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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________to______________
Commission file number: 0-25600
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Maryland 52-1394232
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 301-654-3100
Securities registered pursuant to Section 12(b) of the Act:
Beneficial Assignee Interests
- -----------------------------
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interests
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ NO / /
At September 30, 1998, the following classes of beneficial
assignee interests of Oxford Tax Exempt Fund II Limited
Partnership were outstanding: (i) 7,185,200 beneficial assignee
interests ("BACs") with an aggregate market value ($25.75 per
share) of $185,018,900, and (ii) 6,946 Status Quo BACs ("SQBs").
Index to Exhibits is found on page 3.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 15 through 25 of OTEF
II's Quarterly Report (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condit
ion and Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three and nine-month periods ended September
30, 1998 is incorporated herein by reference to sequentially
numbered pages 6 through 14 entitled "Report of Management"
included in OTEF II's Quarterly Report (Unaudited).
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Information responsive to this Item regarding changes in
securities is contained in Item 2 of the Form 10-Q/A for the
quarter ended March 31, 1997, filed by OTEF II.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In connection with the incentive option BACs, a Registration
Statement on Form S-8 was filed with the SEC on June 10,
1998, and a Post Effective Amendment was filed with the SEC
on June 12, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of
Regulation S-K, see Exhibit Index on page 3 of this report.
(b) Reports on Form 8-K.
None.
No other items were applicable.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(20) Report furnished to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly
Report (Unaudited) dated September 30, 1998, follows on
sequentially numbered pages 5 through 26 of this report.
(27) Financial Data Schedule.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the registrant
Date: 11/13/98 By: /S/ Richard R. Singleton
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Richard R. Singleton
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: 11/13/98 By: /S/ Francis P. Lavin
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Francis P. Lavin
Director and President
Date: 11/13/98 By: /S/ Robert B. Downing
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Robert B. Downing
Director and Executive Vice President
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
September 30, 1998
CONTENTS
Report of Management
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Instructions for Investors who wish to reregister or
transfer OTEF II BACs
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Report of Management
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The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("OTEF II" or the "Partnership"), as
of September 30, 1998, and its results of operations and cash
flows for the period then ended. This report and analysis should
be read together with the financial statements and related notes
thereto and the selected financial data appearing elsewhere in
this Quarterly Report.
Recent Developments
Distribution for the Quarter ended September 30, 1998. The
Managing General Partner declared, on September 17, 1998, a
distribution for the quarter ended September 30, 1998 in the
amount of $0.51 per BAC for the Liquidity BAC holders, and $12.38
per Status Quo BAC (SQB) holders. This distribution was
paid on November 13, 1998. For the Liquidity BAC holders,
this distribution is in the same amount as was disclosed for the
second quarter of 1998 and represents a 3% increase in the amount
of the distribution paid for the first quarter of 1998.
Repurchase Program. On October 30, 1998, OTEF II announced
that the Board of Directors of its Managing General Partner
authorized the repurchase, from time to time, of up to 250,000
shares of Liquidity BACs. OTEF II may purchase Liquidity BACs in
the open market or through privately negotiated transactions. The
timing and amount of Liquidity BACs purchased will be dependent
on the availability of Liquidity BACs and other market factors.
OTEF II will purchase Liquidity BACs only to the extent that they
may be purchased at favorable prices. There can be no assurance
that any Liquidity BACs will be repurchased by or on behalf of
OTEF II. OTEF II has not repurchased any Liquidity BACs as of
the date of this report.
Investments in New Assets. On October 27, 1998, OTEF II
acquired $14,200,000 Collin County Housing Finance Corporation
Multifamily Housing Mortgage Revenue Bonds (Carpenter-Oxford
Development) Series 1998 (the "Carpenter Refunding Bonds"). As
previously reported, on December 30, 1997, OTEF II purchased, at
a discount, $16,175,000 of tax-exempt bonds issued by the Texas
Department of Housing and Community Affairs. The bonds are
collateralized by Steeple Chase Apartments, a 368-unit apartment
community located in Plano, Texas, that is owned by a privately-
held Maryland limited partnership whose general partners are
affiliates of OTEF II ("Carpenter Borrower").
In connection with the recent refunding transaction, OTEF II
exchanged the bonds that it acquired on December 30, 1997 for the
Carpenter Refunding Bonds. The Carpenter Refunding Bonds bear
tax-exempt interest at an annual fixed rate of 7.25% for an
initial term through October 1, 2005, at which time the Carpenter
Refunding Bonds must be remarketed. The Carpenter Refunding
Bonds mature on September 1, 2018, subject to earlier redemption
(optional and mandatory) upon the occurrence of certain events.
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Report of Management
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In addition, OTEF II funded the balance of a taxable loan in
the amount of $315,000. The Carpenter Borrower will apply the
net proceeds of this loan to fund certain capital improvements,
and pay transactional, bond refunding and certain other costs.
The taxable loan in the aggregate principal amount of $915,000
will be repaid on an interest-only basis with taxable interest at
an annual fixed rate of 9.30% on the principal balance
outstanding from time to time with the principal due at maturity.
The taxable loan matures on the same date as the Carpenter
Refunding Bonds and is prepayable on the same terms and
conditions as the Carpenter Refunding Bonds.
On July 20, 1998, OTEF II acquired $10,300,000 Texas
Department of Housing and Community Affairs Multifamily Mortgage
Revenue Refunding Bonds (Dallas-Oxford Development) Series 1998
(the "Dallas Refunding Bonds"). As previously reported, on
December 30, 1997, OTEF II purchased, at a discount, $11,700,000
of tax-exempt bonds issued by the Texas Department of Housing and
Community Affairs. The bonds are collateralized by Springhouse
Apartments, a 372-unit apartment community located in Dallas,
Texas, that is owned by a privately-held Maryland limited
partnership whose general partners are affiliates of OTEF II
("Dallas Borrower").
In connection with the recent refunding transaction, OTEF II
exchanged the bonds that it acquired on December 30, 1997 for the
Dallas Refunding Bonds. The Dallas Refunding Bonds bear tax-
exempt interest at an annual fixed rate of 7.25% for an initial
term through July 1, 2005, at which time the Dallas Refunding
Bonds must be remarketed. The Dallas Refunding Bonds mature on
April 1, 2018, subject to earlier redemption (optional and
mandatory) upon the occurrence of certain events.
In addition, OTEF II funded the balance of a taxable loan in
the amount of $355,000. The Dallas Borrower will apply the net
proceeds of this loan to fund certain capital improvements, and
pay transactional, bond refunding and certain other costs. The
taxable loan in the aggregate principal amount of $680,000 will
be repaid on an interest-only basis with taxable interest at an
annual fixed rate of 9.30% on the principal balance outstanding
from time to time with the principal due at maturity. The
taxable loan matures on the same date as the Dallas Refunding
Bonds and is prepayable on the same terms and conditions as the
Dallas Refunding Bonds.
As previously reported, OTEF II has begun working on bond
refunding and refinancing transactions with respect to the
Jacaranda and Summerwalk properties. The senior tax-exempt bonds
secured by these properties ($11.8 million for Jacaranda and $10
million for Summerwalk) are currently held by third parties. The
letters of credit that secure these bonds expire on August 15,
1999 for Jacaranda and December 15, 2000 for Summerwalk. If
substitute credit enhancement is not provided by such dates, the
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Report of Management
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senior bonds must be refunded or repaid. Based on its
preliminary discussions, the Managing General Partner anticipates
consummating refunding and refinancing transactions for these
properties where the requirement to maintain letters of credit
is eliminated and the bonds are refinanced or, in the case
of Summerwalk, possibly acquired by OTEF II as part of a
refinancing. However, in light of the financial turmoil that has
affected the global capital markets in recent months, no
assurances can be given that these transactions can be
consummated in a timely manner.
Status Quo BACs. Effective April 1, 1997, OTEF II issued
SQBs, representing 12,587 shares, in uncertificated, book-entry
form. During 1997, a total of 5,494 SQBs were redeemed for a
cost of $3.0 million. During the first two quarters of 1998, an
additional 147 SQBs were redeemed at prices ranging from $540 to
$550 per share, leaving 6,946 SQBs outstanding at June 30, 1998.
No redemptions occurred during the third quarter.
The Information Memorandum states that, subject to receipt of
a fairness opinion from OTEF II's independent real estate
consultant, all outstanding SQBs will be purchased or redeemed by
OTEF II at such time as the Managing General Partner believes
that it would be in the best interests of OTEF II and the holders
of the non-tendered SQBs, but in no event later than December 31,
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 purchase or redemption, less
the costs of sale. The Managing General Partner has undertaken
an analysis of whether such a purchase or redemption by OTEF II
would be in the best interests of the SQB Holders and OTEF II at
the present time and, in connection therewith, is reviewing all
ownership attributes of the SQBs. The Managing General Partner
expects to complete its analysis later this year.
Year 2000 Compliance
In accordance with the SEC's interpretive release "Statement
of the Commission Regarding Disclosure of Year 2000 Issues and
Consequences by Public Companies'," the Managing General Partner
of OTEF II has upgraded and tested the principal systems on which
OTEF II relies and believes that they are Year 2000 compliant as
of this date. The Managing General Partner is currently
contacting third parties with whom OTEF II does business to
evaluate their exposure to year 2000 issues. In addition, the
Managing General Partner is in the process of contacting it's
vendors to determine their compliance and is developing
contingency plans. The Managing General Partner believes that
such analysis will be completed in 1999. The Managing General
Partner is committed to making OTEF II's transition into
the next millennium a smooth one.
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Report of Management
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Liquidity and Capital Resources
Current Position. OTEF II uses the interest income it
receives from Refunding Bonds, Existing MRBs, New Assets (each as
defined below), and cash reserves to make periodic cash
distributions to its General Partners, OTEF II BAC Holders and
SQB Holders, pay administrative expenses and fund reserves, as
well as the costs and expenses associated with the implementation
of the 1995 OTEF Restructuring Plan and the acquisition of New
Assets.
As of September 30, 1998, OTEF II held approximately $16.8
million in cash and cash equivalents, an increase of $5.1
million, or approximately 44%, from the approximately $11.7
million in cash and cash equivalents held as of December 31,
1997. This increase in OTEF II's cash and cash equivalents
primarily reflects the net proceeds generated from Financing
Transactions in excess of the amounts invested by OTEF II. Total
assets were $297.7 million compared to $270.7 million at December
31, 1997. In addition, total liabilities of OTEF II shown on the
balance sheet increased by $18 million to approximately $52
million as of September 30, 1998 from approximately $34 million
at December 31, 1997 due to the Financing Transactions.
Investment in New Assets. OTEF II generally will invest
in additional tax-exempt mortgage revenue bonds and, to a lesser
extent, taxable loans or other real estate-related assets that
are secured by, or associated with, apartment and senior
living/health care communities located throughout the nation
("New Assets"). It is expected that OTEF II will invest on terms
that will permit it, in many cases, to participate substantially
in the future growth and increase in value of the properties
financed by such bonds. See "Recent Developments" and prior
reports for additional information regarding New Assets.
Refunding Bonds. As of September 30, 1998, twelve of the
fifteen mortgage revenue bonds owed by OTEF II prior to
implementation of the 1995 Restructuring Plan ("Existing MRBs")
had been refunded, representing 88% of the combined face amounts
of the Existing MRBs and Refunding Bonds portfolio.
The refunding bonds that were issued to refund Existing MRBs
("Refunding Bonds") are structured so as to consist of senior
bonds ("Series A Bonds") and subordinated bonds ("Series B
Bonds"). This senior/subordinated structure has permitted
OTEF II to undertake several financing transactions involving
the Series A Bonds that are allocable to the OTEF II BACs
("Liquidity Assets"). A portion of the net proceeds from these
financings has been invested in New Assets, as discussed above.
OTEF II has retained the related Series B Bonds for the benefit
of the Liquidity BAC Holders, and has retained 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.
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Report of Management
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Series A Bonds. The term of each Refunding Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding. The Series A Bonds require interest only payments
during the first three years and, thereafter, are subject to
annual sinking fund redemptions that will result in full
amortization of the Series A Bonds during the 27-year remaining
term.
Series A Bond Interest and Principal. The Series A Bonds
require pre-determined annual sinking fund redemptions based on a
27-year amortization schedule beginning in the fourth year,
calculated with an assumed rate of interest of 5.6% per year. In
the annual reset mode, Series A Bond interest was set initially
at closing of the refundings and is reset annually thereafter at
a market rate based upon a percentage of the then prevailing one-
year U.S. Treasury Bill rate, with a maximum rate of 5.6% per
annum. The initial interest rate on the Series A Bonds that have
been issued to date was 4.9%. The interest rate on one of the
Series A Bonds retained by OTEF II was reset recently to 3.75%;
the interest rate on the five remaining Series A Bonds retained
by OTEF II will reset at various times during the period from
December 1998 through March 1999. The interest rate on the Series
A Bonds involved in the financing transactions described above
was converted from annual reset to a weekly floating rate based
on a spread over the BMA index. This rate averaged 4.51% from the
date of closing through December 31, 1997 and 4.37% for the nine
months of 1998. 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. All interest has been currently paid
on the Series B Bonds.
Combined Rate. The Combined Rate represents that portion of
each Property's projected cash flow before debt service 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
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Report of Management
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Bonds and Series B Bonds. The 1998 weighted average Combined
Rate for the 12 Refunding Bonds is 6.62%. See Note 7 to the 1997
Annual Report for a schedule of Combined Rates of the Refunding
Bonds over the next ten years.
Other Sources. In connection with the closing of the Refunding
Bonds, the applicable Operating Partnerships entered into certain
pooling agreements which may provide under certain circumstances
additional sources of funds to enable them to pay their
respective debt service on the Series A Bonds and the Series B
Bonds and related fees and expenses. As of September 30, 1998,
the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $2.2 million,
compared to $1.1 million at the end of 1997. As of the date of
this report, none of these reserves has been drawn in relation to
the pooling agreements. In addition, as discussed in prior
reports, in connection with the closing of the Oxford/NHP
transaction in 1993, Oxford committed certain proceeds of such
closing to satisfy certain obligations it had to these Operating
Partnerships. In August 1998, Oxford funded $0.1 million to
Allview, leaving the total commitment of Oxford as of September
30, 1998 at $1.2 million. The Managing General Partner
anticipates that the remaining balance will be advanced to
certain Operating Partnerships to help defray the costs of
refunding the remaining Existing MRBs, increase property
improvement reserves and create operating reserves, as deemed
necessary by the Managing General Partner.
Financing Transactions. OTEF II seeks to enhance its overall
return on investment and to generate proceeds which facilitate
the acquisition of additional investments. OTEF II has
securitized a total of approximately $62.6 million of its Series
A Bonds by assigning these Series A Bonds to a Merrill Lynch
affiliate which, in turn, deposits them into trusts. The trusts,
in turn, sell to institutional investors senior, floating rate
securities credit enhanced by a Merrill Lynch affiliate. These
senior securities have first priority on the debt service payments
related to the Series A Bonds. OTEF II acquired all the
subordinated interests in these trusts in the aggregate amount of
approximately $15 million, and received the proceeds from the
sale of the senior securities, less certain transaction costs.
OTEF II has certain rights to repurchase and/or refinance the
Series A Bonds and to repurchase the senior securities and,
therefore, retains a level of control over the Series A Bonds.
These securitization transactions provide low-cost financing for
OTEF II's growth. The portion of the net proceeds from these
transactions that is not invested in New Assets is temporarily
invested in liquid tax-exempt money market securities.
In connection with these transactions, OTEF II converted the
interest rate mode on the Series A Bonds from an annual reset to
weekly floaters. In the first securitization transaction on
August 22, 1997, OTEF II also purchased a three-year interest
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Report of Management
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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. On September 21,
1998, OTEF II purchased an additional 3 year interest rate cap on
a notional amount of $30 million pursuant to which OTEF II will
receive payments if the average, short-term tax-exempt interest
rates for any month during the term of the cap increase above a
specified level (4.5%).
For financial statement purposes, these transactions are
accounted for as financing transactions. The amount of the
Series A Bonds financed of approximately $62.6 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 interests acquired by
OTEF II is classified as financing debt on OTEF II's balance
sheet. The aggregate financing debt at September 30, 1998 was
$47.6 million as compared to $27.2 million as of December 31,
1997. OTEF II's financing debt represents approximately 16% of
OTEF II's total assets (if the entities in which OTEF II has made
a subordinated debt investment were consolidated with OTEF II,
then OTEF II's adjusted debt would represent approximately 22%
of OTEF II's total assets ). Due to the credit enhancement
provided by a Merrill Lynch affiliate in connection with the
securitization transactions, and favorable underwriting
characteristics (low loan-to-value and high debt coverage), this
financing debt bears interest at the BMA weekly floating bond
index plus approximately 80 to 85 basis points (including credit
enhancement, trustee and related fees). This rate averaged 4.46%
from the date of closing through December 31, 1997 and 4.32% for
the nine months of 1998. The credit enhancement associated with
approximately $27.174 million of this financing debt must be
renewed or refinanced by August 21, 1999. OTEF II has certain
rights to repurchase the Series A Bonds and the senior interests
involved in these securitization transactions. While OTEF II is
not an obligor and, therefore, is not liable for repayment of
this financing debt, the Series A Bonds (in which OTEF II owns
approximately $15 million of subordinated interests through the
trusts) are in effect collateral for this financing debt. Based
on its preliminary discussions with financing sources, the
Managing General Partner believes that OTEF II will be able to
extend the credit enhancement or refinance this financing debt,
however, in light of the financial turmoil that has affected the
global capital markets in recent months, no assurances can be given.
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 each interest rate cap
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Report of Management
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agreement, which is 3 years. For federal income tax purposes,
these transactions are treated as sales by OTEF II of the
applicable Series A Bonds and a purchase of the subordinated
interests. With respect to the first transaction, the sale of
the Series A Bonds resulted in a 1997 capital loss for federal
income tax purposes of approximately $3.8 million. Information
regarding the federal income tax consequences of financing
transactions completed during 1998 will be provided later this
year.
Existing MRBs. As of September 30, 1998, OTEF II held
Existing MRBs for two of the Operating Partnerships. It is
expected that the refunding of at least one of the Operating
Partnership's Existing MRBs will close in 1998.
Results of Operations
OTEF II's Operations
OTEF II Distributions. Distributions to Partners will amount
to approximately $3.8 million, or $0.51 per Liquidity BAC and
$12.38 per SQB holders of record as of September 30, 1998.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income and Net Income per Liquidity BAC was $4.8
million and $0.637, respectively, for the three-month period
ended September 30, 1998, compared to $4.0 million and $0.529,
respectively, for the same period in 1997. The increase in Net
Income for the comparative six-month periods is the result of
additional interest received on New Assets exceeding the costs
associated with the implementation of the Liquidity & Growth Plan
that were not incurred in the prior comparative period. Net
Income per Liquidity BAC assuming dilution due to the incentive
option plan for the three-month period ended September 30, 1998
was $0.631.
OTEF II's Nine-Month Operations. For financial statement
purposes, Net Income and Net Income per Liquidity BAC was $13.8
million and $1.840, respectively, for the nine-month period ended
September 30, 1998, as compared to $12.6 million and $1.651,
respectively, for the nine-month period ended September 30, 1997.
The increase in Net Income is the result of additional interest
received on New Assets exceeding the costs associated with the
implementation of the Liquidity & Growth Plan that were not
incurred in the prior comparative period. Net Income per
Liquidity BAC assuming dilution due to the incentive option plan
for the nine-month period ended September 30, 1998 was $1.821.
Due to OTEF II's conversion of a portion of the BACs to SQBs,
effective April 1, 1997, there were 7,499,875 BACs outstanding in
the first quarter of 1997 compared to 7,185,200 in the first
quarter of 1998. Consequently, the weighted average number of
Liquidity BACs outstanding for the computation of earnings per
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Report of Management
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share was 7,185,200 as of September 30, 1998 and 1997,
respectively. Beginning in 1998, the relative portion of OTEF
II's administrative costs allocated to SQB Holders increased due
to the adoption by the Managing General Partner of a new cost
allocation methodology designed to reflect the actual time
incurred to administratively service the SQB Holders. During the
period from April 1, 1997 to December 31, 1997, these
administrative costs were allocated based upon the ratio of SQB
Holders to BAC Holders. After consultation with OTEF II's
professional advisors, the Managing General Partner believes that
this new methodology is more equitable to all parties.
THIS REPORT CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING IN
NATURE AND REFLECT MANAGEMENT'S CURRENT VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE STATEMENTS ARE
SUBJECT TO MANY UNCERTAINTIES AND RISKS, AND SHOULD NOT BE
CONSIDERED GUARANTEES OF FINANCIAL PERFORMANCE.
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
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Balance Sheets (in thousands)
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<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
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<S> <C> <C>
Assets
Investments in tax-exempt securities $204,164 $217,159
Investments in tax-exempt securities held in trust 62,565 38,820
Investment in taxable securities and loans 11,179 0
Cash and cash equivalents 16,840 11,694
Bond and other interest receivable 1,583 1,439
Other assets 1,333 1,551
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Total Assets $297,664 $270,663
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Liabilities and Partners' Capital
Liabilities
Financing debt $ 47,614 $ 27,174
Accounts payable and accrued expenses 568 2,988
Distributions payable 3,827 3,719
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Total Liabilities 52,009 33,881
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Partners' Capital
General Partners' Interests (2,309) (2,356)
Limited Partners' Interests:
Beneficial Assignee Interests
(7,499,875 interests issued and 7,185,200
interests outstanding) 159,009 156,672
Status Quo BAC Interests (12,587 interests
issued and 7,093 and 6,946 interests
outstanding as of December 31, 1997 and
September 30, 1998,respectively) 3,824 3,885
Accumulated other comprehensive income 85,131 78,581
- ------------------------------------------------------------------------------
Total Partners' Capital 245,655 236,782
- ------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $297,644 $270,663
==============================================================================
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE> 16
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------------
Statements of Income and Comprehensive Income (in thousands, except per
Liquidity BAC amounts)
(Unaudited)
- ------------------------------------------------------------------------------
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on tax-exempt securities $4,593 $4,387 $13,655 $13,621
Interest on tax-exempt securities
held in trust 665 202 1,808 202
Interest on taxable securities
and loans 318 0 491 0
Other, primarily interest 157 187 440 391
- ------------------------------------------------------------------------------
Total Revenues 5,733 4,776 16,394 14,214
- ------------------------------------------------------------------------------
Expenses
Governance and administrative expenses (214) (188) (655) (889)
Litigation and settlement costs (1) 0 (8) 0
Liquidity and growth expenses (251) (435) (636) (582)
Finance interest expense (500) (139) (1,320) (139)
- ------------------------------------------------------------------------------
Total Expenses (966) (762) (2,619) (1,610)
- ------------------------------------------------------------------------------
Net Income $4,767 $4,014 $13,775 $12,604
==============================================================================
Other comprehensive income:
Unrealized gains on investments $4,913 $3,328 $ 6,550 $ 8,711
==============================================================================
Comprehensive income $9,680 $7,342 $20,325 $21,315
==============================================================================
Net income allocated to Liquidity BACs $4,576 $3,801 $13,222 $12,036
==============================================================================
Weighted Average Liquidity
BACs outstanding 7,185 7,185 7,185 7,290
==============================================================================
Net income per Liquidity BAC<F1> $0.637 $0.529 $ 1.840 $ 1.651
==============================================================================
Weighted Average Liquidity BACs
outstanding - assuming dilution<F2> 7,252 7,226 7,262 7,309
==============================================================================
Net income per Liquidity BAC - assuming
dilution<F2> $0.631 $0.526 $ 1.821 $ 1.647
==============================================================================
Distribution per Liquidity BAC<F1> $0.510 $0.495 $ 1.515 $ 1.447
==============================================================================
<PAGE> 16 (continued)
<FN>
<F1> Prior periods Liquidity BAC interest amounts have been restated
to reflect the 25-for-1 stock split which occurred on July 1, 1997
and amounts presented are after allocation of net income to General
Partners and Status Quo BAC holders. (See Note 3 for the SQB
Statement of Income).
<F2> Reflects the dilutive effect of unexercised stock options granted in
the second quarter of 1997.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 17
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------------
Statement of Partners' Capital (in thousands) (Unaudited)
- ------------------------------------------------------------------------------
<CAPTION> Partners'
Limited Interests
---------------------- Accumulated
Beneficial Status Other
General Assignee Quo BAC Comprehensive
Partners Interests Interests Income Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $(2,356) $156,672 $3,885 $78,581 $236,782
==============================================================================
SQB Redemption 0 0 (55) 0 (55)
Net Income, including
$0.61 per Liquidity BAC
<F1> and $12.63 per SQB 91 4,377 89 0 4,557
Unrealized gains on
investments 0 0 0 135 135
-------------------------------------------------
Comprehensive income 91 4,377 34 135 4,637
Distributions payable to
Partners including $0.495
per Liquidity BAC<F1> and
$12.38 per SQB (74) (3,557) (87) 0 (3,718)
- ------------------------------------------------------------------------------
Balance, March 31, 1998 $(2,339) $157,492 $3,832 $78,716 $237,701
==============================================================================
SQB Redemption 0 0 (25) 0 (25)
Net Income, including
$0.59 per Liquidity BAC
<F1> and $13.31 per SQB 89 4,269 93 0 4,451
Unrealized gains on
investments 0 0 0 1,502 1,502
-------------------------------------------------
Comprehensive income 89 4,269 68 1,502 5,928
Distributions payable to
Partners including $0.51
per Liquidity BAC<F1> and
$12.38 per SQB (77) (3,664) (86) 0 (3,827)
- ------------------------------------------------------------------------------
Balance, June 30, 1998 $(2,327) $158,097 $3,814 $80,218 $239,802
==============================================================================
Net Income, including
$0.64 per Liquidity BAC
<F1> and $13.77 per SQB 95 4,576 96 0 4,767
Unrealized gains on
investments 0 0 0 4,913 4,913
-------------------------------------------------
Comprehensive income 95 4,576 96 4,913 9,680
Distributions payable to
Partners including $0.51
per Liquidity BAC<F1> and
$12.38 per SQB (77) (3,664) (86) 0 (3,827)
- ------------------------------------------------------------------------------
Balance, September 30, 1998 $(2,309) $159,009 $3,824 $85,131 $245,655
==============================================================================
<FN>
<F1> Liquidity BAC share amounts reflect the 25-for-1 stock split which
occurred on July 1, 1997.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 18
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- ------------------------------------------------------------------------------
Statements of Cash Flows (in thousands)
(Unaudited)
- ------------------------------------------------------------------------------
<CAPTION>
Nine months ended September 30,
--------------------------------
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $13,775 $12,604
Adjustments to reconcile net income
to net cash Provided by operating activities:
Changes in assets and liabilities:
Interest receivable and other (144) (1,663)
Litigation settlement payment (1,538) 0
Accounts payable and accrued expenses (882) (297)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 11,211 10,644
- ------------------------------------------------------------------------------
Investing Activities
Acquisitions<F1> (14,944) 0
Decrease in other assets (218) 0
Redemption of SQBs (80) (2,961)
- ------------------------------------------------------------------------------
Net cash used in investing activities (15,242) (2,961)
- ------------------------------------------------------------------------------
Financing activities
Net proceeds from debt refinancing 20,440 27,174
Distributions paid (11,263) (10,929)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 9,177 16,245
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,146 23,928
Cash and cash equivalents, beginning of period 11,694 12,072
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of period $16,840 $36,000
==============================================================================
<FN>
<F1> Acquisitions include new tax-exempt bonds, other tax-exempt securities
and interests in taxable loans.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 19
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments, which in the
opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("OTEF II" or the "Partnership"), are
necessary to present fairly OTEF II's financial position as of
September 30, 1998 and December 31, 1997, the Statements of
Income and Comprehensive Income for the three and nine-month
periods ended September 30, 1998 and 1997, the Statement of
Partners' Capital as of September 30, 1998, and the Statements of
Cash Flows for the nine-month period ended September 30, 1998 and
1997, and the notes thereto, in accordance with generally
accepted accounting principles. These statements should be read
in conjunction with the audited financial statements and notes
included in the Partnership's Annual Report for the year ended
December 31, 1997.
In February 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", which changed the reporting of earnings per
share beginning in the fourth quarter of 1997. Basic earnings
per share, a measure required by the new standard, does not
include stock options as common stock equivalents. However
diluted earnings per share includes the effect of stock options.
Note 2. Business
The Partnership was formed under the laws of the State of
Maryland in February, 1995, in connection with a plan (the "1995
OTEF Restructuring Plan") to restructure Oxford Tax Exempt Fund
Limited Partnership, a Maryland limited partnership ("OTEF, "
"Predecessor, " or "OTEF II's predecessor"). Oxford Tax Exempt
Fund II Corporation, a Maryland corporation, is the Managing
General Partner of OTEF II (the "Managing General Partner").
OTEF II Associates Limited Partnership, a Maryland limited
partnership, is the associate general partner of OTEF II
(together with the Managing General Partner, the "General
Partners").
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
<PAGE> 20
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners of OTEF II are required to report on their
individual tax returns their allocable share of taxable income,
gains, losses, deductions, and credits of OTEF II.
Valuation of Bonds. The Managing General Partner estimated at
September 30, 1998 that the fair value of the 12 Series A and
Series B Bonds, the two Existing MRBs and the New Assets was
approximately $266.7 million and, accordingly, OTEF II recorded a
credit to Partners' Capital in an amount equal to approximately
$85.1 million of unrealized gain on investments. This represents
an increase of approximately $6.6 million since December 31,
1997. The Managing General Partner determined these values using
the same cash flow methodology applied by a major investment
banking firm in connection with structuring advice rendered to
OTEF II and its predecessor with respect to the 1995 OTEF
Restructuring Plan. The Series A Bonds are valued at par based
on comparable municipal bond securities, the Existing MRBs and
the Series B Bonds are valued based on a discounted cash flow
analysis. For this purpose, the applicable cash flows are based
on certain assumptions concerning the Properties and the markets
in which they are located, including the timing and realization
of such cash flows. The New Assets are also valued at their
original purchase price at date of acquisition.
Net Income and Distributions per Beneficial Assignee Interest
(BAC) and SQB. Net income and distributions per BAC and net
income and distributions per Status Quo BAC ("SQB") are based
upon the weighted average number of BACs and SQBs outstanding
during the applicable period. On April 1, 1997 there were
7,499,875 BACs outstanding, and 314,675 BACs were converted to
12,587 SQBs, leaving 7,185,200 Liquidity BACs outstanding. During
1997, 5,494 SQBs were redeemed for a total cost of $3.0 million.
In the first nine-month period of 1998, 147 SQBs were redeemed at
a cost of $0.08 million, including 45 SQBs during the second
quarter, leaving 6,946 SQBs outstanding at June 30, 1998. No
SQBs were redeemed during the three-month period ended September
30, 1998.
Comprehensive Income. In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which requires
the reporting of comprehensive income as part of a full set of
financial statements. Comprehensive income includes both "Net
Income" and "Other Comprehensive Income". OTEF's only source of
"other comprehensive income" is related to the valuation of its
tax-exempt investments to market which results in unrealized
gains or losses previously charged to an equity account under
SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities". SFAS 130 does not require presentation of
comprehensive earnings per share. For the three month period
ended September 30, 1998, OTEF recorded "Other Comprehensive
<PAGE> 21
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Income" from unrealized gains on it's investment in tax-exempt
securities of $4.9 million and $3.3 million for the same period
in 1997. For the nine-month period ended September 30, 1998,
OTEF recorded "Other Comprehensive Income" from unrealized gains
on it's investments in tax exempt securities of $6.6 million and
$8.7 million for the same period in 1997.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity
during the reporting period. The statements do not reflect
investing and financing activity that affect recognized assets or
liabilities that do not result in cash receipts or cash payments
during such period, including distributions payable to Partners,
SQB Holders, and OTEF II BAC Holders of approximately $3.8
million at September 30, 1998 and $3.7 million at September 30,
1997.
Cash and cash equivalents. Cash and cash equivalents consist
of all demand deposits and tax-exempt money market funds stated
at cost, which approximates market value, with original
maturities of three months or less.
Accounting for Status Quo Interests. The SQBs are designed to
replicate, to the extent possible, the economic interest that the
holders of the SQBs (the "Status Quo BAC Holders") would have had
in the Existing MRBs, as refunded, if the partnership agreement
for Oxford Tax Exempt Fund Limited Partnership ("OTEF"), OTEF
II's predecessor, had continued to govern and the Liquidity and
Growth Plan was not implemented.
For financial statement purposes, the SQBs are treated as a
separate class of security and, accordingly, net income allocated
to SQB holders, net income per SQB, and distributions per SQB are
reflected separately from the OTEF II BAC Holders on the
Statement of Partners' Capital. The SQBs were not split as were
the OTEF II BACs on July 1, 1997. The redeemed SQBs are
reflected as a reduction of Partners' Capital and were offset
against the SQB Holders' interests when redeemed.
The SQB Holders do not share in the growth or other benefits
expected to be achieved under the Liquidity and Growth Plan. In
addition, the SQBs will not be allocated any capital losses for
federal income tax purposes that may result from the disposition
of the Refunding Bonds or interests therein or new assets in
connection with a financing undertaken pursuant to the Liquidity
and Growth Plan. Set forth below is a schedule of SQB income for
the three and nine-months ended September 30, 1998:
<PAGE> 22
- ------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME
(in thousands, except per SQB interest amounts)
(Unaudited)
- ------------------------------------------------------------------
<CAPTION>
Three Months Nine Months
Ended Ended September 30,
September 30, Pro Forma
--------------- -------------------
1998<F2> 1997 1998<F2> 1997<F1>
------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on Bonds $ 108 $ 134 $ 320 $ 514
Other Interest 3 3 9 7
- ------------------------------------------------------------------
111 137 329 521
Expenses
Governance and Administration (16) (5) (50) (12)
Litigation expenses 0 0 (2) (5)
- ------------------------------------------------------------------
Net income to SQB holders $ 95 $ 132 $ 277 $ 504
==================================================================
Other comprehensive income:
Unrealized gains on investment
in tax-exempt securities 114 99 152 325
==================================================================
Comprehensive income $ 209 $ 231 $ 429 $ 829
==================================================================
Weighted average SQB
shares outstanding 6,946 8,931 6,977 11,368
==================================================================
Net income per SQB interest $13.77 $14.78 $39.72 $44.37
==================================================================
Distribution per SQB interest $12.38 $12.38 $37.14 $36.18
==================================================================
<FN>
<F1> Since the SQBs were issued on April 1, 1997, there are no
actual comparative results of SQB operations for the three
months ended March 31, 1997. This Pro Forma presentation
includes the SQB holders' earnings for the first quarter of
1997, before their Beneficial Assignee Certificates (BACs)
were converted to SQBs.
<F2> The Information Memorandum states that, subject to receipt
of a fairness opinion from OTEF II's independent real estate
consultant, all outstanding SQBs will be purchased or
redeemed by OTEF II at such time as the Managing General
Partner believes that it would be in the best interests of
OTEF II and the holders of the non-tendered SQBs, but in no
event later than December 31, 2006, which date may be
<PAGE> 23
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
<F2> (continued)
extended under certain circumstances. The purchase or
redemption price will be the fair market value of the
Status Quo Assets at the time of purchase or redemption,
less the costs of sale. The Managing General Partner has
undertaken an analysis of whether such a purchase or
redemption by OTEF II would be in the best interests of the
SQB Holders and OTEF II at the present time and, in
connection therewith, is reviewing all ownership attributes
of the SQBs. The Managing General Partner expects to
complete its analysis later this year.
</FN>
</TABLE>
Note 4. Related Party Transactions
Interests in OTEF II and the Operating Partnerships. The
General Partners own interests in OTEF II that entitle them to
receive a share of OTEF II's cash flow and possibly of sale,
refinancing and liquidation proceeds. Distributions to the
General Partners totaled approximately $0.23 million for the nine
months ended September 30, 1998 and approximately $0.22 million
for the same period in 1997.
Affiliates of the Managing General Partner that are general
and limited partners of the various real estate-owning limited
partnerships (collectively, the "Operating Partnerships") whose
property collateralizes or secures the tax-exempt bonds held by
OTEF II have an interest in the Operating Partnerships that
entitles them to receive a share of any cash flow and sale,
refinancing and liquidation proceeds of the Operating
Partnerships. In addition, in connection with the 1995 OTEF
Restructuring Plan and after the Existing MRBs are refunded, cash
flow attributable to these interests with respect to the 14
original Operating Partnerships is pledged for the benefit of
OTEF II to secure the repayment of the Refunding Bonds and
interest thereon.
Compensation and Fees. For the nine-month periods ended
September 30, 1998 and 1997, certain of the Operating
Partnerships paid ORFG total asset management fees of
approximately $0.55 million and $0.47 million, respectively.
During the nine-month periods ended September 30, 1998 and 1997,
the Operating Partnerships also paid ORFG, in the aggregate,
approximately $0.52 million of fees pursuant to the OTEF
Restructuring Plan Administration/Asset Management Fee Agreement,
which amount is equal to 0.25% per annum of the principal amount
of the Existing MRBs and Refunding Bonds collateralized by the
properties owned by the related Operating Partnerships.
<PAGE> 24
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
In connection with OTEF II's investment in New Assets, ORFG is
entitled to an acquisition fee of 1-2.5% of the purchase price
(depending on the type of transaction) for finding, analyzing and
acquiring New Assets, which is payable on the closing of any
transaction in which OTEF II acquires a New Asset. OTEF II also
will pay ORFG an annual advisory fee equal to 0.5% of the
purchase price for managing OTEF II's New Assets after their
acquisition. For the nine-month period ended September 30, 1998,
OTEF II paid approximately $0.35 million in acquisition fees and
$0.16 million in advisory fees to ORFG. Acquisition fees
are treated as deferred costs associated with the acquisition
and are amortized over 10 years. Advisory fees are deducted as
period costs.
Expense Reimbursements. The Operating Partnerships and OTEF
II also reimburse ORFG for certain expenses it incurs in
providing services with respect to (i) the Existing Mortgaged
Properties, (ii) the investment in New Assets, (iii) the sale or
disposition of the Refunding Bonds, and (iv) the administration
of OTEF II's affairs. Total reimbursements to the General
Partners and their affiliates for the nine-month period ended
September 30, 1998 and 1997, were approximately $0.460 million
(of which $0.240 million amount is included in Liquidity & Growth
expenses) and $0.376 million, respectively. Such reimbursable
amount is determined based on the actual time the officers and
employees devote to OTEF II based upon their respective salaries.
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "1997 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. As of
August 18, 1997 the Managing General Partner had granted all of
the OTEF II BAC options authorized under the terms of the
Incentive Option Plan. Of the 652,125 options, 613,000 were
vested immediately, 13,000 were vested as of January 1, 1998 and
26,083 are vested equally over 2 years commencing January 1,
1999. The exercise price for all options is $23.88 per BAC,
which was equal to the 20-day average market price of the
Liquidity BACs at the date the options were granted.
Note 5. Subsequent Events.
On October 27, 1998, OTEF II completed the refunding of the
Carpenter tax-exempt bonds, and funded the balance of the
taxable loan made to the Carpenter borrower in the amount of
$315,000.
<PAGE> 25
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
On October 30, 1998, OTEF II announced the commencement of a
repurchase plan involving up to 250,000 Liquidity BACs.
On November 13, 1998, the Managing General Partner paid a
distribution of $0.51 per Liquidity BAC and $12.38 per SQB to
holders of record as of September 30, 1998.
<PAGE> 26
- -----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs or SQBs
- -----------------------------------------------------------------
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF. Please follow
the instructions below to expedite the reregistration or transfer
of ownership of any OTEF II BACs or Status Quo BACs ("SQB") that
you may own.
IF YOU DO NOT HOLD CERTIFICATES
Your shares are being held by your brokerage firm in "street
name". To register a change of ownership of OTEF II BACs held
in such accounts, please have your account representative or
financial consultant request the necessary transfer documents.
YOU MUST HAVE THE PROPER TRANSFER DOCUMENTS FROM YOUR
BROKERAGE FIRM. Additionally, please contact your account
representative or financial consultant for address changes.
IF YOU HOLD CERTIFICATES
Effective July 1, 1997, OTEF II appointed Registrar and
Transfer Company ("R&T") as the sole registrar and transfer
agent with respect to the OTEF II BACs and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed to:
Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, filed with the Securities and Exchange
Commission, is available to SQB and OTEF II BAC Holders and
may be obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814
1-888-321-OTEF
ALSO VISIT OUR WEB SITE AT WWW.OTEF.COM
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at September 30, 1998 (Unaudited) and the Statements of Income
for the nine months ended September 30, 1998 (Unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,840
<SECURITIES> 277,908
<RECEIVABLES> 1,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,333
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 297,664
<CURRENT-LIABILITIES> 52,009
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 245,655
<TOTAL-LIABILITY-AND-EQUITY> 297,664
<SALES> 0
<TOTAL-REVENUES> 16,394
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,775
<EPS-PRIMARY> 1.840
<EPS-DILUTED> 1.821
</TABLE>
