<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
--------------------------------
Commission file number: 0-25600
--------------------------------
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1394232
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 654-3100
Securities registered pursuant to Section 12(b) of the Act:
Beneficial Assignee Interests
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interests
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ NO / /
At March 31, 1998, the following classes of beneficial assignee
interests of Oxford Tax Exempt Fund II Limited Partnership were
outstanding: (i) 7,185,200 beneficial assignee interests
("BACs") with an aggregate market value ($26.75 per share) of
$192,204,100, and (ii) 6,991 Status Quo BACs ("SQBs").
Index to Exhibits is found on page 3.
=================================================================
<PAGE> 2
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 10 through 13 of OTEF
II's Quarterly Report (Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three-month period ended March 31, 1998 is
incorporated herein by reference to sequentially numbered pages 6
through 9 entitled "Report of Management" included in OTEF II's
Quarterly Report (Unaudited).
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Information responsive to this Item regarding putative class
and derivative lawsuits is contained in Note 8 to Financial
Statements of the Form 10-K for the year ended December 31, 1997
filed by OTEF II.
Item 2. Changes in Securities.
Information responsive to this Item regarding changes in
securities is contained in Item 2 of the Form 10-Q/A for the
quarter ended March 31, 1997, filed by OTEF II.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of
Regulation S-K, see Exhibit Index on page 3 of this report.
(b) Reports on Form 8-K.
None.
No other items were applicable.
<PAGE> 3
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(20) Report furnished to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly
Report (Unaudited) dated March 31, 1998, follows on
sequentially numbered pages 5 through 18 of this report.
(27) Financial Data Schedule.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the registrant
Date: 5/15/98 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: 5/15/98 By: /S/ Francis P. Lavin
------- ------------------------------------------
Francis P. Lavin
Director and President
Date: 5/15/98 By: /S/ Robert B. Downing
------- ------------------------------------------
Robert B. Downing
Director and Executive Vice President
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
March 31, 1998
CONTENTS
Report of Management
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Instructions for Investors who wish to reregister or
transfer OTEF II BACs
<PAGE> 6
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Report of Management
- -----------------------------------------------------------------
The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("OTEF II" or the "Partnership"), as
of March 31, 1998, and its results of operations and cash flows
for the period then ended. This report and analysis should be
read together with the financial statements and related notes
thereto and the selected financial data appearing elsewhere in
this Quarterly Report.
Recent Developments
Distribution for the Quarter ended March 31, 1998. The
Managing General Partner declared, on March 18, 1998 a
distribution for the quarter ended March 31, 1998 in the amount
of $0.495 per BAC for the Liquidity BAC holders, and $12.38 per
Status Quo BAC (SQB) holders. These amounts are the same as have
been paid for the last two quarters.
Investment in New Assets. On March 10, 1998, OTEF II and an
affiliate executed definitive agreements for an investment
transaction ("Jacaranda Transaction") involving the acquisition
by OTEF II of approximately $7 million of debt secured by real
estate simultaneously acquired by such affiliate from a third
party. This transaction closed on April 30, 1998. In connection
with this transaction, Jacaranda-Oxford Limited Partnership
("Borrower"), a Maryland limited partnership, purchased
Harbour Town of Jacaranda, a 280-unit garden apartment community
located in Plantation, Broward County, Florida. The total
purchase price paid by the Borrower was approximately $18.75
million. The property is financed with $11.8 million of senior,
tax-exempt bonds that bear interest at a weekly floating rate
based on a spread over the applicable short-term, tax-exempt
securities index. The senior bonds are secured by a first
mortgage on the property and are currently held by third parties.
OTEF II may purchase these senior bonds at a future date.
At closing, OTEF II purchased from an unrelated third party
$4.2 million of subordinated, tax-exempt bonds, which currently
bear an annual fixed rate of interest of 6.25% and are secured by
a subordinated mortgage on the property. It is expected that the
interest rate on the subordinated, tax-exempt bonds held by OTEF
II will be increased to approximately 13% later this year.
At closing, OTEF II purchased a certificate from a grantor
trust, which represents all of the economic interest of the
trust. The trust made a taxable loan to the Borrower in the
amount of approximately $3.1 million bearing an annual fixed rate
of interest of 12%, with the option to make additional advances
in the future. This loan was used by the Borrower to fund a
portion of the purchase price for the property, as well as
various costs, expenses, capital improvements and reserves. This
loan is secured by a subordinated mortgage on the
property. The terms of this loan are anticipated to result in
substantially all of the property's current and expected future
increases in cash flow, remaining after payment of debt service
on the senior and subordinated bonds, and property value being
paid to OTEF II as interest on this loan.
As previously reported, at the end of 1997, OTEF II acquired
the tax-exempt bonds secured by apartment communities owned by
Carpenter-Oxford Associates Limited Partnership ("Carpenter
Partnership") and Dallas-Oxford Associates Limited Partnership
("Dallas Partnership"). In connection with this transaction,
OTEF II agreed to make taxable loans to these partnerships in the
aggregate amount of approximately $1.6 million. On January 5,
1998, OTEF II loaned an aggregate $0.9 million to the Carpenter
Partnership and the Dallas Partnership. It is anticipated that
the additional $0.7 million will be loaned at the time of
refunding or restructuring of the tax-exempt bonds, possibly
later this year. The weighted average combined coupon
rate on the Dallas and Carpenter bonds is 7.54%, and the
taxable loan rate is 9.3%. Due to the discounted
purchase price, the yield to OTEF II is higher than the stated
coupon rates on these bonds.
Financing Transactions. On February 19, 1998, OTEF II closed
an additional securitization transaction involving $12.8 million
of Series A Bonds collateralized by one property, and OTEF II
purchased a subordinated security in this transaction.
Substantially all of the net proceeds of this transaction were
used by OTEF II in connection with the Jacaranda Transaction.
The portion of the net proceeds from this transaction that is not
invested in new assets is temporarily invested in liquid tax-
exempt money market securities.
Status Quo BACs. Effective April 1, 1997, OTEF II issued SQBs,
representing 12,587 shares, in uncertificated, book-entry form.
During 1997, a total of 5,494 SQBs were redeemed for a cost of $
3.0 million. During the first quarter of 1998, an additional 102
SQBs were redeemed at $540 per share, leaving 6,991 SQBs
outstanding at March 31, 1998.
<PAGE> 7
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Report of Management
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The Information Memorandum states that, subject to receipt of
a fairness opinion from OTEF II's independent real estate
consultant, all outstanding SQBs will be purchased or redeemed by
OTEF II at such time as the Managing General Partner believes
that it would be in the best interests of OTEF II and the holders
of the non-tendered SQBs, but in no event later than December 31,
2003, which date may be extended under certain circumstances.
The purchase or redemption price will be the fair market value of
the Status Quo Assets at the time of purchase or redemption, less
the costs of sale. The Managing General Partner has undertaken
an analysis of whether such a purchase or redemption by OTEF II
would be in the best interests of the SQB Holders and OTEF II at
the present time and, in connection therewith, is reviewing all
ownership attributes of the SQBs. The Managing General Partner
expects to complete its analysis later this year.
Liquidity and Capital Resources
Current Position. OTEF II uses the interest income it
receives from Refunding Bonds, Existing MRBs, New Assets (as
defined below), and cash reserves to make periodic cash
distributions to its General Partners, OTEF II BAC Holders and
SQB Holders, pay administrative expenses and fund reserves, as
well as the costs associated with the implementation of the 1995
OTEF Restructuring Plan, and acquire New Assets and pay the costs
and expenses relating to such acquisitions. In connection with
the settlement of the OTEF II litigation discussed in prior
reports, OTEF II is required to make a final payment to
plaintiff's counsel in the approximate amount of $1.5 million
upon the expiration of all appeal periods and dismissal of the
state court action, provided that no further appeals are filed.
Assuming these conditions are met, it is anticipated that this
payment will be made in June of 1998.
As of March 31, 1998, OTEF II held approximately $21 million
in cash and cash equivalents, an increase of $9 million, or
approximately 76%, from the $12 million in cash and cash
equivalents held as of December 31, 1997. This increase in
OTEF II's cash and cash equivalents was primarily the result of
the $9 million of net proceeds generated from the first quarter
of 1998 financing transaction described above. Primarily, due to
this financing, total liabilities of OTEF II shown on the
balance sheet increased by $10 million to approximately $44
million as of March 31, 1998 from $34 million at December 31,
1997.
Investment in New Assets. The Managing General Partner
intends to invest primarily in additional tax exempt mortgage
revenue bonds and securities of other entities, which primarily
hold tax-exempt mortgage revenue bonds. OTEF II also may invest
in multifamily real estate, senior living facilities or
residential health care facilities, or other direct or indirect
debt or equity interests in such real estate, some of which may
give rise to taxable income (all of the foregoing are referred to
collectively as "New Assets"). See "Recent Developments" for
additional information regarding New Assets.
OTEF II generally will acquire additional mortgage revenue
bonds and taxable bonds that are not rated by any of the
nationally recognized rating agencies (such as Moody's Investor
Services, Inc. or Standard & Poor's Ratings Group) and that are
not credit-enhanced at the time of acquisition, although OTEF II
may seek to have all or a portion of such bonds credit-enhanced
or rated at a future date. It also is expected that OTEF II may
invest in bonds, including bonds that may be secured by bonds or
mortgages that are subordinated to senior bonds or mortgages held
by third parties, on terms that may permit it, in some cases, to
participate (either through stepped interest rates or otherwise)
in the future growth and increase in value of the properties
financed by such bonds.
Refunding Bonds. As of March 31, 1998, twelve of the fifteen
existing mortgage revenue bonds ("Existing MRBs") have been
refunded, representing 88% of the combined face amounts of the
Existing MRBs and Refunding Bonds portfolio.
The Refunding Bonds currently held by OTEF II are structured
so as to consist of senior bonds ("Series A Bonds") and
subordinated bonds ("Series B Bonds"). This senior/subordinated
structure has permitted OTEF II to undertake one or more
financings, pursuant to which it will sell all or a portion of
the Series A Bonds, or interests therein, that are allocable to
the OTEF II BACs ("Liquidity Assets"), or issue debt that may be
secured by such assets, New Assets or both. The net proceeds
from these financings will be invested in New Assets, as
discussed below. OTEF II will retain the related Series B Bonds
for the benefit of the Liquidity BAC Holders, and will retain
both the senior Series A Bonds and the subordinated Series B
Bonds, or interests therein, allocable to the SQBs ("Status Quo
Assets") for the benefit of the SQB Holders.
<PAGE> 8
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Report of Management
- -----------------------------------------------------------------
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.
In the current rate mode, Series A Bond interest is set initially
at closing of the refundings and reset annually thereafter 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 was 4.9%. The interest rate on the
Series A Bonds retained by OTEF II were reset to 4.8%, 4.85%,
4.9% or 4.95% depending on the annual reset date. The interest
rate on the Series A Bonds involved in the financing transactions
described above in this report was converted from annual reset to
a weekly floating rate based on a spread over the PSA index. 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
Partnership, with the entire principal balance and any unpaid
interest due at maturity.
Combined Rate. The Combined Rate represents that portion of
each Property's projected Cash Flow Before Debt Service ("CFBDS")
for each year (projected at the time of the refunding of each
Existing MRB) that may be applied to interest on the combined
Series A Bonds and Series B Bonds. The 1998 weighted average
Combined Rate for the 12 Refunding Bonds is 6.62%. See Note 7 to
the 1997 Annual Report for a schedule of Combined Rates of the
Refunding Bonds over the next ten years.
Other Sources. In connection with the closing of the Refunding
Bonds, the applicable Operating Partnerships entered into certain
pooling agreements which may provide under certain circumstances
additional sources of funds to enable them to pay their
respective debt service on the Series A Bonds and the Series B
Bonds and related fees and expenses. As of March 31, 1998, the
aggregate amount of net excess cash flow held in the Operating
Partnership escrows was approximately $1.6 million, compared to
$1.1 million at the end of 1997. As discussed in prior reports,
in connection with the closing of the Oxford/NHP transaction in
1993, Oxford committed certain proceeds of such closing to
satisfy certain obligations it had to the OTEF Operating
Partnerships. Of this commitment, $1.3 million remains as of
March 31, 1998. The Managing General Partner anticipates that
the remaining balance will be advanced to certain Operating
Partnerships to help defray the costs of refunding the remaining
Existing MRBs, increase property improvement reserves and create
operating reserves, as deemed necessary by the Managing General
Partner.
Financing Transactions. On August 22, 1997, OTEF II closed
the first of a series of transactions that has enabled it to
acquire New Assets in accordance with the Liquidity and Growth
Plan. OTEF II securitized approximately $39 million of Series A
Bonds collateralized by four properties. OTEF II retained all of
its interest in the corresponding Series B Bonds. In addition,
OTEF II applied approximately $12 million of the proceeds to the
purchase of a subordinated security in this transaction. OTEF II
also retained certain rights to reacquire the securitized assets.
On February 19, 1998, OTEF II closed an additional securitization
transaction involving $12.8 million of Series A Bonds
collateralized by one property, and OTEF II purchased a
subordinated security in that securitization transaction. The
portion of the net proceeds from these transactions that is not
invested in New Assets is temporarily invested in liquid tax-
exempt money market securities.
<PAGE> 9
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Report of Management
- -----------------------------------------------------------------
In connection with these transactions, OTEF II converted the
interest rate mode on the Series A Bonds from an annual
reset to weekly floaters. In the first transaction, OTEF II also
purchased a three-year interest rate cap on a notional amount of
approximately $27 million to minimize the effects of interest
rate volatility. Under this arrangement, if the average short-
term, tax-exempt interest rates for any month during the term of
the cap increase above a specified level (6%), the counter-party
to the interest rate cap transaction is required to pay directly
to OTEF II the amount by which such rates exceed the specified
level.
For financial statement purposes, these transactions are
accounted for as financing transactions. The amount of the
Series A Bonds financed during 1997 of approximately $39 million
and 1998 of approximately $12.8 million are reflected as
Securities Held in Trust, the net cash proceeds are classified as
Cash and Cash Equivalents and the difference between the
principal amount of the Series A Bonds financed and the principal
amount of the subordinated interest acquired by OTEF II is
classified as financing debt. The financing debt bears interest
at the Public Securities Association ("PSA") weekly floating bond
index plus approximately 80 to 85 basis points, which averaged
4.46% from the date of closing through December 31, 1997 and
4.03% for the first quarter of 1998. Costs associated with these
financing transactions are being amortized over 10 years for
financial statement purposes, and costs associated with the
interest rate cap are being amortized over the life of the
interest rate agreement, which is 3 years. For federal income
tax purposes, these transactions are treated as sales by OTEF II
of the applicable Series A Bonds and a purchase of the
subordinated interests. With respect to the first transaction,
the sale of the Series A Bonds resulted in a 1997 capital loss
for federal income tax purposes of approximately $3.8 million.
Information regarding the federal income tax consequences of
financing transactions completed during 1998 will be provided
later this year.
Existing MRBs. As of March 31, 1998, OTEF II held Existing
MRBs for two of the Operating Partnerships. It is expected that
the refunding of at least one of the Operating Partnership's
Existing MRBs will close in 1998.
Results of Operations
OTEF II's Operations
OTEF II Distributions. Distributions to Partners will amount
to approximately $3.7 million, or $0.495 per Liquidity BAC and
$12.38 per SQB holders of record as of March 31, 1998.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income and Net Income per Liquidity BAC was $4.6
million and $0.61, respectively, for the three-month period ended
March 31, 1998, as compared to $4.3 million and $0.56,
respectively, for the three-month period ended March 31, 1997.
The increase is the result of additional interest on New Assets
and taxable loans exceeding the costs associated with the
implementation of the Liquidity & Growth Plan that were not
incurred in the prior comparative period. Due to OTEF II's
conversion of a portion of the BACs to SQBs, effective April 1,
1997, there were 7,499,875 BACs outstanding in the first
quarter of 1997 compared to 7,185,200 in the first quarter of
1998. Beginning in 1998, the relative portion of OTEF II's
administrative costs allocated to SQB Holders increased due to
the adoption by the Managing General Partner of a new cost
allocation methodology designed to reflect the actual time
incurred to service the SQB Holders. During the period from
April 1, 1997 to December 31, 1997, these administrative costs
were allocated based upon the ratio of SQB Holders to BAC
Holders. After consultation with OTEF II's outside auditors,
the Managing General Partner believes that this new methodology
is more equitable to all parties.
<PAGE> 10
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
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Balance Sheets (in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
March 31, 1998
(Unaudited) December 31, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in tax-exempt securities $204,513 $217,159
Investments in tax-exempt securities
held in trust 51,600 38,820
Cash and Cash equivalents 20,617 11,694
Bond and other interest receivable 1,531 1,439
Other assets 2,967 1,551
- -----------------------------------------------------------------------------
Total Assets $281,228 $270,663
=============================================================================
Liabilities and Partners' Capital
Liabilities
Financing debt $ 36,759 $ 27,174
Accounts payable and accrued expenses 3,050 2,988
Distributions payable 3,718 3,719
- -----------------------------------------------------------------------------
Total Liabilities 43,527 33,881
- -----------------------------------------------------------------------------
Partners' Capital
General Partners' Interests (2,339) (2,356)
Limited Partners' Interests:
Beneficial Assignee Interests (7,499,875
interests issued and 7,185,200 interests
outstanding as of March 31, 1998) 157,492 156,672
Status Quo BAC Interests (12,587 interests
issued as of April 1, 1997, 7,093
interests outstanding as of December 31,
1997 and 6,991 interests outstanding as
of March 31, 1998) 3,832 3,885
Accumulated other comprehensive income 78,716 78,581
- -----------------------------------------------------------------------------
Total Partners' Capital 237,701 236,782
- -----------------------------------------------------------------------------
Total Liabilities and Partners' Capital $281,228 $270,663
=============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 11
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Statements of Income and Comprehensive Income (in thousands,except per
(Unaudited) Liquidity BAC amounts)
Three months ended
March 31,
-----------------------
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Revenues
Interest on tax-exempt securities $4,727 $4,605
Interest on tax-exempt securities held in trust 474 0
Other, primarily interest 141 91
- -----------------------------------------------------------------------------
Total Revenues 5,342 4,696
- -----------------------------------------------------------------------------
Expenses
Governance and administrative expenses (234) (332)
Litigation and settlement costs (5) (98)
Liquidity and growth expenses (215) 0
Finance interest expense (331) 0
- -----------------------------------------------------------------------------
Total Expenses (785) (430)
- -----------------------------------------------------------------------------
Net income $4,557 $4,266
=============================================================================
Other comprehensive income:
Unrealized gains on investments 135 2,387
=============================================================================
Comprehensive income $4,692 $6,653
=============================================================================
Weighted Average Liquidity BACs outstanding 7,185 7,500
=============================================================================
Net income allocated to Liquidity BACs $4,377 $4,181
=============================================================================
Net income per Liquidity BAC<F1> $0.609 $0.558
=============================================================================
Weighted Average Liquidity BACs outstanding-assuming
dilution<F2> 7,262 N/A
=============================================================================
Net income per Liquidity BAC-assuming dilution<F2> $0.603 N/A
=============================================================================
Distribution per Liquidity BAC<F1> $0.495 $0.476
=============================================================================
<FN>
<F1> Prior periods Liquidity BAC interest amounts have been restated to
reflect the 25-for-1 stock split which occurred on July 1, 1997 and
amounts presented are after allocation of net income to General
Partners and Status Quo BAC holders. (See Note 3 for the SQB
Statement of Income).
<F2> Reflects the dilutive effect of unexercised stock options granted
in the second quarter of 1997.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 12
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
Partners' Limited
Interests
-------------------- Accumulated
Beneficial Status Other
General Assignee Quo BAC Comprehensive
Partners Interests Interests Income Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $(2,356) $156,672 $3,885 $78,581 $236,782
=============================================================================
SQB Redemption 0 0 (55) 0 (55)
Net Income, including
$0.609 per Liquidity BAC
<F1> and $12.63 per SQB 91 4,377 89 0 4,557
Unrealized gains on
investments 0 0 0 135 135
----------------------------------------------------
Comprehensive income 91 4,377 34 135 4,637
Distributions payable to
Partners including $0.495
per Liquidity BAC <F1> and
$12.38 per SQB (74) (3,557) (87) 0 (3,718)
=============================================================================
Balance, March 31, 1998
(Unaudited) $(2,339) $157,492 $3,832 $78,716 $237,701
=============================================================================
<FN>
<F1> Liquidity BAC share amounts reflect the 25-for-1 stock split which
occurred on July 1, 1997.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 13
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Statements of Cash Flows (in thousands)
(Unaudited)
Three months ended
March 31,
------------------------
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 4,557 $ 4,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
Interest receivable and other (91) (219)
Accounts payable and accrued expenses 62 (499)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 4,528 3,548
- -----------------------------------------------------------------------------
Investing Activities
Increase in other assets<F1> (1,416) 0
Redemption of SQB interests (55) 0
- -----------------------------------------------------------------------------
Net cash used in investing activities (1,471) 0
- -----------------------------------------------------------------------------
Financing activities
Net proceeds from debt refinancing 9,585 0
Distributions paid (3,719) (3,643)
- -----------------------------------------------------------------------------
Net cash provided (used) by financing activities 5,866 (3,643)
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,923 (95)
Cash and cash equivalents, beginning of period 11,694 12,072
- -----------------------------------------------------------------------------
Cash and cash equivalents, end of period $20,617 $11,977
=============================================================================
<FN>
<F1> Other assets represent deferred costs incurred in association with the
Liquidity & Growth Plan financing transactions, prepaid items, and
short-term promissory note associated with the OTEF II Litigation
settlement, which are not recurring operating activities.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 14
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in the
opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("OTEF II" or the "Partnership"), are
necessary to present fairly OTEF II's financial position as of
March 31, 1998 and December 31, 1997, the Statements of Income
and Comprehensive Income for the three-month periods ended March
31, 1998 and 1997, the Statement of Partners' Capital as of March
31, 1998, and the Statements of Cash Flows for the three-month
periods ended March 31, 1998 and 1997, and the notes thereto, in
accordance with generally accepted accounting principles. These
statements should be read in conjunction with the audited
financial statements and notes included in the Partnership's
Annual Report for the year ended December 31, 1997.
In February 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which changed the reporting of earnings per
share beginning in the fourth quarter of 1997. Basic earnings
per share, a measure required by the new standard, does not
include stock options as common stock equivalents. However
diluted earnings per share includes the effect of stock options.
Note 2. Business
The Partnership was formed under the laws of the State of
Maryland in February, 1995, in connection with a plan (the "1995
OTEF Restructuring Plan") to restructure Oxford Tax Exempt Fund
Limited Partnership, a Maryland limited partnership ("OTEF, "
"Predecessor, " or "OTEF II's predecessor"). Oxford Tax Exempt
Fund II Corporation, a Maryland corporation, is the Managing
General Partner of OTEF II (the "Managing General Partner").
OTEF II Associates Limited Partnership, a Maryland limited
partnership, is the associate general partner of OTEF II
(together with the Managing General Partner, the "General
Partners").
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners of OTEF II are required to report on their
individual tax returns their allocable share of taxable income,
gains, losses, deductions, and credits of OTEF II.
Valuation of Bonds. The Managing General Partner estimated at
March 31, 1998 that the fair value of the 12 Series A and Series
B Bonds, the two Existing MRBs, and the newly acquired Dallas and
Carpenter bonds was approximately $256.1 million and,
accordingly, OTEF II recorded a credit to Partners' Capital in an
amount equal to approximately $78.7 million of unrealized gain on
investments. This represents an increase of approximately $0.1
million since December 31, 1997. The Managing General Partner
determined these values using the same cash flow methodology
applied by a major investment banking firm in connection with
structuring advice rendered to OTEF II and its predecessor with
respect to the 1995 OTEF Restructuring Plan. The Series A Bonds
are valued at par based on comparable municipal bond securities,
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. The newly
acquired Dallas and Carpenter Bonds are valued at their original
purchase price on December 30, 1997.
Net Income and Distributions per Beneficial Assignee Interest
(BAC) and SQB. Net income and distributions per BAC and net
income and distributions per Status Quo BAC ("SQB") are based
upon the weighted average number of BACs and SQBs outstanding
during the applicable period. For the first quarter of 1997 there
were 7,499,875 BACs outstanding. On April 1, 1997, 314,675 BACs
were converted to 12,587 SQBs, leaving 7,185,200 Liquidity BACs
outstanding at September 30, 1997 through March 31, 1998. During
1997, 5,494 SQBs were redeemed for a total cost of $3.0 million.
An additional 102 SQBs were redeemed during the first quarter of
1998, leaving 6,991 SQBs outstanding at March 31, 1998.
<PAGE> 15
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Notes to Financial Statements
- -----------------------------------------------------------------
Comprehensive Income. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which requires
the reporting of comprehensive income as part of a full set of
financial statements. Comprehensive income includes both "Net
Income" and "Other Comprehensive Income". OTEF's only source of
"other comprehensive income" is related to the valuation of its
tax-exempt investments to market which results in unrealized
gains or losses previously charged to an equity account under
SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities". SFAS 130 does not require presentation of
comprehensive earnings per share. For the three month period
ended March 31, 1998, OTEF recorded "Other Comprehensive Income"
from unrealized gains on its investment in tax-exempt securities
of $0.14 million and $2.4 million for the same period in 1997.
Cumulative "Other Comprehensive Income" from unrealized gains on
investments were $78.7 million and $64.9 million at March 31,
1998 and 1997, respectively.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity
during the reporting period. The statements do not reflect
investing and financing activity that affect recognized assets or
liabilities that do not result in cash receipts or cash payments
during such period, including distributions payable to Partners,
SQB Holders, and OTEF II BAC Holders of approximately $3.7
million at March 31, 1998 and $3.6 million at March 31, 1997.
Cash and cash equivalents. Cash and cash equivalents consist
of all demand deposits and tax-exempt money market funds stated
at cost, which approximates market value, with original
maturities of three months or less.
Accounting for Status Quo Interests. The SQBs are designed to
replicate, to the extent possible, the economic interest that the
holders of the SQBs (the "Status Quo BAC Holders") would have had
in the Existing MRBs, as refunded, if the partnership agreement
for Oxford Tax Exempt Fund Limited Partnership ("OTEF"), OTEF
II's predecessor, had continued to govern and the Liquidity and
Growth Plan was not implemented.
For financial statement purposes, the SQBs are treated as a
separate class of security and, accordingly, net income allocated
to SQB holders, net income per SQB, and distributions per SQB are
reflected separately from the OTEF II BAC Holders on the
Statement of Partners' Capital. The SQBs were not split as were
the OTEF II BACs on July 1, 1997. The redeemed SQBs are
reflected as a reduction of Partners' Capital and were offset
against the SQB Holders' interests when redeemed.
The SQB Holders do not share in the growth or other benefits
expected to be achieved under the Liquidity and Growth Plan. In
addition, the SQBs will not be allocated any capital losses for
federal income tax purposes that may result from the disposition
of the Refunding Bonds or interests therein or new assets in
connection with a financing undertaken pursuant to the Liquidity
and Growth Plan. A schedule of SQB income as of March 31, 1998
is as follows:
<TABLE>
- -----------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME
(in thousands, except per SQB interest amounts)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Pro Forma
Three Three
Months Months
Ended Ended
March 31, March 31,
1998 1997<F1>
---------------------
<S> <C> <C>
Revenues
Interest on Bonds $ 109 $ 189
Other Interest 3 4
- -----------------------------------------------------------------
112 193
Expenses
Governance and Administration (22) (4)
Litigation expenses (1) (13)
- -----------------------------------------------------------------
Net income to SQB holders $ 89 $ 176
=================================================================
Other comprehensive income:
Unrealized gains on investment
in tax-exempt securities 3 100
=================================================================
Comprehensive income $ 92 $ 276
=================================================================
Weighted average SQB shares outstanding 7,025 12,587
=================================================================
Net income per SQB interest $12.63 $ 13.98
=================================================================
Distribution per SQB interest $12.38 $ 11.90
=================================================================
<FN>
<F1> Since the SQBs were issued on April 1, 1997, there are no
actual comparative results of SQB operations for the three
months ended March 31, 1997. This Pro Forma presentation
includes the SQB holders' earnings for the first quarter
of 1997 year, before their Beneficial Assignee Certificates
(BACs) were converted to SQBs.
</FN>
</TABLE>
<PAGE> 16
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 4. Related Party Transactions
Interests in OTEF II and the Operating Partnerships. The
General Partners own interests in OTEF II that entitle them to
receive a share of OTEF II's cash flow and possibly of sale,
refinancing and liquidation proceeds. Distributions to the
General Partners totaled approximately $74,000 for March 31, 1998
and $73,000 for the same period in 1997.
Affiliates of the Managing General Partner that are general
and limited partners of the various real estate-owning limited
partnerships (collectively, the "Operating Partnerships") whose
property collateralizes or secures the tax-exempt bonds held by
OTEF II 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,
cash flow attributable to these interests will be pledged for the
benefit of OTEF II relative to the repayment of the Refunding
Bonds and all interest thereon.
Compensation and Fees. For the three-month periods ended
March 31, 1998 and 1997, certain of the Operating Partnerships
paid ORFG total asset management fees of approximately $0.18
million and $0.15 million, respectively. During the three-month
periods ended March 31, 1998 and 1997, the Operating Partnerships
also paid ORFG, in the aggregate, approximately $0.17 million of
fees pursuant to the OTEF Restructuring Plan Administration/Asset
Management Fee Agreement, which amount is equal to 0.25% per
annum of the principal amount of the existing MRB's and Refunding
Bonds collateralized by the properties owned by the related
Operating Partnerships.
In connection with OTEF II's investment in New Assets, ORFG is
entitled to an acquisition fee of 1-2.5% of the purchase price
(depending on the type of transaction) for finding, analyzing and
acquiring New Assets, which is payable on the closing of any
transaction in which OTEF II acquires a New Asset. OTEF II also
will pay ORFG an annual advisory fee equal to 0.5% of the
purchase price for managing OTEF II's New Assets after their
acquisition. During the first quarter, OTEF II accrued advisory
fees in the amount of $0.03 million payable to ORFG in connection
with the Dallas and Carpenter transaction. At March 31, 1998, no
acquisition fee had been paid to ORFG.
<PAGE> 17
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Expense Reimbursements. The Operating Partnerships and OTEF
II also reimburse ORFG for certain expenses it incurs in
providing services with respect to (i) the Existing Mortgaged
Properties, (ii) the investment in New Assets, (iii) the sale or
disposition of the Refunding Bonds, and (iv) the administration
of OTEF II's affairs. Total reimbursements to the General
Partners and their affiliates for the three-month period ended
March 31, 1998 and 1997, were approximately $0.17 million ($0.08
million amount is in Liquidity & Growth expenses) and $0.09
million, respectively. Such reimbursable amount is determined
based on the actual time the officers and employees devote to
OTEF II based upon their respective salaries.
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "Incentive Option Plan") in order for
the Managing General Partner to attract and retain key employees
and advisers. The Incentive Option Plan authorizes the granting
to the directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase 652,125
OTEF II BACs (on a post-split basis), representing approximately
8.3% of the outstanding OTEF II BACs on a fully diluted basis.
Such options are exercisable for 10 years. The Managing General
Partner has awarded all of the OTEF II BACs authorized under the
terms of the Incentive Option Plan. Of the 652,125 options,
613,000 were fully vested upon issuance, 13,042 vested on January
1, 1998 and 26,083 are vested equally over 2 years commencing
January 1, 1999. The exercise price for all options is $23.88
per BAC. As of March 31, 1998, assuming the fully vested options
were exercised on March 31, 1998 at $26.75 per OTEF II Liquidity
BAC, the compensation expense is approximately $1.8 million,
which amount is being amortized over the life of the options in
accordance with the Statement of Financial Accounts Standards No.
123. For the three month period ending March 31, 1998
approximately $0.05 million has been charged to Liquidity and
Growth expenses for such compensation expense.
Note 5. Subsequent Events.
Distributions: On May 15, 1998, the Managing General Partner
paid a distribution of $0.495 per Liquidity BAC and $12.38 per
SQB to holders of record as of March 31, 1998.
New Asset Acquisition: On April 30, 1998, the Jacaranda
Transaction closed.
On May 6, 1998, an affiliate of OTEF II executed a definitive
agreement for an investment transaction involving the acquisition
by OTEF II of approximately $7.5 million of debt secured by real
estate that will be simultaneously acquired by such affiliate
from a third party. It is anticipated that this transaction will
close in the near future, subject to satisfaction of customary
closing conditions. Although OTEF II believes that these
conditions will be satisfied, no assurances can be given. In
connection with this transaction, Summerwalk Properties, L.L.C.
("Borrower"), a Maryland limited liability company which is an
affiliate of OTEF II, will purchase Summerwalk at the Crossing
Apartments, a 264-unit garden apartment community located in
Tucker, Georgia, a northeastern suburb of Atlanta, for $16.65
million. The property is financed with $10 million of tax-exempt
bonds that bear interest at an adjustable one-year rate, which is
currently 3.9%. The bonds are secured by a first mortgage on the
property and are currently held by third parties. OTEF II
currently expects to purchase these bonds at a future date. OTEF
II anticipates that it will restructure the tax-exempt bonds as
soon as practicable following the closing, which restructuring
may include, among other things, a refunding of the bonds and a
modification of the interest rate on the bonds to a higher rate.
At closing, OTEF II will purchase a certificate from a grantor
trust which, in turn, will make a taxable loan to the Borrower in
the amount of approximately $7.5 million to fund a portion of
the purchase price for the property, as well as various costs,
expenses, capital improvements and reserves. This taxable loan
will be secured by a subordinated mortgage on the property. The
taxable loan will be repaid from available cash flow of the
Borrower on an interest-only basis with taxable interest at an
annual fixed accrual rate of approximately 12% on the principal
balance outstanding from time to time, and will mature in 2006.
It is expected that the taxable loan will be prepayable on the
same terms and conditions as the tax-exempt bonds. The terms of
this loan are anticipated to result in substantially all of
the property's current and expected future increases in cash flow
and property value being paid to OTEF II as interest on this
loan.
<PAGE> 18
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Instructions for Investors who wish to reregister or transfer
OTEF II BACs or SQBs
- -----------------------------------------------------------------
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF. Please follow
the instructions below to expedite the reregistration or transfer
of ownership of any OTEF II BACs or Status Quo BACs ("SQB") that
you may own.
*IF YOU DO NOT HOLD CERTIFICATES
Your shares are being held by your brokerage firm in "street
name". To register a change of ownership of OTEF II BACs held
in such accounts, please have your account representative or
financial consultant request the necessary transfer documents.
YOU MUST HAVE THE PROPER TRANSFER DOCUMENTS FROM YOUR
BROKERAGE FIRM. Additionally, please contact your account
representative or financial consultant for address changes.
*IF YOU HOLD CERTIFICATES
Effective July 1, 1997, OTEF II appointed Registrar and
Transfer Company ("R&T") as the sole registrar and transfer
agent with respect to the OTEF II BACs and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed to:
Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
*GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, filed with the Securities and Exchange Commission,
is available to SQB and OTEF II BAC Holders and may be
obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814
1-888-321-OTEF
ALSO VISIT OUR WEB SITE AT WWW.OTEF.COM
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1998 (Unaudited) and the Statements of Income
for the three months ended March 31, 1998 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,617
<SECURITIES> 256,113
<RECEIVABLES> 1,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,967
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 281,228
<CURRENT-LIABILITIES> 43,527
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 237,701
<TOTAL-LIABILITY-AND-EQUITY> 281,228
<SALES> 0
<TOTAL-REVENUES> 5,342
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,557
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
</TABLE>
