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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to________
Commission file number: 0-25600
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1394232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 301-654-3100
Securities registered pursuant to Section 12(b) of the Act:
Beneficial Assignee Interests
Securities registered pursuant to Section 12(g) of the Act: 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 / /.
At June 30, 2000, the following classes of beneficial assignee
interests of Oxford Tax Exempt Fund II Limited Partnership were
outstanding: (i) 7,343,800 beneficial assignee interests
("BACs") with an aggregate market value ($24.375 per share) of
$179,005,125, and (ii) 122 Status Quo BACs ("SQBs").
Index to Exhibits is found on page 3.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 11 through 14 of OTEF
II's Quarterly Report (Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three and six-month period ended June 30, 2000
is incorporated herein by reference to sequentially numbered
pages 6 through 10 entitled "Report of Management" included in
OTEF II's Quarterly Report (Unaudited).
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of
Regulation S-K, see Exhibit Index on page 3 of this report.
(b) Reports on Form 8-K.
A report on Form 8-K was filed with the Securities &
Exchange Commission on July 13, 2000 regarding certain
contractual arrangements that could result in a change in
control of the Registrant.
No other items were applicable.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in
Item 601 of Regulation S-K).
(20) Report furnished to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly
Report (Unaudited) dated June 30, 2000, follows on
sequentially numbered pages 5 through 20 of this report.
(27) Financial Data Schedule.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the registrant
Date: 8/14/00 By: /s/ Richard R. Singleton
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Richard R. Singleton
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: 8/14/00 By: /s/ Francis P. Lavin
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Francis P. Lavin
Director and President
Date: 8/14/00 By: /s/ Robert B. Downing
------- ------------------------------------------
Robert B. Downing
Director and Executive Vice President
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
June 30, 2000
CONTENTS
Report of Management
Balance Sheets
Statements of Income and Comprehensive Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Instructions for Investors who wish to reregister or
transfer OTEF II BACs
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Report of Management
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The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("OTEF II" or the "Partnership"), as
of June 30, 2000, and its results of operations and cash flows
for the period then ended. This report and analysis should be
read together with the financial statements and related notes
thereto and the selected financial data appearing elsewhere in
this Quarterly Report.
Recent Developments
Distribution for the Quarter ended June 30, 2000. The
Managing General Partner declared, on June 14, 2000, a
distribution for the quarter ended June 30, 2000 in the amount of
$0.54 per BAC. This distribution is in the same amount as the
distribution for the first quarter of 2000, which was paid on May
12, 2000.
Investment Transactions. 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. As of the date of this report,
construction continues on The Peaks at Conyers. Based on the
draw requests received to date, work completed and materials
supplied represent approximately 39% of the amount of the
construction contract. OTEF II will continue to monitor the
progress of construction relating to this property.
Financing Transactions. On May 11, 2000, the letter of
credit issued by Banco Santander Central Hispano, S.A. ("Banco
Santander"),with respect to the Naples investment and the standby
reimbursement agreement with a Merrill Lynch affiliate which
effectively guarantees the obligations of the Naples Borrower to
Banco Santander Central Hispano, S.A. were extended to December
11, 2000.
OTEF II is continuing to work on bond refunding and
refinancing transactions with respect to the Summerwalk property.
The senior tax-exempt bonds secured by this property are
currently held by third parties. Based on its preliminary
discussions, the Managing General Partner anticipates
consummating refunding or refinancing transactions for this
property.
Amortization of Series A Bonds. Effective April 15, 2000,
mandatory quarterly sinking fund redemptions began 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% will be applied to reduce the financing debt
reported by OTEF II on its balance sheet. 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 from the amount
earned for 1999 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 bonds will increase in 2001 and each year
thereafter through the remaining term of the Original Refunding
Bonds. On April 15, 2000, approximately $0.47 million in
sinking fund redemptions were received on the Original Refunding
Bonds and approximately $0.19 million was paid on the financing
debt. The outstanding balance of the financing debt at June 30,
2000 was $52.4 million.
Book Value. At June 30, 2000, the book value of the BACs
was approximately $36.50 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 June 30, 2000.
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. These securities are reflected in partners' capital on
the balance sheet as Treasury Stock. No further purchases have
been made through the date of this report.
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Report of Management
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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 Original Remarketed Bonds (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, and its General Partners, to
pay administrative expenses, and to acquire New Assets and pay
the costs and expenses relating to such transactions. As of June
30, 2000, OTEF II held approximately $5.7 million in cash and
cash equivalents, an increase of approximately $0.2 million, or
approximately 3%, from the $5.5 million in cash and cash
equivalents held as of December 31, 1999. This increase reflects
the change in the timing of payments on the San Bruno bond from
monthly to semi-annual, which change in payment frequency was
effective with the issuance of the remarketing bonds on November
1, 1999. The first semi-annual payment in the amount of
approximately $1.17 million was received on May 15, 2000.
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 $77.0 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.
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. Additionally, on August 4, 2000, OTEF II
purchased a two-year interest rate cap on the notional amount of
approximately $55 million. Under these arrangements, if the
average short-term, tax-exempt interest rates during the term of
the cap increase above a specified level (6%, 4.5%, and 5.5%
respectively), the counter-party to the interest rate cap
transaction is required to pay directly to OTEF II the amount by
which such rates exceed the specified level. Through June 30,
2000, $0.03 million was required to be paid 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 $77.0 million, is reflected as Securities
Held in Trust, the net cash proceeds not reinvested are
classified as Cash and Cash Equivalents and the difference
between the principal amount of the bonds financed and the
principal amount of the subordinated interests acquired by OTEF
II is classified as financing debt on OTEF II's balance sheet.
The aggregate financing debt at June 30, 2000 and December 31,
1999 was approximately $52.4 and $52.6 million, respectively.
OTEF II's financing debt represents approximately 16.3% of OTEF
II's total assets (or 30.2% of OTEF II's total assets if the
entities in which OTEF II has made a subordinated debt investment
were consolidated). Due to the credit enhancement provided by a
<PAGE> 8
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Report of Management
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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 4.03% for the 6 months ended June 30,
2000, 3.98% for the 6 months ended June 30, 1999 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 $15
million of subordinated interests through the trusts) are in
effect collateral for this financing debt.
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. See "Recent Developments" for a discussion of
the amortization.
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. See Note 2 to the Financial Statements for a
schedule of the current reset rates for the Series A Bonds
retained by OTEF II. 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.
Other Sources. In connection with the closing of the
Original Refunding Bonds, the applicable Operating Partnerships
entered into certain pooling agreements which may provide under
certain circumstances additional sources of funds to enable them
to pay their respective debt service on the Series A Bonds and
the Series B Bonds and related fees and expenses. As of June 30,
2000, the aggregate amount of net excess cash flow held in the
Operating Partnership escrows was approximately $5.1 million,
including deposits from June's cash flow compared to $3.8 million
at the end of 1999.
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Report of Management
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Original Remarketed Bonds. As required under the trust
indentures for the Original MRBs, on November 1, 1999, the
Original MRBs for the Apollo and San Bruno Operating Partnerships
were remarketed, which means that OTEF II exchanged those for new
bonds ("Original Remarketed 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 original 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 federal income 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. As of
June 30, 2000, approximately $8.1 million of the San Bruno demand
note had not been accrued into income. Due to uncertainty of
collection, the Apollo demand note has not been recognized for
either tax or financial statement purposes. As of June 30, 2000,
the unpaid principal and accrued interest on the San Bruno
and Apollo demand notes was approximately $8.4 million and
$5.3 million, respectively.
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 $8.4 million outstanding
balance of the 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. Upon the payment in full of
the San Bruno demand note, the balance of the note yet accrued
into income under the effective interest method discussed above
is currently expected to be included in income for financial
statement purposes.
Results of Operations
OTEF II Distributions. Distributions to Partners will
amount to approximately $4.0 million, or $0.54 per Liquidity BAC
holders of record as of June 30, 2000.
OTEF II's Three-Month Operations. For financial statement
purposes, Net Income allocated to BAC holders and Net Income per
BAC was approximately $4.8 million and $0.653, respectively, for
the three-month period ended June 30, 2000, as compared to $4.8
million and $0.650, respectively, for the three-month period
ended June 30, 1999. OTEF II's net interest margin and expenses
for the second quarter increased by approximately 1.3% and 8.8%,
respectively, over the prior comparative period. The increase of
only 1.3% in net interest margin is due primarily to additional
interest earned on New Assets and taxable loans reduced by
(i) the principal amortization payments on the Series A
Bonds and (ii) increases in financial interest expense for the
second quarter due to increases in the floating rate interest
payable on OTEF II's financing debt. While the total cash
receipts on the Series A Bonds, including interest and principal,
are approximately the same as the prior comparative periods,
due to the principal amortization, the current period interest
earned on these bonds is lower than the prior comparative
period. The increase in expenses is primarily attributable to
the level of advisory fees in the current period versus the prior
comparative period.
OTEF II's Six-Month Operations. For financial statement
purposes, Net Income allocated to BAC holders and Net Income per
BAC was $9.7 million and $1.321, respectively for the six-month
period ended June 30, 2000, as compared to $9.5 million and
$1.294, respectively, for the six-month period ended June 30,
1999. OTEF's net interest margin and expenses for the six-month
period ended June 30, 2000 increased by approximately 2.7 % and
8.7%, respectively, over the prior comparative period. The
increase of only 2.7% in net income is the result of additional
interest on New Assets and taxable loans exceeding the costs
associated with the implementation of the Liquidity & Growth Plan
that were not incurred in the prior comparative period. The
increase in net interest margin is due primarily to additional
interest earned on New Assets and taxable loans reduced by
(i) the principal amortization payments on the Series A Bonds and
(ii) increases in financial interest expense for the second
quarter due to increases in the floating rate interest payable
on OTEF II's financing debt. While the total cash receipts
on the Series A Bonds, including interest and principal, are
approximately the same as the prior comparative periods, due to
the principal amortization, the current period interest earned
on these bonds is lower than the prior comparative period. The
increase in expenses is primarily attributable to the level
of advisory fees in the current period versus the prior
comparative period.
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Report of Management
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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 Q
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> 11
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
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Balance Sheets (in thousands, except per BAC and SQB amounts)
(Unaudited)
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<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
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<S> <C> <C>
Assets
Investments:
Tax-exempt securities $210,165 $208,216
Tax-exempt securities held in trust 76,506 76,765
Taxable securities 27,711 27,190
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Total Investments $314,382 $312,171
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Cash and cash equivalents 5,656 5,500
Other Assets 4,888 3,980
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Total Assets $324,926 $321,651
==========================================================================
Liabilities and Partners' Capital
Liabilities
Financing debt $ 52,423 $ 52,614
Distributions payable 4,047 4,049
Accounts payable and accrued expenses 339 571
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Total Liabilities 56,809 57,234
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Partners' Capital
General Partners' Interests (2,151) (2,189)
Limited Partners' Interests:
Beneficial Assignee Interests
(7,499,875 interests issued and
7,343,800 and 7,338,425 interests
outstanding as of June 30, 2000 and
December 31, 1999, respectively) 170,385 168,308
SQB Interests (12,587 interests issued
and 122 and 737 interests outstanding
as of June 30, 2000 and December 31,
1999, respectively) 48 379
Accumulated other comprehensive income 100,123 97,966
Treasury shares (288) (47)
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Total Partners' Capital 268,117 264,417
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Total Liabilities and Partners' Capital $324,926 $321,651
==========================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
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Statements of Income and Comprehensive Income (in thousands,
except per BAC amounts) (Unaudited)
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<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- -----------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Interest on tax-exempt securities $4,453 $4,719 $9,063 $9,592
Interest on tax-exempt securities
held in trust 1,095 739 2,052 1,328
Interest on taxable securities 617 406 1,228 672
Other, primarily tax-exempt income 81 143 135 278
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Total Interest Earned 6,246 6,007 12,478 11,870
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Finance interest expense (698) (531) (1,289) (974)
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Net Interest Margin 5,548 5,476 11,189 10,896
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Expenses
Third party expenses 284 285 568 608
Related party expenses 384 329 750 605
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Total Expenses 668 614 1,318 1,213
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Net income $4,880 $4,862 $9,871 $9,683
============================================================================
Other comprehensive income:
Unrealized gains on investments $ 932 $ 508 $2,159 $3,282
============================================================================
Comprehensive income $5,812 $5,370 $12,030 $12,965
============================================================================
Net income allocated to BAC holders $4,796 $4,765 $9,692 $9,476
============================================================================
Net income per BAC $0.653 $0.650 $1.321 $1.294
============================================================================
Net income per BAC - assuming dilution $0.653 $0.648 $1.321 $1.290
============================================================================
Weighted Average BACs outstanding 7,344 7,336 7,336 7,324
============================================================================
Weighted Average BACs outstanding -
assuming dilution 7,345 7,351 7,337 7,346
============================================================================
Distribution per BAC $0.540 $0.520 $1.080 $1.030
============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 13
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
--------------------------------------------------------------------------------
Statement of Partners' Capital (in thousands, except per BAC and SQB
amounts) (Unaudited)
--------------------------------------------------------------------------------
<CAPTION>
Partners'
Limited Interest
-------------------- Accumulated
Beneficial Status Other
General Assignee Quo BAC Treasury Comprehensive
Partners Interests Interests Shares Income Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1999 $(2,189) $168,308 $379 $(47) $97,966 $264,417
================================================================================
Comprehensive Income:
Net Income, including
$0.668 per BAC and
$(5.88) per SQB 100 4,896 (4) 0 0 4,992
Unrealized gains on
investments 0 0 0 0 1,225 1,225
--------------------------------------------------------
Total comprehensive
income 100 4,896 (4) 0 1,225 6,217
Allocation of SQB
Capital 0 13 (13) 0 0 0
Purchase of Treasury
Shares 0 0 0 (241) 0 (241)
Distributions payable to
Liquidity BAC
Partners of $0.54 (81) (3,957) 0 0 0 (4,038)
================================================================================
Balance,
March 31, 2000
(Unaudited) $(2,170) $169,260 $ 362 $(288) $99,191 $266,355
================================================================================
Comprehensive Income:
Net Income (loss),
including $0.649 per
BAC and $(112.14)
per SQB 97 4,796 (13) 0 0 4,880
Unrealized gains on
investments 0 0 0 0 932 932
-------------------------------------------------------
Total comprehensive
income 97 4,796 (13) 0 932 5,812
Allocation of SQB
Capital 0 301 (301) 0 0 0
Distributions payable to
Liquidity BAC
Partners of $0.54 (78) (3,972) 0 0 0 (4,050)
================================================================================
Balance,
June 30, 2000
(Unaudited) $(2,151) $170,385 $48 $(288) $100,123 $268,117
================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 14
<TABLE>
Oxford Tax Exempt Fund II Limited Partnership
----------------------------------------------------------------------------
Statements of Cash Flows (in thousands) (Unaudited)
----------------------------------------------------------------------------
<CAPTION>
Six months ended June 30,
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $9,871 $9,683
Adjustments to reconcile net income
to net cash provided by operating activities:
Changes in assets and liabilities:
Interest receivable and other (75) (21)
Accounts payable and accrued expenses (232) 59
----------------------------------------------------------------------------
Net cash provided by operating activities 9,564 9,721
----------------------------------------------------------------------------
Investing Activities:
Investment in new assets (521) (14,324)
Receipt of bond principal payments 468 0
Increase in other assets, net (835) (1,183)
----------------------------------------------------------------------------
Net cash used in investing activities (888) (15,507)
----------------------------------------------------------------------------
Financing activities:
Increase in financing debt 0 5,000
Purchase of treasury shares (241) 0
Financing debt principal payments (191) 0
Distributions paid (8,088) (7,653)
----------------------------------------------------------------------------
Net cash used in financing activities (8,520) (2,653)
----------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 156 (8,439)
Cash and cash equivalents, beginning of period 5,500 18,011
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $5,656 $9,572
============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
-----------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in
the opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("Oxford Tax Exempt Fund II," "OTEF
II" or the "Partnership"), are necessary to present fairly
OTEF II's financial position as of June 30, 2000 and December 31,
1999, the Statements of Income and Comprehensive Income for the
three-month and six-month periods ended June 30, 2000 and 1999,
the Statement of Partners' Capital as of June 30, 2000, and the
Statements of Cash Flows for the six-month periods ended June 30,
2000 and 1999, and the notes thereto, in accordance with
generally accepted accounting principles. These statements
should be read in conjunction with the audited financial
statements and notes included in the Partnership's Annual Report
for the year ended December 31, 1999. Certain amounts have been
restated for comparative purposes.
Note 2. General Business
The Partnership was formed under the laws of the State of
Maryland, commenced operations on March 1, 1995. Oxford Tax
Exempt Fund II Corporation, a Maryland corporation, is the
Managing General Partner of OTEF II (the "Managing General
Partner"). OTEF II Associates Limited Partnership, a Maryland
limited partnership, is the associate general partner of OTEF II
(together with the Managing General Partner, the "General
Partners").
OTEF II is a publicly-traded partnership (AMEX: OTF) that
invests in tax-exempt bonds issued to finance high quality
apartment and senior living/health care communities, with the
objective of producing increasing income and quarterly
distributions for its shareholders. These distributions are
primarily exempt from federal income taxation.
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 quarterly sinking fund
redemptions that will result in full amortization of the Series A
Bonds during the 27-year remaining term beginning in the fourth
bond year, calculated using an assumed interest rate of 5.6% per
year. While the total payments on the Original Refunding 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% will be
applied to reduce the financing debt reported by OTEF II on its
balance sheet, which was approximately $52.4 million at June 30,
2000. 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
bonds will increase in 2001 and each year thereafter through the
remaining term of the Original Refunding Bonds.
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 on the dates indicated, with a maximum rate of 5.6% per
annum. The $54.153 million of Series A Bonds retained by OTEF
II were reset to the following annual interest rates:
<TABLE>
--------------------------------------------------
<CAPTION>
Bond Amount Interest
Reset Dates (in thousands) Rate
--------------------------------------------------
<S> <C> <C>
November 1, 1999 $ 7,010 4.88%
December 1, 1999 $ 27,344 5.12%
January 1, 2000 $ 11,126 5.37%
March 1, 2000 $ 8,673 5.54%
----------
Total $ 54,153
</TABLE>
The interest rates on the remaining $62.565 million of
Series A Bonds involved in the financing transactions described
under "Financing Transactions" below were converted from annual
reset to a weekly floating rate based on a spread over the BMA
index at the time such transactions were closed. This rate
averaged 4.03% for the 6 months ended June 30, 2000, 3.98% for
the 6 months ended June 30, 1999, 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> 16
------------------------------------------------------------------
Notes to Financial Statements
------------------------------------------------------------------
Taxable Investments. In the first quarter of 2000, OTEF II
made additional taxable advances of $0.25 million, $0.138
million and $0.05 million to River Reach, Summerwalk and
Jacaranda borrower entities, respectively. In the second quarter
of 2000, OTEF II made additional taxable advances of $0.29
million to Jacaranda.
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles.
Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Income Taxes. No provision has been made for federal,
state, or local income taxes in the financial statements of
OTEF II since the Partners 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 fair value, 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 June 30, 2000 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.
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 to Other Comprehensive Income in
partners' capital. In the event of a sale of a bond, these
unrealized gains or losses would be realized and would impact the
Statement of Income in the period the sale occurred.
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 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 were
$23.90 and $24.47 for the six-months ended June 30, 2000 and
1999, respectively. Because the strike price of $23.88
essentially equaled the average share price for the first six-
months of 2000, the options were not dilutive. All amounts have
been restated to reflect the 25-for-1 stock split effective July
1, 1997.
<PAGE> 17
-----------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------
Net Income and Distributions per BAC and SQB. Net income
and distributions per BAC and net income and distributions per
SQB are based upon the weighted average number of BACs and SQBs
outstanding during the applicable period. As of December 31,
1998 there were 7,183,200 BACs and 6,946 SQBs outstanding.
During the first quarter of 1999, 5,190 SQBs were exchanged for
129,750 BACs under the exchange program. As of March 31, 1999
there were 7,312,950 and 1,756 outstanding BACs and SQBs,
respectively. As of December 31, 1999, there were 7,338,425 BACs
and 737 SQBs outstanding. In January 2000, an additional 25 SQBs
were exchanged for 625 BACs and 10,000 BACs were repurchased by
OTEF II for approximately $0.24 million. In April 2000, an
additional 590 SQBs were exchanged for 14,750 BACs. BACs and
SQBs outstanding at June 30, 2000 were 7,343,800 and 122,
respectively.
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 $4.0 million, at June 30, 2000 and December 31, 1999,
respectively. Non-cash investing activity includes a change in
unrealized gain on investments of approximately $2.2 million for
the six-months ended June 30, 2000 and $3.1 million, for year
ended December 31, 1999, 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 $77.0 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.
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.
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. On February 8, 1999, OTEF II
distributed to SQB holders an offering circular describing a
voluntary offer to exchange 25 beneficial assignee certificates
("BACs"), which are publicly traded (AMEX: OTF), for each SQB
(SQBs are not publicly traded). This offer terminated on July
31, 1999. As of June 30, 2000, holders of 6,824 SQBs, or 98% of
the amount of SQBs originally issued, had converted their SQBs to
BACs, leaving 122 SQBs outstanding. These remaining SQBs
represent less than one-tenth of one percent of the total
outstanding equity interests of OTEF II.
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. Since the second quarter of 1999 such costs have
exceeded allocable income reducing existing SQB cash reserves.
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. As of March 31, 2000, costs exceeded income
allocable to SQBs resulting in a net loss of $5.88 per SQB for
the first quarter of 2000 and remaining SQB cash reserves were
fully utilized. Accordingly, on March 16, 2000 the Board of
Directors declared that no distribution would be paid to SQB
holders for the quarter ended March 31, 2000. For the quarter
ended June 30, 2000, costs exceeded income allocable to SQBs
resulting in a net loss of $112.14 per SQB, and no distribution
was paid to SQB holders. 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.
<PAGE> 18
-----------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------
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. Assets
associated with those SQB holders exchanging their shares for
BACs have been reclassified as BAC assets.
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.
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 $0.08 million for each of
the quarters ended June 30, 2000 and 1999.
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. 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. 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 services fees (the "Existing Fees")
are operating expenses of the Operating Partnerships that are
payable prior to the payment of interest on the Remarketed Bonds.
ORFG generally receives a 1% acquisition fee from OTEF II
for services rendered in connection with investment transactions.
No acquisition fees were paid in the first six-months of 2000.
OTEF II also generally pays ORFG an annual 0.5% advisory
fee for managing OTEF II's new investments. 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 for the six-month periods ended
June 30, 2000 and 1999 were approximately $0.30 and $0.17
million, respectively.
For the six month periods ended June 30, 2000 and 1999, the
Operating Partnerships, including the Carpenter Borrower and the
Dallas Borrower, paid ORFG total asset management fees of
approximately $0.35 million and $0.36 million, respectively. The
original Operating Partnerships also paid ORFG, in the aggregate,
approximately $0.35 million of fees in June 30, 2000 and 1999
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.
<PAGE> 19
-----------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------
Expense Reimbursements. OTEF II and the Operating
Partnerships also reimburse ORFG for certain expenses it incurs
in providing services with respect to the mortgaged properties
and the administration of OTEF II's affairs. Total
reimbursements to the General Partners and their affiliates for
the six-month periods ended June 30, 2000 and 1999 were
approximately $0.44 million and $0.41 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. 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. For the first six months ended June 30, 2000, the
average market price of $23.90 approximated the exercise price.
Since the date of grant, no options have been exercised or
forfeited.
Guarantees and Pledges. In connection with the Lakeside
North and Summerwalk investments, OTEF II, along with the
operating partnership that owns the applicable property, executed
a guaranty agreement relating to payment of issuer and trustee
fees and expenses (including expenses of their respective
counsel), as well as an indemnity agreement relating to
environmental matters pertaining to the property. OTEF II
obtained Phase I environmental site assessment reports for these
investments which, subject to the limitations stated therein,
conclude generally that no adverse environmental conditions
requiring remediation exist at either site. Accordingly, the
Managing General Partner believes that OTEF II does not have
material financial exposure under these agreements. In
connection with the Carpenter bond securitization, OTEF II
pledged the $10.3 million of Dallas bonds as collateral. In
connection with the River Reach investment transaction, OTEF II
executed a standby reimbursement agreement with a Merrill Lynch
affiliate which effectively guarantees approximately $24 million
obligations of the Naples Borrower to Banco Santander Central
Hispano, S.A. This reimbursement agreement was scheduled to
expire on June 9, 2000. On May 11, 2000, this reimbursement
agreement was extended to December 11, 2000. OTEF II may execute
similar agreements in connection with new investments made after
the date of this report.
<PAGE> 20
-----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACs or SQBs
-----------------------------------------------------------------
On July 22, 1997, the American Stock Exchange began trading
OTEF II BACs under the ticker symbol, OTF. Please follow
the instructions below to expedite the reregistration or transfer
of ownership of any OTEF II BACs or Status Quo BACs ("SQB") that
you may own.
IF YOU DO NOT HOLD CERTIFICATES
Your shares are being held by your brokerage firm in "street
name". To register a change of ownership of OTEF II BACs held
in such accounts, please have your account representative or
financial consultant request the necessary transfer documents.
YOU MUST HAVE THE PROPER TRANSFER DOCUMENTS FROM YOUR
BROKERAGE FIRM. Additionally, please contact your account
representative or financial consultant for address changes.
IF YOU HOLD CERTIFICATES
Effective July 1, 1997, OTEF II appointed Registrar and
Transfer Company ("R&T") as the sole registrar and transfer
agent with respect to the OTEF II BACs and SQBs.
All notices, claims, certificates, requests, demands and other
communications relating to transfers of OTEF II BACs and SQBs
should be sent to:
Registrar and Transfer Company
Attn: William Tatler, Vice President
Stock Transfer Department
10 Commerce Drive
Cranford, NJ 07016
All phone calls relating to such transfers should be directed
to:
Registrar and Transfer Company
Stock Transfer Department
1-800-368-5948
GENERAL INFORMATION
All general inquiries relating to OTEF II should be directed
to OTEF II Investor Services at 1-888-321-OTEF.
The Quarterly Report on Form 10-Q for the quarter ended June
30, 2000, filed with the Securities and Exchange Commission,
is available to SQB and OTEF II BAC Holders and may be
obtained by writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814
1-888-321-OTEF
ALSO VISIT OUR WEB SITE AT WWW.OTEF.COM
