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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
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 June 30, 1999, the following classes of beneficial assignee
interests of Oxford Tax Exempt Fund II Limited Partnership were
outstanding: (i) 7,335,700 beneficial assignee interests
("BACs") with an aggregate market value ($24.56 per share) of
$180,164,792, and (ii) 846 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 14 through 17 of OTEF
II's Quarterly Report (Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three and six-month period ended June 30, 1999
is incorporated herein by reference to sequentially numbered
pages 6 through 13 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.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of
Regulation S-K, see Exhibit Index on page 3 of this
report.
(b) Reports on Form 8-K.
None.
No other items were applicable.
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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 June 30, 1999, 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: 8/13/99 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: 8/13/99 By: /S/ Francis P. Lavin
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Francis P. Lavin
Director and President
Date: 8/13/99 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)
June 30, 1999
CONTENTS
Report of Management
Balance Sheets
Statements of Income and Comprehensive 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 June 30, 1999, 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 June 30, 1999. The
Managing General Partner declared, on June 16, 1999 a
distribution for the quarter ended June 30, 1999 in the amount of
$0.52 per BAC, and $12.38 per SQB holders. For BAC holders, this
represents an increase of 2% over the first quarter distribution
of 1999. For SQB holders, this distribution is the same amount
as has been paid each quarter since September 1997.
Investment Transactions. On April 9, 1999 affiliates of OTEF
II acquired all of the partnership interests of Carrollwood
Lakeside North Partners, Ltd. ("Lakeside Borrower"), which owns
Lakeside North at Carrollwood Apartments, a 168-unit garden
apartment community in Tampa, Florida. The property is financed
with $6.13 million of tax-exempt bonds, which bear annual
interest at 5.95%, and are secured by a first mortgage on the
property. While the bonds are currently held by third parties,
OTEF II expects to purchase and restructure them in the future.
At closing, OTEF II agreed to provide a taxable loan to the
Lakeside Borrower in the maximum amount of $2 million, with an
initial advance of approximately $1.5 million. The initial
advance was used to fund a portion of the property's purchase
price, and various costs, expenses, capital improvements and
reserves. The terms of this loan are anticipated to result in
substantially all of the property's cash flow remaining after
payment of debt service on the tax-exempt bonds, and projected
appreciation in value being paid to OTEF II as interest during
the term of the loan.
On June 10, 1999, OTEF II completed a securitization
transaction with Merrill Lynch involving the $14.2 million of
Carpenter bonds held in OTEF II's portfolio. OTEF II purchased
approximately 64% of the senior interest and all of the
subordinated interests involved in this transaction, netting
approximately $5 million after taking into account transaction
costs and the purchase of the subordinated interest. OTEF II
also pledged the $10.3 million of Dallas bonds to collateralize
this transaction. A portion of these proceeds were used in
connection with the River Reach investment transaction discussed
below. The approximately $9 million of senior interests
purchased by OTEF II may be sold at any time, providing OTEF II
with additional liquidity for future investment transactions.
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Report of Management
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On June 11, 1999, Naples-Oxford Limited Partnership ("Naples
Borrower"), an affiliate of OTEF II, acquired River Reach
Apartments, a 556-unit garden apartment community in Naples,
Collier County, Florida. The property is financed with $24
million of floating rate, tax-exempt bonds. While the bonds are
currently held by third parties, OTEF II expects to purchase and
restructure them in the future. At closing, OTEF II agreed to
provide a taxable loan to the Naples Borrower in the maximum
amount of $13 million, with an initial advance of approximately
$12.7 million. The initial advance was used to fund a portion of
the property's purchase price, and various costs, expenses,
capital improvements and reserves. The terms of this loan are
anticipated to result in substantially all of the property's cash
flow remaining after payment of debt service on the tax-exempt
bonds, and projected appreciation in value being paid to OTEF II
as interest during the term of the loan.
OTEF II and the Naples Borrower also closed a letter of credit
transaction with respect to the senior River Reach bonds
involving Banco Santander Central Hispano, S.A. ("Banco
Santander") and certain Merrill Lynch affiliates. The Naples
Borrower entered into a reimbursement agreement with Banco
Santander. The obligations of the Naples Borrower under the
reimbursement agreement were guaranteed by Merrill Lynch Capital
Corp. pursuant to a standby reimbursement agreement with Banco
Santander, and by OTEF II pursuant to a standby reimbursement
agreement with Merrill Lynch Capital Corp. The new letter of
credit has a stated expiration date of June 10, 2000.
On June 16, 1999, OTEF II and the Jacaranda Borrower closed a
bond refunding transaction. In connection with this transaction,
the interest rate on the $11.8 million of senior Jacaranda bonds
was converted to a fixed spread over BMA, a floating rate
municipal bond index, and the existing letter of credit provided
by South Trust Bank, National Association, was released. A
Merrill Lynch affiliate purchased the senior refunding bonds.
OTEF II exchanged the subordinated tax-exempt bonds that it held,
and which bore interest at 6.25% per annum, for new subordinated
tax-exempt bonds which bear interest at annual rate of 11%.
As previously reported, OTEF II has begun working on bond
refunding and refinancing transactions with respect to the
Summerwalk property. The $10 million of senior tax-exempt bonds
secured by this property are currently held by third parties.
The letter of credit that secures these bonds expires on December
15, 2000. Based on its preliminary discussions, the Managing
General Partner anticipates consummating refunding or refinancing
transactions for this property where the requirement to maintain
the letter of credit is eliminated and the bonds are refinanced
or possibly acquired by OTEF II as part of a refinancing,
although no assurances can be given that these transactions can
be consummated in a timely manner.
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Report of Management
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Status Quo BACs. As of July 31, 1999, 6,144 SQBs, or
approximately 88% of the 6,946 SQBs outstanding at December 31,
1998, had been converted to 153,600 BACs in accordance with the
voluntary exchange offer made by OTEF II earlier this year. As
previously announced, all SQB holders who converted prior to June
25, 1999 will receive a second quarter BAC distribution of $0.52
per BAC and a full quarter's BAC income as BAC holders. SQB
holders converting after June 24, 1999 will receive a third
quarter BAC distribution. The voluntary exchange offer program
expired on July 31, 1999.
The June 30, 1999 distribution to SQB holders of $12.38 per
SQB payable on August 13, 1999 will be paid exclusively from SQB
cash reserves. The Managing General Partner anticipates that at
this distribution level these reserves will be fully expended
after two more quarters. Because 88% of existing SQBs have been
exchanged for BACs, the remaining SQBs will be allocated
increased shares of administrative costs, which are relatively
fixed costs that are not dependent on the number of SQBs
outstanding. These costs reduced net income per SQB to zero for
the quarter ended June 30, 1999, and the SQBs are not expected to
realize net income from recurring operations in the future.
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
Managing General Partner has undertaken an analysis of whether
such a redemption by OTEF II would be in the best interests of
the remaining SQB Holders and OTEF II at the present time.
Liquidity and Capital Resources
To pursue additional investment opportunities, OTEF II
requires additional capital from time to time. In addition to
proceeds from financings, OTEF II may generally acquire
additional investments ("New Assets"): (i) from the proceeds of
sales or other dispositions of Original Refunding Bonds (as
defined below) and the Existing MRBs (as defined below) and the
proceeds from principal payments with respect to the Original
Refunding Bonds (except for the portion of such proceeds
allocable to SQBs), as well as bonds issued to refund any tax-
exempt bonds acquired by OTEF II pursuant to the Liquidity and
Growth Plan; (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
BACs or other limited partnership interests in OTEF II; (iv) by
issuing additional equity securities in exchange for New Assets;
or (v) by borrowing funds from lenders or by issuing evidences of
indebtedness.
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Report of Management
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Current Position. OTEF II uses its cash receipts primarily
for distributions to BAC Holders, SQB Holders and its General
Partners, to pay administrative expenses, and to acquire New
Assets and pay the costs and expenses relating to such
transactions. As of June 30, 1999, OTEF II held approximately
$9.6 million in cash and cash equivalents, a decrease of $8.4
million, or approximately 47%, from the $18 million in cash and
cash equivalents held as of December 31, 1998. This decrease in
OTEF II's cash and cash equivalents was primarily attributable to
the Lakeside North and River Reach investment transactions.
Total liabilities of OTEF II shown on the balance sheet increased
by $5.1 million to approximately $57.1 million as of June 30,
1999 from $52 million at December 31, 1998, due to the net $5
million increase in financing debt.
Financing Transactions. OTEF II undertakes securitization
transactions with respect to its bond portfolio from time to time
to enhance its overall return on investment and to generate
proceeds which facilitate the acquisition of New Assets. OTEF II
has securitized approximately $76.8 million of its bond portfolio
by assigning these bonds to a Merrill Lynch affiliate which, in
turn, deposited them into trusts. The trusts, in turn, sold 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
bonds held in these trusts. OTEF II has acquired all the
subordinated interests in these trusts, aggregating approximately
$15 million, and received the proceeds, net of transaction costs
from the sale of the senior securities. In addition, in a recent
transaction involving Carpenter, OTEF II acquired approximately
$9 million of senior trust interests, which may be sold at any
time in order to provide cash to OTEF II for new acquisitions or
for any other purpose. OTEF II has certain rights to repurchase
and/or refinance the bonds and to repurchase the senior
securities and,therefore, retains a level of control over the
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 involved in these
transactions from an annual reset to weekly floaters. On August
22, 1997, and September 21, 1998, OTEF II purchased three-year
interest rate caps on a notional amount of approximately $27
million and $30 million, respectively, to minimize the effects of
interest rate volatility. Under these arrangements, if the
average short-term, tax-exempt interest rates during the term of
the cap increase above a specified level (6% and 4.5%,
respectively), 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. Through June 30,
1999 no payments were required to be made by the counter-party
pursuant to these interest cap agreements.
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Report of Management
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For financial statement purposes, these transactions are
accounted for as financing transactions. The amount of bonds
financed, approximately $76.8 million, is reflected as Securities
Held in Trust, the net cash proceeds not reinvested are
classified as Cash and Cash Equivalents and the difference
between the principal amount of the 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 June 30, 1999 was approximately
$52.6 million, compared to $47.6 million as of December 31, 1998.
OTEF II's financing debt represents approximately 16.5% of OTEF
II's total assets (or 32.7% of OTEF II's total assets if the
entities in which OTEF II has made a subordinated debt investment
were consolidated). Due to the credit enhancement provided by a
Merrill Lynch affiliate in connection with the securitization
transactions, and favorable underwriting characteristics
(generally, low loan-to-value and high debt coverage), this
financing debt bears interest at the BMA weekly floating bond
index plus approximately 80 to 150 basis points (including credit
enhancement, trustee and related fees). This rate averaged 4.63%
from the date of closing through December 31, 1997 and 4.33% for
the twelve months of 1998 and 3.98% for the six months ended June
30, 1999. The credit enhancement associated with approximately
$27.2 million of this financing debt was recently extended from
August 22, 1999 to August 15, 2000. The remaining $20.4 million
of financing debt must be renewed or refinanced by February 19,
2000 (approximately $9.6 million) and April 15, 2000
(approximately $10.8 million). While OTEF II is not an obligor
and, therefore, is not liable for repayment of this financing
debt, the securitized 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, although no
assurances can be given.
Costs associated with these financing transactions are being
amortized over ten years for financial statement purposes, and
costs associated with the interest rate cap are being amortized
over the life of each interest rate cap agreement, which is three
years. For federal income tax purposes, these transactions are
treated as sales by OTEF II of the applicable bonds and a
purchase of senior and subordinated interests in the trusts.
Original Refunding Bonds. OTEF II has acquired refunding
bonds ("Original Refunding Bonds") for twelve of the fifteen
Existing MRBs, representing approximately 88% of the face amount
of the original bond portfolio. The Original Refunding Bonds
currently held by OTEF II consist of senior bonds ("Series A
Bonds") and subordinated bonds ("Series B Bonds"). This
senior/subordinated structure has allowed OTEF II to undertake
several financing transactions involving the Series A Bonds
allocable to BAC Holders, as well as other bonds acquired by OTEF
II pursuant to the Liquidity and Growth Plan ("Liquidity
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Report of Management
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Assets"). OTEF II retained the related Series B Bonds for the
benefit of the BAC Holders, and retained the portion of both the
Series A Bonds and the Series B Bonds that are designated as
Status Quo Assets and held for the benefit of SQB Holders.
Series A Bonds. The term of each Original 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. This annual sinking fund redemption begins April 15, 2000
for all twelve Series A Bonds. The Managing General Partner is
considering whether the elimination of this annual sinking fund
redemption would facilitate financing transactions involving
these assets or would otherwise be advantageous to OTEF II.
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 seven of the
Series A Bonds retained by OTEF II was reset on November 1, 1998
to 3.75%; the interest rate on three Series A Bonds retained by
OTEF II was reset on December 1, 1998 to 4.01%. On January 1,
1999, the interest rate on another Series A Bond retained by OTEF
II was reset to 4.03%, and the interest rate on another Series A
Bond was reset on March 1, 1999 to 4.32%. 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. The weighted
averaged rate was 4.63% from the date of closing through December
31, 1997, 4.33% for the twelve months of 1998 and 3.98% for the
six months ended June 30, 1999. 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
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Report of Management
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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 included in OTEF II's 1998 Form 10-K for a schedule of
the Combined Rates of the Original Refunding Bonds over the next
10 years.
Other Sources. In connection with the closing of the Original
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 June 30,
1999, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $3.2 million,
including deposits from June's cash flow compared to $2.2 million
at the end of 1998.
Existing MRBs
As of June 30, 1999, OTEF II held Existing MRBs for two of the
Operating Partnerships. Although the Managing General Partner is
continuing its efforts to refund these Existing MRBs, as well as
exploring other alternatives, no assurances can be given that
these bonds can or will be refunded. As of June 30, 1999, the
two Operating Partnerships had cumulative unpaid Base Interest
and interest on interest at 8.25% per annum, compounded monthly,
of approximately $5.4 million with respect to these Existing
MRBs. The unpaid Base Interest is not accrued on OTEF II's
financial statements.
Results of Operations
OTEF II Distributions. Distributions to Partners will amount
to approximately $3.9 million, or $0.52 per BAC and $12.38 per
SQB holders of record as of June 30, 1999.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income allocated to BAC holders and Net Income per
BAC was $4.8 million and $0.650, respectively, for the three-
month period ended June 30, 1999, as compared to $4.3 million and
$0.594, respectively, for the three-month period ended June 30,
1998, representing an increase of approximately 12% over the
prior comparative period. OTEF II's total revenues and expenses
for the second quarter increased by approximately 13% and 32%,
respectively, over the prior comparative period. The increase in
net income is the result of additional interest on New Assets and
taxable loans exceeding the costs associated with the
<PAGE> 13
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Report of Management
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implementation of the Liquidity & Growth Plan that were not
incurred in the prior comparative period.
OTEF II's Six-Month Operations. For financial statement
purposes, Net Income allocated to BAC holders and Net Income per
BAC was $9.5 million and $1.294, respectively, for the six-month
period ended June 30, 1999, as compared to $8.6 million and
$1.203, respectively, for the six-month period ended June 30,
1998, representing an increase of approximately 10% over the
prior comparative period. OTEF II's 1999 total revenues and
expenses for the six-month period increased by approximately 11%
and 32%, respectively, over the prior comparative period. The
increase in net income is the result of additional interest on
New Assets and taxable loans exceeding the costs associated with
the implementation of the Liquidity & Growth Plan that were not
incurred in the prior comparative period. Due to OTEF II's
voluntary exchange program, there were 7,335,700 BACs outstanding
as of June 30, 1999 compared to 7,185,200 as of June 30, 1998.
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.
THIS REPORT CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND IS SUBJECT TO THE SAFE
HARBORS CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING
STATEMENTS REFLECT MANAGEMENT'S CURRENT VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING
STATEMENTS, AND WILL BE AFFECTED BY A VARIETY OF RISKS AND
FACTORS. THESE STATEMENTS ARE SUBJECT TO MANY UNCERTAINTIES AND
RISKS, AND SHOULD NOT BE CONSIDERED GUARANTEES OF FINANCIAL
PERFORMANCE. READERS SHOULD REVIEW CAREFULLY OTEF II's FINANCIAL
STATEMENTS AND THE NOTES THERETO, AS WELL AS RISK FACTORS
DESCRIBED IN THE SEC FILINGS. OTEF II DISCLAIMS ANY OBLIGATION
TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-
LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE FILING OF THE FORM 10 K
WITH THE SEC OR OTHERWISE TO REVISE OR UPDATE ANY ORAL OR WRITTEN
FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY
OR ON BEHALF OF OTEF II.
<PAGE> 14
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
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Balance Sheets (in thousands, except per BAC and SQB amounts)
(Unaudited)
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<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
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<S> <C> <C>
Assets
Investments in tax-exempt securities $202,980 $213,900
Investments in tax-exempt securities held in trust 76,765 62,565
Taxable investments and loans 26,164 11,840
Cash and cash equivalents 9,572 18,011
Bond and other interest receivables 1,600 1,579
Other assets 2,374 1,191
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Total Assets $319,455 $309,086
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Liabilities and Partners' Capital
Liabilities
Financing debt $ 52,614 $ 47,614
Distributions payable 3,904 3,826
Accounts payable and accrued expenses 632 573
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Total Liabilities 57,150 52,013
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Partners' Capital
General Partners' Interests (2,236) (2,275)
Limited Partners' Interests:
Beneficial Assignee Interests (7,499,875
interests issued and 7,335,700 and 7,183,200
interests outstanding as of June 30, 1999 and
December 31, 1998, respectively) 165,936 160,632
SQB Interests (12,587 interests issued and 846
and 6,946 interests outstanding as of June 30,
1999 and December 31, 1998, respectively) 456 3,849
Accumulated other comprehensive income 98,149 94,867
- ------------------------------------------------------------------------------
Total Partners' Capital 262,305 257,073
- ------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $319,455 $309,086
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Statements of Income and Comprehensive Income (in thousands,
except per BAC amounts)(Unaudited)
- ------------------------------------------------------------------------------
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on investments in
tax-exempt securities $4,719 $4,335 $ 9,592 $ 9,062
Interest on investments in
tax-exempt securities held in trust 739 669 1,328 1,143
Interest on taxable investments & loans 406 153 672 173
Other, tax-exempt income 143 162 278 283
- ------------------------------------------------------------------------------
Total Revenues 6,007 5,319 11,870 10,661
- ------------------------------------------------------------------------------
Expenses
Governance and administrative expenses 266 207 570 441
Litigation and settlement costs 0 2 0 7
Other liquidity and growth expenses 348 170 643 385
Finance interest expense 531 489 974 820
- ------------------------------------------------------------------------------
Total Expenses 1,145 868 2,187 1,653
- ------------------------------------------------------------------------------
Net income $4,862 $4,451 $ 9,683 $ 9,008
==============================================================================
Other comprehensive income:
Unrealized gains on investments 508 1,502 3,282 1,637
==============================================================================
Comprehensive income $5,370 $5,953 $12,965 $10,645
==============================================================================
Net income allocated to BAC holders $4,765 $4,269 $ 9,476 $ 8,646
==============================================================================
Net income per BAC $0.650 $0.594 $ 1.294 $ 1.203
==============================================================================
Weighted Average BACs outstanding 7,336 7,185 7,324 7,185
==============================================================================
Net income per BAC-assuming
dilution <F1> $0.648 $0.580 $ 1.290 $ 1.180
==============================================================================
Weighted Average BACs outstanding -
assuming dilution <F1> 7,351 7,271 7,346 7,266
==============================================================================
Distribution per BAC $0.520 $0.510 $ 1.030 $ 1.005
==============================================================================
<FN>
<F1> Reflects the dilutive effect of unexercised stock options.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 16
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Statement of Partners' Capital (in thousands, except per BAC and SQB amounts)
(Unaudited)
- ------------------------------------------------------------------------------
<CAPTION> Limited Partner Accumulated
Interest Other
General ------------------ Comprehensive
Partners BACs SQBs Income Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $(2,275) $160,632 $3,849 $94,867 $257,073
==============================================================================
Comprehensive Income:
Net Income, including
$0.644 per BAC and $7.57
per SQB 97 4,711 13 0 4,821
Unrealized gains on
investments 0 0 0 2,774 2,774
-------------------------------------------------
Total comprehensive income 97 4,711 13 2,774 7,595
Allocation of SQB Capital 0 2,875 (2,875) 0 0
Distributions payable to
Partners including $0.51
per BAC and $12.38
per SQB (77) (3,730) (22) 0 (3,829)
==============================================================================
Balance, March 31, 1999
(Unaudited) $(2,255) $164,488 $ 965 $97,641 $260,839
==============================================================================
Comprehensive Income:
Net Income (loss), including
$0.650 per BAC and
$(0.340) per SQB 97 4,765 0 0 4,862
Unrealized gains on
investments 0 0 0 508 508
--------------------------------------------------
Total comprehensive income 97 4,765 0 508 5,370
Allocation of SQB Capital 0 499 (499) 0 0
Distributions payable to
Partners including $0.52
per BAC and $12.38
per SQB (78) (3,816) (10) 0 (3,904)
==============================================================================
Balance, June 30, 1999
(Unaudited) $(2,236) $165,936 $ 456 $98,149 $262,305
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 17
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Statements of Cash Flows (in thousands)
(Unaudited)
- ------------------------------------------------------------------------------
<CAPTION>
Six months ended June 30,
--------------------------
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 9,683 $ 9,008
Adjustments to reconcile net income
to net cash provided by operating activities:
Changes in assets and liabilities:
Interest receivable and other (21) (155)
Accounts payable and accrued expenses 59 (980)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 9,721 7,873
- ------------------------------------------------------------------------------
Investing Activities:
Investment in new assets (14,324) (13,958)
Litigation Settlement Payments <F1> 0 (1,538)
Increase in other assets, net <F2> (1,183) (478)
Redemption of SQB interests 0 (80)
- ------------------------------------------------------------------------------
Net cash used in investing activities (15,507) (16,054)
- ------------------------------------------------------------------------------
Financing activities:
Increase in financing debt 5,000 20,440
Distributions paid (7,653) (7,436)
- ------------------------------------------------------------------------------
Net cash (used) provided by financing activities (2,653) 13,004
- ------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,439) 4,823
Cash and cash equivalents, beginning of period 18,011 11,694
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9,572 $16,517
==============================================================================
<FN>
<F1> In connection with the settlement of the OTEF II litigation discussed in
prior reports, OTEF II made a final payment of plaintiff's counsel fees
and expenses in the amount of $1.54 million in the second quarter of
1998 upon the expiration of all appeal periods and dismissal of the state
court action.
<F2> Other assets represent primarily deferred costs incurred in connection
financing transactions, none of which are recurring operating activities.
Such deferred costs are net of amortization expense which is included
in other Liquidity & Growth expenses as presented in the Statements of
Income and Comprehensive Income.
</FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 18
- -----------------------------------------------------------------
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 June 30, 1999 and December 31,
1998, the Statements of Income and Comprehensive Income for the
three and six-month periods ended June 30, 1999 and 1998, the
Statement of Partners' Capital as of June 30, 1999, and the
Statements of Cash Flows for the six-month period ended June 30,
1999 and 1998, 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, 1998.
Note 2. General 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").
OTEF II is a publicly-traded partnership (AMEX: OTF) that
invests in tax-exempt bonds issued to finance high quality
apartment and senior living/health care communities, with the
objective of producing increasing income and quarterly
distributions for its shareholders. These distributions are
primarily exempt from federal income taxation.
As previously reported, OTEF II has begun working on bond
refunding and refinancing transactions with respect to the
Summerwalk property. The $10 million of senior tax-exempt bonds
secured by this property are currently held by third parties.
The letter of credit that secures these bonds expires on December
15, 2000. Based on its preliminary discussions, the Managing
General Partner anticipates consummating refunding or refinancing
transactions for this property where the requirement to maintain
the letter of credit is eliminated and the bonds are refinanced
or possibly acquired by OTEF II as part of a refinancing,
although no assurances can be given that these transactions can
be consummated in a timely manner.
Note 3. Significant Accounting Policies
<PAGE> 19
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners of OTEF II, 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.
Comprehensive Income. Comprehensive income includes both "Net
Income" and "Other Comprehensive Income". OTEF's only source of
"other comprehensive income" is related to the change in 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 six
month period ended June 30, 1999 and 1998, OTEF recorded "Other
Comprehensive Income" from unrealized gains on its investment in
tax-exempt securities of approximately $3.3 million and $1.6
million, respectively. Cumulative "Other Comprehensive Income"
from unrealized gains on investments were $98.1 million and $80.2
million at June 30, 1999 and 1998, respectively.
Investments. As previously reported, on June 1, 1995, the
then 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 June 30, 1999 that the fair value of
the Original Refunding Bonds and the Existing MRBs was
approximately $251.1 million and, accordingly, unrealized
appreciation on these investments of $98.1 million is recorded as
a credit to partners' capital. 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,
<PAGE> 20
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
including the timing and realization of such cash flows. The
Dallas and Jacaranda bonds are recorded at cost, which
approximates their fair market values at June 30, 1999. Due to
the recent securitization transaction with Merrill Lynch the
Carpenter Bonds were adjusted to their face amount of $14.2
million.
Investments are accounted for using 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 the investments are reflected at their
current estimated fair value, with cumulative unrealized gains or
losses being credited or charged as unrealized gains or losses on
investments directly to partners' capital, rather than the
Statement of Income. Interest on all bonds other than the
Existing MRBs are recorded as interest income when due. Interest
income on the Existing MRBs is recorded when received. Accrued
interest on the Series A and Series B and New bonds as of June
30, 1999 and 1998 was $1.6 million, $1.5 million, respectively.
Accounting for earnings per share. Basic earnings per share,
a measure required by the Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), does not include incentive
BAC options as common share 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 $24.70 and $27.27 for June 30, 1999 and 1998,
respectively. 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. "Incremental" BAC shares were
approximately 7,346,000 and 7,266,000 for June 30, 1999 and 1998,
respectively.
Net Income and Distributions per BAC and SQB. Net income and
distributions per BAC and net income and distributions per SQB
are based upon the weighted average number of BACs and SQBs
outstanding during the applicable period. For the first quarter
of 1997 there were 7,499,875 BACs outstanding. On April 1, 1997,
314,675 BACs were converted to 12,587 SQBs, leaving 7,185,200
BACs outstanding at September 30, 1997. In December 1998, OTEF
purchased 2,000 BACs on the open market in accordance with its
BAC repurchase program, leaving 7,183,200 BACs outstanding at
December 31, 1998. During the third quarter of 1997, 5,494 SQBs
were redeemed for a total cost of $3.0 million. An additional
147 SQBs were redeemed during 1998, leaving 6,946 SQBs
outstanding at December 31, 1998. In the six months of 1999,
6,100 of the remaining 6,946 SQBs were converted to 152,500 BACs
in accordance with OTEF II's voluntary exchange offer program,
which expired on July 31, 1999. At March 31, 1999 there were
<PAGE> 21
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
7,312,950 BACs and 1,756 SQBs outstanding. In the second quarter
of 1999 an additional 910 SQBs were converted to 22,750 BACs. At
June 30, 1999 there were 7,335,700 BACs and 846 SQBs outstanding.
For the six-months ended June 30, 1999, approximately $0.05
million of general and administrative costs were incurred in
connection with the exchange program.
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 that do not result
in cash receipts or cash payments. This non-cash activity
consists of distributions payable to Partners, SQB Holders, and
BAC Holders of approximately $3.9 million and $3.8 million at
June 30, 1999 and 1998, respectively.
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 at date of purchase.
Accounting for SQBs. The SQBs are designed to replicate, to
the extent possible, the economic interest that the SQB 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 equity 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 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 Original 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 (loss) for
the three and six-months ended June 30, 1999 is as follows:
<PAGE> 22
<TABLE>
- -----------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME (LOSS)
(in thousands, except per SQB interest amounts)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ---------------
1999 1998 1999 1998
----------------------------------
<S> <C> <C> <C> <C>
Revenues
Interest on Bonds $ 15 $ 103 $ 44 $ 212
Other Interest 0 3 1 6
- -----------------------------------------------------------------
15 106 45 218
Expenses
Governance and Administration 15 12 32 34
Litigation expenses 0 1 0 2
- -----------------------------------------------------------------
Net income to SQB holders $ 0 $ 93 $ 13 $ 182
=================================================================
Other comprehensive income:
Unrealized gains on investment 1 35 13 38
=================================================================
Comprehensive income $ 1 $ 128 $ 26 $ 220
=================================================================
Weighted average SQBs
outstanding 846 6,961 1,301 6,993
=================================================================
Net income (loss) per
SQB interest $(0.34) $13.31 $ 9.99 $26.03
=================================================================
Distribution per SQB interest $12.38 $12.38 $24.76 $24.76
=================================================================
</TABLE>
The June 30, 1999 distribution to SQB holders of $12.38 per
SQB payable on August 13, 1999 will be entirely paid out of SQB
cash reserves. The Managing General Partner anticipates that at
this level these reserves will last only two more quarters.
Since a substantial number of existing SQBs have been exchanged
for BACs, the remaining SQBs will be burdened by increased shares
of administrative costs. These costs reduced net income per SQB
to zero for the quarter ended June 30, 1999, and the SQBs are not
expected to realize net income from recurring operations in the
future.
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
<PAGE> 23
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
General Partners totaled approximately $0.08 million for June 30,
1999 and June 30, 1998, respectively.
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 original 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 from the original Operating Partnership that is
attributable to these interests will be pledged for the benefit
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 six months ended June 30, 1999
and 1998 total compensation paid to Oxford Realty Financial
Group, Inc. ("ORFG") and other Oxford affiliates by OTEF II
amounted to approximately $1.3 million and $1.2 million,
respectively, as discussed below.
ORFG provides various asset management-related services
relating to the Mortgaged Properties and OTEF II's investment
therein. It also provides 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.
ORFG receives an acquisition fee from OTEF II for finding,
analyzing and acquiring a New Asset. 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. For the
six months ended June 30, 1999 and 1998 OTEF paid acquisition
fees of $0.42 and $0.35 million, respectively.
<PAGE> 24
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
OTEF II also pays ORFG an advisory fee for managing OTEF II's
New Assets after their acquisition. The advisory fee, which is
payable monthly, 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 ("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. Total advisory fees paid by OTEF
II to ORFG for the six months of 1999 and 1998 were approximately
$0.17 and $0.09 million, respectively.
For the six months ended June 30, 1999 and 1998, the Operating
Partnerships, paid ORFG total asset management fees of
approximately $0.36 million and $0.38 million, respectively. For
the six months ended June 30, 1999 and 1998, the original
Operating Partnerships also paid ORFG, in the aggregate, $0.35
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 original Operating
Partnerships ("Existing Mortgaged Properties"). Oxford
affiliates may also receive other fees and expense reimbursements
from entities other than OTEF II in connection with the
acquisition, financing or refinancing, operation, repair,
replacement and improvement of Mortgaged Properties.
Expense Reimbursements. OTEF II and the Operating
Partnerships also reimburse ORFG for certain expenses it incurs
in providing services with respect to the mortgaged properties
and the administration of OTEF II's affairs. Total
reimbursements to the General Partners and their affiliates for
the six-month period ended June 30, 1999 and 1998 were
approximately $0.41 million, $0.29 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.
<PAGE> 25
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "Incentive Option Plan") 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
8.2% 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, which approximated the
fair market value at the date of grant. At June 30, 1999 the BAC
market price of $24.56 was not materially different than the
option exercise price. Since the date of grant, no options have
been exercised.
Guarantees and Pledges. In connection with the Lakeside North
and Summerwalk investments, OTEF II, along with the operating
partnership that owns the applicable property, executed a
guaranty agreement relating to payment of issuer and trustee fees
and expenses (including expenses of their respective counsel), as
well as an indemnity agreement relating to environmental matters
pertaining to the property. OTEF II obtained Phase I
environmental site assessment reports for these investments
which, subject to the limitations stated therein, conclude
generally that no adverse environmental conditions requiring
remediation exist at either site. Accordingly, the Managing
General Partner believes that OTEF II does not have material
financial exposure under these agreements. In connection with
the Carpenter bond securitization, OTEF II pledged the $10.3
million of Dallas bonds as collateral. In connection with the
River Reach investment transaction, OTEF II executed a standby
reimbursement agreement with a Merrill Lynch affiliate which
effectively guarantees the obligations of the Naples Borrower to
Banco Santander. OTEF II may execute similar agreements in
connection with new investments made after the date of this
report.
Note 5. Subsequent Events.
Distributions. On August 13, 1999, the Managing General
Partner paid a distribution of $0.52 per BAC and $12.38 per SQB
to holders of record as of June 30, 1999.
<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 June
30, 1999, 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 June 30, 1999 (Unaudited) and the Statements of Income
for the six months ended June 30, 1999 (Unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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0
0
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