<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________
--------------------------------
Commission file number: 0-25600
--------------------------------
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Maryland 52-1394232
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-654-3100
Securities registered pursuant to Section 12(b) of the Act:
Beneficial Assignee Interests
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405) is not
contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [ ].
At December 31, 1999, the following classes of beneficial
assignee interests of Oxford Tax Exempt Fund II Limited
Partnership were outstanding; (i) 7,338,425 Beneficial Assignee
Interests ("BACs") with an aggregate market value of
$166,031,866, and (ii) 737 Status Quo BACs ("SQBs").
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the Registrant are
incorporated herein by reference as indicated:
Form 10-K Parts Document
- -----------------------------------------------------------------
Parts I, II and III Portions of the 1999 Annual Report are
incorporated by reference into Parts I,
II and III.
Exhibit Index is on page 11.
Total number of pages is 52.
<PAGE> 2
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART I
Item 1. Business.
Information responsive to this Item is contained under the
headings "Notes to Financial Statements" at pages 29 through 49,
respectively, of the 1999 Annual Report of the Registrant
attached hereto as Exhibit 13 which is incorporated herein by
reference.
Item 2. Properties.
Information responsive to this Item is contained under the
heading "Investment in Tax-Exempt and Taxable Securities" in Note
7 to the Financial Statements at pages 40 through 46 in the 1999
Annual Report of the Registrant which is incorporated herein by
reference.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market Price of the Registrant's Partnership Interests and
Related Partnership Matters.
(a) Market Information.
Information responsive to this item is contained under
Note 8 "Quarterly Information" included at pages 47 through
48 of the 1999 Annual Report which is incorporated herein
by reference.
(b) Number of Security Holders.
The number of BAC Holders at December 31, 1999 is 13,785
13,785. The number of SQB holders at December 31, 1999 was
20.
(c) Dividend History and Restrictions.
The information regarding the frequency and amount of
cash distributions is included under the headings "Selected
Financial Data" at page 15 of the 1999 Annual Report,
"Report of Management" at pages 16 through 23, "Notes to
Financial Statements" at pages 29 through 49, and
"Distribution Information" at page 50 of the 1999 Annual
Report. The information contained under such headings is
incorporated herein by reference.
The Partnership expects to continue making cash
distributions to Partners pursuant to the provisions of its
limited partnership agreement.
Item 6. Selected Financial Data.
Information responsive to this Item is contained under the
heading "Selected Financial Data," included at page 15 of the
1999 Annual Report which is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Information responsive to this Item is contained under the
heading "Report of Management" at pages 16 through 23 of the 1999
Annual Report which is incorporated herein by reference.
<PAGE> 3
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART II (continued)
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Partnership, together with
the report thereon of PricewaterhouseCoopers LLP, independent
accountants, appearing at pages 24 through 49 of the 1999 Annual
Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
(a), (b), (c) and (e).
The Partnership has no directors or officers. The
Managing General Partner of the Partnership is Oxford Tax
Exempt Fund II Corporation. The sole directors and executive
officers of the Managing General Partner are as follows:
Name Age Position and Business Experience
- -----------------------------------------------------------------
Leo E. Zickler 63 Chairman of the Board of Directors
and Chief Executive Officer since
inception and was Chairman and Chief
Executive Officer of the managing
general partner of Oxford Tax Exempt
Fund Limited Partnership, OTEF II's
predecessor ("OTEF"). Since March
1982, he has been Chairman of the
Board of Directors and Chief
Executive Officer of Oxford
Development Corporation ("Oxford"),
an affiliate of the Partnership and a
national real estate firm that owns
and operates apartment and senior
living communities. Mr. Zickler
served as President of Oxford until
February 28, 1994. Mr. Zickler
continues to serve as a director and
officer of Oxford and certain
affiliated entities.
Francis P. Lavin 48 President since inception and
President of OTEF's managing general
partner since March 1, 1994. From
October 1989 through January 1994, he
was a Director and President of ML
Oxford Finance Corporation, an
affiliate of Merrill Lynch & Company,
Inc. From 1979 to October 1989, Mr.
Lavin held various positions at
subsidiaries of Merrill Lynch &
Company, including Director of
Merrill Lynch Capital Markets and
Vice President of Merrill Lynch,
Hubbard Inc. Since March 1, 1994,
Mr. Lavin has served as President of
Oxford, as well as a director and
officer of certain affiliated
entities.
Robert B. Downing 45 Executive Vice President and Director
of the Managing General Partner since
inception. Mr. Downing is responsible
for the day-to-day investment and
financing activities of OTEF II.
Since 1993, Mr. Downing has served as
Executive Vice President and Director
of various Oxford affiliates. Mr.
Downing joined Oxford in 1984.
<PAGE> 4
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Name Age Position and Business Experience
- -----------------------------------------------------------------
Stephen P. Gavula, Jr. 49 Director since May 1997. From June
1988 to September 1995, Mr. Gavula
was Chairman and Chief Executive
Officer of the JHM Group, which
provided specialized investment
management services to various
financial institutional and
individual investors. The JHM Group
specialized in mortgage-backed
securities and was an affiliate of
The John Hancock Mutual Life
Insurance Company. In September
1995, after accumulating over $2
billion in assets under management,
Mr. Gavula sold his interest in JHM
to The John Hancock Mutual Life
Insurance Company. Presently, Mr.
Gavula acts as Chairman and Chief
Executive Officer of JDS Capital
Corporation, a private investment
firm in McLean, Virginia.
Scot B. Barker 51 Director since May 1997. Mr. Barker
is the President and Director of
Newman & Associates, Inc., a Denver-
based financial services firm that
arranges debt financing for both
commercial and multifamily properties
since 1984. Mr. Barker has extensive
experience in financing HUD-insured
and HUD-assisted properties
throughout the U.S. He has been
instrumental in designing a variety
of new financing programs for the
real estate sector.
Mark E. Schifrin 46 Executive Vice President of the
Managing General Partner since 1993.
Mr. Schifrin is responsible for the
asset management activities relating
to Oxford's property portfolio.
Since 1993, Mr. Schifrin has served
as Executive Vice President and
Director of various Oxford
affiliates. Mr. Schifrin joined
Oxford in 1984.
Richard R. Singleton 52 Senior Vice President since inception
and Chief Financial Officer since
1995. Mr. Singleton serves as Senior
Vice President of various Oxford
affiliates. Mr. Singleton joined
Oxford in 1979.
Marc B. Abrams 45 Senior Vice President, Secretary and
General Counsel since inception. Mr.
Abrams serves as Senior Vice
President, Secretary and General
Counsel of various Oxford affiliates.
Mr. Abrams joined Oxford in 1985.
(d) Family Relationships. None.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Controlling Persons. Not applicable.
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires that the directors,
executive officers, and persons who own more than 10% of a
registered class of the equity securities of OTEF II or OTEF II
Corporation ("reporting persons") file with the Securities and
Exchange Commission initial reports of ownership, and reports of
changes in ownership, of OTEF II BACs, and options to purchase
OTEF II BACs. Reporting persons are required by Securities and
Exchange Commission rules to furnish OTEF II with copies of all
Section 16(a) reports they file.
Based solely upon a review of Section 16(a) reports
furnished to OTEF II for the fiscal year ended December 31, 1999
(the "1999 fiscal year"), or representations by reporting persons
that no other reports were required for the 1999 fiscal year,
OTEF II believes that all reporting persons timely filed all
reports required by Section 16(a) of the Exchange Act, with the
exception of Stephen P. Gavula, Jr., a director of the
Registrant's managing general partner. Mr. Gavula inadvertently
omitted three purchases during three reporting periods in 1999 in
the aggregate amount of 90 BACs made through a dividend
reinvestment program. These purchases were reported on a Form 4
filed with the SEC on March 7, 2000, and on a Form 5 filed with
the SEC on March 17, 2000.
Item 11. Executive Compensation.
(a), (b), (c), and (d)
None of the executive officers of the Managing General
Partner, Oxford Tax Exempt Fund II Corporation, receives direct
compensation for services rendered to the Partnership. However,
certain directors and officers receive a portion of the cash
distributions made by OTEF II to its general partners. During
1999, the two independent directors received a total of $40,000
in directors' fees.
OTEF II's Incentive Option Plans. In October 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 123
"Accounting for Stock-based Compensation" (SFAS No. 123). This
Statement defines a fair value based method of accounting for
stock-based employee compensation. However, SFAS No. 123 allows
an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25). OTEF II has historically used the intrinsic
value based method of accounting prescribed by APB25 and related
interpretations, and has adopted the disclosure-only provisions
of SFAS No. 123. Under APB 25, compensation expense for stock
options is measured on the first date at which both the number of
shares and the amount to be paid for the shares (the exercise
price) are known. Although OTEF II adopted APB 25 accounting for
its 1997 Incentive Option Plan, it has not yet adopted either APB
25 or SFAS No. 123 accounting for its 1999 Incentive Option Plan
pending the granting of such options.
On May 21, 1997, OTEF II adopted an incentive option plan
(the "1997 Incentive Option Plan") in order for the Managing
General Partner to attract and retain key employees and advisers.
The 1997 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 then 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 1997 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. Since the exercise price
of the options approximated the BAC market price at the date of
grant, no compensation expense was recognized at that time in
accordance with APB 25. At December 31, 1999, the market price
of $22.625 was less than the exercise price. Since the date of
grant, no options have been exercised or forfeited. If OTEF II
had adopted SFAS No. 123, it would have recognized a $2.09 per
option compensation expense charge to net income of approximately
$1.3 million in 1997. This amount was estimated using the Black-
Scholes option-pricing model and assumes a dividend yield of
7.9%, expected volatility of 18.6%, risk free interest rate of
6.2% and an expected option life of 7 years.
<PAGE> 6
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
On December 15, 1999, OTEF II adopted a second incentive
option plan (the "1999 Incentive Option Plan"). The 1999
Incentive Option Plan was subject to certain contingencies which
were satisfied in the first quarter of 2000. The 1999 Incentive
Option Plan authorizes the granting to the directors, officers
and employees of the Managing General Partner and certain
affiliates of options to purchase 350,000 BACs. Additionally, the
1999 Incentive Option Plan authorizes the Board of Directors to
grant Dividend Equivalent Rights ("DERs") in tandem with the
options. The DERs provide for either quarterly option strike
price reductions to the option holders in the amount of the
quarterly dividend, or, with the approval of the Board of
Directors, quarterly dividend payments. When granted, the strike
price of the BAC options will be no less than the fair market
value of the BACs on the date of grant. If OTEF II adopts APB 25
with respect to this plan, since the option strike price will be
no less than the then current BAC market price, no compensation
expense is expected to be recognized at date of grant. If OTEF
II adopts SFAS No. 123 for the 1999 Incentive Option Plan, there
will be a charge to compensation expense of approximately $3.5
million at the date of the grant. This estimate was determined
using the Black-Scholes pricing-model as provided by SFAS No. 123
and assumes a dividend yield of 0%, expected volatility of 15.7%,
risk-free interest rate of 6.3% and an expected option life of 8
years. No options or DERs were granted under this plan through
the opinion date of the Report of Independent Accountants
accompanying these financial statements and at the time any
options or DERs are granted the actual charge to compensation
expense recorded may differ from Management's current estimate
given above.
Option Grants In Fiscal 1999
Shown below is information concerning option grants to the
executive officers of the Managing General Partner who have
received granted options to purchase OTEF II BACs.
<TABLE>
Individual Grants
- ----------------------------------------------------------------------------------------------
<CAPTION>
% of
Total Potential Realizable Value
Number of Options at Assumed Annual Rates of
BACs Granted to Exercise BAC Price Appreciation
Underlying Employees or Base For Option Term
Options in Fiscal Price Expiration Compounded Annually
Name Granted <F1> 1997 ($/BAC) Date 5% 10%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leo E. Zickler 163,031 25.000% $23.88 5/21/07 $2,448,400 $6,204,727
Francis P. Lavin 163,031 25.000% $23.88 5/21/07 $2,448,400 $6,204,727
Robert B. Downing 82,150 12.597% $23.88 5/21/07 $1,233,729 $3,126,512
Mark E. Schifrin 75,620 11.596% $23.88 5/21/07 $1,135,661 $2,877,989
Marc B. Abrams 61,606 9.447% $23.88 5/21/07 $ 925,199 $2,344,636
Richard R. Singleton 47,997 7.360% $23.88 5/21/07 $ 720,819 $1,826,697
- ----------------------------------------------------------------------------------------------
<FN>
<F1> All options held by executive officers were granted prior
to the effective date of listing of the OTEF II BACs for
trading on the American Stock Exchange. The exercise price
of each option grant was set at the average of the American
Stock Exchange closing bid prices of the OTEF II BACs for
the first 20 days of trading following the listing of the
OTEF II BACs.
</FN>
</TABLE>
<PAGE> 7
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Values
Shown below is information with respect to the unexercised
options to purchase OTEF II BACs held by the executive officers
of OTEF II Corporation as of the end of OTEF II's 1999 fiscal
year. None of the executive officers of OTEF II Corporation
exercised any options during OTEF II's 1999 fiscal year.
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Number of BACs
Underlying Options at Value of Options at
End of Fiscal Year End of Fiscal 1999 <F1>
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leo E. Zickler 163,031 0 0 0
Francis P. Lavin 163,031 0 0 0
Robert B. Downing 82,150 0 0 0
Mark E. Schifrin 75,620 0 0 0
Marc B. Abrams 61,606 0 0 0
Richard R. Singleton 47,997 0 0 0
- ------------------------------------------------------------------------------
TOTAL 593,435 0 0 0
==============================================================================
<FN>
<F1> Since the market value of the OTEF II BACs on the last
trading day of 1999 (as measured by the American Stock
Exchange closing bid price of $22.625) was less than the
exercise price, the options are not in the money.
</FN>
</TABLE>
(e) Termination of Employment and Change of Control Arrangements. None.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
No person is known by the Partnership to own
beneficially more than 5% of the outstanding OTEF II BACs.
(b) Security Ownership of Management.
The following table sets forth, as of December 31, 1999, the
number and percentage of outstanding BACs beneficially owned by
(i) each director of OTEF II Corporation, (ii) each executive
officer of OTEF II Corporation, and (iii) all executive officers
and directors of OTEF II Corporation as a group. Each person
named in the table has sole voting and sole investment power with
respect to each of the OTEF II BACs beneficially owned by such
person.
<PAGE> 8
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART III (continued)
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Name and Address of Beneficial Ownership Percentage of
Beneficial Owner No. BACs <F1> Outstanding BACs <F2>
- ------------------------------------------------------------------------------
<S> <C> <C>
Leo E. Zickler <F3> <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 163,031 2.04%
Francis P. Lavin <F3> <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 172,131 2.15%
Robert B. Downing <F3> <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 91,150 1.14%
Stephen P. Gavula, Jr. <F3>
8300 Greensboro Drive, Suite 970
McLean, VA 22102 24,241 0.30%
Scot B. Barker <F3>
1801 California Street
Denver, Co 80202 21,261 0.27%
Mark E. Schifrin <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 83,220 1.04%
Marc B. Abrams <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 64,486 0.81%
Richard R. Singleton <F4>
7200 Wisconsin Avenue, Suite 1100
Bethesda, MD 20814 51,997 0.65%
- ------------------------------------------------------------------------------
All executive officers and
directors as a group (8 persons) 671,517 8.40%
- ------------------------------------------------------------------------------
<FN>
<F1>Amount of beneficial ownership includes options to
purchase OTEF II BACs granted to directors and executive
officers of OTEF II Corporation which have vested and are
exercisable as of May 21, 1997. Accordingly, Mr. Zickler has
163,031 options vested and exercisable; Mr. Lavin has 163,031
options vested and exercisable;Mr. Downing has 82,150 options
vested and exercisable; Mr. Gavula has 3,261 options vested
and exercisable; Mr. Barker has 3,261 options vested
and exercisable; Mr. Schifrin has 75,620 options vested
and exercisable; Mr. Abrams has 61,606 options vested
and exercisable; and Mr. Singleton has 47,997 options vested
and exercisable.
<F2>All percentages were calculated assuming all BAC options are
exercised by those individual directors and executive
officers of OTEF II Corporation who hold such options.
<F3>Indicates a director of OTEF II Corporation.
<F4>Indicates an executive officer of OTEF II Corporation.
</FN>
</TABLE>
(c) Changes in Control. None.
Item 13. Certain Relationships and Related Transactions.
(a) and (b) Transactions with Management and Others and
Certain Business Relationships.
Information responsive to this Item is contained under
the heading "Notes to Financial Statements" at pages 34 to
36 of the 1999 Annual Report of the Registrant which is
incorporated herein by reference.
(c) Indebtedness of Management. None.
(d) Transactions with Promoters. Not applicable.
<PAGE> 9
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as part of this Report.
1. Financial Statements.
The following financial statements and notes thereto are
contained in the 1999 Annual Report and are incorporated
by reference into Part II, Item 8.
Sequentially
Numbered
Page(s)
------------
Report of Independent Accountants 24
Balance Sheets as of December 31,
1999 and 1998. 25
Statements of Income and
Comprehensive Income for the
years ended December 31, 1999,
1998 and 1997. 26
Statement of Partners' Capital
for the years ended December 31,
1999, 1998 and 1997 for OTEF II. 27
Statements of Cash Flows for the
years ended December 31, 1999,
1998 and 1997. 28
Notes to Financial Statements,
which include the information
required to be included in
Schedule IV - Mortgage Loans on
Real Estate. 29-49
2. Financial Statement Schedules.
All other financial statement schedules are omitted
because they are inapplicable or because the required
information is included in the financial statements or
notes thereto.
3. Exhibits (listed according to the number assigned
in the table in Item 601 of Regulation S-K).
Exhibit No. 3 - Articles of Incorporation and Bylaws.
a. Articles of Incorporation for OTEF II Corporation
(incorporated by reference from Exhibit 3(a) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
b. Bylaws for OTEF II Corporation (incorporated by
reference from Exhibit 3(b) to the Registrant's
Registration Statement on Form 10 dated February 22,
1995).
c. Articles of Incorporation of OTEF II Assignor
Corporation (incorporated by reference from Exhibit
3(c) to the Registrant's Registration Statement on
Form 10 dated February 22, 1995).
d. Bylaws of OTEF II Assignor Corporation
(incorporated by reference from Exhibit 3(d) to the
Registrant's Registration Statement on Form 10 dated
February 22, 1995).
<PAGE> 10
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
PART IV (continued)
Exhibit No. 4 - Instruments defining the rights of security
holders, including indentures.
a. Third Amended and Restated Agreement of Limited
Partnership of Oxford Tax Exempt Fund II Limited
Partnership (incorporated by reference from (Exhibit
4(a) to the registrant's quarterly report on form 10-
Q/A for the quarter ended March 31, 1998.
Exhibit No. 10 - Material contracts.
a. BAC Holder Rights Agreement.
b. Trust Indenture and Loan Agreement for Southridge-
Oxford Limited Partnership.
c. Stipulation of Settlement filed with the U.S.
District Court for the District of Maryland on
November 18, 1997.
Exhibit No. 13 - Annual report to security holders, etc.
a. Annual Report for the year ended December 31, 1999
("filed" only to the extent material therefrom is
specifically incorporated by reference).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth
quarter of 1999.
(c) The list of Exhibits required by Item 601 of
regulation S-K is included in Item 14(a)(3) above.
(d) Financial Statement Schedules.
See Item 14(a)(2) above.
<PAGE> 11
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
CROSS REFERENCE SHEET
The item numbers and captions in Parts I, II, III, and IV
hereof and the page and/or pages in the referenced materials
where the corresponding information appears are as follows:
Sequentially
Numbered
Item Reference Materials Page(s)
- -----------------------------------------------------------------
1. Business 1999 Annual Report pps 29-49
3. Legal Proceedings 1999 Annual Report pps 16-23
and 29-49
5. Market for Registrant's
Partnership Interest and pps 15,16-23,
Related Matters 1999 Annual Report and 29-52
6. Selected Financial Data 1999 Annual Report pp 15
7. Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 1999 Annual Report pps 16-23
8. Financial Statements and
Supplementary Data 1999 Annual Report pps 24-49
11. Executive Compensation 1999 Annual Report pp 34
14. Exhibits, Financial
Schedules and Reports on
Form 8-K 1999 Annual Report pps 16-49
<PAGE> 12
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(13) 1999 Annual Report to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Report
dated December 31, 1999, follows on sequentially numbered pages
14 through 52 of this report.
(27) Financial Data Schedule.
<PAGE> 13
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited
Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the
registrant
Date: 3/28/00 By:/S/ Richard R. Singleton
------- ---------------------------------------
Richard R. Singleton,
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: 3/28/00 By:/S/ Leo E. Zickler
------- ----------------------------------------
Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 3/28/00 By:/S/ Francis P. Lavin
------- ----------------------------------------
Francis P. Lavin
Director and President
Date: 3/28/00 By:/S/ Robert B. Downing
------- ----------------------------------------
Robert B. Downing
Director and Executive Vice President
Date: 3/28/00 By:/S/ Stephen P. Gavula, Jr.
------- ----------------------------------------
Stephen P. Gavula, Jr.
Director
Date: 3/28/00 By:/S/ Scot B. Barker
------- ----------------------------------------
Scot B. Barker
Director
No proxy material has been sent to the Registrant's
security holders. The Partnership's 1999 Annual Report is
expected to be mailed to OTEF II BAC Holders before August 15,
2000.
<PAGE> 14
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
1999 Annual Report
CONTENTS
Selected Financial Data
Report of Management
Report of Independent Accountants
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Distribution Information
General Partnership Information
Instructions for Investors who wish to
reregister or transfer OTEF II BACs
<PAGE> 15
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Financial Data (in thousands, except per BAC) (Restated for the 25-for-1 stock split which occurred on July 1, 1997)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION> ||
OTEF II <F3> || OTEF <F1>
---------------------------------------------------------------------------------------||
| Seven || Five
For the years ended December 31, | Months || Months
-------------------------------------------------------------------------| ended || ended
Pro Forma | December 31,|| May 31,
FINANCIAL HIGHLIGHTS 1999 1998 1997 1996 1995<F4> | 1995<F3> || 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> | <C> || <C>
Total Assets $321,698 $309,086 $270,663 $228,733 $174,034 | $174,034 || $163,856
Investment in Tax-Exempt | ||
Securities $208,216 $213,900 $217,159 $215,529 $164,000 | $164,000 || $153,032
Investment in Tax-Exempt | ||
Securities Held in Trust $ 76,765 $ 62,565 $ 38,820 $ 0 $ 0 | $ 0 || $ 0
Total Revenue $ 24,607 $ 23,151 $ 19,130 $ 19,762 $ 16,626 | $ 9,610 || $ 2,452
Net Income $ 19,974 $ 19,283 $ 16,642 $ 14,912 $ 15,210 | $ 8,369 || $ 2,277
Net Income Allocated to | ||
BAC Holders $ 19,571<F7> $ 18,509<F7> $ 15,893<F7> $ 14,614 $ 14,906 | $ 8,202 || $ 2,232
Net Income per BAC $ 2.670<F7> $ 2.576<F7> $ 2.188<F7> $ 1.948 $ 1.988 | $ 1.094 || $ 0.298
Net Income per BAC - | ||
assuming dilution $ 2.665<F8> $ 2.556<F8> $ 2.180<F8> $ 0 $ 0 | $ 0 || $ 0
Municipal Income (Tax Basis) $ 26,278 $ 18,168 $ 16,983 $ 14,644 $ 16,210 | $ 8,369 || $ 7,841
Municipal Income Allocated | ||
to BAC Holders (Tax Basis) $ 25,917<F6> $ 17,422<F6> $ 16,041<F6> $ 14,351 $ 15,886 | $ 8,202 || $ 7,687
Municipal Income per BAC | ||
(Tax Basis) $ 3.535<F6><F7> $ 2.425<F6><F7> $ 2.233<F6><F7>$ 1.914 $ 2.118 | $ 1.094 || $ 1.025
Cash Distributions per BAC<F2> $ 2.090<F7> $ 2.025<F7> $ 1.942<F7> $ 1.904 $ 1.904 | $ 1.428 || $ 0.476
Weighted Average OTEF II | ||
BACs Outstanding <F9> 7,331<F7> 7,185<F7> 7,264<F7> 7,500 7,500 | 7,500 || 7,500
Number of BAC Holders 13,785 15,075 16,009 15,678 15,061 | 15,061 || 15,249
==================================================================================================================================
<CAPTION> |
|
OTEF II <F3> |OTEF II<F1>
- ----------------------------------------------------------------------------------------------------------------------|-----------
| Seven || Five
For the years ended December 31, | months || months
-------------------------------------------------------------------------| ended || ended
RECONCILIATION OF NET Pro Forma |December 31, || May 31,
INCOME TO MUNICIPAL INCOME 1999 1998 1997 1996 1995<F4>| 1995 || 1995
- --------------------------------------------------------------------------------------------------------|-------------||----------
<S> <C> <C> <C> <C> <C> | <C> || <C>
Net Income per financial | ||
statements (GAAP) $ 19,974 $ 19,283 $ 16,642 $ 14,912 $ 16,210 | $ 8,369 || $ 2,277
Add: | ||
Equity method adjustments: | ||
- Equity Income <F3> 0 0 0 0 0 | 0 || (2,305)
- Interest received <F3> 0 0 0 0 0 | 0 || 7,869
Taxable interest income (2,652)<F10> (837)<F10> 0 0 0 | 0 || 0
Accrued base interest/ | ||
(reduction)/other 9,148<F5> (278)<F5> 341<F5> (268)<F5> 0 | 0 || 0
- --------------------------------------------------------------------------------------------------------|-------------||----------
Municipal income, | ||
net for tax reporting purposes $ 26,470 $ 18,168 $ 16,983 $ 14,644 $ 16,210 | $ 8,369 || 7,841
==================================================================================================================================
<FN>
<F1> Prior to June 1, 1995, OTEF accounted for its investment in the Operating Partnerships under the equity method, which treated
interest paid by the Operating Partnerships as a reduction in its investment, and also recorded as an increase or reduction
in its investment its equity interest in the aggregate income or losses of the Operating Partnerships.
<F2> See page 46 for analysis of historical quarterly distributions.
<F3> Effective June 1, 1995, with the transfer of all units of OTEF to OTEF II, OTEF II began accounting for its investments in
Existing MRBs in accordance with Statement of Financial Accounting Standards No. 115-Accounting for Certain Investments in
Debt and Equity Securities ("SFAS No. 115"), as more fully described in the Notes to Financial Statements. For federal
income tax purposes, OTEF II is considered a continued entity.
<F4> The unaudited Pro Forma financial information reflects the adoption of SFAS No. 115 as of January 1, 1995. Pro forma total
revenue and net income does not reflect $1 million in nonrecurring Oxford advances made to the Operating Partnerships which
used these funds to pay OTEF in January 1995, which is reflected in the Net Income per financial statements (GAAP).
<F5> For 1996 represents (i) payment of legal fees in connection with the settlement of class action litigation totaling $2.5
million expensed in 1996, but capitalized for income tax purposes in 1997; (ii) a portion of the Partnership's 1996 expenses,
totaling approximately $1 million that was not expensed in 1996 for income tax purposes; and (iii) write-off of prior years'
tax accrual totaling $3.8 million. For 1997 this amount represents the tax capitalization of class action litigation costs
in conjunction with the appeal. For 1998 represents the reimbursement of 1996 and 1997 bond refunding costs which had been
expensed for financial statement purposes and deferred for income tax purposes. For 1999, represents income recognized for
tax purposes on the San Bruno demand note but not for financial statement purposes. (See discussion at Note 7 to financial
statements).
<F6> Municipal income does not reflect capital losses of $3.6 million and $3.8 million in 1998 and 1997, respectively, nor 1999
capital gains of $0.1 million from Financing Transactions (see page 16).
<F7> On April 1, 1997, 314,675 BACs were converted to 12,587 SQBs. Amounts presented for 1999, 1998 and 1997 are for BACs only.
<F8> Options granted but not exercised in 1997 are dilutive. The weighted average BACs outstanding assuming dilution is 7,344,499
in 1999, 7,241,414 in 1998 and 7,283,795 in 1997.
<F9> Restated to reflect the 25-for-1 stock split effective July 1, 1997.
<F10> Taxable interest income earned in 1999 on OTEF II new acquisitions from taxable interest on loans in the amount of
approximately $2.7 and $0.8 million, respectively for 1999 and 1998, is not included in municipal income.
</FN>
</TABLE>
<PAGE> 16
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Report of Management
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The following report provides additional information about
the financial condition of Oxford Tax Exempt Fund II Limited
Partnership, a Maryland limited partnership ("Oxford Tax Exempt
Fund II," "OTEF II," or the "Partnership"), as of December 31,
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 Annual
Report.
GENERAL BUSINESS
OTEF II is a publicly-traded partnership (AMEX: OTF) that
invests primarily 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
substantially exempt from federal income taxation.
While OTEF II acquires principally tax-exempt bonds and
other debt secured by these investment properties, its investment
and operational focus is similar to that of an equity real estate
investment trust ("REIT"). Like an equity REIT, OTEF II seeks
equity-like returns since its debt investments are generally
structured to capture most of a property's projected increases in
cash flow and appreciation in the form of increasing interest
payments. Also, like a REIT, OTEF II does not pay income taxes
at the company level.
OTEF II's investments are generally structured to give OTEF
II affiliates significant rights regarding property and financing
decisions. Typically, affiliated entities acquire title to the
properties or act as a joint venture partner with a developer.
With intensive asset management, OTEF II seeks to maximize the
economic growth achieved by these properties.
Unlike equity REITs, however, investments made by OTEF II
are structured in a manner designed to produce tax-exempt income,
which can increase substantially from the economic growth
achieved by the investment properties. To obtain income from its
investments that is primarily tax-exempt, OTEF II generally will
acquire tax-exempt bonds or other debt secured by such properties
and, because the federal tax laws prevent a property owner from
receiving tax-exempt interest income on bonds that finance its
property, an affiliated but unrelated entity will acquire title
to, or obtain control over, the real estate. The tax-exempt
bonds or other debt acquired by OTEF II will be structured or
restructured in a manner such that (a) the bonds or other debt
will be classified as indebtedness of the owner of the real
estate for federal income tax purposes, and (b) most of any
increase in operating income and appreciation realized by the
investment property will be captured by OTEF II as interest on
the debt secured by such property.
Similar to many equity REITs, OTEF II distributes to its
shareholders most but not all of its cash flow, so as to maintain
cash reserves for future quarterly distributions or other
purposes. OTEF II's payout ratio, or percentage of net income
per BAC, that is distributed, varies from time to time. For
1999, the distributions per BAC equaled approximately 78% of net
income per BAC. Further, OTEF II may employ moderate leverage to
enhance its return on investment. OTEF II's leverage level is
currently approximately 16.4% of OTEF II's total assets, or
approximately 30.4% of OTEF II's total assets if the senior
debt of entities in which OTEF II has made a subordinated
debt investment is consolidated.
RECENT DEVELOPMENTS
Distribution for the Quarter ended December 31, 1999. On
December 15, 1999, the Managing General Partner declared a
distribution for the quarter ended December 31, 1999 in the
amount of $0.54 per BAC, and $6.19 per Status Quo BAC ("SQB").
For BAC Holders, this represents an increase of approximately 6%
over the distribution for the prior comparative period, and is
approximately a 4% increase over the distributions paid for the
second and third quarters of 1999. Distributions for the fourth
quarter were paid on February 14, 2000 to BAC Holders and SQB
Holders of record on December 31, 1999.
Investment Transactions. During 1999, OTEF II closed
several investment transactions totaling approximately $60.3
million. On November 24, 1999, OTEF II closed a development
venture transaction for The Peaks at Conyers Apartments, a 260-
unit apartment community being developed in Conyers, Georgia, an
Atlanta suburb, for a total development cost of approximately
$18.2 million. The property owner is a non-profit affiliate of
<PAGE> 17
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Report of Management
- ----------------------------------------------------------------------------
Resource Healthcare of America, Inc. Property management
services will be provided by Lane Company. Construction and
permanent financing for the property was provided through the
issuance of Series A, Series B and Series C Bonds. The Series A
and Series B Bonds in the aggregate amount of $12.75 million were
credit enhanced and sold to third party investors. At closing,
OTEF II acquired at par all of the Series C Bonds in the original
principal amount of $5.4 million. Interest on the Series C Bonds
is exempt from federal income tax. The Series C Bonds require
payments of base interest at an annual rate of 9-7/8% during the
construction period and at 9-3/8%, thereafter. Additional
interest accrues at an annual rate of 2.625% during the
construction period and at 3.125% thereafter, and is payable from
70% of cash flow remaining after payment of base interest and in
full upon a tender or redemption of the Series C Bonds. The
Series C Bonds are secured by, among other things, a second
mortgage on the property, and are subject to optional call by
OTEF II in 10 years. The Series C Bonds are structured to
provide OTEF II with certain enhanced rights, including
construction and lease-up guaranties and reserves, payment and
performance bonds, a $1 million construction letter of credit,
various approval rights with respect to the operation,
refinancing and sale of the property, and an option to purchase
the property.
On June 11, 1999, an affiliate of OTEF II acquired River
Reach Apartments, a 556-unit garden apartment community in
Naples, Florida, for a purchase price of approximately $34.6
million. The property is financed with $24 million of floating
rate tax-exempt bonds, which are secured by a first mortgage on
the property. The credit enhancement on the tax-exempt bonds
expires on June 9, 2000. While the bonds are currently held by
third parties, OTEF II expects to purchase and restructure them
in the future. In connection with the River Reach investment
transaction, OTEF II executed a standby reimbursement agreement with a
Merrill Lyynch affiliate which effectively guarantees the approximately $24
million obligations of the Naples Borrower to Banco Santander Central
Hispano, S.A. This reimbursement agreement expires on June 9, 2000. Based
upon its preliminary discussions, the Managing General Partner believes that
OTEF II will be able to extend this agreement and the credit enhancement of
the tax-exempt bonds, although no assurances can be given. At closing,
OTEF II provided a taxable loan to the affiliated borrower in the
maximum amount of approximately $13 million, with an initial advance
of approximately $11.6 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 is
secured by a second mortgage on the property. In conjunction with
this second taxable loan, OTEF II also provided a second taxable
loan in the amount of $1.3 million, the proceeds of which were used
by the affiliated borrower to reimburse the property seller for
capitalizable expenditures. OTEF II received a subordinated security
interest in the $1.3 million debt service reserve fund held by the bond
trustee.
On April 9, 1999, affiliates of OTEF II completed the
acquisition of all of the partnership interests of Carrollwood
Lakeside North Partners, Ltd., which owns Lakeside North at
Carrollwood Apartments, a 168-unit garden apartment community in
Tampa, Florida for a purchase price of approximately $7.48
million. 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 provided a
taxable loan to the affiliated borrower in the maximum amount of
$2 million, with an initial advance of approximately $1.6
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 is secured by a
second mortgage on the property.
On November 1, 1999, the Existing MRBs held by OTEF II and
secured by the properties owned by the Apollo and San Bruno
operating partnerships were remarketed. See "Remarketed Bonds"
below. OTEF II is continuing to work on bond refunding and
refinancing transactions with respect to the Summerwalk property
and the River Reach property. The senior tax-exempt bonds
secured by these properties are currently held by third parties.
Based on its preliminary discussions, the Managing General
Partner anticipates consummating refunding or refinancing
transactions for these properties.
Amortization of Series A Bonds. Effective April 15, 2000,
mandatory sinking fund redemptions begin on the twelve Original
Refunding Bonds (as defined below). These Original Refunding
Bonds provide for payments of interest only for the first three
years and then amortize over a 27-year period beginning in the
fourth bond year. While the total payments on these bonds
increase each year, the portion of the payments allocable to
interest will decrease in the fourth year and increase each year
thereafter. Accordingly, it is anticipated that OTEF II will
receive aggregate principal payments of approximately $1.4 million
in 2000. Of this amount, approximately 41% may be applied to
reduce the financing debt reported by OTEF II on its balance
sheet, which was approximately $52.6 million at December 31,
1999. Substantially all of the balance of the principal payments
will reduce OTEF II's remaining investment in the related bonds.
While the interest earned on these bonds will decrease in 2000 by
approximately $0.19 per share, the total principal and interest
that is projected to be received by OTEF II with respect to these
bonds for 2000 will be higher than the amount of interest
received on these bonds for 1999. The interest rates on these
<PAGE> 18
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Report of Management
- ----------------------------------------------------------------------------
bonds will increase in 2001 and each year thereafter through the
remaining term of the Original Refunding Bonds.
Book Value. At December 31, 1999, the book value of the
BACs was $35.97 on a fully diluted basis, taking into account the
1997 Incentive Options. Book value is calculated as the sum of
the BAC capital account plus the BACs' allowable share of
accumulated comprehensive income, divided by the fully diluted
shares outstanding at December 31, 1999.
BAC Repurchase Program. On October 30, 1998, the Managing
General Partner authorized the repurchase, from time to time, of
up to 250,000 BACs. OTEF II may purchase BACs in the open market
or through privately negotiated transactions. The timing and
amount of BACs purchased will be dependent on the availability of
BACs and other market factors. OTEF II will purchase BACs only
to the extent that they may be purchased at favorable prices.
Under this program, OTEF II acquired 2,000 BACs in December 1998
for approximately $0.05 million. On January 18, 2000, OTEF II
acquired an additional 10,000 BACs for approximately $0.24
million.
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 (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) from the issuance of
additional equity securities in exchange for New Assets; or (v)
by funds borrowed 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 December 31, 1999, OTEF II held approximately
$5.5 million in cash and cash equivalents, a decrease of
approximately $12.5 million, or approximately 69%, from the $18
million in cash and cash equivalents held as of December 31,
1998. The decrease in OTEF II's cash and cash equivalents was
primarily the result of funding three investment transactions in
1999 which required, net of new financing debt, $19.97 million in cash,
offset by net income allocable to BAC Holders in excess of distributions
to such BAC Holders. Total liabilities of OTEF II increased to
approximately $57.2 million as of December 31, 1999 from
approximately $52.0 million at December 31, 1998. The increase
in liabilities is due to the increase in financing debt discussed
below, and an increase in quarterly distributions to BAC Holders
of approximately 6%.
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 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 transaction involving the Carpenter bonds, OTEF II
acquired approximately $9 million of senior trust interests,
which may be sold at any time 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 a low-
cost financing option 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> 19
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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 to weekly reset. 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 December 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 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 December 31, 1999 was
approximately $52.6 million, compared to $47.6 million as of
December 31, 1998. OTEF II's financing debt represents
approximately 16.4% of OTEF II's total assets (or 30.4% 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
Bond Marketing Association (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, 4.33% for the
twelve months of 1998 and 4.18% for the twelve months of 1999.
The credit enhancement associated with substantially all of the
financing debt was extended to February 15, 2001. 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 $24 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
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
original 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 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. The total amount of such sinking fund redemption in 2000 is
expected to be approximately $1.4 million. See "Recent
Developments-Amortization of Series A Bonds."
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-
<PAGE> 20
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Report of Management
- ----------------------------------------------------------------------------
year U.S. Treasury Bill rate, with a maximum rate of 5.6% per
annum. The interest rate on seven of the Series A Bonds retained
by OTEF II was reset on November 1, 1999 to 4.88%; the interest
rate on three Series A Bonds retained by OTEF II was reset on
December 1, 1999 to 5.12%. On January 1, 2000, the interest rate
on one Series A Bond retained by OTEF II was reset to 5.37%, and
the interest rate on another Series A Bond was reset on March 1,
2000 to 5.54%. The interest rate on the Series A Bonds involved
in the financing transactions described above was converted from
annual reset to a weekly floating rate based on a spread over the
BMA index. This rate averaged 4.63% from the date of closing
through December 31, 1997, 4.33% for the twelve months of 1998
and 4.18% for the twelve months of 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 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 December
31, 1999, the aggregate amount of net excess cash flow held in
the Operating Partnership escrows was approximately $3.8 million,
including deposits from December's cash flow compared to $2.2
million at the end of 1998.
Remarketed Bonds. As required under the trust indentures
for the Existing MRBs, on November 1, 1999, the Existing MRBs for
the Apollo and San Bruno Operating Partnerships were remarketed,
which means that OTEF II exchanged the Existing MRBs for new
bonds that bear a fixed rate of interest to maturity at a market
rate determined by a remarketing agent. The remarketing agent
determined the fixed rate of interest on the San Bruno bonds to
be 9% per annum. The trust indenture for the Apollo bonds
specified that the fixed rate of interest on the remarketed bonds
was the lower of the rate established by the remarketing agent or
150 basis points in excess of the Bond Buyer 20-bond index. The
new rate was determined to be 7.49% on the remarketing date. The
original maturity date of November 2009 was not changed.
In addition, in connection with the remarketing, the San
Bruno and Apollo Operating Partnerships delivered to OTEF II
interest-bearing, demand promissory notes dated November 1, 1999,
in the original principal amount of $8.8 million and $5.2
million, respectively. The principal amount of the San Bruno
note reflects contingent interest in the amount of $8.6 million
due and payable on the remarketing date together with accrued but
unpaid base interest. The principal amount of the Apollo note
reflects accrued but unpaid interest only since no contingent
interest was due and payable on the remarketing date. The demand
notes bear floating rate interest at the short-term federal rate.
For tax purposes the principal amount of the San Bruno demand
note was reported as tax exempt interest income. For financial
statement purposes, the estimated amounts to be collected on the
San Bruno note are being accrued to income, under the effective
interest method, over the expected remaining life of the San
Bruno bond. Due to uncertainty of collection, the Apollo demand
note has not been recognized for either tax or financial
statement purposes. As of December 31, 1999, the unpaid
principal and accrued interest on the San Bruno and Apollo demand
notes was approximately $8.5 million and $5.2 million,
respectively.
<PAGE> 21
- ----------------------------------------------------------------------------
Report of Management
- ----------------------------------------------------------------------------
OTEF II is continuing to explore with the Apollo Operating
Partnership a possible bond restructuring or refinancing
transaction. The Managing General Partner currently believes
that the amount of the Apollo bond and cumulative unpaid base
interest exceeds the value of the property owned by the Apollo
Operating Partnership. The San Bruno Operating Partnership is
currently considering a refinancing of its mortgage indebtedness
in addition to a possible bond restructuring or other capital
transaction. The Managing General Partner currently believes
that the value of the property owned by the San Bruno Operating
Partnership exceeds the combined outstanding principal balance of
the $26 million San Bruno bond and the new $8.8 million demand
note, and that OTEF II will realize in full the value of the San
Bruno bond and demand note through a future sale, securitization,
refinancing or other capital transaction involving the bond
and/or the note, or a repayment of the bond and note by the San
Bruno Operating Partnership in accordance with the terms of such
instruments.
Status Quo BACs
On February 8, 1999, OTEF II distributed to existing SQB
Holders an offering circular describing a voluntary offer to
exchange BACs for SQBs on a 25-for-1 basis. The offer expired on
July 31, 1999. As of December 31, 1999, 6,209 SQBs, or
approximately 89% of the 6,946 SQBs outstanding at December 31,
1998, had been converted to 155,225 BACs, leaving 737 SQBs
outstanding, which represent approximately 0.25% of all shares
outstanding at December 31, 1999. During January, 2000, an
additional 25 SQBs were converted to 625 BACs, leaving 712 SQBs
outstanding as of the date of this report.
As previously reported, since substantially all of the SQBs
have been exchanged for BACs, the remaining SQBs have been
allocated increased shares of administrative costs, which are
relatively fixed costs and not dependent on the number of SQBs
outstanding. For the quarter ended December 31, 1999, these
costs exceeded income allocable to SQBs resulting in a net loss
of $7.84 per SQB. Accordingly, the February 15, 2000
distribution was paid exclusively from existing cash reserves
allocable to remaining SQB holders.
Based on OTEF II's existing cash reserves allocable to the
remaining SQBs and the Managing General Partner's estimates of
allocable interest payments received by OTEF II from recurring
cash flow and expenses allocable to SQB holders, these cash
reserves have been substantially depleted. Therefore, in the
absence of a sale of any remaining SQB assets, or a redemption by
one or more borrowers of the bonds in which SQB holders have an
ownership interest, or some other transaction of a capital
nature, it is anticipated that SQB holders will continue to
realize net losses and the SQBs will no longer receive quarterly
distributions payable from recurring operations. Continued
losses will cause a reduction in the SQB capital accounts, which
will reduce the amount of net proceeds from any future capital
transaction otherwise payable to SQB holders.
The Information Memorandum furnished on December 2, 1996 to
OTEF holders states that, subject to receipt of a fairness
opinion from OTEF II's independent real estate consultant, non-
tendered unexchanged SQBs will be purchased or redeemed by OTEF
II at such time as the Managing General Partner believes that it
would be in the best interests of OTEF II and the holders of the
non-tendered SQBs, but in no event later than December 31, 2006,
which date may be extended under certain circumstances. The
purchase or redemption price will be the fair market value of the
Status Quo Assets at the time of purchase or redemption, less the
costs of sale. The Status Quo Assets include a small portion of
the Series A Bonds, Series B Bonds and Remarketed Bonds allocable
to SQB Holders, not the underlying real estate, and exclude all
of OTEF II's New Assets.
<PAGE> 22
- ----------------------------------------------------------------------------
Report of Management
- ----------------------------------------------------------------------------
Results of Operations
OTEF II's Operations.
1999 versus 1998. Distributions to Partners amounted to
approximately $15.7 million, or $2.09 per BAC and $37.14 per SQB.
For financial statement purposes, Net Income and Net Income per
BAC were approximately $20.0 million and $2.67, respectively, for
the year ended December 31, 1999, as compared to approximately
$19.3 million and $2.58, respectively, for the year ended
December 31, 1998. Net income per BAC for the years ended
December 31, 1999 and December 31, 1998, assuming dilution for
stock options granted in 1997, was $2.67 and $2.56,
respectively.
OTEF II's revenues for 1999 reflect an increase of
approximately $1.5 million, or 6.3%, compared to 1998 due
primarily to new acquisitions, but also from the increased
interest payments on the Original Refunding Bonds and the
Remarketed Bonds. For comparative purposes, the 1999 revenues
would have increased 10.1% over 1998, excluding the one time 1998
revenues of $0.795 million.
For 1999, OTEF II's expenses increased by approximately
$0.8 million, or 20%, compared to 1998. This increase in
expenses reflects nearly a $0.3 million increase in finance
interest expense and approximately $0.2 million increase in
advisory fees, compared to 1998.
1998 versus 1997. Distributions to Partners amounted to
approximately $15.2 million, or $2.025 per BAC and $49.52 per
SQB. For financial statement purposes, Net Income and Net Income
per BAC were approximately $19.3 million and $2.58, respectively,
for the year ended December 31, 1998, as compared to
approximately $16.6 million and $2.19, respectively, for the year
ended December 31, 1997. Net income per BAC for the year ended
December 31, 1998, assuming dilution for stock options granted in
1997, was $2.56 and $2.18 for 1997.
OTEF II's revenues for 1998 reflect an increase of
approximately $4 million, or 21%, compared to 1997 due primarily
to the Dallas, Carpenter, Jacaranda and Summerwalk transactions,
but also from the increased interest payments on the Original
Refunding Bonds and the Existing MRBs. In 1998, OTEF II also
received an additional $0.51 million from the San Bruno Operating
Partnership representing payment of deferred interest and an
expense reimbursement in the amount of $0.285 million
representing bond refunding costs previously advanced by OTEF II
to certain operating partnerships.
For 1998, OTEF II's expenses increased by approximately
$1.4 million, or 55%, compared to 1997. This increase in
expenses reflects nearly a $1.2 million increase in finance
interest expense and approximately $0.2 million increase in
advisory fees, compared to 1997.
1997 versus 1996. Distributions to Partners amounted to
approximately $14.7 million, or $1.942 per BAC and $36.50 per
SQB. For financial statement purposes, Net Income and Net Income
per BAC were approximately $16.6 million and $2.19, respectively,
for the year ended December 31, 1997, as compared to
approximately $14.9 million and $1.95, respectively, for the year
ended December 31, 1996. Net income per BAC for the year ended
December 31, 1997, assuming dilution for stock options granted in
1997, was $2.18.
OTEF II's revenues for 1997 reflect a decrease of
approximately $0.6 million, or 3%, from 1996. Due to the
refunding of ten Existing MRBs in 1996, OTEF II changed its
accounting method for these assets from cash to accrual. As a
result, OTEF II's revenues for 1996 reflect interest income for
13 months with respect to the Original Refunding Bonds, and for
1997 OTEF II's revenues reflect only 12 months of interest income
with respect to the Original Refunding Bonds.
For 1997, OTEF II's expenses decreased by approximately
$2.4 million, or 49%, compared to 1996. This decrease in
expenses reflects nearly a $2.9 million decrease in litigation
costs over the prior year. In addition, commencing in 1997, OTEF
II was required to report interest expense attributable to the
financing transaction that was completed on August 22, 1997.
<PAGE> 23
- ----------------------------------------------------------------------------
Report of Management
- ----------------------------------------------------------------------------
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> 24
- ----------------------------------------------------------------------------
Report of Independent Accountants
- ----------------------------------------------------------------------------
To the Partners and BAC Holders of Oxford Tax Exempt Fund II
Limited Partnership:
In our opinion, the accompanying balance sheets and related
statements of income and comprehensive income, partners' capital
and cash flows present fairly, in all material respects, the
financial position of Oxford Tax Exempt Fund II Limited
Partnership as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These
financial statements are the responsibility of the Partnership's
Managing General Partner; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion expressed
above.
PricewaterhouseCoopers LLP
/S/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Washington, D.C.
January 28, 2000
<PAGE> 25
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Balance Sheets (in thousands, except per BAC and SQB amounts)
- ------------------------------------------------------------------------------
December 31, 1999 1998
- ------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Assets
Investments:
Tax-exempt securities $208,216 $213,900
Tax-exempt securities held in trust 76,765 62,565
Taxable securities 27,190 11,840
- ------------------------------------------------------------------------------
Total Investments 312,171 288,305
- ------------------------------------------------------------------------------
Cash and cash equivalents 5,500 18,011
Other assets 4,027 2,770
- ------------------------------------------------------------------------------
Total Assets $321,698 $309,086
==============================================================================
Liabilities and Partners' Capital
Liabilities
Financing debt $ 52,614 $ 47,614
Distributions payable 4,049 3,826
Accounts payable and accrued expenses 571 573
- ------------------------------------------------------------------------------
Total Liabilities 57,234 52,013
- ------------------------------------------------------------------------------
Partners' Capital
General Partners' Interests (2,189) (2,275)
Limited Partners' Interests:
Beneficial Assignee Interests
(7,499,875 interests issued and
7,338,425 and 7,183,200 interests
outstanding as of December 31,
1999 and 1998, respectively) 168,308 160,632
SQB Interests (12,587 interests
issued and 737 and 6,946
interests outstanding as of
December 31, 1999 and 1998,
respectively) 379 3,849
Accumulated other comprehensive income 97,966 94,867
- ------------------------------------------------------------------------------
Total Partners' Capital 264,464 257,073
- ------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $321,698 $309,086
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 26
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Statements of Income and Comprehensive Income (in thousands, except per BAC
amounts)
- ------------------------------------------------------------------------------
OTEF II
For the years ended December 31,
-----------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Earned:
Interest on tax-exempt securities $ 18,985 $ 18,967 $ 17,734
Interest on tax-exempt securities
held in trust 3,204 2,459 667
Interest on taxable securities 1,967 837 0
Other, primarily tax-exempt income 451 888 729
- ------------------------------------------------------------------------------
Total Interest Earned 24,607 23,151 19,130
- ------------------------------------------------------------------------------
Finance interest expense (2,121) (1,809) (462)
- ------------------------------------------------------------------------------
Net Interest Margin 22,486 21,342 18,668
- ------------------------------------------------------------------------------
Expenses
Third party expenses 1,236 1,095 1,436
Related party expenses 1,276 964 590
- ------------------------------------------------------------------------------
Total Expenses 2,512 2,059 2,026
- ------------------------------------------------------------------------------
Net income $ 19,974 $ 19,283 $ 16,642
==============================================================================
Other comprehensive income:
Unrealized gains on investments $ 3,099 $ 16,286 $ 16,084
==============================================================================
Comprehensive income $ 23,073 $ 35,569 $ 32,726
==============================================================================
Net income allocated to BAC holders $ 19,571 $ 18,509 $ 15,893
==============================================================================
Net income per BAC $ 2.670 $ 2.576 $ 2.188
==============================================================================
Net Income per BAC - assuming dilution $ 2.665 $ 2.556 $ 2.182
==============================================================================
Distribution per BAC $ 2.090 $ 2.025 $ 1.942
==============================================================================
Weighted average BACs outstanding 7,331 7,185 7,264
==============================================================================
Weighted average BAC - assuming dilution 7,344 7,241 7,284
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 27
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- ------------------------------------------------------------------------------
Statement of Partners' Capital (in thousands, except per BAC and SQB amounts)
- ------------------------------------------------------------------------------
<CAPTION>
Limited Partner Accumulated
For the Years Ended Interests Other
December 31, 1999, 1998 General ----------------- Comprehensive
and 1997 Partners BACs SQBs Income Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $(2,393) $161,665 $ 0 $ 62,497 $221,769
==============================================================================
Comprehensive income:
Net Income, including
$2.188 per BAC and
$43.62 per SQB 333 15,893 416 0 16,642
Unrealized gains on
investments 0 0 0 16,084 16,084
------------------------------------------------
Total comprehensive
income 333 15,893 416 16,084 32,726
Allocation of SQB Capital 0 (6,809) 6,809 0 0
SQB Redemptions 0 26 (2,992) 0 (2,966)
Distributions to Partners,
including $1.942 per BAC
and $36.66 per SQB (296) (14,103) (348) 0 (14,747)
- ------------------------------------------------------------------------------
Balance, December 31, 1997 (2,356) 156,672 3,885 78,581 236,782
==============================================================================
Comprehensive income:
Net Income, including
$2.576 per BAC and
$55.76 per SQB 385 18,509 389 0 19,283
Unrealized gains on
investments 0 0 0 16,286 16,286
--------------------------------------------------
Total comprehensive
income 385 18,509 389 16,286 35,569
SQB Redemptions 0 0 (80) 0 (80)
Distributions to Partners
including $2.025 per BAC
and $49.52 per SQB (304) (14,549) (345) 0 (15,198)
- ------------------------------------------------------------------------------
Balance, December 31, 1998 $(2,275) $160,632 $3,849 $94,867 $257,073
==============================================================================
Comprehensive income:
Net Income, including
$2.670 per BAC and
$3.58 per SQB 399 19,571 4 0 19,974
Unrealized gains on
investments 0 0 0 3,099 3,099
- ------------------------------------------------------------------------------
Total comprehensive 399 19,571 4 3,099 23,073
income
Allocation of SQB Capital 0 3,432 (3,432) 0 0
Distributions to Partners
including $2.09 per BAC
and $37.14 per SQB (313) (15,327) (42) 0 (15,682)
- ------------------------------------------------------------------------------
Balance, December 31, 1999 $(2,189) $168,308 $ 379 $97,966 $264,464
==============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 28
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
- -----------------------------------------------------------------------------------
Statements of Cash Flows (in thousands)
- -----------------------------------------------------------------------------------
<CAPTION>
OTEF II
For the years ended December 31,
---------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $19,974 $19,283 $16,642
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in assets and liabilities:
Other assets, primarily interest
receivable (180) (140) (307)
Accounts payable and accrued expenses (2) (877) (333)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 19,792 18,266 16,002
- ------------------------------------------------------------------------------
Investing activities:
Investment in new assets (20,767) (16,040) (24,366)
Redemption of SQBs 0 (80) (2,966)
Litigation settlement payments 0 (1,538) (962)
Other assets (1,077) 360 (589)
- ------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (21,844) (17,298) (28,883)
- ------------------------------------------------------------------------------
Financing activities:
Net proceeds from debt refinancing 5,000 20,440 27,174
Distributions paid (15,459) (15,091) (14,671)
- ------------------------------------------------------------------------------
Net cash (used) provided in financing
activities (10,459) 5,349 12,503
- ------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (12,511) 6,317 (378)
Cash and cash equivalents,
beginning of period 18,011 11,694 12,072
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of period $5,500 $18,011 $11,694
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 29
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in
the opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("Oxford Tax Exempt Fund II,
"OTEF II," or the "Partnership"), are necessary to present fairly
OTEF II's financial position as of December 31, 1999 and 1998,
the Statements of Income and Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997, the Statement of
Partners' Capital as of December 31, 1999, 1998, and 1997, and
the Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Note 2. Business
The Partnership, which was formed under the laws of the
State of Maryland, commenced operations on March 1, 1995, in
connection with a plan (the "1995 OTEF Restructuring Plan") to
restructure Oxford Tax Exempt Fund Limited Partnership, a
Maryland limited partnership ("OTEF," "Predecessor," or
"OTEF II's predecessor"). Oxford Tax Exempt Fund II Corporation,
a Maryland corporation, is the Managing General Partner of
OTEF II (the "Managing General Partner"). OTEF II Associates
Limited Partnership, a Maryland limited partnership, is the
associate general partner of OTEF II (together with the Managing
General Partner, the "General Partners").
General Business. 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.
Investment Transactions. During 1999, OTEF II closed
several investments transactions totaling approximately $60.3
million. On November 24, 1999 OTEF II closed a development
venture transaction for The Peaks at Conyers Apartments, a 260-
unit apartment community being developed in Conyers, Georgia, an
Atlanta suburb. The property owner is a non-profit affiliate of
Resource Healthcare of America, Inc. Property management
services will be provided by Lane Company.
Construction and permanent financing for the property was
provided through the issuance of Series A, Series B and Series C
Bonds. The Series A and Series B Bonds in the aggregate amount of
$12.75 million were credit enhanced and sold to third party
investors. These bonds bear interest at fixed rates and are
subject to a 10-year remarketing. At closing, OTEF II acquired
at par all of the Series C Bonds in the original principal amount
of $5.42 million. Interest on the Series C Bonds is exempt from
federal income tax. The Series C Bonds require payments of base
interest at an annual rate of 9-7/8% during the construction
period and at 9-3/8% thereafter. Additional interest accrues at
an annual rate of 2.625% during the construction period and at
3.125% thereafter, and is payable from 70% of cash flow remaining
after payment of base interest and in full upon a tender or
redemption of the Series C Bonds. The Series C Bonds are secured
by, among other things, a second mortgage on the property, and
are subject to optional call by OTEF II in 10 years. The Series
C Bonds are structured to provide OTEF II with certain enhanced
rights, including construction and lease-up guaranties and
reserves, payment and performance bonds, a $1 million
construction letter of credit, various approval rights with
respect to the operation, refinancing and sale of the property,
and an option to purchase the property.
On June 11, 1999, an affiliate of OTEF II acquired River
Reach Apartments, a 556-unit garden apartment community in
Naples, Florida for a purchase price of approximately $34.6
million. The property is financed with $24 million of floating
rate tax-exempt bonds, which are secured by a first mortgage on
the property. The credit enhancement on the tax-exempt bonds
expires on June 9, 2000. While the bonds are currently held by
third parties, OTEF II expects to purchase and restructure them
in the future. In connection with the River Reach investment transaction,
OTEF II executed a standby reimbursement agreement with a Merrill Lynch
affiliate which effectively guarantees the approximately $24 million
obligations of the Naples Borrower to Banco Santander Central Hispano, S.A.
This reimbursement agreement expires on June 9, 2000. Based upon its
preliminary discussions, the Managing General Partner believes that OTEF II
will be able to extend this agreement and the credit enhancement of the
tax-exempt bonds, although no assurances can be given. At closing, OTEF II
provided a taxable loan to the affiliated borrower in the maximum
amount of approximately $13 million, with an initial advance of
approximately $12.1 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 annual
interest at 12% and is secured by a second mortgage on the
property. OTEF II also provided a second taxable loan in the
amount of $1.3 million, the proceeds of which were used by the
affiliated borrower to reimburse the property seller for
capitalizable expenditures.
<PAGE> 30
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
On April 9, 1999, affiliates of OTEF II completed the
acquisition of all of the partnership interests of Carrollwood
Lakeside North Partners, Ltd., 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 provided a
taxable loan which bears annual interest at 15.48%to the
affiliated borrower in the maximum amount of $2 million, with an
initial advance of approximately $1.6 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 is secured by a second mortgage on
the property.
On November 1, 1999, the Existing MRBs held by OTEF II and
secured by the properties owned by the Apollo and San Bruno
operating partnerships were remarketed. See Note 7 "Remarketed
Bonds" below.
Original Refunding Bonds. OTEF II has acquired refunding
bonds ("Original Refunding Bonds") for 12 of the fifteen
original mortgage revenue bonds, which comprise approximately 88%
of the face amount of OTEF II's original bond portfolio. The
Original Refunding Bonds 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. OTEF II retained the related Series B
Bonds for the benefit of BAC Holders, and retained both the
Series A Bonds and Series B Bonds that are designated as Status
Quo Assets and held for the benefit of SQB Holders. See Note 7
to these Financial Statements.
Financing Transactions. OTEF II seeks to enhance its
overall return on investment and to generate proceeds which
facilitate the acquisition of New Assets. 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 New Assets: (i) from the proceeds of
sales or other dispositions of Original Refunding Bonds (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
limited partnership interests in OTEF II and additional BACs;
(iv) from the issuance of additional equity securities in
exchange for New Assets; or (v) funds borrowed from lenders or by
issuing evidences of indebtedness.
OTEF II has securitized a total of approximately $76.8
million of its bond portfolio by assigning these bonds to a
Merrill Lynch affiliate, which in turn, deposited them into
trusts. See "Financing Transactions" in Note 3 below. 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 in the aggregate amount of
approximately $15 million, and received the proceeds from the
sale of the senior securities, less certain transaction costs.
In addition, in a transaction involving the Carpenter bonds, OTEF
II acquired approximately $9 million of senior trust interests,
which may be sold at any time 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 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.
On February 19, 1999, OTEF II closed the second in a series
of transactions with Merrill Lynch, securitizing approximately
$12.8 million of Series A Bonds held in OTEF II's portfolio.
OTEF II also purchased a subordinated interest in this
securitization transaction for $3.2 million. OTEF II's net
proceeds were approximately $9.6 million from this transaction,
after transaction costs and the purchase of the subordinated
interest. A portion of these proceeds were used by OTEF II in
connection with the Jacaranda Transaction. On May 21, 1999, OTEF
II closed the third in a series of transactions with Merrill
Lynch, securitizing approximately $11 million of Series A Bonds
held in OTEF II's portfolio. OTEF II also purchased a
subordinated interest in this securitization transaction for $0.1
million. OTEF II's net proceeds were approximately $10.8 million
from this transaction, after transaction costs and the purchase
of the subordinated interest. A portion of these proceeds were
used by OTEF II in connection with the Summerwalk Transaction.
The remaining proceeds will be used for additional transactions.
<PAGE> 31
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
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, 4.33% for the twelve months of 1998 and 4.18%
for the twelve months of 1999. 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
$24 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. Substantially all of the credit
enhancement associated with this financing debt has been extended
to February 15, 2001.
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 December
31, 1999 no payments were required to be made by the counter-
party pursuant to these interest cap agreements.
In addition, credit enhancement associated with the bonds
secured by the property owned by the Summerwalk borrower
terminates on December 15, 2000.
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles. Effective June 15, 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and
Hedging Activities". Management believes that this SFAS will not
have a material impact on OTEF II's financial position or results
of operations.
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 and OTEF II, 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 II's only
source of "Other Comprehensive Income" is related to the
valuation of its investments to market, which results in
unrealized gains or losses previously charged to an equity
account under SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities".
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 December 31, 1999 that the fair
value of the Original Refunding Bonds and the Remarketed Bonds
was approximately $251 million and, accordingly, unrealized
appreciation on these investments of $98 million is recorded as a
credit to partners' capital. The Series A Bonds, the Remarketed
Bonds and the Other Refunding Bonds are valued based on
comparable municipal bond securities, and the Series B Bonds and
the taxable loans are valued based on a discounted cash flow
analysis. For this purpose the applicable cash flows are based
on certain assumptions concerning the Properties and the markets
in which they are located, including the timing and realization
of such cash flows.
<PAGE> 32
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
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.
Accounting for earnings per share. Basic earnings per
share, a measure required by Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," 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 $24.38 and $26.14 for the years ended
1999 and 1998, respectively. The incremental shares (the
difference between the number of shares assumed issued and the
number of shares assumed purchased) are included in the
denominator of the diluted earnings per share computation.
Dilutive "incremental" BAC shares were 7.34 million in 1999 and
7.24 million in 1998. For the impact of OTEF II's option plan,
see Note 3. "Net Income and Distributions per Beneficial Assignee
Interest (BAC) and SQB". All amounts have been restated to
reflect the 25-for-1 stock split effective July 1, 1997.
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 year. For the first quarter of
1997, there were 7,499,875 BACs outstanding. On April 1, 1997,
314,675 BACs were converted to 12,587 SQBs, leaving 7,185,200
BACs outstanding at December 31, 1997. In December 1998, OTEF II
purchased 2,000 BACs on the open market in accordance with the
previously announced BAC repurchase program, leaving 7,183,200
BACs outstanding at December 31, 1998. During 1998, OTEF II
redeemed an additional 122 SQBs at the price of $540 per SQB and
25 SQBs at the price of $550 per SQB. During 1999 6,209 SQBs were
exchanged for 155,225 BACs under the exchange program. As of
December 31, 1999, there were 737 SQBs outstanding. See
"Accounting for SQBs" below.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity.
The statements do not reflect investing and financing activity
that affect recognized assets or liabilities and do not result in
cash receipts or cash payments. This non-cash activity consists
of distributions payable to Partners, SQB holders and OTEF II BAC
Holders of $4 million, $3.8 million, and $3.7 million at December
31, 1999, 1998, and 1997, respectively. Non-cash investing
activity includes a change in unrealized gain on investments of
approximately $3.1 million, $16.3 million and $16.1 million for
years ended December 31, 1999, 1998 and 1997, 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.
Financing Transactions. For financial statement purposes,
the securitization transactions described in Note 2 are accounted
for as financing transactions. The amount of the bonds financed
of approximately $76.8 million is reflected as Securities Held in
Trust, the net cash proceeds are classified as cash and cash
equivalents and the difference between the principal amount of
the bonds financed and the principal amount of the subordinated
interests acquired by OTEF II is classified as financing debt on
the accompanying balance sheet.
<PAGE>33
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
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. These deferred costs are included in other
assets on the balance sheet. 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.
Accounting for SQBs. The SQBs are designed to replicate,
to the extent possible, the economic interest that SQB Holders
would have had in the Original Refunding Bonds and the Remarketed
Bonds 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.
Following receipt of an Information Memorandum furnished on
December 2, 1996 to BAC Holders, approximately 4.2% of the BAC
holders made a timely election to convert their BACs to SQBs.
Effective April 1, 1997, OTEF II issued the SQBs, representing
12,587 shares, in uncertificated, book-entry form. Effective
August 1, 1997, OTEF II redeemed 5,484 SQBs for approximately
$3.0 million. During 1998 OTEF II redeemed an additional 122
SQBs at the price of $540 per SQB and 25 SQBs at the price of
$550 per SQB. During 1999, 6,209 SQBs were exchanged for 155,225
BACs. As of December 31, 1999, there were 737 SQBs outstanding
representing approximately 0.25% of all outstanding shares.
The Information Memorandum states that, subject to receipt
of a fairness opinion from OTEF II's independent real estate
consultant, non-tendered unexchanged SQBs will be purchased or
redeemed by OTEF II at such time as the Managing General Partner
believes that it would be in the best interests of OTEF II and
the holders of the non-tendered SQBs, but in no event later than
December 31, 2006, which date may be extended under certain
circumstances. The purchase or redemption price will be the fair
market value of the Status Quo Assets at the time of purchase or
redemption, less the costs of sale. The Status Quo Assets
include a small portion of the Series A Bonds, Series B Bonds
and Remarketed Bonds allocable to SQB Holders, not the underlying
real estate, and exclude all of OTEF II's New Assets.
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 distribution per SQB are
reflected separately from the OTEF II BAC Holders on the
Statement of Partners' Capital. The SQBs were not split as were
the OTEF II BACs on July 1, 1997. The redeemed SQBs are
reflected as a reduction of Partners' Capital and were offset
against the SQB Holders' interests when redeemed.
The SQB Holders do not share in the growth or other
benefits expected to be achieved under the Liquidity and Growth
Plan. In addition, the SQBs are not allocated any capital losses
for federal income tax purposes that may result from the
disposition of the Refunding Bonds or interests therein or new
assets in connection with a financing undertaken pursuant to the
Liquidity and Growth Plan. A schedule of 1999 SQB income is as
follows:
<PAGE> 34
- ----------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------------
STATEMENT OF STATUS QUO BAC INCOME BY QUARTER
(in thousands, except per interest) (Unaudited)
- ----------------------------------------------------------------------------
<CAPTION>
For the Three Months Ended in 1999
---------------------------------------------
March 31 June 30 September 30 December 31
---------------------------------------------
<S> <C> <C> <C> <C>
Interest Earned:
Interest on tax-exempt
securities $ 29 $ 15 $ 12 $ 13
Other tax-exempt income 1 0 0 0
- ----------------------------------------------------------------------------
Total Revenues 30 15 12 13
- ----------------------------------------------------------------------------
Expenses:
Governance and Administration (17) (15) (15) (19)
- ----------------------------------------------------------------------------
Total Expenses (17) (15) (15) (19)
- ----------------------------------------------------------------------------
Net income alloaction to
SQB holders $ 13 $ 0 $ (3) $ (6)
- ----------------------------------------------------------------------------
Other comprehensive income:
Unrealized gains on
investments $ 12 $ 1 $ 1 $ 1
- ----------------------------------------------------------------------------
Comprehensive income $ 25 $ 1 $ (2) $ (5)
- ----------------------------------------------------------------------------
Net income (loss) per SQB
interest $ 7.57 $(0.34) $(4.56) $(7.84)
- ----------------------------------------------------------------------------
Distribution per SQB interest $12.38 $12.38 $ 6.19 $ 6.19
- ----------------------------------------------------------------------------
Weighted average SQB shares
outstanding 1,756 846 777 737
- ----------------------------------------------------------------------------
</TABLE>
Note 4. Related Party Transactions
The Oxford Affiliates. The General Partner and each of the
affiliates discussed below are collectively referred to as the
Oxford Affiliates in the accompanying financial statements. 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 $0.3 million for December
31, 1999, 1998 and 1997.
Interests in the Operating Partnerships. 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 each Existing MRB
is 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 1998, 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. During the year ended December 31,
1999 total charges incurred by OTEF II from Oxford Realty
Financial Group, Inc. ("ORFG") and other Oxford affiliates for
new acquisitions amounted to approximately $1 million and $0.6
million for 1999 and 1998, respectively, with no such
compensation accruing in 1997, 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. These ORFG services (the "Existing Fees")
are operating expenses of the Operating Partnerships that are
payable prior to the payment of interest on the Remarketed Bonds.
<PAGE> 35
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
ORFG generally receives a 1% acquisition fee from OTEF II
for services rendered in connection with investment transactions.
Total acquisition fees paid by OTEF II to ORFG in 1999 and 1998
were approximately $0.6 million and $0.35 million, respectively.
The Carpenter and Dallas borrowers also paid acquisition fees of
approximately $0.26 million to ORFG in 1998 upon closing of the
bond refunding transactions.
OTEF II also generally pays ORFG a 0.5% advisory fee for
managing OTEF II's new investments after their acquisition. The
advisory fees associated with the acquisition of the Dallas,
Carpenter, Jacaranda and Summerwalk investments commenced in
1998. The advisory fees associated with the acquisition of the
Lakeside, River Reach and Conyers investments commenced in 1999.
Total advisory fees incurred by OTEF II from ORFG in 1999 and
1998 were approximately $0.4 and $0.25 million, respectively.
For the year ended December 31, 1999, the Operating
Partnerships, including the Carpenter Borrower and the Dallas
Borrower, paid ORFG total asset management fees of approximately
$0.8 million. For the years ended December 31, 1998 and 1997,
the original Operating Partnerships paid ORFG total asset
management fees of approximately $0.8 million and $0.6 million,
respectively. The original Operating Partnerships also paid
ORFG, in the aggregate, approximately $0.7 million of fees
pursuant to the OTEF Restructuring Plan Administration/Asset
Management Fee Agreement, which amount is equal to 0.25% per
annum of the principal amount of the bonds collateralized by the
properties owned by the 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 years ended December 31, 1999, 1998 and 1997 were
approximately $0.8 million, $0.7 million, and $0.6 million,
respectively, representing primarily staff rebillable time. 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.
OTEF II's Incentive Option Plans. In October 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 123
"Accounting for Stock-based Compensation" (SFAS No. 123). This
Statement defines a fair value based method of accounting for
stock-based employee compensation. However, SFAS No. 123 allows
an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25). OTEF II has historically used the intrinsic
value based method of accounting prescribed by APB25 and related
interpretations, and has adopted the disclosure-only provisions
of SFAS No. 123. Under APB 25, compensation expense for stock
options is measured on the first date at which both the number of
shares and the amount to be paid for the shares (the exercise
price) are known. Although OTEF II adopted APB 25 accounting for
its 1997 Incentive Option Plan, it has not yet adopted either APB
25 or SFAS No. 123 accounting for its 1999 Incentive Option Plan
pending the granting of such options.
On May 21, 1997, OTEF II adopted an incentive option plan
(the "1997 Incentive Option Plan") in order for the Managing
General Partner to attract and retain key employees of ORFG and
advisers. The 1997 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 then 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 1997 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. Since
the exercise price of the options approximated the BAC market
price at the date of grant, no compensation expense was
recognized at that time in accordance with APB 25. At December
31, 1999, the market price of $22.625 was less than the exercise
price. Since the date of grant, no options have been exercised
or forfeited. If OTEF II had adopted SFAS No. 123, it would have
recognized a $2.09 per option compensation expense charge to net
income of approximately $1.3 million in 1997. This amount was
estimated using the Black-Scholes option-pricing model and
assumes a dividend yield of 7.9%, expected volatility of 18.6%,
risk free interest rate of 6.2% and an expected option life of
7 years.
<PAGE> 36
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
The following table summarizes the Net BAC earnings and earnings
per BAC using the SFAS No. 123, fair value method to record
compensation expense
(In thousands, except per share amounts)
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
1999 1998 1997
---------------------------
<S> <C> <C> <C>
Net BAC Earnings-As Reported $19,571 $18,509 $15,893
Net BAC Earnings-Proforma $19,544 $18,482 $14,585
- -----------------------------------------------------------------
BAC Earnings per share-As Reported:
Basic $2.670 $2.576 $2.188
Diluted $2.666 $2.556 $2.182
- -----------------------------------------------------------------
BAC Earnings per share-Proforma:
Basic $2.666 $2.572 $2.009
Diluted $2.661 $2.552 $2.004
- -----------------------------------------------------------------
</TABLE>
On December 15, 1999, OTEF II adopted a second incentive
option plan (the "1999 Incentive Option Plan"). The 1999
Incentive Option Plan was subject to certain contingencies which
were satisfied in the first quarter of 2000. The 1999 Incentive
Option Plan authorizes the granting to the directors, officers
and employees of the Managing General Partner and certain
affiliates of options to purchase 350,000 BACs. Additionally, the
1999 Incentive Option Plan authorizes the Board of Directors to
grant Dividend Equivalent Rights ("DERs") in tandem with the
options. The DERs provide for either quarterly option strike
price reductions to the option holders in the amount of the
quarterly dividend, or, with the approval of the Board of
Directors, quarterly dividend payments. When granted, the strike
price of the BAC options will be no less than the fair market
value of the BACs on the date of grant. If OTEF II adopts APB 25
with respect to this plan, since the option strike price will be
no less than the then current BAC market price, no compensation
expense is expected to be recognized at date of grant. If OTEF
II adopts SFAS No. 123 for the 1999 Incentive Option Plan, there
will be a charge to compensation expense of approximately $3.5
million at the date of the grant. This estimate was determined
using the Black-Scholes pricing-model as provided by SFAS No. 123
and assumes a dividend yield of 0%, expected volatility of 15.7%,
risk-free interest rate of 6.3% and an expected option life of 8
years. No options or DERs were granted under this plan through
the opinion date of the Report of Independent Accountants
accompanying these financial statements and at the time any
options or DERs are granted the actual charge to compensation
expense recorded may differ from Management's current estimate
given above.
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 securization, 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 approximately $24 million
obligations of the Naples Borrower to Banco Santander Central
Hispano, S.A. This reimbursement agreement expires on June 9,
2000. Based upon its preliminary discussions, the Managing
General Partner believes that OTEF II will be able to extend
this agreement and the credit enhancement on the tax-exempt
bonds, although no assurances can be given. OTEF II may execute
similar agreements in connection with new investments made after
the dateof this report.
Note 5. Capital, Profits, Losses, and Cash Distributions
The following discussion summarizes certain rights of the
BAC Holders and the SQB Holders following the SQB Issuance Date.
<PAGE> 37
- -----------------------------------------------------------------
Notes to Financial Statement
- -----------------------------------------------------------------
Rights to Allocations and Distributions
Capital Accounts. Following the Status Quo BAC Issuance
Date, the BAC Holders who retained their OTEF II BACs initially
had the same Capital Accounts as they had prior to the Status Quo
BAC Issuance Date. Their Capital Accounts and the Capital
Accounts of the other BAC Holders (the "Liquidity Capital
Accounts") are increased by Profits relating to the Liquidity
Assets and the New Assets ("Liquidity Profits"), but not by any
Profits relating to the Status Quo Assets ("Status Quo Profits"),
and are reduced by the amount of all distributions made to them
by OTEF II (which distributions are made only from cash flow
attributable to the Liquidity Assets and the New Assets, the
"Liquidity Cash Flow") and Losses relating only to the Liquidity
Assets and the New Assets ("Liquidity Losses"), but not by any
Losses relating to the Status Quo Assets ("Status Quo Losses").
SQB Holders also initially had the same Capital Accounts as
they had prior to the conversion of their OTEF II BACs into SQBs.
Their Capital Accounts (the "Status Quo Capital Accounts") are
increased by the Status Quo Profits, but not by any Liquidity
Profits, and are reduced by the amount of all distributions made
to them by OTEF II (which distributions will be made only from
cash flow attributable to the Status Quo Assets, the "Status Quo
Cash Flow") and all Status Quo Losses, but not by any Liquidity
Losses. OTEF II maintains two Capital Accounts (a Liquidity
Capital Account and a Status Quo Capital Account) for BAC Holders
who elected to convert only a portion of their OTEF II BACs into
SQBs.
Distributions of Cash Flow. Liquidity Cash Flow and Status
Quo Cash Flow are distributed as described below.
Liquidity Cash Flow. Liquidity Cash Flow in any year will
first be distributed 98% to the BAC Holders and 2% to the General
Partners until the BAC Holders as a class (other than the
holder(s) of the Affiliated OTEF II BACs) have received, during
such year, a noncumulative 11% preferred return on the BAC
Holders' Preference Amount (as defined below) and, thereafter,
during such year, 90% to the BAC Holders as a class and 10% to
the General Partners. The "BAC Holders' Preference Amount" means
an amount equal to the total capital contributions of the BAC
Holders to OTEF or OTEF II, reduced by any distributions of
residual proceeds previously made to them by OTEF, and further
reduced by all distributions of Liquidity Residual and
Liquidation Proceeds (defined below) made by OTEF II to the BAC
Holders.
Status Quo BAC Cash Flow. All Status Quo Cash Flow in any
year will first be distributed 98% to the SQB Holders as a class
and 2% to the General Partners until the SQB Holders as a class
(other than the holder(s) of the Affiliated SQBs, if any) have
received a noncumulative return in such year equal to 11% of the
SQB Holders' Preference Amount (defined below) and, thereafter,
during such year, 90% to the SQB Holders as a class and 10% to
the General Partners. The "SQB Holders' Preference Amount" means
an amount equal to the total capital contributions of the SQB
Holders to OTEF, reduced by any distributions of residual
proceeds previously made to them by OTEF, and further reduced by
all distributions of Status Quo Residual and Liquidation Proceeds
(defined below) made by OTEF II to the SQB Holders.
Distributions of Residual Proceeds and Liquidation
Proceeds. All Residual Proceeds, which in general, means the
cash OTEF II receives from the sale of a Mortgaged Property or
New Asset ("Sale") or the repayment of the principal and interest
payable upon maturity or remarketing of a Mortgage Revenue Bond
("Repayment") other than a Sale or Repayment that occurs in
connection with the liquidation of OTEF II, will be designated as
"Liquidity Residual Proceeds" to the extent such Residual
Proceeds relate to the Liquidity and New Assets and as "Status
Quo Residual Proceeds" to the extent that they relate to the
Status Quo Assets. The Liquidity Residual Proceeds, but not the
Status Quo Residual Proceeds, may be reinvested in New Assets at
the discretion of the Managing General Partner. The Liquidity
Residual Proceeds, to the extent they are not reinvested, and the
Status Quo Residual Proceeds will be applied and distributed
generally as described below.
Liquidity Residual and Liquidation Proceeds. The Liquidity
Residual Proceeds shall be applied to the payment of the expenses
allocable to the BACs or reinvested in New Assets at the
discretion of the Managing General Partner, and to the extent not
so applied or reinvested, shall be available for distribution, in
which case such amounts generally shall be applied and
distributed in the following amounts and order of priority:
<PAGE> 38
- -----------------------------------------------------------------
Notes to Financial Statement
- -----------------------------------------------------------------
(a) 100% to the payment of all debts and obligations of OTEF
II that are then due and owing related to the Liquidity and
New Assets (other than loans from the General Partners and
their affiliates) and to any additions to the Liquidity
Working Capital Reserve that the Managing General Partner
may determine to be necessary;
(b) 100% to the BAC Holders as a class (other than the
holder(s) of the Affiliated OTEF II BACs) until the BAC
Holders (other than the holder(s) of the Affiliated OTEF II
BACs) receive aggregate distributions from Liquidity
Residual Proceeds equal to the BAC Holders' Preference Amount;
(c) 100% to the holder(s) of the Affiliated OTEF II BACs in
an amount equal to $1,000 times the number of Affiliated
OTEF II BACs, less any prior distributions of Residual
Proceeds with respect to such Affiliated OTEF II BACs;
(d) 100% to the General Partners and their affiliates to
repay loans, if any, from them to OTEF II, with interest
thereon, except to the extent the proceeds of any such
loans were used to pay amounts relating to the Status Quo
Assets or OTEF II's ownership thereof;
(e) 100% to the General Partners until the General Partners
receive aggregate distributions from Liquidity Residual
Proceeds and Status Quo Residual Proceeds equal to the
General Partners' Preference Amount (generally, an amount
equal to the total capital contributions of the General
Partners to OTEF II reduced by all distributions of
Liquidity Residual and Liquidation Proceeds and Status Quo
Residual and Liquidation Proceeds); and
(f) the remainder, if any, 98% to the BAC Holders and 2% to
the General Partners, except that the 2% return to the
General Partners generally is deferred until the BAC
Holders receive an amount (when combined with all prior
distributions of Liquidity Cash Flow and Liquidity Residual
Proceeds) equal to an average annual noncompounded return
of 10% on the BAC Holders' Preference Amount.
Liquidity Liquidation Proceeds (which, in general, means
all cash receipts of OTEF II arising from the dissolution of
OTEF II and liquidation of the Liquidity and New Assets)
generally will be distributed in the same order of priority as
Liquidity Residual Proceeds, except the first application of
Liquidity Liquidation Proceeds will be to establish certain
reserves.
If Liquidity Residual Proceeds or Liquidity Liquidation
Proceeds are insufficient to make any payment set forth in a
particular paragraphs (b) through (f) above, then Liquidity
Residual Proceeds or Liquidity Liquidation Proceeds available to
make the payment will be distributed proportionately among the
parties entitled to the payment under such paragraph.
Status Quo Residual and Liquidation Proceeds. Status Quo
Residual Proceeds shall be applied to the payment of the expenses
allocable to the SQBs, and to the extent not so applied, shall be
available for distribution, in which case such amounts generally
shall be applied and distributed in the following amounts and
order of priority:
(a) 100% to the payment of all debts and obligations of
OTEF II that are then due and owing related to the Status
Quo Assets (other than loans from the General Partners and
their affiliates) and to any additions to the Status Quo
Working Capital Reserve that the Managing General Partner
may determine to be necessary;
(b) 100% to the SQB Holders as a class (other than the
holder(s) of the Affiliated SQBs, if any) until the SQB
Holders (other than the holder(s) of the Affiliated SQBs,
if any) receive aggregate distributions from Status Quo
Residual Proceeds equal to the SQB Holders' Preference
Amount;
<PAGE> 39
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
(c) 100% to the holder(s) of the Affiliated SQBs in an amount
equal to $1,000 times the number of Affiliated SQBs, less
any prior distributions of Residual Proceeds (and prior
distributions of residual proceeds by OTEF) with respect to
such Affiliated SQBs;
(d) 100% to the General Partners and their affiliates to
repay loans, if any, from them to OTEF II, the proceeds of
which were used to pay amounts relating to the Status Quo
Assets or OTEF II's ownership thereof;
(e) 100% to the General Partners until the General Partners
receive aggregate distributions from Liquidity Residual
Proceeds and Status Quo Residual Proceeds equal to the
General Partners' Preference Amount; and
(f) 98% to the SQB Holders as a class and 2% to the General
Partners until the SQB Holders as a class have received an
amount (when combined with all prior distributions of cash
flow and residual proceeds) equal to an average annual
noncompounded return of 11% on the SQB Holders' Preference
Amount, except that the amounts otherwise payable to the
General Partners hereunder shall be deferred until the SQB
Holders as a class have received an amount (when combined
with all prior distributions of cash flow and residual
proceeds) equal to an average annual noncompounded return
of 10% on the SQB Holders' Preference Amount.
Status Quo Liquidation Proceeds (which, in general, means
all cash receipts of OTEF II arising from the dissolution of
OTEF II and liquidation of the Status Quo Assets) generally will
be distributed in the same order of priority as Status Quo
Residual Proceeds, except the first application of Status Quo
Liquidation Proceeds will be to establish certain reserves.
If Status Quo Residual Proceeds or Status Quo Liquidation
Proceeds are insufficient to make any payment set forth in a
particular paragraphs (b) through (f) above, then Status Quo
Residual Proceeds or Status Quo Liquidation Proceeds available to
make the payment will be distributed proportionately among the
parties entitled to the payment under such paragraph.
Allocation of Profits and Losses. Liquidity Profits from
operations generally will be allocated between the BAC Holders
and the General Partners as follows: first, in accordance with
distributions of Liquidity Cash Flow, until the cumulative
Liquidity Profits so allocated are equal to the cumulative
Liquidity Cash Flow distributions, and thereafter 2% to the
General Partners and 98% to the BAC Holders. Liquidity Losses
from operations generally will be allocated 2% to the General
Partners and 98% to the BAC Holders. Liquidity Profits and
Liquidity Losses arising from a Sale or Repayment (including
Liquidity Profits which represent the receipt of interest income
on a Mortgage Revenue Bond) or liquidation of OTEF II generally
will be allocated in a manner so as to cause the Liquidity
Capital Account balances of the General Partners and BAC Holders
to equal the amounts that would be distributable to them.
Status Quo Profits from operations generally will be
allocated between the SQB Holders and the General Partners as
follows: first, in accordance with distributions of Status Quo
Cash Flow, until the cumulative Status Quo Profits so allocated
are equal to the cumulative Status Quo Cash Flow distributions,
and thereafter 2% to the General Partners and 98% to the SQB
Holders. Status Quo Losses from operations generally are
allocated 2% to the General Partners and 98% to the SQB Holders.
Status Quo Profits and Losses arising from a Sale or Repayment of
a Status Quo Asset (including Status Quo Profits which represent
the receipt of interest income on a Mortgage Revenue Bond) or
liquidation of OTEF II generally will be allocated in a manner so
as to cause the Status Quo Capital Account balances of the
General Partners and SQB Holders to equal the amounts that would
be distributable to them.
The above allocations of Liquidity and Status Quo Profits
and Losses will be subject to compliance with the principles of
the Internal Revenue Code of 1986 (the "Code") sections 704(b)
(containing rules concerning the determination of a partner's
distributive share and capital account maintenance) and 704(c)
(containing rules for reflecting disparities in the adjusted tax
basis and the fair market value of property contributed or
revalued by a partnership) and the regulations promulgated
thereunder.
<PAGE> 40
- ----------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------
Note 6. BAC Holder Rights Plan
OTEF II and the Managing General Partner entered into a BAC
Holder Rights Agreement dated May 30, 1995 with Crestar Bank
which governs the terms of the BAC Holder Rights Plan. Under the
BAC Holder Rights Plan, one Right was issued for each outstanding
BAC to BAC Holders of record immediately following the
distribution of the BACs to the holders of OTEF BACs. Each Right
entitles the holder thereof to buy one OTEF II BAC at an exercise
price of $1,000, subject to adjustment, until May 30, 2005, or an
earlier redemption by OTEF II.
In the event OTEF II issues additional BACs, the BAC Holder
Rights Plan provides that Rights will be issued to the holders of
such OTEF II BACs in accordance with the BAC Holder Rights
Agreement. Rights will not be issued with respect to the SQBs
and the Rights previously issued with respect to BACs that are
converted into SQBs will be canceled.
The Rights could cause substantial dilution to a person or
group that attempts to acquire OTEF II in a manner or on terms
not approved by the Managing General Partner and, therefore, may
make it more costly or difficult to acquire control of OTEF II,
which could have the effect of discouraging takeover attempts and
make it more difficult to remove the existing management of
OTEF II. The Rights, however, should not deter any prospective
offeror willing to negotiate in good faith with the Managing
General Partner.
As part of the settlement of the OTEF II Litigation, the
Managing General Partner amended the OTEF II partnership
agreement to provide that, if the Managing General Partner or an
affiliate of the Managing General Partner (other than OTEF II),
initiates a tender offer in which the Managing General Partner or
its affiliate offers to purchase more than 10% of the BACs then
outstanding, and at the time such tender offer is initiated there
is not pending any public offer to purchase OTEF II BACs by any
person, then the Managing General Partner will not employ the
OTEF II BAC Holder Rights Plan so as to prevent the closing of
any subsequent competing offer to purchase BACs that may be
published and that is outstanding prior to the published
termination date of the tender offer by the Managing General
Partner or an affiliate (regardless of any earlier termination of
the offer by the Managing General Partner or an affiliate).
Note 7. Investments in Tax-Exempt and Taxable Securities
As shown in the tables below, at December 31, 1999, OTEF II
owned beneficial interests, whether direct or indirect, in tax-
exempt bonds and taxable loans with aggregate carrying values of
$285 million and $27.2 million, respectively. The $285 million
of tax-exempt bonds includes the following: (i) $156.1 million
of Original Refunding Bonds, (ii) $76.8 million of Securities
Held in Trust, (iii) $32.2 million of Remarketed Bonds, (iv)
$10.3 million of Other Refunding Bonds, and (v) $9.6 million of
subordinated bonds. These financial assets are collateralized by
mortgage loans on the properties to which this debt relates. The
safekeeping and administration of these financial assets is
performed by various trustees under the terms of the trust
indentures pursuant to which the bonds were issued.
Other Sources. In connection with the closing of each
Original Refunding Bond, the applicable Operating Partnerships
entered into certain pooling agreements which may provide under
certain circumstances additional sources of funds to enable them
to pay their respective debt service on the Series A Bonds and
the Series B Bonds and related fees and expenses. As of December
31, 1999, the aggregate amount of net excess cash flow held in
the Operating Partnership escrows was approximately $3.2 million,
including deposits from the December 1999 cash flow compared to
$2.2 million at the end of 1998.
Remarketed Bonds. As required under the trust indentures
for the Existing MRBs, on November 1, 1999, the Existing MRBs for
the Apollo and San Bruno Operating Partnerships were remarketed,
which means that OTEF II exchanged the Existing MRBs for new
bonds that bear a fixed rate of interest to maturity at a market
rate determined by a remarketing agent. The remarketing agent
determined the fixed rate of interest on the San Bruno bonds to
be 9% per annum. The trust indenture for the Apollo bonds
specified that the fixed rate of interest on the remarketed bonds
was the lower of the rate established by the remarketing agent or
150 basis points in excess of the Bond Buyer 20-bond index. The
new rate was determined to be 7.49% on the remarketing date. The
original maturity date of November 2009 was not changed.
<PAGE> 41
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
In addition, in connection with the remarketing, the San
Bruno and Apollo Operating Partnerships delivered to OTEF II
interest-bearing, demand promissory notes dated November 1, 1999,
in the original principal amount of $8.8 million and $5.2
million, respectively. The principal amount of the San Bruno
note reflects contingent interest in the amount of $8.6 million
due and payable on the remarketing date together with accrued but
unpaid base interest; the principal amount of the Apollo note
reflects accrued but unpaid interest only since no contingent
interest was due and payable on the remarketing date. The demand
notes bear floating rate interest at the short-term applicable
federal rate. For tax purposes, the principal amount of the San
Bruno demand note was treated as tax exempt interest income. For
financial statement purposes the estimated amounts to be
collected on the San Bruno note are being accrued to income,
under the effective interest method, over the estimated remaining
life of the San Bruno bond. Due to uncertainty of collection,
the Apollo demand note has not been recognized for either tax or
financial statement purpose. As of December 31, 1999, the unpaid
principal and accrued interest on the San Bruno and Apollo demand
notes was $8.5 million and $5.2 million, respectively.
The table below sets forth the demand note principal and
unpaid interest as of December 31, 1999 for Remarketed Bonds:
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
Unpaid Demande Note (in thousands)
----------------------------------
Property Name/Partnership Name Principal Interest Total
- ----------------------------------------------------------------------
<S> <C> <C> <C>
San Bruno (San Bruno) $ 8,393 $ 79 $ 8,472
The Harbour (Apollo) 5,181 48 5,229
- ----------------------------------------------------------------------
Total $13,574 $ 127 $13,701
- ----------------------------------------------------------------------
</TABLE>
Original Refunding Bonds (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, calculated using an assumed interest rate
of 5.6% per year. 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. The total amount of such sinking fund
redemption in 2000 is expected to be approximately $1.4 million.
Series A Bond Interest. 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 Series A Bonds
were reset to the following interest rates:
<TABLE>
- -----------------------------------------------------------------
<CAPTION>
Bond Amount
Date (in thousands) Interest Rate
- -----------------------------------------------------------------
<S> <C> <C>
November 1, 1999 $ 69,575 4.88%
December 1, 1999 27,344 5.12%
January 1, 2000 11,126 5.37%
March 1, 2000 8,673 5.54%
- -----------------------------------------------------------------
Total $116,718
- -----------------------------------------------------------------
</TABLE>
The interest rate on the Series A Bonds involved in the
financing transactions described above was converted from annual
reset to a weekly floating rate based on a spread over the BMA
index. This rate averaged 4.63% from the date of closing through
December 31, 1997 and 4.33% for the twelve months of 1998 and
4.18% for the twelve months of 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.
<PAGE> 42
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Original Refunding Bonds (Series B Bonds). The term of
each Series B Bond and, accordingly, each Mortgage Loan is 30
years following the date of refunding.
Series B Bond Interest and Principal. The Series B Bonds
accrue interest equal to the product of the Combined Rate (as
defined below) multiplied by the total combined principal balance
of the Series A Bonds and the Series B Bonds for each Operating
Partnership, less the interest payable on the related Series A
Bonds; the resulting amount of interest divided by the principal
balance of the Series B Bonds equals the interest accrual rate on
the Series B Bonds. Interest-only is payable on the Series B
Bonds to the extent of available cash flow of the Operating
Partnerships, with the entire principal balance due at maturity.
The Combined Rates on the Original Refunding Bonds over the
next 10 years are as follows:
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Akron 8.38% 8.73% 9.07% 9.43% 9.82% 10.22% 10.65% 11.11% 11.60% 12.11%
Allview<F1> 7.24% 7.54% 7.82% 8.12% 8.44% 8.77% 9.12% 9.50% 9.89% 10.31%
Colonel 4.23% 4.90% 5.08% 5.26% 5.46% 5.66% 5.87% 6.09% 6.32% 6.56%
Fox Valley <F1> 6.95% 7.23% 7.51% 7.79% 8.10% 8.42% 8.75% 9.11% 9.49% 9.89%
Middletown 7.13% 7.42% 7.70% 8.00% 8.31% 8.64% 8.99% 9.36% 9.75% 10.16%
Ocala 8.35% 8.70% 9.04% 9.39% 9.77% 10.17% 10.60% 11.05% 11.53% 12.04%
Schaumburg <F1> 5.84% 6.09% 6.32% 6.56% 6.81% 7.08% 7.36% 7.65% 7.97% 8.30%
Southridge 5.11% 5.32% 5.52% 5.72% 5.93% 6.16% 6.39% 6.64% 6.89% 7.16%
Tidewater <F1> 6.98% 7.27% 7.56% 7.85% 8.16% 8.49% 8.84% 9.21% 9.60% 10.02%
Travis 5.14% 5.36% 5.56% 5.76% 5.98% 6.21% 6.45% 6.70% 6.96% 7.24%
Westridge <F1> 5.97% 6.22% 6.45% 6.69% 6.95% 7.22% 7.50% 7.80% 8.12% 8.45%
Williamsbu <F1> 7.47% 7.78% 8.09% 8.40% 8.74% 9.09% 9.47% 9.86% 10.29% 10.74%
- ----------------------------------------------------------------------------------
<FN>
<F1> Although the Series A Bonds bear interest at a spread over
the weekly BMA floating rate index, as previously described
under "Financing Transaction", the rate associated with the
related Series B Bonds must fluctuate to maintain the
Combined Rate stated above.
</FN>
</TABLE>
The Combined Rates decrease in the fourth year following
the date of refunding due to the principal payments commencing
under the Original Refunding Bonds and, thereafter, the Combined
Rates increase every year through the remaining term of the
Original Refunding Bonds.
<PAGE> 43
<TABLE>
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
The table below sets forth the cumulative taxable investments
and loans as of December 31, 1999:
- -------------------------------------------------------------------------------
Schedule of Taxable Securities
(in thousands except interest rate)
- -------------------------------------------------------------------------------
<CAPTION>
Year Principal at Interest Effective Pay
Property Acquired December 31, 1999 Stated Rate Rate in 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
River Reach <F3> 1999 $11,574 12.00% 8.80%
River Reach Reserve <F2> 1999 1,300 4.50% 4.50%
Lakeside North <F3> 1999 1,678 15.48% 7.10%
Summerwalk <F3> 1998 7,199 12.00% 6.00%
Jacaranda <F3> 1998 3,844 12.00% 4.20%
Carpenter <F1> 1997 915 9.30% 9.30%
Dallas <F1> 1997 680 9.30% 9.30%
- -------------------------------------------------------------------------------
Total $27,190 N/A N/A
- -------------------------------------------------------------------------------
<FN>
<F1> Monthly interest is earned at the stated interest rate.
<F2> On June 11, 1999, OTEF II made a loan to the affiliated
borrower in the amount of $1.3 million, which was used
to reimburse the property seller for capitalizable
expenditures. This loan earns interest at a 30 to 60
day treasury rate, which averaged 4.5% in 1999.
<F3> These taxable loans accrue interest at the stated rates
but require payments of interest only to the extent of
available cash flow. For financial statement purposes,
interest on these taxable loans is recorded as received
such that the effective yield may be less than the
stated rate.
</FN>
</TABLE>
<PAGE> 44
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------------------------------------------------------------------------
Note 7. Investments in Tax-Exempt and Taxable Securities (continued)
Information on the Bonds as of December 31, 1999 and 1998 (in thousands) and the related properties is as follows:
<CAPTION>
Unrealized Gain
Carrying Value at 12/31/99 or (Loss) Total Monthly Interest
Combined -------------------------------- ---------------- Carrying ----------------
Tax-Exempt Maturity Face Other Value Other
Bond Investments Date Amount Bond A Bond B Bond Total 1999 1998 @12/31/98 Bond A B
- -----------------------------------------------------------------------------------------------------------------------------------
ORIGINAL REFUNDING
BONDS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chesapeake Landing,
Fox Valley-Oxford L.P.<F1> November 2026 $ 25,450 $ 0 $ 13,102 $ 12,348 $ 25,450 $11,336 $11,253 $ 25,366 $ 0 $53 $ 94
Hunt Club,
Travis One-Oxford L.P. December 2026 20,270 0 8,732 7,598 16,330 3,574 2,791 15,546 0 37 50
Savannah Trace,
Schaumburg-Oxford L.P.<F1> November 2026 23,400 0 11,232 10,299 21,531 6,825 5,755 20,461 0 46 68
Windrift at Seaview Ridge
Southridge-Oxford L.P. December 2026 29,430 0 11,258 11,386 22,644 4,208 2,948 21,384 0 48 77
Chambrel at Pinecastle
Ocala-Oxford L.P. November 2026 9,500 0 5,458 4,042 9,500 4,043 4,043 9,500 0 22 44
Chambrel at Montrose
Akron One Retirement-
Oxford L.P. December 2026 12,800 0 7,354 5,446 12,800 4,325 4,325 12,800 0 31 58
Chambrel at Club Hill
Colonel I-Oxford L.P. March 2027 25,430 0 8,673 5,265 13,938 (983) 1,491 16,412 0 40 50
Northwoods,
Middletown-Oxford L.P. January 2027 21,700 0 11,126 10,574 21,700 12,129 12,129 21,700 0 50 79
Reflections,
Tidewater-Oxford L.P.<F1> November 2026 25,644 0 13,998 11,646 25,644 12,553 12,553 25,644 0 57 92
Island Club,
Allview-Oxford L.P.<F1> November 2026 11,300 0 5,744 5,556 11,300 6,675 6,675 11,300 0 23 45
Windsor Park,
Westridge-Oxford L.P.<F1> November 2026 14,000 0 6,333 6,445 12,778 7,130 6,428 12,076 0 26 44
</TABLE>
<PAGE> 45
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Notes to Financial Statements
- ----------------------------------------------------------------------------------------------------------------------------------
Note 7. Investments in Tax-Exempt and Taxable Securities (continued)
Information on the Bonds as of December 31, 1999 and 1998 (in thousands) and the related properties is as follows:
Unrealized Gain
Carrying Value at 12/31/99 or (Loss) Value Monthly Interest
Combined ------------------------------ ---------------- Carrying ----------------
Tax-Exempt Maturity Face Other Value Other
Bond Investments Date Amount Bond A Bond B Bond Total 1999 1998 @12/31/98 Bond A B
- --------------------------------------------------------------------------------------------------------------------------------
ORIGINAL REFUNDING
BONDS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chambrel at Williamsburg,
Williamsburg-Oxford L.P.<F1>November 2026 $ 25,000 $ 0 $13,708 $11,292 $ 25,000 $ 9,563 $ 9,563 $ 25,000 $ 0 $56 $100
OTHER REFUNDING BONDS:
Springhouse,
Dallas-Oxford Associates<F3>April 2018 10,300 10,300 0 0 10,300 4 0 10,296 62 0 0
Steeplechase,
Carpenter-Oxford Associates
II L.P. <F3> September 2018 14,200 14,200 0 0 14,200 130 0 14,070 86 0 0
Harbour Town of Jacaranda,
Jacaranda-Oxford L.P.<F2> April 2006 4,200 4,200 0 0 4,200 0 0 4,200 39 0 0
REMARKETED BONDS:
San Bruno, November 2009 25,000 25,000 0 0 25,000 14,609 14,267 24,658 187 0 0
San Bruno-Oxford L.P.<F2> December 2009 1,060 1,060 0 0 1,060 619 604 1,045 8 0 0
The Harbour, November 2009 8,710 6,186 0 0 6,186 1,223 42 5,006 54 0 0
Apollo-Oxford Associates L.P.<F2>
OTHER BONDS:
Conyers, November 2009 5,420 5,420 0 0 5,420 0 N/A N/A 45 0 0
Conyers-Oxford Associates L.P.<F5>
- ---------------------------------------------------------------------------------------------------------------------------------
Total $312,814 $66,366 $116,718 $101,897 $284,981 $97,963 $94,867 $276,464 $481 $489 $801
=================================================================================================================================
</TABLE>
<PAGE> 46
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------------------------------------------------------------
Note 7. Investments in Tax-Exempt and Taxable Securities (continued)
Information on the Bonds as of December 31, 1999 and 1998 (in thousands) and the related properties is summarized as follows:
SCHEDULE OF TAX-EXEMPT SECURITIES - SUMMARY:
<CAPTION>
Carrying Value at 12/31/99 Total
Combined --------------------------------- 1999 1998 Carrying
Tax-Exempt Face Other Unrealized Unrealized Value
Bond Investment Amount Bond A Bond B Bond Total Gain Gain @12/31/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments in tax-exempt securities $312,814 $52,166 $54,153 $101,897 $208,216 $70,103 $67,711 $213,900
Investments in tax-exempt securities
held in trust 0 14,200 62,565 0 76,765 27,860 27,156 62,565
-----------------------------------------------------------------------------------
Total Tax-Exempt Bonds $312,814 $66,366 $116,718 $101,897 $284,981 $97,963 $94,867 $276,465
===================================================================================
<FN>
<F1> Financing Transactions. OTEF II retained all of its interest in the corresponding Series B Bonds relating to
these properties. In addition, OTEF II applied approximately $52.6 million of the proceeds to the purchase of
subordinated interests in the securitized transactions. OTEF II also retained certain rights to reacquire the
securitized assets. In connection with these transactions, OTEF II converted the interest rate mode on these six
Series A Bonds from an annual reset to weekly floaters. For financial statement purposes, these transactions are
accounted for as a financing transaction and, accordingly, the amount of the Series A Bonds financed of $62.6
million is reflected as Securities Held in Trust, the net cash proceeds are classified as Cash and Cash Equivalents
and the difference between the principal amount of the Series A Bonds financed and the principal amount of the
subordinated interest acquired by OTEF II is classified as financing debt. The financing debt bears interest at the BMA
weekly floating bond rate ("BMA") plus approximately 80 to 85 basis points which averaged 4.41% from the date of
closing through December 31, 1998. For federal income tax purposes, these transactions are treated as a sale by OTEF II
of the Series A Bonds and a purchase of the subordinated interests, which resulted in capital losses in 1998 and
1997, of $3.6 million and $3.8 million, respectively.
<F2> The Existing MRBs were remarketed on November 1, 1999.
<F3> The Dallas and Carpenter bonds acquired in December 1997 were refinanced in 1998. The Carpenter Refunding Bonds and the
Dallas Refunding Bonds each bear fixed interest at the annual rate of 7.25% for an initial term through October 1, 2005
and July 1, 2005, respectively, at which time the bonds must be remarketed.
<F4> On April 30, 1998, OTEF II purchased a $4.2 million subordinated, tax exempt bond from an unrelated party in connection
with the Jacaranda transaction. On June 15, 1999, the Jacaranda senior and subordinated bonds were refunded. The
interest rate on the subordinated bonds held by OTEF II increased from 6.25% to 11%.
<F5> On November 24, 1999 OTEF II closed a development venture transaction for The Peaks at Conyers Apartments. At closing,
OTEF II acquired at par all of the Series C Bonds in the original principal amount of $5,420,000. Interest on the Series
C Bonds is exempt from federal income tax. The Series C Bonds require payments of base interest at an annual rate of
9-7/8% during the construction period and at 9-3/8% thereafter. Additional interest accrues at an annual rate of 2.625%
during the construction period and at 3.125% thereafter, and is payable from 70% of cash flow remaining after payment
of base interest and in full upon a tender or redemption of the Series C Bonds.
</FN>
</TABLE>
<PAGE> 47
<TABLE>
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
<CAPTION>
Note 8. Quarterly Results and Market Information (in thousands, except per
BACs and Market Prices) (Unaudited)
For the Three Months Ended in 1999
-----------------------------------------------
March 31 June 30 September 30 December 31
-----------------------------------------------
<S> <C> <C> <C> <C>
Interest Earned:
Interest on tax-exempt
securities $4,873 $4,719 $4,597 $4,796
Interest on tax-exempt
securities held in trust 589 739 901 975
Interest on taxable and loans 266 406 718 577
Other tax-exempt income 135 143 92 81
- ------------------------------------------------------------------------------
Total Interest Earned 5,863 6,007 6,308 6,429
- ------------------------------------------------------------------------------
Finance interest expense (443) (531) (536) (611)
- ------------------------------------------------------------------------------
Net Interest Margin 5,420 5,476 5,772 5,818
- ------------------------------------------------------------------------------
Expenses
Third party expenses 323 286 271 356
Related party expenses 276 328 343 329
- ------------------------------------------------------------------------------
Total Expenses 599 614 614 685
- ------------------------------------------------------------------------------
Net income $4,821 $4,862 $5,158 $5,133
- ------------------------------------------------------------------------------
Other comprehensive income:
Unrealized gains on
investments $2,774 $ 508 $(2,280) $2,097
- ------------------------------------------------------------------------------
Comprehensive income: $7,595 $5,370 $2,878 $7,230
==============================================================================
Net income allocated to
BAC holders $4,711 $4,765 $5,058 $5,037
==============================================================================
Net income per BAC $0.644 $0.650 $0.689 $0.687
==============================================================================
Net income per BAC -
assuming dilution $0.644 $0.648 $0.688 $0.685
==============================================================================
Weighted average BACs
outstanding 7,313 7,336 7,337 7,338
==============================================================================
Weighted average BACs
outstanding - assuming
dilution 7,318 7,351 7,352 7,344
==============================================================================
Distribution per BAC $0.510 $0.520 $0.520 $0.540
==============================================================================
Market Information:
Opening Price $23.63 $24.13 $24.69 $24.13
High $26.00 $25.00 $25.88 $24.88
Low $23.63 $23.50 $23.88 $22.44
Closing Price $24.06 $24.56 $24.00 $22.63
==============================================================================
</TABLE>
<PAGE> 48
<TABLE>
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
<CAPTION>
Note 8. Quarterly Results and Market Information (in thousands, except per
BACs and Market Prices) (Unaudited) (Continued)
For the Three Months Ended in 1998
-----------------------------------------------
March 31 June 30 September 30 December 31
-----------------------------------------------
<S> <C> <C> <C> <C>
Interest Earned:
Interest on tax-exempt
securities $4,727 $4,335 $4,593 $5,312
Interest on tax-exempt
securities held in trust 474 669 665 651
Interest on taxable securities 20 153 318 346
Other tax-exempt income 121 162 157 448
- ------------------------------------------------------------------------------
Total Interest Earned 5,342 5,319 5,733 6,757
- ------------------------------------------------------------------------------
Finance interest expense (331) (489) (500) (489)
- ------------------------------------------------------------------------------
Net Interest Margin 5,011 4,830 5,233 6,268
- ------------------------------------------------------------------------------
Expenses
Third party expenses 261 181 205 448
Related party expenses 193 198 261 312
- ------------------------------------------------------------------------------
Total Expenses 454 379 466 760
- ------------------------------------------------------------------------------
Net income $4,557 $4,451 $4,767 $5,508
- ------------------------------------------------------------------------------
Other comprehensive income:
Unrealized gains on
investments $ 135 $1,502 $4,913 $9,736
- ------------------------------------------------------------------------------
Comprehensive income: $4,692 $5,953 $9,680 $15,244
==============================================================================
Net income allocated to
BAC holders $4,377 $4,269 $4,576 $5,287
==============================================================================
Net income per BAC $0.609 $0.594 $0.637 $0.736
==============================================================================
Net income per BAC -
assuming dilution $0.603 $0.587 $0.631 $0.735
==============================================================================
Weighted average BACs
outstanding 7,185 7,185 7,185 7,185
==============================================================================
Weighted average BACs
outstanding - assuming
dilution 7,262 7,271 7,252 7,187
==============================================================================
Distribution per BAC $0.495 $0.510 $0.510 $0.510
==============================================================================
Market Information:
Opening Price $25.31 $26.75 $27.75 $25.75
High $27.81 $28.88 $28.31 $25.88
Low $25.31 $26.31 $24.00 $22.50
Closing Price $26.75 $27.75 $25.75 $23.50
==============================================================================
</TABLE>
<PAGE> 49
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
Note 9. Subsequent Events
In January 2000, an additional 25 SQBs were converted to 625
BACs leaving 712 SQBs outstanding as of the date of this report.
On January 18, 2000, OTEF II acquired an additional 10,000
BACs for approximately $0.24 million in accordance with its
previously announced repurchase program.
On February 14, 2000, OTEF II made a quarterly cash
distribution of approximately $4 million or $0.540 per BAC to BAC
Holders of record and $6.19 to SQB Holders of record as of
December 31, 1999.
On March 16, 2000, the Board of Directors of the Managing
General Partner OTEF II declared a quarterly cash distribution of
approximately $4 million or $0.540 per BAC to BAC Holders of
record as of March 31, 2000.
<PAGE> 50
<TABLE>
- ------------------------------------------------------------------------------
Distribution Information
- ------------------------------------------------------------------------------
The following table sets forth, on a quarterly basis, all distributions
declared by OTEF II and OTEF.
Amount Distributed <F1>
- -----------------------------------------------------------------------------------
<CAPTION> BAC Per SQB
Quarterly Per Holders SQB Holders General
Quarter Ended<F1> Payments BAC<F5> <F2> <F6> <F6> Partners
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
December 31, 1999 57 $ 0.5400 $ 3,963,830 $ 6.19 $ 4,562 $ 80,988
September 30, 1999 56 $ 0.5200 $ 3,816,501 $ 6.19 $ 4,810 $ 77,986
June 30, 1999 55 $ 0.5200 $ 3,815,604 $ 12.38 $ 10,473 $ 78,083
March 31, 1999 54 $ 0.5100 $ 3,730,625 $ 12.38 $ 21,739 $ 76,579
-------- ------------ ------- -------- ----------
$ 2.0900 $ 15,326,560 $ 37.14 $ 41,584 $ 313,636
- ------------------------------------------------------------------------------------
1998
December 31, 1998 53 $ 0.5100 $ 3,663,432 $ 12.38 $ 85,991 $ 76,519
September 30, 1998 52 $ 0.5100 $ 3,664,452 $ 12.38 $ 85,991 $ 76,540
June 30, 1998 51 $ 0.5100 $ 3,664,452 $ 12.38 $ 85,991 $ 76,540
March 31, 1998 50 $ 0.4950 $ 3,556,674 $ 12.38 $ 86,549 $ 74,351
-------- ------------ ------- -------- ----------
$ 2.0250 $ 14,549,010 $ 49.52 $344,522 $ 303,950
- ------------------------------------------------------------------------------------
1997
December 31, 1997 49 $ 0.4950 $ 3,556,674 $ 12.38 $ 87,811 $ 74,378
September 30, 1997 48 $ 0.4950 $ 3,556,674 $ 12.38 $110,566 $ 74,842
June 30, 1997 47 $ 0.4760 $ 3,420,155 $ 11.90 $149,785 $ 72,856
March 31, 1997 46 $ 0.4760 $ 3,569,940 $ N/A $ N/A $ 72,856
-------- ------------ ------- -------- ----------
$ 1.9420 $ 14,103,443 $ 36.66 $348,162 $ 294,932
- ------------------------------------------------------------------------------------
1996
For the 4 quarters ended 42-45 $ 1.9040 $ 14,279,760 $ N/A $ N/A $ 291,424
- ------------------------------------------------------------------------------------
1995
For the 4 quarters ended 38-41 $ 1.9040 $ 14,279,760 $ N/A $ N/A $ 291,424
- ------------------------------------------------------------------------------------
1994
For the 4 quarters ended 34-37 $ 1.8000 $ 13,499,776 $ N/A $ N/A $ 275,504
- ------------------------------------------------------------------------------------
1993
For the 4 quarters ended 30-33 $ 1.7628 $ 13,220,779 $ N/A $ N/A $ 269,813
- ------------------------------------------------------------------------------------
1992
For the 4 quarters ended 26-29 $ 1.7008 $ 12,755,787 $ N/A $ N/A $ 260,323
- ------------------------------------------------------------------------------------
1991
For the 4 quarters ended 22-25 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- ------------------------------------------------------------------------------------
1990
For the 4 quarters ended 18-21 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- ------------------------------------------------------------------------------------
1989
For the 4 quarters ended 14-17 $ 1.6512 $ 12,384,000 $ N/A $ N/A $ 252,736
- ------------------------------------------------------------------------------------
1988 <F3>
For the 4 quarters ended 10-13 $ 2.4760 $ 18,570,000 $ N/A $ N/A $ 378,980
- ------------------------------------------------------------------------------------
1987
For the 4 quarters ended 6-9 $ 3.4124 $ 25,593,00 $ N/A $ N/A $ 522,306
- ------------------------------------------------------------------------------------
1986
For the 4 quarters ended 2-5 $ 3.4000 $ 25,500,000 $ N/A $ N/A $ 520,408
- ------------------------------------------------------------------------------------
1985
December 31, 1985 <F4> 1 $ 0.5952 $ 3,894,287 $ N/A $ N/A $ 79,475
- ------------------------------------------------------------------------------------
Total $29.9658 $222,724,162 $123.32 $734,268 $4,560,383
====================================================================================
<FN>
<F1> Distributions in all cases were paid in the quarter immediately
following the quarter to which the distribution relates. Includes
distributions on 2,000 BAC shares OTEF II acquired in December 1998.
<F2> The aggregate amount distributed to BAC Holders since inception is
$222,724,162, or approximately 74% based on an original investment of
$1,000 per BAC.
<F3> Excludes the $507,450 ($0.068 per BAC) distributed on August 15, 1988
as a return of capital.
<F4> Assumes BAC Holders were admitted on October 10, 1985.
<F5> All periods have been restated to reflect the 25-for-1 stock split
effectuated on July 22, 1997.
<F6> On April 1, 1997, in accordance with the class action litigation,
OTEF II granted the option to BAC Holders to elect SQB status. Of the
12,587 units held as SQBs as of April 1, 1997, 5,484 elected to be
redeemed as of August 1, 1997. SQBs were not affected in the 25-for-1
stock split on July 1, 1997. There were 7,093 SQBs outstanding at
12/31/97, 6,946 SQBs outstanding at 12/31/98 and 737 SQBs outstanding at
12/31/99.
</FN>
</TABLE>
<PAGE> 51
- ------------------------------------------------------------------------------
General Partnership Information
- ------------------------------------------------------------------------------
Legal Counsel
Shaw, Pittman
Washington, D.C.
Independent Accountants
PricewaterhouseCoopers LLP
Washington, D.C.
Transfer Agent and Registrar
Registrar & Transfer Company
ATTN: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
Managing General Partner
Oxford Tax Exempt Fund II Corporation
7200 Wisconsin Avenue, 11th floor
Bethesda, Maryland 20814
The Annual Report on Form 10-K for the
year ended December 31, 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, MD 20814
1-888-321-OTEF
<PAGE> 52
- ------------------------------------------------------------------------------
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 SQBs 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
Registrar and Transfer Company ("R&T") serves as the sole
registrar and transfer agent with respect to the OTEF II BACs
and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed
to:
Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Annual Report on Form 10-K for the year ended December 31,
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
ALSO VISIT OUR WEB PAGE AT WWW.OTEF.COM
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at December 31, 1999 and the Statements of Income and Comprehensive
Income for the twelve months ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,500
<SECURITIES> 312,171
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,027
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 321,698
<CURRENT-LIABILITIES> 57,234
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 264,464
<TOTAL-LIABILITY-AND-EQUITY> 321,698
<SALES> 0
<TOTAL-REVENUES> 24,607
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,974
<EPS-BASIC> 2.67
<EPS-DILUTED> 2.66
</TABLE>
