UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the period ended: June 30, 1996 Commission file number: 001-11981
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MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
- ------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1449733
- ----------------------- ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
- ---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(410)962-0595
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
<PAGE>
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
INDEX TO FORM 10-Q
Part I- FINANCIAL INFORMATION
The financial information required as part of this item is the financial
information of the SCA Tax Exempt Fund Limited Partnership, the
Registrant's predecessor.
Item
1. Financial Statements
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II- OTHER INFORMATION
The information required as part of this item includes the
information relating to the SCA Tax Exempt Fund Limited Partnership, the
Registrant's predecessor.
Item
1. Legal Proceedings
2. and 3. are not applicable.
4. Submission of Matters to a Vote of Security Holders
5. Other Information
6. Exhibits and Reports on Form 8-K
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
BALANCE SHEETS
IN THOUSANDS, EXCEPT BAC DATA
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $9,808 $9,810
Interest receivable 454 434
Investment in mortgage revenue bonds (Note 3) 150,211 146,142
Investment in parity working capital loans, net of valuation
allowance of $690 in 1996 and $600 in 1995 (Note 4) 2,800 2,890
Investment in MLP II (Note 5) 64,750 65,299
Other assets 277 240
--------------- ---------------
TOTAL ASSETS $228,300 $224,815
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $1,136 $544
Distributions payable 7,988 7,977
Due to affiliates (Note 6) 3 9
--------------- ---------------
TOTAL LIABILITIES 9,127 8,530
--------------- ---------------
Minority Interest 2 3
--------------- ---------------
Partners' Capital
Unrealized gain (loss) on mortgage revenue bonds
available for sale, net 7,078 (981)
General partners (524) (477)
Limited partners:
Series I (beneficial assignee certificates- issued
and outstanding 200,000 certificates) 136,433 141,111
Series II (beneficial assignee certificates- issued
and outstanding 96,256 certificates) 76,184 76,629
--------------- ---------------
TOTAL PARTNERS' CAPITAL 219,171 216,282
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $228,300 $224,815
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME (Unaudited)
IN THOUSANDS, EXCEPT PER BAC DATA
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCOME
Interest on mortgage revenue bonds and
parity working capital loans $3,517 $2,472 $6,633 $7,117
Net gain on sale of A bond receipts - - - 623
Interest on short-term investments 80 115 154 197
Equity in MLP II 929 969 1,808 1,329
--------------- --------------- --------------- ---------------
TOTAL INCOME 4,526 3,556 8,595 9,266
--------------- --------------- --------------- ---------------
EXPENSES
Operating expenses 951 790 1,793 2,153
Minority interest 5 5 10 8
Other-than-temporary impairments related to investment in
mortgage revenue bonds (Note 3) 3,990 - 3,990 -
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 4,946 795 5,793 2,161
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) ($420) $2,761 $2,802 $7,105
=============== =============== =============== ===============
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS ($4) $28 $28 $71
=============== =============== =============== ===============
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS:
SERIES I ($1,498) $1,675 $572 $4,968
=============== =============== =============== ===============
SERIES II $1,082 $1,058 $2,202 $2,066
=============== =============== =============== ===============
NET INCOME (LOSS) PER BAC:
SERIES I ($7.49) $8.38 $2.86 $24.84
=============== =============== =============== ===============
SERIES II $11.24 $10.99 $22.87 $21.46
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (Unaudited)
IN THOUSANDS
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,802 $7,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in MLP II net income (1,808) (1,329)
Income allocated to minority interest 10 8
Other-than-temporary impairments related
investment in mortgage revenue bonds 3,990 -
Increase in valuation allowance on
parity working capital loans 90 -
Net realized gain on sale of A bond receipts - (2,347)
(Increase) in interest receivable (20) (70)
(Increase) decrease in other assets (37) 69
Increase (decrease) in accounts payable
and accrued expenses 592 (857)
(Decrease) in due to affiliates (6) (56)
--------------- ---------------
Net cash provided by operating activities 5,613 2,523
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in MLP II - (61,000)
Distributions from MLP II 2,357 986
Proceeds from sale of A bond receipts - 67,700
--------------- ---------------
Net cash provided by investing activities 2,357 7,686
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (7,972) (7,713)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2) 2,496
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 9,810 7,855
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,808 $10,351
=============== ===============
DISCLOSURE OF NON-CASH ACTIVITIES:
Contribution of parity working capital loans
and other assets to MLP II - $4,647
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD DECEMBER 31, 1995 THROUGH JUNE 30, 1996 (Unaudited)
IN THOUSANDS
<TABLE>
<CAPTION> SERIES I SERIES II UNREALIZED GAIN
LIMITED PARTNERS LIMITED PARTNERS (LOSS) ON
BENEFICIAL BENEFICIAL MORTGAGE REVENUE
ASSIGNEE ASSIGNEE GENERAL BONDS AVAILABLE
CERTIFICATES CERTIFICATES PARTNERS FOR SALE, NET TOTAL
---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $141,111 $76,629 ($477) ($981) $216,282
Net income 572 2,202 28 - 2,802
Distribution to partners (5,250) (2,647) (75) - (7,972)
Change in market value of mortgage
revenue bonds available for sale, net - - - 4,069 4,069
Realization of other-than-temporary
impairment on mortgage revenue bonds
available for sale - - - 3,990 3,990
---------------- --------------- --------------- --------------- ---------------
Balance, June 30, 1996 $136,433 $76,184 ($524) $7,078 $219,171
================ =============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(SERIES I AND SERIES II)
(Unaudited)
NOTE 1 - STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited financial statements are those of the SCA
Tax Exempt Fund Limited Partnership (the "Partnership"), the predecessor to
the Registrant. As a result of a merger transaction, discussed in Note 2
below, the Registrant succeeded to the business of the Partnership. The
accompanying unaudited financial statements of the Partnership have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission (the "SEC") and in the opinion of management contain
all adjustments (consisting of only normal recurring accruals) necessary to
present a fair statement of the results for the periods presented. These
results have been determined on the basis of accounting principles and
policies discussed in Note 1 and Note 2 to the Financial Statements appearing
in the Partnership's 1995 Annual Report on Form 10-K, as amended (the
"Form 10-K"). Financial information for the Registrant has not been included
since the Registrant only has minimal assets and no prior operations as
disclosed in the Registrant's S-4 Registration Statement filed with the SEC
on May 28, 1996.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
the accompanying financial statements be read in conjunction with the
financial statements and notes thereto included in the Form 10-K.
NOTE 2 - SUBSEQUENT EVENT
On June 18, 1996, beneficial assignee certificate ("BAC") Holders
were asked to vote on a proposed transaction (the "Transaction") involving
the Partnership, SCA Realty I, Inc., the managing general partner of the
Partnership (the "Managing General Partner"), and SCA Associates 86
Limited Partnership, the associate general partner of the Partnership (the
"Associate General Partner," and together with the Managing General
Partner, the "General Partners") and their affiliates, and the Registrant,
Municipal Mortgage and Equity, L.L.C. (the "Company" or the "LLC"), a
newly formed Delaware limited liability company. The Holders of the
outstanding Series I BACs and the Holders of the outstanding Series II
BACs, each series voting as a separate class, were asked to approve the
Transaction in the form of a merger between the Partnership and the
Company. The Holders of each Series I BAC were entitled to elect
whether to convert each Series I BAC into 38.10 LLC growth shares
("Growth Shares"), one LLC preferred share ("Preferred Shares") (Series
I) or one LLC preferred capital distribution share ("Preferred CD Shares")
(Series I) and the Holders of each Series II BAC were entitled to elect
whether to convert each Series II BAC into 43.95 Growth Shares, one
Series II Preferred Share or one Series II Preferred CD Share; or, to the
extend multiple BACs were held, a combination of Growth Shares and
either Preferred Shares or Preferred CD Shares. To the extent no election
was made, BACs were exchanged for Growth Shares.
The Preferred Shares allow the BAC Holder to retain an investment
comparable to his or her investment in BACs assuming that the
Partnership's financing transaction (the "Financing," which occurred in
February 1995 and is described in Note 3 to the December 31, 1995
financial statements included in the Partnership's Annual Report on Form
10-K) had not occurred. The Preferred CD Shares allow the BAC Holder
to retain an investment substantially equivalent to his or her investment in
BACs recognizing that such Financing transaction did occur and that a
special capital distribution (the "Special Distribution") would be made to
each person receiving this type of share. The Growth Shares allow the BAC
Holder to participate in therisks and rewards of the Company's future plans
for growth. BAC Holders who received Growth Shares will have fundamentally
changed the nature of their investment, and their rights will be different
from their rights as BAC Holders of the Partnership.
As previously discussed in the Partnership's 1995 Form 10-K, the
Partnership consummated the Financing which raised additional proceeds
through the offering of $67.7 million in aggregate principal amount of
Multifamily Mortgage Revenue Bond Receipts, (collectively, the
"Receipts"). The net Financing proceeds of $56.8 million, were invested in
a partnership ("MLP") structure to, among other things, enable the BAC
Holders, through the Partnership, to participate in a substantial portion of
the investment income generated from the net proceeds on a primarily tax-exempt
basis.
Through June 30, 1996, the MLP structure included MLP III
Investment Limited Partnership, ("MLP III"), a Maryland limited
partnership, MLP II Acquisition Limited Partnership ("MLP II"), a
Maryland limited partnership and MLP I LLC ("MLP I"), a Maryland
limited liability company. MLP III was owned by the Partnership through
a 99% general partner interest and SCA Limited Partner Corporation
("SCALPC"), an affiliate of the Managing General Partner, through a 1%
limited partner interest. MLP II was owned by MLP III through a 98.99%
limited partner capital interest (39.996% annual profits and annual
distributions interest), SCALPC through a .01% limited partner capital
interest (.004% annual profits and annual distributions interest) and MLP
I through a 1% general partner capital interest (60% annual profits and
annual distributions interest). MLP I's members comprise the operating
partnerships that are the ultimate debtors in the bonds involved in the
Financing.
Effective July 1, 1996, MLP I's general partner profits interest in
MLP II was reduced to one percent (1%) in exchange for the assumption
by MLP II of certain MLP I obligations. Accordingly, the profits interest
of MLP III increased to 98.996%. Also, effective July 1, 1996, the
members of MLP I entered into a Cross-Equity Agreement which
effectively cross-collateralizes B Bond obligations of the operating
partnerships' included in the Financing.
In anticipation of the merger and in order to reduce administrative
burden and complexity, effective July 31, 1996 the partners of MLP II
elected to dissolve MLP II and to terminate MLP II effective immediately.
Upon dissolution, all of the assets of MLP II were distributed to the
partners in accordance with their capital accounts. Also on July 31, 1996,
and for the same reasons, the partners of MLP III elected to dissolve and
immediately terminate MLP III and distribute all the assets of MLP III to the
partners in accordance with their capital accounts.
As a result of the above transactions, at the close of business on July
31, 1996, the Partnership was the owner of substantially all of the net assets
of MLP II and MLP III. Accordingly, MLP II will be consolidated in the
financial statements of the Partnership rather than accounted for on the
equity method. On a proforma basis, these MLP transactions have an
insignificant impact on the net assets of the Partnership as of June 30, 1996
and on net income of the Partnership for the eighteen months then ended.
The primary proforma income statement impact would be the following
approximate reclassifications (millions):
Year ended Six months
December 31, ended June 30,
1995 1996
Interest on mortgage revenue bonds ( $2.3) ( $1.2)
Equity in income of MLP II ( 3.2) ( 1.8)
Interest on short-term investments
and demand notes 5.5 3.0
The consent solicitation period for the Transaction was closed on
August 1, 1996; 113,988 Series I BACs (56.99% of all Series I BACs) and
54,117 Series II BACs (56.22% of all Series II BACs) voted to approve the
proposed Transaction. Of those BACs which voted in the Transaction, in
excess of 88% in each Series voted to approve the Transaction.
Accordingly, effective August 1, 1996, the Partnership merged into the
Company. MME I Corporation, the original shareholder of the Company,
resigned as sole director of the Company, and Richard O. Berndt (as
representative approved by the Dissolution Shareholder under the
Company's Operating Agreement) and Mark K. Joseph, president of the
Managing General Partner, became the directors.
In connection with the merger, the Company ratified the merger and
authorized the issuance of up to 200,000 Series I and 96,256 Series II
Preferred Shares, up to 200,000 Series I and 96,256 Series II Preferred CD
Shares and up to 11,770,000 Growth Shares as merger consideration to the
Partnership's BAC Holders in exchange for their BAC's. The Company also
authorized the issuance of merger consideration in the form of 1,000 shares
of a special class of Growth Shares ("Term Growth Shares") to the General
Partners, in exchange for the relinquishment of their general partnership
interests in the Partnership.
Upon the consummation of the Transaction, the General Partners
and their affiliates contributed their rights to the acquisition and servicing
of mortgages in exchange for 883,033 Growth Shares. The Partnership
retained Robert A. Stanger & Co., Inc., an independent third party, to
render a fairness opinion that the allocation of Growth Shares and Term
Growth Shares was fair to the Series I and Series II BAC Holders, from a
financial point of view. As a result of the contribution of the acquisition
and servicing activities by the General Partners and their affiliates, the
Company will receive additional tax-exempt income.
The following table sets forth the historical capitalization of each
Series of BACs of the Partnership at June 30, 1996 and the proforma
capitalization of the Company as of such date as adjusted to give effect to
the share transactions and the Special Distribution assuming they occurred
on June 30, 1996.
<PAGE>
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
PROFORMA CAPITALIZATION AND BAC HOLDER DILUTION
(in thousands, except Share and BAC data and per Share and per BAC data)
<TABLE>
<CAPTION>
The Partnership
Historical Proforma
Consolidated Consolidated
June 30, 1996 June 30, 1996
---------------- ----------------
<S> <C> <C>
Other liabilities (including minority interest of $2) $9,129 $9,129
Equity:
Partners' equity:
Unrealized losses on mortgage revenue bonds
available for sale 7,078 7,078
General partners' equity (524) N/A
Series I BAC Holders' equity
(200,000 outstanding Series I BACs) 136,433 N/A
Series II BAC Holders' equity
(96,256 outstanding Series II BACs) 76,184 N/A
Shareholders' equity:
Preferred Shares ("Preferred"):
Series I: 16,449 shares outstanding as adjusted N/A 11,221
Series II: 7,664 shares outstanding as adjusted N/A 6,066
Preferred Capital Distribution Shares ("Preferred CD")*:
Series I: 8,967 shares outstanding as adjusted N/A 4,584
Series II: 3,838 shares outstanding as adjusted N/A 2,135
Growth Shares and Term Growth Shares:
11,141,074 growth shares outstanding as adjusted, of which
883,033 growth shares and 1,000 term growth shares are owned
by the former General Partners and their Affiliates and 1,000
term growth shares are owned by a Merrill Lynch affiliate N/A 185,651
---------------- ----------------
Total equity* 219,171 216,735
---------------- ----------------
Total debt and equity* $228,300 $225,864
================ ================
Equity per share, unadjusted**:
Series I/Series I Preferred Shares 698.57 698.57
Series II/Series II Preferred Shares 830.19 830.19
Series I Preferred Capital Distribution Shares N/A 527.60
Series II Preferred Capital Distribution Shares N/A 595.10
Equity per share**:
Series I and Series II as adjusted/Growth
Shares and Term Shares 17.22
================
BACs to shares conversion:
Series I and Series II BACs to Preferred Shares 1 share/BAC
Series I and Series II BACs to Preferred Capital Distribution Shares 1 share/BAC
Series I BACs to Growth Shares 38.10 share/BAC
Series II BACs to Growth Shares 43.95 share/BAC
* Equity has been adjusted for the Special Distribution as follows: Per BAC Amount
----------------
Series I 170.91
Series II 235.30
** Equity per share has been adjusted to reflect each shares' pro rata portion of the unrealized gains
on mortgage revenue bonds available for sale.
<PAGE>
NOTE 3 - INVESTMENT IN MORTGAGE REVENUE BONDS
The Partnership had invested in various mortgage revenue bonds,
the proceeds from which were used to make nonrecourse participating first
mortgage loans on multifamily housing developments. The Partnership's
rights and the specific terms of the bonds are defined by the various loan
documents which were negotiated at the time of settlement. The basic
terms and structure of each bond which had not been refunded were
described in Note 4 to the December 31, 1995 financial statements included
in the Form 10-K. On February 14, 1995, the Partnership refunded 11 of
the original mortgage revenue bonds (five in Series I and six in Series II)
into 11 Series A Bonds and 11 Series B Bonds. As part of the financing
transaction (the "Financing") consummated on February 14, 1995, custody
receipts in the Series A Bonds were sold to third party investors. A
complete description of the Financing and the bond terms is set forth in
Note 3 to the December 31, 1995 financial statements included in the Form
10-K.
As of June 30, 1996, the Partnership held 23 mortgage revenue
bonds (14 bonds for Series I and nine bonds for Series II); of these, 12 are
the original mortgage revenue bonds and 11 are Series B Bonds. Five
original bonds in Series I and three Series B Bonds (two in Series I and one
in Series II) are delinquent on their debt service obligations. Descriptions
of the various mortgage revenue bonds owned by the Partnership at June
30, 1996 are as follows:
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
Series I ---------------------------------- ----------------------------------
Base Face Amortized Unrealized Fair Amortized Unrealized Fair
Investment in Mortgage Interest Maturity Amount Cost Gain (Loss) Value Cost Gain (Loss) Value
Revenue Bonds (Note 2) Rate Date (000's) (000's) (000's) (000's) (000's) (000's) (000's)
- ------------------------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series I Original Bonds:
Alban Place 7.875 Oct. 2008 $10,065 $10,065 ($356) $9,709 $10,065 ($336) $9,729
Northridge Park 7.500 June 2012 8,815 8,815 (2,207) 6,608 8,815 (1,625) 7,190
Lakeview Garden 7.750 Aug. 2007 9,003 5,674 - 5,674 6,988 - 6,988
Riverset 7.875 Nov. 1999 6,475 6,475 (163) 6,312 6,475 (778) 5,697
Villa Hialeah 7.875 Oct. 2009 10,250 10,250 (2,250) 8,000 10,250 (725) 9,525
Newport-on-Seven 8.125 Aug. 2008 10,125 7,898 (224) 7,674 7,898 - 7,898
North Pointe 7.875 Aug. 2006 25,185 12,738 1,743 14,481 12,739 1,170 13,909
Creekside Village 7.500 Nov. 2009 11,760 7,396 - 7,396 8,635 - 8,635
Willowgreen 8.000 Dec. 2010 9,275 6,770 - 6,770 7,901 - 7,901
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series I Original Bonds 100,953 76,081 (3,457) 72,624 79,766 (2,294) 77,472
--------- ---------- ---------- ---------- ---------- ---------- ----------
Series I B Bonds:
Barkley Place 16.000 Jan. 2030 3,480 2,445 81 2,526 2,445 - 2,445
Montclair 3.000 Jan. 2030 6,840 1,691 2,829 4,520 1,691 - 1,691
Newport Village 3.000 Jan. 2030 4,175 2,973 2,128 5,101 2,973 287 3,260
Nicollet Ridge 3.000 Jan. 2030 12,415 6,075 554 6,629 6,075 475 6,550
Steeplechase Falls 16.000 Jan. 2030 5,300 5,851 1,178 7,029 5,851 267 6,118
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series I B Bonds 32,210 19,035 6,770 25,805 19,035 1,029 20,064
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series I Investment in
Mortgage Revenue Bonds $133,163 $95,116 $3,313 $98,429 $98,801 ($1,265) $97,536
--------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
Series II ---------------------------------- ----------------------------------
Base Face Amortized Unrealized Fair Amortized Unrealized Fair
Investment in Mortgage Interest Maturity Amount Cost Gain (Loss) Value Cost Gain (Loss) Value
Revenue Bonds (Note 2) Rate Date (000's) (000's) (000's) (000's) (000's) (000's) (000's)
- ------------------------- ---------- --------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series II Original Bonds:
Riverset 7.875 Nov. 1999 $12,525 $12,525 ($273) $12,252 $12,525 ($1,477) $11,048
Southfork Village 7.875 Jan. 2009 10,375 10,375 1,496 11,871 10,375 492 10,867
Emerald Hills 7.750 Apr. 2008 6,725 6,725 102 6,827 6,725 626 7,351
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series II Original Bonds 29,625 29,625 1,325 30,950 29,625 (359) 29,266
--------- ---------- ---------- ---------- ---------- ---------- ----------
Series II B Bonds:
Gilman Meadows 3.000 Jan. 2030 2,875 2,530 549 3,079 2,530 176 2,706
Hamilton Chase 3.000 Jan. 2030 6,250 4,140 344 4,484 4,140 - 4,140
Mallard Cove I 3.000 Jan. 2030 1,670 798 - 798 942 80 1,022
Mallard Cove II 3.000 Jan. 2030 3,750 2,429 - 2,429 2,590 284 2,874
Meadows 16.000 Jan. 2030 3,635 3,716 1,215 4,931 3,716 103 3,819
Whispering Lake 3.000 Jan. 2030 8,500 4,779 332 5,111 4,779 - 4,779
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series II B Bonds 26,680 18,392 2,440 20,832 18,697 643 19,340
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal Series II Investment in
Mortgage Revenue Bonds 56,305 48,017 3,765 51,782 48,322 284 48,606
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment in Mortgage
Revenue Bonds $189,468 $143,133 $7,078 $150,211 $147,123 ($981) $146,142
========= ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," ("FAS 115"), investments in mortgage revenue bonds
are recorded at fair value. In the absence of readily ascertainable market
values, such fair values are estimated by the Managing General Partner.
For the quarter ended June 30, 1996, the net adjustment to unrealized gains
and losses on mortgage revenue bonds available for sale increased partners'
capital by approximately $4.1 million ($.9 million Series I and $3.2 million
in Series II).
Indicated impairments must be considered as other-than-temporary
when it becomes probable that all amounts due under a bond will not be
collected in accordance with the bond's contractual terms. During the
second quarter of 1996, the Partnership recorded other-than-temporary
impairments totaling $3,990,000 ($3,685,000 in Series I and $305,000 in
Series II) on five bonds, more specifically: Creekside ($1,239,000),
Lakeview ($1,315,000), Willowgreen ($1,131,000), Mallard I ($143,000)
and Mallard II ($162,000). The Managing General Partner will continue to
use its best efforts in estimating the fair value of the Partnership's mortgage
revenue bonds. As a result of the other-than-temporary impairments and
the net adjustment to unrealized gains and losses, the unrealized gain on
mortgage revenues available for sale increased by approximately $8.1
million.
In conjunction with a review of the Partnership's financial statements
by the SEC Staff in 1995, the Partnership agreed that it would account for
all of its mortgage revenue bonds as debt securities under the provisions of
FAS 115 effective January 1, 1994, and restated its 1994 and 1995 financial
statements to reflect this change. Accordingly, effective January 1, 1994,
all investments in mortgage revenue bonds, regardless of their status, are
classified and accounted for as available for sale debt securities and carried
at fair value. The effect of adopting this accounting change was to increase
previously reported net income by approximately $1.7 million for the six
months ended June 30, 1995.
NOTE 4 - INVESTMENT IN PARITY WORKING CAPITAL LOANS
As of June 30, 1996, the Partnership held 11 parity working capital
loans, eight for Series I and three for Series II, all relating to the 12
remaining original mortgage revenue bonds. The terms of the loans are
identical to the mortgage revenue bonds to which they relate. A complete
description is included in Note 5 to the December 31, 1995 financial
statements included in the Form 10-K.
NOTE 5 - INVESTMENT IN MLP II
As previously discussed, on February 14, 1995, the Partnership
consummated the Financing which raised proceeds through the offering of
$67,700,000 in aggregate principal amount of Multifamily Mortgage
Revenue Bond Receipts. A complete description of the Financing is
included in Note 3 to the December 31, 1995 financial statements included
in the Form 10-K.
The proceeds from the sale of the Receipts in Series A Bonds, which
were allocated between Series I (60.1%) and Series II (39.9%) in
accordance with the relative fair values of the eleven refunded bonds as
reflected in proceeds of the Receipts, were invested in MLP III. MLP III
invested the net proceeds from the sale of the Receipts in Series A Bonds,
approximately $61 million (net of $6.7 million in proceeds used to finance
transaction costs and additional Partnership reserves), in MLP II. MLP II,
in turn, loaned the operating partnerships whose properties collateralize the
eleven refunded bonds included in the Financing approximately $4.2 million
to purchase an interest rate cap. The balance of the net proceeds,
approximately $56.8 million, is available for MLP II, on behalf of its
partners, and therefore, the Partnership, to make additional mortgage
revenue bond investments.
On January 19, 1996, the Partnership, through MLP II, made its first
acquisition of an additional mortgage revenue bond when $7,238,000 of the
net Financing proceeds was invested in a bond collateralized by Riverset II,
a multi-family property located in Memphis, Tennessee. The remaining net
proceeds were invested in various short-term investments. As discussed in
Note 2, MLP II and MLP III were dissolved and the net proceeds and the
Riverset II Bond were returned to the Partnership.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Managing General Partner and its affiliates are entitled to
reimbursement for all costs and expenses paid by them on behalf of the
Partnership for administrative services necessary for the prudent operation
of the Partnership. The Partnership does not employ any personnel. All
staff required by the Partnership are employees of the Managing General
Partner or its affiliates which receive direct reimbursement from the
Partnership for all costs related to such personnel including payroll taxes,
workers' compensation and health insurance and other fringe benefits, as
summarized in the table below. Amounts so charged to the Partnership
attributed to Series I and Series II represent actual amounts expended or
allocations based on time spent, usage, original net offering proceeds or
other reasonable measures.
<PAGE>
<TABLE>
<CAPTION> For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
(Unaudited) June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------ ------------------ ------------------ ------------------
(in 000's)
<S> <C> <C> <C> <C>
Charged to Series I:
Salaries of noncontrolling persons &
related expenses $130 $106 $238 $195
Other administrative expenses 25 17 49 34
------------------ ------------------ ------------------ ------------------
Expenses reimbursed $155 $123 $287 $229
================== ================== ================== ==================
Charged to Series II
Salaries of noncontrolling persons &
related expenses $63 $51 $114 $94
Other administrative expenses 12 8 24 16
------------------ ------------------ ------------------ ------------------
Expenses reimbursed $75 $59 $138 $110
================== ================== ================== ==================
Total:
Salaries of noncontrolling persons &
related expenses $193 $157 $352 $289
Other administrative expenses 37 25 73 50
------------------ ------------------ ------------------ ------------------
Expenses reimbursed $230 $182 $425 $339
================== ================== ================== ==================
</TABLE>
Included in Due to Affiliates in the accompanying balance sheets are
amounts payable to the Managing General Partner and its affiliates related
to such administrative and operating costs. At June 30, 1996 and
December 31, 1995, the amounts due approximated $3,000 and $9,000,
respectively.
As previously detailed in the Partnership's Prospectus, affiliates of the
Managing General Partner receive fees for mortgage servicing from the
borrowing partnerships owning the mortgaged properties. The fees paid by
all borrowing partnerships to affiliates of the Managing General Partner
approximated $989,000 for the six months ended June 30, 1996 and 1995.
The General Partners are entitled to an allocation of the Partnership's
profits, losses and cash distributions as specified in the Partnership
Agreement. For the six months ended June 30, 1996 the Partnership
declared a cash distribution of $75,000 to the General Partners. This
amount represents the General Partners' portion of the $7,972,000
($5,297,000 for Series I and $2,675,000 for Series II) semi-annual
distributions paid on July 31, 1996.
The operating expenses for several properties include property
management fees paid to affiliates of the Managing General Partner.
During the six months ended June 30, 1996 and 1995, these fees
approximated $521,000 and $452,000, respectively, for 11 properties.
177061 Canada Ltd. (formerly Shelter Corporation of Canada
Limited), a general partner of the Associate General Partner, is contractually
obligated under guarantees to the nonaffiliated borrowers of North
Pointe and Whispering Lake to fund operating deficits. The unpaid
balances due under the limited operating deficit guarantees, including
accrued interest as of June 30, 1996, approximated $123,000 and $169,000
for North Pointe and Whispering Lake, respectively. Scheduled payments
totaling $59,000 and $83,000 were received on the North Pointe obligation
and the Whispering Lake obligation, respectively, during the first six
months of 1996 and 1995.
NOTE 7 - LITIGATION
As previously discussed in the Partnership's Form 10-K, on July 24,
1995, a class action and derivative action complaint was filed in the District
of Columbia Superior Court, Civil Division, Washington, D.C. The
complaint names as defendants the Managing General Partner, the
Associate General Partner and 177061 Canada Ltd. (formerly known as
Shelter Corporation of Canada Limited) (the "Defendants").
On September 22, 1995, Defendants removed the action to the United
States District Court for the District of Columbia. In November 1995, the
parties agreed to a settlement of the action in consideration of certain
modifications to the terms of and disclosure with respect to the Transaction,
as set forth in a stipulation of settlement filed with the court. The
settlement is conditioned on, among other things, the consummation of the
Transaction. On March 13, 1996, the court held a status conference in the
action. At that time, all conditions necessary for the settlement to proceed
had not yet occurred and, for reasons of case administration, the court
dismissed the action without prejudice and with leave to the parties to
reinstate the action on or before May 1, 1996 in order to proceed with the
settlement or the litigation.
On May 1, 1996, counsel for the plaintiffs made application to the court
to reinstate the action. On June 12, 1996, the parties executed an amended
stipulation, which is filed with the court, setting forth the terms and
conditions of the settlement. On June 20, 1996 the court preliminarily
approved the settlement. BAC Holders have been sent a Notice of Class
and Derivative Action Determination, Settlement and Hearing on the
Proposed Settlement (the "Notice"), which explains the settlement and the
rights of the BAC Holders in connection therewith. The settlement is
subject to the approval of the court and other terms and conditions, as set
forth in the Notice. The court has scheduled a settlement and fairness
hearing on August 29, 1996 to determine, among other things, whether the
settlement is fair, reasonable and adequate, and should be approved.
In the opinion of the General Partners, after consultation with counsel,
this settlement is not expected to have a material adverse effect on the
consolidated financial statements and results of operations of the Partnership.
NOTE 8 - SUPPLEMENTAL INFORMATION FOR SERIES I AND SERIES II
As discussed in Note 1 to the December 31, 1995 financial statements
included in the Form 10-K, the Series I and Series II BAC Holders are
effectively limited partners in the Partnership, even though they have
invested in two separate pools of investments. The Managing General
Partner maintains records for each such pool of investments for each Series
of BAC Holders. Information for each of Series I and Series II for the
three and six months ended June 30, 1996 and 1995, and as of June 30,
1996 and December 31, 1995 is set forth below.
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
BALANCE SHEETS
IN THOUSANDS, EXCEPT BAC DATA
<TABLE>
<CAPTION>
Series I Series II
June 30, Series I June 30, Series II
1996 December 31, 1996 December 31,
(Unaudited) 1995 (Unaudited) 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $5,859 $6,169 $3,949 $3,641
Interest receivable 235 235 219 199
Investment in mortgage revenue bonds 98,429 97,536 51,782 48,606
Investment in parity working capital loans, net
of valuation allowances 1,985 2,075 815 815
Investment in MLP II 38,709 38,966 26,041 26,333
Other assets 188 160 89 80
------------ ------------ ------------ ------------
TOTAL ASSETS $145,405 $145,141 $82,895 $79,674
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $768 $365 $368 $179
Distributions payable 5,307 5,301 2,681 2,676
Due to affiliates 2 5 1 4
------------ ------------ ------------ ------------
TOTAL LIABILITIES 6,077 5,671 3,050 2,859
------------ ------------ ------------ ------------
Minority Interest 1 2 1 1
------------ ------------ ------------ ------------
Partners' Capital
Unrealized gain (loss) on mortgage revenue bonds
available for sale, net 3,313 (1,265) 3,765 284
General partners (419) (378) (105) (99)
Limited partners (beneficial assignee certificates-
issued and outstanding 200,000 certificates for
Series I and 96,256 certificates for Series II) 136,433 141,111 76,184 76,629
------------ ------------ ------------ ------------
TOTAL PARTNERS' CAPITAL 139,327 139,468 79,844 76,814
------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND PARTNERS' CAPITAL $145,405 $145,141 $82,895 $79,674
============ ============ ============ ============
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME (Unaudited)
SERIES I
IN THOUSANDS, EXCEPT PER BAC DATA
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME
Interest on mortgage revenue bonds and
parity working capital loans $2,261 $1,616 $4,323 $4,770
Net gain on sale of A bond receipts - - - 641
Interest on short-term investments 50 67 101 121
Equity in MLP II 536 545 1,086 766
------------ ------------ ------------ ------------
TOTAL INCOME 2,847 2,228 5,510 6,298
------------ ------------ ------------ ------------
EXPENSES
Operating expenses 672 533 1,241 1,275
Minority interest 3 3 6 5
Other-than-temporary impairments related to investment in
mortgage revenue bonds 3,685 - 3,685 -
------------ ------------ ------------ ------------
TOTAL EXPENSES 4,360 536 4,932 1,280
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($1,513) $1,692 $578 $5,018
============ ============ ============ ============
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS ($15) $17 $6 $50
============ ============ ============ ============
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS ($1,498) $1,675 $572 $4,968
============ ============ ============ ============
NET INCOME (LOSS) PER BAC ($7.49) $8.38 $2.86 $24.84
============ ============ ============ ============
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME (Unaudited)
SERIES II
IN THOUSANDS, EXCEPT PER BAC DATA
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME
Interest on mortgage revenue bonds and
parity working capital loans $1,256 $856 $2,310 $2,347
Net loss on sale of A bond receipts - - - (18)
Interest on short-term investments 30 48 53 76
Equity in MLP II 393 424 722 563
------------ ------------ ------------ ------------
TOTAL INCOME 1,679 1,328 3,085 2,968
------------ ------------ ------------ ------------
EXPENSES
Operating expenses 279 257 552 878
Minority interest 2 2 4 3
Other-than-temporary impairments related to investment in
mortgage revenue bonds 305 - 305 -
------------ ------------ ------------ ------------
TOTAL EXPENSES 586 259 861 881
------------ ------------ ------------ ------------
NET INCOME $1,093 $1,069 $2,224 $2,087
============ ============ ============ ============
NET INCOME ALLOCATED TO GENERAL PARTNERS $11 $11 $22 $21
============ ============ ============ ============
NET INCOME ALLOCATED TO LIMITED PARTNERS $1,082 $1,058 $2,202 $2,066
============ ============ ============ ============
NET INCOME PER BAC $11.24 $10.99 $22.87 $21.46
============ ============ ============ ============
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Significant Event- New Investment Structure
On June 18, 1996, beneficial assignee certificate ("BAC") Holders were
asked to vote on a proposed transaction (the "Transaction") involving the
Partnership, SCA Realty I, Inc., the managing general partner of the
Partnership (the "Managing General Partner"), and SCA Associates 86
Limited Partnership, the associate general partner of the Partnership (the
"Associate General Partner," and together with the Managing General
Partner, the "General Partners") and their affiliates, and the Registrant,
Municipal Mortgage and Equity, L.L.C. (the "Company" or the "LLC"), a
newly formed Delaware limited liability company. The Holders of the
outstanding Series I BACs and the Holders of the outstanding Series II
BACs, each series voting as a separate class, were asked to approve the
Transaction in the form of a merger between the Partnership and the
Company. The Holders of each Series I BAC were entitled to elect
whether to convert each Series I BAC into 38.10 LLC growth shares
("Growth Shares"), one LLC preferred share ("Preferred Shares") (Series
I) or one LLC preferred capital distribution share ("Preferred CD Shares")
(Series I) and the Holders of each Series II BAC were entitled to elect
whether to convert each Series II BAC into 43.95 Growth Shares, one
Series II Preferred Share or one Series II Preferred CD Share; or, to the
extend multiple BACs were held, a combination of Growth Shares and
either Preferred Shares or Preferred CD Shares. To the extent no election
was made, BACs were exchanged for Growth Shares.
The Preferred Shares allow the BAC Holder to retain an investment
comparable to his or her investment in BACs assuming that the
Partnership's financing transaction (the "Financing," which occurred in
February 1995 and is described in Note 3 to the December 31, 1995
financial statements included in the Partnership's Annual Report on Form
10-K) had not occurred. The Preferred CD Shares allow the BAC Holder
to retain an investment substantially equivalent to his or her investment in
BACs recognizing that such Financing transaction did occur and that a
special capital distribution (the "Special Distribution") would be made to
each person receiving this type of share. The Growth Shares allow the BAC
Holder to participate in the risks and rewards of the Company's future plans
for growth. BAC Holders who received Growth Shares will have fundamentally
changed the nature of their investment, and their rights will be different
from their rights as BAC Holders of the Partnership.
As previously discussed in the Partnership's 1995 Form 10-K, the
Partnership consummated the Financing which raised additional proceeds
through the offering of $67.7 million in aggregate principal amount of
Multifamily Mortgage Revenue Bond Receipts, (collectively, the
"Receipts"). The net Financing proceeds of $56.8 million, were invested in
a partnership ("MLP") structure to, among other things, enable the BAC
Holders, through the Partnership, to participate in a substantial portion of
the investment income generated from the net proceeds on a primarily tax-exempt
basis.
Through June 30, 1996, the MLP structure included MLP III
Investment Limited Partnership, ("MLP III"), a Maryland limited
partnership, MLP II Acquisition Limited Partnership ("MLP II"), a
Maryland limited partnership and MLP I LLC ("MLP I"), a Maryland
limited liability company. MLP III was owned by the Partnership through
a 99% general partner interest and SCA Limited Partner Corporation
("SCALPC"), an affiliate of the Managing General Partner, through a 1%
limited partner interest. MLP II was owned by MLP III through a 98.99%
limited partner capital interest (39.996% annual profits and annual
distributions interest), SCALPC through a .01% limited partner capital
interest (.004% annual profits and annual distributions interest) and MLP
I through a 1% general partner capital interest (60% annual profits and
annual distributions interest). MLP I's members comprise the operating
partnerships that are the ultimate debtors in the bonds involved in the
Financing.
Effective July 1, 1996, MLP I's general partner profits interest in MLP
II was reduced to one percent (1%) in exchange for the assumption by
MLP II of certain MLP I obligations. Accordingly, the profits interest of
MLP III increased to 98.996%. Also, effective July 1, 1996, the members
of MLP I entered into a Cross-Equity Agreement which effectively
cross-collateralizes the B Bond obligations of the operating partnerships'
included in the Financing.
In anticipation of the merger and in order to reduce administrative
burden and complexity, effective July 31, 1996, the partners of MLP II
elected to dissolve MLP II and to terminate MLP II effective immediately.
Upon dissolution, all of the assets of MLP II were distributed to the
partners in accordance with their capital accounts. Also on July 31, 1996,
the partners of MLP III elected to dissolve and immediately terminate MLP
III and distribute all the assets of MLP III to the partners in accordance
with their capital accounts.
As a result of the above transactions, at the close of business on July 31,
1996, the Partnership was the owner of substantially all of the net assets of
MLP II and MLP III. Accordingly, MLP II will be consolidated in the
financial statements of the Partnership rather than accounted for on the
equity method. On a proforma basis, these MLP transactions have an
insignificant impact on the net assets of the Partnership as of June 30, 1996
and on net income of the Partnership for the eighteen months then ended.
The primary proforma income statement impact would be the following
approximate reclassifications (millions):
Year ended Six months
December 31, ended June 30,
1995 1996
Interest on mortgage revenue bonds ( $2.3) ( $1.2)
Equity in income of MLP II ( 3.2) ( 1.8)
Interest on short-term investments
and demand notes 5.5 3.0
The consent solicitation period for the Transaction was closed on
August 1, 1996; 113,988 Series I BACs (56.99% of all Series I BACs) and
54,117 Series II BACs (56.22% of all Series II BACs) voted to approve the
proposed Transaction. Of those BACs which voted in the Transaction, in
excess of 88% in each Series voted to approve the Transaction.
Accordingly, effective August 1, 1996, the Partnership merged into the
Company. MME I Corporation, the original shareholder of the Company,
resigned as sole director of the Company, and Richard O. Berndt (as
representative approved by the Dissolution Shareholder under the
Company's Operating Agreement) and Mark K. Joseph, president of the
Managing General Partner, became the directors.
In connection with the merger, the Company ratified the merger and
authorized the issuance of up to 200,000 Series I and 96,256 Series II
Preferred Shares, up to 200,000 Series I and 96,256 Series II Preferred CD
Shares and up to 11,770,000 Growth Shares as merger consideration to the
Partnership's BAC Holders in exchange for their BAC's. The Company also
authorized the issuance of merger consideration in the form of 1,000 shares
of a special class of Growth Shares ("Term Growth Shares") to the General
Partners, in exchange for the relinquishment of their general partnership
interests in the Partnership.
Upon the consummation of the Transaction, the General Partners and
their affiliates contributed their rights to the acquisition and servicing of
mortgages in exchange for 883,033 Growth Shares. The Partnership
retained Robert A. Stanger & Co., Inc., an independent third party, to
render a fairness opinion that the allocation of Growth Shares and Term
Growth Shares was fair to the Series I and Series II BAC Holders, from a
financial point of view. As a result of the contribution of the acquisition
and servicing activities by the General Partners and their affiliates, the
Company will receive additional tax-exempt income.
The following table sets forth the historical capitalization of each Series
of BACs of the Partnership at June 30, 1996 and the proforma
capitalization of the Company as of such date as adjusted to give effect to
the share transactions and the Special Distribution assuming they occurred
on June 30, 1996.
<PAGE>
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
PROFORMA CAPITALIZATION AND BAC HOLDER DILUTION
(in thousands, except Share and BAC data and per Share and per BAC data)
</TABLE>
<TABLE>
<CAPTION>
The Partnership
Historical Proforma
Consolidated Consolidated
June 30, 1996 June 30, 1996
---------------- ----------------
<S> <C> <C>
Other liabilities (including minority interest of $2) $9,129 $9,129
Equity:
Partners' equity:
Unrealized losses on mortgage revenue bonds
available for sale 7,078 7,078
General partners' equity (524) N/A
Series I BAC Holders' equity
(200,000 outstanding Series I BACs) 136,433 N/A
Series II BAC Holders' equity
(96,256 outstanding Series II BACs) 76,184 N/A
Shareholders' equity:
Preferred Shares ("Preferred"):
Series I: 16,449 shares outstanding as adjusted N/A 11,221
Series II: 7,664 shares outstanding as adjusted N/A 6,066
Preferred Capital Distribution Shares ("Preferred CD")*:
Series I: 8,967 shares outstanding as adjusted N/A 4,584
Series II: 3,838 shares outstanding as adjusted N/A 2,135
Growth Shares and Term Growth Shares:
11,141,074 growth shares outstanding as adjusted, of which
883,033 growth shares and 1,000 term growth shares are owned
by the former General Partners and their Affiliates and 1,000
term growth shares are owned by a Merrill Lynch affiliate N/A 185,651
---------------- ----------------
Total equity* 219,171 216,735
---------------- ----------------
Total debt and equity* $228,300 $225,864
================ ================
Equity per share, unadjusted**:
Series I/Series I Preferred Shares 698.57 698.57
Series II/Series II Preferred Shares 830.19 830.19
Series I Preferred Capital Distribution Shares N/A 527.60
Series II Preferred Capital Distribution Shares N/A 595.10
Equity per share**:
Series I and Series II as adjusted/Growth
Shares and Term Shares 17.22
================
BACs to shares conversion:
Series I and Series II BACs to Preferred Shares 1 share/BAC
Series I and Series II BACs to Preferred Capital Distribution Shares 1 share/BAC
Series I BACs to Growth Shares 38.10 share/BAC
Series II BACs to Growth Shares 43.95 share/BAC
* Equity has been adjusted for the Special Distribution as follows: Per BAC Amount
----------------
Series I 170.91
Series II 235.30
** Equity per share has been adjusted to reflect each shares' pro rata portion of the unrealized gains
on mortgage revenue bonds available for sale.
<PAGE>
Financial Condition and Liquidity
As of June 30, 1996, the Partnership's capital was primarily invested in
23 mortgage revenue bonds and related parity working capital loans
totaling $192,958,000 of face value. Of these investments, 14 bonds and
related parity working capital loans (totaling $135,838,000 of face value)
were acquired with Series I proceeds while nine bonds and related parity
working capital loans (totaling $57,120,000 of face value) were acquired
with Series II proceeds. To the extent that offering proceeds exceeded
organizational and offering expenses and initial project investments, the
Managing General Partner created Partnership working capital reserves.
The original Partnership working capital reserves, as a result of
supplementing distributions to BAC Holders and providing additional
working capital loans to the properties, were exhausted during 1992 and
1994, for Series I and Series II, respectively. As a result of the February
1995 Financing, additional Partnership working capital reserves (of
approximately $4.4 million) were established of which $1.5 million
($850,000 in Series I and $600,000 in Series II) were utilized to pay one-time
Financing origination costs in 1995. For Series I and Series II,
reserves of approximately $1.1 million and $100,000 were used during
1995 to pay distributions declared in excess of cash generated from
operations. For the six months ended June 30, 1996, approximately
$300,000 in reserves were used to pay distributions in Series I. For Series
II, cash generated from operations exceeded the amount distributed
resulting in an increase in the reserves of approximately $300,000. As of
June 30, 1996, the Partnership's working capital reserves approximated
$1.8 million (approximately $550,000 in Series I and approximately $1.25
million in Series II).
Distributions are affected by the Partnership's ability to collect interest
from the cash flow of the properties securing the bonds and the ability of
the Managing General Partner to control operating expenses. Cash
collected by the Partnership does not necessarily reflect property operating
results to the extent that debt service can be paid from other sources,
including property reserves and guarantees and, for those properties subject
to the Financing, investment income and swap income. Similarly, some of
the cash generated by property operations may not be available to pay debt
service as it may be utilized for Series A Bond principal and interest and
related items, capital expenditures, escrows or prepaid expenses.
Distributions are also affected by the investment income generated by the
net Financing proceeds as compared to the reduction in revenues caused
by the sale of the Receipts in the Series A Bonds.
On July 31, 1996, the Managing General Partner paid semi-annual
distributions of $26.25 and $27.50 per BAC in Series I and Series II,
respectively. These amounts represent an annualized primarily tax-exempt
distribution rate of 5.25% in Series I and 5.50% in Series II. These
distribution rates for Series I and Series II remained unchanged from the
previous semi-annual distributions.
At June 30, 1996, the Partnership's liquid assets approximated $9.8
million. These funds primarily consist of undistributed funds generated
from operations during the first six months of 1996 and working capital
reserves. In addition, through the subsequent dissolution of the MLP
structure discussed above, the Partnership has $47.4 million of net
Financing proceeds (net of the special capital distribution) available for
permanent investment in accordance with the Company's investment
objectives.
Results of Operations
Revenues
Quarterly Results Analysis
For the quarter ended June 30, 1996, interest on mortgage revenue
bonds and parity working capital loans increased by approximately $1.0
million (approximately $600,000 in Series I and approximately $400,000 in
Series II) versus the same period last year. The borrowing partnerships
were able to pay additional interest due primarily to three factors: 1) an
increase in cash generated by property operations, 2) an increase in the
earnings generated from the interest rate swap agreement and 3) the receipt
of distributions from MLP I. First, several properties increased their debt
service payments for the second quarter of 1996 as compared to the second
quarter of 1995; more specifically, North Pointe ($200,000), Barkley
($63,000), Montclair ($60,000) and Nicollet ($57,000), all Series I bonds
and Hamilton ($106,000), a Series II bond. Second, earnings generated by
the interest rate swap agreement owned by the operating partnerships
increased by approximately $93,000 (approximately $56,000 for Series I
and approximately $37,000 for Series II) for the second quarter of 1996 as
compared to the same period last year. This increase is due to a more
favorable interest rate environment as the average PSA Municipal SWAP
Index, on which the interest rate is calculated, averaged 3.60% for the
second quarter of 1996 as compared to 4.11% for the second quarter of
1995. Finally, during the second quarter of 1996 the properties were
allocated approximately $670,000 (approximately $403,000 for Series I and
approximately $267,000 for Series II) in interest income from the proceeds
of the Financing as compared to approximately $348,000 (approximately
$209,000 for Series I and approximately $139,000 for Series II) for the
same period last year. This difference is due primarily to the timing of
maturing investments.
Year to Date Results Analysis
For the six months ended June 30, 1996, interest on mortgage revenue
bonds and parity working capital loans decreased by approximately
$484,000 (approximately $447,000 in Series I and approximately $37,000
in Series II) versus the same period last year. The decrease is primarily due
to: a) the change in timing of interest payments on the Series B bonds from
in arrears to current, which served to increase the interest revenue for the
first six months of 1995 by approximately $710,000 (approximately
$437,000 for Series I and approximately $273,000 for Series II); b) the use
of excess funds in property reserves which increased interest revenue for
the six months ended June 30, 1995 by approximately $482,000
(approximately $320,000 for Series I and approximately $162,000 for
Series II). These decreases were partially offset by increases in interest paid
on mortgage revenue bonds and parity working capital loans for the first six
months of 1996 as compared to the same period of 1995, more specifically,
North Pointe ($350,000) and Montclair ($77,000), both Series I bonds and
Hamilton ($140,000), Southfork ($80,000), , Meadows ($60,000) and
Whispering Lake ($55,000) all Series II bonds.
As a result of the Financing transaction consummated in February 1995,
the Partnership recorded a net gain on sale of A bond receipts during the
first quarter of 1995. Included in this amount is a portion of the net
unrealized gain associated with the refunded bonds of approximately $2.3
million, net of selling expenses of approximately $1.7 million. A complete
description of the Financing is included in the Partnership's 1995 Form 10-K.
For the six months ended June 30, 1996, equity in MLP II increased by
approximately $446,000 as compared to the same period last year. The six
months ended June 30, 1995 only includes income for the period February
15, 1995 (the date of the Financing transaction) through June 30, 1995.
Expenses
Partnership operating expenses are either specifically identified by Series
or allocated to each Series based on the original net offering proceeds.
Partnership operating expenses decreased by approximately $360,000
(approximately $34,000 for Series I and approximately $326,000 for Series
II) for the first six months of 1996 versus the same period in 1995. This
decrease is primarily due to the Financing transaction, which resulted in
approximately $1.1 million (approximately $580,000 for Series I and
approximately $540,000 for Series II) of expenses for the six months ended
June 30, 1995. This decrease was partially offset by increases during the
six months ended June 30, 1996 of: 1) costs associated with the
Prospectus/Consent Solicitation ($200,000, approximately $139,000 for
Series I and approximately $61,000 for Series II), 2) accounting fees related
to the restatement of prior period financial statements ($170,000,
approximately $110,000 for Series I and approximately $60,000 for Series
II), 3) legal fees related to the class action complaint ($120,000,
approximately $80,000 for Series I and approximately $40,000 for Series
II), and 4) the increase in the valuation allowance on the investment in
parity working capital loans ($90,000, all related to Series I).
Other
Under the provisions of FAS 115, investments in mortgage revenue
bonds are recorded at fair value. In the absence of readily ascertainable
market values, such fair values are estimated by the Managing General
Partner. For those mortgage revenue bonds where estimated fair value has
declined to an amount below amortized cost, the Managing General Partner
considers the following in determining whether the indicated decline is
other-than temporary. With respect to bonds that are not performing in
accordance with their contractual terms established at the time of issuance,
the Partnership considers declines in excess of amortized cost, if any, to be
other-than-temporary under the provisions of FAS 115. Indicated
impairments of performing bonds are evaluated on an individual basis, but,
in the absence of contrary evidence, are generally considered to be
temporary.
For the quarter ended June 30, 1996, the net adjustment to unrealized
gains and losses on mortgage revenue bonds available for sale increased
partners' equity by approximately $4.1 million ($.9 million in Series I and
$3.2 million in Series II). During the same period, the Partnership recorded
other-than-temporary impairments totaling $3,990,000 on five bonds
(Creekside ($1,239,000), Lakeview ($1,315,000), Willowgreen
($1,131,000), all of which are Series I bonds, and Mallard I (143,000) and
Mallard II ($162,000), which are Series II bonds).
The other-than-temporary impairments discussed above do not affect
the cash flow generated from property operations, distributions to BAC
Holders, the characterization of the tax-exempt income stream nor the
financial obligations under the bonds. The Managing General Partner will
continue to evaluate the need for other-than-temporary impairments in the
future as circumstances change.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As previously discussed in the Partnership's Form 10-K, on July 24,
1995, a class action and derivative action complaint was filed in the District
of Columbia Superior Court, Civil Division, Washington, D.C. The
complaint names as defendants the Managing General Partner, the
Associate General Partner and 177061 Canada Ltd. (formerly known as
Shelter Corporation of Canada Limited) (the "Defendants").
On September 22, 1995, Defendants removed the action to the United
States District Court for the District of Columbia. In November 1995, the
parties agreed to a settlement of the action in consideration of certain
modifications to the terms of and disclosure with respect to the Transaction,
as set forth in a stipulation of settlement filed with the court. The
settlement is conditioned on, among other things, the consummation of the
Transaction. On March 13, 1996, the court held a status conference in the
action. At that time, all conditions necessary for the settlement to proceed
had not yet occurred and, for reasons of case administration, the court
dismissed the action without prejudice and with leave to the parties to
reinstate the action on or before May 1, 1996 in order to proceed with the
settlement or the litigation.
On May 1, 1996, counsel for the plaintiffs made application to the court
to reinstate the action. On June 12, 1996, the parties executed an amended
stipulation, which is filed with the court, setting forth the terms and
conditions of the settlement. On June 20, 1996 the court preliminarily
approved the settlement. BAC Holders have been sent a Notice of Class
and Derivative Action Determination, Settlement and Hearing on the
Proposed Settlement (the "Notice"), which explains the settlement and the
rights of the BAC Holders in connection therewith. The settlement is
subject to the approval of the court and other terms and conditions, as set
forth in the Notice. The court has scheduled a settlement and fairness
hearing on August 29, 1996 to determine, among other things, whether the
settlement is fair, reasonable and adequate, and should be approved.
In the opinion of the General Partners, after consultation with counsel,
this settlement is not expected to have a material adverse effect on the
consolidated financial statements and results of operations of the Partnership.
Items 2 and 3 are not applicable.
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
The Partnership solicited the consents of the BAC Holders to the
Transaction by Prospectus/Consent Solicitation dated June 18, 1996. The
following results are reported:
Of those votes cast in Series I, 113,988 (89.23%) voted "Yes" to the
merger; 8,456 (6.62%) voted "No" to the merger; and 5,301 (4.15%)
"Abstain(ed)" from voting. Of those votes cast in Series II, 54,117
(88.25%) voted "Yes" to the merger; 5,025 (8.20%) voted "No" to the
merger; and 2,178 (3.55%) "Abstain(ed)" from voting.
BACs were exchanged for the following shares:
Series I Series II
-------- ---------
Growth Shares* 172,588 83,791
Preferred Shares 16,449 7,664
Preferred Capital
Distribution Shares 8,967 3,838
Term Growth Shares 1,996 963
*Includes BACs which were not voted.
Item 5 - Other Information
Effective as of 5:01 p.m. Eastern time on August 1, 1996, the
Registrant consummated the Transaction. For information relating to the
Transaction, see discussion under Part I, Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations incorporated
by reference herein.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(2) Agreement of Merger by and between SCA Tax Exempt
Fund Limited Partnership, a Delaware limited
partnership and Municipal Mortgage and Equity, L.L.C.
a Delaware limited liability company dated August 1,
1996 incorporated herein by reference to the
Registrant's S-4 Registration Statement filed with the
SEC (Registration No. 33-99088) on May 28, 1996
and declared effective by order dated May 29, 1996.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K for the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MUNICIPAL MORTGAGE AND EQUITY, L.L.C.
(Registrant)
By: <S> Thomas R. Hobbs
---------------------
Thomas R. Hobbs
Senior Vice President
Signing on behalf of registrant and as acting chief financial officer.
DATED: August 14, 1996
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE ENTITY AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THOSE FINANCIAL STATEMENTS AND THE FOOTNOTES PROVIDED
WITHIN THIS SCHEDULE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,808,000<F1>
<SECURITIES> 0
<RECEIVABLES> 454,000<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,262,000<F3>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,300,000<F4>
<CURRENT-LIABILITIES> 9,127,000<F5>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 219,171,000<F6>
<TOTAL-LIABILITY-AND-EQUITY> 228,300,000<F7>
<SALES> 0
<TOTAL-REVENUES> 8,595,000<F8>
<CGS> 0
<TOTAL-COSTS> 5,793,000<F9>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,802,000<F10>
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,802,000<F11>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,802,000<F12>
<EPS-PRIMARY> 25.73<F13>
<EPS-DILUTED> 0
<FN>
<F1> SERIES I SERIES II
---------- -----------
CASH 5,859,000 3,949,000
<F2>RECEIVABLES 235,000 219,000
<F3>CURRENT ASSETS 6,094,000 4,168,000
<F4>TOTAL ASSETS 145,405,000 82,895,000
<F5>CURRENT LIABILITIES 6,077,000 3,050,000
<F6>OTHER S-E 139,327,000 79,844,000
<F7>TOTAL LIABILITIES
& EQUITY 145,405,000 82,895,000
<F8>TOTAL REVENUE 5,510,000 3,085,000
<F9>TOTAL COSTS 4,932,000 861,000
<F10>INCOME- PRETAX 578,000 2,224,000
<F11>INCOME-CONTINUING 578,000 2,224,000
<F12>NET INCOME 578,000 2,224,000
<F13>EPS 2.86 22.87
</FN>
</TABLE>
