<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1394232
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 301-654-3100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interests
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ NO / /.
At March 31, 1999, the following classes of beneficial assignee
interests of Oxford Tax Exempt Fund II Limited Partnership were
outstanding: (i) 7,312,950 beneficial assignee interests
("BACs") with an aggregate market value ($24.06 per share) of
$175,949,577, and (ii) 1,756 Status Quo BACs ("SQBs").
Index to Exhibits is found on page 3.
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<PAGE> 2
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 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-month period ended March 31, 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.
Information responsive to this Item regarding changes in
securities is contained in Item 2 of the Form 10-Q/A for the
quarter ended March 31, 1997, filed by OTEF II.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of
Regulation S-K, see Exhibit Index on page 3 of this
report.
(b) Reports on Form 8-K.
None.
No other items were applicable.
<PAGE> 3
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(20) Report furnished to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly
Report (Unaudited) dated March 31, 1999, follows on
sequentially numbered pages 5 through 27 of this report.
(27) Financial Data Schedule.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the registrant
Date: 5/14/99 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: 5/14/99 By: /S/ Francis P. Lavin
------- ------------------------------------------
Francis P. Lavin
Director and President
Date: 5/14/99 By: /S/ Robert B. Downing
------- ------------------------------------------
Robert B. Downing
Director and Executive Vice President
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
March 31, 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
<PAGE> 6
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Report of Management
- -----------------------------------------------------------------
The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("OTEF II" or the "Partnership"), as
of March 31, 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 March 31, 1999. The
Managing General Partner declared, on March 18, 1999 a
distribution for the quarter ended March 31, 1999 in the amount
of $0.51 per BAC, and $12.38 per Status Quo BAC (SQB) holders.
For BAC and SQB holders, this distribution is the same amount as
the fourth quarter of 1998.
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 taxable loan bears interest at 15.48% and is
secured by a second mortgage on the property.
On April 21, 1999, an affiliate of OTEF II ("Naples Borrower")
entered into a definitive agreement to acquire River Reach
Apartments, a 556-unit apartment community located in Naples,
Florida. The property is encumbered by $24 million of floating
rate, tax-exempt bonds which are currently held by third parties.
OTEF II expects to purchase these bonds in the future. OTEF II
will also make a taxable loan to the Naples Borrower in the
amount of approximately $12 million, which will be used to fund a
portion of the purchase price, as well as various costs,
expenses, capital improvements and reserves. This taxable loan
will be secured by a subordinated mortgage, and will be repaid
from the Naples Borrower's available cash flow on an interest-
only basis. 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, being paid to
OTEF II as interest. The closing, which is subject to
satisfaction of certain conditions, is expected to occur near the
end of the second quarter of 1999.
<PAGE> 7
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Report of Management
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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
senior bonds must be refunded or repaid. Based on its
preliminary discussions, the Managing General Partner anticipates
consummating refunding or 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, although no assurances can be given that these
transactions can be consummated in a timely manner. The Managing
General Partner is continuing to work on the bond refunding
transaction for Jacaranda. It is anticipated that this will
close in the near future.
Status Quo BACs. As of May 4, 1999, 5,425 SQBs, or 78% of the
6,946 SQBs outstanding at December 31, 1998, were converted to
135,625 BACs in accordance with the voluntary offer made by OTEF
II to exchange 25 BACs for each SQB. As previously announced,
all SQB holders who converted prior to March 29, 1999 will
receive a first quarter BAC distribution of $0.51 per BAC and a
full quarter's BAC income as BAC holders. The voluntary
exchange offer program has been extended to June 15, 1999.
The current distribution to SQB holders of $12.38 per SQB is
approximately 164% of the net income allocable to SQB holders
remaining after the March 31, 1999 exchange. Since a substantial
number of existing SQBs were exchanged for BACs at March 31,
1999, the remaining SQBs will be burdened by increased shares of
administrative costs, which are relatively fixed costs that are
not dependent on the number of SQBs outstanding and net income
and distributions per SQB could be reduced or eliminated in the
future. In order to maintain the current distribution level,
OTEF II may have to use all or a portion of cash reserves
allocable to SQBs.
The Information Memorandum states that, subject to receipt of
a fairness opinion from OTEF II's independent real estate
consultant, all outstanding SQBs will be purchased or redeemed by
OTEF II at such time as the Managing General Partner believes
that it would be in the best interests of OTEF II and the holders
of the non-tendered SQBs, but in no event later than December 31,
2003, which date may be extended under certain circumstances.
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
<PAGE> 8
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Report of Management
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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.
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 March 31, 1999, OTEF II held approximately
$18.3 million in cash and cash equivalents, an increase of $0.3
million, or approximately 2%, from the $18 million in cash and
cash equivalents held as of December 31, 1998. This increase in
OTEF II's cash and cash equivalents was primarily the result of
the increase in the combined interest rates of the Original
Refunding Bonds and the resulting increase in interest income.
Total liabilities of OTEF II shown on the balance sheet decreased
by $0.1 million to approximately $51.9 million as of March 31,
1999 from $52 million at December 31, 1998, primarily due to a
decrease in payables.
Financing Transactions. OTEF II undertakes securitization
transactions with respect to its bond portfolio from time to time
in order to enhance its overall return on investment and to
generate proceeds which facilitate the acquisition of New Assets.
OTEF II has securitized approximately $62.6 million of its Series
A Bonds by assigning these Series A Bonds to a Merrill Lynch
affiliate which, in turn, deposited them into trusts, including
two transactions competed during 1998. 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 Series A Bonds. OTEF II 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. 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.
<PAGE> 9
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Report of Management
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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 March 31,
1999 no payments were required to be made by the counter-party
pursuant to these interest cap agreements.
For financial statement purposes, these transactions are
accounted for as financing transactions. The amount of the
Series A Bonds financed, approximately $62.6 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 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 March 31, 1999
was approximately $47.6 million, compared to $36.8 million as of
March 31, 1998. OTEF II's financing debt represents
approximately 15.2% of OTEF II's total assets (or 22.2% 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 85 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
3.77% for the three months ended March 31, 1999. The credit
enhancement associated with approximately $27.2 million of this
financing debt must be renewed or refinanced by August 21, 1999.
The remaining $20.4 million of financial 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 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,
although no assurances can be given.
<PAGE> 10
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Report of Management
- -----------------------------------------------------------------
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 Series A Bonds and
a purchase of 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 ("Liquidity 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 one 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
<PAGE> 11
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Report of Management
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31, 1997, 4.33% for the twelve months of 1998 and 3.77% for the
three months ended March 31, 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
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 March 31,
1999, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $2.9 million,
including deposits from March's cash flow compared to $2.2
million at the end of 1998.
Existing MRBs
As of March 31, 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 March 31,
1999, the two Operating Partnerships had cumulative unpaid Base
Interest and interest on interest at 8.25% per annum, compounded
monthly, of approximately $5.3 million with respect to these
Existing MRBs. The unpaid Base Interest is not accrued in the
financial statements of OTEF II.
<PAGE> 12
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Report of Management
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Results of 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 March 31, 1999.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income allocated to BAC holders and Net Income per
BAC was $4.7 million and $0.644, respectively, for the three-
month period ended March 31, 1999, as compared to $4.4 million
and $0.609, respectively, for the three-month period ended March
31, 1998, representing an increase of approximately 5.7% over the
prior comparative period. OTEF II's total revenues and expenses
for the first quarter increased by approximately 9.8% and 32.7%,
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 7,312,950 BACs outstanding
in the first quarter of 1999 compared to 7,185,200 in the first
quarter of 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
<PAGE> 13
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Report of Management
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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)
- ---------------------------------------------------------------------------
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in tax-exempt securities $216,674 $213,900
Investments in tax-exempt securities held in trust 62,565 62,565
Taxable investments and loans 11,970 11,840
Cash and cash equivalents 18,285 18,011
Bond and other interest receivables 1,607 1,579
Other assets 1,675 1,191
- ---------------------------------------------------------------------------
Total Assets $312,776 $309,086
===========================================================================
Liabilities and Partners' Capital
Liabilities
Financing debt $ 47,614 $ 47,614
Distributions payable 3,829 3,826
Accounts payable and accrued expenses 494 573
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Total Liabilities 51,937 52,013
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Partners' Capital
General Partners' Interests (2,255) (2,275)
Limited Partners' Interests:
Beneficial Assignee Interests (7,499,875
interests issued and 7,312,950 and 7,183,200
interests outstanding as of March 31, 1999
and December 31, 1998, respectively) 164,488 160,632
SQB Interests (12,587 interests issued and 1,756
and 6,946 interests outstanding as of March 31,
1999 and December 31, 1998, respectively) 965 3,849
Accumulated other comprehensive income 97,641 94,867
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Total Partners' Capital 260,839 257,073
- ---------------------------------------------------------------------------
Total Liabilities and Partners' Capital $312,776 $309,086
===========================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
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Statements of Income and Comprehensive Income (in thousands,
except per BAC amounts)(Unaudited)
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<CAPTION>
Three months ended
March 31,
--------------------
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenues
Interest on investments in tax-exempt securities $4,873 $4,727
Interest on investments in tax-exempt securities
held in trust 589 474
Interest on taxable investments & loans 266 21
Other, tax-exempt income 135 120
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Total Revenues 5,863 5,342
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Expenses
Governance and administrative expenses 304 234
Litigation and settlement costs 0 5
Other liquidity and growth expenses 295 215
Finance interest expense 443 331
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Total Expenses 1,042 785
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Net income $4,821 $4,557
===========================================================================
Other comprehensive income:
Unrealized gains on investments $2,774 $ 135
===========================================================================
Comprehensive income $7,595 $4,692
===========================================================================
Net income allocated to BAC holders $4,711 $4,377
===========================================================================
Net income per BAC $0.644 $0.609
===========================================================================
Weighted Average BACs outstanding 7,313 7,185
===========================================================================
Net income per BAC - assuming dilution <F1> $0.644 $0.603
===========================================================================
Weighted Average BACs outstanding -
assuming dilution <F1> 7,318 7,262
===========================================================================
Distribution per BAC <F1> $0.510 $0.495
===========================================================================
<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>
Partner's 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, 1998 $(2,275) $160,632 $3,849 $94,867 $257,073
============================================================================
Comprehensive Income:
Net Income, including
$0.644 per Liquidity 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 Liquidity 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
============================================================================
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>
Three months ended
March 31,
--------------------------
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 4,821 $ 4,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
Interest receivable and other (28) (91)
Accounts payable and accrued expenses (79) 62
- ---------------------------------------------------------------------------
Net cash provided by operating activities 4,714 4,528
- ---------------------------------------------------------------------------
Investing Activities
Increase in other assets, net <F1> (484) (1,416)
Investment in new assets (130) 0
Redemption of SQB interests 0 (55)
- ---------------------------------------------------------------------------
Net cash (used) in investing activities (614) (1,471)
- ---------------------------------------------------------------------------
Financing activities
Net proceeds from debt refinancing 0 9,585
Distributions paid (3,826) (3,719)
- ---------------------------------------------------------------------------
Net cash (used) provided by financing activities (3,826) 5,866
- ---------------------------------------------------------------------------
Net increase in cash and cash equivalents 274 8,923
Cash and cash equivalents, beginning of period 18,011 11,694
- ---------------------------------------------------------------------------
Cash and cash equivalents, end of period $18,285 $20,617
===========================================================================
<FN>
<F1> 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
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 March 31, 1999 and December
31, 1998, the Statements of Income and Comprehensive Income for
the three-month periods ended March 31, 1999 and 1998, the
Statement of Partners' Capital as of March 31, 1999, and the
Statements of Cash Flows for the three-month periods ended March
31, 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 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
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
senior bonds must be refunded or repaid. Based on its
preliminary discussions, the Managing General Partner anticipates
consummating refunding or 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, although no assurances can be given that these
transactions can be consummated in a timely manner.
<PAGE> 19
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 3. Significant Accounting Policies
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 three
month period ended March 31, 1999 and 1998, OTEF recorded "Other
Comprehensive Income" from unrealized gains on its investment in
tax-exempt securities of approximately $2.8 million and $0.14
million, respectively. Cumulative "Other Comprehensive Income"
from unrealized gains on investments were $97.6 million and $78.7
million at March 31, 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 March 31, 1999 that the fair value
of the Original Refunding Bonds and the Existing MRBs was
approximately $250.6 million and, accordingly, unrealized
appreciation on these investments of $97.6 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
<PAGE> 20
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
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
recently acquired Dallas, Carpenter and Jacaranda bonds are
recorded at cost, which approximates their fair market values at
March 31, 1999.
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 Bonds as of March 31, 1999
and 1998 was $1.4 million and $1.3 million, respectively.
Accounting for earnings per share. In February 1997, the
Financial Accounting Standards Board issued a Statement of
Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). Basic earnings per share, a measure required
by the new standard, does not include 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
$24.06 and $26.75 for March 31, 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 7,318,000 and
7,262,000 for March 31, 1999 and 1998, respectively.
Net Income and Distributions per Beneficial Assignee Interest
(BAC) and SQB. Net income and distributions per BAC and net
income and distributions per Status Quo BAC ("SQB") are based
upon the weighted average number of BACs and SQBs outstanding
during the applicable period. For the first quarter of 1997
there were 7,499,875 BACs outstanding. On April 1, 1997, 314,675
BACs were converted to 12,587 SQBs, leaving 7,185,200 Liquidity
BACs outstanding at September 30, 1997. 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
<PAGE> 21
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
outstanding at December 31, 1998. In the first quarter of 1999,
5,190 of the remaining 6,946 SQBs were converted to 129,750 BACs
in accordance with OTEF II's voluntary exchange offer program.
At March 31, 1999 there were 7,312,950 BACs and 1,756 SQBs
outstanding. The voluntary SQB exchange program has been extended
to June 15, 1999. As of March 31, 1999, approximately $0.05
million of general and administrative costs were incurred in
connection with the exchange.
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 $3.8 million and $3.7 million at
March 31, 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 as of March
31, 1999 is as follows:
<PAGE> 22
<TABLE>
- -----------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME
(in thousands, except per SQB interest amounts)
(Unaudited)
- -----------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
------------------------
<S> <C> <C>
Revenues
Interest on Bonds $ 29 $ 109
Other Interest 1 3
- -----------------------------------------------------------------
30 112
Expenses
Governance and Administration (17) (22)
Litigation expenses 0 (1)
- -----------------------------------------------------------------
Net income to SQB holders $ 13 $ 89
=================================================================
Other comprehensive income:
Unrealized gains on investment
in tax-exempt securities 12 3
=================================================================
Comprehensive income $ 25 $ 92
=================================================================
Weighted average SQB shares outstanding 1,756 7,025
=================================================================
Net income per SQB interest $ 7.57 $12.63
=================================================================
Distribution per SQB interest $12.38 $12.38
=================================================================
</TABLE>
The current distribution to SQB holders of $12.38 per SQB is
approximately 164% of the net income allocable to SQB holders
remaining after the March 31, 1999 exchange. Since a substantial
number of existing SQBs were exchanged for BACs at March 31,
1999, the remaining SQBs will be burdened by increased shares of
administrative costs, and net income and distributions per SQB
could be reduced or eliminated.
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 $0.08 million for March
31, 1999 and $0.07 million for the same period in 1998.
<PAGE> 23
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Affiliates of the Managing General Partner that are general
and limited partners of the Operating Partnerships have an
interest in the Operating Partnerships that entitles them to
receive a share of any cash flow and sale, refinancing and
liquidation proceeds of the Operating Partnerships. Since
inception, the 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 each such Operating Partnership that is
attributable to these interests will be pledged for the benefit
of OTEF II. At the end of 1997, OTEF II acquired the tax-exempt
bonds that are collateralized by the properties owned by the
Carpenter Borrower and the Dallas Borrower, both of which are
affiliates of the Managing General Partner of OTEF II.
Affiliates of the Managing General Partner receive fees from
these partnerships and serve as their general partners, which
entitles them to a share of any cash flow and refinancing and
liquidation proceeds from these partnerships.
Compensation and Fees. For the quarters ended March 31, 1999
and 1998 total compensation paid to Oxford Realty Financial
Group, Inc. ("ORFG") and other Oxford affiliates by OTEF II
amounted to approximately $0.08 million and $0.03 million
respectively, as discussed below.
As discussed above, ORFG provides various management services
relating to the Existing 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
<PAGE> 24
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
OTEF II for such interest as of the date of closing. No
acquisition fees were incurred by OTEF II during the first
quarter of 1999 and 1998.
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 in the first quarter of 1999 and 1998 were
approximately $0.08 and $0.03 million, respectively.
For the three months ended March 31, 1999 and 1998, the
Operating Partnerships, including the Carpenter Borrower and the
Dallas Borrower, paid ORFG total asset management fees of
approximately $0.17 million and $0.18 million, respectively.
For the three months ended March 31, 1999 and 1998, the original
Operating Partnerships also paid ORFG, in the aggregate, $0.17
million of fees pursuant to the OTEF Restructuring Plan
Administration/Asset Management Fee Agreement, which amount is
equal to 0.25% per annum of the principal amount of the 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 three-month period ended March 31, 1999 and 1998 were
approximately $0.19 million, $0.17 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
<PAGE> 25
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
to the Liquidity and Growth Plan. The portion of the expense
reimbursement relating to salaries is determined based on the
actual time the officers and employees devote to OTEF II based
upon their respective wage rate.
Incentive Option Plan. On May 21, 1997, OTEF II adopted an
incentive option plan (the "Incentive Option Plan") for the
Managing General Partner to attract and retain key employees and
advisers. The Incentive Option Plan authorizes the granting to
the directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase 652,125
OTEF II BACs (on a post-split basis), representing approximately
8.3% of the outstanding OTEF II BACs on a fully diluted basis.
Such options are exercisable for 10 years. The Managing General
Partner has awarded all of the OTEF II BACs authorized under the
terms of the Incentive Option Plan. Of the 652,125 options,
613,000 were fully vested upon issuance and 39,125 are vested
equally over 3 years commencing January 1, 1998. The exercise
price for all options is $23.88 per BAC, which approximated the
fair market value at the date of grant. At March 31, 1999 the
BAC market price of $24.06 was not materially different than the
option exercise price. Since the date of grant, no options have
been exercised.
Guarantees. In connection with the Summerwalk investment,
OTEF II, along with the operating partnership that owns this
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 the
Summerwalk and Jacaranda 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. OTEF II may execute similar agreements in connection
with new investments made after the date of this report.
Note 5. Subsequent Events.
Distributions. On May 14, 1999, the Managing General Partner
paid a distribution of $0.51 per Liquidity BAC and $12.38 per SQB
to holders of record as of March 31, 1999.
New Asset Acquisition. On April 21, 1999, an affiliate of
OTEF II executed a definitive agreement for an investment
transaction involving the acquisition by OTEF II of approximately
$12 million of debt secured by real estate that will be
simultaneously acquired by such affiliate from a third party. It
is anticipated that this transaction will close in the near
future, subject to satisfaction of certain closing conditions.
Although OTEF II believes that these conditions will be
<PAGE> 26
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
satisfied, no assurances can be given. In connection with this
transaction, Naples-Oxford Limited Partnership ("Naples
Borrower"), a Maryland limited partnership which is an affiliate
of OTEF II, will purchase River Reach Apartments, a 556-unit
garden apartment community located in Naples, Florida, for $34.5
million. The property is financed with $24 million of tax-exempt
bonds that bear interest at a weekly floating rate mode, which is
currently approximately 3.65%. The bonds are secured by a first
mortgage on the property and are currently held by third parties.
OTEF II currently expects to purchase these bonds at a future
date. OTEF II anticipates that it will restructure the tax-
exempt bonds as soon as practicable following the closing, which
restructuring may include, among other things, a refunding of the
bonds and a modification of the interest rate on the bonds to a
higher rate.
At closing, OTEF II will purchase a certificate from a grantor
trust which, in turn, will make a taxable loan to the Borrower in
the amount of approximately $12 million to fund a portion of the
purchase price for the property, as well as various costs,
expenses, capital improvements and reserves. This taxable loan
will be secured by a subordinated mortgage on the property. The
taxable loan will be repaid from available cash flow of the
Borrower on an interest-only basis with taxable interest at an
annual fixed accrual rate on the principal balance outstanding
from time to time, and will mature at the same time as the bonds.
It is expected that the taxable loan will be prepayable on the
same terms and conditions as the tax-exempt bonds. The terms of
this loan are anticipated to result in substantially all of the
property's current and expected future increases in cash flow and
property value being paid to OTEF II as interest on this loan.
<PAGE> 27
- -----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs or SQBs
- -----------------------------------------------------------------
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF. Please follow
the instructions below to expedite the reregistration or transfer
of ownership of any OTEF II BACs or Status Quo BACs ("SQB") that
you may own.
IF YOU DO NOT HOLD CERTIFICATES
Your shares are being held by your brokerage firm in "street
name". To register a change of ownership of OTEF II BACs held
in such accounts, please have your account representative or
financial consultant request the necessary transfer documents.
YOU MUST HAVE THE PROPER TRANSFER DOCUMENTS FROM YOUR
BROKERAGE FIRM. Additionally, please contact your account
representative or financial consultant for address changes.
IF YOU HOLD CERTIFICATES
Effective July 1, 1997, OTEF II appointed Registrar and
Transfer Company ("R&T") as the sole registrar and transfer
agent with respect to the OTEF II BACs and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed
to: Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended March
31, 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 information extracted from the
Balance Sheet at March 31, 1999 (Unaudited) and the Statements of
Income and Comprehensive Income for the three months ended March
31, 1999 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,285
<SECURITIES> 291,209
<RECEIVABLES> 1,607
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,675
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 312,776
<CURRENT-LIABILITIES> 51,937
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 260,839
<TOTAL-LIABILITY-AND-EQUITY> 312,776
<SALES> 0
<TOTAL-REVENUES> 5,863
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,821
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
