<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
-----------------
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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: NONE
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 ___.
---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405) is not
contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X].
The Beneficial Assignee Interests of limited partnership interest
of the Partnership (the "OTEF II BACs") are not currently being
traded in any public market. Therefore, the OTEF II BACs had
neither a market selling price nor an average bid or asked price
within the 60 days prior to the date of this filing.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the Registrant are
incorporated herein by reference as indicated:
Form 10-K Parts Document
- ----------------------------------------------------------------
Parts I, II and III Portions of the 1996 Annual Report are
incorporated by reference into Parts I, II
and III.
Exhibit Index is on page 9.
Total number of pages 51.
<PAGE> 2
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART I
Item 1. Business.
Information responsive to this Item is contained under the
headings "Description of Mortgaged Properties" and "Notes to
Financial Statements" at pages 13 through 17, and 32 through 47,
respectively, of the 1996 Annual Report of the Registrant
attached hereto as Exhibit 13 which is incorporated herein by
reference.
Item 2. Properties.
Information responsive to this Item is contained under the
heading "Description of Mortgaged Properties" at pages 13
through 17 in the 1996 Annual Report of the Registrant which is
incorporated herein by reference.
Item 3. Legal Proceedings.
Information responsive to this Item is contained under the
headings "Report of Management" at pages 18 through 26, and
"Notes to Financial Statements" at pages 32 through 47 of the
1996 Annual Report which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market the Registrant's Partnership Interests and
Related Partnership Matters.
(a) Market Information.
There is currently no established public market in which
the OTEF II BACs are traded; however, as described under
the heading "Report of Management" at pages 18 through 26
of the 1996 Annual Report, OTEF II intends to list the
OTEF II BACs for trading on a national securities exchange
in the near future.
(b) Number of Security Holders.
The number of BAC Holders at December 31, 1996 was
15,678.
(c) Dividend History and Restrictions.
The information regarding the frequency and amount of
cash distributions is included under the headings "Selected
Financial Data" at page 12 of the 1996 Annual Report,
"Report of Management" at pages 18 through 26, "Notes
to Financial Statements" at pages 32 through 47, and
"Distribution Information" at pages 48 and 49 of the 1996
Annual Report. The information contained under such
headings is incorporated herein by reference.
The Partnership expects to continue making cash
distributions to Partners pursuant to the provisions of its
limited partnership agreement.
Item 6. Selected Financial Data.
Information responsive to this Item is contained under the
heading "Selected Financial Data," included at page 12 of the
1996 Annual Report which is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Information responsive to this Item is contained under the
heading "Report of Management" at pages 18 through 26 of the
1996 Annual Report which is incorporated herein by reference.
<PAGE> 3
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART II (continued)
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Partnership, together with the
report thereon of Coopers & Lybrand L.L.P., independent
accountants, appearing at pages 27 through 47 of the 1996
Annual Report which are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a), (b), (c) and (e).
The Partnership has no directors or officers. The
Managing General Partner of the Partnership is Oxford Tax
Exempt Fund II Corporation. The sole directors and
executive officers of the Managing General Partner are as
follows:
Name Age Position and Business Experience
- ------------------------------------------------------------------
Leo E. Zickler 60 Chairman of the Board of Directors and
Chief Executive Officer since inception
and was Chairman and Chief Executive
Officer of the managing general partner
of Oxford Tax Exempt Fund Limited
Partnership, OTEF II's predecessor
("OTEF"). Since March 1982 he has been
Chairman of the Board of Directors and
Chief Executive Officer of Oxford
Development Corporation ("Oxford"), an
affiliate of the Partnership and a
national real estate firm that owns and
operates apartment and senior living
communities. Mr. Zickler served as
President of Oxford until February 28,
1994. Mr. Zickler continues to serve as
a director and officer of Oxford and
certain affiliated entities.
Francis P. Lavin 45 President since inception and President
of OTEF's managing general partner since
March 1, 1994. From October 1989
through January 1994, he was a Director
and President of ML Oxford Finance
Corporation, an affiliate of Merrill
Lynch & Company, Inc. From 1979 to
October 1989, Mr. Lavin held various
positions at subsidiaries of Merrill
Lynch & Company including Director of
Merrill Lynch Capital Markets and Vice
President of Merrill Lynch, Hubbard Inc.
Since March 1, 1994, Mr. Lavin has
served as President of Oxford, as well
as a director and officer of certain
affiliated entities.
Robert B. Downing 42 Executive Vice President and Director of
the Managing General Partner since
inception. Mr. Downing joined Oxford in
1984 as Vice President of Acquisitions.
He assumed the position of Senior Vice
President of Acquisitions in 1986 where
he was responsible for acquiring and
financing multi-family properties on
behalf of public, private and
institutional investment funds. From
1987 to 1993, he was responsible for
numerous debt and equity restructuring
transactions, including Oxford's
corporate recapitalization (including
the sale of Oxford's property management
business) in 1993. Currently
Mr. Downing heads Oxford's merchant
banking group which is responsible for
Oxford's real estate investment and
capital market activities.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Name Age Position and Business Experience
- ------------------------------------------------------------------
Richard R. Singleton 49 Senior Vice President since inception
and Chief Financial Officer since 1995.
He was Vice President of Oxford Mortgage
& Investment Corporation since 1979 and
was promoted to Senior Vice President in
1983. In addition, he was Chief
Operating Officer of OTEF's managing
general partner since 1990 and was
promoted to Chief Financial Officer in
1995. Formerly, he held positions as
Tax Manager with Arthur Andersen &
Company. Mr. Singleton also serves as
an officer of Oxford and certain
affiliated entities.
(d) Family Relationships. None.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Controlling Persons. Not applicable.
Item 11. Executive Compensation.
(a), (b), (c), and (d)
None of the directors or executive officers of the
Managing General Partner, Oxford Tax Exempt Fund II
Corporation, receives direct compensation for services
rendered to the Partnership. However, certain directors and
officers receive a portion of the cash distributions made
by OTEF II to its general partners.
OTEF II intends to adopt 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 will authorize the granting to the
directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase
approximately 26,000 OTEF II BACs (prior to any division of
the OTEF II BACs in connection with listing the OTEF II BACs
on a national securities exchange), which will represent
approximately 8.3% of the outstanding OTEF II BACs (assuming
approximately 13,000 OTEF II BACs are converted into Status
Quo BACs ["SQBs"]), as described under the heading "Report
of Management-Status Quo BACs" at page 18 of the 1996 Annual
Report.
The Managing General Partner anticipates that options to
purchase all or substantially all of the OTEF II BACs offered
pursuant to the Incentive Option Plan will be granted prior
to the effective date of listing of the OTEF II BACs for
trading, in which case the option price is expected to be the
average of the closing prices of the OTEF II BACs as reported
on the exchange on which the OTEF II BACs are listed for the
first 20 days of trading. The option price for any other
options to purchase OTEF II BACs issued under the Incentive
Option Plan is expected to be 100% of the OTEF II BACs' fair
market value at the date of grant.
(e) Termination of Employment and Change of Control
Arrangements. None.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
No person is known by the Partnership to own
beneficially more than 5% of the outstanding OTEF II BACs.
(b) Security Ownership of Management.
No director or officer of the Managing General Partner
is known to beneficially own any OTEF II BACs.
(c) Changes in Control. None.
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Item 13. Certain Relationships and Related Transactions.
(a) and (b) Transactions with Management and Others and
Certain Business Relationships.
Information responsive to this Item is contained under
the heading "Notes to Financial Statements" at pages 34 to 36
of the 1996 Annual Report of the Registrant which is
incorporated herein by reference.
(c) Indebtedness of Management. None.
(d) Transactions with Promoters. Not applicable.
PART IV
Item 14. Exhibits, Financia Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this Report.
1. Financial Statements.
The following financial statements and notes thereto
are contained in the 1996 Annual Report and are
incorporated by reference into Part II, Item 8.
Sequentially
Numbered
Page(s)
Report of Independent Accountants. 27
Balance Sheets as of December 31, 28
1996 and 1995.
Statements of Income for the year
ended December 31, 1996 for
OTEF II; for the year ended
December 31, 1995 (Pro Forma-
Unaudited) for OTEF II; for the
seven months ended December 31,
1995 for OTEF II; for the five
months ended May 31, 1995 for
OTEF; and for the year ended
December 31, 1994 for OTEF. 29
Statement of Partners' Capital
for the years ended December 31,
1996 and 1995 for OTEF II; and
December 31, 1994 for OTEF. 30
Statements of Cash Flows for the
year ended December 31, 1996 for
OTEF II; for the seven months
ended December 31, 1995 for
OTEF II; for the five months
ended May 31, 1995 for OTEF; and
for the year ended December 31,
1994 for OTEF. 31
Notes to Financial Statements,
which include the information
required to be included in
Schedule IV - Mortgage Loans on
Real Estate. 32-47
<PAGE> 6
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART IV (continued)
2. Financial Statement Schedules.
All other financial statement schedules are
omitted because they are inapplicable or because the
required information is included in the financial
statements or notes thereto.
3. Exhibits (listed according to the number assigned
assigned in the table in Item 601 of Regulation S-K).
Exhibit No. 3 - Articles of Incorporation and Bylaws.
a. Articles of Incorporation for OTEF II
Corporation (incorporated by reference from
Exhibit 3(a) to the Registrant's Registration
Statement on Form 10 dated February 22, 1995).
b. Bylaws for OTEF II Corporation
(incorporated by reference from Exhibit 3(b) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
c. Articles of Incorporation of OTEF II
Assignor Corporation (incorporated by reference from
Exhibit 3(c) to the Registrant's Registration
Statement on Form 10 dated February 22, 1995).
d. Bylaws of OTEF II Assignor Corporation
(incorporated by reference from Exhibit 3(d) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
Exhibit No. 4 - Instruments defining the
rights of security holders, including indentures.
a. Certificate of Limited Partnership of
Oxford Tax Exempt Fund II Limited Partnership
(incorporated by reference from Exhibit No. 4(a) to
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
b. Agreement of Limited Partnership of
Oxford Tax Exempt Fund II Limited Partnership
(incorporated by reference from Exhibit 4(b) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
c. Amendment to the Certificate of Limited
Partnership of Oxford Tax Exempt Fund II Limited
Partnership (incorporated by reference from Exhibit
4(c) to the Registrant's Registration Statement on
Form 10 dated February 22, 1995).
d. First Amendment to the Agreement of
Limited Partnership of Oxford Tax Exempt Fund II
Limited Partnership (incorporated by reference from
Exhibit 4(d) to the Registrant's Registration
Statement on Form 10 dated February 22, 1995).
e. Form of Amended and Restated
Certificate and Agreement of Limited Partnership of
Oxford Tax Exempt Fund II Limited Partnership
(incorporated by reference from Exhibit 4(e) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
f. Second Amended and Restated Agreement
of Limited Partnership of Oxford Tax Exempt Fund II
Limited Partnership (incorporated by reference from
Exhibit 4(f) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.)
<PAGE> 7
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART IV (continued)
Exhibit No. 10 - Material contracts.
a. Amended and Restated Yield Maintenance
Reserve Agreement dated as of August 1, 1988.
b. Form of BAC Holder Rights Agreement.
c. Trust Indenture and Loan Agreement for
Southridge-Oxford Limited Partnership.
d. Stipulation of Settlement filed with
the U.S. District Court for the District of Maryland
on November 18, 1996.
Exhibit No. 13 - Annual report to security
holders, etc.
a. Annual Report for the year ended
December 31, 1996, ("filed" only to the extent
material therefrom is specifically incorporated by
reference).
(b) Reports on Form 8-K.
Form 8-K was filed with the Commission on December 6, 1996
to report the refunding of seven of the 15 existing tax-
exempt mortgage revenue bonds ("Existing MRBs") and the
preliminary approval, on November 21, 1996, of the
settlement between OTEF II and certain of its affiliates as
defendants and the class of BAC Holders as plaintiffs in
putative class and derivative lawsuits consolidated as In
re Oxford Tax Exempt Fund Securities Litigation, No. WMN 95-
3643 (D.Md.).
Information responsive to this Item is contained under the
headings "Report of Management" at pages 18 through 26,
and "Notes to Financial Statements" at pages 32 through
47 of the 1996 Annual Report which is incorporated herein
by reference.
No financial statements were filed as part of
this Form 8-K.
(c) The list of Exhibits required by Item 601 of
regulation S-K is included in Item 14(a)(3) above.
(d) Financial Statement Schedules.
See Item 14(a)(2) above.
<PAGE> 8
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
CROSS REFERENCE SHEET
The item numbers and captions in Parts I, II, III, and IV
hereof and the page and/or pages in the referenced materials
where the corresponding information appears are as follows:
Sequenti
ally
Item Reference Materials Numbered
Page(s)
1. Business 1996 Annual Report pps 13-17 and
32-47
2. Properties 1996 Annual Report pps 13-17
3. Legal Proceedings 1996 Annual Report pps 18-26 and
32-47
5. Market for Registrant's 1996 Annual Report pps 12, 18-26 and
Partnership Interest and 32-49
Related Matters
6. Selected Financial Data 1996 Annual Report pp 12
7. Management's Discussion 1996 Annual Report pps 18-26
and Analysis of Financial
Condition and Results of
Operations
8. Financial Statements and 1996 Annual Report pps 27-47
Supplementary Data
11. Executive Compensation 1996 Annual Report pp 36
14. Exhibits, Financial 1996 Annual Report pps 27-47
Schedules and Reports on
Form 8-K
<PAGE> 9
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(13) 1996 Annual Report to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Report dated
December 31, 1996, follows on sequentially numbered pages 10
through 51 of this report.
(27) Financial Data Schedule.
<PAGE> 10
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
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: 04/15/97 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: 04/15/97 By: /s/ Leo E. Zickler
-------- -----------------------------------------
Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 04/15/97 By: /s/ Francis P. Lavin
-------- ----------------------------------------
Francis P. Lavin
Director and President
Date: 04/15/97 By: /s/ Robert B. Downing
-------- ----------------------------------------
Robert B. Downing
Director and Executive Vice President
No proxy material has been sent to the Registrant's security
holders. The Partnership's 1996 Annual Report is expected to be
mailed to OTEF II BAC Holders before May 15, 1997.
<PAGE> 11
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
1996 Annual Report
CONTENTS
Selected Financial Data
Description of Mortgaged Properties
Report of Management
Report of Independent Accountants
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Distribution Information
General Partnership Information
Instructions for Investors who wish to reregister or
transfer OTEF II BACs
<PAGE> 12
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
Selected Financial Data (in thousands)
- --------------------------------------------------------------------------||----------------------------------------------
<CAPTION> ||
||
(Unaudited) ||
PRO FORMA<F13> OTEF II<F12> || OTEF<F2>
For the For the Seven months ||----------------------------------------------
year ended year ended ended || Five months For the Years Ended December 31,
December 31, December 31, December 31, || ended |--------------------------------
FINANCIAL HIGHLIGHTS<F1> 1996 1995 1995 ||May 31, 1995 | 1994 1993 1992
- --------------------------------------------------------------------------||-------------|--------------------------------
<S> <C> <C> <C> || <C> | <C> <C> <C>
Total Assets $228,733 $174,034 $174,034 || $163,856 | $168,568 $178,372 $189,537
Investment in Existing MRBS $ 48,705 $164,000 $164,000 || $153,032 | $158,599 $173,321 $184,734
Investment in Series A Bonds $ 96,919 $ 0 $ 0 || $ 0 | $ 0 $ 0 $ 0
Investment in Series B Bonds $ 69,905 $ 0 $ 0 || $ 0 | $ 0 $ 0 $ 0
Total Revenue $ 19,762 $ 16,626 $ 9,610 || $ 2,452 | $ 4,137 $ 2,651 $ 2,097
Net Income $ 14,912 $ 15,210 $ 8,369 || $ 2,277 | $ 3,727 $ 2,246 $ 1,664
Net Income Allocated to BAC Holders $ 14,614 $ 14,906 $ 8,202 || $ 2,232 | $ 3,652 $ 2,201 $ 1,631
Net Income per BAC $ 48.71 $ 49.69 $ 27.34 || $ 7.44 | $ 12.17 $ 7.34 $ 5.44
Municipal Income (Tax Basis) $ 14,644 $ 16,210 $ 8,369 || $ 7,841 | $ 16,911 $ 13,211 $ 12,786
Municipal Income Allocated to BAC || |
Holders (Tax Basis) $ 14,351 $ 15,886 $ 8,202 || $ 7,687 | $ 16,573 $ 12,946 $ 12,530
Municipal Income per BAC (Tax Basis) $ 47.84 $ 52.96 $ 27.34 || 25.62 | 55.24 43.16 41.77
Cash Distributions per BAC 47.60<F9> 47.60<F8> 35.70<F7>|| 11.90<F6>| 45.00<F5> 44.07<F4> 42.52<F3>
OTEF II BACs Outstanding 299,995 299,995 299,995 || 299,995 | 299,995 299,995 299,995
Number of BAC Holders 15,678 15,061 15,061 || 15,249 | 15,359 15,585 15,746
- --------------------------------------------------------------------------||-------------|--------------------------------
<FN>
<F1> A reconciliation of the major differences between financial statement income and municipal income, net for tax
purposes, is as follows: ||
||
(Unaudited) ||
PRO FORMA<F13> OTEF II<F12> || OTEF<F2>
For the For the Seven months || ---------------------------------------------
year ended year ended ended || Five months For the Years Ended December 31,
RECONCILIATION TO December 31, December 31, December 31, || Ended |--------------------------------
MUNICIPAL INCOME 1996 1995 1995 ||May 31, 1995 | 1994 1993 1992
- --------------------------------------------------------------------------||-------------|--------------------------------
Net Income per financial || |
statements (GAAP) $14,912 $16,210 $8,369 || $2,227 | $ 3,726 $ 2,246 $ 1,664
Add: || |
Equity method adjustments: || |
--Equity Income<F10> 0 0 0 || (2,305) | (3,949) (2,597) (2,038)
--Interest received<F11> 0 0 0 || 7,869 | 18,591 13,562 13,482
Accrued base interest/- || |
(reduction)/other (268)<F14> 0 0 || 0 | (1,457) 0 (322)
- --------------------------------------------------------------------------||-------------|--------------------------------
Municipal income, || |
net for tax reporting purposes $14,644 $16,210 $8,369 || $7,841 | $16,911 $13,211 $12,786
- --------------------------------------------------------------------------||-------------|--------------------------------
<F2> Prior to June 1, 1995, OTEF accounted for its investment in the
Operating Partnerships under the equity method, which treated interest paid
by the Operating Partnerships as a reduction in its investment, and also
recorded as an increase or reduction in its investment its equity interest
in the aggregate income or losses of the Operating Partnerships.
<F3> Includes quarterly distributions of $10.32 per BAC distributed in May
of 1992, $10.63 in August and November of 1992, and $10.94 in February of
1993.
<F4> Includes quarterly distributions of $10.94 per BAC distributed in May,
August and November of 1993, and $11.25 in February of 1994.
<F5> Includes quarterly distributions of $11.25 per BAC distributed in May,
August and November of 1994, and $11.25 in February of 1995.
<F6> Includes quarterly distributions of $11.90 per BAC distributed in May
of 1995.
<F7> Includes quarterly distributions of $11.90 per BAC distributed in
August and November of 1995, and $11.90 in February of 1996.
<F8> Includes quarterly distributions of $11.90 per BAC distributed in May,
August and November of 1995, and $11.90 in February of 1996.
<F9> Includes quarterly distributions of $11.90 per BAC distributed in May,
August and November of 1996, and $11.90 in February of 1997.
<F10>Represents OTEF's share of the Operating Partnerships' annual
financial statement income recognized while under the equity method.
<F11>Under the equity method, all interest income received on the Existing
MRBs is treated as a reduction of the bond investment amount.
<F12>Effective on June 1, 1995, with the transfers of all units of OTEF to
OTEF II, OTEF II began accounting for its investments in Existing MRBs in
accordance with Statement of Financial Accounting Standards No. 115-
Accounting for Certain Investments in Debt and Equity Securities ("SFAS No.
115"), as more fully described in the Notes to Financial Statements. For
federal income tax purposes, OTEF II is considered a continued entity.
<F13>The pro forma financial information reflects the adoption of SFAS No.
115 as of January 1, 1995. Although Pro Forma Total Revenue and Net Income
is shown without $1 million in nonrecurring Oxford advances made to the
Operating Partnerships which used these funds to pay OTEF in January 1995,
for purposes of Reconciliation to Municipal Income, the Net Income per
financial statements (GAAP) does reflect the $1 million paid to OTEF in
January 1995.
<F14>For 1996 represents (i) for GAAP purposes, payment of legal fees in
connection with the settlement of the class action suit totaling $2.5
million expensed in 1996, which will not be reflected for tax purposes
until 1997; (ii) a portion of the Partnership's expenses, for GAAP
purposes, totaling approximately $1,012,000 that was not expensed in 1996
for tax purposes; and (iii) write-off of prior years' tax accrual totaling
$3,780,000.
</FN>
</TABLE>
<PAGE> 13
- -----------------------------------------------------------------
DESCRIPTION OF MORTGAGED PROPERTIES
- -----------------------------------------------------------------
The following pages contain brief descriptions of the 14
Mortgaged Properties. Unless otherwise indicated, information
provided herein is as of December 31, 1996.
Chesapeake Landing, Aurora, Illinois (Fox Valley Oxford Limited
Partnership).
Chesapeake Landing is a 416-unit garden apartment community on
20 acres located 35 miles west of downtown Chicago and within 30
minutes of O'Hare International Airport. The Fox Valley Regional
Mall is located directly across from Chesapeake Landing.
Construction was completed in June 1987. Aurora is the second
largest city in the Chicago metropolitan area. The apartment
community consists of 17 buildings, including 15 two- and three-
story buildings, a clubhouse, and a maintenance building. Each
unit has a private balcony or patio, a full-size washer and
dryer, and cable television hook-up. Amenities include a heated
swimming pool, clubhouse, indoor exercise facilities, tennis and
racquetball courts, a volleyball court, sauna, Jacuzzi,
fireplaces in selected units, and carports and garages.
Occupancy was 88% and 89% as of December 31, 1996 and 1995,
respectively.
There are approximately eight multifamily rental communities
containing an aggregate of approximately 3,000 units located
within five miles of the site. Average occupancy at these
communities was approximately 89% as of December 31, 1996. One
of these communities is contiguous to Chesapeake Landing and is
owned by an Oxford-affiliated partnership. Chesapeake Landing
and the contiguous community share all of the facilities owned by
both communities. Construction is underway at four multifamily
sites, all within five miles of Chesapeake Landing. There is a
planned development for at least six other multifamily
communities in the Aurora/Naperville area, all within 8-10 miles
of Chesapeake Landing.
Island Club, Columbia, Maryland (Allview Oxford Limited
Partnership).
Island Club is a 176-unit garden apartment community in
Columbia, Maryland, which is part of the Baltimore-Washington
corridor. Construction was completed in March 1987. Island Club
is situated on 10 acres and consists of seven two- and three-
story apartment buildings and a clubhouse. Buildings are garden
style with lapped 100% cedar siding exterior. Each unit has a
private balcony or patio, individually controlled heating and air
conditioning, and a washer and dryer. Some units contain wood-
burning fireplaces or bay windows. Amenities include a swimming
pool, clubhouse, exercise room, Jacuzzi, tot lots, carports, and
a sauna. Occupancy was 92% and 96% as of December 31, 1996 and
1995, respectively.
There are approximately 8,400 multifamily units in Columbia.
Average occupancy at these communities was approximately 90% as
of December 31, 1996. There are no known rental communities
under construction in the Island Club market area.
Northwoods, Middletown, Connecticut (Middletown Oxford Limited
Partnership).
Northwoods is a 336-unit garden apartment community located
adjacent to Interstate 91, approximately five miles from the
central business district of the City of Middletown and 13 miles
from downtown Hartford. Construction was completed in July 1987.
Northwoods consists of 13 three-story apartment buildings
situated on approximately 17 acres. Each apartment unit has a
private balcony or patio, a washer and dryer, and cable
television hook-up. Additional amenities include a heated
swimming pool, clubhouse, exercise room, sauna, whirlpool bath,
and carports. Rent premiums are charged for wood-burning
fireplaces, carports, bay windows, and pets. Occupancy was 97%
and 91% as of December 31, 1996 and 1995, respectively.
There are four comparable multifamily rental communities
containing an aggregate of approximately 998 units located within
one mile of Northwoods. Occupancy at these communities was
approximately 92% as of December 31, 1996. There are no known
rental communities under construction in the Northwoods market
area.
<PAGE> 14
Reflections, Virginia Beach, Virginia (Tidewater
Oxford Limited Partnership).
Reflections is a 480-unit garden apartment community located
within one mile of the Virginia Beach Expressway and two miles
from the 1.2 million square foot Lynnhaven Mall. Construction
was completed in September 1987. Reflections, situated on
approximately 50 acres, consists of 17 two- and three-story
buildings and a clubhouse, all of wood frame construction. Each
unit has a private balcony or patio, washer and dryer hook-up
connections, and cable television hook-up. Amenities include a
swimming pool, a clubhouse with an exercise room, two racquetball
courts, whirlpool bath, a jogging path, three tennis courts, a
volleyball court, a gazebo, a barbecue pit, and a picnic area.
Rent premiums are charged for bay windows, scenic views,
carports, garages, and wood-burning fireplaces. Occupancy was
89% and 93% as of December 31, 1996 and 1995, respectively.
There are nine comparable multifamily rental communities
containing an aggregate of approximately 2,900 apartment units
located in Virginia Beach within a five-mile radius of the site,
including Runaway Bay, which is owned by an affiliate of Oxford.
Average occupancy at these communities was approximately 93% as
of December 31, 1996. There are no known rental communities under
construction in the Reflections market area.
San Bruno, San Bruno, California (San Bruno
Oxford Limited Partnership).
San Bruno is a 308-unit garden apartment community on 13 acres
in San Mateo County, 14 miles south of downtown San Francisco and
three miles northwest of the San Francisco Airport. San Bruno
has excellent access to freeways and retail and commercial
infrastructure. The property's location provides good views of
the bay and ocean. Construction was completed in July 1987. San
Bruno consists of 16 buildings, including 14 two- and three-story
apartment buildings, a clubhouse, and a maintenance building.
Each unit has a private balcony or patio, intrusion alarms, frost-
free refrigerators, dishwashers, self-cleaning ovens, and washer
and dryer hook-ups. Top-floor units have fireplaces. Amenities
include a swimming pool, spa, tanning bed, sauna, exercise
facility, community laundry rooms, private storage, and enclosed
parking. Small pets are accepted. Occupancy was 99% and 97% as
of December 31, 1996 and 1995, respectively.
There are eight multifamily rental communities, containing an
aggregate of approximately 3,260 units, located within six miles
of San Bruno. Average occupancy at these communities was
approximately 98% as of December 31, 1996. The average age of
the apartments in the area is 22-27 years. There are no known
rental communities under construction in the San Bruno market
area.
Hunt Club, Austin, Texas (Travis One Oxford Limited Partnership).
Hunt Club is a 384-unit garden apartment community on 17 acres
located 12 miles north of the City of Austin and within eight
miles of a major shopping mall. Construction was completed in
March 1987. Three employment centers are located less than four
miles from the site. The community consists of 23 two- and three-
story buildings and a clubhouse and cabana, all of wood
frame/brick veneer construction. Each unit has a balcony or
patio, washer and dryer, and cable television hook-up. Various
units contain wood-burning fireplaces, coffered ceilings with
fan, bay windows, and microwave ovens. Amenities include two
swimming pools, indoor Jacuzzi and outdoor spa, fully-equipped
fitness room, two saunas, two tennis courts, carports, garages,
and two racquetball courts. Occupancy was 86% and 95% as of
December 31, 1996 and 1995, respectively.
There are eight comparable multifamily rental communities
containing an aggregate of approximately 2,387 units located
within three miles of Hunt Club. As of December 31, 1996, the
average occupancy at these communities was approximately 90%.
Additionally, a 512-unit rental community and a 260-unit rental
community are under construction less than four miles from Hunt
Club.
<PAGE> 15
Savannah Trace, Schaumburg, Illinois (Schaumburg
Oxford Limited Partnership).
Savannah Trace is a 368-unit garden apartment community located
on 28 acres in southwest Schaumburg. Construction was completed
in July 1987. Woodfield Mall, one of the world's largest
enclosed shopping centers (2.2 million square feet), is 15
minutes to the north. The community consists of 34 two-story
apartment buildings and a clubhouse. Each unit has a private
balcony or patio, washer and dryer, and cable television hook-up.
Amenities include a heated swimming pool, clubhouse, billiards
room, and two tennis courts. Occupancy was 89% and 92% as of
December 31, 1996 and 1995, respectively.
There are seven multifamily rental communities containing an
aggregate of approximately 3,000 units located within eight miles
of Savannah Trace. Average occupancy at these communities was
approximately 90% at December 31, 1996. There are no known
rental communities under construction in the Savannah Trace
market area.
The Harbour, Melbourne, Florida (Apollo
Oxford Associates Limited Partnership).
The Harbour is a 162-unit garden apartment community located
approximately one and one-half miles from downtown Melbourne.
Construction was completed in April 1987. This property is
situated on 29 acres of wooded property and features 2,500 feet
of frontage on the Eau Gallie River Intercoastal Waterway. The
Harbour consists of eight two- and three-story apartment
buildings. Each unit has a private screened-in balcony or patio,
a washer and dryer, individually controlled heating and air
conditioning, and cable television hook-up. Amenities include a
clubhouse, a swimming pool, tennis courts, a cabana, a volleyball
court, boat ramp, exercise facility, and a Jacuzzi. Occupancy
was 93% and 98% as of December 31, 1996 and 1995, respectively.
There are 13 comparable multifamily rental communities
containing an aggregate of approximately 3,000 units located
within 11 miles of the site. As of December 31, 1996, average
occupancy at these communities was approximately 90%. One of
these communities is contiguous to The Harbour and is owned by an
Oxford-affiliated partnership. The Harbour and the contiguous
community each have a right to share some of the facilities owned
by the other community. Additionally, a 216-unit rental
community is under construction 13 miles from The Harbour. This
project is scheduled to break ground in early 1997 in the North
Melbourne area.
Windsor Park, Westridge, Virginia (Westridge Oxford Limited
Partnership).
Windsor Park is a 220-unit garden apartment community on
approximately 16 acres in eastern Prince William County,
Virginia. Construction was completed in May 1987. The property,
located off Route 123 in the planned residential community of
Westridge, is three miles west of Woodbridge and approximately 15
miles south of Washington, D.C. Windsor Park consists of 12 two-
and three-story buildings and a clubhouse, all of wood frame
construction. Each unit has a private balcony or patio, a washer
and dryer, vertical or mini-blinds, and cable television hook-up.
Various units contain wood-burning fireplaces and bay windows.
Amenities include a swimming pool, indoor Jacuzzi, a clubhouse
with an exercise room, a lounge, a racquetball court, a
volleyball court, a picnic area with designated barbecue areas, a
tot lot for children, and a car wash area with vacuum. Occupancy
was 95% as of December 31, 1996 and 1995.
There are seven comparable multifamily rental communities
containing an aggregate of approximately 2,100 units located
within 10 miles of Windsor Park. One of these communities is
contiguous to Windsor Park and is owned by an Oxford-affiliated
partnership. Windsor Park and the contiguous community each have
a right to share some of the facilities owned by the other
community. As of December 31, 1996, the average occupancy in the
market area was approximately 96%. Two communities are currently
under construction. Summerland Heights is a 206-unit tax credit
property that is scheduled to open in April 1997. This community
will offer one-, two- and three-bedroom apartments at affordable
prices. River Run, a new senior living community that is also a
tax credit property, will offer one and two bedroom apartments.
This property is scheduled to open in May 1997.
<PAGE> 16
Windrift at Seaview Ridge, Oceanside, California (Southridge
Oxford Limited Partnership).
Windrift at Seaview Ridge is a 404-unit garden apartment
community on 27 acres located approximately 35 miles north of the
San Diego International Airport and 12 miles east of downtown
Oceanside. Construction was completed in November 1987.
Windrift at Seaview Ridge consists of 40 two-story apartment
buildings, one clubhouse, and three cabanas. Each unit has a
private balcony or patio, washer and dryer hook-ups, dishwasher,
outside storage, one assigned covered parking space, and cable
television hook-up. Amenities include two swimming pools,
exercise room with dry sauna, two racquetball courts, one tennis
court, and three Jacuzzis. Occupancy was 98% as of December 31,
1996 and 1995.
There are 19 comparable multifamily rental communities
containing an aggregate of approximately 4,700 units located
within six miles of Windrift at Seaview Ridge. Average occupancy
of these communities was approximately 97% as of December 31,
1996. There are no known rental communities under construction in
the Windrift at Seaview Ridge market area.
Chambrel at Club Hill Senior Living Community, Garland, Texas
(Colonel I Oxford Limited Partnership).
Chambrel at Club Hill Senior Living Community is a 260-unit
retirement community on 16 acres located approximately 10 miles
northeast of downtown Dallas. Construction was completed in
early 1988. Each independent unit has a fully equipped kitchen,
a balcony or patio, and a 24-hour emergency response system. The
community offers food services, scheduled transportation
services, utilities, flat laundry services, housekeeping, and
various social activities. The community building, which is
connected to the residential buildings by covered walkways,
provides a focal point for dining, exercise classes, and wellness
and fitness programs. Amenities include a swimming pool, heated
indoor whirlpool bath, covered walking paths, an arts and crafts
activity center, a music room, a library, a physical therapy and
fitness room, and a barber/beauty shop. Occupancy was 89% and
91% as of December 31, 1996 and 1995, respectively.
There are 10 retirement communities, containing an aggregate
of approximately 1,600 units, located within 10 miles of Chambrel
at Club Hill. Average occupancy at these communities was in
excess of 90% as of December 31, 1996. There are no known rental
communities under construction in the Chambrel at Club Hill
market area.
Chambrel at PineCastle Senior Living Community, Ocala, Florida
(Ocala Oxford Limited Partnership).
Chambrel at PineCastle Senior Living Community is a 161-unit
retirement community constructed on 14 acres located 80 miles
northwest of Orlando, Florida, and three miles from downtown
Ocala. Construction was completed in March 1987. Three full-
care nursing home facilities, two hospitals, and numerous
doctors' offices are located within two miles of the community.
Each independent unit has a fully equipped kitchen, individually
controlled heating and air conditioning, and an emergency
response system. The community offers food services in a
community dining room, scheduled transportation services, and
various social activities. First-floor units have sliding glass
patio doors and patio entries. Assisted Living units have a
range with an oven, refrigerator, garbage disposal, 50%
independent temperature control and 50% shared temperature
control. Amenities include a swimming pool, spa and exercise
room with a whirlpool bath, a shuffleboard court, walking trails,
laundry facilities, game rooms, arts and crafts rooms, library,
and a beauty salon. Occupancy was 94% as of December 31, 1996
and 1995.
There are 12 nursing and assisted living retirement
communities containing an aggregate of approximately 1,200 units
located within 12 miles of Chambrel at PineCastle. Average
occupancy at these communities was in excess of 89% as of
December 31, 1996. Sterling House is under construction and
located one-half mile east of Chambrel at Pine Castle. It will
have 42 assisted living facility units and is scheduled to open
in May 1997.
<PAGE> 17
Chambrel at Williamsburg Senior Living Community, Williamsburg,
Virginia (Williamsburg - Oxford Limited Partnership).
Chambrel at Williamsburg Senior Living Community is a 256-unit
retirement community constructed on 58 acres in James City
County. Construction was completed in November 1987. The
property is located one and one-half miles west of Colonial
Williamsburg, across the street from a community hospital,
nursing home, clinic, and doctors' offices. Each unit has a
fully equipped kitchen, a balcony or patio, individually
controlled heating and air conditioning, and an emergency
response system. Amenities and programs include food services,
scheduled transportation services and social programs, a library,
parlors, health suites, craft and exercise rooms, a Jacuzzi, a
barber/beauty shop, a swimming pool, gardens, and a walking
trail. Chambrel at Williamsburg offers three styles of living:
independent, enriched and assisted. Occupancy was 97% and 92% as
of December 31, 1996 and 1995, respectively.
The other existing retirement community in the immediate area
is at an occupancy of 100%. Five other competitive retirement
communities are located in Newport News, Hampton, Virginia Beach
and Richmond. The average occupancy at these communities as of
December 31, 1996 was approximately 94%. There are no known
rental communities under construction in the Chambrel at
Williamsburg's market area.
Chambrel at Montrose Senior Living Community, Copley Township,
Ohio (Akron One Retirement Oxford Limited Partnership).
Chambrel at Montrose Senior Living Community is a 168-unit
retirement community located in northwest Akron, Ohio, adjacent
to Fairlawn, an upper income suburb of Akron. Construction was
completed in April 1987. The community is centrally located and
offers easy access to public transportation, several shopping
centers, churches, restaurants, and medical offices. Chambrel at
Montrose consists of one building situated on a nine-acre site.
Each unit has a fully equipped kitchen and individual heating and
air conditioning controls. The large two-bedroom, two-bath
deluxe units have an in-apartment utility room with washer and
dryer hook-up. Balconies are featured in some units.
Independent Living rental payments include one meal each day in
the community dining room, all utilities except telephone, flat
laundry and housekeeping services, and an emergency response
system. Additional meals and laundry services are available at
additional cost. The community has a library, an arts and crafts
room, a community room, a barber/beauty shop, greenhouse,
exercise and sauna facilities, scheduled transportation,
concierge services, and cable television hook-up. Occupancy was
99% and 83% as of December 31, 1996 and 1995, respectively.
There are three comparable retirement communities containing
an aggregate of approximately 500 units in the market area.
Average occupancy of these communities was approximately 98% as
of December 31, 1996. Copeland Oaks, located 13 miles from
Chambrel at Montrose, is a Lifecare community presently under
construction. Construction completion is planned for mid-1997.
<PAGE> 18
- -----------------------------------------------------------------
REPORT OF MANAGEMENT
- -----------------------------------------------------------------
The following report provides additional information about the
financial condition of Oxford Tax Exempt Fund II Limited
Partnership, a Maryland limited partnership ("Oxford Tax Exempt
Fund II," "OTEF II," or the "Partnership"), as of December 31,
1996, and its results of operations and cash flows for the period
then ended. This report and analysis should be read together
with the financial statements and related notes thereto and the
selected financial data appearing elsewhere in this Annual
Report.
Recent Developments
On December 2, 1996, an Information Memorandum was furnished
to the holders of beneficial assignee interests (the "OTEF II BAC
Holders"), which represent assignments of limited partnership
interests in OTEF II (the "OTEF II BACs"), in connection with and
as part of the settlement of certain putative class and
derivative action litigation ("OTEF II Litigation"). This
Information Memorandum described the new business plan (the
"Liquidity and Growth Plan") for OTEF II and provided OTEF II BAC
Holders with the information necessary to make an informed
decision regarding whether they wished to exchange their OTEF II
BACs for a new class of BACs (the "Status Quo BACs" or "SQBs").
These are discussed below. For a summary of
the OTEF II Litigation and the terms of the settlement, see Note
8 to the Financial Statements.
Status Quo BACs
Approximately 4.3% of the OTEF II BAC Holders have elected to
convert their OTEF II BACs to SQBs. The SQBs represent interests
only in the existing mortgage revenue bonds ("Existing MRBs"), as
refunded, and not in the new assets that will be acquired by
OTEF II pursuant to the terms of the Liquidity and Growth Plan
(described below). 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.
The Status Quo BAC Holders will not share in the growth and
the other benefits expected to be achieved under the Liquidity
and Growth Plan. The SQBs will not be listed on any securities
exchange, and it is not expected that there will be an active
trading market for them. In addition, the Status Quo BAC Holders
will not be allocated any capital losses for federal income tax
purposes that may result from the disposition of the Existing
MRBs or interests therein or new assets. The Status Quo BAC
Holders will have the right, however, to require that OTEF II
purchase or redeem the SQBs under the terms described in the
Information Memorandum.
Liquidity and Growth Plan
As described below, under the
Liquidity and Growth Plan: (i) OTEF II will apply to list the
OTEF II BACs for trading on a national securities exchange, and
(ii) the proceeds from the sale of the bonds issued in the
refunding of the Existing MRBs or interests therein or any debt
issued by OTEF II and secured by such assets (together, the
"Financing") and any additional funds that OTEF II may obtain
will be invested in new assets. The Managing General Partner
believes that the Liquidity and Growth Plan will allow OTEF II to
take advantage of attractive investment opportunities and thereby
increase cash distributions and value to the holders of the OTEF
II BACs ("Liquidity BAC Holders").
Listing of OTEF II BACs Liquidity and Trading Market
The Managing General Partner is currently involved in
discussions with one or more national securities exchanges and
expects OTEF II to formally apply for listing on one of them in
the near future. In addition, prior to listing or shortly after
listing, OTEF II will 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. It is expected that the division will result in the
issuance of approximately 20 to 25 new OTEF II BACs for each
outstanding OTEF II BAC.
Issuance of New BACs
All OTEF II BACs currently are held in uncertificated, book-
entry form on OTEF II's books. Nevertheless, the OTEF II
positions of many OTEF II BAC Holders are reported on their
brokerage account statements, and distributions made by OTEF II
are credited directly to their brokerage accounts.
<PAGE> 19
In connection with the listing of the OTEF II BACs for trading
and the issuance of the New BACs, OTEF II will issue certificates
representing ownership of the New BACs. Unless OTEF II is
instructed otherwise (as described below), those OTEF II BAC
Holders whose OTEF II BACs are currently reported on their
brokerage account statements will not receive certificates for
their New BACs. Instead, the New BACs for such holders will be
issued in a form that will: (i) enable the New BACs to continue
to be reported on their account statements; (ii) enable all
distributions payable with respect to such New BACs to continue
to be credited directly to their brokerage accounts; and (iii)
enable such OTEF II BAC Holders to hold or sell the New BACs
through their brokerage firm accounts. Such form of issuance is
referred to as "street name" issuance, and is the same form that
generally applies to traded securities held in a brokerage
account.
The Status Quo BACs will be issued in the same uncertificated,
book-entry form as the current OTEF II BACs.
Business Plan for Growth
Under the Liquidity and Growth Plan, OTEF II will invest the
proceeds of the Financing and any additional funds that OTEF II
may obtain in new assets described below to increase the
distributions payable with respect to the New BACs and the value
to the Liquidity BAC Holders.
Refunding and Financing. As of December 31, 1996, OTEF II had
refunded 10 of the Existing MRBs, which comprise approximately
two-thirds of OTEF II's portfolio. An additional two Existing
MRBs were refunded during the first quarter of 1997. It is
expected that the refunding of the two remaining Existing MRBs
will close during 1997. Refunding an Existing MRB means
exchanging that bond for newly issued refunding bonds ("Refunding
Bonds") with approximately the same principal amount, an extended
maturity and restructured interest rates that increase each year
during the terms of the Refunding Bonds and that are designed to
require the limited partnerships which own the properties
securing the bonds (the "Operating Partnerships") to pay
substantially all of their projected cash flow as interest on the
Refunding Bonds.
The Refunding Bonds 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 the Financing, pursuant to which it will sell all or
a portion of the Series A Bonds (or interests therein) that are
designated as Liquidity Assets, or issue debt that may be secured
by such assets, new assets or both. 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, that are
designated as Status Quo Assets for the benefit of the Status Quo
BAC Holders. See "Report of Management - Refunding Bonds."
In addition to the proceeds from the Financing, OTEF II may
acquire new assets: (i) from the proceeds of sales or other
dispositions of the Refunding Bonds and the proceeds from
principal payments with respect to the Refunding Bonds (except
for the portion of such proceeds allocable to the SQBs); (ii)
from the proceeds of sales or other dispositions of new assets
and the proceeds from principal payments with respect to new
assets; (iii) from the proceeds of issuances of additional equity
securities, including additional limited partnership interests in
OTEF II and additional OTEF II BACs; (iv) by issuing additional
equity securities in exchange for new assets; or (v) by borrowing
funds from lenders or by issuing evidences of indebtedness.
Although the Managing General Partner is authorized under
OTEF II's partnership agreement to reinvest cash flow in new
assets, it has no current plans to do so in the foreseeable
future.
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, but the Managing General Partner does not currently
expect that these types of investments will be a significant part
of its business in the foreseeable future. (All of the foregoing
are referred to collectively as "New Assets".)
<PAGE> 20
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 will permit it, in many 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. In addition, in the case of bonds that
require restructuring, it is anticipated that OTEF II may be able
to acquire such bonds on a discounted basis, that is, where the
nominal principal amount of the bond exceeds the purchase price
and/or the estimated current liquidation value of the underlying
property.
Liquidity and Capital Resources
Current Position. OTEF II uses the payments it receives from
the Operating Partnerships primarily for distributions to its
General Partners and OTEF II BAC Holders, to pay administrative
expenses, to pay for the costs associated with the implementation
of the 1995 OTEF Restructuring Plan, including litigation costs
associated with the settlement of the OTEF II Litigation
described in Note 8 to Financial Statements, and to fund
reserves. Except as may be required in connection with the 1995
OTEF Restructuring Plan, OTEF II has no commitments for capital
expenditures. A distribution for the quarter ended December 31,
1996, in the amount of $3,642,796, or $11.90 per BAC, (4.76% per
annum on the original $1,000 invested per BAC) was made on
February 14, 1997. This distribution is consistent with the
distributions made for the previous seven quarters.
Set forth below is a year-by-year comparison of OTEF's and
OTEF II's liquidity:
1996 versus 1995. As of December 31, 1996, OTEF II held
$12,072,000 in cash and cash equivalents, an increase of
$2,374,000, or approximately 24.5%, from $9,698,000 in cash and
cash equivalents held as of December 31, 1995. The increase in
OTEF II's cash and cash equivalents is due primarily to an
increase in payments received from its investments in the
Existing MRBs and the Refunding Bonds, and the increase in
Accounts Payable and Accrued Expenses of $2,829,000 (which
represents unpaid litigation and settlement costs). The increase
in OTEF II's cash and cash equivalents was offset by
administrative, governance and litigation costs associated with
the implementation of the 1995 OTEF Restructuring Plan which were
paid during 1996.
Cash and cash equivalents represent interest payments received
from the Operating Partnerships held in anticipation of: (i)
distributions to its General Partners and OTEF II BAC Holders;
(ii) payment of OTEF II's governance and administrative expenses;
and (iii) payment of litigation and settlement costs.
Governance and administrative expenses totaled $1,692,000 for
the year ended December 31, 1996, as compared to $1,416,000 for
the year ended December 31, 1995 for OTEF II and OTEF. The
increase of $276,000 is primarily attributable to an increase in
general legal fees relating to the normal operations of OTEF II
and an increase in expense reimbursements to the General Partners
and their affiliates.
Litigation and settlement costs, which are costs associated
with defending OTEF II against the litigation described in
Note 8 to Financial Statements, totaled $3,158,000 during the
year ended December 31, 1996. This amount includes $2.5 million
payable by OTEF II with respect to certain attorney's fees and
reimbursement of expenses incurred.
1995 versus 1994. As of December 31, 1995, OTEF II held
$9,698,000 in cash and cash equivalents, including the balance
transferred from the working capital reserve, an increase of
$843,000, or approximately 9.5%, from the total of $7,338,000 in
cash and cash equivalents and $1,518,000 in working capital
reserve held as of December 31, 1994. The increase in OTEF II's
cash and cash equivalents was due primarily to: (i) an increase
in payments received from its investments in Existing MRBs, and
(ii) an Oxford advance of an additional $1 million of its
remaining Operating Deficit Guarantees to certain Operating
Partnerships which, in turn, used these funds to pay OTEF
additional Base Interest in January 1995. The increase in
OTEF II's cash and cash equivalents was offset by administrative,
governance, issuance, and bond refunding costs associated with
the implementation of the 1995 OTEF Restructuring Plan.
<PAGE> 21
The Managing General Partner of OTEF II determined that a
separate working capital reserve was no longer warranted and,
accordingly, the amount of the reserve was combined with cash and
cash equivalents for financial statement presentation. Cash and
cash equivalents represent interest payments received from the
Operating Partnerships held in anticipation of: (i) distributions
to its General Partners and OTEF II BAC Holders; (ii) payment of
OTEF II's administrative expenses; and (iii) payment of
governance, issuance and bond refunding costs.
Governance and administrative expenses totaled $1,241,000 for
the seven months ended December 31, 1995 that OTEF II was in
operation, and $175,000 for the five months ended May 31, 1995
for OTEF. OTEF II's and OTEF's governance and administrative
expenses totaled $1,416,000 for the year ended December 31, 1995,
as compared to $410,000 for the year ended December 31, 1994.
The increase was primarily attributable to the development of the
1995 OTEF Restructuring Plan.
1995 Pro Forma. On June 1, 1995, with the transfer of
substantially all of the assets of OTEF to OTEF II and the change
in managing general partner from Oxford Tax Exempt Fund I
Corporation to Oxford Tax Exempt Fund II Corporation, OTEF II
began accounting for its investments in Existing MRBs in
accordance with Statement of Financial Accounting Standards No.
115-Accounting for Certain Investments in Debt and Equity
Securities ("SFAS No. 115"). Accordingly, OTEF II records cash
receipts from the Operating Partnerships as interest income
rather than as a reduction of its investment in Existing MRBs.
Consequently, the first five months of 1995 were presented under
the equity method and the last seven months under SFAS No. 115.
For purposes of clarity, the Managing General Partner included a
"Pro Forma" column in the "Statements of Income" which reflects
1995 Operations as if SFAS No. 115 had applied during the entire
year. Oxford advances of $1 million made to the Operating
Partnerships and paid to OTEF in January 1995 as additional
interest are included in the Statements of Income, but have been
excluded for purposes of the pro forma columnar presentation, as
these payments are nonrecurring in nature.
1994 versus 1993. As of December 31, 1994, OTEF held
$7,338,000 in cash and cash equivalents, exclusive of working
capital reserve, an increase of 104% ($3,741,000) from the
$3,597,000 held as of December 31, 1993. This amount represented
interest payments received from the Operating Partnerships held
in anticipation of: (i) the distribution to Partners made on
February 14, 1995; (ii) payment of OTEF's administrative expenses
for the quarter ended December 31, 1994; and (iii) costs,
expenses and reserves associated with the 1995 OTEF Restructuring
Plan. The increase in cash and cash equivalents is discussed
below. Administrative and BAC issuance costs paid during 1994
totaled $720,000, as compared to administrative expenses paid in
1993 totaling $421,000 representing an increase of approximately
71% ($299,000). During 1994, OTEF also incurred an additional
$555,000 in costs associated with the 1995 OTEF Restructuring
Plan.
The increase in OTEF's cash and cash equivalents was due to
several factors. For the year ended December 31, 1994, the
distributions received by OTEF from the Existing MRBs and other
loans increased to $18,672,000, compared to $14,010,000 for the
same period in 1993, as a result of the following two factors:
(i) increases in cash flows from improved property operations of
approximately $1.4 million for the year ended December 31, 1994,
compared to the same period in 1993, and (ii) $3.3 million of
additional interest paid by certain Operating Partnerships during
1994 as a result of advances made by Oxford. The Operating
Partnerships did not receive any advances from Oxford during the
year ended December 31, 1993. In addition to the increase in
distributions from the Existing MRBs, approximately $1.4 million
was transferred from the bond depository account to replenish the
existing working capital reserve account to $1.5 million.
Finally, the Chambrel at Club Hill Senior Living Community repaid
to OTEF approximately $800,000 of principal on project loans that
were previously advanced, compared to approximately $1 million of
principal on project loans repaid from certain Senior Living
Communities for the same period in 1993.
Existing MRBs. As of December 31, 1996, OTEF II held Existing
MRBs for four of the Operating Partnerships. An additional two
refunding transactions were completed during the first quarter of
1997. It is expected that the refunding of the two remaining
Existing MRBs will close during 1997.
The term of each Existing MRB, and accordingly, each Mortgage
Loan is 24 years. The principal will not be amortized during the
term of the Existing MRB, and will be required to be repaid in a
lump-sum balloon payment at the expiration of the bond term or at
such earlier time as OTEF II may require. Beginning on the first
<PAGE> 22
day of the thirteenth year and continuing through the end of the
fourteenth year, OTEF II may require payment of all principal and
deferred interest due, upon 12 months' prior notice. In the
fifteenth year (if an Existing MRB has not been repaid earlier),
OTEF II will demand payment of principal and deferred contingent
interest due. Each Mortgage Loan is nonassumable and due on sale
of the Mortgaged Property.
Existing MRB Interest. The primary source of cash receipts
for OTEF II is tax-exempt interest received from the Operating
Partnerships pursuant to their debt service obligations under the
bond documents and interest earned on OTEF II's cash reserves.
The Existing MRBs and the underlying Mortgage Loans continue to
provide for the payment of interest at an aggregate annual rate
of up to 16%, consisting of Base Interest and additional
Contingent Interest. Base Interest is owed at the rate of 8.25%
per annum, but is payable only to the extent funds are available
from cash flow and sale or refinance proceeds. Unpaid Base
Interest is deferred, with additional interest charged on such
deferred amounts at the rate of 8.25% per annum, compounded
monthly and payable from future cash flow and sale or refinancing
proceeds.
As previously reported, under the 1988 OTEF Restructuring Plan
and the Debt Modification Agreements, dated as of April 12, 1995,
as amended, OTEF, OTEF II, the Operating Partnerships, and Oxford
entered into certain forbearance arrangements which modify many
of the terms of the Existing MRBs described above. At such time
as the Existing MRBs are refunded, the obligations of the Operating
Partnerships will be modified substantially as discussed below.
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 will be 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%. 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.
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 Partnerships, 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. See Note 7 to Financial
Statements for a schedule of the Combined Rates of the Refunding
Bonds over the next 10 years.
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
<PAGE> 23
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 deposit into an
account available cash flow 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.
The Operating Partnerships have also made additional interest
payments on their Existing MRBs and funded certain costs
associated with the bond refundings from two additional sources:
advances made by Oxford Development Corporation ("Oxford")
pursuant to its operating deficit guarantees, and obligations of
Oxford and the Operating Partnerships under the Yield Maintenance
Reserve ("YMR") Agreement. At December 31, 1996, only $187,813
of YMR obligations were outstanding; these were satisfied in full
by March 4, 1997. 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 December 31, 1996,
Oxford was holding $1,524,432 of such proceeds 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.
Results of Operations
The Partnership's Operations
1996 versus 1995. Distributions to Partners amounted to
$14,571,000 for 1996. This equates to an annual distribution per
BAC of $47.60. For financial statement purposes, Net Income and
Net Income per BAC were $14,912,000 and $48.71, respectively, for
the year ended December 31, 1996. For financial statement
purposes, Net Income and Net Income per BAC were $8,369,000 and
$27.34, respectively, for the seven-month period ended
December 31, 1995 for OTEF II under SFAS No. 115, and $2,277,000
and $7.44, respectively, for the five-month period ended May 31,
1995, under the equity method of accounting for OTEF.
1995 versus 1994. Distributions to Partners amounted to
$14,571,000 for 1995. This equates to an annual distribution per
BAC of $47.60. For financial statement purposes, Net Income and
Net Income per BAC were $8,369,000 and $27.34, respectively, for
the seven-month period ended December 31, 1995 for OTEF II under
SFAS No. 115, and $2,277,000 and $7.44, respectively, for the
five-month period ended May 31, 1995, under the equity method of
accounting for OTEF. For the year ended December 31, 1994, Net
Income and Net Income per BAC for OTEF were $3,726,000 and $12.17
under the equity method of accounting.
The Partnership's Pro Forma Operations. For purposes of
clarity, the Managing General Partner has included an additional
"Pro Forma" column in the Statements of Income. This pro forma
information has been prepared as if: (i) OTEF II was in existence
during the period presented; (ii) OTEF II acquired the assets of
OTEF in exchange for OTEF II BACs on January 1, 1995; and (iii)
OTEF II began accounting for its investments in the Bonds on that
date under the new accounting method. For pro forma financial
statement purposes, Net Income and Net Income per BAC were
$15,210,000 and $49.69, respectively, for the year ended
December 31, 1995. Oxford advances of $1 million made to the
Operating Partnerships and paid to OTEF in January 1995 as
additional interest are included in the Statements of Income, but
have been excluded from the pro forma columnar presentation, as
these payments are nonrecurring in nature.
1994 versus 1993. Distributions to Partners amounted to
$13,775,000 for 1994. This equates to an annual distribution per
BAC of $45.00. For financial statement purposes, Net Income and
Net Income per BAC were $3,726,000 and $12.17 in 1994. The
$1,480,000 change in Net Income reported by OTEF between 1994 and
1993 reflected improvements in property performance. The
Operating Partnerships' aggregate 1994 net operating income
increased over the aggregate 1993 net operating income by
approximately $1,417,000, or approximately 9%, allowing the
Operating Partnerships to increase their payment of Base Interest
to OTEF. OTEF's administrative expenses increased slightly by
$5,000 or approximately 1%. OTEF also incurred an additional
$555,000 in costs associated with the 1995 OTEF Restructuring
Plan.
<PAGE> 24
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.
As of December 31, 1996 and 1995, the Operating Partnerships
had cumulative unpaid Base Interest and interest on interest at
8.25% per annum, compounded monthly, of approximately $27,621,000
and $94,630,000, respectively. Under the applicable method of
accounting, this unpaid Base Interest was not reflected in the
financial statements of OTEF II or OTEF. In
connection with the completion of the refundings for 10 of the
Existing MRBs, approximately $78 million of cumulative unpaid
Base Interest and interest on interest was written-off during 1996.
1996 versus 1995. The Operating Partnerships reported an
aggregate net operating income before property improvements of
approximately $21,475,000 for the year ended December 31, 1996,
representing an increase of approximately $811,000, or 3.9%, over
the aggregate net operating income before property improvements
reported for the same period in 1995. In addition, during the
year ended December 31, 1996, overall property improvement
expenditures were approximately $2,227,000, representing a
decrease of approximately $685,000, or 23.5%, compared to the
same period in 1995.
The Operating Partnerships that own the four Senior Living
Communities reported an aggregate net operating income before
property improvements of approximately $5,723,000 for the year
ended December 31, 1996, representing an increase of
approximately $746,000, or 14.9%, over the aggregate net
operating income before property improvements reported for the
same period in 1995. The weighted average occupancy rate for
these four properties at December 31, 1996 was 94%, compared to
90% at December 31, 1995. The weighted average monthly rent
collected for December 1996 for the four Senior Living
Communities increased by approximately 3% to $1,776, compared to
$1,720 for the same period in 1995. In addition, during the year
ended December 31, 1996, overall property improvement
expenditures for the four Senior Living Communities were
approximately $623,000, representing an increase of approximately
$26,000, or 4.4%, compared to the same period in 1995.
The Operating Partnerships that own the 10 garden apartments
reported an aggregate net operating income before property
improvements of approximately $15,752,000 for the year ended
December 31, 1996, representing an increase of approximately
$65,000, or less than 1%, over the aggregate net operating income
before property improvements reported for the same period in
1995. The weighted average occupancy rate for the 10 garden
apartment communities was approximately 92% at December 31, 1996,
compared to 94% at December 31, 1995. The weighted average
monthly rent collected for December 1996 for the 10 garden
apartments increased by approximately 5% to $758, compared to
$722 for the same period in 1995. In addition, during the year
ended December 31, 1996, overall property improvement
expenditures were approximately $1,604,000 representing a
decrease of approximately $711,000, or 30.7%, compared to the
same period in 1995.
1995 versus 1994. The Operating Partnerships reported an
aggregate net operating income before property improvements of
approximately $20,664,000 for the year ended December 31, 1995,
representing an increase of approximately $1,662,000, or 8.8%,
over the aggregate net operating income before property
improvements reported for the same period in 1994. In addition,
during the year ended December 31, 1995, overall property
improvement expenditures were approximately $2,912,000,
representing an increase of approximately $505,000, or 21%,
compared to the same period in 1994.
The Operating Partnerships that own the four Senior Living
Communities reported an aggregate net operating income before
property improvements of approximately $4,977,000 for the year
ended December 31, 1995, representing an increase of
approximately $621,000, or 14.3%, over the aggregate net
operating income before property improvements reported for the
same period in 1994. The weighted average occupancy rate for
these four properties at December 31, 1995 was 90%, compared to
91% at December 31, 1994. As previously reported, the increase
in aggregate net operating income and decrease in occupancy
<PAGE> 25
rates, compared to December 31, 1994, is primarily due to
substantial increases in rents being required on all lease
renewals for the four communities. The weighted average monthly
rent collected for December 1995 for the four Senior Living
Communities increased by approximately 10% to $1,720, compared to
$1,565 for the same period in 1994. In addition, during the year
ended December 31, 1995, overall property improvement
expenditures for the four Senior Living Communities were
approximately $597,000, representing a decrease of approximately
$213,000, or 26.3%, compared to the same period in 1994.
The Operating Partnerships that own the 10 garden apartments
reported an aggregate net operating income before property
improvements of approximately $15,687,000 for the year ended
December 31, 1995, representing an increase of approximately
$1,041,000, or 7.1%, over the aggregate net operating income
before property improvements reported for the same period in
1994. The weighted average occupancy rate for the 10 garden
apartment communities was approximately 94% at December 31, 1995,
which is consistent with the occupancy rate reported at
December 31, 1994. The weighted average monthly rent collected
for December 1995 for the 10 garden apartments increased by
approximately 3% to $722, compared to $699 for the same period in
1994. In addition, during the year ended December 31, 1995,
overall property improvement expenditures were approximately
$2,315,000 representing an increase of approximately $718,000, or
44.9%, compared to the same period in 1994.
1994 versus 1993. The Operating Partnerships reported an
aggregate net operating income before property improvements of
approximately $19,002,000 for the year ended December 31, 1994,
representing an increase of approximately 8%, or $1,437,000, over
the aggregate net operating income before property improvements
reported for the same period in 1993. However, during the year
ended December 31, 1994, overall property improvement
expenditures were approximately $2,407,000, representing an
increase of approximately $20,000, or less than 1%, compared to
the same period in 1993.
The Operating Partnerships that own the four Senior Living
Communities reported an aggregate net operating income before
property improvements of approximately $4,356,000 for the year
ended December 31, 1994, representing an approximate 11% (or
$442,000) increase over the aggregate net operating income before
property improvements reported for the same period in 1993. The
weighted average occupancy rate for these four properties at
December 31, 1994 was 91%, compared to 92% at December 31, 1993.
The weighted average monthly rent collected increased by
approximately 4%. As previously reported, the Chambrel at
Montrose Senior Living Community was in the process of converting
13 independent living units to 19 assisted living beds. The
conversion was completed during the quarter ended September 30,
1994. Occupancy at the Chambrel at Montrose Senior Living
Community increased five percentage points, from 81% as of March
31, 1994, to 86% as of December 31, 1994. As a result of the
conversion, the Chambrel at Montrose Senior Living Community
anticipates a significant improvement in property performance.
The Chambrel at Montrose Senior Living Community continues to
strengthen its commitment to marketing. During the period ended
December 31, 1994, overall property improvements increased by
approximately $206,000, or 34%, for the Operating Partnerships
that own the four Senior Living Communities, compared to the same
period in 1993.
The Operating Partnerships that own the 10 garden apartments
reported an aggregate net operating income before property
improvements of approximately $14,646,000 for the year ended
December 31, 1994, representing an increase of approximately 7%,
or $995,000, over the aggregate net operating income before
property improvements reported for the same period in 1993. The
weighted average occupancy rate for the 10 garden apartment
communities was approximately 94% at December 31, 1994 and
December 31, 1993. The weighted average monthly rent collected
for December 31, 1994 increased by approximately 4%, compared to
December 31, 1993. During the period ended December 31, 1994,
overall property improvements decreased by approximately
$186,000, or 10%, for the Operating Partnerships that own the 10
garden apartment communities, compared to the period ended
December 31, 1993.
<PAGE> 26
Summary
With the restructuring program nearly completed, OTEF II is
poised to take advantage of attractive investment opportunities.
The refunding of the Existing MRBs held by OTEF II is expected to
give OTEF II access to the capital markets. The Liquidity BAC
Holders should benefit from the increase in value of the OTEF II
BACs that is expected to occur as OTEF II acquires new assets.
In addition, the Liquidity BAC Holders should benefit from more
efficient market pricing of the OTEF II BACs that is expected to
occur as a result of listing the OTEF II BACs on a national
securities exchange.
As more fully described in the Annual Report, the Status Quo
BAC Holders will continue to hold an interest in all of the
bonds collaterialized by the Existing Mortgaged Properties.
The Status Quo BACs will not benefit from any new assets
acquired by OTEF II, and they will not be listed for trading on a
national securities exchange.
<PAGE> 27
- -----------------------------------------------------------------
Report of Independent Accountants
- -----------------------------------------------------------------
To the Partners and BAC Holders of Oxford Tax Exempt Fund II
Limited Partnership:
We have audited the accompanying balance sheets of Oxford Tax
Exempt Fund II Limited Partnership, as successor to the business
interest of Oxford Tax Exempt Fund Limited Partnership, as more
fully described in Note 2, as of December 31, 1996 and 1995, and
the related statements of income, partners' capital and cash
flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Partnership's Managing General Partner.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Oxford Tax Exempt Fund II Limited Partnership as of
December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
February 11, 1997,
except as to certain of the information
presented in Note 7 for which the date
is March 6, 1997
<PAGE> 28
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------
Balance Sheets (in thousands)
- ------------------------------------------------------------------------
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $215,529 $164,000
Cash and cash equivalents 12,072 9,698
Bond interest receivable 1,099 0
Other, primarily interest receivable 33 26
Due from affiliates 0 310
- ------------------------------------------------------------------------
Total Assets $228,733 $174,034
========================================================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses $ 3,321 $ 492
Distributions payable 3,643 3,643
- ------------------------------------------------------------------------
Total Liabilities 6,964 4,135
- ------------------------------------------------------------------------
Contingencies and commitments (Notes 8 and 9)
Partners' Capital
General Partners (2,393) (2,400)
Limited Partners' Interests (Beneficial 161,665 161,331
Assignee Interests 299,995 interests
issued and outstanding)
Unrealized Gain on Investments 62,497 10,968
- ------------------------------------------------------------------------
Total Partners' Capital 221,769 169,899
- ------------------------------------------------------------------------
Total Liabilities and Partners' Capital $228,733 $174,034
========================================================================
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 29
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
Statements of Income (in thousands, except per BAC amounts)
- ------------------------------------------------------------------------------------------||----------------------------
<CAPTION> ||
(Unaudited) ||
OTEF II<F3> ||
OTEF II PRO FORMA OTEF II || OTEF OTEF
Twelve Twelve Seven || Five Twelve
months ended months ended months ended || months ended months ended
December 31, December 31, December 31, || May 31, December 31,
1996 1995 1995 || 1995 1994
- ------------------------------------------------------------------------------------------||----------------------------
<S> <C> <C> <C> || <C> <C>
Revenues ||
Interest on Bonds<F1> $19,411 $16,283 $9,414 || $ 0 $ 0
Equity income on investments in Bonds<F2> 0 0 0 || 2,305 3,949
Other, primarily interest on short-term ||
investments 351 343 196 || 147 187
- ------------------------------------------------------------------------------------------||----------------------------
19,762 16,626 9,610 || 2,452 4,136
Expenses ||
Governance and administrative expenses 1,692 1,416 1,241 || 175 410
Litigation and settlement costs 3,158<F4> 0 0 ||
- ------------------------------------------------------------------------------------------||----------------------------
Net income $14,912 $15,210 $8,369 || $2,277 $3,726
==========================================================================================||============================
Net income allocated to General Partners $ 298 $ 304 $ 167 || $ 45 $ 74
==========================================================================================||============================
Net income allocated to BAC holders $14,614 $14,906 $8,202 || $2,232 $3,652
==========================================================================================||============================
Net income per BAC $ 48.71 $ 49.69 $27.34 || $ 7.44 $12.17
==========================================================================================||============================
Distribution per BAC $ 47.60 $ 47.60 $35.70 || $11.90 $45.00
==========================================================================================||============================
<FN>
<F1> On June 1, 1995, OTEF II adopted the provisions of Statement of Financial Accounting Standards No. 115-
Accounting for Certain Investments in Debt and Equity Securities in connection with the transfer of all assets
and liabilities from OTEF to OTEF II. Under this method, payments on the Existing MRBs by the Operating
Partnerships were treated as interest income.
<F2> From October 1, 1987 to May 31, 1995, OTEF's investments in the Existing MRBs were accounted for under the equity
method, in accordance with Financial Release No. 28 and a notice issued to practitioners, dated February 10, 1986,
by the Accounting Standards Executive Committee, which provides guidance on accounting for real estate
acquisition, development and construction lending arrangements. Under this method, OTEF's investments in Existing
MRBs were: (i) reduced for interest payments (Base Interest) received; (ii) increased or decreased by OTEF's
equity, which was based on its participation percentages (generally 50%, except when it had outstanding project
advances to an Operating Partnership) in the income or losses of the related Operating Partnerships; and (iii)
written down to the fair value of the Properties with such fair value representing the present value of the
projected cash flows from the Properties. Since OTEF had outstanding project loans to certain senior living
Operating Partnerships from 1989 to 1995, OTEF's participation percentages were increased to 100% for these
Operating Partnerships during these years.
<F3> This pro forma column has been prepared as if: (i) OTEF II had been in existence during the period presented; (ii)
OTEF II had acquired the assets of OTEF in exchange for OTEF II BACs on January 1, 1995; and (iii) OTEF II had
began accounting for its investments in the Bonds on that date under the new accounting method. Under the pro
forma presentation, $1 million in Oxford advances, which were made to the Operating Partnerships in December
1994 from the U.S. Treasury strip bond that matured November 15, 1994, and paid to OTEF as additional interest
in January 1995, have been excluded from the Statements of Income and the Statements of Cash Flows since these
payments are nonrecurring in nature.
<F4> This amount includes $2.5 million payable by OTEF II in payment of certain attorney's fees and reimbursement
of expenses incurred.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 30
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- ------------------------------------------------------------------------
<CAPTION>
Limited
Partner
Interests
----------
Beneficial Unrealized
For the Years Ended General Assignee Gain on
December 31, 1996, 1995 and 1994 Partners Interests Investments Total
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994
(predecessor business) $(2,121) $176,916 $ 0 $174,795
- ------------------------------------------------------------------------
Net Income 74 3,652 0 3,726
Distributions to Partners,
including $45.00 per BAC (275) (13,500) 0 (13,775)
- ------------------------------------------------------------------------
Balance, December 31, 1994
(predecessor business) (2,322) 167,068 0 164,746
- ------------------------------------------------------------------------
Capital Contributions,
February 9, 1995 1 0 0 1
Net income, five months ended
May 31, 1995
(predecessor business) 45 2,232 0 2,277
Net income, seven months ended
December 31, 1995 167 8,202 0 8,369
Distributions to Partners,
including $47.60 per BAC (291) (14,280) 0 (14,571)
Unrealized Gain on Investments 0 0 10,968 10,968
BAC Issuance Costs 0 (1,891) 0 (1,891)
- ------------------------------------------------------------------------
Balance, December 31, 1995 (2,400) 161,331 10,968 169,899
- ------------------------------------------------------------------------
Net Income 298 14,614 0 14,912
Distributions to Partners,
including $47.60 per BAC (291) (14,280) 0 (14,571)
Unrealized Gain on Investments 0 0 51,529 51,529
- ------------------------------------------------------------------------
Balance, December 31, 1996 $(2,393) $161,665 $62,497 $221,769
========================================================================
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 31
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ----------------------------------------------------------||-------------------
Statements of Cash Flows (in thousands) ||
- ----------------------------------------------------------||-------------------
<CAPTION> ||
OTEF II OTEF II || OTEF OTEF
For the Seven || Five For the
year months || months year
ended ended || ended ended
December December || May December
31, 1996 31, 1995 || 31, 1995 31, 1994
- ----------------------------------------------------------||-------------------
<S> <C> <C> || <C> <C>
Operating Activities ||
Net income<F1> $14,912 $8,369 || $2,277 $ 3,726
Adjustments to reconcile ||
net income to net cash provided ||
by operating activities: ||
Equity income from ||
investments in Bonds<F2> 0 0 || (2,305) (3,949)
Changes in assets and liabilities: ||
Bond interest receivable (1,099) 0 || 0 0
Other, primarily interest ||
receivable (7) 7 || (9) (19)
Due from affiliates 310 (310) || 0 0
Deferred costs 0 555 || 0 0
Accounts payable and accrued ||
expenses 2,829 17 || 97 245
- ----------------------------------------------------------||-------------------
Net cash provided by operating ||
activities 16,945 8,638 || 60 3
- ----------------------------------------------------------||-------------------
Investing activities ||
Working capital reserve 0 1,537 || (19) (1,445)
Payments received from ||
investments in Bonds<F1> 0 0 || 7,872 18,672
Project loans 0 123 || 411 841
- ----------------------------------------------------------||-------------------
Net cash provided by investing ||
activities 0 1,660 || 8,264 18,068
- ----------------------------------------------------------||-------------------
Financing activities ||
Distributions paid to Partners ||
and BAC Holders (14,571) (7,285) || (7,087) (13,775)
Deferred costs paid 0 0 || 0 (555)
BAC issuance costs 0 (1,220) || (671) 0
Capital contributions 0 1 || 0 0
- ----------------------------------------------------------||-------------------
Net cash used by financing ||
activities (14,571) (8,504) || (7,758) (14,330)
- ----------------------------------------------------------||-------------------
Net increase in cash and cash ||
equivalents 2,374 1,794 || 566 3,741
Cash and cash equivalents, ||
beginning of period 9,698 7,904 || 7,338 3,597
- ----------------------------------------------------------||-------------------
Cash and cash equivalents, ||
end of period $12,072 $9,698 || $7,904 $ 7,338
==========================================================||===================
<FN>
<F1> On June 1, 1995, OTEF II adopted the provisions of Statement of
Financial Accounting Standards No. 115Accounting for Certain
Investments in Debt and Equity Securities in connection with the
transfer of all assets and liabilities from OTEF to OTEF II. Under
this method, payments on the Existing MRBs by the Operating
Partnerships are treated as interest income.
<F2> From October 1, 1987 to May 31, 1995, OTEF's investments in the
Existing MRBs were accounted for under the equity method, in
accordance with Financial Release No. 28 and a notice issued to
practitioners, dated February 10, 1986, by the Accounting Standards
Executive Committee, which provides guidance on accounting for real
estate acquisition, development and construction lending arrangements.
Under this method, OTEF's investments in Existing MRBs were: (i)
reduced for interest payments (Base Interest) received; (ii) increased
or decreased by OTEF's equity, which was based on its participation
percentages (generally 50%, except when it had outstanding project
advances to an Operating Partnership) in the income or losses of the
related Operating Partnerships; and (iii) written down to the fair
value of the Properties with such fair value representing the present
value of the projected cash flows from the Properties. Since OTEF had
outstanding project loans to certain senior living Operating
Partnerships from 1989 to 1995, OTEF's participation percentages were
increased to 100% for these Operating Partnerships during these years.
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 32
- ------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in the
opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("Oxford Tax Exempt Fund II,"
"OTEF II," or the "Partnership"), are necessary to present fairly
OTEF II's financial position as of December 31, 1996 and
December 31, 1995, the Statements of Income for the years ended
December 31, 1996 and December 31, 1995 (unaudited Pro forma) for
OTEF II, for the seven-month period ended December 31, 1995 for
OTEF II, for the five-month period ended May 31, 1995 and for the
year ended December 31, 1994 for OTEF, the Statement of Partners'
Capital as of December 31, 1996, and the Statements of Cash Flows
for the year ended December 31, 1996 and for the seven-month
period ended December 31, 1995 for OTEF II, for the five-month
period ended May 31, 1995 and the year ended December 31, 1994
for OTEF, and the notes thereto, in accordance with generally
accepted accounting principles. For purposes of clarity, the
Managing General Partner has included an additional column in the
Statements of Income. This pro forma information has been
prepared as if: (i) OTEF II was in existence during the period
presented; (ii) OTEF II acquired the assets of OTEF in exchange
for OTEF II BACs on January 1, 1995; and (iii) OTEF II began
accounting for its investments in the existing mortgage revenue
bonds ("Existing MRBs") on that date under the new accounting
method. Under the pro forma presentation, $1 million in Oxford
advances made to the Operating Partnerships and paid to OTEF as
additional interest in January 1995 have been excluded, since
such payments are nonrecurring in nature.
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").
Refunding and Financing. As of December 31, 1996, OTEF II had
completed the refunding of 10 of the Existing MRBs, which
comprise approximately two-thirds of OTEF II's portfolio. An
additional two Existing MRBs were refunded in the first quarter
of 1997. It is expected that the refunding of the two remaining
Existing MRBs will close in 1997. Refunding an Existing MRB
means exchanging that bond for a newly issued Refunding Bond with
approximately the same principal amount, an extended maturity and
restructured interest rates that increase each year during the
term of the Refunding Bond and that is designed to require each
owner of the property securing the Refunding Bond (the
"Operating Partnership") to pay substantially all of its projected
cash flow as interest on the Refunded Bond.
The Refunding Bonds 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 the Financing, pursuant to which it will sell all or
a portion of the Series A Bonds (or interests therein) that are
designated as Liquidity Assets, or issue debt that may be secured
by such assets, new assets or both. 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, that are
designated as Status Quo Assets for the benefit of the Status Quo
BAC Holders. See Note 7 to Financial Statements.
In addition to the proceeds from the Financing, OTEF II may
acquire new assets: (i) from the proceeds of sales or other
dispositions of the Refunding Bonds and the proceeds from
principal payments with respect to the Refunding Bonds (except
for the portion of such proceeds allocable to the SQBs); (ii)
from the proceeds of sales or other dispositions of new assets
and the proceeds from principal payments with respect to new
assets; (iii) from the proceeds of issuances of additional equity
securities, including additional limited partnership interests in
OTEF II and additional OTEF II BACs; (iv) by issuing additional
equity securities in exchange for new assets; or (v) by borrowing
funds from lenders or by issuing evidences of indebtedness.
Although the Managing General Partner is authorized under
OTEF II's partnership agreement to reinvest cash flow in new
assets, it has no current plans to do so in the foreseeable
future.
<PAGE> 33
- -----------------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------------
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, but the Managing General Partner does not currently
expect that these investments will be a significant part of its
business in the foreseeable future. (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 will permit it, in many 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. In addition, in the case of bonds that
require restructuring, it is anticipated that OTEF II may be able
to acquire such bonds on a discounted basis, that is, where the
nominal principal amount of the bond exceeds the purchase price
and/or the estimated current liquidation value of the underlying
property.
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners and OTEF II, formerly OTEF, BAC Holders
(collectively, "OTEF II BAC Holders) are required to report on
their individual tax returns their allocable share of taxable
income, gains, losses, deductions, and credits of OTEF II.
Transfer of Bonds and Change in Accounting Method. As
previously reported, on June 1, 1995, the Existing MRBs were
transferred from OTEF to OTEF II at their book value of
approximately $153,032,000. The OTEF II Managing General Partner
estimated at December 31, 1996 that the fair value of the
Existing MRBs was approximately $215,529,000 and, accordingly,
OTEF II recorded a credit to Partners' Capital in an amount equal
to approximately $62,497,000 of unrealized gain on investments.
The current fair value of the Existing MRBs was determined by the
Managing General Partner using the same cash flow methodology
applied by a major investment banking firm in connection with
structuring advice rendered to OTEF II and its predecessor with
respect to the 1995 OTEF Restructuring Plan. 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.
In connection with the transfer of the Existing MRBs to
OTEF II and the change in the Managing General Partner from
Oxford Tax Exempt Fund I Corporation to Oxford Tax Exempt Fund II
Corporation, OTEF II adopted a new accounting method governed by
the provisions of Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Under this method: (i) the
Existing MRBs are reflected at their current estimated fair value
on the face of the Balance Sheet, with cumulative unrealized
gains or losses being charged or credited as unrealized gains or
losses on investments and included in capital as applicable,
rather than reflected in the Statements of Income, and (ii) cash
payments on the bonds received from the Operating Partnerships
are treated as interest income on the Existing MRBs. Accrued
interest on the Series A and Series B Bonds as of December 31,
1996 was $396,000 and $703,000, respectively, or $1,099,000 in
total.
<PAGE> 34
- ------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------
From October 1, 1987 to May 31, 1995, OTEF's investments in
the Existing MRBs were accounted for under the equity method, in
accordance with Financial Release No. 28 and a notice issued to
practitioners, dated February 10, 1986, by the Accounting
Standards Executive Committee, which provides guidance on
accounting for real estate acquisition, development and
construction lending arrangements. Under this method, OTEF's
investments in the Existing MRBs were: (i) reduced for interest
payments (Base Interest) received; (ii) increased or decreased by
OTEF's equity, which was based on its participation percentages
(generally 50%, except when it had outstanding project advances
to an Operating Partnership) in the income or losses of the
related Operating Partnerships; and (iii) written down to the
fair value of the underlying properties, with such fair value
representing the present value of the projected cash flows from
the underlying properties. Since OTEF had outstanding project
loans to certain senior living Operating Partnerships in 1995 and
1994, OTEF's participation percentages were increased to 100% for
these Operating Partnerships.
The change in accounting treatment for financial reporting
purposes is technical in nature and does not affect the amount of
payments received by OTEF II or the level of distributions to
OTEF II BAC Holders. In addition, this change has no effect on
the tax-exempt nature of OTEF II's net income or the obligation
of the Operating Partnerships to make all payments due on the
Bonds. To permit OTEF II BAC Holders to evaluate the results of
operations of OTEF II, as reported under the new accounting
method, the Managing General Partner has included an additional
column in the Statements of Income which reflects the operations
of OTEF II as if: (i) OTEF II was in existence during the period
presented; (ii) OTEF II acquired the assets of OTEF in exchange
for OTEF II BACs on January 1, 1995; and (iii) OTEF II began
accounting for its investments in the Bonds on that date under
the new accounting method. Under the pro forma presentation, $1
million in Oxford advances made to the Operating Partnerships and
paid to OTEF in January 1995 as additional interest have been
excluded since these payments are nonrecurring in nature.
Net Income and Distributions per Beneficial Assignee Interest
(BAC). Net income and distributions per BAC are based upon the
weighted average number of BACs outstanding during the applicable
year.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity.
The statements do not reflect investing and financing activity
that affect recognized assets or liabilities and do not result in
cash receipts or cash payments. This non-cash activity consists
of distributions payable to Partners and OTEF II BAC Holders of
$3,643,000 for December 31, 1996 and 1995, and $3,444,000 at
December 31, 1994, and an unrealized gain on investments of
$62,497,000 recognized in accordance with SFAS No. 115 as
discussed above.
Cash and cash equivalents. Cash and cash equivalents consist
of all demand deposits and tax-exempt money market funds stated
at cost, which approximates market value, with original
maturities of three months or less.
Governance and administrative expenses. Governance and
administrative expenses totaled $1,692,000 for the year ended
December 31, 1996, as compared to $1,416,000 for the year ended
December 31, 1995 for OTEF II and OTEF. The increase of $276,000
is primarily attributable to an increase in general legal fees
relating to the normal operations of OTEF II and an increase in
expense reimbursements to the General Partners and their
affiliates.
Litigation and settlement costs. Litigation and settlement
costs are costs associated with defending OTEF II against certain
lawsuits as discussed in Note 8 below, totaled $3,158,000 during
the year ended December 31, 1996. This amount includes $2.5
million payable by OTEF II with respect to certain attorney's
fees and reimbursement of expenses incurred.
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. The percentage interests
of the General Partners in OTEF II are the same as the percentage
interests of the General Partners in OTEF. Distributions to the
General Partners totaled $291,000 for December 31, 1996 and 1995,
and $275,000 for December 31, 1994.
<PAGE> 35
- ------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------
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. Oxford Development Corporation and
certain affiliates (collectively, "Oxford") and NHP, Inc. and
certain affiliates (collectively, "NHP") entered into a Purchase
Agreement (the "Purchase Agreement"), pursuant to which NHP
acquired, among other things, Oxford's property management
assets. The transactions contemplated by the Purchase Agreement
were consummated effective December 10, 1993. In connection with
such transactions, the Operating Partnerships executed property
management agreements with NHP Management Company for the
management of the Properties and asset management agreements with
Oxford Realty Financial Group, Inc. ("ORFG"), the parent of the
Managing General Partner of OTEF II. The Operating Partnerships
also entered into a Capital Improvement Consulting, Oversight and
Administration ("CICOA") Agreement with a NHP affiliate to
provide services relating to property improvements. These
agreements provide for substantially the same level of fees as
were paid previously by the Operating Partnerships to Oxford
affiliates that provided these services prior to December 10,
1993.
For the years ended December 31, 1996, 1995 and 1994, the
Operating Partnerships paid total property and asset management
fees of $2,377,000, $2,344,000 and $2,229,000, respectively.
During the years ended December 31, 1996, 1995 and 1994, the
Operating Partnerships also paid ORFG, in the aggregate, $697,000
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 ("Existing Mortgaged Properties").
Fees Payable to ORFG. As discussed above, ORFG provides
various management services, relating to the Existing Mortgaged
Properties and OTEF II's investment therein. It will provide
additional services in connection with OTEF II's investment in
New Assets, as described below. The fees payable to ORFG for the
services it is providing currently (the "Existing Fees") are
operating expenses of the Operating Partnerships that are payable
prior to the payment of interest on the Existing MRBs. OTEF II
did not pay any fees in connection with OTEF II's investment in
New Assets to ORFG in 1996; however, with the implementation of
the Liquidity and Growth Plan in 1997, OTEF II anticipates that
it will pay ORFG new fees (the "New Asset Fees") beginning in
1997. 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
<PAGE> 36
- ------------------------------------------------------------------------
Notes to Financial Statement
- ------------------------------------------------------------------------
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.
Expense Reimbursements. OTEF II and the Operating
Partnerships also reimburse ORFG for certain expenses it incurs
in providing services with respect to the Existing Mortgaged
Properties and the administration of OTEF II's affairs. Total
reimbursements to the General Partners and their affiliates for
the years ended December 31, 1996, 1995 and 1994 were $366,000,
$90,000 and $82,000, respectively. The Managing General Partner
anticipates that the amount of expense reimbursements payable by
OTEF II will increase in accordance with the terms of OTEF II's
partnership agreement due, in part, to the additional acquisition
and financing activities relating to the Liquidity and Growth
Plan. Such reimbursable amount is determined based on the actual
time the officers and employees devote to OTEF II based upon
their perspective rate.
Incentive Option Plan. OTEF II intends to adopt an incentive
option plan (the "Incentive Option Plan") in order for the Managing
General Partner to attract and retain key employees and advisors. The
Incentive Option Plan will authorize the granting to the directors,
officers and employees of the Managing General Partner and certain
affiliates of options to purchase approximately 26,000 OTEF II BACs
(prior to any division of the OTEF II BACs in connection with listing
the OTEF II BACs on a national securities exchange), which will represent
approximately 8.3% of the outstanding OTEF II BACs (assuming
approximately 13,000 OTEF II BACs are converted into Status Quo BACs
["SQBs"]), as described below.
The Managing General Partner anticipates that options to purchase all
of substantially of the OTEF II BACs offered pursuant to the Incentive
Option Plan will be granted prior to the effective date of listing of
the OTEF II BACs for trading, in which case the option price is expected
to be the average of the closing prices of the OTEF II BACs as reported
on the exchange on which the OTEF II BACs are listed for the first 20
days of trading. The option price for any other options to purchase
OTEF II BACs issued under the Incentive Option Plan is expected to
be 100% of the OTEF II BACs' fair market value at the date of the grant.
Note 5. Capital, Profits, Losses, and Cash Distributions
The following discussion summarizes certain rights of the
Liquidity BAC Holders and the Status Quo BAC Holders following
the Status Quo BAC Issuance Date.
Rights to Allocations and Distributions
Capital Accounts. For distribution and tax allocation
purposes, a Capital Account is maintained for each OTEF II BAC
Holder. The OTEF II BAC Holders have the same Capital Accounts
as they had with OTEF and their Capital Accounts are increased by
the amount of all capital contributions made by them to OTEF II,
and all taxable as well as tax-exempt income of OTEF II (defined
for purposes of these provisions as "Profits") and are reduced by
the amount of all distributions made to them by OTEF II and all
tax-deductible as well as non-tax-deductible expenditures of
OTEF II (defined for purposes of these provisions as "Losses").
The Capital Accounts of the OTEF II BAC Holders will be revalued
upon certain events, including the admission of additional
OTEF II BAC Holders to OTEF II in exchange for additional capital
contributions.
Status Quo BAC Election
The holders of approximately 4.3% of the total OTEF II BACs
outstanding have elected to convert their OTEF II BACs to SQBs.
Following the Status Quo BAC Issuance Date, the BAC Holders who
retain their OTEF II BACs initially will have the same Capital
Accounts as they had prior to the Status Quo BAC Issuance Date.
Their Capital Accounts and the Capital Accounts of the other
Liquidity BAC Holders (the "Liquidity Capital Accounts") will be
increased by Profits relating to the Liquidity Assets and the New
Assets ("Liquidity Profits"), but not by any Profits relating to
the Status Quo Assets ("Status Quo Profits"), and will be reduced
by the amount of all distributions made to them by OTEF II (which
distributions will be made only from cash flow attributable to
the Liquidity Assets and the New Assets, the "Liquidity Cash
Flow") and Losses relating only to the Liquidity Assets and the
<PAGE> 37
New Assets ("Liquidity Losses"), but not by any Losses relating
to the Status Quo Assets ("Status Quo Losses").
Status Quo BAC Holders also initially will have the same
Capital Accounts as they had prior to the conversion of their
OTEF II BACs into SQBs. Their Capital Accounts (the "Status Quo
Capital Accounts") will be increased by the Status Quo Profits,
but not by any Liquidity Profits, and will be reduced by the
amount of all distributions made to them by OTEF II (which
distributions will be made only from cash flow attributable to
the Status Quo Assets, the "Status Quo Cash Flow") and all Status
Quo Losses, but not by any Liquidity Losses. OTEF II will
maintain two Capital Accounts (a Liquidity Capital Account and a
Status Quo Capital Account) for BAC Holders who elect to convert
only a portion of their OTEF II BACs into SQBs.
Distributions of Cash Flow. Liquidity Cash Flow and Status
Quo Cash Flow will be distributed as described below.
Liquidity Cash Flow. Liquidity Cash Flow in any year will
first be distributed 98% to the Liquidity BAC Holders and 2% to
the General Partners until the Liquidity BAC Holders as a class
(other than the holder(s) of the Affiliated OTEF II BACs) have
received, during such year, a noncumulative 11% preferred return
on the Liquidity BAC Holders' Preference Amount (as defined
below) and, thereafter, during such year, 90% to the Liquidity BAC
Holders as a class and 10% to the General Partners. The
"Liquidity BAC Holders' Preference Amount" means an amount equal
to the total capital contributions of the Liquidity BAC Holders
to OTEF or OTEF II, reduced by any distributions of residual
proceeds previously made to them by OTEF, and further reduced by
all distributions of Liquidity Residual and Liquidation Proceeds
(defined below) made by OTEF II to the Liquidity BAC Holders.
Status Quo BAC Cash Flow. All Status Quo BAC Cash Flow in any
year will first be distributed 98% to the Status Quo BAC Holders
as a class and 2% to the General Partners until the Status Quo
BAC Holders as a class (other than the holder(s) of the
Affiliated SQBs, if any) have received a noncumulative return in
such year equal to 11% of the Status Quo BAC Holders' Preference
Amount (defined below) and, thereafter, during such year, 90% to
the Status Quo BAC Holders as a class and 10% to the General
Partners. The "Status Quo BAC Holders' Preference Amount" means
an amount equal to the total capital contributions of the Status
Quo BAC Holders to OTEF, reduced by any distributions of residual
proceeds previously made to them by OTEF, and further reduced by
all distributions of Status Quo Residual and Liquidation Proceeds
(defined below) made by OTEF II to the Status Quo BAC Holders.
Distributions of Residual Proceeds and Liquidation Proceeds.
All Residual Proceeds, which in general, means the cash OTEF II
receives from the sale of a Mortgaged Property or New Asset
("Sale") or the repayment of the principal and interest payable
upon maturity or remarketing of a Mortgage Revenue Bond
("Repayment") other than a Sale or Repayment that occurs in
connection with the liquidation of OTEF II, will be designated as
"Liquidity Residual Proceeds" to the extent such Residual
Proceeds relate to the Liquidity and New Assets and as "Status
Quo Residual Proceeds" to the extent that they relate to the
Status Quo Assets. The Liquidity Residual Proceeds, but not the
Status Quo Residual Proceeds, may be reinvested in New Assets at
the discretion of the Managing General Partner. The Liquidity
Residual Proceeds, to the extent they are not reinvested, and the
Status Quo Residual Proceeds will be applied and distributed
generally as described below.
Liquidity Residual and Liquidation Proceeds. The Liquidity
Residual Proceeds shall be applied to the payment of the expenses
allocable to the OTEF II BACs or reinvested in New Assets at the
discretion of the Managing General Partner, and to the extent not
so applied or reinvested, shall be available for distribution, in
which case such amounts generally shall be applied and
distributed in the following amounts and order of priority:
(a) 100% to the payment of all debts and obligations of
OTEF II that are then due and owing related to the
Liquidity and New Assets (other than loans from the General
Partners and their affiliates) and to any additions to the
Liquidity Working Capital Reserve that the Managing General
Partner may determine to be necessary;
<PAGE> 38
(b) 100% to the Liquidity BAC Holders as a class (other than
the holder(s) of the Affiliated OTEF II BACs) until the
Liquidity BAC Holders (other than the holder(s) of the
Affiliated OTEF II BACs) receive aggregate distributions
from Liquidity Residual Proceeds equal to the Liquidity BAC
Holders' Preference Amount;
(c) 100% to the holder(s) of the Affiliated OTEF II BACs in
an amount equal to $1,000 times the number of Affiliated
OTEF II BACs, less any prior distributions of Residual
Proceeds with respect to such Affiliated OTEF II BACs;
(d) 100% to the General Partners and their affiliates to
repay loans, if any, from them to OTEF II, with interest
thereon, except to the extent the proceeds of any such
loans were used to pay amounts relating to the Status Quo
Assets or OTEF II's ownership thereof;
(e) 100% to the General Partners until the General Partners
receive aggregate distributions from Liquidity Residual
Proceeds and Status Quo Residual Proceeds equal to the
General Partners' Preference Amount (generally, an amount
equal to the total capital contributions of the General
Partners to OTEF II reduced by all distributions of
Liquidity Residual and Liquidation Proceeds and Status Quo
Residual and Liquidation Proceeds); and
(f) the remainder, if any, 98% to the Liquidity BAC Holders
and 2% to the General Partners, except that the 2% return
to the General Partners generally is deferred until the
Liquidity BAC Holders receive an amount (when combined with
all prior distributions of Liquidity Cash Flow and
Liquidity Residual Proceeds) equal to an average annual
noncompounded return of 10% on the Liquidity BAC Holders'
Preference Amount.
Liquidity Liquidation Proceeds (which, in general, means all
cash receipts of OTEF II arising from the dissolution of OTEF II
and liquidation of the Liquidity and New Assets) generally will
be distributed in the same order of priority as Liquidity
Residual Proceeds, except the first application of Liquidity
Liquidation Proceeds will be to establish certain reserves.
If Liquidity Residual Proceeds or Liquidity Liquidation
Proceeds are insufficient to make any payment set forth in a
particular paragraph (b) though (f) above, then Liquidity
Residual Proceeds or Liquidity Liquidation Proceeds available to
make the payment will be distributed proportionately among the
parties entitled to the payment under such paragraph.
Status Quo Residual and Liquidation Proceeds. Status Quo
Residual Proceeds shall be applied to the payment of the expenses
allocable to the SQBs, and to the extent not so applied, shall be
available for distribution, in which case such amounts generally
shall be applied and distributed in the following amounts and
order of priority:
(a) 100% to the payment of all debts and obligations of
OTEF II that are then due and owing related to the Status
Quo Assets (other than loans from the General Partners and
their affiliates) and to any additions to the Status Quo
Working Capital Reserve that the Managing General Partner
may determine to be necessary;
(b) 100% to the Status Quo BAC Holders as a class (other than
the holder(s) of the Affiliated SQBs, if any) until the
Status Quo BAC Holders (other than the holder(s) of the
Affiliated SQBs, if any) receive aggregate distributions
from Status Quo Residual Proceeds equal to the Status Quo
BAC Holders' Preference Amount;
(c) 100% to the holder(s) of the Affiliated SQBs in an amount
equal to $1,000 times the number of Affiliated SQBs, less
any prior distributions of Residual Proceeds (and prior
distributions of residual proceeds by OTEF) with respect to
such Affiliated SQBs;
<PAGE> 39
(d) 100% to the General Partners and their affiliates to
repay loans, if any, from them to OTEF II, the proceeds of
which were used to pay amounts relating to the Status Quo
Assets or OTEF II's ownership thereof;
(e) 100% to the General Partners until the General Partners
receive aggregate distributions from Liquidity Residual
Proceeds and Status Quo Residual Proceeds equal to the
General Partners' Preference Amount; and
(f) 98% to the Status Quo BAC Holders as a class and 2% to
the General Partners until the Status Quo BAC Holders as a
class have received an amount (when combined with all prior
distributions of cash flow and residual proceeds) equal to
an average annual noncompounded return of 11% on the Status
Quo BAC Holders' Preference Amount, except that the amounts
otherwise payable to the General Partners hereunder shall
be deferred until the Status Quo BAC Holders as a class
have received an amount (when combined with all prior
distributions of cash flow and residual proceeds) equal to
an average annual noncompounded return of 10% on the Status
Quo BAC Holders' Preference Amount.
Status Quo Liquidation Proceeds (which, in general, means all
cash receipts of OTEF II arising from the dissolution of OTEF II
and liquidation of the Status Quo Assets) generally will be
distributed in the same order of priority as Status Quo Residual
Proceeds, except the first application of Status Quo Liquidation
Proceeds will be to establish certain reserves.
If Status Quo Residual Proceeds or Status Quo Liquidation
Proceeds are insufficient to make any payment set forth in a
particular paragraph (b) though (f) above, then Status Quo
Residual Proceeds or Status Quo Liquidation Proceeds available to
make the payment will be distributed proportionately among the
parties entitled to the payment under such paragraph.
Allocation of Profits and Losses. Liquidity Profits from
operations generally will be allocated between the Liquidity BAC
Holders and the General Partners as follows: first, in accordance
with distributions of Liquidity Cash Flow, until the cumulative
Liquidity Profits so allocated are equal to the cumulative
Liquidity Cash Flow distributions, and thereafter 2% to the
General Partners and 98% to the Liquidity BAC Holders. Liquidity
Losses from operations generally will be allocated 2% to the
General Partners and 98% to the Liquidity BAC Holders. Liquidity
Profits and Liquidity Losses arising from a Sale or Repayment
(including Liquidity Profits which represent the receipt of
interest income on a Mortgage Revenue Bond) or liquidation of
OTEF II generally will be allocated in a manner so as to cause
the Liquidity Capital Account balances of the General Partners
and Liquidity BAC Holders to equal the amounts that would be
distributable to them.
Status Quo Profits from operations generally will be allocated
between the Status Quo BAC Holders and the General Partners as
follows: first, in accordance with distributions of Status Quo
Cash Flow, until the cumulative Status Quo Profits so allocated
are equal to the cumulative Status Quo Cash Flow distributions,
and thereafter 2% to the General Partners and 98% to the Status
Quo BAC Holders. Status Quo Losses from operations generally are
allocated 2% to the General Partners and 98% to the Status Quo
BAC Holders. Status Quo Profits and Losses arising from a Sale
or Repayment of a Status Quo Asset (including Status Quo Profits
which represent the receipt of interest income on a Mortgage
Revenue Bond) or liquidation of OTEF II generally will be
allocated in a manner so as to cause the Status Quo Capital
Account balances of the General Partners and Status Quo BAC
Holders to equal the amounts that would be distributable to them.
The above allocations of Liquidity and Status Quo Profits and
Losses will be subject to compliance with the principles of the
Internal Revenue Code of 1986 (the "Code") sections 704(b)
(containing rules concerning the determination of a partner's
distributive share and capital account maintenance) and 704(c)
(containing rules for reflecting disparities in the adjusted tax
basis and the fair market value of property contributed or
revalued by a partnership) and the regulations promulgated
thereunder.
<PAGE> 40
Voting Rights After Issuance of SQBs
Both the Status Quo BAC Holders and the Liquidity BAC Holders
generally will continue to have voting rights with respect to
actions that could materially affect their rights or interests in
OTEF II, but neither will have voting rights with respect to
actions that would have no material effect on their rights or
their interests in OTEF II. The following discussion summarizes
the provisions in the OTEF II Partnership Agreement (as it will
be supplemented to reflect the rights and preferences of the
SQBs) relating to the voting rights of the BAC Holders and the
procedure for calling meetings of the BAC Holders.
Actions Subject to Approval by All BAC Holders. Both the
Liquidity BAC Holders and the Status Quo BAC Holders have the
right, voting as a single class, to vote on:
(a) removal of a General Partner of OTEF II and, if such
General Partner of OTEF II was the sole remaining General
Partner of OTEF II, election of a replacement therefor;
(b) dissolution of OTEF II;
(c) amendments to the OTEF II Partnership Agreement ("All BAC
Holder Amendments") that could adversely affect the rights
of both the Liquidity BAC Holders (or their interests in
the Liquidity Assets or New Assets) and the Status Quo BAC
Holders (or their interests in the Status Quo Assets); and
(d) in the case of the Status Quo BAC Holders, any matter
with respect to which the vote of the Liquidity BAC Holders
is solicited, other than any matters relating exclusively
to the Liquidity Assets or New Assets or the Liquidity and
Growth Plan, and in the case of the Liquidity BAC Holders,
any matter with respect to which the vote of the Status Quo
BAC Holders is solicited, other than any matters relating
exclusively to the Status Quo Assets.
Actions Subject to Approval by Liquidity BAC Holders. The
Liquidity BAC Holders also will have the right, without the
concurrence of the Status Quo BAC Holders or the General
Partners, to vote on:
<PAGE> 41
(a) the sale of all or substantially all of the Liquidity
Assets and New Assets, taken as a whole (except for any
sale of any property or asset securing a Mortgage Revenue
Bond or any sale approved by the IREC);
(b) amendments to the OTEF II Partnership Agreement, except
for: (i) All BAC Holder Amendments (with respect to which
the Liquidity BAC Holders will vote, together with the
Status Quo BAC Holders, as described above), and (ii)
amendments that could adversely affect the rights of the
Status Quo BAC Holders or their interests in the Status Quo
Assets, but would not materially affect the rights of the
Liquidity BAC Holders;
(c) the acquisition of control of any Management Entity or of
the assets of any Management Entity that is an affiliate of
the Managing General Partner, unless such acquisition is
incidental to the acquisition by OTEF II of New Assets, or
is incidental to the acquisition of any entity, the
principal assets of which are mortgage revenue bonds or
other related assets (and which is not itself a Management
Entity);
(d) the provision by OTEF II of, or the engagement of OTEF II
in, management services with respect to its assets (other
than those services provided by OTEF II in the ordinary
course of its business on and after June 25, 1995) unless
OTEF II obtains an opinion of the IREC with respect
thereto; and
(e) the termination of any contract for management services
provided to OTEF II by the Managing General Partner or its
affiliates.
Actions Subject to Approval by Status Quo BAC Holders. The
Status Quo BAC Holders will have the right, without the
concurrence of the Liquidity BAC Holders or the General Partners,
to vote on:
(a) the sale of all or substantially all of the Status Quo
Assets (except for any sale of any property or asset
securing a Mortgage Revenue Bond or for any sale approved
by the IREC); and
(b) amendments to the OTEF II Partnership Agreement, except
for: (i) All BAC Holder Amendments (with respect to which
the Status Quo BAC Holders will vote together with the
Liquidity BAC Holders, as described above), and (ii)
amendments that could adversely affect the rights of the
Liquidity BAC Holders or their interests in the Liquidity
Assets, but would not materially affect the rights of the
Status Quo BAC Holders.
Note 6. BAC Holder Rights Plan
OTEF II and the Managing General Partner entered into a BAC
Holder Rights Agreement dated May 30, 1995 with Crestar Bank
which governs the terms of the BAC Holder Rights Plan. Under the
BAC Holder Rights Plan, one Right was issued for each outstanding
OTEF II BAC to OTEF II BAC Holders of record immediately
following the distribution of the OTEF II BACs to the holders of
OTEF BACs. Each Right entitles the holder thereof to buy one
OTEF II BAC at an exercise price of $1,000, subject to
adjustment.
In the event that OTEF II issues additional OTEF II BACs, the
BAC Holder Rights Plan provides that Rights will be issued to the
holders of such OTEF II BACs in accordance with the BAC Holder
Rights Agreement. Rights will not be issued with respect to the
SQBs and the Rights previously issued with respect to OTEF II
BACs that are converted into SQBs will be canceled.
The Rights could cause substantial dilution to a person or
group that attempts to acquire OTEF II in a manner or on terms
not approved by the Managing General Partner and therefore may
make it more costly or difficult to acquire control of OTEF II,
which could have the effect of discouraging takeover attempts and
make it more difficult to remove the existing management of
OTEF II. The Rights, however, should not deter any prospective
offeror willing to negotiate in good faith with the Managing
General Partner.
As part of the settlement of the OTEF II Litigation, the
Managing General Partner has agreed to amend the OTEF II
partnership agreement to provide that, if the Managing General
Partner or an affiliate of the Managing General Partner (other
than OTEF II), initiates a tender offer in which the Managing
General Partner or its affiliate offers to purchase more than 10%
of the OTEF II BACs then outstanding, and at the time such tender
offer is initiated there is not pending any public offer to
purchase OTEF II BACs by any person, then the Managing General
Partner will not employ the OTEF II BAC Holder Rights Plan so as
to prevent the closing of any subsequent competing offer to
purchase OTEF II BACs that may be published and that is
outstanding prior to the published termination date of the tender
offer by the Managing General Partner or an affiliate (regardless
of any earlier termination of the offer by the Managing General
Partner or an affiliate).
Note 7. Investments in Bonds
As shown in the table below, as of December 31, 1996, OTEF II
owned four Existing MRBs and 10 new Refunding Bonds, all of which
are collateralized by Mortgage Loans on the Existing Mortgaged
Properties. The safekeeping and administration of the bonds is
performed by a custodian under the Custody Agreement and by
various trustees under the terms of the Trust Indentures.
Substantially all of the proceeds from the issuance of the
Existing MRBs were used to make Mortgage Loans to the Operating
Partnerships.
OTEF's rights under the Mortgage Loans are defined by, and
dependent on, the terms and conditions of the bonds. Each of the
Mortgage Loans is collateralized by a first mortgage on each of
the Existing Mortgaged Properties which, together with rents, has
been assigned to the indenture trustee of the bonds as collateral
for the benefit of OTEF as bondholder.
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,
<PAGE> 42
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 deposit into an
account available cash flow 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.
The Operating Partnerships have also made additional interest
payments on their Existing MRBs and funded certain costs
associated with the bond refundings from two additional sources:
advances made by Oxford Development Corporation ("Oxford")
pursuant to its operating deficit guarantees, and obligations of
Oxford and the Operating Partnerships under the Yield Maintenance
Reserve ("YMR") Agreement. At December 31, 1996, only $187,813
of YMR obligations were outstanding; these were satisfied in full
on
March 4, 1997. As previously discussed in prior reports, Oxford
is continuing to hold proceeds from the $2 million Treasury strip
bond received that it received on August 15, 1996. At December
31, 1996, Oxford was holding $1,924,432 of such proceeds 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.
<TABLE>
- ------------------------------------------------------------------------
Schedule of Investments in Bonds @ December 31,
- ------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Existing MRBs (not refunded as of
December 31, 1996) $ 40,288 $153,032 $176,599
A Bonds (refunded as of December 31, 1996) 65,781 0 0
B Bonds (refunded as of December 31, 1996) 46,963 0 0
- ------------------------------------------------------------------------
153,032 153,032 176,599
Adjustment for unrealized gains (losses) 62,497 10,968 (18,000)
- ------------------------------------------------------------------------
TOTAL $215,529 $164,000 $158,599
========================================================================
</TABLE>
Existing MRBs. As of December 31, 1996, OTEF II held Existing
MRBs for four of the Operating Partnerships. An additional two
refunding transactions were completed during the first quarter of
1997. It is expected that the refunding of the two remaining
Existing MRBs will close during 1997.
The term of each Existing MRB, and accordingly, each Mortgage
Loan is 24 years. The principal will not be amortized during the
term of the Existing MRB and will be required to be repaid in a
lump-sum balloon payment at the expiration of the bond term or at
such earlier time as OTEF II may require. Beginning on the first
day of the thirteenth year and continuing through the end of the
fourteenth year, OTEF II may require payment of all principal and
deferred interest due, upon 12 months' prior notice. In the
fifteenth year (if an Existing MRB has not been repaid earlier),
OTEF II will demand payment of principal and deferred contingent
interest due. Each Mortgage Loan is nonassumable and due on sale
of the Existing Mortgaged Property.
Existing MRB Interest. The primary source of cash receipts
for OTEF II is tax-exempt interest received from the Operating
Partnerships pursuant to their debt service obligations under the
bond documents and interest earned on OTEF II's cash reserves.
The Existing MRBs and the underlying Mortgage Loans continue to
provide for the payment of interest at an aggregate annual rate
of up to 16%, consisting of Base Interest and additional
Contingent Interest. Base Interest is owed at the rate of 8.25%
per annum, but is payable only to the extent funds are available
from cash flow and sale or refinance proceeds. Unpaid Base
Interest is deferred, with additional interest charged on such
deferred amounts at the rate of 8.25% per annum, compounded
monthly and payable from future cash flow and sale or refinancing
proceeds.
<PAGE> 43
As previously reported, under the 1988 OTEF Restructuring Plan
and the Debt Modification Agreements, dated as of April 12, 1995,
as amended, OTEF, OTEF II, the Operating Partnerships, and Oxford
entered into certain forbearance arrangements which modify many
of the terms of the Existing MRBs described above. At such time
as the Existing MRBs are refunded, the obligations of the Operating
Partnerships will be modified substantially as discussed below.
The table below sets forth the cumulative Unpaid Base Interest
and Interest on Unpaid Base Interest as of December 31, 1996 for
Existing MRBs:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
(In thousands) Interest on
Unpaid Unpaid
Base Base
Property Name/Partnership Name Interest Interest Total
- -----------------------------------------------------------------
<S> <C> <C> <C>
Northwoods (Middletown) $ 40 $ 729 $ 769
San Bruno (San Bruno) 65 722 787
The Harbour (Apollo) 983 2,309 3,292
Chambrel at Club Hill (Colonel I) 7,103 15,670 22,773
- -----------------------------------------------------------------
$8,191 $19,430 $27,621
=================================================================
</TABLE>
Under the equity method, no interest was accrued.
Additionally, no interest has been accrued under SFAS No. 115, as
collection is highly unlikely. For tax purposes, since the
collection of such interest is highly unlikely, recognition of
accrued interest income was suspended. However, prior to
this suspension, approximately $4 million of interest was
accrued for federal income tax purposes on certain Existing
MRBs. These Existing MRBs were refunded, and the Unpaid Base
Interest for the applicable Operating Partnerships was forgiven.
This forgiveness will have no financial statement impact.
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 will be 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%. 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.
Refunding Bonds (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 Partnerships, with
the entire principal balance due at maturity.
<PAGE> 44
<TABLE>
The Combined Rates on the Refunding Bonds over the next 10 years are as follows:
- ---------------------------------------------------------------------------------
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Akron 8.50% 8.76% 9.04% 8.38% 8.73% 9.07% 9.43% 9.82% 10.22% 10.65% 11.11%
Allview 7.38% 7.48% 7.77% 7.24% 7.54% 7.82% 8.12% 8.44% 8.77% 9.12% 9.50%
Colonel 4.36% 4.45% 4.61% 4.23% 4.90% 5.08% 5.26% 5.46% 5.66% 5.87% 6.09%
Fox Valley 7.12% 7.22% 7.50% 6.95% 7.23% 7.51% 7.79% 8.10% 8.42% 8.75% 9.11%
Middletown 7.28% 7.39% 7.67% 7.13% 7.42% 7.70% 8.00% 8.31% 8.64% 8.99% 9.36%
Ocala 8.50% 8.60% 8.94% 8.35% 8.70% 9.04% 9.39% 9.77% 10.17% 10.60% 11.05%
Schaumburg 6.05% 6.14% 6.38% 5.84% 6.09% 6.32% 6.56% 6.81% 7.08% 7.36% 7.65%
Southridge 5.23% 5.33% 5.53% 5.11% 5.32% 5.52% 5.72% 5.93% 6.16% 6.39% 6.64%
Tidewater 7.19% 7.29% 7.57% 6.98% 7.27% 7.56% 7.85% 8.16% 8.49% 8.84% 9.21%
Travis 5.33% 5.43% 5.63% 5.14% 5.36% 5.56% 5.76% 5.98% 6.21% 6.45% 6.70%
Westridge 6.12% 6.22% 6.46% 5.97% 6.22% 6.45% 6.69% 6.95% 7.22% 7.50% 7.80%
Williamsburg 7.64% 7.74% 8.05% 7.47% 7.78% 8.09% 8.40% 8.74% 9.09% 9.47% 9.86%
- ---------------------------------------------------------------------------------
</TABLE>
The Combined Rates decrease in the fourth year following
commencement of the date of refunding due to the sinking fund
payments under the Refunding Bonds and, thereafter, the Combined
Rates increase every year through the remaining term of the
Refunding Bonds.
<PAGE> 45
<TABLE>
<CAPTION>
Note 7. Investments in Bonds (continued)
Information on the Bonds as of December 31, 1996 and 1995 (in 000's) and the related properties is as follows:
1996 1995 Monthly
Carrying Value at 12/31/96 Unrealized Carrying Interest
Combined ------------------------------ --------------- Value ------------------
Maturity Face Existing Gain or Gain or @ Existing A B
Bond Investment Date Amount Bond A Bond B Bond Total (Loss) (Loss) 12/31/95 Bond Bond Bond
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REFUNDED BONDS:
Chesapeake Landing, November 2027 $ 25,450 $ 0 $13,102 $ 9,651 $ 22,753 $ 8,639 $3,233 $ 17,347 $ 0 $ 54 $ 98
Fox Valley-Oxford L.P.
Island Club, November 2027 11,300 0 5,744 4,550 10,294 5,669 2,878 7,503 0 23 46
Allview-Oxford L.P.
Reflections, November 2027 25,644 0 13,998 9,643 23,641 10,551 4,055 17,146 0 57 96
Tidewater-Oxford L.P.
Hunt Club, December 2027 20,270 0 8,732 5,391 14,123 1,367 33 12,789 0 36 54
Travis One-Oxford L.P.
Savannah Trace, November 2027 23,400 0 11,232 7,160 18,392 3,686 (1,576) 13,129 0 46 72
Schaumburg-Oxford L.P.
Windsor Park, November 2027 14,000 0 6,333 4,507 10,840 5,192 3,012 8,660 0 26 46
Westridge-Oxford L.P.
Windrift at Seaview Ridge, December 2027 29,430 0 11,258 8,117 19,375 939 (4,527) 13,909 0 46 82
Southridge-Oxford L.P.
Chambrel at Pinecastle, November 2027 9,500 0 5,458 4,494 9,952 4,495 5 5,462 0 22 45
Ocala-Oxford L.P.
Chambrel at Williamsburg, November 2027 25,000 0 13,708 10,280 23,988 8,551 (264) 15,173 0 56 103
Williamsburg-Oxford L.P.
Chambrel at Montrose, December 2027 12,800 0 7,354 6,112 13,466 4,991 (2,587) 5,888 0 30 61
Akron One Retirement- --------------------------------------------------------------------------------
Oxford L.P.
Subtotal Refunded Bonds $196,794 $ 0 $96,919 $69,905 $166,824 $54,080 $4,262 $117,006 $ 0 $396 $703
--------------------------------------------------------------------------------
(continued)
<PAGE> 46
Note 7. Investments in Bonds (continued)
Information on the Bonds as of December 31, 1996 and 1995 (in 000's) and the related properties is as follows:
1996 1995
Carrying Value at 12/31/96 Unrealized Carrying Monthly interest
Combined -------------------------------- ---------------- Value -----------------
Maturity Face Existing Gain or Gain or @ Existing A B
Bond Investment Date Amount Bond A Bond B Bond Total (Loss) (Loss) 12/31/95 Bond Bond Bond
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNREFUNDED BONDS (Existing Bonds):
Northwoods, October 2009 $ 21,700 $14,655 $ 0 $ 0 $ 14,655 $ 5,084 $ 5,303 $ 14,874 $149 $ 0 $ 0
Middletown-Oxford L.P.<F1>
San Bruno, November 2009 25,000 17,458 0 0 17,458 7,066 6,318 16,710 172 0 0
San Bruno-Oxford L.P. December 2009 1,060 740 0 0 740 300 268 709 7 0 0
The Harbour, November 2009 8,710 4,176 0 0 4,176 (788) (456) 4,507 60 0 0
Apollo-Oxford Associates L.P.
Chambrel at Club Hill, December 2009 25,430 11,676 0 0 11,676 (3,245) (4,727) 10,194 175 0 0
Colonel I-Oxford L.P.<F1> ---------------------------------------------------------------------------------
Subtotal Unrefunded Bonds $ 81,900 $48,705 $ 0 $ 0 $ 48,705 $ 8,417 $ 6,706 $ 46,994 $563 $ 0 $ 0
---------------------------------------------------------------------------------
Total Bonds $278,694 $48,705 $96,919 $69,905 $215,529 $62,497 $10,968 $164,000 $563 $396 $703
=================================================================================
<FN>
<F1> Subsequent to December 31, 1996, Middletown (January 29, 1997) and Colonel I (March 6, 1997) were refunded
consistent with the other 10 mortgage revenue bonds listed above. Additionally, approximately $78 million
in unpaid Base Interest and interest on Unpaid Base Interest was written-off.
</FN>
</TABLE>
<PAGE> 47
Note 8. Other Events
As previously reported, OTEF II and certain of its affiliates
(collectively "Defendants") are Defendants in putative class and derivative
lawsuits consolidated as In re Oxford Tax Exempt Fund Securities
Litigation, No. WMN 95-3643 (D.Md.). These complaints alleged
breach of OTEF's partnership agreement, breach of fiduciary duty
by the general partners, and breach of Federal and state
securities laws, and sought unspecified monetary damages and
various forms of equitable relief. The plaintiffs and the
Defendants in the consolidated action entered into a Stipulation
of Settlement (the "Settlement"), which was filed with the U.S.
District Court for the District of Maryland ("Court") on November
18, 1996. At a hearing held on November 21, 1996, the Court
entered an order granting preliminary approval of the Settlement
and providing certification for settlement purposes only of a
class consisting of all OTEF II BAC Holders as of the record
date. On January 31, 1997, the Court issued an order granting
final approval of the terms of the settlement of the OTEF II
litigation. An appeal was filed with the U.S. Court of Appeals
for the Fourth Circuit by an OTEF II BAC Holder who is appearing
pro se. The Managing General Partner believes this appeal is
without merit, although no assurances can be given as to the
outcome of this appeal.
In connection with the Settlement: (1) Defendants will
complete the refunding of the Existing MRBs in the manner
contemplated by the 1995 OTEF Restructuring Plan, and cause the
Operating Partnerships to grant OTEF II additional security for
the Refunding Bonds, (2) OTEF II will issue SQBs to those OTEF II
BAC Holders who made a timely election, (3) OTEF II will offer
the Status Quo BAC Holders an option to have OTEF II purchase or
redeem their SQBs in the future at a price of $540 per SQB, (4)
ORFG will relinquish certain fees that otherwise would have been
paid by the Operating Partnerships, (5) Defendants will grant
OTEF II a participation interest in certain receivables they hold
from the Operating Partnerships, and (6) Defendants have
consented to the court order, reforming or otherwise changing the
OTEF II partnership agreement in certain respects, and otherwise
imposing limitations on the rights and powers of OTEF II and its
Managing General Partner. The settlement also provides for a
release of all claims by and among the parties.
While the Defendants did not make any admission of wrongdoing,
they desired, by settlement of all controversies between and
among them, the Class and OTEF II, to avoid the risk, expense,
inconvenience, distraction, and delay of litigation. The Court
did not determine the merits of Plaintiffs' claims or the
defenses of the Defendants. The Settlement did not imply that
there has been or would be any finding of any violation of law or
that recovery could be had in any amount if the action were not
settled. In addition, Plaintiff's class counsel prosecuted the
OTEF II Litigation on behalf of the class on an entirely
contingent basis and have received no compensation for their
services from the inception of this litigation in November 1995
through the present. In light of the benefits conferred on
OTEF II, the Managing General Partner has agreed to the payment
by OTEF II of attorney's fees and reimbursement of expenses
incurred, in an amount not to exceed $2.5 million, which is
included in accounts payable and accrued expense.
Note 9. Subsequent Events
In connection with the Settlement,
the holders of approximately 13,000 BACs, representing
approximately 4.3% of the total outstanding BACs, elected to
exchange their OTEF II BACs for Status Quo BACs.
On January 29, 1997, OTEF II refunded the Existing MRB that is
collateralized by the Existing Mortgaged Property owned by
Middletown-Oxford Limited Partnership, effective January 1, 1997.
On March 6, 1997, OTEF II refunded the Existing MRB that is
collateralized by the Existing Mortgaged Property owned by
Colonel I-Oxford Limited Partnership, effective March 1, 1997.
On February 14, 1997, OTEF II made a quarterly cash
distribution of $3,642,796 or $11.90 per BAC (4.76% per annum on
the original $1,000 invested per BAC) to BAC Holders of Record as
of December 31, 1996. This distribution is consistent with the
distribution made for the previous seven quarters.
<PAGE> 48
<TABLE>
- ----------------------------------------------------------------------------
Distribution Information
- ----------------------------------------------------------------------------
The following table sets forth, on a quarterly basis, all distributions
declared by OTEF II and OTEF.
Amount Distributed<F1>
- ----------------------------------------------------------------------------
<CAPTION>
BAC General
Quarter Ended<F1> Per BAC Holders<F2> Partners
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
December 31, 1996 $ 11.90 $ 3,569,940 $ 72,856
September 30, 1996 $ 11.90 $ 3,569,940 $ 72,856
June 30, 1996 $ 11.90 $ 3,569,940 $ 72,856
March 31, 1996 $ 11.90 $ 3,569,940 $ 72,856
- ---------------------------------------------------------------------------
1995
December 31, 1995 $ 11.90 $ 3,569,940 $ 72,856
September 30, 1995 $ 11.90 $ 3,569,940 $ 72,856
June 30, 1995 $ 11.90 $ 3,569,940 $ 72,856
March 31, 1995 $ 11.90 $ 3,569,940 $ 72,856
- ---------------------------------------------------------------------------
1994
December 31, 1994 $ 11.25 $ 3,374,944 $ 68,876
September 30, 1994 $ 11.25 $ 3,374,944 $ 68,876
June 30, 1994 $ 11.25 $ 3,374,944 $ 68,876
March 31, 1994 $ 11.25 $ 3,374,944 $ 68,876
- ---------------------------------------------------------------------------
1993
December 31, 1993 $ 11.25 $ 3,374,944 $ 68,876
September 30, 1993 $ 10.94 $ 3,281,945 $ 66,979
June 30, 1993 $ 10.94 $ 3,281,945 $ 66,979
March 31, 1993 $ 10.94 $ 3,281,945 $ 66,979
- ---------------------------------------------------------------------------
1992
December 31, 1992 $ 10.94 $ 3,281,945 $ 66,979
September 30, 1992 $ 10.63 $ 3,188,947 $ 65,080
June 30, 1992 $ 10.63 $ 3,188,947 $ 65,080
March 31, 1992 $ 10.32 $ 3,095,948 $ 63,184
- ---------------------------------------------------------------------------
1991
December 31, 1991 $ 10.32 $ 3,096,000 $ 63,184
September 30, 1991 $ 10.32 $ 3,096,000 $ 63,184
June 30, 1991 $ 10.32 $ 3,096,000 $ 63,184
March 31, 1991 $ 10.32 $ 3,096,000 $ 63,184
- ---------------------------------------------------------------------------
1990
December 31, 1990 $ 10.32 $ 3,096,000 $ 63,184
September 30, 1990 $ 10.32 $ 3,096,000 $ 63,184
June 30, 1990 $ 10.32 $ 3,096,000 $ 63,184
March 31, 1990 $ 10.32 $ 3,096,000 $ 63,184
- ---------------------------------------------------------------------------
1989
December 31, 1989 $ 10.32 $ 3,096,000 $ 63,184
September 30, 1989 $ 10.32 $ 3,096,000 $ 63,184
June 30, 1989 $ 10.32 $ 3,096,000 $ 63,184
March 31, 1989 $ 10.32 $ 3,096,000 $ 63,184
- ---------------------------------------------------------------------------
1988
December 31, 1988 $ 10.32 $ 3,096,000 $ 63,184
September 30, 1988 $ 10.32 $ 3,096,000 $ 63,184
June 30, 1988<F3> $ 20.63 $ 6,189,000 $ 126,306
March 31, 1988 $ 20.63 $ 6,189,000 $ 126,306
- ---------------------------------------------------------------------------
(continued)
<PAGE> 49
Amount Distributed<F1>
- ---------------------------------------------------------------------------
BAC General
Quarter Ended<F1> Per BAC Holders<F2> Partners
- ---------------------------------------------------------------------------
1987
December 31, 1987 $ 20.63 $ 6,189,000 $ 126,306
September 30, 1987 $ 21.56 $ 6,468,000 $ 132,000
June 30, 1987 $ 21.56 $ 6,468,000 $ 132,000
March 31, 1987 $ 21.56 $ 6,468,000 $ 132,000
- ---------------------------------------------------------------------------
1986
December 31, 1986 $ 21.25 $ 6,375,000 $ 130,102
September 30, 1986 $ 21.25 $ 6,375,000 $ 130,102
June 30, 1986 $ 21.25 $ 6,375,000 $ 130,102
March 31, 1986 $ 21.25 $ 6,375,000 $ 130,102
- ---------------------------------------------------------------------------
1985
December 31, 1985<F4> $ 14.88 $ 3,894,287 $ 79,475
- ---------------------------------------------------------------------------
Total $ 597.72 $178,745,149 $3,647,865
===========================================================================
<FN>
<F1> Distributions in all cases were paid in the quarter
immediately following the quarter to which the distribution
relates.
<F2> The aggregate amount distributed to BAC Holders since
inception is $178,745,149, or approximately 60% based on an
original investment of $1,000 per BAC.
<F3> Excludes the $507,450 ($1.70 per BAC) distributed on August
15, 1988 as a return of capital.
<F4> Assumes BAC Holders were admitted on October 10, 1985.
</FN>
</TABLE>
<PAGE> 50
- ------------------------------------------------------------------
General Partnership Information
- ------------------------------------------------------------------
Legal Counsel
Shaw, Pittman, Potts & Trowbridge
Washington, D.C.
Independent Accountants
Coopers & Lybrand L.L.P.
Washington, D.C.
Transfer Agent and Registrar
MMS Escrow & Transfer Agency, Inc.
P.O. Box 7090
Troy, Michigan 48007-7090
Managing General Partner
Oxford Tax Exempt Fund II Corporation
7200 Wisconsin Avenue, 11th floor
Bethesda, Maryland 20814
The Annual Report on Form 10-K for the
year ended December 31, 1996, filed with
the Securities and Exchange Commission,
is available to BAC Holders and may be
obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
P.O. Box 7090
Troy, Michigan 48007-7090
(810) 614-4550
<PAGE> 51
- ------------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs
- ------------------------------------------------------------------
Please follow the instructions below to expedite the
reregistration or transfer of ownership of any OTEF II Beneficial
Assignee Interests ("OTEF II BACs") that you may own. Note that
no transfers or sales can be effected without the consent of the
Managing General Partner and the completion of the proper
documents.
To cover the costs associated with processing transfers, MMS
Escrow & Transfer Agency, Inc. ("MMS"), the transfer agent for
OTEF II, charges $25 for each transfer of OTEF II BACs between
related parties and $50 per seller for each transfer for
consideration (sale). The only exception is a transfer to a
surviving joint holder of BACs when the other joint holder
dies, in which case no fee is charged. MMS charges $150 for
the conversion of a BAC into a limited partner interest.
To transfer ownership of OTEF II BACs held in a Merrill Lynch
account, please have your Merrill Lynch financial consultant
contact Merrill Lynch Partnership Operations in New Jersey at
(201) 557-1619 to request the necessary transfer documents.
Merrill Lynch Partnership Operations will only accept calls
from your financial consultant. YOU MUST HAVE THE PROPER
TRANSFER DOCUMENTS FROM MERRILL LYNCH TO EFFECT A TRANSFER.
You must have your financial consultant contact Partnership
Operations, as OTEF Investor Services does not send out
transfer papers for BACs held in a Merrill Lynch account.
Investors who no longer hold OTEF II BACs in a Merrill Lynch
account should contact Investor Services at (810) 614-4550 or
P.O. Box 7090, Troy, Michigan 48007-7090, to obtain transfer
documents. YOU MUST OBTAIN THE PROPER TRANSFER DOCUMENTS FROM
INVESTOR SERVICES TO EFFECT A TRANSFER OF BACs WHICH YOU HOLD
PERSONALLY.
MMS does not issue paper certificates to investors who take
their OTEF II BACs out of their Merrill Lynch accounts. Paper
confirmations are issued instead. (Please note that
previously-issued OTEF paper certificates are no longer valid.
Investors who hold OTEF certificates may retain or discard
them, as they choose. It is no longer necessary to return
certificates to MMS when transferring ownership interests.)
If an individual who holds his or her OTEF II BACs directly
wishes to redeposit the BACs into a Merrill Lynch account, he
or she should send written instructions to Investor Services
after the Merrill Lynch account has been opened. OTEF II
Investor Services will then instruct Merrill Lynch to deposit
the BACs into the account.
Please remember to notify Investor Services in writing at the
address below or by calling (810) 614-4550 in the event you
change your mailing address or your financial consultant. We
can then continue to provide you and your representative with
timely information about your investment in OTEF II.
The Annual Report on Form 10-K for the year ended December 31,
1996, filed with the Securities and Exchange Commission, is
available to BAC Holders and may be obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
P.O. Box 7090
Troy, Michigan 48007-7090
(810) 614-4550
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1996 and the Statements of Income for the
year ended December 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,072
<SECURITIES> 215,529
<RECEIVABLES> 1,132
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,733
<CURRENT-LIABILITIES> 6,964
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 221,769
<TOTAL-LIABILITY-AND-EQUITY> 228,733
<SALES> 0
<TOTAL-REVENUES> 19,762
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,912
<EPS-PRIMARY> 48.71
<EPS-DILUTED> 48.71
</TABLE>
