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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
For the transition period from to
Commission File Number: 000-24843
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its
Agreement of Limited Partnership)
Delaware 47-0810385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates representing assignments of limited
partnership interests in the America First Tax Exempt Investors, L.P.
(the "BUCs")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the 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 (229.405 of the chapter) is not contained herein,
and will not be contained, to the best of the 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. [ ]
The aggregate market value of the Partnership's BUCs held by
non-affiliates of the Registrant on March 22, 2000, based on the final sales
price per BUC as reported in the Wall Street Journal on March 23, 2000, was
$53,275,703.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 3
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . 4
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 4
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . 13
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 13
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 16
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-ii-
PART I
Item 1. Business. America First Tax Exempt Investors, L.P. (the
Registrant or the Partnership) was formed on April 2, 1998 under the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring, holding,
operating, selling and otherwise dealing with a portfolio of federally
tax-exempt mortgage bonds which have been issued to provide construction
and/or permanent financing of multifamily residential apartments. The
Registrant's business objectives are to: (i) preserve and protect its capital;
(ii) provide regular cash distributions to investors; and, (iii) provide a
potential for an enhanced federally tax-exempt yield as a result of a
participation interest in the net cash flow and net capital appreciation of
the real estate financed by the tax-exempt bonds held by the Registrant. The
General Partner of the Registrant is America First Capital Associates Limited
Partnership Two ("AFCA").
On February 1, 1999, the Partnership merged with America First Tax Exempt
Mortgage Fund Limited Partnership (the Prior Partnership). Under the terms of
the merger agreement, the Partnership was the surviving partnership and
effectively took over the operations of the Prior Partnership. The Partnership
had no operations or activities prior to its merger with the Prior Partnership
and was formed, accordingly, for that sole purpose. The separate existence of
the Prior Partnership terminated on that date. The Partnership assumed all
the assets and liabilities of the Prior Partnership. Each BUC holder of the
Prior Partnership received one BUC of the Partnership as such BUC holder held
in the Prior Partnership. The General Partner of the Prior Partnership was
AFCA and, accordingly, the Merger did not result in a change in control. The
Partnership has additional authority to reconfigure its assets and sell
interests therein, to issue additional BUCs and to invest the proceeds of such
asset sales and BUC issuances in additional tax-exempt bonds secured by
multifamily housing properties.
At December 31, 1999, the Partnership held seven tax-exempt mortgage bonds
with a carrying value (at estimated fair value) equal to $71,720,000. The
tax-exempt mortgage bonds were issued by various state and local housing
authorities to provide for the construction and/or permanent financing of
seven multifamily housing properties located in five states. Under the terms
of the mortgage bonds, the principal amounts do not amortize over their
terms. The mortgage bonds provide for the payment of base interest to the
Partnership and for the payment of contingent interest based upon net cash
flow and net capital appreciation of the underlying real estate properties.
Therefore, the return to the Partnership depends upon the economic performance
of the real estate which collateralizes the mortgage bonds. For this reason,
the Partnership's investments are dependent on the economic performance of
such real estate and may be considered to be in competition with other
income-producing real estate of the same type in the same geographic areas. A
description of the seven tax-exempt mortgage bonds held by the Registrant at
December 31, 1999, (and the properties collateralizing such bonds) appears in
Note 5 of the Notes to Financial Statements filed in response to Item 8 hereof.
The Partnership is pursuing a business strategy of increasing the number
of tax-exempt multifamily mortgage bonds held by it in order to: (i) increase
the amount of tax-exempt interest available for distribution to its investors,
(ii) reduce risk through asset diversification and (iii) achieve economies of
scale. Unlike the Prior Partnership, the Registrant has the ability to
finance the acquisition of additional tax-exempt mortgage bonds through the
issuance of additional Beneficial Unit Certificates (BUCs) representing
assigned limited partnership interests and from the sale of senior debt
instruments created from its existing portfolio of tax-exempt mortgage bonds.
In general, tax-exempt mortgage bonds acquired by the Partnership will be
secured by a first mortgage or deed of trust on multifamily real estate.
Unlike the Prior Partnership, the Partnership also has the authority to
acquire tax-exempt bonds that represent less than 100% of the bonds secured by
a particular multifamily property. The Partnership may also acquire other
types of tax-exempt securities that may or may not be secured by real estate.
Such tax-exempt securities must be rated in one of the highest four rating
categories by at least one nationally recognized securities rating agency.
Such bonds may not represent more than 25% of the Partnership's assets at the
time of acquisition. In addition, the Partnership will be able to acquire
bonds secured by multifamily real estate which generate interest that is not
exempt from federal income tax. However, such bonds may only be acquired in
conjunction with the acquisition of tax-exempt mortgage bonds secured by the
same property.
The amount of cash received by the Partnership from tax-exempt mortgage
bonds is a function of the net rental revenues generated by the properties
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financed by the Partnership. Net rental revenues from a multifamily apartment
complex depend on the rental and occupancy rates of the property and on the
level of operating expenses. Occupancy rates and rents are directly affected
by the supply of, and demand for, apartments in the market areas in which a
property is located. This, in turn, is affected by several factors such as
local or national economic conditions, the amount of new apartment
construction and interest rates on single-family mortgage loans. In addition,
factors such as government regulation (such as zoning laws), inflation, real
estate and other taxes, labor problems and natural disasters can affect the
economic operations of a property.
In each city in which the properties financed by the Partnership are
located, such properties compete with a substantial number of other apartment
complexes. Apartment complexes also compete with single-family housing that
is either owned or leased by potential tenants. The principal method of
competition is to offer competitive rental rates. Such properties also
compete by emphasizing property location, condition and amenities.
The Partnership believes that each of the properties it has financed is in
compliance in all material respects with federal, state and local regulations
regarding hazardous waste and other environmental matters and the Partnership
is not aware of any environmental contamination at any of such properties that
would require any material capital expenditure by the Partnership for the
remediation thereof.
The Registrant is engaged in the business of providing financing for the
acquisition and improvement of multifamily real estate. Accordingly, the
presentation of information about industry segments is not applicable and
would not be material to an understanding of the Partnership's business taken
as a whole.
The Partnership has no employees. Certain services are provided to the
Partnership by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Partnership, and the Partnership
reimburses America First Companies L.L.C. for such services at cost. The
Partnership is not charged, and does not reimburse, for the services performed
by managers and officers of America First Companies L.L.C..
Item 2. Properties. At December 31, 1999, the Registrant held seven
tax-exempt mortgage bonds collateralized by first mortgages on multifamily
housing properties. Properties collateralizing the mortgage bonds are
described in the following table:
Average
Number Square Feet
Property Name Location of Units Per Unit
- - ----------------------------------- ------------------- -------- -----------
Woodbridge Apts. of Bloomington III Bloomington, IN 280 892
Ashley Pointe at Eagle Crest Evansville, IN 150 910
Woodbridge Apts. of Louisville II Louisville, KY 190 934
Northwoods Lake Apartments Duluth, GA 492 964
Ashley Square Des Moines, IA 144 963
Shoals Crossing Atlanta, GA 176 926
Arama Apartments Miami, FL 293 562
--------
1,725
========
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The average annual occupancy rate and average effective rental rate per
unit for each of the properties for each of the last five years are listed in
the following table.
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
WOODBRIDGE APTS. OF BLOOMINGTON III
Average Occupancy Rate 87% 95% 90% 95% 93%
Average Effective Annual Rental Per Unit $7,044 $7,071 $6,957 $7,251 $6,848
ASHLEY POINTE AT EAGLE CREST
Average Occupancy Rate 98% 99% 99% 96% 96%
Average Effective Annual Rental Per Unit $6,806 $6,711 $6,423 $6,163 $6,032
WOODBRIDGE APTS. OF LOUISVILLE II
Average Occupancy Rate 93% 93% 95% 95% 93%
Average Effective Annual Rental Per Unit $7,435 $7,344 $7,075 $6,880 $6,451
NORTHWOODS LAKE APARTMENTS
Average Occupancy Rate 97% 97% 94% 94% 97%
Average Effective Annual Rental Per Unit $7,719 $7,584 $7,263 $7,188 $7,101
ASHLEY SQUARE
Average Occupancy Rate 97% 97% 96% 97% 98%
Average Effective Annual Rental Per Unit $6,937 $6,565 $6,792 $6,728 $6,764
SHOALS CROSSING
Average Occupancy Rate 95% 90% 95% 93% 95%
Average Effective Annual Rental Per Unit $5,102 $4,581 $4,942 $4,712 $4,649
ARAMA APARTMENTS
Average Occupancy Rate 97% 98% 98% 99% 99%
Average Effective Annual Rental Per Unit $7,803 $7,649 $7,467 $7,517 $7,156
In the opinion of the Partnership's management, each of the properties is
adequately covered by insurance. For additional information concerning the
properties, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 5 to the Partnership's Financial
Statements. A discussion of general competitive conditions to which these
properties are subject is included in Item 1 hereof.
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Partnership is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of the fiscal year ended December 31,
1999, to a vote of the Partnership's security holders.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The BUCs trade on The NASDAQ Stock Market under
the trading symbol "ATAXZ." Prior to February 1, 1999, the BUCs of the Prior
Partnership traded under the trading symbol "AFTXZ". The following table sets
forth the high and low sale prices for the BUCs for each quarterly
period from January 1, 1998 through December 31, 1999.
1998 (1) High Low
1st Quarter $ 8-1/8 $ 7-1/8
2nd Quarter $ 8 $ 7-1/4
3rd Quarter $ 7-11/16 $ 6-5/8
4th Quarter $ 6-15/16 $ 5-7/8
1999 (1)
1st Quarter $ 6-3/4 $ 6
2nd Quarter $ 6-1/2 $ 6
3rd Quarter $ 6-1/2 $ 6
4th Quarter $ 6-1/2 $ 4
(1) The market price per BUC information includes that of the Partnership
from February 1, 1999 (the Merger Date) through December 31, 1999 and that of
the Prior Partnership for periods prior to the Merger Date.
(b) BUC Holders. The approximate number of BUC holders on December 31,
1999, was 5,857.
(c) Distributions. Cash distributions were made on a monthly basis
during 1999 and 1998. Effective January 1, 2000, distributions will be made
on a quarterly basis. Total cash distributions paid or accrued to BUC Holders
during the fiscal years ended December 31, 1999, and December 31, 1998,
equaled $4,939,669 and 5,388,728, respectively. The cash distributions paid
or accrued per BUC during the fiscal years ended December 31, 1999, and
December 31, 1998, were as follows:
Per BUC
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Income $ .4950 $ .1392
Return of Capital - .4008
-------- -------
$ .4950 .5400
======== =======
See Item 7, Management Discussion and Analysis of Financial Condition and
Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Partnership's ability to make cash distributions at the
same levels in 2000 and thereafter.
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership which includes the financial data of America First
Tax Exempt Investors, L.P. from February 1, 1999 (the Merger Date), through
December 31, 1999, and America First Tax Exempt Mortgage Fund Limited
Partnership for periods prior to the Merger Date. The information set
forth below should be read in conjunction with the combined Financial
Statements and Notes thereto filed in response to Item 8 hereof.
-4-
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
Mortgage bond investment income $ 5,813,261 $ 5,813,579 $ 6,169,500 $ 6,134,812 $ 6,159,236
Interest income on temporary cash investments 117,733 48,761 53,554 47,247 42,319
Contingent interest income 98,497 122,099 124,682 154,539 166,940
Realized loss on investment in
tax-exempt mortgage bonds - (4,000,000) - - -
Interest expense (87,715) - - - -
General and administrative expenses (872,973) (1,016,385) (678,487) (648,784) (585,926)
------------- ------------- ------------- ------------- -------------
Net income $ 5,068,803 $ 968,054 $ 5,669,249 $ 5,687,814 $ 5,782,569
============= ============= ============= ============= =============
Net income, basic and diluted,
per Beneficial Unit Certificate (BUC) $ .50 $ .09 $ .56 $ .56 $ .57
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .4950 $ .5400 $ .5400 $ .5400 $ .5400
============= ============= ============= ============= =============
Investment in tax-exempt mortgage bonds, at
estimated fair value $ 71,720,000 $ 71,720,000 $ 71,126,000 $ 66,026,000 $ 66,026,000
============= ============= ============= ============= =============
Total assets $ 77,989,725 $ 73,421,925 $ 73,213,016 $ 68,014,454 $ 67,698,916
============= ============= ============= ============= =============
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
On February 1, 1999, America First Tax Exempt Investors, L.P. (the New
Partnership) commenced operations when it merged with America First Tax Exempt
Mortgage Fund Limited Partnership (the Prior Partnership). Under the terms of
the merger agreement, the New Partnership was the surviving partnership and
effectively took over the operations of the Prior Partnership as of that
date. Unit holders of the Prior Partnership received one Beneficial Unit
Certificate (BUC) of the New Partnership for each BUC they held in the Prior
Partnership as of the record date. The Prior Partnership was terminated under
the provisions of the Prior Partnership's Partnership Agreement. The General
Partner of both the Prior Partnership and the New Partnership is America First
Capital Associates Limited Partnership Two (AFCA 2). The New Partnership and
the Prior Partnership are collectively referred to as the Partnership.
The Partnership's primary capital resource consists of the seven tax-exempt
mortgage bonds which were issued to the Partnership in order to provide
construction and/or permanent financing for the seven multifamily housing
projects listed in the following table:
At December 31, 1999
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- - ------------------------------------- ------------------ -------------- -------------- --------------
Woodbridge Apts. of Bloomington III Bloomington, IN 280 243 87%
Ashley Pointe at Eagle Crest Evansville, IN 150 146 97%
Woodbridge Apts. of Louisville II Louisville, KY 190 167 88%
Northwoods Lake Apartments Duluth, GA 492 479 97%
Shoals Crossing Atlanta, GA 176 171 97%
Ashley Square Des Moines, IA 144 144 100%
Arama Apartments Miami, FL 293 281 96%
-------------- -------------- --------------
1,725 1,631 95%
============== ============== ==============
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The aggregate carrying value of the tax-exempt bonds at December 31, 1999 was
$71,720,000. Because the sole source of funds available for the repayment of
principal of the bonds is the net proceeds from the sale or refinancing of the
financed properties, the carrying value of the bonds reflects the general
partner's current estimate of the aggregate fair market value of the financed
properties.
Each of the bonds bears interest at a fixed rate and provides for the payment
of additional contingent interest that is payable solely from available net
cash flow generated by the financed property. The principal amounts of the
bonds do not amortize over their respective terms.
The tax-exempt bonds secured by Shoals Crossing and Ashley Square were
reissued by their respective local housing finance authorities on February 25,
1999 and June 16, 1999. The existing tax-exempt bonds held by the Partnership
were terminated and new bonds in the same principal amounts were issued to the
Partnership. No gain or loss was recorded on the reissuances. The new bonds
have terms expiring on December 1, 2025, and provide for the payment of base
interest to the Partnership at a rate of 7.5% per annum. The tax exempt bonds
also bear contingent interest of up to an additional 3.5% per annum in the
case of Shoals Crossing and up to an additional 3% per annum in the case of
Ashley Square. Contingent interest is payable out of the net cash flow
generated by the respective property. Unpaid contingent interest on Ashley
Square compounds at a rate of 10.5% per annum.
With the reissuance of the two tax-exempt mortgage bonds described above, the
Partnership reissued six of its seven tax-exempt mortgage bonds since October
1998. The Partnership pursued the reissuance of such mortgage bonds in order
to allow the bonds to continue to generate tax-exempt interest for the
Partnership. Since the terms of the original bonds provided that the
principal of such bonds was to be repaid to the Partnership on December 1,
1997, and because the net sale or refinancing proceeds from the properties was
the sole source of principal repayment and the aggregate fair value of the
properties was less than the total principal amount of the bonds, the
repayment of the bonds according to their original terms was likely to have
caused a loss of capital to the Partnership. In order to avoid this result,
the Partnership elected to continue to hold the bonds beyond their original
repayment date. The Partnership then coordinated the reissuance of the bonds
with the state and local housing finance authorities at interest rates that
will allow debt service on the bonds to be paid from the net revenues
projected to be generated by the financed properties. No gain or loss was
recorded by the Partnership in connection with the reissuance of the
tax-exempt bonds. Management is considering the possible sale or refinancing
of the property securing the sole remaining tax-exempt mortgage bond which was
to be repaid to the Partnership on July 1, 1998.
As a result of refinancing and the reduction in the base and contingent
interest rates, the Partnership estimates it earned approximately $230,000
less in base and contingent interest in 1999 than it would have had the
mortgage bonds not been refinanced. In addition, the reduction in the base
interest rates make it more likely that AFCA 2 will receive its administrative
fees from the property owners on a current basis. A reduction in the
contingent interest rates will limit the Partnership's potential
participation in future increases, if any, in the net cash flow generated by
the financed properties and in the net proceeds generated by the ultimate sale
or refinancing of these properties.
Tax-exempt interest earned on the bonds represents the Partnership's principal
source of cash flow. The Partnership also earns tax-exempt and taxable
interest on certain other investments. The Partnership's principal uses of
cash are the payment of operating expenses and distributions to BUC holders.
The following table sets forth information relating to cash distributions paid
to BUC holders for the years shown:
-6-
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- --------------
Regular monthly distributions
Income $ .4950 $ .1392 $ .5400
Return of Capital - .4008 -
-------------- -------------- --------------
$ .4950 $ .5400 $ .5400
============== ============== ==============
Distributions
Paid out of current and prior undistributed cash flow $ .4950 $ .5400 $ .5400
============== ============== ==============
In addition to cash generated from interest income, the Partnership may also
draw on its reserve to pay operating expenses and to supplement cash
distributions. As of December 31, 1998, the amount held by the Partnership in
the reserve equaled $4,839,768. During the year ended December 31, 1999, a
total of $55,361 of undistributed income was placed into the reserve. Future
distributions to BUC Holders will depend upon the amount of base and
contingent interest received on the mortgage bonds, the size of the reserves
established by the Partnership and the extent to which withdrawals are made
from reserves.
The Partnership believes that the cash provided by interest income from its
tax-exempt bonds and other investments, supplemented, if necessary, by
withdrawals from its reserve, will be adequate to meet its projected
short-term and long-term liquidity requirements, including the payments of
expenses and distributions to BUC holders. Income from the tax-exempt
mortgage bond secured by Arama Apartments is expected to be substantially
reduced beginning in the latter part of the year 2000. Since 1986, Arama
Apartments has been receiving rent subsidies from the Department of Housing
and Urban Development and it is expected that these subsidies will be
significantly reduced in 2000.
The Partnership intends to invest in additional tax-exempt mortgage bonds and
related investments and expects to finance such acquisitions through the sale
of senior interests in its existing tax-exempt bonds and/or by issuing
additional BUCs. By acquiring additional investments, AFCA 2 hopes to (i)
increase the amount of tax-exempt interest available for distribution to BUC
holders, (ii) reduce risk through increased asset diversification and (iii)
achieve improved economies of scale. By financing the acquisition of
additional investments through the sale of senior interests in its existing
tax-exempt bonds, the Partnership will forego a portion of the interest it
currently earns on its existing tax-exempt bonds, but expects to reinvest the
sale proceeds in instruments which generate a greater amount of interest
income. To the extent the Partnership sells such senior interests and is
unable to reinvest the proceeds in investments that generate interest at least
as great as the interest paid on the senior interests, the amount of interest
income available to the Partnership will decline. AFCA 2 is unable to
estimate the amount, if any, of additional tax-exempt mortgage bonds and other
investments that the Partnership may acquire and there can be no assurance
that the Partnership will be able to achieve any of the goals stated above.
In keeping with the above, on August 12, 1999, the Partnership securitized
$5,000,000 of its tax-exempt mortgage bonds by depositing $25,250,000 of its
Northwoods Lake tax-exempt mortgage bonds into a trust (the Primary Trust)
which issued $25,250,000 in trust certificates (the Primary Trust
Certificates). The Primary Trust issued and delivered to a Merrill Lynch
affiliate $5,000,000 in Primary Trust Certificates which have a first priority
claim on principal and base interest on the underlying tax-exempt mortgage
bonds. The $5,000,000 in Primary Trust Certificates were placed in a secondary
trust (the Secondary Trust) and credit enhanced by a Merrill Lynch affiliate.
The Merrill Lynch affiliate sold to institutional investors floating rate
securities (the Secondary Securities) in the amount of $4,995,000. The
Partnership also pledged and transferred an additional $3,000,000 of Primary
Trust Certificates to a Merrill Lynch affiliate to secure payment of the
$5,000,000 principal amount of and accrued interest on the aforementioned
-7-
Primary Trust Certificates. The Partnership obtained ownership of the
remaining Primary Trust Certificates in the principal amount of $17,250,000
and the rights to all subordinate interest paid on the related tax-exempt
mortgage bonds. The Partnership also acquired a residual interest in the
Secondary Trust with a face amount of $5,000 and proceeds of the transfer of
the Primary Trust Certificates to the Merrill Lynch affiliate in the amount of
$4,995,000. The Partnership has a call right on the Secondary Securities and
upon exercise of such right may collapse the Secondary and Primary Trusts.
The purchase price of Secondary Securities is equal to the par amount plus 10%
of any increase in the market price of the underlying Primary Trust
Certificates. As described in Note 2 (E) to the financial statements, this
arrangement has been accounted for as a financing transaction.
In addition to the aforementioned financing arrangement, on September 1, 1999,
the Partnership pledged $12,600,000 of its Woodbridge Apartments of
Bloomington III tax-exempt mortgage bonds and Primary Trust Certificates
representing a beneficial interest in $2,000,000 in principal amount of the
Northwoods Lake tax-exempt mortgage bonds as security for a reimbursement
obligation regarding a $17,350,000 letter of credit. An additional $3,300,000
of Primary Trust Certificates were pledged as collateral on November 22,
1999. Such letter of credit was issued for the benefit of the purchaser of
Iona Lakes Apartments (the Project) located in Ft. Myers, Florida as part of a
plan by the Partnership to acquire certain securities representing an interest
in tax-exempt bonds secured by the Project which are anticipated to be issued
on or around April 1, 2000. Pending issuance of such bonds and certain other
events, the Partnership's obligations under the reimbursement obligation to
Banco Santander Hispano Central, S.A. will cease and the $12,600,000 of
tax-exempt mortgage bonds and $5,300,000 of Primary Trust Certificates will be
released from such pledge. However, upon issuance of the new bonds, the
Partnership anticipates that substantially all of these securities will be
pledged as collateral to the beneficial owner of the new bonds.
On November 22, 1999, the Partnership pledged $8,976,000 of its Woodbridge
Apartments of Louisville II tax-exempt mortgage bonds and Primary Trust
Certificates representing a beneficial interest in $2,000,000 in principal
amount of the Northwoods Lake tax-exempt mortgage bonds as security for a
reimbursement obligation regarding a $16,330,000 letter of credit. Such
letter of credit was issued for the benefit of the purchaser of Clear Lake
Colony Apartments (the Project) located in West Palm Beach, Florida as part of
a plan by the Partnership to acquire certain securities representing an
interest in tax-exempt bonds secured by the Project which are anticipated to
be issued on or around June 30, 2000. Pending issuance of such bonds and
certain other events, the Partnership's obligations under the reimbursement
obligation will cease and the $8,976,000 of tax-exempt mortgage bonds and $2
million of Primary Trust Certificates will be released from such pledge.
However, upon issuance of the new bonds, the Partnership anticipates that
substantially all of these securities will be pledged as collateral to the
beneficial owner of the new bonds.
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds in order to adjust,
when necessary, the carrying value of the mortgage bonds. Because the sole
source of funds available for the repayment of principal of the bonds is the
net proceeds from the sale or refinancing of the financed properties, the
carrying value of the bonds reflects the general partner's current estimate of
the aggregate fair market value of the financed properties. The fair value is
based on discounted estimated future cash flows. The calculation of
discounted estimated future cash flows includes certain variables such as the
assumed inflation rates for rents and expenses, capitalization rates and
discount rates. These variables are supplied to the Partnership by an
independent real estate appraisal firm based upon local market conditions for
each property. In certain cases, additional factors such as the replacement
value of the property or comparable sales of similar properties are also taken
into consideration. The carrying value of the mortgage bonds is periodically
reviewed and adjustments are made when there are significant changes in the
estimated fair value of the underlying collateral of the mortgage
bonds.
Based on the foregoing methodology, valuations and reviews performed during
1999 indicated that the carrying value of the Partnership's investment in
tax-exempt mortgage bonds recorded on the balance sheet at December 31, 1999,
required no adjustment.
-8-
The following sets forth certain information regarding the properties
collateralizing the Partnership's investment in tax-exempt mortgage bonds:
Woodbridge Apartments of Bloomington III
Woodbridge Apartments of Bloomington III, located in Bloomington, Indiana, had
an average occupancy rate of 87% in 1999 compared to 95% in 1998. As
previously disclosed, the tax-exempt mortgage bond secured by this property
was reissued in October 1998 which resulted in the reduction of the base
interest rate from 8.5% to 7.5% per annum. In addition to earning the full
amount of base interest at the rate of 7.5% during 1999, the Partnership also
received approximately $67,000 in past due base interest on the prior mortgage
bond. As a result, the Partnership earned interest of $1,025,121 in 1999.
This compares to $1,015,795 of interest earned during 1998.
Net cash flow generated by the property, excluding interest payable to the
Partnership and administrative fees payable to the general partner of the
Partnership, decreased approximately $106,000 from 1998 to 1999. Such
decrease is attributable to an decrease of approximately $20,000 in operating
revenue resulting from lower average occupancy and an increase of
approximately $86,000 in real estate operating expenses primarily due to
higher repairs and maintenance expenses and property improvements.
Ashley Pointe at Eagle Crest
Ashley Pointe at Eagle Crest, located in Evansville, Indiana, had an average
occupancy rate of 98% during 1999 compared to 99% in 1998. At December 31,
1999, base interest on this mortgage at the rate of 7% per annum was current.
As previously disclosed, the tax-exempt mortgage bond secured by this property
was reissued in October 1998 which resulted in the reduction of the base
interest rate from 8.5% to 7% per annum. In addition to earning $475,513
representing the full amount of base interest at the rate of 7%, the
Partnership also received $22,702 of contingent interest in 1999. This
compares to $520,571 of interest earned during 1998. Although in 1998 the
Partnership was due base interest at the rate of 8.5% prior to the reissuance
of the mortgage bond, the property was not able to generate sufficient cash
flow to pay the full amount of such base interest. As such, interest income
to the Partnership prior to the reissuance of the mortgage bond was a function
of the cash flow generated by the property.
Net cash flow generated by the property, excluding interest payable to the
Partnership and administrative fees payable to the general partner of the
Partnership, decreased approximately $32,000 from 1998 to 1999. Such decrease
is attributable to higher real estate operating expenses, primarily repairs
and maintenance expenses and property improvements. Such expense increases
were partially offset by a slight increase in operating revenue.
Woodbridge Apartments of Louisville II
Woodbridge Apartments of Louisville II, located in Louisville, Kentucky, had
an average occupancy rate of 93% in 1999 and 1998. As previously disclosed,
the tax-exempt mortgage bond secured by this property was reissued in October
1998 which resulted in the reduction of the base interest rate from 8.5% to
7.5% per annum. In addition to earning the full amount of base interest at
the rate of 7.5% during 1999, the Partnership also received approximately
$23,000 in past due base interest on the prior mortgage bond. As a result,
the Partnership earned interest of $705,512 in 1999. Although the Partnership
earned more than the base interest due for 1999, the interest earned by the
Partnership in 1999 was approximately $106,000 less than the $811,081 of
interest earned in 1998. Approximately $62,000 of such decrease is
attributable to the aforementioned decrease in the interest rate on the
mortgage bond and approximately $44,000 is attributable to the receipt of less
past due interest in 1999 compared to 1998.
Net cash flow generated by the property, excluding interest payable to the
Partnership and administrative fees payable to the general partner of the
Partnership, decreased approximately $58,000 from 1998 to 1999. Such decrease
is attributable to an increase of approximately $80,000 in real estate
operating expenses primarily due to higher repairs and maintenance expenses,
property improvements, and administrative costs which was partially offset by
an increase of approximately $22,000 in operating revenue.
-9-
Northwoods Lake Apartments
Northwoods Lake Apartments, located in Duluth, Georgia, had an average
occupancy rate of 97% during 1999 and 1998. At December 31, 1999, base
interest on this mortgage bond at the rate of 7.5% per annum was current. As
previously disclosed, the tax-exempt mortgage bond secured by this property
was reissued in November 1998 which resulted in the reduction of the base
interest rate from 8.5% to 7.5% per annum. In addition to earning the full
amount of base interest at the rate of 7.5% during 1999, the Partnership also
received approximately $95,000 in past due base interest on the prior mortgage
bond. As a result, the Partnership earned interest of $2,014,733 in 1999.
This compares to $1,929,491 of interest earned during 1998. Although in 1998
the Partnership was due base interest at the rate of 8.5% prior to the
reissuance of the mortgage bond, the property was not able to generate
sufficient cash flow to pay the full amount of such base interest. As such,
interest income prior to the reissuance of the mortgage bond was a function of
the cash flow generated by the property.
Net cash flow generated by the property, excluding interest payable to the
Partnership and administrative fees payable to the general partner of the
Partnership, increased approximately $101,000 from 1998 to 1999. Such
increase is attributable to an increase of approximately $85,000 in operating
revenue resulting primarily from rental rate increases and a decrease of
approximately $16,000 in real estate operating expenses.
Ashley Square
Ashley Square, located in Des Moines, Iowa, had an average occupancy rate of
97% during 1999 and 1998. The tax-exempt mortgage bond secured by this
property was reissued in June 1999, which resulted in the reduction of the
base interest rate from 8.5% to 7.5% per annum. Interest income earned on the
mortgage bond was $336,816 in 1999 compared to $425,036 in 1998. Such
interest represented less than the full amount of base interest due for the
respective years as the property was not able to generate sufficient cash flow
to pay the full amount of base interest due on the mortgage bond during either
year. As such, interest earned by the Partnership on the bond for each 1999
and 1998 was a function of the cash flow generated by the property for the
respective years. Because net cash flow generated by the property, before the
payment of interest to the Partnership, decreased from 1998 to 1999, interest
earned on the mortgage bond also decreased from 1998 to 1999. The $39,000
decrease in net cash flow resulted from higher operating expenses, primarily
property improvements and real estate taxes, which were partially offset by an
increase in operating revenue. A significant amount of property improvements
was made in 1999, including roof replacements and painting of the property
exteriors.
Shoals Crossing
Shoals Crossing, located in Atlanta, Georgia, had an average occupancy rate of
95% during 1999 compared to 90% during 1998. The tax-exempt mortgage bond
secured by this property was reissued in February 1999 which resulted in the
reduction of the base interest rate from 8.5% to 7.5% per annum. Interest
income was $226,965 on the mortgage bond in 1999 compared to $83,105 during
1998. Interest income recognized in both 1999 and 1998 was less than the base
interest due for the respective years as the property was not able to generate
sufficient cash flow to pay the full amount of such interest due. As such,
interest income to the Partnership was a function of the cash flow generated
by the property.
Net cash flow generated by the property, excluding interest payable to the
Partnership, increased approximately $56,000 from 1998 to 1999. Such increase
is attributable to an increase of approximately $85,000 in operating revenue
resulting primarily from the 5% increase in average occupancy which was
partially offset by an increase of approximately $29,000 in repairs and
maintenance expenses and property improvements. The property manager is
continuing its efforts to improve the tenant profile through more stringent
resident qualifications as well as complete deferred maintenance on the
property. It is anticipated that property improvement expenses will continue
to be high in 2000.
Arama Apartments
Arama Apartments, located in Miami, Florida, had an average occupancy rate of
97% in 1999 compared to 98% during 1998. Interest on this mortgage bond, at
the base interest rate, is current. In addition to earning base interest of
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$1,028,500 in 1999 and 1998, $75,795 of contingent interest was earned in 1999
compared with $122,099 in 1998.
Since 1986, the project has received rent subsidies from the Department of
Housing and Urban Development ("HUD") under various Section 8 Housing
Assistance Payment contracts (the "HAP Contracts"). The various HAP Contracts
on the underlying property are scheduled, on average, to expire in late 2000
and, due to changes enacted by the Multifamily Assisted Housing Reform and
Affordability Act, it is expected that the rent subsidies will be
significantly reduced when, and if, the HAP Contracts are renewed. The
property owner currently estimates that the net cash flow available to pay
debt service that will be generated by the property after the expiration of
the original HAP Contracts will not be sufficient to pay the full amount of
the base interest on the tax-exempt bond on this property. Management of the
Partnership is continuing to negotiate potential modifications to the existing
loan agreements with the owner of the property in anticipation of the
termination of the HAP Contracts.
In 1998, the Partnership recorded a $4,000,000 realized loss on this mortgage
bond as the Partnership's review indicated that it was not likely to recover
or receive its contracted cash flows (including the repayment of principal) on
such investment. The Partnership's 1999 review of the real estate
collateralizing such mortgage bond indicated the carrying value of such
investment required no adjustment.
Results of Operations
The tables below compare the results of operations for each year shown.
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- --------------
Mortgage bond investment income $ 5,813,261 $ 5,813,579 $ 6,169,500
Interest income on temporary cash investments 117,733 48,761 53,554
Contingent interest income 98,497 122,099 124,682
-------------- -------------- --------------
6,029,491 5,984,439 6,347,736
-------------- -------------- --------------
Realized loss on investment in tax-exempt mortgage bonds - 4,000,000 -
Interest expense 87,715 - -
General and administrative expenses 872,973 1,016,385 678,487
-------------- -------------- --------------
960,688 5,016,385 678,487
-------------- -------------- --------------
Net income $ 5,068,803 $ 968,054 $ 5,669,249
============== ============== ==============
Increase Increase
(Decrease) (Decrease)
From 1998 From 1997
-------------- --------------
Mortgage bond investment income $ (318) $ (355,921)
Interest income on temporary cash investments 68,972 (4,793)
Contingent interest income (23,602) (2,583)
-------------- --------------
45,052 (363,297)
-------------- --------------
Realized loss on investment in tax-exempt mortgage bonds (4,000,000) 4,000,000
Interest expense 87,715 -
General and administrative expenses (143,412) 337,898
-------------- --------------
(4,055,697) 4,337,898
-------------- --------------
Net income $ 4,100,749 $ (4,701,195)
============== ==============
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Mortgage bond investment income on the tax-exempt mortgage bonds secured by
Shoals Crossing, Northwoods Lake Apartments and Woodbridge Apartments of
Bloomington III increased by approximately $144,000, $85,000 and 9,000,
respectively, from 1998 to 1999. These increases were offset by decreases of
approximately $106,000, $88,000 and $44,000 in mortgage bond investment income
from Woodbridge Apartments of Louisville II, Ashley Square and Ashley Pointe
at Eagle Crest. See the discussion of each property in the "Asset Quality"
section for additional information.
Mortgage bond investment income during 1998 was approximately $356,000 less
than 1997. This decrease is attributable to decreased cash flow from Shoals
Crossing Apartments of $299,000, Woodbridge Apts. of Bloomington III of
$55,000, Woodbridge Apts. of Louisville of $52,000 and Ashley Square of
$52,000 partially offset by increases in cash flow from Northwoods Lake
Apartments of approximately $84,000 and Ashley Pointe at Eagle Crest of
approximately $18,000.
The increase of $68,972 in interest income on temporary cash investments from
1998 to 1999 is primarily attributable to an increase in the Partnership's
cash reserve resulting from $5 million in debt financing obtained in August
1999 as discussed in "Liquidity and Capital Resources."
The decrease in interest income on temporary cash investments of $4,793 from
1997 to 1998 is attributable to a decrease in cash reserves as withdrawals
were made from reserves to supplement distributions to BUC holders, primarily
during the fourth quarter of 1998.
Contingent interest income decreased $23,602 from 1998 to 1999. This is the
result of a $46,000 decrease in contingent interest received from the mortgage
bond on Arama Apartments which was partially offset by the receipt of an
additional $22,398 of contingent interest from the mortgage bond on Ashley
Pointe at Eagle Crest. The decrease in contingent interest generated by Arama
Apartments was due to a decrease in net cash flow generated by Arama
Apartments during the contingent interest period. The Partnership did not earn
contingent interest on the Ashley Pointe at Eagle Crest mortgage bond in
1998. During October 1998, this tax-exempt mortgage bond was reissued with a
lower base rate of interest. This allowed the property to generate contingent
interest on the reissued bond in 1999. However, the overall tax-exempt
interest earned by the Partnership on the Ashley Pointe at Eagle Crest
mortgage bond decreased by approximately $22,000 from 1998 to 1999 due
primarily to a decrease in net cash flow generated by the property.
The decrease in contingent interest income of $2,583 from 1997 to 1998 is
attributable to a decrease in the net cash flow generated by Arama Apartments
during the respective year's contingent interest period.
During 1998, management determined it is not likely to recover or receive its
contracted cash flows (including the repayment of principal) on its investment
in the Arama Apartments tax-exempt mortgage bond. Accordingly the Partnership
realized a loss of $4,000,000. No such losses were recorded in 1999 or 1997.
During 1999, the Partnership incurred interest expense of $87,715 on the
$5,000,000 of debt financing described in "Liquidity and Capital Resources".
Excluding costs of approximately $224,000 incurred in 1998 in conjunction with
the Merger, general and administrative expenses increased approximately
$81,000 from 1998 to 1999 due to overall expense increases. General
and administrative expenses increased $337,898 from 1997 to 1998 due to costs
of approximately $224,000 incurred in conjunction with the Merger, an
increase of approximately $63,000 in salaries and related expenses, and an
increase of approximately $51,000 in other general and administrative
expenses.
Year 2000
The Partnership does not own or operate its own computer system and owns no
business or other equipment. However, the operation of the Partnership's
business relies on the computer system and other equipment maintained by
America First Companies L.L.C., the parent company of its general partner
("America First"). In addition, the Partnership has business relationships
with a number of third parties whose ability to perform their obligations to
the Partnership depend on such systems and equipment. To date, the
Partnership has not experienced any significant problems with such systems and
-12-
equipment arising from the inability of computer programs and embedded
circuitry to correctly recognize dates occurring after December 31, 1999.
Although the Partnership does not anticipate that so-called "Year 2000
problems" will surface, there can be no assurance that such problems will not
arise. The Partnership has not incurred any significant costs in rectifying
Year 2000 problems.
Forward Looking Statements
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk. The
Partnership's exposure to market risk for changes in interest rates relates
primarily to its investments in tax-exempt mortgage bonds. The tax-exempt
mortgage bonds have fixed interest rates. The principal amount of the
tax-exempt mortgage bonds does not amortize over its terms. The Partnership
does not use derivative financial instruments to hedge its investment
portfolio.
During 1999 and 1998, six of the seven tax-exempt mortgage bonds held by the
Partnership were reissued by the respective local finance authorities. The
Partnership expects that the remaining tax-exempt bond will either be reissued
in a similar manner or sold, mostly likely at a discount. The table below
presents principal amounts and related weighted average interest rates by year
of maturity for the reissued bonds and the bond expected to be reissued or
sold:
Weighted Average
Tax-Exempt Mortgage Bonds Principal Amount Interest Rate Maturity
- - ------------------------- ---------------- ---------------- ------------
Reissued bonds $ 64,526,000 7.4% beyond 2004
Bonds expected to be
reissued or sold 12,100,000 8.5% 2000(1)
(1) Although the contractual maturity of the tax-exempt mortgage bond does
not provide for the payment of principal until after 2004, the Partnership
anticipates that, possibly in 2000, the tax-exempt mortgage bond will be
reissued in the same principal amount or sold, mostly likely at a discount.
The aggregate fair value of the Partnership's tax-exempt mortgage bonds was
$71,720,000 at December 31, 1999.
As the table above incorporates only those positions or exposures that existed
as of December 31, 1999, it does not consider those exposures or positions
that could arise after that date. Moreover, because future commitments are
not presented in the table above, the information presented has limited
predictive value. As a result, the Partnership's ultimate economic impact
with respect to interest rate fluctuations will depend on the exposures that
arise during the period, the Partnership's risk mitigating strategies at that
time and interest rates.
Item 8. Financial Statements and Supplementary Data. The Financial
Statements of the Registrant are set forth in Item 14 hereof and are
incorporated herein by reference.
-13-
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1999 and 1998.
The information required by this Item 9 relating to a change in accountants
has been previously reported (as that term is defined by Rule 12a-2 of the
Exchange Act) with the Commission by the Partnership on its Current Report on
Form 8-K dated December 15, 1998, as amended, and is hereby incorporated by
reference.
-14-
PART III
Item 10. Directors and Executive Officers of the Registrant. The
Registrant has no directors or officers. Management of the Registrant
consists of the general partner of the Registrant, America First Capital
Associates Limited Partnership Two ("AFCA") and its general partner, America
First Companies L.L.C.. The following individuals are the managers and
officers of America First Companies L.L.C., and each serves for a term of one
year.
Name Position Held Position Held Since
Michael B. Yanney Chairman of the Board, 1985
President, Chief
Executive Officer and Manager
Michael Thesing Vice President, Secretary, 1985
Treasurer and Manager,
Chief Financial and
Accounting Officer
William S. Carter, M.D. Manager 1994
Martin A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
Lisa Yanney Roskens Manager 1999
Michael B. Yanney, 66, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. From 1977 until the organization of the first such fund in 1984, Mr.
Yanney was principally engaged in the ownership and management of commercial
banks. Mr. Yanney also has investments in private corporations engaged in a
variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha
National Bank and Omaha National Corporation (now part of U.S. Bank), where he
held various positions, including the position of Executive Vice President and
Treasurer of the holding company. Mr. Yanney also serves as a member of the
boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil
Corporation, Level 3 Communications, Inc., Freedom Communications, Inc.,
Magnum Resources, Inc., America First Mortgage Investments, Inc., RCN
Corporation, Rio Grande Medical Technologies, Inc. and Telecom Technologies,
Inc. Mr. Yanney is the husband of Gail Yanney and the father of Lisa Yanney
Roskens.
Michael Thesing, 45, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. He serves as
President of America First Investment Advisors, LLC and is a member of the
Board of the Board of Managers of America First Companies L.L.C. and America
First Investment Advisors, LLC. From January 1984 until July 1984 he was
employed by various companies controlled by Mr. Yanney. He was a certified
public accountant with Coopers & Lybrand from 1977 through 1983.
William S. Carter, M.D., 73, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
Martin A. Massengale, 66, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1991 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc. and is a member of the Board
of Trustees of the Great Plains Funds, Inc.
Alan Baer, 77, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
-15-
Gail Walling Yanney, 63, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney and the mother of Lisa Yanney Roskens.
Mariann Byerwalter, 39, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("AFEH") and EurekaBank from
1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief
Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993
to January 1996. She was an officer of BankAmerica Corporation and its
venture capital subsidiary from 1984 to 1987. She served as Vice President
and Executive Assistant to the President of Bank of America and was a Vice
President in the bank's Corporate Planning and Development Department. Ms.
Byerwalter currently serves on the board of directors of Redwood Trust, Inc.,
SRI International, Stanford Management Company and Stanford Hospitals and
Clinics.
Lisa Yanney Roskens, 33, is a Managing Director of Twin Compass, LLC, a
small business consulting firm. From 1997 to 1999, Ms. Roskens was employed
by Inacom Corporation, where she held the position of Director of Business
Development and Director of Field Services Development. From 1995 to 1997,
Ms. Roskens served as Finance Director for the U.S. Senate campaign of Senator
Charles Hagel of Nebraska. From 1992 to 1995, Ms. Roskens was an attorney
with the Kutak Rock law firm in Omaha, Nebraska, specializing in commercial
litigation. Ms. Roskens is the daughter of Michael Yanney and Gail Walling
Yanney.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities and Exchange Act of 1934 requires the managers
and executive officers of the general partner of the Registrant's general
partner and persons who own more than 10% of the Registrant's BUCs to file
with the Securities and Exchange Commission (the "SEC") reports of their
ownership of the Registrant's BUCs. Such officers, managers and BUC holders
are required by SEC regulation to furnish the Registrant with copies of all
Section 16(a) reports they file. Based solely upon review of the copies of
such reports received by the Registrant and written representations from each
such person who did not file an annual report with the SEC (Form 5) that no
other reports were required, the Registrant believes that, except as set forth
below, there was compliance for the year ended December 31, 1999 with all
Section 16(a) filing requirements applicable to such executive officers,
managers and beneficial owners of BUCs.
Form 4s reporting the acquisition of a total of 9,500 BUCs on various dates in
1999 were not timely filed by Lisa Yanney Roskens.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. Certain services are provided to the Registrant by
managers and officers of America First Companies, L.L.C. (the general partner
of AFCA). None of the managers or executive officers of America First
Companies L.L.C. receive compensation from the Registrant and AFCA receives no
reimbursement from the Registrant for any portion of their salaries.
Remuneration paid by the Registrant to the Registrant's general partner
pursuant to the terms of its limited partnership agreement during the year
ended December 31, 1999 is described in Note 6 of the Notes to the Financial
Statements filed in response to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by the Registrant to own beneficially more
than 5% of the Registrant's BUCs.
(b) Lisa Yanney Roskens owns 9,500 BUCs. No other manager or
officer of America First Companies L.L.C. and no partner of AFCA owns any BUCs.
(c) There are no arrangements known to the Registrant the
operation of which may, at any subsequent date, result in a change in control
of the Registrant.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Registrant is AFCA and the sole general partner of AFCA is
America First Companies L.L.C..
-16-
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA , America First Companies L.L.C.
or with any person who is: (i) a manager or executive officer of America First
Companies L.L.C. or any general partner of AFCA; (ii) a nominee for election
as a manager of America First Companies L.L.C.; (iii) an owner of more than 5%
of the BUCs; or, (iv) a member of the immediate family of any of the foregoing
persons.
During 1999, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $1,065,163 for certain costs and expenses incurred in
connection with the operation of the Registrant, including legal and
accounting fees, investor communication costs, such as printing and mailing
charges, and certain costs capitalized by the Partnership. See Note 6 to
Notes to Financial Statements filed in response to Item 8 hereof for a
description of these costs and expenses.
AFCA received administrative fees of $286,732 in 1999. These
administrative fees are paid by the owners of the properties financed by the
tax-exempt mortgage bonds held by the Partnership out of the net cash flow
generated by the properties prior to the payment of contingent interest on
such bonds. Since these fees are not Partnership expenses, they have not been
reflected in the accompanying financial statements.
AFCA is entitled to an administrative fee from the Partnership in the
event the Partnership acquires additional tax-exempt bonds or other mortgage
investments and is not able to negotiate the payment of these fees by the
property owners or in the event it acquires title to any of the properties
securing its existing tax-exempt bonds by reason of foreclosure. AFCA was not
entitled to any administrative fees from the Partnership for the year ended
December 31, 1999.
America First Properties Management Company, L.L.C. (the "Manager"), an
affiliate of AFCA, was retained to provide property management services with
respect to the day-to-day operation of Ashley Square, Northwoods Lake
Apartments, Ashley Pointe at Eagle Crest and Shoals Crossing. The property
management agreements provide that the Manager is entitled to receive a
management fee equal to a stated percentage of the gross revenues generated by
the property under management. Management fees payable to the Manager range
from 4% to 4.5% of gross revenues. The management fees paid to the Manager
reflect market rates for such services in the areas in which these properties
are located. During the year ended December 31, 1999, the Manager received
property management fees of $320,368.
-17-
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 of the Registrant. The following
financial statements of the Registrant are included in response to
Item 8 of this report:
Independent Auditors' Reports
Balance Sheets of the Registrant as of December 31, 1999, and
December 31, 1998.
Combined Statements of Income and Comprehensive Income of the
Registrant for the years ended December 31, 1999,
December 31, 1998, and December 31, 1997.
Combined Statements of Partners' Capital of the Registrant for
the years ended December 31, 1999, December 31, 1998, and
December 31, 1997.
Combined Statements of Cash Flows of the Registrant for the
years ended December 31, 1999, December 31, 1998, and
December 31, 1997.
Notes to Combined Financial Statements of the Registrant.
2. Financial Statement Schedules. The information required
to be set forth in the financial statement schedules is shown in
the Notes to Financial Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits are filed as required
by Item 14(c) of this report. Exhibit numbers refer to the
paragraph numbers under Item 601 of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Five (incorporated herein by
reference to Form S-11 Registration Statement filed August 30,
1985, with the Securities and Exchange Commission by America
First Tax Exempt Mortgage Fund Limited Partnership (Commission
File No. 2-99997)).
4(a) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Exhibit 4.1 to Registration
Statement on Form S-4 (No. 333-50513) filed by the Registrant
on April 17, 1998).
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Form 10-K dated December 31, 1998
filed pursuant to Section 13 or 15(d) of the Securities Act of
1934 by America First Tax Exempt Investors, L.P. (Commission
File No. 000-24843)).
4(c) Amended Agreement of Merger, dated June 12, 1998,
between the Registrant and America First Tax Exempt Mortgage
Fund Limited Partnership (incorporated by reference to Exhibit
4.3 to Amendment No. 3 to Registration Statement on Form S-4
(No. 333-50513) filed by the Registrant on September 14, 1998).
24. Power of Attorney.
27. Financial Data Schedule.
(b) The Registrant filed the following reports on Form 8-K during
the last quarter of the period covered by this report:
Financial
Date of Report Item Reported Statements Filed
---------------- ------------------------- ----------------
September 23, 1999 Item 5. Other Events No
November 22, 1999 Item 5. Other Events No
-18-
Independent Auditors' Report
To the Partners
America First Tax Exempt Investors, L.P.:
We have audited the accompanying balance sheets of America First Tax Exempt
Investors, L.P. (formerly America First Tax Exempt Mortgage Fund Limited
Partnership) as of December 31, 1999 and 1998, and the related
statements of income and comprehensive income, partners' capital and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Tax Exempt
Investors, L.P. (formerly America First Tax Exempt Mortgage Fund Limited
Partnership) as of December 31, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Omaha, Nebraska /s/ KPMG LLP
March 3, 2000
-19-
Independent Auditors' Report
To the Partners
America First Tax Exempt Mortgage Fund Limited Partnership:
We have audited the accompanying statements of income and comprehensive
income, partners' capital and cash flows of America First Tax Exempt Mortgage
Fund Limited Partnership for the year ended December 31, 1997. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of America
First Tax Exempt Mortgage Fund Limited Partnership for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1998 /s/PriceWaterhouseCoopers LLP
-----------------------------
Coopers & Lybrand L.L.P.
-20-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
BALANCE SHEETS
Dec. 31, 1999 Dec. 31, 1998
-------------- --------------
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 3,914,863 $ 920,801
Investment in tax-exempt mortgage bonds (including $5 million in a secondary
trust (Note 2E)), at estimated at fair value (Note 5) 71,720,000 71,720,000
Interest receivable 627,379 503,234
Other assets 1,727,483 277,890
-------------- --------------
$ 77,989,725 $ 73,421,925
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 242,220 $ 276,184
Distribution payable (Note 3) - 453,597
Debt financing 5,000,000 -
-------------- --------------
5,242,220 729,781
-------------- --------------
Partners' Capital
General Partner 5,980 5,426
Beneficial Unit Certificate Holders
($7.29 per BUC in 1999 and $7.28 in 1998) 72,741,525 72,686,718
-------------- --------------
72,747,505 72,692,144
-------------- --------------
$ 77,989,725 $ 73,421,925
============== ==============
The accompanying notes are an integral part of the combined financial statements.
-21-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
COMBINED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- --------------
Income
Mortgage bond investment income (Note 5) $ 5,813,261 $ 5,813,579 $ 6,169,500
Interest income on temporary cash investments 117,733 48,761 53,554
Contingent interest income (Note 5) 98,497 122,099 124,682
-------------- -------------- --------------
6,029,491 5,984,439 6,347,736
-------------- -------------- --------------
Expenses
Realized loss on investment in tax-exempt mortgage bonds - 4,000,000 -
Interest expense 87,715 - -
General and administrative expenses (Note 6) 872,973 1,016,385 678,487
-------------- -------------- --------------
960,688 5,016,385 678,487
-------------- -------------- --------------
Net income 5,068,803 968,054 5,669,249
Other comprehensive income:
Unrealized gains on securities
Net unrealized holding gains arising during the year - 594,000 5,100,000
Plus: reclassification adjustment for losses included in net income - 4,000,000 -
-------------- -------------- --------------
- 4,594,000 5,100,000
-------------- -------------- --------------
Net comprehensive income $ 5,068,803 $ 5,562,054 $ 10,769,249
============== ============== ==============
Net income allocated to:
General Partner $ 74,327 $ 78,985 $ 86,616
BUC Holders 4,994,476 889,069 5,582,633
-------------- -------------- --------------
$ 5,068,803 $ 968,054 $ 5,669,249
============== ============== ==============
Net income, basic and diluted, per BUC $ .50 $ .09 $ .56
============== ============== ==============
The accompanying notes are an integral part of the combined financial statements.
-22-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1996 TO DECEMBER 31, 1999
Beneficial Unit
General Certificate
Partner Holders Total
-------------- --------------- --------------
Partners' Capital (excluding accumulated other comprehensive income)
Balance at December 31, 1996 $ 8,515 $ 77,898,473 $ 77,906,988
Net income 86,616 5,582,633 5,669,249
Cash distributions paid or accrued (Note 3) (84,658) (5,388,729) (5,473,387)
-------------- --------------- --------------
Balance at December 31, 1997 10,473 78,092,377 78,102,850
Net income 78,985 889,069 968,054
Cash distributions paid or accrued (Note 3)
Income (84,032) (1,388,728) (1,472,760)
Return of capital - (4,000,000) (4,000,000)
-------------- --------------- --------------
Balance at December 31, 1998 5,426 73,592,718 73,598,144
-------------- --------------- --------------
Net income (combined) 74,327 4,994,476 5,068,803
Cash distributions paid or accrued (Note 3) (combined) (73,773) (4,939,669) (5,013,442)
-------------- --------------- --------------
Balance at December 31, 1999 5,980 73,647,525 73,653,505
-------------- --------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 1996 - (10,600,000) (10,600,000)
Other comprehensive income - 5,100,000 5,100,000
-------------- --------------- --------------
Balance at December 31, 1997 - (5,500,000) (5,500,000)
Other comprehensive income - 4,594,000 4,594,000
-------------- --------------- --------------
Balance at December 31, 1998 and 1999 - (906,000) (906,000)
-------------- --------------- --------------
Balance at December 31, 1999 $ 5,980 $ 72,741,525 $ 72,747,505
============== =============== ==============
The accompanying notes are an integral part of the combined financial statements.
-23-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
COMBINED STATEMENTS OF CASH FLOWS
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- --------------
Cash flows from operating activities
Net income $ 5,068,803 $ 968,054 $ 5,669,249
Adjustments to reconcile net income to net cash
from operating activities
Realized loss on investment in tax-exempt mortgage bonds - 4,000,000 -
Decrease (increase) in interest receivable (124,145) 52,783 42,156
Decrease (increase) in other assets (141,597) (2,985) 2,615
Increase (decrease) in accounts payable (33,964) 119,615 (97,300)
-------------- -------------- --------------
Net cash provided by operating activities 4,769,097 5,137,467 5,616,720
-------------- -------------- --------------
Cash flows from investing activities
Bond issuance costs paid (152,988) (266,799) -
Increase in other assets (1,155,008) - -
-------------- -------------- --------------
Net cash used in investing activities (1,307,996) (266,799) -
-------------- -------------- --------------
Cash flows from financing activities
Distributions paid (5,467,039) (5,472,760) (5,473,387)
Proceeds from debt financing 5,000,000 - -
-------------- -------------- --------------
Net cash used in financing activities (467,039) (5,472,760) (5,473,387)
-------------- -------------- --------------
Net increase (decrease) in cash and temporary cash investments 2,994,062 (602,092) 143,333
Cash and temporary cash investments at beginning of year 920,801 1,522,893 1,379,560
-------------- -------------- --------------
Cash and temporary cash investments at end of year $ 3,914,863 $ 920,801 $ 1,522,893
============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 74,224 $ - $ -
============== ============== ==============
Supplemental disclosure of non-cash investing activity: During 1999 and 1998,
two and four, respectively, of the Partnership's tax-exempt mortgage bonds
secured by multifamily properties were refinanced by their respective state
and local housing finance authorities. In each case, the existing tax-exempt
bond held by the Partnership was terminated and a new bond in the same
principal amount was issued to the Partnership. The total amount refinanced
was $11,000,000 in 1999 and $53,526,000 in 1998.
The accompanying notes are an integral part of the combined financial
statements.
-24-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. Organization
America First Tax Exempt Investors, L.P. (the New Partnership) was formed on
April 2, 1998 under the Delaware Revised Uniform Limited Partnership Act for
the purpose of acquiring, holding, operating, selling and otherwise dealing
with a portfolio of federally tax-exempt mortgage bonds which have been issued
to provide construction and/or permanent financing of multifamily residential
apartments. The New Partnership commenced operations on February 1, 1999,
when it was merged with America First Tax Exempt Mortgage Fund Limited
Partnership (the Prior Partnership). The Partnership had no operations or
activities prior to its merger with the Prior Partnership and was formed,
accordingly, for that sole purpose. Under the terms of the merger agreement,
the New Partnership was the surviving partnership and effectively took over
the operations of the Prior Partnership as of that date. Unit holders of the
Prior Partnership received one Beneficial Unit Certificate (BUC) of the New
Partnership for each BUC they held in the Prior Partnership as of the record
date. The Prior Partnership was terminated under the provisions of the Prior
Partnership's Partnership Agreement. The New Partnership will terminate on
December 31, 2050, unless terminated earlier under the provisions of its
Partnership Agreement. The general partner of both the Prior Partnership and
the New Partnership is America First Capital Associates Limited Partnership
Two (AFCA 2). The New Partnership and the Prior Partnership are collectively
referred to as the Partnership.
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The accompanying 1999 financial statements include the combined accounts
of the New Partnership from February 1, 1999 (the Merger Date), through
December 31, 1999, and the accounts of the Prior Partnership from January
1, 1999 until the Merger Date. The combination of the accounts of the
Prior Partnership and the New Partnership is reflected on an "as-if"
pooling basis for a merger of entities under common control. Financial
statements for 1998 and 1997 include the accounts of the Prior Partnership.
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 date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B)Investment in Tax-Exempt Mortgage Bonds
Investment securities are classified as held-to-maturity, available-for-
sale or trading. Investments classified as available-for-sale are reported
at fair value with any unrealized gains or losses excluded from earnings
and reflected in other comprehensive income. Subsequent increases and
decreases in the net unrealized gain/loss on available-for-sale securities
are reflected as adjustments to the carrying value of the portfolio and in
other comprehensive income. The Partnership does not have investment
securities classified as held-to-maturity or trading.
Because the sole source of funds available for the repayment of
principal of the bonds is the net proceeds from the sale or refinancing of
the financed properties, the carrying value of the bonds reflects
management's current estimate of the aggregate fair market value of
the financed properties. The carrying value of tax-exempt mortgage bonds
is periodically reviewed and adjusted when there are significant changes in
the estimated fair market value. The fair value is based on discounted
estimated future cash flows. The calculation of discounted estimated
future cash flows includes certain variables such as the assumed inflation
rates for rents and expenses, capitalization rates and discount rates.
These variables are supplied to the Partnership by an independent real
estate appraisal firm based upon local market conditions for each
property. In certain cases, additional factors such as the replacement
value of the property or comparable sales of similar properties are also
taken into consideration.
-25-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The carrying value of the mortgage bonds is periodically reviewed and
adjustments are made when there are significant changes in the estimated
fair value of the underlying collateral for the tax-exempt mortgage bonds.
Mortgage bond investment income is recognized as earned.
C)Income Taxes
No provision has been made for income taxes since the Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
The tax basis of the Partnership's assets and liabilities exceeded the
reported amounts by $4,905,987 and $5,359,584 at December 31, 1999 and
1998, respectively.
D)Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
E)Debt Financing
The Partnership has securitized $5,000,000 of its tax-exempt mortgage
bonds. In connection with the securitization, the Partnership has
deposited $25,250,000 of its tax-exempt mortgage bonds into a trust (the
Primary Trust) which issued $25,250,000 in trust certificates (the Primary
Trust Certificates). The Primary Trust issued and delivered to a Merrill
Lynch affiliate $5,000,000 in Primary Trust Certificates which have a first
priority claim on principal and base interest on the underlying tax-exempt
mortgage bonds. The $5,000,000 in Primary Trust Certificates were placed in
a secondary trust (the Secondary Trust) and credit enhanced by a Merrill
Lynch affiliate. The Merrill Lynch affiliate sold to institutional
investors floating rate securities (the Secondary Securities) in the amount
of $4,995,000. The Partnership also pledged and transferred an additional
$3,000,000 of Primary Trust Certificates to a Merrill Lynch affiliate to
secure payment of the $5,000,000 principal amount of and accrued interest
on the aforementioned Primary Trust Certificates. The Partnership obtained
ownership of the remaining Primary Trust Certificates in the principal
amount of $17,250,000 and the rights to all subordinate interest paid on
the related tax-exempt mortgage bonds. The Partnership also acquired a
residual interest in the Secondary Trust with a face amount of $5,000 and
proceeds of the transfer of the Primary Trust Certificates to the Merrill
Lynch affiliate in the amount of $4,995,000. The Partnership has a call
right on the Secondary Securities and upon exercise of such right may
collapse the Secondary and Primary Trusts and, therefore, retains a level
of control over the Secondary Securities. The purchase price of Secondary
Securities is equal to the par amount plus 10% of any increase in the
market price of the underlying Primary Trust Certificates. (Also see Note
5 (5)).
For financial statement purposes, the transaction is accounted for as a
financing transaction and, accordingly, the $5 million of tax-exempt
mortgage bonds financed is restricted to be held in trust, the net cash
proceeds are classified as cash and temporary cash investments, and the
subordinated interest is classified as other assets. The financing debt
of $5,000,000 bears interest, plus credit enhancement servicing, trustee
and related fees, at a weekly floating bond rate which averaged
approximately 3.85% from August 12, 1999, the date of closing, through
December 31, 1999. The stated principal maturity date is September 2025,
but is subject to the call feature described above.
F)Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (9,979,128) for all years presented.
G)New Accounting Pronouncement
In June, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement provides
new accounting and reporting standards for the use of derivative
instruments. Adoption of this statement, as amended, is required by the
Partnership effective January 1, 2001. Management is currently evaluating
the effects of adopting this statement.
-26-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement of the New Partnership contains provisions for the
distribution of Net Interest Income and Net Residual Proceeds and for the
allocation of income and expenses for tax purposes among AFCA 2 and BUC
Holders. Income and expenses will be allocated to each BUC Holder on a
periodic basis as determined by the General Partner based on the number of
BUCs held by each BUC Holder as of the last day of the period for which such
allocation is to be made. Distributions of Net Interest Income and Net
Residual Proceeds will be made to each BUC Holder of record on the last day of
each distribution period based on the number of BUCs held by each BUC Holder
as of such date.
Net Interest Income, as defined in the Limited Partnership Agreement, in each
distribution period will be distributed 99% to the BUC Holders and 1% to AFCA
2. The portion of Net Residual Proceeds, as defined in the Limited
Partnership Agreement, representing a return of principal will be distributed
100% to the BUC Holders.
Notwithstanding the foregoing, Net Interest Income representing contingent
interest and Net Residual Proceeds representing contingent interest in an
amount equal to .9% per annum of the principal amount of the mortgage bonds on
a cumulative basis will be distributed 75% to the BUC Holders and 25% to AFCA
2.
Cash distributions were made on a monthly basis through 1999. However,
effective January 1, 2000, distributions will be made quarterly. Cash
distributions may be made semiannually if AFCA 2 so elects. The cash
distributions included in the financial statements represent the actual cash
distributions made during each year and the cash distributions accrued at the
end of each year.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $4,839,768 at
December 31, 1999. The reserve account was established to maintain working
capital for the Partnership and is available to supplement distributions to
BUC Holders or for any other contingencies related to the ownership of the
mortgage bonds and the operation of the Partnership.
5. Investment in Tax-Exempt Mortgage Bonds
The mortgage bonds are issued by various state and local governments, their
agencies and authorities to finance the construction or rehabilitation of
income-producing real estate properties. However, the mortgage bonds do not
constitute an obligation of any state or local government, agency or authority
and no state or local government, agency or authority is liable on them, nor
is the taxing power of any state or local government pledged to the payment of
principal or interest on the mortgage bonds. The mortgage bonds are
nonrecourse obligations of the respective owners of the properties. The sole
source of the funds to pay principal and interest on the mortgage bonds is the
net cash flow or the sale or refinancing proceeds from the properties. Each
mortgage bond, however, is collateralized by a first mortgage on all real and
personal property included in the related property and an assignment of rents.
Each of the bonds bears interest at a fixed rate and provides for the payment
of additional contingent interest that is payable solely from available net
cash flow generated by the financed property. The principal amount of the
bonds does not amortize over its terms.
During 1999, the tax-exempt bonds secured by Shoals Crossing and Ashley Square
and in 1998 the tax-exempt mortgage bonds secured by Woodbridge Apartments of
Louisville II, Ashley Pointe at Eagle Crest, Woodbridge Apartments of
Bloomington III and Northwoods Lake Apartments were reissued by the respective
state and local housing finance authorities. In each case, the existing
tax-exempt bond held by the Partnership was terminated and a new bond in the
same principal amount was issued to the Partnership. No gain or loss was
recorded on the reissuances. The Partnership has coordinated the reissuance
of the bonds with the local housing finance authorities in order to allow the
bonds to continue to generate tax-exempt interest for the Partnership at
interest rates that will allow debt service on the bonds to be paid from the
net revenues projected to be generated by the financed properties. Prior to
-27-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
reissuance, each of the bonds earned base interest at the rate of 8.5% per
annum and provided for additional contingent interest, when combined with base
interest, could equal up to a maximum of 16% per annum. No gain or loss was
recorded by the Partnership in either 1999 or 1998 in connection with the
reissuance of the tax-exempt bonds. Provided the Partnership does not sell
the tax-exempt bond secured by Arama Apartments, the Partnership expects that
such bond will be reissued in a similar manner and anticipates that the base
and contingent interest rates on such reissued bond will also be less than the
current base and contingent interest rates.
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At December 31, 1999 and 1998, the total amortized cost,
gross unrealized holding losses and aggregate fair value of available-for-sale
securities were $72,626,000, $906,000 and $71,720,000 respectively. The
Partnership recorded other comprehensive income from unrealized gains on its
investment in tax-exempt mortgage bonds of $4,594,000 in 1998 and $5,100,000 in
1997. No such unrealized gains were recorded in 1999.
During 1998, the Partnership determined it is not likely to recover or receive
its contracted cash flows (including the repayment of principal) on its
investment in the Arama Apartments tax-exempt mortgage bond. Accordingly, the
Partnership realized a loss of $4,000,000 and the cost basis was written down
to fair value as a new cost basis. Concurrently, the unrealized holding losses
related to the investment in tax-exempt mortgage bonds, which is a component
of accumulated comprehensive income, was reduced by $4,000,000; therefore, the
realized loss had no impact on total Partners' Capital.
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
December 31, 1999, are as follows:
Base
Number Maturity Interest Income Earned
Property Name Location of Units Date Rate in 1999
------------------------ ---------------- --------- --------- --------- -------------
Arama Apartments Miami, FL 293 07/01/10 8.5% (1) $ 1,028,500
Shoals Crossing Atlanta, GA 176 12/01/25 7.5% (2),(3) 226,965
Woodbridge Apts. of
Bloomington III (6) Bloomington, IN 280 12/01/27 7.5% (2) 1,025,121
Ashley Pointe at
Eagle Crest Evansville, IN 150 12/01/27 7.0% (2) 475,514
Woodbridge Apts. of
Louisville II (7) Louisville, KY 190 12/01/27 7.5% (2) 705,512
Northwoods Lake
Apartments (5) Duluth, GA 492 09/01/25 7.5% (2) 2,014,733
Ashley Square Des Moines, IA 144 12/01/09 7.5% (3),(4) 336,916
-------------
$ 5,813,261
=============
(1) In addition to the base interest rate shown, the bond bears additional
contingent interest as defined in the revenue note which, when combined with
the base interest, is limited to a cumulative, noncompounded amount not
greater than 12% per annum. The Partnership received additional contingent
interest from Arama Apartments of $75,795 in 1999, $122,099 in 1998 and
$124,682 in 1997.
(2) In addition to the base interest rates shown, the bonds bear additional
contingent interest as defined in each revenue note of an additional 3.5% per
annum that is payable out of 50% (100% in the case of Shoals Crossing, Ashley
Pointe at Eagle Crest and Northwoods Lake Apartments) of the net cash flow
generated by the respective property. The Partnership received additional
contingent interest from Ashley Pointe at Eagle Crest of $22,702 in 1999. The
Partnership did not receive any additional contingent interest from these
bonds in 1998 or 1997.
(3) The tax-exempt bonds secured by these properties were reissued by their
local housing finance authority on February 25, 1999, and June 16, 1999, for
Shoals Crossing and Ashley Square, respectively. The existing tax-exempt
bonds held by the Partnership were terminated and new bonds in the same
-28-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
principal amounts were issued to the Partnership. The new bonds provide for
the payment of base interest to the Partnership at a rate of 7.5% per annum
compared to 8.5% per annum for the previous bonds.
(4) In addition to the base interest rate shown, the bond bears additional
contingent interest as defined in the revenue note of an additional 3% per
annum payable out of the net cash flow generated by the property. Past due
unpaid contingent interest compounds at a rate of 10.5% per annum.
(5) Tax-exempt mortgage bonds of $25,250,000 have been deposited with a trust
(the Primary Trust as described in Note 2 (E)). The Partnership also pledged
Primary Trust Certificates representing a beneficial interest in $5,300,000
and $2,000,000 in principal amount of such bonds as described in (6) and (7)
below.
(6) Tax-exempt bonds of $12,600,000 in addition to the $5,300,000 of Primary
Trust Certificates described in (5) above, have been pledged as security for a
reimbursement obligation regarding a $17,350,000 letter of credit. Such
letter of credit was issued for the benefit of the purchaser of Iona Lakes
Apartments (the Project) located in Ft. Myers, Florida as part of a plan by
the Partnership to acquire certain securities representing an interest in
tax-exempt bonds secured by the Project which are anticipated to be issued on
or around April 1, 2000. Pending issuance of such bonds and certain other
events, the Partnership's obligations under the reimbursement obligation will
cease and the $12,600,000 of tax-exempt mortgage bonds and $5,300,000 of
Primary Trust Certificates will be released from such pledge. However, upon
issuance of the new bonds, the Partnership anticipates that substantially all
of these securities will be pledged as collateral to the beneficial owner of
the new bonds.
(7) Tax-exempt bonds of $8,976,000 in addition to the $2,000,000 of Primary
Trust Certificates described in (5) above, have been pledged as security for a
reimbursement obligation regarding a $16,330,000 letter of credit. Such
letter of credit was issued for the benefit of the purchaser of Clear Lake
Colony Apartments (the Project) located in West Palm Beach, Florida as part of
a plan by the Partnership to acquire certain securities representing an
interest in tax-exempt bonds secured by the Project which are anticipated to
be issued on or around June 30, 2000. Pending issuance of such bonds and
certain other events, the Partnership's obligations under the reimbursement
obligation will cease and the $8,976,000 of tax-exempt mortgage bonds and
$2,000,000 of Primary Trust Certificates will be released from such pledge.
However, upon issuance of the new bonds, the Partnership anticipates that
substantially all of these securities will be pledged as collateral to the
beneficial owner of the new bonds.
6. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 2 or an
affiliate and are reimbursed by the Partnership. The capitalized costs were
incurred in connection with the reissuance of tax-exempt bonds. The amounts
of such expenses reimbursed to AFCA 2 or an affiliate are shown below. The
amounts are presented on a cash basis and do not reflect accruals made at each
year end.
-29-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1999 1998 1997
-------------- -------------- --------------
Reimbursable salaries and benefits $ 506,898 $ 505,023 $ 447,669
Costs capitalized by the Partnership 152,988 159,070 -
Other expenses 120,437 52,369 41,606
Professional fees and expenses 83,025 60,390 32,009
Insurance 54,818 30,240 24,033
Investor services and custodial fees 53,918 57,892 62,819
Consulting and travel expenses 24,375 9,250 5,246
Merger transaction costs 20,819 201,651 -
Report preparation and distribution 20,679 17,107 27,686
Registration fees 22,082 24,273 17,870
Telephone 5,124 9,071 10,297
-------------- -------------- --------------
$ 1,065,163 $ 1,126,336 $ 669,235
============== ============== ==============
AFCA 2 is entitled to receive an administrative fee from the Partnership equal
to 0.45% of the outstanding principal balance of any tax-exempt bond or other
mortgage investment, unless the owner of the property financed by such
tax-exempt bond or other mortgage investment or another third party is
required to pay such administrative fee. Under the terms of each of the
Partnership's existing tax-exempt mortgage bonds, the property owners are
obligated to pay the administrative fee to AFCA 2. Therefore, the
Partnership did not pay any administrative fees to AFCA 2. The Partnership
may become obligated to pay administrative fees to AFCA 2 in the event it
acquires additional tax-exempt bonds or other mortgage investments and is not
able to negotiate the payment of these fees by the property owners or in the
event it acquires title to any of the properties securing its existing
tax-exempt bonds by reason of foreclosure.
Under the terms of the Prior Partnership's partnership agreement, AFCA 2 was
entitled to an administrative fee equal to 0.45% of the original principal
amount of the properties financed by the tax-exempt mortgage bonds, payable by
the owners of such financed properties. AFCA 2 was entitled to an
administrative fee from the Partnership in the event the Partnership became
the equity owner of a property by reason of foreclosure. AFCA 2 was not
entitled to any administrative fees from the Partnership for the period in
1999 prior to the merger or for the years ended December 31, 1998 or 1997. In
addition, AFCA 2 was entitled to receive approximately $359,000 in
administrative fees from the Partnership for the year ended December 31,
1989. The payment of these fees, which has been deferred by AFCA 2, is
contingent upon, and will be paid only out of future profits realized by the
New Partnership from the disposition of any Partnership assets. This amount
will be recorded as an expense by the New Partnership when it is probable that
these fees will be paid.
AFCA 2 received administrative fees of $286,732, $90,479 and $152,027 in 1999,
1998 and 1997, respectively, from the owners of properties financed by the
tax-exempt bonds held by the Partnership. Since these administrative fees are
not Partnership expenses, they have not been reflected in the accompanying
financial statements. However, such fees are payable by the property owners
prior to the payment of any contingent interest on the tax-exempt bonds
secured by these properties.
An affiliate of AFCA 2 was retained to provide property management services
for Ashley Square, Northwoods Lake Apartments, Ashley Pointe at Eagle Crest
and Shoals Crossing (beginning in January 1998). The management fees paid to
the affiliate of AFCA 2 reflect market rates for such services in the areas
in which these properties are located and amounted to $320,368 in 1999,
$310,225 in 1998, and $270,616 in 1997. These management fees are not
Partnership expenses and, accordingly, have not been reflected in the
accompanying financial statements. However, such fees are paid out of the
revenues generated by these properties prior to the payment of any interest on
the tax-exempt bonds held by the Partnership on these properties.
-30-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
7. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments, interest receivable, other assets,
accounts payable, distributions payable and debt financing: Due to their
short-term nature, fair value approximates the carrying value of such
assets and liabilities.
Investment in tax-exempt mortgage bonds: Fair value is based on discounted
estimated future cash flows including certain variables supplied by an
independent real estate appraisal firm.
8. Commitments and Contingencies
As more fully described in Note 5, the Partnership has pledged $28,876,000 of
tax-exempt mortgage bonds and Primary Trust Certificates as collateral for
letters of credit in the amount of $33,680,000.
9. Summary of Unaudited Quarterly Results of Operations
First Second Third Fourth
From January 1, 1999 to December 31, 1999 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
Total income $ 1,465,268 $ 1,599,952 $ 1,429,460 $ 1,534,811
Total expenses (241,335) (217,831) (228,663) (272,859)
-------------- -------------- -------------- --------------
Net income $ 1,223,933 $ 1,382,121 $ 1,200,797 1,261,952
============== ============== ============== ==============
Net income, basic and diluted, per BUC $ .12 $ .14 $ .12 $ .12
============== ============== ============== ==============
Market Price per BUC (1)
High sale 6-3/4 6-1/2 6-1/2 6-1/2
Low sale 6 6 6 4
============== ============== ============== ==============
(1) The market price per BUC information includes that of the Partnership
from February 1, 1999 (the Merger Date) through December 31, 1999 and that of
the Prior Partnership for periods prior to the Merger Date.
First Second Third Fourth
From January 1, 1998 to December 31, 1998 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
Total income $ 1,623,078 $ 1,484,824 $ 1,516,564 $ 1,359,973
Total expenses (176,855) (227,327) (200,777) (4,411,426) (1)
-------------- -------------- -------------- --------------
Net income (loss) $ 1,446,223 $ 1,257,497 $ 1,315,787 $ (3,051,453)
============== ============== ============== ==============
Net income (loss), basic and diluted, per BUC $ .14 $ .13 $ .13 $ (.31)
============== ============== ============== ==============
Market Price per BUC
High sale 8-1/8 8 7-11/16 6-15/16
Low sale 7-1/8 7-1/4 6-5/8 5-7/8
============== ============== ============== ==============
(1) The Partnership incurred expenses of approximately $160,000 during the
quarter in connection with the Merger described in Note 1. In addition, the
Partnership realized a loss of $4,000,000 on its investment in tax-exempt
mortgage bonds (see Note 5).
The BUCs are quoted on the NASDAQ National Market System under the symbol
ATAXZ. Prior to the Merger Date, the BUCs were quoted under the symbol
AFTXZ. The high and low quarterly prices of the BUCs were compiled from
on-line trading sources based on information provided by NASDAQ.
-31-
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.
AMERICA FIRST TAX EXEMPT
MORTGAGE FUND LIMITED
PARTNERSHIP
By America First Capital
Associates Limited
Partnership Two, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of
America First Capital
Associates Limited
Partnership Two
By /s/ Michael Thesing
Michael Thesing, Vice
President and
Principal Financial Officer
Date: March 28, 2000
Pursuant to the requirements of the Securities and 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: March 28, 2000 By /s/ Michael B. Yanney*
Michael B. Yanney,
Chairman of the Board,
President, Chief Executive Officer
and Manager
Date: March 28, 2000 By /s/ Michael Thesing
Michael Thesing,
Principal Financial Officer
and Manager
Date: March 28, 2000 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.,
Manager
Date: March 28, 2000 By /s/ Martin A. Massengale*
Martin A. Massengale,
Manager
Date: March 28, 2000 By /s/ Alan Baer*
Alan Baer,
Manager
Date: March 28, 2000 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: March 28, 2000 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
Date: March 28, 2000 By /s/ Lisa Yanney Roskens*
Lisa Yanney Roskens
Manager
*By Michael Thesing,
Attorney-in-Fact
/s/ Michael Thesing
Michael Thesing
-32-
EXHIBIT 24
POWER OF ATTORNEY
-33
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Michael B. Yanney
Michael B. Yanney
-34-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
-35-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Martin A. Massengale
Martin A. Massengale
-36-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Alan Baer
Alan Baer
-37-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Gail Walling Yanney
Gail Walling Yanney
-38-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Mariann Byerwalter
Mariann Byerwalter
-39-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
America First Real Estate Investment Partners, L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Lisa Yanney Roskens
Lisa Yanney Roskens
-40-