<PAGE> 1
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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, 1997
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. []
At December 31, 1997, the following classes of beneficial
assignee interests of Oxford Tax Exempt Fund II Limited
Partnership were outstanding; (i) 7,185,200 Liquidity BACs with
an aggregate market value of $181,857,412, and (ii) 7,093 Status
Quo BACs ("SQBs").
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 1997 Annual Report are
incorporated by reference into Parts I, II
and III.
Exhibit Index is on page 11.
Total number of pages is 48.
<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 "Notes to Financial Statements" at pages 27 through 45,
respectively, of the 1997 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 "Investment in Tax-Exempt Securities" in Note 7 to the
Financial Statements at pages 37 through 43 in the 1997 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 15 through 21, and
"Notes to Financial Statements" at pages 27 through 45 of the
1997 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.
Information responsive to this item is contained under
Note 8 "Quarterly Information" included at page 44 of the
1997 Annual Report which is incorporated herein by
reference.
(b) Number of Security Holders.
The number of BAC Holders at December 31, 1997 was
16,009. The number of Status Quo BAC holders at
December 31, 1997 was 236.
(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 14 of the 1997 Annual
Report, "Report of Management" at pages 15 through 21,
"Notes to Financial Statements" at pages 27 through
45, and "Distribution Information" at page 46 of the 1997
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
14 of the 1997 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 15 through
21 of the 1997 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 22 through 45 of the 1997 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.
Directors and Executive Officers
(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 61 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 46 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 43 Executive Vice President and Director
of the Managing General Partner since
inception. Mr. Downing joined Oxford in
1984. Since 1993, Mr. Downing has
served as Executive Vice President and
Director of various Oxford affiliates.
Mr. Downing is responsible for the day-
to-day investment and financing
activities of OTEF II.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Name Age Position and Business Experience
- -----------------------------------------------------------------
Stephen P. Gavula, Jr. 47 Director. From June 1988 to September
1995, Mr. Gavula was Chairman and Chief
Executive Officer of the JHM Group of
companies, which provided specialized
investment management services to
various financial institutional and
individual investors. The JHM Group
specialized in mortgage-backed
securities and was an affiliate of The
John Hancock Mutual Life Insurance
Company. In September 1995, after
accumulating over $2 billion in assets
under a management, Mr. Gavula sold his
interest in JHM to John Hancock Mutual
Life. Presently, Mr. Gavula acts as
Chairman and Chief Executive Officer of
JDS Capital Corporation, a private
investment firm in McLean, Virginia.
Scot B. Barker 49 Director. Mr. Barker is the President,
Director and owner of Newman &
Associates, Inc., a Denver-based
financial services firm that arranges
debt financing for both commercial and
multifamily properties since 1985. Mr.
Barker has extensive experience in
financing HUD-insured and HUD-assisted
properties throughout the U.S. He has
been instrumental in designing a
variety of new financing programs for
the real estate sector.
Mark E. Schifrin 44 Executive Vice President of the
Managing General Partner since 1993.
Mr. Schifrin joined Oxford in 1984.
Since 1993, Mr. Schifrin has served
as Executive Vice President and
Director of various Oxford affiliates.
Mr. Schifrin is responsible for the
day-to-day asset management activities
relating to Oxford's property
portfolio, including operations,
refinancings and recapitalizations,
oversight of property management,
dispositions and investor servicing.
Richard R. Singleton 50 Senior Vice President since inception
and Chief Financial Officer since 1995.
Mr. Singleton joined Oxford in 1979.
Mr. Singleton serves as Senior Vice
President of various Oxford affiliates
and Chief Financial Officer of OTEF's
managing general partner.
Marc B. Abrams 43 Senior Vice President, Secretary and
General Counsel since inception. Mr.
Abrams joined Oxford in 1985. Mr.
Abrams serves as Senior Vice President,
Secretary and General Counsel of
various Oxford affiliates.
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
(d) Family Relationships. None.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Controlling Persons. Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the directors,
executive officers, and persons who own more than 10% of a
registered class of the equity securities of OTEF II or OTEF II
Corporation ("reporting persons") file with the Securities and
Exchange Commission initial reports of ownership, and reports of
changes in ownership, of OTEF II BACs, and options to purchase
OTEF II BACs. Reporting persons are required by Securities and
Exchange Commission rules to furnish OTEF II with copies of all
Section 16(a) reports they file.
Based solely upon a review of Section 16(a) reports
furnished to OTEF II for the fiscal year ended December 31, 1997
(the "1997 fiscal year"), and representations by reporting
persons that no other reports were required for the 1997 fiscal
year, OTEF II believes that all reporting persons timely filed
all reports required by Section 16(a), except that Messrs.
Zickler, Lavin, Downing, Schifrin, Abrams and Singleton filed
late their Initial Reports of Beneficial Ownership on Form 3.
Item 11. Executive Compensation.
(a), (b), (c), and (d)
None of the 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. During
1997, the two independent directors received a total of $20,000
in directors' fees.
On May 21, 1997, OTEF II adopted an incentive option plan
(the "Incentive Option Plan") in order for the Managing General
Partner to attract and retain key employees and advisers. The
Incentive Option Plan authorizes the granting to the directors,
officers and employees of the Managing General Partner and
certain affiliates of options to purchase 652,125 options (on a
post-split basis). Such options are exercisable for 10 years.
The Managing General Partner has awarded all of the options
authorized under the terms of the Incentive Option Plan. Of the
652,125 options, 613,000 were fully vested upon issuance and
39,125 vest in equal annual amounts over 3 years commencing
January 1, 1998.
<PAGE> 6
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Option Grants In Fiscal 1997
Shown below is information concerning option grants to the
executive officers of the Managing General Partner who were
granted options to purchase OTEF II BACs during OTEF II's 1997
fiscal year.
<TABLE>
Individual Grants
- ---------------------------------------------------------------------------------------
<CAPTION>
% of
Total Potential Realizable Value
Number of Options at Assumed Annual Rates of
BACs Granted to Exercise BAC Price Appreciation
Underlying Employess or Base For Option Term
Options in Fiscal Price Expiration Compounded Annually
Name Granted<F1> 1997 ($/BAC) Date 5% 10%
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leo E. Zickler 163,031 25.000% $23.88 5/21/07 $2,448,400 $6,204,727
Francis P. Lavin 163,031 25.000% $23.88 5/21/07 $2,448,400 $6,204,727
Robert B. Downing 82,150 12.597% $23.88 5/21/07 $1,233,729 $3,126,512
Mark E. Schifrin 75,620 11.596% $23.88 5/21/07 $1,135,661 $2,877,989
Marc B. Abrams 61,606 9.447% $23.88 5/21/07 $925,199 $2,344,636
Richard R. Singleton 47,997 7.360% $23.88 5/21/07 $720,819 $1,826,697
- ---------------------------------------------------------------------------------------
<FN>
<F1> All options held by executive officers were granted prior to the effective date
of listing of the OTEF II BACs for trading on the American Stock Exchange. The
exercise price of each option grant was set at the average of the American
Stock Exchange closing bid prices of the OTEF II BACs for the first 20 days of
trading following the listing of the OTEF II BACs.
</FN>
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Values
Shown below is information with respect to certain unexercised
options to purchase OTEF II BACs held by the executive officers
of OTEF II Corporation as of the end of OTEF II's 1997 fiscal
year. None of the executive officers of OTEF II Corporation
exercised any options during OTEF II's 1997 fiscal year.
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Number of BACs Value of In-the-Money
Underlying Options at Options at End of
End of Fiscal Year Fiscal 1997<F1>
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leo E. Zickler 163,031 0 233,134 0
Francis P. Lavin 163,031 0 233,134 0
Robert B. Downing 82,150 0 117,475 0
Mark E. Schifrin 75,620 0 108,137 0
Marc B. Abrams 61,606 0 88,097 0
Richard R. Singleton 47,997 0 68,636 0
- -----------------------------------------------------------------------------
TOTAL 593,435 0 848,613 0
- -----------------------------------------------------------------------------
<FN>
<F1> Based on the market value of the OTEF II BACs on the last trading day
of 1997 (as measured by the American Stock Exchange closing bid price
of $25.31), minus the exercise price.
</FN>
</TABLE>
(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.
<PAGE> 7
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
The following table sets forth, as of February 5, 1998, the
number and percentage of outstanding BACs beneficially owned by
(i) each director of OTEF II Corporation, (ii) each executive
officer of OTEF II Corporation, and (iii) all executive officers
and directors of OTEF II Corporation as a group. Each person
named in the table has sole voting and sole investment power with
respect to each of the OTEF II BACs beneficially owned by such
person.
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Name and Address of Beneficial Ownership Percentage of
Beneficial Owner No. BACs <F1> Outstanding BACs <F2>
- -----------------------------------------------------------------------------
<S> <C> <C>
Leo E. Zickler<F3><F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 163,031 2.08%
Francis P. Lavin<F3><F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 167,131 2.13%
Robert B. Downing<F3><F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 91,150 1.16%
Stephen P. Gavula, Jr.<F3>
8300 Greensboro Drive, Suite 970
McLean, VA 22102 20,127 0.26%
Scot B. Barker,<F3>
1801 California Street
Denver, Co 80202 3,261 0.04%
Mark E. Schifrin<F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 76,420 0.98%
Marc B. Abrams<F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 61,606 0.79%
Richard R. Singleton<F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 48,997 0.63%
- -----------------------------------------------------------------------------
All executive officers and
directors as a group (8 persons) 631,723 8.06%
- -----------------------------------------------------------------------------
<FN>
<F1> Amount of beneficial ownership includes options to purchase OTEF
II BACs granted to directors and executive officers of OTEF II
Corporation which have vested and are exercisable as of February 5,1998.
Accordingly, Mr. Zickler has 163,031 options vested and exercisable; Mr.
Lavin has 163,031 options vested and exercisable; Mr. Downing has 82,150
options vested and exercisable; Mr. Gavula has 3,261 options vested and
exercisable; Mr. Barker has 3,261 options vested and exercisable; Mr.
Schifrin has 75,620 options vested and exercisable;Mr. Abrams has 61,606
options vested and exercisable; and Mr. Singleton has 47,997 options
vested and exercisable.
<F2> All percentages of OTEF II BACs were calculated to include options to
purchase OTEF II BACs vested and exercisable for those individual
directors and executive officers of OTEF II Corporation who had such
options.
<F3> Indicates a director of OTEF II Corporation.
<F4> Indicates an executive officer of OTEF II Corporation.
</FN>
</TABLE>
<PAGE> 8
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
(c) Changes in Control. None.
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 32 to 33
of the 1997 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, Financial 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 1997 Annual Report and are incorporated
by reference into Part II, Item 8.
Sequentially
Numbered
Page(s)
------------
Report of Independent Accountants. 22
Balance Sheets as of December 31,
1997 and 1996. 23
Statements of Income for the
years ended December 31, 1997 and
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;
and for the five months ended May
31, 1995 for OTEF. 24
Statement of Partners' Capital
for the years ended December 31,
1997, 1996 and 1995 for OTEF II. 25
Statements of Cash Flows for the
years ended December 31, 1997 and
1996 for OTEF II; for the seven
months ended December 31, 1995
for OTEF II; and for the five
months ended May 31, 1995 for
OTEF. 26
Notes to Financial Statements,
which include the information
required to be included in
Schedule IV - Mortgage Loans on
Real Estate. 27-45
<PAGE> 9
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (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 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. Third Amended and Restated Agreement of Limited
Partnership of Oxford Tax Exempt Fund II Limited
Partnership (incorporated by reference from (Exhibit
4(a) to the registrant's quarterly report on form 10-
Q/A for the quarter ended March 31, 1997.
Exhibit No.10 - Material contracts.
a. BAC Holder Rights Agreement.
b. Trust Indenture and Loan Agreement for Southridge-
Oxford Limited Partnership.
c. 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,
1997 ("filed" only to the extent material
therefrom is specifically incorporated by
reference).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
fourth quarter of 1997.
(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> 10
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:
Sequentially
Item Reference Materials Numbered Page(s)
- -------------------------------------------------------------------
1. Business 1997 Annual Report pps 27-45
3. Legal Proceedings 1997 Annual Report pps 15-21
and 27-45
5. Market for Registrant's
Partnership Interest and
Related Matters 1997 Annual Report pps 14,15-21,
and 27-47
6. Selected Financial Data 1997 Annual Report pp 14
7. Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 1997 Annual Report pps 15-21
8. Financial Statements and
Supplementary Data 1997 Annual Report pps 22-45
11. Executive Compensation 1997 Annual Report pp 33
14. Exhibits, Financial
Schedules and Reports
on Form 8-K 1997 Annual Report pps 22-45
<PAGE> 11
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) 1997 Annual Report to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Report dated
December 31, 1997, follows on sequentially numbered pages 13
through 48 of this report.
(27) Financial Data Schedule.
<PAGE> 12
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: 3/30/98 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: 3/30/98 By: /S/ Leo E. Zickler
------- ---------------------------------------------
Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 3/30/98 By: /S/ Francis P. Lavin
------- ---------------------------------------------
Francis P. Lavin
Director and President
Date: 3/30/98 By: /S/ Robert B. Downing
------- ---------------------------------------------
Robert B. Downing
Director and Executive Vice President
Date: 3/30/98 By: /S/ Stephen P. Gavula, Jr.
------- ---------------------------------------------
Stephen P. Gavula, Jr.
Director
Date: 3/30/98 By: /S/ Scot B. Barker
------- ---------------------------------------------
Scot B. Barker
Director
No proxy material has been sent to the Registrant's security
holders. The Partnership's 1997 Annual Report is expected to be
mailed to OTEF II BAC Holders before May 15, 1998.
<PAGE> 13
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
1997 Annual Report
CONTENTS
Selected Financial Data
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> 14
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Selected Financial Data (in thousands, except per Liquidity BAC)
(Restated for the 25-for-1 stock split which occurred on July 1, 1997)
- ------------------------------------------------------------------------------------||-----------------------------------
OTEF II<F3> || OTEF<F1>
---------------------------------------------------------||-----------------------------------
| Seven months||Five months|
For the years ended Decmeber 31, | ended || ended | For the years
-------------------------------- Pro Forma| December 31,|| May 31, | ended December 31,
FINANCIAL HIGHLIGHTS 1997 1996 1995<F4> | 1995<F3> || 1995 | 1994 1993
- ----------------------------------------------------------------------|-------------||-----------|-----------------------
<S> <C> <C> <C> | <C> || <C> | <C> <C>
Total Assets $270,663 $228,733 $174,034 | $174,034 || $163,856 | $168,568 $178,372
| || |
Investment in Tax-Exempt | || |
Securities $217,159 $215,529 $164,000 | $164,000 || $153,032 | $158,599 $173,321
| || |
Investment in Tax-Exempt | || |
Securities Held in Trust $ 38,820 $ 0 $ 0 | $ 0 || $ 0 | $ 0 $ 0
| || |
Total Revenue $ 19,130 $ 19,762 $ 16,626 | $ 9,610 || $ 2,452 | $ 4,137 $ 2,651
| || |
Net Income $ 16,642 $ 14,912 $ 15,210 | $ 8,369 || $ 2,277 | $ 3,727 $ 2,246
| || |
Net Income Allocated to | || |
BAC Holders $ 15,893<F7> $ 14,614 $ 14,906 | $ 8,202 || $ 2,232 | $ 3,652 $ 2,201
| || |
Net Income per BAC $ 2.19<F7> $ 1.948 $ 1.988 | $ 1.094 || $ 0.298 | $ 0.487 $ 0.294
| || |
Net Income per BAC-assumming | || |
dilution $ 2.18<F8> $ 0 $ 0 | $ 0 || $ 0 | $ 0 $ 0
| || |
Municipal Income (Tax Basis) $ 16,983 $ 14,644 $ 16,210 | $ 8,369 || $ 7,841 | $ 16,911 $ 13,211
| || |
Municipal Income Allocated | || |
to BAC Holders (Tax Basis) $ 16,041<F6> $ 14,351 $ 15,886 | $ 8,202 || $ 7,687 | $ 16,573 $ 12,946
| || |
Municipal Income per BAC | || |
(Tax Basis) $ 2.233<F6><F7> $ 1.914 $ 2.118 | $ 1.094 || $ 1.025 | $ 2.209 $ 1.726
| || |
Cash Distributions per BAC<F2> $ 1.942<F7> $ 1.904 $ 1.904 | $ 1.428 || $ 0.476 | $ 1.800 $ 1.763
| || |
Weighted Average OTEF II | || |
BACs Outstanding<F9> 7,264<F7> 7,500 7,500 | 7,500 || 7,500 | 7,500 7,500
| || |
Number of BAC Holders 16,009 15,678 15,061 | 15,061 || 15,249 | 15,359 15,585
- ----------------------------------------------------------------------|-------------||-----------|-----------------------
OTEF II<F3> || OTEF<F1>
----------------------------------------------------||-----------------------------------
| Seven months||Five months|
For the years | ended || ended | For the years
RECONCILIATION TO ended December 31, Pro Forma| December 31,|| May 31, | ended December 31,
MUNCIIPAL INCOME 1997 1996 1995 <F4>| 1995 || 1995 | 1994 1993
- ----------------------------------------------------------------------|-------------||-----------|-----------------------
Net Income per financial $ 16,642 $ 14,912 $ 16,210 | $ 8,369 || $ 2,277 | $ 3,726 $ 2,246
statements (GAAP) | || |
Add: | || |
Equity method adjustments: | || |
---Equity Income<F3> 0 0 0 | 0 || (2,305) | (3,949) (2,597)
---Interest received<F3> 0 0 0 | 0 || 7,869 | 18,591 13,562
Accrued base interest/ | || |
(reduction)/other 341<F5> (268)<F5> 0 | 0 || 0 | (1,457) 0
- ----------------------------------------------------------------------|-------------||-----------|-----------------------
Municipal income, | || |
net for tax reporting | || |
purposes $ 16,983 $ 14,644 $ 16,210 | $ 8,369 || $ 7,841 | $ 16,911 $13,211
======================================================================|=============||===========|=======================
<FN>
<F1> 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.
<F2> See page 46 for analysis of historical quarterly distributions.
<F3> Effective on June 1, 1995, with the transfer 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.
<F4> The unaudited 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.
<F5> 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 be capitalized for tax purposes in 1997; (ii) a
portion of the Partnership's expenses, for GAAP purposes, totaling approximately $1 million that was not expensed
in 1996 for tax purposes; and (iii) write-off of prior years' tax accrual totaling $3.8 million. For 1997
this amount represents the tax capitalization of continuing class action litigation costs in conjunction with the
appeal. (See note 9)
<F6> Municipal income is before the Liquidity & Growth Plan Financing Transaction (See page 16), which was treated
as a sale for tax purposes resulting in a $3,829,000 capital loss.
<F7> On April 1, 1997, 314,675 BACs were converted to 12,587 Status Quo BACs (SQBs). Amounts presented for 1997 are for
Non-SQB Liquidity BACs only.
<F8> Options granted but not exercised in 1997 are dilutive. The weighted average BACs outstanding assuming dilution
is 7,283,795.
<F9> This amount is in thousands and has been restated to reflect the 25-for-1 stock split effective July 1, 1997.
</FN>
</TABLE>
<PAGE> 15
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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,
1997, and its results of operations and cash flows for the period
then ended. This report and analysis should be read together
with the financial statements and related notes thereto and the
selected financial data appearing elsewhere in this Annual
Report.
Recent Developments
Refunding and Financing. During the last quarter of 1996, ten
of the fifteen existing mortgage revenue bonds ("Existing MRBs")
were refunded. During the first quarter of 1997, two additional
Existing MRBs were refunded for a total of twelve MRBs refunded
or 88% of the existing portfolio. As a result of the 1997
refundings, the estimated value of the bonds held by OTEF II, as
shown on the Balance Sheet, increased by approximately $16.1
million as of December 31, 1997, compared to December 31, 1996.
Management is continuing its efforts to refund the remaining
Existing MRBs.
The Refunding Bonds currently held by OTEF II are structured
so as to consist of senior bonds ("Series A Bonds") and
subordinated bonds ("Series B Bonds"). This senior/subordinated
structure will permit OTEF II to undertake one or more financing
transactions 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. (See "Recent
Developments-Financing Transactions"). The net proceeds from
these financings will be invested in new assets, as discussed
below. OTEF II generally expects that it will retain the related
Series B Bonds for the benefit of the Liquidity BAC Holders
(although such Series B Bonds may be used to finance the
acquisition of new assets), 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.
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" or
"Liquidity & Growth Bonds"). 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.
Information Memorandum. 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, see Note 9 to the
Financial Statements.
Status Quo BACs. In connection with the Information
Memorandum discussed above, approximately 4.2% of the OTEF II BAC
Holders made a timely election to convert their OTEF II BACs to
SQBs. Effective April 1, 1997, OTEF II issued the SQBs,
representing 12,587 shares, in uncertificated, book-entry form.
Effective July 31, 1997, OTEF II redeemed 5,484 SQBs at $540 per
SQB for a total of approximately $3.0 million. On November 30,
1997, OTEF redeemed an additional 10 SQBs at the price of $540
per SQB. As of December 31, 1997, there were 7,093 SQBs
outstanding.
<PAGE> 16
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Report of Management
- ----------------------------------------------------------------------------
The Information Memorandum states that, subject to receipt of
a fairness opinion from OTEF II's independent real estate
consultant, non-tendered 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, including, among other things,
the proper allocation of OTEF II's general and administrative
expenses to SQB holders. The Managing General Partner expects to
complete its analysis later this year.
OTEF II BAC Split. In anticipation of listing the OTEF II
BACs with a national securities exchange, the Managing General
Partner of OTEF II declared a 25-for-1 split of the BACs as of
July 1, 1997 for Liquidity BAC Holders of record as of June 30,
1997. This split of the outstanding OTEF II BACs was intended to
divide the outstanding OTEF II BACs into smaller denominations to
enhance trading in, and liquidity of, the OTEF II BACs and
encourage a broader range of investors. For comparative
financial statement purposes, prior periods have been restated to
reflect this 25-to-1 split. No split was effectuated for the
SQBs.
Stock Exchange Listing. On July 22, 1997, the American Stock
Exchange began trading OTEF II BACs. New certificates were
issued by OTEF II's registrar and transfer agent to all OTEF II
Liquidity BAC Holders whose OTEF II BACs were not held by a
brokerage firm in street name for the benefit of such holders.
The SQBs were not listed for trading, and will continue to be
reflected on OTEF II's books and records in uncertificated, book-
entry form.
Financing Transactions. On August 22, 1997, OTEF II closed
the first of a series of transactions that will enable 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 interest in this securitization
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 interest. The portion of the net
proceeds from these transactions that is not invested in New
Assets was temporarily invested in liquid tax-exempt money market
securities. These short-term securities earned interest ranging
from 2.9% to 4.1% during the period.
In connection with these transactions, OTEF II converted the
interest rate mode on the five 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
is reflected as Securities Held in Trust, the net cash proceeds
are classified as Cash and Cash Equivalents and the difference
between the principal amount of the Series A Bonds financed and
the principal amount of the subordinated interest acquired by
OTEF 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 4.63% from the date of closing through
December 31, 1997. 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 were treated as a sale 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 capital loss for federal income
tax purposes of approximately $3.8 million. None of this capital
loss was allocated to the SQBs.
<PAGE> 17
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Report of Management
- ----------------------------------------------------------------------------
New Asset Acquisition (New Bonds). On December 30, 1997, OTEF
II used substantially all of the net proceeds from the first
securitization transaction to acquire two tax-exempt bonds
collateralized by two garden apartment communities located in
Texas. These properties are owned by Carpenter-Oxford Associates
Limited Partnership and Dallas-Oxford Associates Limited
Partnership, respectively, both of which are affiliates of OTEF
II's Managing General Partner. The combined face amounts of the
bonds acquired, after cancellation of $6.5 million by the bond
trustees, was approximately $27.9 million. The bonds were
purchased from a third party for approximately $24.4 million.
The existing Dallas and Carpenter bonds mature on March 1, 2006,
except that they are subject to mandatory redemption on July 1,
2000, unless alternative security is provided on or prior to that
date. These bonds currently bear a weighted average interest
of 7.54% per annum based on the outstanding principal balance.
Due to the discounted purchase price, the approximate 8.6%
effective yield to OTEF II is higher than the stated coupon rate
on the bonds. For financial statement purposes the bonds are
reflected at their purchase price. The properties
collateralizing these bonds have an aggregate appraised value of
$28 million. The partnerships and OTEF II agreed to use
reasonable commercial efforts to cause the issuance of refunding
bonds, or modification of the existing bond documents, to achieve
the following principal terms: (i) principal amount of bonds
equal to the sum of OTEF II's purchase price for the bonds and
acquisition costs, (ii) fixed interest at a rate of 7.25% per
annum, (iii) 30-year maturity with a mandatory
redemption/remarketing on the seventh anniversary of the
refunding or restructuring, and (iv) optional redemption by the
partnerships on and after the fourth anniversary upon payment of
a sliding scale premium or at any time with the consent of OTEF
II. In addition, each of the partnerships has the right to
repurchase its respective bonds from OTEF II on certain terms and
conditions if they determine they will not be able to obtain the
consent of the issuers to refund or modify the bonds as described
above. No assurances can be given that the partnerships and OTEF
II will be able to cause the bonds to be refunded or modified in
the manner described above. The Managing General Partner
anticipates that approximately $3.5 million of bonds will be
cancelled upon refunding.
As a condition of the purchase, OTEF II agreed to make loans
in the aggregate of approximately $1.6 million to Carpenter-
Oxford Associates Limited Partnership and Dallas-Oxford
Associates Limited Partnership. The loans bear taxable interest
at an annual rate of 9.30% payable monthly in arrears. The
principal of the loans is due at maturity which shall be the
earlier of July 1, 2000, or repurchase of the bonds by the
borrower. The purpose of the loan is to provide funds for
property improvements, partnership costs, and bond refunding and
restructuring costs. On January 5, 1998, OTEF II loaned an
aggregate $0.9 million to Carpenter-Oxford Associates Limited
Partnership and Dallas-Oxford Associates Limited Partnership for
this purpose. It is anticipated that the additional $0.7
million will be loaned at the time of refunding or restructuring.
The maturity will be revised to match the redemption dates on the
refunding bonds when these bonds are refunded or modified in the
manner described above.
Distribution for the Quarter ended December 31, 1997. The
Managing General Partner declared, on December 17, 1997, a
quarterly distribution of $0.495 per BAC for the Liquidity BAC
holders, and $12.38 per SQB holders of record paid on February
14, 1998. This distribution is at the same level as was made for
the third quarter. The third and fourth quarter's distributions
represent a 4% increase in the prior distribution level and
represented the first increase in ten consecutive quarters.
Liquidity and Capital Resources
Current Position. OTEF II uses the payments it receives from
the Refunding Bonds, Existing MRBs, New Assets and cash reserves
primarily for distributions to the OTEF II BAC Holders and SQB
Holders and its General Partners, 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 9 to Financial Statements, and to acquire New
Assets and to pay for costs and time relating to the acquisition
of New Assets. It is anticipated that the $1.5 million balance
due plaintiff's counsel in connection with the OTEF II Litigation
will be paid during 1998.
Set forth below is a year-by-year comparison of OTEF II's
liquidity:
1997 versus 1996. As of December 31, 1997, OTEF II held
approximately $11.7 million in cash and cash equivalents, a
decrease of approximately $0.4 million, or approximately 3%,
from the $12.1 million in cash and cash equivalents held as of
December 31, 1996. This decrease in OTEF II's cash and cash
equivalents was primarily the result of approximately $3.0
million paid by OTEF II on July 31, 1997 to redeem 5,484 SQBs
pursuant to its obligation under the Optional Sale Plan discussed
above and a $1.0 million advance to plaintiff's counsel made in
connection with the settlement of the OTEF II Litigation. These
decreases in cash were partially offset by approximately $3.0
million in cash proceeds from the financing transaction that was
completed on August 22, 1997, in excess of the purchase price of
the New Asset acquisitions also described above.
<PAGE> 18
- ----------------------------------------------------------------------------
Report of Management
- ----------------------------------------------------------------------------
Total liabilities of OTEF II shown on the balance sheet
increased to approximately $34 million as of December 31, 1997
from approximately $7 million at December 31, 1996. This
increase is attributed to the financing transaction described
above, and the 4% increase in quarterly distributions made by
OTEF II.
1996 versus 1995. As of December 31, 1996, OTEF II held
approximately $12.1 million in cash and cash equivalents, an
increase of approximately $2.4 million, or approximately 24.5%,
from approximately $9.7 million 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 approximately $2.8 million (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.
Governance and administrative expenses totaled approximately
$1.7 million for the year ended December 31, 1996, as compared to
approximately $1.4 million for the year ended December 31, 1995
for OTEF II and OTEF. The increase of approximately $0.3 million
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 against the OTEF II Litigation totaled
approximately $3.2 million 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
approximately $9.7 million in cash and cash equivalents,
including the balance transferred from the working capital
reserve, an increase of approximately $0.8 million, or
approximately 9.5%, from the total of approximately $7.4 million
in cash and cash equivalents and $1.5 million 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.
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.
Governance and administrative expenses totaled approximately
$1.2 million for the seven months ended December 31, 1995 that
OTEF II was in operation, and approximately $0.2 million for the
five months ended May 31, 1995 for OTEF. OTEF II's and OTEF's
governance and administrative expenses totaled approximately $1.4
million for the year ended December 31, 1995, as compared to
approximately $0.4 million for the year ended December 31, 1994.
The increase was primarily attributable to the development of the
1995 OTEF Restructuring Plan.
<PAGE> 19
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Report of Management
- ----------------------------------------------------------------------------
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.
Existing MRBs
As of December 31, 1997, OTEF II held Existing MRBs for two of
the Operating Partnerships. The Managing General Partner is
continuing its efforts to refund these Existing MRBs. As of
December 31, 1997, the Operating Partnerships had cumulative
unpaid Base Interest and interest on interest at 8.25% per annum,
compounded monthly, of approximately $4.9 million with respect to
these Existing MRBs. Under the applicable method of accounting,
this unpaid Base Interest was not reflected in the financial
statements of OTEF II. In connection with the completion of the
refundings for 2 of the Existing MRBs during the first quarter of
1997, approximately $24.1 million of cumulative unpaid Base
Interest and interest on interest was written off during 1997.
Refunding Bonds
Series A Bonds. The term of each Refunding Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding. The Series A Bonds require interest only payments
during the first three years and, thereafter, are subject to
annual sinking fund redemptions that will result in full
amortization of the Series A Bonds during the 27-year remaining
term.
Series A Bond Interest and Principal. The Series A Bonds
require pre-determined annual sinking fund redemptions based on a
27-year amortization schedule beginning in the fourth year,
calculated with an assumed rate of interest of 5.6% per year.
Series A Bond interest 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
was 4.9%. On or about December 1997, the interest rate on the
Series A Bonds retained by OTEF II were reset to 4.8%. The
interest rate on the Series A Bonds involved in the financing
transactions described above under "Recent Developments" 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. See Note 7 to Financial
Statements for a schedule of the Combined Rates of the Refunding
Bonds over the next 10 years.
<PAGE> 20
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Report of Management
- ----------------------------------------------------------------------------
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 December 31,
1997, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $1.1 million,
including deposits from December's cash flow compared to $0.1
million at the end of 1996.
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 March 4, 1997 all such obligations
were fully satisfied.
Oxford Advances. In 1997, Oxford funded approximately $0.1
million to Colonel I from the proceeds of the Treasury Strip
Bond, which has been discussed in previous reports, that it
continues to hold from August 15, 1996. At December 31, 1997,
Oxford was holding approximately $1.1 million of such proceeds,
plus approximately $0.2 million in accrued interest, in an
interest-bearing account pending a determination as to which
Operating Partnerships these funds should be allocated. This
allocation will be based on the individual refunding costs and
reserve requirements of the Operating Partnerships. Since August
15, 1996, approximately $0.9 million of these proceeds were
advanced to certain Operating Partnerships' based on their
individual bond refunding costs and property improvement needs.
Results of Operations
OTEF II's Operations
1997 versus 1996. Distributions to Partners amounted to
approximately $14.7 million, or $1.942 per Liquidity BAC and
$36.50 per SQB. For financial statement purposes, Net Income and
Net Income per Liquidity BAC were approximately $16.6 million and
$2.19, respectively, for the year ended December 31, 1997, as
compared to approximately $14.9 million and $1.95, respectively,
for the year ended December 31, 1996. Net income per Liquidity
BAC for the year ended December 31, 1997, assuming dilution for
stock options granted in 1997, was $2.18.
OTEF II's revenues for 1997 reflect a decrease of
approximately $632,000, or 3%, from 1996. Due to the refunding
of ten Existing MRBs in 1996, OTEF II changed its accounting
method for these assets from cash to accrual. As a result, OTEF
II's revenues for 1996 reflect interest income for 13 months with
respect to the Refunding Bonds, and for 1997 OTEF II's revenues
reflect only 12 months of interest income with respect to the
Refunding Bonds.
For 1997, OTEF II's expenses decreased by approximately $2.4
million, or 49%, compared to 1996. This decrease in expenses
reflects nearly a $2.9 million decrease in litigation costs and a
$771,000 decrease in administrative expenses, offset by
approximately $840,000 of additional Liquidity and Growth
expenses. In addition, commencing in 1997, OTEF II is required
to report interest expense attributable to the financing
transaction that was completed on August 22, 1997.
1996 versus 1995. Distributions to Partners amounted to
approximately $14.6 million for 1996. This equates to an annual
distribution per BAC of $1.904. For financial statement
purposes, Net Income and Net Income per BAC were approximately
$14.9 million and $1.95, respectively, for the year ended
December 31, 1996. For financial statement purposes, Net Income
and Net Income per BAC were approximately $8.4 million and $1.09,
respectively, for the seven-month period ended December 31, 1995
for OTEF II under SFAS No. 115, and approximately $2.3 million
and $0.298, respectively, for the five-month period ended May 31,
1995, under the equity method of accounting for OTEF.
<PAGE> 21
- ----------------------------------------------------------------------------
Report of Management
- ----------------------------------------------------------------------------
1995 versus 1994. Distributions to Partners amounted to
approximately $14.6 million for 1995. This equates to an annual
distribution per BAC of $1.904. For financial statement
purposes, Net Income and Net Income per BAC were approximately
$8.4 million and $1.09, respectively, for the seven-month period
ended December 31, 1995 for OTEF II under SFAS No. 115, and
approximately $2.3 million and $0.298, 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 approximately $3.7
million and $0.487 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
approximately $15.2 million and $1.99, respectively, for the year
ended December 31, 1995. Oxford advances of approximately $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.
Summary
OTEF II is taking advantage of attractive investment
opportunities. The refunding of the Existing MRBs held by
OTEF II has given 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 resulting in more net income and a higher level of
distributions to the Liquidity BAC Holders. In addition, the
Liquidity BAC Holders should benefit from more efficient market
pricing of the OTEF II BACs due to listing of the OTEF II BACs on
the American Stock Exchange.
<PAGE> 22
- ----------------------------------------------------------------------------
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, 1997 and 1996, and
the related statements of income, partners' capital and cash
flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles.
/S/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
February 5, 1998
except for Note 10, as to which the
date is February 24, 1998.
<PAGE> 23
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- -----------------------------------------------------------------------------
Balance Sheets (in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
December 31, 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in tax-exempt securities $217,159 $215,529
Investments in tax-exempt securities
held in trust 38,820 0
Cash and cash equivalents 11,694 12,072
Bond and other interest receivables 1,439 1,132
Other assets 1,551 0
- -----------------------------------------------------------------------------
Total Assets $270,663 $228,733
=============================================================================
Liabilities and Partners' Capital
Liabilities
Financing debt $ 27,174 $ 0
Distributions payable 3,719 3,643
Accounts payable and accrued expenses 2,988 3,321
- -----------------------------------------------------------------------------
Total Liabilities 33,881 6,964
- -----------------------------------------------------------------------------
Contingencies and commitments (Notes 9 and 10)
Partners' Capital
General Partners (2,356) (2,393)
Limited Partnership Interests:
Liquidity BAC interests <F1>
(7,499,875 interests issued and
7,185,200 interests outstanding
as of December 31, 1997) 156,672 161,665
Status Quo BAC interests (12,587
interests issued as of April 1,
1997, 7,093 interests outstanding
as of December 31, 1997) 3,885 0
Unrealized gain on investments 78,581 62,497
- -----------------------------------------------------------------------------
Total Partners' Capital 236,782 221,769
- -----------------------------------------------------------------------------
Total Liabilities and Partners' Capital $270,663 $228,733
=============================================================================
<FN>
<F1> For comparative purposes, Liquidity BAC Interests have been restated to
reflect the 25-for-1 split which occurred on July 1, 1997.
</FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 24
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ---------------------------------------------------------------------------------------------
Statements of Income (in thousands, except per Liquidity BAC amounts which have been restated
to reflect the 25-for-1 stock split effective July 1, 1997)
- -------------------------------------------------------------------------------||------------
<CAPTION>
OTEF II || OTEF
---------------------------------------------||------------
For the years ended December 31,|Seven months||Five months
--------------------------------| ended || ended
Pro Forma|December 31,|| May 31,
1997 1996 1995<F2>| 1995 || 1995
- ------------------------------------------------------------------|------------||------------
<S> <C> <C> <C> | <C> || <C>
Revenues | ||
Interest on bonds<F1> $17,734<F5> $19,411<F4> $16,283 | $9,414 || $ 0
Interest on securities held | ||
in trust 667 0 0 | 0 || 0
Equity income on investments | ||
in Bonds<F1> 0 0 0 | 0 || 2,305
Other, primarily interest on | ||
short-term investments 729 351 343 | 196 || 147
- ------------------------------------------------------------------|------------||------------
Total Revenues 19,130 19,762 16,626 | 9,610 || 2,452
- ------------------------------------------------------------------|------------||------------
Expenses | ||
Governance and administrative | ||
expenses 921 1,692 1,416 | 1,241 || 175
Litigation and settlement costs 265 3,158<F3> 0 | 0 || 0
Liquidity & growth costs 840 0 0 | 0 || 0
Finance interest expense 462 0 0 | 0 || 0
- ------------------------------------------------------------------|------------||------------
Total Expenses 2,488 4,850 1,416 | 1,241 || 175
- ------------------------------------------------------------------|------------||------------
Net income $16,642 $14,912 $15,210 | $8,369 || $2,277
==================================================================|============||============
Net income allocated to Liquidity | ||
BAC holders $15,893 $14,614 $14,906 | $8,202 || $2,232
==================================================================|============||============
Net income per Liquidity BAC $ 2.19 $ 1.95 $ 1.99 | $ 1.09 || $0.298
==================================================================|============||============
Weighted average Liquidity BACs | ||
outstanding<F7> 7,264 7,500 7,500 | 7,500 || 7,500
==================================================================|============||============
Net Income per Liquidity BAC- | ||
assuming dilution<F6> $ 2.18 N/A N/A | N/A || N/A
==================================================================|============||============
Weighted average Liquidity BAC- | ||
assuming dilution<F6><F7> 7,284 N/A N/A | N/A || N/A
==================================================================|============||============
Distribution per Liquidity BAC $ 1.942 $ 1.904 $ 1.904 | $1.428 || $0.476
==================================================================|============||============
<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. 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. 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
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.
<F2> 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.
<F3> This amount includes $2.5 million payable by OTEF II in payment of plaintiff's
counsel fees and reimbursement of expenses incurred.
<F4> This amount includes approximately $1,068,000 representing an extra months
accrual of bond interest on the 10 bonds which were refunded in the fourth
quarter of 1996 due to their conversion to "accrual" basis accounting.
<F5> This amount includes approximately $243,000 representing an extra months accrual
of bond interest on the two bonds which were refunded in the first quarter of
1997 due to their conversion to "accrual" basis accounting.
<F6> In 1997, stock options were granted but not exercised. (See notes 1 and 4).
<F7> This amount is in thousands and has been restated to reflect the 25-for-1 stock
split effective July 1, 1997.
</FN>
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE> 25
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- --------------------------------------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Limited Partner
Interests
-----------------------
Unrealized
For the Years Ended General Liquidity Status Gain on
December 31, 1997, 1996, and 1995 Partners BACs Quo BACs Investments Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995
(predecessor business) $(2,322) $167,068 $ 0 $ 0 $164,746
========================================================================================================
Capital Contributions, February 9, 1995 1 0 0 0 1
Net income, five months ended
May 31, 1995 (predecessor business) 45 2,232 0 0 2,277
Net income, seven months ended
December 31, 1995 167 8,202 0 0 8,369
Distributions to Partners,
including $1.904 per BAC<F1> (291) (14,280) 0 0 (14,571)
Unrealized gain on investments 0 0 0 10,968 10,968
BAC Issuance Costs 0 (1,891) 0 0 (1,891)
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 (2,400) 161,331 0 10,968 169,899
========================================================================================================
Net income 298 14,614 0 0 14,912
Distributions to Partners,
including $1.904 per BAC<F1> (291) (14,280) 0 0 (14,571)
Unrealized gain on investments 0 0 0 51,529 51,529
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 (2,393) 161,665 0 62,497 221,769
========================================================================================================
Allocation of SQB Capital 0 (6,809) 6,809 0 0
SQB Redemptions 0 26 (2,992) 0 (2,966)
Net income 333 15,893 416 0 16,642
Distributions to Partners,
including $1.942 per Liquidity BAC<F1>
and $36.50 per SQB (296) (14,103) (348) 0 (14,747)
Unrealized gain on investments 0 0 0 16,084 16,084
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $(2,356) $156,672 $3,885 $78,581 $236,782
========================================================================================================
<FN>
<F1> For comparative purposes Liquidity BAC per share amounts have been restated to 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> 26
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- -----------------------------------------------------------------------------
Statements of Cash Flows (in thousands)
- -----------------------------------------------------------------------------
<CAPTION> ||
OTEF II || OTEF
OTEF II Seven || Five
For the years ended months ended||months ended
December 31, December 31,|| May 31,
--------------- ------------||------------
1997 1996 1995 || 1995
- ---------------------------------------------------------------||------------
<S> <C> <C> <C> || <C>
Operating Activities ||
Net income<F1> $16,642 $14,912 $8,369 || $ 2,277
Adjustments to reconcile net ||
income to net cash provided ||
by operating activities: ||
Equity income from ||
investments in Bonds<F2> 0 0 0 || (2,305)
Changes in assets and ||
liabilities: ||
Bond and other interest ||
receivable (307) (1,106) 7 || (9)
Due from affiliates 0 310 (310) || 0
Deferred costs 0 0 555 || 0
Accounts payable and ||
accrued expenses (333) 2,829 17 || 97
- ---------------------------------------------------------------||------------
Net cash provided by ||
operating activities 16,002 16,945 8,638 || 60
- ---------------------------------------------------------------||------------
Investing activities ||
Investment in new bonds (24,366) 0 0 || 0
Partial redemption of SQBs (2,966) 0 0 || 0
Other assets<F3> (1,551) 0 123 || 411
Working capital reserve 0 0 1,537 || (19)
Payments received from ||
investments in Bonds<F1> 0 0 0 || 7,872
- ---------------------------------------------------------------||------------
Net cash (used in) provided ||
by investing activities (28,883) 0 1,660 || 8,264
- ---------------------------------------------------------------||------------
Financing activities ||
Distributions paid to ||
Partners and BAC Holders (14,671) (14,571) (7,285) || (7,087)
Proceeds from financing ||
transactions 27,174 0 0 || 0
BAC issuance costs 0 0 (1,220) || (671)
Capital contributions 0 0 1 || 0
- ---------------------------------------------------------------||------------
Net cash (used) in ||
financing activities 12,503 (14,571) (8,504) || (7,758)
- ---------------------------------------------------------------||------------
Net (decrease) increase in ||
cash and cash equivalents (378) 2,374 1,794 || 566
Cash and cash equivalents, ||
beginning of period 12,072 9,698 7,904 || 7,338
- ---------------------------------------------------------------||------------
Cash and cash equivalents, ||
end of period $11,694 $12,072 $9,698 || $ 7,904
===============================================================||============
<FN>
<F1> On June 1, 1995, OTEF II adopted the provisions of Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115") Accounting for
Certain Investments in Debt and Equity Securities in connection with the
transfer of all assets and liabilities from OTEF to OTEF II. Under this
method, payments on the 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.
<F3> Other assets represent deferred costs incurred in association with the
Liquidity & Growth Plan financing transaction, prepaid items, and short-
term promissory notes 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> 27
- ----------------------------------------------------------------------------
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, 1997 and
December 31, 1996, the Statements of Income for the years ended
December 31, 1997, 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, and for the five-month
period ended May 31, 1995 for OTEF, the Statement of Partners'
Capital as of December 31, 1997, 1996 and 1995, and the
Statements of Cash Flows for the years ended December 31, 1997
and 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 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. The pro forma information
presented for 1995 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.
In February 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). Basic earnings per share,
a measure required by the new standard, does not include stock
options as common stock equivalents. Diluted earnings per share
reflects the potential dilution that could occur if such options
or other contracts to issue shares were exercised or resulted in
the issuance of an incremental amount of new shares based on the
Treasury Method. The Treasury Method assumes that the proceeds
from exercise of the options are used to purchase shares at the
average market price during the reporting period, which was
$25.20. The incremental shares (the difference between the
number of shares assumed issued and the number of shares assumed
purchased) is included in the denominator of the diluted earnings
per share computation. For the impact of OTEF II's option plan,
see Note 3. "Net Income and Distributions per Beneficial Assignee
Interest (BAC) and SQB".
Note 2. Business
The Partnership, which was formed under the laws of the State
of Maryland, commenced operations on March 1, 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, 1997, OTEF II had
completed the refunding of 12 of the Existing MRBs, which
comprise approximately 88% of OTEF II's portfolio. The Managing
General Partner is continuing its efforts to cause the refunding
of the remaining Existing MRBs. 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 one or more financing transactions, 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 generally expects that it will retain the related
Series B Bonds for the benefit of the Liquidity BAC Holders
(although the Series B Bonds may be utilized to finance the
acquisition of new assets), 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 these Financial
Statements.
<PAGE> 28
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
In addition to the proceeds from financing transactions,
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.
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" or "Liquidity & Growth Bonds"). 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.
Financing Transaction. On August 22, 1997, OTEF II closed the
first of a series of transactions that will enable 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 interest in this securitization
transaction. Substantially all of the net proceeds from this
transaction were invested by OTEF II in the New Assets described
below. The portion of the net proceeds of this financing that is
not invested in New Assets was temporarily invested in liquid tax-
exempt money market securities. These short-term securities
earned interest ranging from 2.9% to 4.1% during the period. OTEF
II also retained certain rights to reacquire the securitized
assets.
In connection with this transaction, OTEF II converted the
interest rate mode on these four Series A Bonds from an annual
reset to weekly floaters. OTEF II also purchased a three-year
interest rate cap on a notional amount of approximately $27
million to minimize the effects of interest rate volatility.
Under this arrangement, if the average short-term, tax-exempt
interest rates for any month during the term of the cap increase
above a specified level (6%), the counter-party to the interest
rate cap transaction is required to pay directly to OTEF II the
amount by which such rates exceed the specified level.
New Assets. On December 30, 1997, OTEF II used substantially
all of the proceeds acquired from the financing transaction
discussed above to acquire two tax-exempt bonds collateralized by
two garden apartment communities located in Texas. These
properties are owned by Carpenter-Oxford Associates Limited
Partnership and Dallas-Oxford Associates Limited Partnership,
respectfully, both of which are affiliates of OTEF II's Managing
General Partner. The combined face amount of the bonds acquired,
after cancellation of $6.5 million by the bond trustees, was
approximately $27.9 million. The bonds were purchased from a
third party for approximately $24.4 million. The existing Dallas
and Carpenter bonds mature on March 1, 2006, except that they are
subject to mandatory redemption on July 1, 2000, unless
alternative security is provided on or prior to that date. These
bonds currently bear a weighted average interest rate of 7.54%
per annum based on the outstanding principal balance. Due to the
discounted purchase price, the 8.6% yield to OTEF II is higher
than the stated coupon rate on the bonds. For financial
statement purposes these bonds are reflected at their purchase
price. The properties collateralizing these bonds have an
aggregate appraised value of $28 million. The partnerships and
OTEF II agreed to use reasonable commercial efforts to cause the
<PAGE> 29
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
issuance of refunding bonds, or modification of the existing bond
documents to achieve the following principal terms: (i)
principal amount of bonds equal to the sum of OTEF II's purchase
price for the bonds and acquisition costs, (ii) fixed interest at
a rate of 7.25% per annum, (iii) 30-year maturity with a
mandatory redemption/remarketing on the seventh anniversary of
the refunding or restructuring, and (iv) optional redemption by
the partnerships on and after the fourth anniversary upon payment
of a sliding scale premium or at any time with the consent of
OTEF II. The Managing General Partner anticipates that an
additional $3.5 million of bonds will be cancelled upon refunding
or restructuring. In addition, each of the partnerships has the
right to repurchase its respective bonds from OTEF II on certain
terms and conditions if they determine they will not be able to
obtain the consent of the issuers to refund or modify the bonds
as described above. No assurances can be given that the
partnerships and OTEF II will be able to cause the bonds to be
refunded or modified in the manner described above.
As a condition of the purchase, OTEF II has agreed to advance
in the aggregate of $1.6 million to Carpenter-Oxford Associates
Limited Partnership and Dallas-Oxford Associates Limited
Partnership. The loans will bear interest at an annual rate of
9.30% payable monthly in arrears. The principal of the loans is
due at maturity which shall be the earlier of July 1, 2000, or
repurchase of the bonds by the borrower. The purpose of the
loans is to provide funds for property improvements, partnership
costs, bond refunding and restructuring costs. On January 5,
1998, OTEF II advanced, in aggregate $0.9 million to Carpenter-
Oxford Associates Limited Partnership and Dallas-Oxford
Associates Limited Partnership for this purpose. It is
anticipated that the additional $0.7 million will be advanced at
the time of refunding or restructuring. The interest income on
these loans will be taxable in 1998. The maturity date will be
revised when these bonds are refunded or modified in the manner
described above.
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 million. The OTEF II Managing General Partner
estimated at December 31, 1997 that the fair value of the
Existing MRBs was approximately $232 million and, accordingly,
OTEF II recorded a credit to Partners' Capital in an amount equal
to approximately $79 million of unrealized gain on these
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. The Dallas and Carpenter bonds
are recorded at cost, which is equal to their fair market values
at December 31, 1997.
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,
1997 was $0.5 million and $0.9 million respectfully, or $1.4
million in total and as of December 31, 1996 was approximately
$0.4 million and $0.7 million, respectively, or $1.1 million in
total.
<PAGE> 30
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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,
approximately $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) and SQB. Net income and distributions per BAC and net
income and distributions per Status Quo BAC ("SQB") are based
upon the weighted average number of BACs and SQBs outstanding
during the applicable year. For the first quarter of 1997, there
were 7,499,875 BACs outstanding. On April 1, 1997, 314,675 BACs
were converted to 12,587 SQBs, leaving 7,185,200 Liquidity BACs
outstanding at December 31, 1997. Of the BACs converted to SQBs,
5,484 were redeemed on August 1, 1997. An additional 10 SQBs
were redeemed on November 30, 1997, leaving 7,093 SQBs
outstanding at December 31, 1997. Subsequent to December 31,
1997, an additional 25 SQBs were redeemed. All SQBs were
redeemed at a price of $540 per SQB. On a diluted basis, the
weighted average outstanding shares for the period including
stock options were 7,283,795.
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, SQB holders and OTEF II BAC
Holders of $3.7 million for December 31, 1997 and $3.6 million
for December 31, 1996 and 1995, and an unrealized gain on
investments of $79 million 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.
Litigation and settlement costs. Litigation and settlement
costs associated with defending against the OTEF II Litigation
totaled $3.2 million during the year ended December 31, 1996.
This amount includes $2.5 million payable by OTEF II with respect
to plaintiff's counsels' fees and reimbursement of expenses
incurred. OTEF II paid $1 million in 1997 and anticipates that
it will pay the $1.5 million balance due plaintiffs' counsel
later during 1998. Approximately an additional $0.3 million of
such costs were incurred in 1997.
<PAGE> 31
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Notes to Financial Statements
- ----------------------------------------------------------------------------
Financing Transaction. For financial statement purposes, the
Financing Transaction described in Note 2 is accounted for as a
financing transaction. Accordingly, the amount of the Series A
Bonds financed of approximately $39 million is reflected as
Securities Held in Trust, the net cash proceeds are classified as
Cash and Cash Equivalents and the difference between the
principal amount of the Series A Bonds financed and the principal
amount of the subordinated interest acquired by OTEF is
classified as Financing Debt. The Financing Debt bears interest
at the Public Securities Association weekly floating rate index
("PSA") plus approximately 80 to 85 basis points, which averaged
4.46% from the date of closing through December 31, 1997. Costs
associated with this financing transaction which are included in
"Other assets" are being amortized over 10 years for financial
statement purposes, and costs associated with the interest rate
cap are being amortized over the life of the interest rate
agreement, which is 3 years. For federal income tax purposes,
this transaction is treated as a sale by OTEF II of the Series A
Bonds and a purchase of the subordinated interests, which
resulted in a $3.8 million capital loss.
Accounting for SQBs. 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.
Approximately 4.2% of the OTEF II BAC holders made a timely
election to convert their OTEF II BACs to SQBs. Effective April
1, 1997, OTEF II issued the SQBs, representing 12,587 shares, in
uncertificated, book-entry form. Effective August 1, 1997, OTEF
II redeemed 5,484 SQBs for approximately $3.0 million. The
redeemed SQB Holders received a final prorated amount of the
distribution that was declared for the quarter ended
September 30, 1997, paid on November 14, 1997. On November 30,
1997 an additional 10 SQBs were redeemed at the $540 price, with
no distribution. All SQBs were redeemed at a price of $540 per
SQB.
For financial statement purposes, the SQBs are treated as a
separate class of security and, accordingly, net income allocated
to SQB holders, net income per SQB, and distribution per SQB are
reflected separately from the OTEF II BAC Holders on the
Statement of Partners' Capital. The SQBs were not split as were
the OTEF II BACs on July 1, 1997. The redeemed SQBs are
reflected as a reduction of Partners' Capital and were offset
against the SQB Holders' interests when redeemed.
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 December 31,
1997 is as follows:
<TABLE>
- ------------------------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME (in thousands, except per interest amounts)
(Unaudited)
<CAPTION>
- ------------------------------------------------------------------------------
Pro Forma
Nine months ended Twelve months ended
December 31, 1997<F1> December 31, 1997<F2>
-------------------------------------------
<S> <C> <C>
Revenues
Interest on bonds $ 431 $ 620
Other interest 9 13
- ------------------------------------------------------------------------------
440 633
Expenses
Governance and administration 18 31
Litigation expenses 6 10
- ------------------------------------------------------------------------------
Net income allocated to SQB holders $ 416 $ 592
==============================================================================
Net income per SQB $ 43.62 $ 57.50
==============================================================================
Distributions to SQB holders $ 348 $ 498
==============================================================================
Distribution per SQB $ 36.50 $ 48.34
==============================================================================
Weighted Average SQBs outstanding 9,538 10,300
==============================================================================
<FN>
<F1> SQBs were issued on April 1, 1997.
<F2> This Pro Forma presentation includes the SQB holders' earnings for
the first quarter of the year, before their Beneficial Assignee
Certificates (BACs) were converted to SQBs, in addition to their nine
months of SQB earnings.
</FN>
</TABLE>
<PAGE> 32
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Notes to Financial Statements
- -----------------------------------------------------------------
This Information Memorandum states that, subject to receipt of
a fairness opinion from OTEF II's independent real estate
consultant, non-tendered 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,
2006, 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 liquidation, less the costs
of sale.
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 approximately $0.3 million for
December 31, 1997, 1996 and 1995.
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.
At the end of 1997, OTEF II acquired the tax-exempt bonds that
are collaterlized by the properties owned by Dallas-Oxford
Associates Limited Partnership and Carpenter-Oxford Associates
Limited Partnerships, both of which are affiliates of the
Managing General Partner of OTEF II. Affiliates of the Managing
General Partner receive fees from these partnerships and serve as
their general partners, which entitles them to a share of any
cash flow and refinancing and liquidation proceeds from these
partnerships.
Compensation and Fees. For the years ended December 31, 1997,
1996 and 1995, the Operating Partnerships paid ORFG total asset
management fees of approximately $0.6 million, respectively. The
Operating Partnerships also paid ORFG, in the aggregate, $0.7
million of fees pursuant to the OTEF Restructuring Plan
Administration/Asset Management Fee Agreement, which amount is
equal to 0.25% per annum of the principal amount of the bonds
collateralized by the properties owned by the Operating
Partnerships ("Existing Mortgaged Properties").
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 to
ORFG in 1997 in connection with OTEF II's investment in New
Assets.
ORFG is 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. ORFG's 1% acquisition fee attributable
to the New Asset transaction described above is contingent upon,
among other things, receipt of approval by the investor limited
partners of the Dallas and Carpenter partnerships. It is
anticipated that ORFG's acquisition fees will be earned and paid
by the Dallas and Carpenter partnerships in 1998. No
acquisition fees were paid to ORFG in 1997.
<PAGE> 33
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
OTEF II also will pay ORFG an advisory fee for managing
OTEF II's New Assets after their acquisition. The advisory fee,
which is payable annually, is equal to 0.5% of (i) the purchase
price paid by OTEF II for a New Asset, or (ii) with respect to a
New Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by OTEF II
for its subordinated interest and (B) the principal amount of the
senior interest; provided, however, that if an affiliate of the
Managing General Partner is receiving fees for property
management services pursuant to a property management agreement
entered into with the owner of an Additional Mortgaged Property,
the advisory fee will be equal to 0.5% of the purchase price paid
by OTEF II for the related New Asset. In addition, if the
Managing General Partner receives in any year compensation or
fees from an unaffiliated person that serves as the property
manager for the Additional Mortgaged Property, the amount of the
advisory fee payable with respect to the related New Asset shall
be reduced by 50% of any such compensation or fees received by
the Managing General Partner. The advisory fees associated with
the acquisition of the Dallas and Carpenter bonds will commence
in 1998. No advisory fees were paid to ORFG in 1997.
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, 1997, 1996 and 1995 were
approximately $0.6 million, $0.4 million, and $0.1 million,
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. The
portion of the expense reimbursement relating to salaries is
determined based on the actual time the officers and employees
devote to OTEF II based upon their respective wage rate.
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "Incentive Option Plan") in order for
the Managing General Partner to attract and retain key employees
and advisers. The Incentive Option Plan authorizes the granting
to the directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase 652,125
OTEF II BACs (on a post-split basis), representing approximately
8.3% of the outstanding OTEF II BACs on a fully diluted basis.
Such options are exercisable for 10 years. The Managing General
Partner has awarded all of the OTEF II BACs authorized under the
terms of the Incentive Option Plan. Of the 652,125 options,
613,000 were fully vested upon issuance and 39,125 are vested
equally over 3 years commencing January 1, 1998. The exercise
price for all options is $23.88 per BAC. As of December 31,
1997, assuming the fully vested options were exercised on
December 31, 1997 at $25.31 per OTEF II Liquidity BAC, the
compensation expense is approximately $0.9 million. This amount
is being amortized over the life of the options in accordance
with the Statement of Financial Accounts Standards No. 123.
Note 5. Capital, Profits, Losses, and Cash Distributions
The following discussion summarizes certain rights of the
Liquidity BAC Holders and the SQB Holders following the SQB
Issuance Date.
Rights to Allocations and Distributions
Capital Accounts. Following the Status Quo BAC Issuance Date,
the BAC Holders who retained their OTEF II BACs initially had
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") are 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 are reduced by the amount of all distributions made to them
by OTEF II (which distributions are 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 New Assets ("Liquidity Losses"), but not by any
Losses relating to the Status Quo Assets ("Status Quo Losses").
<PAGE> 34
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Status Quo BAC Holders also initially had 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") are increased by the Status Quo Profits, but not by
any Liquidity Profits, and are 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 maintains two Capital
Accounts (a Liquidity Capital Account and a Status Quo Capital
Account) for BAC Holders who elected to convert only a portion of
their OTEF II BACs into SQBs.
Distributions of Cash Flow. Liquidity Cash Flow and Status
Quo Cash Flow are 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;
(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;
<PAGE> 35
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
(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;
(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;
<PAGE> 36
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
(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.
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, until May 30, 2005, or an earlier redemption by OTEF
II .
<PAGE> 37
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
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 Tax-Exempt Securities
As shown in the table below, as of December 31, 1997, OTEF II
owned three Existing MRBs and 12 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. Additionally, on December 30, 1997, OTEF II
acquired two additional tax-exempt revenue bonds collateralized
by garden apartments. These bonds are identified as "New Bonds".
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 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 December 31,
1997, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $1.1 million,
including deposits from December's cash flow.
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
approximately $0.2 million 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 approximately $2 million Treasury strip bond that it
received on August 15, 1996. At December 31, 1997, Oxford was
holding approximately $1.3 million 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.
<PAGE> 38
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------
Schedule of Investments in Tax-Exempt Securities
- -----------------------------------------------------------------
<CAPTION>
December 31,
------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Existing MRBs (not refunded
as of 12/31) $ 15,796 $ 40,288 $153,032
A Bonds (refunded as of 12/31) 56,076 65,781 0
B Bonds (refunded as of 12/31) 59,968 46,963 0
New bonds (not refunded as
of 12/31) 24,366 0 0
- -----------------------------------------------------------------
156,206 153,032 153,032
Adjustment for unrealized gains 60,953 62,497 10,968
- -----------------------------------------------------------------
Subtotal investment in
tax-exempt securities $217,159 $215,529 $164,000
- -----------------------------------------------------------------
Investments in securities
held in trust 21,192 0 0
Adjustment for unrealized gains 17,628 0 0
- -----------------------------------------------------------------
Subtotal investment in tax-exempt
securities held in trust 38,820 0 0
- -----------------------------------------------------------------
TOTAL $255,979 $215,529 $164,000
=================================================================
</TABLE>
Existing MRBs. As of December 31, 1997, OTEF II held Existing
MRBs for two of the Operating Partnerships. The Managing General
Partner is continuing its efforts to cause the refunding of these
Existing MRBs.
The table below sets forth the cumulative Unpaid Base Interest
and Interest on Unpaid Base Interest as of December 31, 1997 for
Existing MRBs:
<TABLE>
- ---------------------------------------------------------------------------
<CAPTION>
(In thousands)
------------------------------------------
Interest on Unpaid Unpaid
Property Name/Partnership Name Base Interest Base Interest Total
- ---------------------------------------------------------------------------
<C> <C> <C> <C>
San Bruno (San Bruno)
(2 Existing MRB's) $ 126 $ 889 $1,015
The Harbour (Apollo) 1,277 2,638 3,915
- ---------------------------------------------------------------------------
$1,403 $3,527 $4,930
===========================================================================
</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 was highly unlikely, recognition of
accrued interest income was suspended. However, prior to this
suspension, approximately $4 million of interest had been accrued
for federal income tax purposes on certain Existing MRBs. As of
December 31, 1996 all of this accrued interest had been written
off for tax purposes. These Existing MRBs were refunded, and the
Unpaid Base Interest for the applicable Operating Partnerships
was forgiven. This forgiveness had 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 was 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%. On or about December 1997, the interest rates on the
Series A Bonds retained by OTEF II were reset to 4.8%. The
interest rate on the Series A Bonds involved in the financing
transactions completed by OTEF II were converted from annual
reset mode to a 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.
<PAGE> 39
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
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.
The Combined Rates on the Refunding Bonds over the next 10
years are as follows:
<TABLE>
- -------------------------------------------------------------------------------------
<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<F1> 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<F1> 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<F1> 6.12% 6.22% 6.46% 5.97% 6.22% 6.45% 6.69% 6.95% 7.22% 7.50% 7.80%
Williamsburg<F1> 7.64% 7.74% 8.05% 7.47% 7.78% 8.09% 8.40% 8.74% 9.09% 9.47% 9.86%
- -------------------------------------------------------------------------------------
<FN>
<F1> Note that even though the Series A Bonds bears interest at a
spread over the weekly PSA floating rate index, as previously
described under "Financing Transaction", the rate associated with
the related Series B Bonds must fluctuate to maintain the
"Combined Rate" stated above. Consequently, the financing
transaction has no effect on the combined rate of these select
bonds.
</FN>
</TABLE>
The Combined Rates decrease in the fourth year following the
date of refunding due to the principal payments commencing under
the Refunding Bonds and, thereafter, the Combined Rates increase
every year through the remaining term of the Refunding Bonds.
New Bonds. The Managing General Partner anticipates that the
Dallas and Carpenter bonds will be refunded in 1998. Their
current maturity date is March 1, 2006, except that they are
subject to mandatory redemption on July 1, 2000, unless
alternative security is provided on or prior to the date. The
Carpenter and Dallas partnerships and OTEF II agreed to use
reasonable commercial efforts to cause the issuance of refunding
bonds, or modification of the existing bond documents to achieve
the following principal terms: (i) principal amount of bonds
equal to the sum of OTEF II's purchase price for the bonds and
acquisition costs, (ii) fixed interest at a rate of 7.25% per
annum, (iii) 30-year maturity with a mandatory
redemption/remarketing on the seventh anniversary of the
refunding or restructuring, and (iv) optional redemption by the
partnerships on and after the fourth anniversary upon payment of
a sliding scale premium or at any time with the consent of OTEF
II. In addition, each of the Carpenter and Dallas partnerships
has the right to repurchase its respective bonds from OTEF II on
certain terms and conditions if they determine they will not be
able to obtain the consent of the issuers to refund or modify the
bonds as described above. No assurances can be given that the
partnerships and OTEF II will be able to cause the bonds to be
refunded or modified in the manner described above. The existing
and anticipated rates on these bonds are as follows:
<PAGE> 40
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
Investments Existing Anticipated Rate
in New Bonds Rate At Refunding
- -----------------------------------------------------------------
<S> <C> <C>
Carpenter 8.02% 7.25%
Dallas 6.87% 7.25%
- -----------------------------------------------------------------
Combined 7.54%<F1> 7.25%<F2>
=================================================================
<FN>
<F1> In connection with these transactions, OTEF II will also
hold taxable loans bearing interest at 9.30% per annum. The
weighted average combined effective interest rate, including
the rate earned on the taxable loans, is 8.64% during the
interim period prior to refunding and is anticipated to be
7.375% per annum after the refunding.
<F2> No assurances can be given that the terms described above
can be achieved.
</FN>
</TABLE>
<PAGE> 41-42
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Note 7. Investments in Bonds (continued)
Information on the Bonds as of December 31, 1997 and 1996 (in 000's) and the related properties is as follows:
1997 1996
Carrying Value at 12/31/97 Unrealized Total Monthly Interest
Combined ---------------------------------- --------------- Carrying --------------------
Maturity Face Existing Gain or Gain or Value @ Existing A B
Bond Investment Date Amount Bond A Bond B Bond Total (Loss) (Loss) 12/31/96 Bond Bond Bond
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REFUNDED BONDS:
Chesapeake Landing, November 2026 $ 25,450 $ 0 $ 13,102 $10,418 $ 23,520 $ 9,407 $ 8,639 $ 22,753 $ 0 $ 52 $101
Fox Valley-Oxford L.P.
Hunt Club, December 2026 20,270 0 8,732 5,825 14,557 1,801 1,367 14,123 0 36 56
Travis One-Oxford L.P.
Savannah Trace, November 2026 23,400 0 11,232 7,738 18,970 4,264 3,686 18,392 0 45 75
Schaumburg-Oxford L.P.
Windrift at Seaview Ridge, December 2026 29,430 0 11,258 8,760 20,018 1,582 939 19,375 0 46 84
Southridge-Oxford L.P.
Chambrel at Pinecastle, November 2026 9,500 0 5,458 4,858 10,316 4,859 4,495 9,952 0 22 46
Ocala-Oxford L.P.
Chambrel at Montrose, December 2026 12,800 0 7,354 6,613 13,967 5,492 4,991 13,466 0 30 63
Akron One Retirement-
Oxford L.P.
Chambrel at Club Hill, March 2027 25,430 0 8,673 6,771 15,444 523 (3,245) 11,676 0 35 57
Colonel I-
Oxford L.P.<F1>
Northwoods, January 2027 21,700 0 11,126 9,220 20,346 10,775 5,084 14,655 0 45 86
Middletown-
Oxford L.P.<F1>
Reflections, November 2026 25,644 0 13,998 10,428 24,426 11,335 10,551 23,641 0 56 98
Tidewater-
Oxford L.P.<F2>
Island Club, November 2026 11,300 0 5,744 4,911 10,655 6,030 5,669 10,294 0 23 47
Allview-Oxford L.P.<F2>
Windsor Park, November 2026 14,000 0 6,333 4,867 11,200 5,552 5,192 10,840 0 25 47
Westridge-
Oxford L.P.<F2>
Chambrel at Williamsburg, November 2026 25,000 0 13,708 11,106 24,814 9,377 8,551 23,988 0 55 107
Williamsburg-
Oxford L.P.<F2>
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal Refunded Bonds $243,924 $ 0 $116,718 $91,515 $208,233 $70,997 $55,919 $193,155 $ 0 $470 $867
- ----------------------------------------------------------------------------------------------------------------------------------
UNREFUNDED BONDS (Existing Bonds):
San Bruno, November 2009 $ 25,000 $18,362 $ 0 $ 0 $ 18,362 $ 7,971 $ 7,066 $ 17,458 $172 $ 0 $ 0
San Bruno-Oxford L.P. December 2009 1,060 779 0 0 779 338 300 740 7 0 0
The Harbour, November 2009 8,710 4,239 0 0 4,239 (725) (788) 4,176 60 0 0
Apollo-Oxford
Associates L.P.
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal Unrefunded Bonds $ 34,770 $23,380 $ 0 $ 0 $ 23,380 $ 7,584 $ 6,578 $ 22,374 $239 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal Refunded & Existing Bonds $278,694 $23,380 $116,718 $91,515 $231,613 $78,581 $62,497 $215,529 $239 $470 $867
- ----------------------------------------------------------------------------------------------------------------------------------
<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 $24.1 million in unpaid Base
Interest and interest on Unpaid Base Interest was written-off. San Bruno and Apollo are expected to be refunded in 1998.
<F2> Financing Transaction. On August 22, 1997 OTEF II closed the first of a series of transactions that will enable it to
acquire additional assets in accordance with the Liquidity and Growth Plan. OTEF II securitized approximately
$39 million of Series A Bonds collateralized by four properties. OTEF II retained all of its interest in the
corresponding Series B Bonds. In addition, OTEF II applied approximately $12 million of the proceeds to the purchase
of a subordinated interest in the securitization transaction. OTEF II also retained certain rights to reacquire the
securitized assets. In connection with this transaction, OTEF II converted the interest rate mode on these four
Series A Bonds from an annual reset to weekly floaters.
For financial statement purposes, this transaction is accounted for as a financing transaction and, accordingly, the
amount of the Series A Bonds financed of $39 million is reflected as Securities Held in Trust, the net cash proceeds
are classified as Cash and Cash Equivalents and the difference between the principal amount of the Series A Bonds financed
and the principal amount of the subordinated interest acquired by OTEF is classified as financing debt. The
financing debt bears interest at the Public Securities Association weekly floating bond rate ("PSA") plus approximately
80 to 85 basis points which averaged 4.63% from the date of closing through December 31, 1997. For federal income tax
purposes, this transaction is treated as a sale by OTEF II of the Series A Bonds and a purchase of the subordinated
interests, which is expected to result in a small capital loss.
</FN>
</TABLE>
<PAGE> 43
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Note 7. Investments in Bonds (continued)
Information on the Bonds as of December 31, 1997 and 1996 (in 000's) and the related properties is as follows:
1997 1996
Carrying Value at 12/31/97 Unrealized Total Monthly Interest
Combined ---------------------------------- --------------- Carrying --------------------
Maturity Face Existing Gain or Gain or Value @ Existing A B
Bond Investment Date Amount Bond A Bond B Bond Total (Loss) (Loss) 12/31/96 Bond Bond Bond
- ----------------------------------------------------------------------------------------------------------------------------------
NEW BONDS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Springhouse, July 2000<F3> $ 11,700 $10,296 $ 0 $ 0 $ 10,296 $ 0 $ N/A $ N/A $ 67 $ 0 $ 0
Dallas-Oxford L.P.
Steeplechase, July 2000<F3> 16,175 14,070 0 0 14,070 0 N/A N/A 108 0 0
Carpenter-Oxford L.P.
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal New Bonds: $ 27,875 $24,366 $ 0 $ 0 $ 24,366 $ 0 $ 0 $ 0 $175 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
Total Bonds: $306,569 $47,746 $116,718 $91,515 $255,979 $78,581 $62,497 $215,529 $414 $470 $867
==================================================================================================================================
<FN>
<F3> The existing Dallas and Carpenter bonds mature on March 1, 2006, except
that they are subject to mandatory redemption on July 1, 2000, unless
alternative security is provided on or prior to that date. These bonds were
acquired on December 30, 1997. Management anticipates that if a refunding
occurs approximately $3.5 million in the combined face amount of these bonds
will be cancelled by the bond trustee. If the fair market value of the
bonds is less than book value at the time of refunding there may be a
realized loss in the amount of the difference. At December 31, 1997, the
purchase price of the new bonds was equal to their fair market value.
</FN>
</TABLE>
<PAGE> 44
<TABLE>
- -------------------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------------------
<CAPTION>
Note 8. Quarterly Results and Market Information (in thousands, except per Liquidity
BACs and Market Prices)
For the Three Months Ended in 1997<F2>
----------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on tax-exempt securities $4,605 $4,629 $4,387 $4,113
Interest on tax-exempt securities
held in trust 0 0 202 465
Other, primarily interest on
short term investments 91 113 187 338
- -------------------------------------------------------------------------------------
Total Revenues 4,696 4,742 4,776 4,916
- -------------------------------------------------------------------------------------
Expenses
Governance &
administrative expenses 312 185 151 274
Litigation & settlement costs 98 106 37 24
Liquidity & growth costs 20 127 435 258
Finance interest expense 0 0 139 322
- -------------------------------------------------------------------------------------
Total Expenses 430 418 762 878
- -------------------------------------------------------------------------------------
Net income $4,266 $4,324 $4,014 $4,038
=====================================================================================
Net income to Liquidity BAC holders $4,181 $4,054 $3,801 $3,856
=====================================================================================
Net income per Liquidity BAC $0.557 $0.565 $0.529 $0.537
=====================================================================================
Weighted average Liquidity
BACs outstanding 7,500 7,185 7,185 7,185
=====================================================================================
Net income per Liquidity
BAC-assuming dilution<F3> $0.557 $0.564 $0.526 $0.534
=====================================================================================
Weighted average BACs outstanding
outstanding-assuming dilution<F3> 7,500 7,197 7,219 7,219
=====================================================================================
Distribution per Liquidity BAC $0.476 $0.476 $0.495 $0.495
=====================================================================================
Market Information:
Opening Price<F1> N/A N/A $20.00 $26.31
High N/A N/A $27.63 $26.44
Low N/A N/A $21.38 $25.19
Closing Price N/A N/A $26.31 $25.31
=====================================================================================
<FN>
<F1> OTEF II began trading on the American Stock Exchange on July 22, 1997.
<F2> On April 1, 1997, 314,675 BACs were converted to 12,587 SQB shares in accordance
with the class action litigation settlement discussed in Note 9. Consequently,
the number of BACs decreased from 7,500,000 in the first quarter to 7,185,000 in
the second quarter.
<F3> As required by FASB 128, net income per BAC assuming dilution has been presented
as if the stock options awarded on May 21, 1997 had been exercised. The effect
would be to increase the number of shares outstanding and effectively decrease
earnings. See Notes 1 and 4 for further discussion.
</FN>
</TABLE>
<PAGE> 45
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 9. Other Events
As previously reported, OTEF II and certain of its affiliates
(collectively, "Defendants") were 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 United States Court of Appeals for the Fourth Circuit by an
OTEF II BAC Holder who was appearing pro se.
Note 10. Subsequent Events
On January 5, 1998, in connection with its December 30, 1997
acquisition of two new tax-exempt bonds collateralized by rental
property owned by two operating partnerships, OTEF II advanced
approximately $0.9 million, in the aggregate, to these operating
partnerships for property improvements, partnership costs and
future bond refunding costs. These loans bear taxable interest
at 9.30%. OTEF II has agreed to lend up to an additional $0.7
million to these operating partnerships. These operating
partnerships are controlled by affiliates of OTEF II's managing
general partner. (See Note 2, New Assets, for discussion of
this transaction).
On February 14, 1998, OTEF II made a quarterly cash
distribution of approximately $3.7 million or $0.495 per BAC
(4.95% per annum on the original $1,000 invested per BAC) to BAC
Holders of record and $12.38 to SQB holders of record as of
December 31, 1997.
On February 19, 1998, OTEF II closed another securitization
transaction involving approximately $12.8 million of Series A
Bonds. In addition, OTEF II purchased a subordinated interest in
the securitization transaction. In connection with this
transaction, OTEF II converted the interest rate on the Series A
Bonds to weekly floaters.
As of February 5, 1998, an additional 25 SQBs were redeemed at
the redemption price of $540 per SQB.
On February 24, 1998, the United States Court of Appeals for
the Fourth Circuit affirmed the lower court decision by per
curiam opinion.
<PAGE> 46
<TABLE>
- ------------------------------------------------------------------------------
Distribution Information
- ------------------------------------------------------------------------------
<CAPTION>
The following table sets forth, on a quarterly basis, all distributions
declared by OTEF II and OTEF.
Amount Distributed<F1>
- -------------------------------------------------------------------------------
BAC Per SQB
Quarter Per BAC Holders SQB Holders General
Quarter Ended<F1> Payment <F5> <F2> <F6> <F6> Partners
- -------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1997
December 31, 1997 49 $ 0.4950 $ 3,556,674 $12.38 $ 87,811 $ 74,378
September 30, 1997 48 $ 0.4950 $ 3,556,674 $12.38 $110,566 $ 74,842
June 30, 1997 47 $ 0.4760 $ 3,420,155 $11.90 $149,785 $ 72,856
March 31, 1997 46 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
-------- ------------ ------ -------- ----------
$ 1.9420 $ 14,103,443 $36.66 $348,162 $ 294,932
- -------------------------------------------------------------------------------
1996
December 31, 1996 45 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
September 30, 1996 44 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
June 30, 1996 43 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
March 31, 1996 42 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
-------- ------------ ------ -------- ----------
$ 1.9040 $ 14,279,760 $ N/A $ N/A $ 291,424
- -------------------------------------------------------------------------------
1995
December 31, 1995 41 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
September 30, 1995 40 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
June 30, 1995 39 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
March 31, 1995 38 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
-------- ------------ ------ -------- ----------
$ 1.9040 $ 14,279,760 $ N/A $ N/A $ 291,424
- -------------------------------------------------------------------------------
1994
For the 4 quarters ended 34-37 $ 1.8000 $ 13,499,776 $ N/A $ N/A $ 275,504
- -------------------------------------------------------------------------------
1993
For the 4 quarters ended 30-33 $ 1.7628 $ 13,220,779 $ N/A $ N/A $ 269,813
- -------------------------------------------------------------------------------
1992
For the 4 quarters ended 26-29 $ 1.7008 $ 12,755,787 $ N/A $ N/A $ 260,323
- -------------------------------------------------------------------------------
1991
For the 4 quarters ended 22-25 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- -------------------------------------------------------------------------------
1990
For the 4 quarters ended 18-21 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- -------------------------------------------------------------------------------
1989
For the 4 quarters ended 14-17 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- -------------------------------------------------------------------------------
1988
For the 4 quarters ended 10-13 $ 2.4760 $ 18,570,000 $ N/A $ N/A $ 378,980
- -------------------------------------------------------------------------------
1987
For the 4 quarters ended 6-9 $ 3.4124 $ 25,593,000 $ N/A $ N/A $ 522,306
- -------------------------------------------------------------------------------
1986
For the 4 quarters ended 2-5 $ 3.4000 $ 25,500,000 $ N/A $ N/A $ 520,408
- -------------------------------------------------------------------------------
1985
December 31, 1985<F4> 1 $ 0.5952 $ 3,894,287 $ N/A $ N/A $ 79,475
- -------------------------------------------------------------------------------
Total $25.8508 $192,848,592 $36.66 $348,162 $3,942,797
===============================================================================
<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
$192,848,592, or approximately 64% based on an original investment of
$1,000 per BAC.
<F3> Excludes the $507,450 ($0.068 per BAC) distributed on August 15, 1988
as a return of capital.
<F4> Assumes BAC Holders were admitted on October 10, 1985.
<F5> All periods have been restated to reflect the 25-for-1 stock split
effectuated on July 22, 1997.
<F6> On April 1, 1997, in accordance with the class action litigation, OTEF
granted the option to BAC holders to elect Status Quo BAC (SQB)
status. Of the 12,587 units held as SQBs as of April 1, 1997, 5,484
elected to be redeemed as of August 1, 1997. SQBs were not affected in
the 25-for-1 stock split on July 1, 1997. An additional 10 SQBs were
redeemed on November 30, 1997, reducing the total number of SQBs to
7,093.
</FN>
</TABLE>
<PAGE> 47
- -----------------------------------------------------------------
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
Registrar & Transfer Company
ATTN: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
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, 1997, 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
7200 Wisconsin Avenue, 11th floor
Bethesda, MD 20814
1-888-321-OTEF
<PAGE> 48
- -----------------------------------------------------------------
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 Annual Report on Form 10-K for the year ended December 31,
1997, filed with the Securities and Exchange Commission, is
available to SQB and OTEF II BAC Holders and may be obtained
by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814
ALSO VISIT OUR WEB PAGE AT WWW.OTEF.COM
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1997 and the Statements of Income for the
Year ended December 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,694
<SECURITIES> 255,979
<RECEIVABLES> 1,439
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,551
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 270,663
<CURRENT-LIABILITIES> 33,881
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 236,782
<TOTAL-LIABILITY-AND-EQUITY> 270,663
<SALES> 0
<TOTAL-REVENUES> 19,130
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,642
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.18
</TABLE>
