Series A Bond Interest and Principal. The Series A Bonds
require pre-determined annual sinking fund redemptions based on a
27-year amortization schedule beginning in the fourth year,
calculated with an assumed rate of interest of 5.6% per year.
Series A Bond interest was set initially at closing of the
<PAGE> 10
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
refundings and generally resets annually at a market rate based
upon a percentage of the then prevailing one-year U.S. Treasury
Bill rate, with a maximum rate of 5.6% per annum. The initial
interest rate on the Series A Bonds that have been issued to date
is 4.9%. All required interest payments have been made on the
Refunding Bonds, including accrued interest for September 1997
that was paid in October 1997. Upon a remarketing, the Series A
Bonds may be converted to a different interest rate mode (fixed
or floating) and the interest rates may be modified at that time
to reflect the prevailing market interest rates for whatever rate
mode and remaining term is then applicable. In connection with
the financing described under "Recent Developments", the Managing
General Partner elected to convert the interest rate payable on
four respective Series A Bonds to a floating rate in accordance
with the terms of the Series A trust indentures.
Series B Bonds. The term of each Series B Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding.
Series B Bond Interest and Principal. The Series B Bonds
accrue interest equal to the product of the Combined Rate (as
defined below) multiplied by the total combined principal balance
of the Series A Bonds and the Series B Bonds for each Operating
Partnership, less the interest payable on the related Series A
Bonds; the resulting amount of interest divided by the principal
balance of the Series B Bonds equals the interest accrual rate on
the Series B Bonds. Interest-only is payable on the Series B
Bonds to the extent of available cash flow of the Operating
Partnership, with the entire principal balance and any unpaid
interest due at maturity.
Combined Rate. The Combined Rate represents that portion of
each Property's projected Cash Flow Before Debt Service ("CFBDS")
for each year (projected at the time of the refunding of each
Existing MRB) that may be applied to interest on the combined
Series A Bonds and Series B Bonds. The Combined Rates of the
Refunding Bonds for the next 10 years were included in the Notes
to Financial Statements in the 1996 Annual Report.
Other Sources. In connection with the closing of the Refunding
Bonds, the applicable Operating Partnerships entered into
certain pooling agreements which may provide under certain
circumstances additional sources of funds to enable them to pay
their respective debt service on the Series A Bonds and the
Series B Bonds and related fees and expenses. As of September 30,
1997, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $0.95 million,
including deposits from September's cash flow.
Oxford Advances. In September 1997, Oxford funded $0.1 million
to Colonel I from the proceeds of the Treasury Strip Bond, which
has been discussed in previous reports, that it continues to hold
from August 15, 1996. At September 30, 1997, Oxford was holding
approximately $1.1 million of such proceeds, plus approximately
<PAGE> 11
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
$0.2 million in accrued interest, in an interest-bearing account
pending a determination as to which Operating Partnerships these
funds should be allocated. This allocation will be based on the
individual refunding costs and reserve requirements of the
Operating Partnerships. Since August 15, 1996, approximately $0.9
million of these proceeds were advanced to certain Operating
Partnerships' based on their individual bond refunding costs and
property improvement needs.
Results of Operations
OTEF II's Operations
OTEF II Distributions. Distributions to Partners will amount
to approximately $3.7 million, or $0.495 per Liquidity BAC and
$12.38 per SQB holders of record as of September 30, 1997. SQB
holders that were redeemed on July 31, 1997, will receive a
distribution which will amount to one-third of the quarterly SQB
distribution.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income and Net Income per OTEF II Liquidity BACs
was $4.0 million and $0.529, respectively, for the three-month
period ended September 30, 1997, as compared to $4.2 million and
$0.554, respectively, for the three-month period ended September
30, 1996. The decrease in NOI is the result of costs associated
with the implementation of the Liquidity & Growth Plan that were
not incurred in the prior comparative period.
OTEF II's Nine-Month Operations. For financial statement
purposes, Net Income and Net Income per OTEF II Liquidity BAC
were $12.6 million and $1.651, respectively, for the nine-month
period ended September 30, 1997, as compared to $12.7 million and
$1.659, respectively, for the nine-month period ended September
30, 1996. The decrease in NOI is the result of costs associated
with the implementation of the Liquidity & Growth Plan that were
not incurred in the prior comparative period.
Operating Partnership Operations.
The ability of the Operating Partnerships to pay scheduled
debt service on the Refunding Bonds to OTEF II depends on their
operating performance. The operating performance of each of the
Operating Partnerships depends primarily on occupancy and rental
rates, the amount of rent actually collected and expenditures for
property improvements and operating expenses for their respective
Properties. The occupancy and rental rates, in turn, depend on a
number of factors, including the location of a Property in its
particular community, local economic conditions and changes in
neighborhood characteristics, demand for similar housing, and
competition from existing and future housing complexes in the
vicinity of each Property.
<PAGE> 12
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Report of Management
- -----------------------------------------------------------------
The Operating Partnerships' Three-Month Operations. The
Operating Partnerships reported an aggregate net operating income
before property improvements of approximately $5.8 million for
the three-month period ended September 30, 1997, representing an
increase of approximately $0.3 million, or 5.7%, over the
aggregate net operating income before property improvements
reported for the same period in 1996. In addition, for the three-
month period ended September 30, 1997, overall property
improvement expenditures were approximately $1.0 million,
representing an increase of approximately $0.2 million, or 23%,
as compared to the same period in 1996.
The Operating Partnerships' Nine-Month Operations. The
Operating Partnerships reported an aggregate net operating income
before property improvements of approximately $17.1 million for
the nine-month period ended September 30, 1997, representing an
increase of approximately $1.1 million, or 6.6%, over the
aggregate net operating income before property improvements
reported for the same period in 1996. In addition, for the nine-
month period ended September 30, 1997, overall property
improvement expenditures were approximately $2.1 million,
representing an increase of approximately $0.4 million, or 25%,
as compared to the same period in 1996.
<PAGE> 13
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------
Balance Sheets (in thousands)
- -----------------------------------------------------------------
<CAPTION>
September 30, 1997 December 31, 1996
(Unaudited)
- -----------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $185,420 $215,529
Securities held in Trust 38,820 0
Cash and cash equivalents 36,000 12,072
Interest receivable and other 2,795 1,132
- -----------------------------------------------------------------
Total Assets $263,035 $228,733
=================================================================
Liabilities and Partners'Capital
Liabilities
Accounts payable and
accrued expenses $ 3,024 $ 3,321
Financing debt 27,174 0
Distributions payable 3,742 3,643
- -----------------------------------------------------------------
Total Liabilities 33,940 6,964
- -----------------------------------------------------------------
Partners' Capital
General Partners' Interests (2,362) (2,393)
Limited Partners' Interests:
Beneficial Assignee Interests
(7,499,875 <F1> interests issued
and 7,185,200 interests
outstanding as of
September 30, 1997) 156,373 161,665
Status Quo BAC Interests
(12,587 interests issued
as of April 1, 1997,
7,103 interests outstanding
as of September 30, 1997) 3,876 0
Unrealized Gain on Investments 71,208 62,497
- -----------------------------------------------------------------
Total Partners' Capital 229,095 221,769
- -----------------------------------------------------------------
Total Liabilities and
Partners' Capital $263,035 $228,733
=================================================================
<FN>
<F1> Prior periods Liquidity BAC interests have been restated to
reflect the 25 for 1 split which occurred on July 1, 1997.
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 14
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------
Statements of Income (in thousands, except per Interest amounts)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on Bonds $4,387 $4,684 $13,621 $13,879
Interest on Securities
held in Trust 202 0 202 0
Other 187 87 391 256
- -----------------------------------------------------------------
Total Revenues 4,776 4,771 14,214 14,135
- -----------------------------------------------------------------
Expenses
Governance and
administrative expenses (188) (534) (889) (1,435)
Liquidity and growth
expenses (435) 0 (582) 0
Interest expense (139) 0 (139) 0
- ------------------------------------------------------------------
Total Expenses (762) (534) (1,610) (1,435)
- ------------------------------------------------------------------
Net income $4,014 $4,237 $12,604 $12,700
==================================================================
Net income per Liquidity
BAC <F1> $ .529 $ .554 $ 1.651 $ 1.659
==================================================================
Distribution per Liquidity
BAC <F1> $ .495 $ .476 $ 1.447 $ 1.428
==================================================================
<FN>
<F1> Prior periods Liquidity BAC interest amounts have been
restated to reflect the 25 for 1 stock split which occurred
on July 1, 1997 and amounts presented are after allocation
of net income to General Partners and Status Quo BAC
holders. (See Note 3 for the SQB Statement of Income).
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
Limited Partners'
Interests
--------------------
Beneficial Status Unrealized
General Assignee Quo BAC Gain on
Partners Interests Interests Investments Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $(2,393) $161,665 $ 0 $62,497 $221,769
- -----------------------------------------------------------------------------
Net Income 85 4,181 0 0 4,266
Distributions payable to
Partners (73) (3,570) 0 0 (3,643)
Unrealized Gain on
Investments 0 0 0 2,387 2,387
- -----------------------------------------------------------------------------
Balance, March 31, 1997 $(2,381) $162,276 $ 0 $64,884 $224,779
(Unaudited)
- -----------------------------------------------------------------------------
Allocation of Status Quo
BAC ("SQB") Capital 0 (6,809) 6,809 0 0
Net Income, including
$.565 per Liquidity BAC
and $14.54 per SQB 86 4,055 183 0 4,324
Distributions payable to
Partners, including $.476
per Liquidity BAC and
$11.90 per SQB (73) (3,420) (150) 0 (3,643)
Unrealized Gain on
Investments 0 0 0 2,996 2,996
- -----------------------------------------------------------------------------
Balance, June 30, 1997 $(2,368) $156,102 $6,842 $67,880 $228,456
(Unaudited)
- -----------------------------------------------------------------------------
SQB Redemption 0 26 (2,987) 0 (2,961)
Net Income, including $.529
per Liquidity BAC and
$14.78 per SQB 80 3,802 132 0 4,014
Distributions payable to
Partners including $.495
per Liquidity BAC and
$12.38 per SQB (74) (3,557) (111) 0 (3,742)
Unrealized Gain on
Investments 0 0 0 3,328 3,328
- -----------------------------------------------------------------------------
Balance, September 30, 1997 $(2,362) $156,373 $3,876 $71,208 $229,095
(Unaudited)
=============================================================================
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 16
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------
Statements of Cash Flows (in thousands)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Nine months ended
September 30,
------------------------
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $12,604 $12,700
Adjustments to reconcile net
income to net cash provided
by operating activities:
Changes in assets and liabilities:
Interest receivable and other (1,663) 307
Accounts payable and accrued expenses (297) 243
- -----------------------------------------------------------------
Net cash provided by operating activities 10,644 13,250
- -----------------------------------------------------------------
Investing Activities
Redemption of SQB interests (2,961) 0
- -----------------------------------------------------------------
Net cash used in investing activities (2,961) 0
- -----------------------------------------------------------------
Financing activities
Net proceeds from debt refinancing 27,174 0
Distributions paid (10,929) (10,929)
- -----------------------------------------------------------------
Net cash provided (used) by financing
activities 16,245 (10,929)
- -----------------------------------------------------------------
Net increase in cash and cash equivalents 23,928 2,321
Cash and cash equivalents, beginning
of period 12,072 9,698
- -----------------------------------------------------------------
Cash and cash equivalents, end of period $36,000 $12,019
=================================================================
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE> 17
- -----------------------------------------------------------------
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 ("OTEF II" or the "Partnership"), are
necessary to present fairly OTEF II's financial position as of
September 30, 1997 and December 31, 1996, the Statements of
Income for the three- and nine-month periods ended September 30,
1997 and 1996, the Statement of Partners' Capital as of September
30, 1997, and the Statements of Cash Flows for the nine-month
periods ended September 30, 1997 and 1996, and the notes thereto,
in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the audited
financial statements and notes included in the Partnership's
Annual Report for the year ended December 31, 1996.
In February 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which will change the reporting of earnings
per share effective in the fourth quarter of 1997. Basic
earnings per share, a measure required by the new standard, will
not include stock options as common stock equivalents. The new
standard also requires a company to report diluted earnings per
share.
Note 2. Business
The Partnership was formed under the laws of the State of
Maryland in February, 1995, in connection with a plan (the "1995
OTEF Restructuring Plan") to restructure Oxford Tax Exempt Fund
Limited Partnership, a Maryland limited partnership ("OTEF,
"Predecessor," or "OTEF II's predecessor"). Oxford Tax Exempt
Fund II Corporation, a Maryland corporation, is the Managing
General Partner of OTEF II (the "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").
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 of OTEF II are required to report on their
<PAGE> 18
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
individual tax returns their allocable share of taxable income,
gains, losses, deductions, and credits of OTEF II.
Valuation of Bonds. The Managing General Partner estimated at
September 30, 1997 that the fair value of the 12 Series A and
Series B Bonds and the two Existing MRBs was approximately $224.2
million and, accordingly, OTEF II recorded a credit to Partners'
Capital in an amount equal to approximately $71.2 million of
unrealized gain on investments. This represents an increase of
approximately $8.7 million since December 31, 1996. The
Managing General Partner determined these values 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.
The Series A Bonds are valued at par based on comparable
municipal bond securities, and all other bonds (the Existing MRBs
and the Series B Bonds) are valued based on a discounted cash
flow analysis. For this purpose, 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.
Net Income and Distributions per Beneficial Assignee Interest
(BAC) and SQB. Net income and distributions per BAC and net
income and distributions per Status Quo BAC ("SQB") are based
upon the weighted average number of BACs and SQBs outstanding
during the applicable year. For the first quarter of 1997 there
were 7,499,875 BACs outstanding. On April 1, 1997, 314,675 BACs
were converted to 12,587 SQBs, leaving 7,185,200 Liquidity BACs
outstanding at September 30, 1997. Of the 12,587 SQBs as of
April 1, 1997, 5,484 were redeemed on July 31, 1997, leaving
7,103 SQBs outstanding at September 30, 1997.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity
during the reporting period. 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
during such period, including distributions payable to Partners,
SQB Holders, and OTEF II BAC Holders of approximately $3.74
million at September 30, 1997 and $3.64 million at September 30,
1996.
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.
Accounting for Status Quo Interests. The SQBs are designed to
replicate, to the extent possible, the economic interest that the
holders of the SQBs (the "Status Quo BAC Holders") would have had
in the Existing MRBs, as refunded, if the partnership agreement
for Oxford Tax Exempt Fund Limited Partnership ("OTEF"), OTEF
II's predecessor, had continued to govern and the Liquidity and
Growth Plan was not implemented.
<PAGE> 19
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Approximately 4.2% of the OTEF II BAC holders made a timely
election to convert their OTEF II BACs to SQBs. Effective
April 1, 1997, OTEF II issued the SQBs, representing 12,587
shares, in uncertificated, book-entry form. Effective July 31,
1997, OTEF II redeemed 5,484 SQBs for approximately $2.96
million. The redeemed SQB Holders will receive a prorated amount
of the distribution that was declared for the quarter ended
September 30, 1997, payable on November 14, 1997.
For financial statement purposes, the SQBs are treated as a
separate class of security and, accordingly, net income allocated
to SQB holders, net income per SQB, and distribution per SQB are
reflected separately from the OTEF II BAC Holders on the
Statement of Partners' Capital. The SQBs were not split as were
the OTEF II BACs on July 1, 1997. The redeemed SQBs are
reflected as a reduction of Partners' Capital and were offset
against the SQB Holders'interests when redeemed on August 1,1997.
The SQB Holders do not share in the growth or other benefits
expected to be achieved under the Liquidity and Growth Plan. In
addition, the SQBs will not be allocated any capital losses for
federal income tax purposes that may result from the disposition
of the Refunding Bonds or interests therein or new assets in
connection with a financing undertaken pursuant to the Liquidity
and Growth Plan. A schedule of SQB income as of September 30,
1997 is as follows:
<TABLE>
- -----------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME (in thousands, except per
interest amounts) (Unaudited)
- -----------------------------------------------------------------
<CAPTION> Three Months Six Months
Ended Ended <F1>
--------------------------
September 30, 1997
- -----------------------------------------------------------------
<S> <C> <C>
Revenues
Interest on Bonds $ 134 $ 325
Other Interest 3 7
- -----------------------------------------------------------------
$ 137 $ 332
Expenses
Governance and
Administration (5) (17)
- -----------------------------------------------------------------
Net income allocated to SQB holders $ 132 $ 315
=================================================================
Net income per SQB interest $14.78 $29.28
=================================================================
Distribution per SQB interest $12.38 $24.28
=================================================================
<FN>
<F1> Status Quo BACs were issued on April 1, 1997.
</FN>
</TABLE>
<PAGE> 20
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
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's cash flow and possibly of sale,
refinancing and liquidation proceeds. Distributions to the
General Partners totaled approximately $74,000 for September 30,
1997 and $73,000 for the same period in 1996.
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 Existing MRBs are refunded, all cash flow attributable
to these interests will be pledged for the benefit of OTEF II
relative to the repayment of the Refunding Bonds and all interest
thereon.
Compensation and Fees. For the nine-month periods ended
September 30, 1997 and 1996, the Operating Partnerships paid
total property and asset management fees of approximately $1.83
million and $1.76 million, respectively. Of the $1.83 million of
property and asset management fees, $1.36 million was paid to
NHP, Inc. and certain affiliates (collectively, "NHP"), as
compared to $1.31 million for the same period in 1996. The
remaining fees totaling approximately $0.47 million were paid to
Oxford Realty Financial Group, Inc. ("ORFG"), as compared to
$0.45 million for the same period in 1996. During the nine-month
periods ended September 30, 1997 and 1996, the Operating
Partnerships also paid ORFG, in the aggregate, approximately $0.5
million of fees pursuant to the OTEF Restructuring Plan
Administration/Asset Management Fee Agreement, which amount is
equal to 0.25% per annum of the principal amount of the bonds
collateralized by the properties owned by the Operating
Partnerships.
ORFG will provide additional services in connection with
OTEF II's investment in new assets ("New Assets"). ORFG will be
entitled to an acquisition fee of 1-2.5% of the purchase price
(depending on the type of transaction) for finding, analyzing and
acquiring New Assets, which is payable on the closing of any
transaction in which OTEF II acquires a New Asset. OTEF II also
will pay ORFG an annual advisory fee equal to 0.5% of the
purchase price for managing OTEF II's New Assets after their
acquisition. OTEF II did not pay any acquisition or advisory fees
to ORFG during the quarter ended September 30, 1997.
Expense Reimbursements. The Operating Partnerships and OTEF
II also reimburse ORFG for certain expenses it incurs in
providing services with respect to (i) the Existing Mortgaged
Properties, (ii) the investment in New Assets, (iii) the sale or
<PAGE> 21
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
disposition of the Refunding Bonds, and (iv) the administration
of OTEF II's affairs. Total reimbursements to the General
Partners and their affiliates for the nine-month periods ended
September 30, 1997 and 1996, were approximately $0.33 million
($0.13 million amount is in Liquidity & Growth expenses) and
$0.09 million, respectively. Such reimbursable amount is
determined based on the actual time the officers and employees
devote to OTEF II based upon their respective salaries.
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "Incentive Option Plan") in order for
the Managing General Partner to attract and retain key employees
and advisers. The Incentive Option Plan authorizes the granting
to the directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase 652,125
OTEF II BACs (on a post-split basis), representing approximately
8.3% of the outstanding OTEF II BACs on a fully diluted basis.
Such options are exercisable for 10 years. The Managing General
Partner has awarded all of the OTEF II BACs authorized under the
terms of the Incentive Option Plan. Of the 652,125 options,
613,000 were fully vested upon issuance and 39,125 are vested
equally over 3 years commencing January 1, 1998. The exercise
price for all options is $23.88 per BAC. As of September 30,
1997, assuming the fully vested options were exercised on
September 30, 1997 at $26.31 per OTEF II Liquidity BAC, the
compensation expense is approximately $1.5 million, which amount
is being amortized over the life of the options in accordance
with the Statement of Financial Accounts Standards No. 123. As
of September 30, 1997 approximately $37,500 has been charged to
Liquidity and Growth expenses for such compensation expense.
Note 5. Subsequent Events.
On November 14, 1997, the Managing General Partner paid a
$0.495 per Liquidity BAC and $12.38 per SQB distribution to
holders of record as of September 30, 1997. The Status Quo BAC
holders whose SQBs were redeemed on July 31, 1997, received a
distribution of $4.13 per SQB, which amounted to one-third of the
quarterly SQB distribution.
<PAGE> 22
- -----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs or SQBs
- -----------------------------------------------------------------
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF. Please follow
the instructions below to expedite the reregistration or transfer
of ownership of any OTEF II BACs or Status Quo BACs ("SQB") that
you may own.
* IF YOU DO NOT HOLD CERTIFICATES
Your shares are being held by your brokerage firm in "street
name". To register a change of ownership of OTEF II BACs held
in such accounts, please have your account representative or
financial consultant request the necessary transfer documents.
YOU MUST HAVE THE PROPER TRANSFER DOCUMENTS FROM YOUR
BROKERAGE FIRM. Additionally, please contact your account
representative or financial consultant for address changes.
* IF YOU HOLD CERTIFICATES
Effective July 1, 1997, OTEF II appointed Registrar and
Transfer Company ("R&T") as the sole registrar and transfer
agent with respect to the OTEF II BACs and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed
to:
Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, filed with the Securities and Exchange
Commission, is available to SQB and OTEF II BAC Holders and
may be obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Balance Sheet at September 30, 1997 (Unaudited) and the
Statements of Income for the nine months ended September 30, 1997
(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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 36,000
<SECURITIES> 224,240
<RECEIVABLES> 2,795
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 263,035
<CURRENT-LIABILITIES> 33,940
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 229,095
<TOTAL-LIABILITY-AND-EQUITY> 263,035
<SALES> 0
<TOTAL-REVENUES> 14,214
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,604
<EPS-PRIMARY> 1.651
<EPS-DILUTED> 1.651
</TABLE>
