<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 (not Status Quo BACs)
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 August 1, 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"), 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 12 through 15 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 six-month period ended June 30, 1997 is
incorporated herein by reference to sequentially numbered pages
6 through 11 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 June 30, 1997, follows on
sequentially numbered pages 5 through 21 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: 8/14/97 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: 8/14/97 By: /S/ Francis P. Lavin
------- ------------------------------------------
Francis P. Lavin
Director and President
Date: 8/14/97 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)
June 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
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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 June 30, 1997, 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
OTEF II is continuing to implement its new business plan (the
"Liquidity and Growth Plan"). Material developments that
occurred since our last report are discussed below.
Status Quo BACs. Approximately 4.2% of the OTEF II BAC
Holders made a timely election to convert their OTEF II BACs to
Status Quo BACs ("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 Status Quo BAC 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 $2,961,360.
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 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. No split was effectuated
for the SQBs.
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
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. As of June 30, 1997, OTEF II had
refunded 12 of the existing mortgage revenue bonds ("Existing
MRBs"), which comprise approximately 87.5% of OTEF II's
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 $5,383,000 as of June 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 a financing, pursuant
<PAGE> 7
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Report of Management
- -----------------------------------------------------------------
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 this financing
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 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)
in the future growth and increase in value of the properties
financed by such bonds.
Liquidity and Capital Resources
Current Position. OTEF II uses the interest payments it
receives from the Refunding Bonds and Existing MRBs to make
periodic cash distributions to its General Partners, OTEF II BAC
Holders and SQB Holders, and to pay administrative expenses and
fund reserves, as well as the costs associated with the
implementation of the 1995 OTEF Restructuring Plan. 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. A distribution for the
quarter ended June 30, 1997, in the amount of $3,642,796, or
$.476 per BAC ($11.90 per BAC on a pre-split basis), and $11.90
per SQB was made on August 14, 1997. This distribution is
consistent with the distributions made for the previous nine
quarters.
As of June 30, 1997, OTEF II held $12,628,000 in cash and cash
equivalents, an increase of $556,000, or approximately 4.6%, from
$12,072,000 in cash and cash equivalents held as of December 31,
<PAGE> 8
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Report of Management
- -----------------------------------------------------------------
1996. This increase in OTEF II's cash and cash equivalents
represents the amount by which interest payments received by OTEF
II from its investments in the Existing MRBs and the Refunding
Bonds exceeds the sum of the administrative, governance,
litigation costs associated with the implementation of the 1995
OTEF Restructuring Plan and distributions to Partners which were
paid during the six-month period ended June 30, 1997.
The total liabilities of OTEF II shown on the Balance Sheet
decreased to $6,814,000 as of June 30, 1997, from
$6,964,000 at December 31, 1996. Neither amount
includes the redemption price of $2,961,360 paid by OTEF II on
July 31, 1997 to redeem 5,484 SQBs pursuant to its obligations
under the Optional Sale Plan discussed above. Also, in
connection with the settlement of the OTEF II Litigation
described in the 1996 Annual Report, OTEF II has agreed to pay
$2.5 million of fees and expenses incurred by plaintiffs'
counsel. This amount is included in the total liabilities
reported at December 31, 1996 and June 30, 1997. It is
anticipated that one-half of this amount will be paid by OTEF II
in the near future upon the execution and delivery of certain
agreements by and among the parties; the balance will be paid in
accordance with the terms of the settlement
stipulation approved by the court.
Existing MRBs. As of June 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 two remaining Existing MRBs
will close during 1997.
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 is set initially at closing of the
refundings and reset 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 June 1997 that
was paid in July 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
<PAGE> 9
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Report of Management
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mode and remaining term is then applicable. In connection with
the financing described under "Recent Developments", the
Managing General Partner anticipates that certain of the
Operating Partnerships will elect to convert the interest rate
payable on their 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 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
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 each
Refunding Bond, the applicable Operating Partnership will enter
into certain agreements which provide as follows: (i) for so long
as the Series A Bonds remain outstanding, each Operating
Partnership will apply its net operating income before payment of
interest and principal on its Series B Bonds to make loans to the
Operating Partnerships for the payment of interest and principal,
and related fees and expenses, reserves and deposits owed by such
Operating Partnerships on their respective Series A Bonds to the
extent the other Operating Partnerships are unable to make such
payments on their respective Series A Bonds, and (ii) for so long
as OTEF II owns the majority of the Series B Bonds relating to an
Operating Partnership's property and the Managing General Partner
of OTEF II is an affiliate of the current Managing General
Partner, the Operating Partnerships will each deposit into an
escrow account any excess cash flow on a monthly basis after the
obligations described in subparagraph (i) above have been met and
the payments required under that Operating Partnership's Series B
Bonds have been made, which funds shall be applied at OTEF II's
discretion to, among other things, make loans to other Operating
Partnerships to enable them to make all debt service payments due
on their Series B Bonds. As of June 30, 1997, the aggregate
amount of net excess cash flow held in the Operating Partnership
escrows was approximately $635,000, including deposits from
June's cash flow.
<PAGE> 10
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Report of Management
- -----------------------------------------------------------------
Oxford Advances. As discussed in prior reports, Oxford is
continuing to hold proceeds from the $2 million Treasury Strip
Bond that it received on August 15, 1996. At June 30, 1997,
Oxford was holding approximately $1.2 million of such proceeds,
plus approximately $187,000 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 $800,000 of these proceeds were advanced to
certain Operating Partnerships' based on their individual
refunding costs.
Results of Operations
The Partnerships' Operations
Distributions. Distributions to Partners amounted to
$3,642,796, or $.476 per OTEF II BAC ($11.90 per OTEF II BAC on a
pre-split basis) and $11.90 per SQB to holders of record as of
June 30, 1997. This distribution is consistent with the
distribution made for the previous nine quarters.
The Partnerships' Three-Month Operations. For financial
statement purposes, Net Income and Net Income for the combined
OTEF II BACs and SQBs ("Interests") were $4,324,000 and $14.12,
respectively, for the three-month period ended June 30, 1997, as
compared to $4,390,000 and $14.34, respectively, for the three-
month period ended June 30, 1996. Net Income allocable to the
OTEF II BAC Holders and Net Income per OTEF II BAC was $4,055,000
and $14.12, respectively (on a pre-split basis), for the three-
month period ended June 30, 1997. Net Income allocable to the SQB
Holders and Net Income per SQB were $183,000 and $14.54,
respectively, for the three-month period ended June 30, 1997.
The Partnerships' Six-Month Operations. For financial
statement purposes, Net Income and Net Income per Interest were
$8,590,000 and $28.06, respectively, for the six-month period
ended June 30, 1997, as compared to $8,463,000 and $27.65,
respectively, for the six-month period ended June 30, 1996. Net
Income allocable to the OTEF II BAC Holders and Net Income per
OTEF II BAC was $8,236,000 and $28.06, respectively (on a pre-
split basis), for the six-month period ended June 30, 1997. Net
Income allocable to the SQB Holders and Net Income per SQB were
$183,000 and $14.54, respectively for the six-month period ended
June 30, 1997.
As announced in the Information Memorandum, the Managing
General Partner currently anticipates that the amount of the
quarterly distribution payable to the OTEF II BAC Holders and the
SQB Holders will be increased by approximately 4% later in 1997
following implementation of the Liquidity and Growth Plan. Of
course, future distributions (and any increases in the
distributions per BAC) are always subject to the ability of the
Operating Partnerships to make their scheduled debt service
payments on the Refunding Bonds and Existing MRBs, which, in
<PAGE> 11
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Report of Management
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turn, depends on the results of future operations of their
properties and on the aggregate amount in the excess cash flow
escrows.
The Operating Partnerships' Operations
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.
The Operating Partnerships' Three-Month Operations. The
Operating Partnerships reported an aggregate net operating income
before property improvements of approximately $5,651,000 for the
three-month period ended June 30, 1997, representing an increase
of approximately $381,000, or 7.3%, over the aggregate net
operating income before property improvements reported for the
same period in 1996. In addition, for the three-month period
ended June 30, 1997, overall property improvement expenditures
were approximately $652,000, representing an increase of
approximately $180,000, or 38.1%, as compared to the same period
in 1996.
The Operating Partnerships' Six-Month Operations. The
Operating Partnerships reported an aggregate net operating income
before property improvements of approximately $11,227,000 for the
six-month period ended June 30, 1997, representing an increase of
approximately $733,000, or 7.0%, over the aggregate net operating
income before property improvements reported for the same period
in 1996. In addition, for the six-month period ended June 30,
1997, overall property improvement expenditures were
approximately $1,119,000, representing an increase of
approximately $238,000, or 27.0%, as compared to the same period
in 1996.
<PAGE> 12
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
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Balance Sheets (in thousands)
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<CAPTION>
June 30, 1997
(Unaudited) December 31, 1996
- -----------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $220,912 $215,529
Cash and cash equivalents 12,628 12,072
Bond interest receivable 1,323 1,099
Other 407 33
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Total Assets $235,270 $228,733
=================================================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued
expenses $ 3,171 $ 3,321
Distributions payable 3,643 3,643
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Total Liabilities 6,814 6,964
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Partners' Capital
General Partners' Interests (2,368) (2,393)
Limited Partners' Interests:
Beneficial Assignee Interests
(299,995 interests issued and
outstanding as of December 31,
1996 and 287,408 interests
outstanding as of June 30, 1997) 156,102 161,665
Status Quo BAC Interests (12,587
interests issued) 6,842 0
Unrealized Gain on Investments 67,880 62,497
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Total Partners' Capital 228,456 221,769
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Total Liabilities and
Partners' Capital $235,270 $228,733
=================================================================
The accompanying notes are an integral part of
these financial statements.
</TABLE>
<PAGE> 13
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------
Statements of Income (in thousands, except per Interest amounts)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
1997 1996 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on Bonds $4,629 $4,593 $9,234 $9,195
Other 113 84 204 169
- -----------------------------------------------------------------
4,742 4,677 9,438 9,364
Expenses
Governance and
administrative expenses (291) (287) (721) (901)
Liquidity and growth
expenses (127) 0 (127) 0
- -----------------------------------------------------------------
Net income $4,324 $4,390 $8,590 $8,463
=================================================================
Net income allocated to
General Partners $ 86 $ 88 $ 171 $ 169
=================================================================
Net income allocated to
OTEF II BAC and SQB
Holders $4,238 $4,302 $8,419 $8,294
=================================================================
Net income per Interest $14.12 $14.34 $28.06 $27.65
=================================================================
Distribution per Interest $11.90 $11.90 $23.80 $23.80
=================================================================
The accompanying notes are an integral part of
these financial statements.
</TABLE>
<PAGE> 14
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 at $13.94 per BAC 85 4,181 0 0 4,266
Distributions payable to
Partners, Including $11.90
per BAC (73) (3,570) 0 0 (3,643)
Unrealized Gain on Investments 0 0 0 2,387 2,387
- ------------------------------------------------------------------------------
Balance, March 31, 1997
(Unaudited) (2,381) 162,276 0 64,884 224,779
- ------------------------------------------------------------------------------
Allocation of Status
Quo BAC Capital 0 (6,809) 6,809 0 0
Net Income, including $14.12
per BAC and $14.54 per SQB 86 4,055 183 0 4,324
Distributions payable to
Partners, including $11.90
per 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
(Unaudited) $(2,368) $156,102 $6,842 $67,880 $228,456
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------
Statements of Cash Flows (in thousands)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
For the six months
ended June 30,
------------------
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 8,590 $ 8,463
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in assets and liabilities:
Bond interest receivable (224) 0
Other (374) 307
Accounts payable and accrued expenses (150) 104
- -----------------------------------------------------------------
Net cash provided by operating activities 7,842 8,874
- -----------------------------------------------------------------
Net cash provided by investing activities 0 0
- -----------------------------------------------------------------
Financing activities
Distributions paid (7,286) (7,286)
- -----------------------------------------------------------------
Net cash used by financing activities (7,286) (7,286)
- -----------------------------------------------------------------
Net increase in cash and cash equivalents 556 1,588
Cash and cash equivalents, beginning of period 12,072 9,698
- -----------------------------------------------------------------
Cash and cash equivalents, end of period $12,628 $11,286
=================================================================
The accompanying notes are an integral part of
these financial statements.
</TABLE>
<PAGE> 16
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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 June 30, 1997 and December 31, 1996, the Statements of Income
for the three- and six-month periods ended June 30, 1997 and
1996, the Statement of Partners' Capital as of June 30, 1997,
and the Statements of Cash Flows for the six-month
period ended June 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 on February 9, 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.
<PAGE> 17
- -------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------
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
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
June 30, 1997 that the fair value of the 12 Series A and Series B
Bonds and the two Existing MRBs was approximately $220,912,000
and, accordingly, OTEF II recorded a credit to Partners' Capital
in an amount equal to approximately $67,880,000 of unrealized
gain on investments. This represents an increase of
approximately $5,383,000 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.
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 $3,642,796 at June 30,
1997 and 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> 18
- -------------------------------------------------------------------
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 $2,961,360. The redeemed SQB Holders
will receive their respective distribution for the quarter ended
June 30, 1997, payable on August 14, 1997, and a prorated amount
of any distribution that may be 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 will be
reflected as a reduction of Partners' Capital and will be offset
against the SQB Holders' interests when redeemed.
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.
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 $72,856 for June 30, 1997 and 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.
Compensation and Fees. For the six-month periods ended June
30, 1997 and 1996, the Operating Partnerships paid total property
and asset management fees of $1,194,000 and $1,149,000,
respectively. Of the $1,194,000 of property and asset
management fees, $891,000 was paid to NHP, Inc. and certain
affiliates (collectively, "NHP"), as compared to $858,000 for
the same period in 1996. The remaining fees totaling $303,000
were paid to Oxford Realty Financial Group, Inc. ("ORFG"), as
compared to $291,000 for the same period in 1996. During the
<PAGE> 19
- -------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------
six-month periods ended June 30, 1997 and 1996, the Operating
Partnerships also paid ORFG, in the aggregate, $348,000 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"), as OTEF II
did not pay any fees in connection with OTEF II's investment in
new assets to ORFG during the quarter ended June 30, 1997;
however, it is anticipated that OTEF II will pay such fees in the
near future.
The paragraphs below describe the New Asset Fees:
Acquisition Fee. ORFG will be entitled to an acquisition fee
for finding, analyzing and acquiring New Assets. The acquisition
fee, which is payable on the closing of any transaction in which
OTEF II acquires a New Asset, is equal to 1.0% of (i) the
purchase price paid by OTEF II for the New Asset, or (ii) with
respect to a New Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by OTEF II
for its subordinated interest and (B) the principal amount of the
senior interest, if any; provided, however, that no acquisition
fee shall be paid with respect to the principal amount of any
such senior interest if OTEF II has not purchased the senior
interest and neither the Managing General Partner nor any of its
affiliates had any material involvement in the negotiation,
structuring or closing of the purchase of the senior interest.
In the case of a New Asset which is subordinated in payment to
senior indebtedness as of the closing of the transaction in which
OTEF II acquires its interest, the maximum acquisition fee
payable shall be equal to 2.5% of the purchase price paid by
OTEF II for such interest as of the date of closing.
Advisory Fee. OTEF II also will pay ORFG an advisory fee for
managing OTEF II's New Assets after their acquisition. The
advisory fee, which is payable annually, is equal to 0.5% of (i)
the purchase price paid by OTEF II for a New Asset, or (ii) with
respect to a New Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by OTEF II
for its subordinated interest and (B) the principal amount of the
senior interest; provided, however, that if an affiliate of the
Managing General Partner is receiving fees for property
management services pursuant to a property management agreement
entered into with the owner of an Additional Mortgaged Property,
the advisory fee will be equal to 0.5% of the purchase price paid
by OTEF II for the related New Asset. In addition, if the
Managing General Partner receives in any year compensation or
fees from an unaffiliated person that serves as the property
manager for the Additional Mortgaged Property, the amount of the
advisory fee payable with respect to the related New Asset shall
be reduced by 50% of any such compensation or fees received by
the Managing General Partner.
<PAGE> 20
- -------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------
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
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 six-month periods ended
June 30, 1997 and 1996, were $117,000 and $37,000, 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 9% of the outstanding OTEF II BACs. The Managing
General Partner has awarded all of the OTEF II BACs authorized
under the terms of the Incentive Option Plan. The exercise price
per BAC is the average of the closing price of an OTEF II BAC, as
reported on the American Stock Exchange, for the first twenty
days of trading. As of the date of this report, no valuation
could be determined for these options.
Note 5. Subsequent Events.
On July 1, 1997, the Managing General Partner of OTEF II
declared a 25-for-1 split of the OTEF II BACs for BAC Holders of
record as of June 30, 1997. Subsequent to the split, OTEF II
issued new certificates to all OTEF II BAC Holders whose OTEF II
BACs were not held by a brokerage firm in street name. These
actions did not affect the SQB Holders.
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF.
On July 25, a distribution was declared for the second quarter
of 1997 of $.476 per BAC (which reflects the 25-for-1 split that
occurred earlier this year), and $11.90 per SQB. These
distributions are payable to holders of record on June 30, 1997,
and were paid on August 14, 1997. These distributions are
consistent with the amounts paid for the last nine quarters.
On July 31, 1997, OTEF II redeemed 5,484 SQBs at a total cost
of $2,961,360.
<PAGE> 21
- -----------------------------------------------------------------
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 transfer 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 TO
EFFECT A TRANSFER. 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
Attn: Robert Boyle
Stock Transfer Department
1-800-368-5948, extension 2529
* GENERAL INFORMATION
-------------------
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services whose telephone number has
changed to 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended June
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 June 30, 1997 (Unaudited) and the Statements of Income
for the six months ended June 30, 1997 (Unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,628
<SECURITIES> 220,912
<RECEIVABLES> 1,730
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 235,270
<CURRENT-LIABILITIES> 6,814
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 228,456
<TOTAL-LIABILITY-AND-EQUITY> 235,270
<SALES> 0
<TOTAL-REVENUES> 9,438
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,590
<EPS-PRIMARY> 28.06
<EPS-DILUTED> 28.06
</TABLE>
