FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 20, 1996
AMERICA FIRST APARTMENT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 0-20737
(State of Formation) (Commission File Number)
47-0797793
(IRS Employer Identification Number)
Suite 400, 1004 Farnam Street,
Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrants' telephone number, including area code)
<PAGE> - i -
Item 2. Acquisition or Disposition of Assets. Effective August 20,
1996, America First Apartment Investors, L.P. (the "Registrant") merged with
America First Tax Exempt Mortgage Fund 2 Limited Partnership, a Delaware
limited partnership (the "Tax Exempt Fund"), under the laws of the State of
Delaware. Pursuant to the Agreement of Merger, dated March 28, 1996, by and
between the Registrant and the Tax Exempt Fund (the "Merger Agreement"), the
separate existence of the Tax Exempt Fund terminated as of the time of the
merger and the Registrant, as the surviving limited partnership of the
merger, succeeded to all of the assets and liabilities of the Registrant.
The principal assets of the Tax Exempt Fund which were acquired by the
Registrant as a result of said merger consisted of three tax-exempt mortgage
bonds secured by apartment complexes and four apartment complexes and an
office/warehouse facility which were acquired by the Tax Exempt Fund in
settlement of tax-exempt mortgage bonds. The following table sets forth
certain information with respect to the tax-exempt mortgage bonds which the
Registrant has acquired from the Tax Exempt Fund as a result of the merger:
<TABLE>
<CAPTION>
Name and Location of Number Maturity Base Carrying Amount of
Property Securing Bond of Units Date Interest Rate(1) Bonds at June 30, 1996
- ---------------------- -------- -------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Jackson Park Place
Fesno, CA 296 09/01/11 8.5% $ 8,760,000
Jefferson Place
Olathe, KS 352 12/01/10 8.5 12,800,000
Avalon Ridge
Renton, WA 356 09/01/11 8.5 18,755,000
----------------------
40,315,000
Unrealized holding losses (8,748,474)
----------------------
Balance at June 30, 1996 (at estimated fair value) $ 31,566,526
======================
</TABLE>
(1) In addition to the base interest rate shown, the bonds bear additional
"contingent interest" payable out of net cash flow and sale proceeds of the
underlying properties which, when combined with the base interest shown, is
limited to a cumulative, noncompounded amount not greater than 13% per annum.
The following table set forth certain information with respect to the
real estate which the Registrant acquired from the Tax Exempt Fund as a result
of the merger:
<TABLE>
<CAPTION>
Name and Location Number of Building and Carrying Value at
of Property Units Land Improvements June 30, 1996
- ------------------------ --------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Covey at Fox Valley
Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338
The Exchange at Palm Bay
Palm Bay, FL 72,002(1) 1,150,318 3,222,792 4,373,110
The Park at Fifty Eight
Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights
Bristol, TN 100 175,000 2,952,847 3,127,847
Coral Point
Mesa, AZ 336 2,240,000 8,960,000 11,200,000
-----------------
34,402,634
Less Accumulated Depreciation (7,098,678)
-----------------
Balance at June 30, 1996 $ 27,303,956
=================
</TABLE>
(1) Represents square feet.
<PAGE> - 2 -
Under the terms of the Merger Agreement, the Registrant issued one
beneficial unit certificate (a "BUC") representing an assigned limited
partnership interest in the Registrant for each outstanding BUC representing
an assigned limited partnership interest in the Tax Exempt Fund or a total of
5,212,167 BUCs. No other consideration was paid in connection with the merger.
America First Capital Associates Four Limited Partnership is the general
partner of both the Registrant and the Tax Exempt Fund.
Item 7. Financial Statement and Exhibits.
(a) Financial Statements of Businesses Acquired.
Financial Statements of the Tax Exempt Fund as of, and for the
three-year period ended, December 31, 1995 (Incorporated by
reference to pages 15 through 60 of the Annual Report on Form 10-K/A
for the year ended December 31, 1995 of the Tax Exempt Fund (SEC
File No. 0-15329).
Financial Statements of the Tax Exempt Fund as of, and for the
six-month period ended, June 30, 1996 (Incorporated by reference to
pages 1 through 7 of the Quarterly Report on Form 10-Q for the six
months ended June 30, 1996 of the Tax Exempt Fund (SEC File No.
0-15329).
(b) Pro Forma Financial Information.
Pro Forma Financial Information (Incorporated by reference to pages
F-1 through F-4 of Amendment No. 2 to the Registration Statement on
Form S-4 (No. 333-2920) filed by the Registrant on June 6, 1996).
(c) Exhibits.
2(a) Agreement of Merger, dated March 28, 1996, between the
Registrant and America First Tax Exempt Mortgage Fund 2
Limited Partnership (Incorporated by reference to Exhibit 4.3
to Amendment No. 1 to Registration Statement of Form S-4 (No.
333-2920) filed by the Registrant on May 17, 1996).
4(a) Form of Certificate of Beneficial Unit Certificate (Incorporated
by reference to Exhibit 4.1 to Registration Statement on Form
S-4 (No. 333-2920) filed by the Registrant on March 29, 1996).
4(b) Agreement of Limited Partnership of the Registrant, dated
August 15, 1996.
99(a) Pages 15 through 60 of the Annual Report on Form 10-K/A for
the year ended December 31, 1995 of the Tax Exempt Fund (SEC
File No. 0-15329).
99(b) Pages 1 through 7 of the Quarterly Report on Form 10-Q for the
six months ended June 30, 1996 of the Tax Exempt Fund (SEC
File No. 0-15329)
99(c) Pages F-1 through F-4 of Amendement No. 2 to the Registration
Statement on Form S-4 (No. 333-2920) filed by the Registrant
on June 6, 1996).
<PAGE> - 3 -
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICA FIRST APARTMENT INVESTORS, L.P.
By America First Capital
Associates Limited Partnership
Four, its general partner
By America First Companies L.L.C, its general
partner
By /s/ Michael Thesing
Michael Thesing, Vice President
August 20, 1996
<PAGE> - 4 -
AMERICA FIRST
APARTMENT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
Page
ARTICLE I
DEFINED TERMS 1
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE
AND TERM
SECTION 2.01. Name 4
SECTION 2.02. Principal Office and Name and Address of Resident Agent 5
SECTION 2.03. Purpose 5
SECTION 2.04. Term 5
ARTICLE III
PARTNERS AND CAPITAL
SECTION 3.01. General Partner 5
SECTION 3.02. Limited Partners 5
SECTION 3.03. Partnership Capital 5
SECTION 3.04. Liability of Partners and BUC Holders 6
ARTICLE IV
DISTRIBUTIONS OF CASH;
ALLOCATIONS OF INCOME AND LOSS
SECTION 4.01. Distributions of Net Operating Income 6
SECTION 4.02. Distributions of Net Sale Proceeds
and of Liquidation Proceeds 6
SECTION 4.03. Allocation of Income and Loss From Operations 6
SECTION 4.04. Allocation of Income and Loss Arising From
a Sale or Liquidation 7
SECTION 4.05. Determination of Allocations and Distributions Among
Limited Partners and BUC Holders 7
SECTION 4.06. Capital Accounts 8
SECTION 4.07. Rights to Distributions 8
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER
SECTION 5.01. Management of the Partnership 8
SECTION 5.02. Authority of the General Partner 8
SECTION 5.03. Authority of General Partner and Its Affiliates
To Deal With Partnership 10
SECTION 5.04. General Restrictions on Authority of the General Partner 11
SECTION 5.05. Compensation and Fees 12
SECTION 5.06. Duties and Obligations of the General Partner 13
SECTION 5.07. Delegation of Authority 13
SECTION 5.08. Other Activities 14
SECTION 5.09. Limitation on Liability of the General Partner and
Initial Limited Partner; Indemnification 14
SECTION 5.10. Special Amendments to the Agreement 14
ARTICLE VI
CHANGES IN GENERAL PARTNERS
SECTION 6.01. Withdrawal of General Partner 15
SECTION 6.02. Admission of a Successor or Additional General Partner 15
SECTION 6.03. Removal of a General Partner 15
SECTION 6.04. Effect of Incapacity of a General Partner 16
<PAGE> - i -
ARTICLE VII
TRANSFERABILITY OF BUCS
AND LIMITED PARTNERS' INTERESTS
SECTION 7.01. Free Transferability of BUCs 17
SECTION 7.02. Restrictions on Transfers of BUCs and of Interests
of Limited Partners Other Than the Initial
Limited Partner 18
SECTION 7.03. Assignees of Limited Partners Other Than the
Initial Limited Partner 18
SECTION 7.04. Joint Ownership of Interests 19
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. Events Causing Dissolution 19
SECTION 8.02. Liquidation 20
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS
SECTION 9.01. Books and Records 20
SECTION 9.02. Accounting Basis and Fiscal Year 21
SECTION 9.03. Reports 21
SECTION 9.04. Designation of Tax Matters Partner 22
SECTION 9.05. Expenses of Tax Matters Partner 22
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
AND BUC HOLDERS
SECTION 10.01. Meetings 22
SECTION 10.02. Voting Rights of Limited Partners and BUC Holders 23
SECTION 10.03. Opinion Regarding Effect of Action by Limited Partners
and BUC Holders 24
SECTION 10.04. Other Activities 24
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO
BUC HOLDERS AND RIGHTS OF BUC HOLDERS
SECTION 11.01. Assignment of Limited Partnership Interests
to BUC Holders 24
SECTION 11.02. Rights of BUC Holders 25
SECTION 11.03. Voting by the Initial Limited Partner
on Behalf of BUC Holders 25
SECTION 11.04. Preservation of Tax Status 25
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Appointment of the General Partner as Attorney-in-Fact 26
SECTION 12.02. Signatures 27
SECTION 12.03. Amendments 27
SECTION 12.04. Ownership by the Limited Partners of General
Partners or Their Affiliates 27
SECTION 12.05. Binding Provisions 28
SECTION 12.06. Applicable Law 28
SECTION 12.07. Separability of Provisions 28
SECTION 12.08. Captions 28
SECTION 12.09. Entire Agreement 28
TESTIMONIUM 28
SCHEDULE A
<PAGE> - ii -
AMERICA FIRST APARTMENT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement is made as of August 15, 1996 by and between America First
Capital Associates Limited Partnership Four (the "General Partner") and
America First Fiduciary Corporation Number Eight (the "Initial Limited
Partner"), who by joining in this Agreement agree to become partners in a
limited partnership under the laws of the State of Delaware.
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article I. The
singular shall include the plural and the masculine genders shall include the
feminine and neuter gender, and vice versa, as the context requires.
"Accountants" means such nationally recognized firm of independent public
accountants as shall be engaged from time to time by the General Partner on
behalf of the Partnership.
"Act" means the Delaware Revised Uniform Limited Partnership Act, which
consists of Title 6, Chapter 17 of the Delaware Code Annotated, as it may be
amended or revised from time to time, or any other provision of Delaware law
which may, from time to time, supersede part or all of the Delaware Revised
Uniform Limited Partnership Act.
"Administrative Fee" means the fee paid by the Partnership to AFCA
pursuant to Section 5.05(c) hereof for the administration of the Partnership
and its assets.
"AFCA" means America First Capital Associates Limited Partnership Four, a
Delaware limited partnership, the General Partner.
"Affiliate" means, when used with reference to a specified Person, (i)
any Person who directly or indirectly controls or is controlled by or is under
common control with the specified Person, (ii) any Person who is (or has the
power to designate) an officer of, general partner in or trustee of, or serves
(or has the power to designate a person to serve) in a similar capacity with
respect to, the specified Person, or of which the specified Person is an
officer, general partner or trustee, or with respect to which the specified
Person serves in a similar capacity, and (iii) any Person who, directly or
indirectly, is the beneficial owner of 10% or more of any class of equity
securities of the specified Person or of which the specified Person is
directly or indirectly the owner of 10% or more of any class of equity
securities. An Affiliate of the Partnership or the General Partner does not
include any limited partner of the General Partner if such Person is not
otherwise an Affiliate of the Partnership or the General Partner.
"Agreement" means this Limited Partnership Agreement, as originally
executed and as amended from time to time.
"Bankruptcy" or "Bankrupt" as to any Person means the filing of a
petition for relief by such Person as debtor or bankrupt under the Bankruptcy
Code of 1978 or like provision of law or insolvency of such Person as finally
determined by a court proceeding.
"Bond" or "Bonds" means one or more of the tax-exempt housing bonds which
were originally issued by various state or local authorities to the Prior
Partnership in order to provide construction and permanent financing for seven
apartment complexes now known as Jackson Park Place in Fresno, California;
Jefferson Place in Olathe, Kansas; Avalon Ridge in Renton, Washington; Covey
at Fox Valley in Aurora, Illinois; The Park at Fifty Eight in Chattanooga,
Tennessee; Shelby Heights in Bristol, Tennessee and Coral Point in Mesa
Arizona and one office/warehouse facility known as the Exchange at Palm Bay in
Palm Bay, Florida.
"BUC" means a Limited Partnership Interest which is credited to the
Initial Limited Partner on the books and records of the Partnership and
assigned by the Initial Limited Partner to a BUC Holder.
<PAGE> - 1 -
"BUC Holder" means any Person who has been assigned one or more Limited
Partnership Interests by the Initial Limited Partner pursuant to Section
11.01. A BUC Holder is not a Limited Partner and will have no right to be
admitted as a Limited Partner.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in either New York, New York or Omaha, Nebraska are
obligated by law or executive order to be closed.
"Capital Account" means the capital account of a Partner or a BUC Holder
as described in Section 4.06 hereof.
"Capital Contribution" means the total amount contributed to the capital
of the Partnership by or on behalf of all Partners or any class of Partners or
by any one Partner, as the context may require (or by the predecessor holders
of the Partnership Interests of such Persons) and, with respect to a BUC
Holder, the Capital Contribution of the Initial Limited Partner made on behalf
of such BUC Holder.
"Cause" means conduct which constitutes fraud, bad faith, negligence,
misconduct or breach of a fiduciary duty.
"Certificate" means the certificate of limited partnership filed pursuant
to Section 17-201 of the Act.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"Consent" means either the consent given by a vote at a meeting called
and held in accordance with the provisions of Section 10.01 hereof or the
written consent, as the case may be, of a Person to do the act or thing for
which the consent is solicited, or the act of granting such consent, as the
context may require. Consent given after the act or thing is done with
respect to which the Consent is solicited shall be deemed to relate back to
the date such act or thing was done.
"Counsel" means the law firm representing the General Partner in
connection with the operation of the Partnership or the law firm, if any,
selected by the General Partner to represent the Partnership.
"Distribution Date" means a Business Day selected by the General Partner
for the distribution of Net Operating Income or Net Sale Proceeds with respect
to a Distribution Period, which Business Day shall be no later than 60 days
following the last day of the Distribution Period to which such Distribution
Date relates.
"Distribution Period" means the period of time selected by the General
Partner for which the distribution of Net Operating Income or Net Sale
Proceeds is made, which period may be no longer than six calendar months.
"Foreclosed Bonds" means any Bonds which were originally issued in order
to provide construction and permanent financing for Properties which either
the Prior Partnership or the Partnership have acquired through foreclosure or
deed in lieu of foreclosure. As of the date of this Agreement, the Foreclosed
Bonds are those Bonds that were originally issued in order to provide
construction and permanent financing for four apartment complexes now known as
Covey at Fox Valley in Aurora, Illinois; The Park at Fifty Eight in
Chattanooga, Tennessee; Shelby Heights in Bristol, Tennessee and Coral Point
in Mesa Arizona the office/warehouse facility known as the Exchange at Palm
Bay in Palm Bay, Florida.
"General Partner" means AFCA or any Person or Persons who, at the time of
reference thereto, have been admitted as successors to the Partnership
Interest of AFCA or as additional General Partners, in each such Person's
capacity as a General Partner.
"Incapacity" or "Incapacitated" means, as to any Person, death, the
adjudication of incompetency or insanity, Bankruptcy, dissolution,
termination, withdrawal pursuant to Section 6.01 or removal pursuant to
Section 6.03, as the case may be, of such Person.
<PAGE> - 2 -
"Income" means the taxable income of the Partnership as determined in
accordance with the Partnership's method of accounting and computed under
Section 703 of the Code; any item of taxable income required to be separately
stated on the Partnership's federal income tax return pursuant to Section
703(a)(1) of the Code; and any income of the Partnership excluded from the
gross income of the Partnership for federal income tax purposes under Section
103 of the Code.
"Initial Limited Partner" means America First Fiduciary Corporation
Number Eight, a Nebraska corporation, or any Person or Persons who, at the
time of reference thereto, have been admitted to the Partnership, with the
consent of the General Partner, as successors to the Limited Partnership
Interest of America First Fiduciary Corporation Number Eight.
"Limited Partner" means any Person who is a Limited Partner, including
the Initial Limited Partner, at the time of reference thereto, in such
Person's capacity as a Limited Partner of the Partnership. A BUC Holder is
not a Limited Partner and has no right to be admitted as a Limited Partner.
"Limited Partnership Interest" means the Partnership Interest held by a
Limited Partner, including the Limited Partnership Interests assigned to BUC
Holders.
"Liquidation Proceeds" means all cash receipts of the Partnership (other
than Operating Income and Sale Proceeds) arising from the liquidation of the
Partnership's assets in the course of the dissolution of the Partnership.
"Loss" means taxable losses of the Partnership, as determined in
accordance with the Partnership's method of accounting and computed under
Section 703 of the Code; any item of loss or expense required to be separately
stated on the Partnership's federal income tax return pursuant to Section
703(a)(1) of the Code; and any expenditures of the Partnership not deductible
in computing its taxable income and not properly treated as a capital
expenditure.
"Merger Agreement" means the Agreement of Merger, dated March 28, 1996,
by and between the Partnership and the Prior Partnership pursuant to which the
Partnership and the Prior Partnership will be merged in accordance with the
provisions of the Act with the Partnership being the surviving partnership.
"Merger Date" means the effective date of the merger of the Partnership
and the Prior Partnership specified in the Merger Agreement.
"Monthly Record Date" means the last day of a calendar month.
"Net Operating Income" means, with respect to any Distribution Period,
all Operating Income received by the Partnership during such Distribution
Period, plus any amounts previously set aside as Reserves from Operating
Income which the General Partner releases from Reserves as being no longer
necessary to hold as part of Reserves, less (i) expenses of the Partnership
(including fees and reimbursements paid to the General Partner but excluding
any expenses of the Partnership which are directly attributable to the sale of
a Property) paid from Operating Income during the Distribution Period (other
than operating expenses paid from previously established Reserves), (ii) all
cash payments made from Operating Income during such Distribution Period to
discharge Partnership indebtedness, and (iii) all amounts from Operating
Income set aside as Reserves or used to acquire additional Properties during
such Distribution Period.
"Net Sale Proceeds" means, with respect to any Distribution Period, all
Sale Proceeds received by the Partnership during such Distribution Period,
plus any amounts previously set aside as Reserves from Sale Proceeds which the
General Partner releases from Reserves as being no longer necessary to hold as
part of Reserves, less (i) all expenses of the Partnership which are directly
attributable to the sale of a Property, (ii) all cash payments made from Sale
Proceeds during such Distribution Period to discharge Partnership indebtedness
and (iii) all amounts from Sale Proceeds set aside as Reserves or used to
acquire additional Properties during such Distribution Period or held by the
Partnership to acquire additional Properties in future Distribution Periods.
"Notice" means a writing, containing the information required by this
Agreement to be communicated to any Person, personally delivered to such
Person or sent by registered, certified or regular mail, postage prepaid, to
such Person at the last known address of such Person.
<PAGE> - 3 -
"Operating Income" means all cash receipts of the Partnership with
respect to any period (including any interest payments received on an
Outstanding Bond) except for (i) Capital Contributions, (ii) Sale Proceeds or
(iii) the proceeds of any loan to the Partnership or the refinancing of any
loan, including proceeds received from the reissuance of any Foreclosed Bond.
"Outstanding Bonds" means the Bonds acquired by the Partnership from the
Prior Partnership which are not Foreclosed Bonds. As of the date of this
Agreement, the Outstanding Bonds are those Bonds which were originally issued
in order to provide construction and permanent financing for three apartment
complexes now known as Jackson Park Place in Fresno, California; Jefferson
Place in Olathe, Kansas and Avalon Ridge in Renton, Washington.
"Partner" means the General Partner or any Limited Partner.
"Partnership" means the limited partnership created by this Agreement and
known as the America First Apartment Investors, L.P., as said limited
partnership may from time to time be constituted.
"Partnership Interest" means the entire ownership interest of a Partner
in the Partnership at any particular time, including the right of such Partner
to any and all benefits to which a Partner may be entitled under this
Agreement, together with the obligations of such Partner to comply with all
the terms and provisions of this Agreement and the Act.
"Person" means any individual, partnership, corporation, trust,
association or other legal entity.
"Prior Partnership" means America First Tax Exempt Mortgage Fund 2
Limited Partnership, a Delaware limited partnership.
"Prior Partnership Agreement" means the Agreement of Limited Partnership,
dated October 15, 1986, of the Prior Partnership.
"Property" or "Properties" means the real property, including land and
the buildings thereon, in which the Partnership holds an ownership interest.
"Property Acquisition Fee" means the fee paid by the Partnership to AFCA
pursuant to Section 5.05(b) hereof in connection with the identification,
evaluation and acquisition of real estate by the Partnership other than the
Properties which had originally been financed by the Bonds.
"Regulations" means the United States Treasury Regulations promulgated or
proposed under the Code.
"Reserve" means such amount of funds as shall be withheld from Operating
Income or Sale Proceeds by the General Partner from time to time in order to
provide working capital for the Partnership and which may be used for any
purpose relating to the operation of the Partnership and its Properties,
including the acquisition of additional Properties.
"Sale Proceeds" means all amounts received by the Partnership upon the
sale of a Property or other Partnership asset or from the repayment of all or
a portion of the principal of any Outstanding Bond.
"Schedule A" means the schedule, as amended from time to time, of
Partners' names, addresses and Capital Contributions, which schedule, in its
initial form, is attached to and made a part of this Agreement.
"Tax Matters Partner" means the Partner designated as the Tax Matters
Partner of the Partnership by the General Partner pursuant to Section 9.04.
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE
AND TERM
Section 2.01. Name. The Partners have caused the formation a limited
partnership pursuant to the Act under the name of "America First Apartment
Investors, L.P." The Partners and BUC Holders have entered into this
Agreement in order to set forth their respective rights and liabilities as
such, subject to the provisions of the Act unless otherwise provided herein.
<PAGE> - 4 -
Section 2.02. Principal Office and Name and Address of Resident Agent.
The address of the principal office and place of business of the Partnership,
unless hereafter changed by the General Partner, shall be 1004 Farnam Street,
Suite 400, Omaha, Nebraska 68102. Notification of any change in the
Partnership's principal office and place of business shall be promptly given
by the General Partner to the Limited Partners and BUC Holders. The name and
address of the initial resident agent of the Partnership in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The resident agent may be changed by the General Partner.
Section 2.03. Purpose. The purpose of the Partnership is to acquire,
hold, operate, sell and otherwise deal with multifamily residential properties
and other types of commercial real estate and interests therein. The
Partnership will pursue its purpose in order (i) to preserve and protect the
Partnership's capital and (ii) to provide regular cash distribution to the BUC
Holders. The Partnership shall be authorized to continue to hold Outstanding
Bonds, to foreclose on Properties secured by Outstanding Bonds, to reissue
Foreclosed Bonds on terms and conditions as the General Partner shall
determine in its sole discretion and to engage in any and all acts necessary,
appropriate, advisable or incidental to its purpose and to the conduct of its
business.
Section 2.04. Term. The Partnership began on the date of the filing of
the Certificate and shall continue in full force and effect until December 31,
2016 or until sooner dissolved pursuant to the provisions of this Agreement.
ARTICLE III
PARTNERS AND CAPITAL
Section 3.01. General Partner. (a) The name, address and Capital
Contribution of the General Partner (which shall be measured by its capital
account in the Prior Partnership on the Merger Date) are set forth in Schedule
A. The General Partner, as such, shall not be required to make any additional
Capital Contribution to the Partnership, except as provided in paragraph (b)
of this Section 3.01.
(b) Upon the dissolution and termination of the Partnership, the General
Partner will contribute to the Partnership an amount equal to the lesser of
(i) any deficit balance in its Capital Account or (ii) the excess of (A) 1.01%
of the Capital Contributions of the Limited Partners to the Partnership
(including the Capital Contribution of the Initial Limited Partner made on
behalf of the BUC Holders) over (B) the amount of previous Capital
Contributions made by the General Partner to the Partnership.
Section 3.02. Limited Partner. The name, address and Capital
Contribution of the Limited Partner (which shall be measured by its capital
account in the Prior Partnership on the Merger Date) are as set forth in
Schedule A. The Capital Contribution made by the Initial Limited Partner
shall be deemed to have been made on behalf of, and as trustee for, the BUC
Holders. Neither the Initial Limited Partner nor the BUC Holders shall be
required to make any additional Capital Contribution to the Partnership.
Other than to serve as Initial Limited Partner, the Initial Limited Partner
shall have no other business purpose and shall not engage in any other
activity or incur any debts. The Initial Limited Partner agrees not to amend
its articles of incorporation with respect to the incurrence of debt without
the written Consent of a majority in interest of the BUC Holders.
Section 3.03. Partnership Capital.
(a) No Partner or BUC Holder shall be paid interest on any Capital
Contribution.
(b) Except as specifically provided in Section 6.03, the Partnership
shall not be required to redeem or repurchase any Partnership Interest or BUC
and no Partner or BUC Holder shall have the right to withdraw, or receive any
return of, his Capital Contribution. Under circumstances requiring a return
of any Capital Contribution, no Limited Partner or BUC Holder will have the
right to receive property other than cash.
(c) No Limited Partner or BUC Holder shall have any priority over any
other Limited Partner or BUC Holder as to the return of his Capital
Contribution or as to distributions.
<PAGE> - 5 -
(d) The General Partner shall have no liability for the repayment of the
Capital Contributions.
Section 3.04. Liability of Partners and BUC Holders. No Limited Partner
or BUC Holder shall be required to lend any funds to the Partnership or, after
his Capital Contribution has been paid, to make any further Capital
Contribution to the Partnership. The liability of any Limited Partner or BUC
Holder for the losses, debts, liabilities and obligations of the Partnership
shall, so long as the Limited Partner or BUC Holder complies with Section
5.01(b), be limited to his Capital Contribution and his share of any
undistributed Income of the Partnership. Notwithstanding the foregoing, it is
possible that, under applicable law, a Limited Partner or BUC Holder may be
liable to the Partnership to the extent of previous distributions made to such
Limited Partner or BUC does not have sufficient assets to discharge
liabilities to its creditors who extended credit or whose claims arose prior
to such distributions. To the extent that the Initial Limited Partner is
required by law to return any distributions or repay any amount each BUC
Holder who has received any portion of such distributions agrees, by virtue of
accepting such distribution, to pay his proportionate share of such amount to
the Initial Limited Partner immediately upon Notice by the Initial Limited
Partner to such BUC Holder. In lieu of requiring return of such distributions
from BUC Holders, the General Partner may withhold future distributions of Net
Operating Income, Net Sale Proceeds or Liquidation Proceeds until the amount
so withheld equals the amount of the distributions the Initial Limited Partner
is required to repay or return regardless of whether the BUC Holders entitled
to receive such distribution were the same BUC Holders who actually received
the distribution required to be returned. In the event that the Initial
Limited Partner is determined to have unlimited liability for losses, debts,
liabilities and obligations of the Partnership, nothing set forth in this
Section shall be construed to require BUC Holders to assume any portion of
such liability.
ARTICLE IV
DISTRIBUTIONS OF CASH;
ALLOCATIONS OF INCOME AND LOSS
Section 4.01. Distributions of Net Operating Income. On each
Distribution Date, all Net Operating Income will be distributed 99% to the
Limited Partners and BUC Holders as a class and 1% to the General Partner.
Section 4.02. Distributions of Net Sale Proceeds and of Liquidation
Proceeds.
(a) On each Distribution Date, all amounts representing Net Sale Proceeds
will be distributed 100% to the Limited Partners and BUC Holders as a class.
(b) All Liquidation Proceeds shall be applied and distributed in the
following amounts and order of priority:
(i) to the payment of the amounts and the establishment of the
reserves provided for in Section 8.02(b);
(ii) to the Partners and BUC Holders in accordance with the positive
balances in their respective Capital Accounts until such accounts are
reduced to zero; and
(iii) then to the Partners and BUC Holders giving effect to the
provisions of Section 4.02(a) as if such Liquidation Proceeds constituted
Net Sale Proceeds for purposes of such Section.
Section 4.03. Allocation of Income and Loss From Operations.
(a) Income and Loss shall be determined in accordance with the accounting
methods followed by the Partnership for federal income tax purposes and
otherwise in accordance with generally accepted accounting principles. For
purposes of determining the Income, Loss, tax credits or any other items
allocable to any period, Income, Loss, tax credits and any such other items
shall be determined on a daily, monthly or other basis, as determined by the
General Partner using any permissible method under Section 706 of the Code and
the Regulations thereunder. An allocation to a Partner of a share of Income
or Loss under this Section 4.03 shall be treated as an allocation to such
Partner of the same share of each item of income, gain, loss, deduction and
credit that is taken into account in computing such Income and Loss.
<PAGE> - 6 -
(b) Subject to the provisions of Sections 4.03(c) and (d) and 5.04(m),
Income and Loss for each Distribution Period not arising from the sale of a
Property or the liquidation of the Partnership shall be allocated 1% to the
General Partner and 99% to the Limited Partners and the BUC Holders as a
class.
(c) Notwithstanding any provision hereof to the contrary, if a Partner
has a deficit Capital Account balance as of the last day of any fiscal year,
then all items of Income for such fiscal year shall be first allocated to such
Partner in the amount and in the manner necessary to eliminate such deficit
Capital Account balance.
(d) Notwithstanding any other provision of this Agreement, all
allocations of Income and Loss shall be subject to and interpreted in
accordance with Section 704 of the Code to the extent applicable. The
foregoing allocations are intended to comply with Section 704 of the Code and
the Regulations thereunder and shall be interpreted consistently therewith.
Section 4.04. Allocation of Income and Loss Arising From a Sale or
Liquidation.
(a) Subject to Section 4.03 (c), Income arising from a sale of a Property
or from the liquidation of the Partnership assets shall be allocated 100 % to
the Limited Partners and the BUC Holders as a class.
(b) Loss arising from the sale of a Property or from the liquidation of
Partnership assets shall be allocated among the Partners (including the
Initial Limited Partner on behalf of the BUC Holders) in the same manner as
Net Sale Proceeds or Liquidation Proceeds are allocated among the Partners
pursuant to Section 4.02.
Section 4.05. Determination of Allocations and Distributions Among
Limited Partners and BUC Holders.
(a) As of each Monthly Record Date during the term of the Partnership, a
determination shall be made of the amount of Income and Loss which, under the
Partnership's method of accounting, is properly attributable to the month to
which such Monthly Record Date relates and which was allocable to the Limited
Partners and BUC Holders as a class in accordance with Sections 4.04 and 4.05.
(b) As of the last day of each Distribution Period during the term of the
Partnership, a determination shall be made of the amount of Net Operating
Income and Net Sale Proceeds available to the Partnership during such
Distribution Period which was allocated for distribution to the Limited
Partners and BUC Holders in accordance with Sections 4.01 and 4.02; provided,
however, that the General Partner may elect to make the determination under
this Section 4.05(b) as of each Monthly Record Date.
(c) All allocations to the Limited Partners and BUC Holders as a class
pursuant to Section 4.03 shall be made on a monthly basis among the Limited
Partners or BUC Holders who held of record a Limited Partnership Interest or
BUC as of the Monthly Record Date in the ratio that (i) the number of Limited
Partnership Interests or BUCs held of record by each such Limited Partner or
BUC Holder as of the Monthly Record Date bears to (ii) the aggregate number of
Limited Partnership Interests and BUCs outstanding on each such Monthly Record
Date.
(d) All allocations to the Limited Partners and the BUC Holders as a
class pursuant to Section 4.04 shall be made among the Limited Partners or BUC
Holders of record on the Monthly Record Date for the month during which the
Income or Expense arose from a sale of a Property or liquidation of the
Partnership, in the ratio that (i) the number of Limited Partnership Interests
or BUCs held of record by each such Limited Partner or BUC Holder on such
Monthly Record Date bears to (ii) the number of Limited Partnership Interests
or BUCs outstanding on such Monthly Record Date.
(e) Net Operating Income and Net Sale Proceeds will be allocated to the
Limited Partners or BUC Holders of record on the last day of the Distribution
Period (or, if the General Partner so elects, on each Monthly Record Date
during such Distribution Period) in the ratio that (i) the number of Limited
Partnership Interests or BUCs owned of record by each such Limited Partner or
BUC Holder on each such date bears to (ii) the number of Limited Partnership
Interests or BUCs outstanding on such date.
<PAGE> - 7 -
Section 4.06. Capital Accounts. A separate Capital Account shall be
maintained and adjusted for each Partner in accordance with the Code and the
Regulations. There shall be credited to each Partner's Capital Account the
amount of such Partner's Capital Contribution (equal to the amount of its
capital account on the books and records of the Prior Partnership as of the
Merger Date) and such Partner's share of Income; and there shall be charged
against each Partner's Capital Account the amount of such Partner's share of
Loss and cash distributions. The Initial Limited Partner's Capital Account
shall be subdivided into separate Capital Accounts to reflect the interest of
each BUC Holder. Any items credited or charged to the BUC Holders shall be
reflected in the Capital Account of the Initial Limited Partner and in the
subaccounts reflecting the interest of each BUC Holder. Any person who
acquires a Limited Partnership Interest or a BUC from a Limited Partner or BUC
Holder shall have a Capital Account equal to the Capital Account of the
Limited Partner or BUC Holder from which such Limited Partnership Interest or
BUC was acquired.
Section 4.07. Rights to Distributions. Each holder of Partnership
Interests and BUCs shall look solely to the assets of the Partnership for all
distributions with respect to the Partnership, his Capital Contributions and
his share of Net Operating Income, Net Sale Proceeds and Liquidation Proceeds
and, except as provided in Section 3.01(b), shall have no recourse therefor,
upon dissolution or otherwise, against the General Partner or the Initial
Limited Partner. No Partner or BUC Holder shall have any right to demand or
receive property other than cash upon dissolution and termination of the
Partnership. All distributions pursuant to this Article IV are subject to the
provisions of Section 3.04.
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER
Section 5.01. Management of the Partnership.
(a) The General Partner, within the authority granted to it under this
Agreement, shall have full, complete and exclusive discretion to manage and
control the business of the Partnership and to carry out the purposes of the
Partnership. In so doing, the General Partner shall use its best efforts to
take all actions necessary or appropriate to protect the interests of the
Limited Partners and the BUC Holders. All decisions made for and on behalf of
the Partnership by the General Partner shall be binding upon the Partnership.
Except as otherwise provided in this Agreement, the General Partner shall have
all the rights and powers and shall be subject to all the restrictions and
liabilities of a partner in a partnership without limited partners.
(b) No Limited Partner or BUC Holder shall take part in the management or
control of the business of the Partnership or transact any business in the
name of the Partnership. No Limited Partner or BUC Holder shall have the
power or authority to bind the Partnership or to sign any agreement or
document in the name of the Partnership. No Limited Partner or BUC Holder
shall have any power or authority with respect to the Partnership except
insofar as the vote or Consent of the Limited Partners or BUC Holders shall be
expressly required or permitted by this Agreement.
Section 5.02. Authority of the General Partner.
(a) Subject to Sections 5.03 and 5.04, but otherwise without in any way
limiting the power and authority conferred on the General Partner by Section
5.01(a), the General Partner, for and in the name and on behalf of the
Partnership, is hereby authorized, without limitation:
(i) to negotiate for and enter into agreements to acquire, hold,
operate, sell and otherwise deal with the Properties at such prices and
upon such terms as it determines in its sole discretion, including
holding such Properties through special purpose corporations or other
entities as may be required by a rating agency in connection with the
refunding of a Bond; provided that any Property acquired by the
Partnership (other than the office/warehouse facility acquired from the
Prior Partnership) shall be a multifamily residential property;
(ii) to make all decisions to hold, foreclose upon, sell or
otherwise deal with the Outstanding Bonds and enter into any agreements
with respect thereto on such terms as it determines in its sole
discretion;
<PAGE> - 8 -
(iii) to acquire by purchase, lease, exchange or otherwise any real
or personal property to be used in connection with the business of the
Partnership; provided, however, that no property may be acquired from the
General Partner or its Affiliates except for goods and services provided
subject to the restrictions of Section 5.03;
(iv) to borrow money and issue evidences of indebtedness (including
the refunding or reissuing any of the Foreclosed Bonds) and to secure the
same by a pledge, lien, mortgage or other encumbrance on any assets of
the Partnership and to apply to proceeds of such borrowing to the
acquisition of Properties or such other proper Partnership purpose as the
General Partner shall determine in its sole discretion;
(v) to employ agents, accountants, attorneys, consultants and other
Persons that are necessary or appropriate to carry out the business and
operations of the Partnership and to pay fees, expenses and other
compensation to such Persons; provided, that if such Persons are
Affiliates of the General Partner, the terms of such employment shall be
subject to the restrictions of Section 5.03;
(vi) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and
upon such evidence as it may deem sufficient, any obligation, suit,
liability, cause of action or claim, including taxes, either in favor of
or against the Partnership;
(vii) except as otherwise expressly provided herein, to determine
the appropriate accounting method or methods to be used by the
Partnership;
(viii) except as prohibited by this Agreement, to cause the
Partnership to make or revoke any of the elections referred to in the
Code or any similar provisions enacted in lieu thereof, including, but
not limited to, those elections provided for in Code Sections 108, 709
and 1017;
(ix) to amend the Certificate or this Agreement to reflect the
addition or substitution of Partners and to amend this Agreement as
provided in Section 12.03;
(x) to deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person who has
provided or may in the future provide any services to, lend money to,
sell property to or purchase property from the General Partner or any of
its Affiliates;
(xi) to obtain loans from the General Partner or its Affiliates,
provided that the requirements of Section 5.03(d)(iii) are met;
(xii) to establish and maintain the Reserve in such amounts as it
deems appropriate from time to time and to increase, reduce or eliminate
the Reserve as it deems appropriate from time to time;
(xiii) to invest all funds not immediately needed in the operation
of the business including, but not limited to, (A) Capital Contributions,
(B) the Reserves or (C) Net Operating Income and Net Sale Proceeds prior
to their distribution to the Partners and BUC Holders;
(xiv) to acquire BUCs for the account of the Partnership in the
secondary trading market, provided that the BUCs are listed on The Nasdaq
Stock Market or a national securities exchange and to cause such BUCs to
be cancelled; and
(xv) to engage in any kind of activity and to enter into, perform
and carry out contracts of any kind necessary or incidental to, or in
connection with, the accomplishment of the purposes of the Partnership.
(b) With respect to all of its obligations, powers and responsibilities
under this Agreement, the General Partner is authorized to execute and
deliver, for and on behalf of the Partnership, such notes and other evidences
of indebtedness, contracts, trust instruments, agreements, assignments, deeds,
loan agreements, mortgages, deeds of trust, leases and such other documents as
it deems proper, all on such terms and conditions as it deems proper.
<PAGE> - 9 -
(c) No Person dealing with the General Partner shall be required to
determine the General Partner's authority to enter into any contract,
agreement or undertaking on behalf of the Partnership or to determine any
facts or circumstances bearing upon the existence of such authority. Any
Person dealing with the Partnership or the General Partner may rely upon a
certificate signed by the General Partner as to:
(i) the identity of the General Partner or any BUC Holder or Limited
Partner;
(ii) the existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the General Partner or are in
any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document by or on behalf of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
Section 5.03. Authority of General Partner and Its Affiliates To Deal
With Partnership.
(a) The General Partner and its Affiliates may, and shall have the right
to, provide goods and services to the Partnership (including the right to act
as property manager of a Property or servicer of any Bond), subject to the
conditions set forth in Section 5.03(b).
(b) The General Partner and its Affiliates shall have the right to
provide goods and services to the Partnership as long as (i) the provision of
such goods and services is in the General Partner's or such Affiliate's
ordinary and ongoing business in which it has previously engaged, independent
of the activities of the Partnership, (ii) such goods and services are
reasonable for and necessary to the Partnership, are actually furnished to the
Partnership and are provided at the lower of the actual cost of such goods and
services or at the price that would be charged for such goods or services by
independent parties for comparable goods and services in the same geographic
location and (iii) the provision of such goods and services in all other
respects meets the requirements of Section 5.03(c) and (d). The costs of
verifying that the amounts paid to the General Partner or its Affiliates for
such goods and services meet the foregoing standard may be reimbursed to the
General Partner or its Affiliates only to the extent that, when added to the
costs of such goods and services rendered, such sum does not exceed the
competitive rate for such goods and services.
(c) All goods and services provided by the General Partner or any
Affiliates pursuant to Section 5.03(b) shall be rendered pursuant to this
Agreement or a written contract, which contract precisely describes the
services to be rendered and all compensation to be paid and shall contain a
clause allowing termination without penalty on 60 days' Notice to the General
Partner by the vote of the majority in interest of the Limited Partners and
the BUC Holders (the Initial Limited Partner acting according to direction of
the BUC Holders). Any payment made to the General Partner or any Affiliate
for such goods and services shall be fully disclosed to all Limited Partners
and BUC Holders in the reports required under this Agreement. Neither the
General Partner nor any Affiliate shall, by the making of lump sum payments to
any other Person for disbursement by such other Person, circumvent the
provisions of Section 5.03(b), (c) or (d).
(d) The General Partner is prohibited from entering into any agreements,
contracts or arrangements on behalf of the Partnership with the General
Partner or any Affiliate of the General Partner under which:
(i) the General Partner or any Affiliate shall be given an exclusive
right to sell, or exclusive employment to sell, a Property;
(ii) the Partnership lends money to the General Partner or any
Affiliate of the General Partner; or
<PAGE> - 10 -
(iii) the General Partner or any Affiliate of the General Partner
makes a loan to the Partnership which provides for a prepayment penalty
or provides for an interest rate or other finance charges and fees which
are in excess of the lesser of (A) amounts charged by unrelated banks on
comparable loans to the Partnership or (B) the same rate as the General
Partner or such Affiliate paid to obtain the funds to make the loan to
the Partnership.
(e) Notwithstanding any provisions of this Section 5.03, neither the
General Partner nor any of its Affiliates shall:
(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, which would circumvent the provisions of this Section 5.03;
or
(ii) receive any compensation for providing insurance brokerage
services to the Partnership; or
(iii) charge the Partnership for, or take from any other Person, any
property management or real estate brokerage fee with respect to
Partnership property or assets, except as provided in Section 5.05(d).
Section 5.04. General Restrictions on Authority of the General Partner.
In exercising management authority and control of the Partnership, the General
Partner, on behalf of the Partnership and in furtherance of the business of
the Partnership, shall have the authority to perform all acts which the
Partnership is authorized to perform. However, the General Partner shall not
have any authority to:
(a) perform any act in violation of this Agreement or any applicable law
or regulation thereunder;
(b) do any act required to be approved or ratified by the Limited
Partners under the Act without Consent of the Limited Partners or the BUC
Holders, unless the right to do so is expressly otherwise given in this
Agreement;
(c) sell or otherwise dispose of all or substantially all of the assets
of the Partnership in a single transaction without the Consent of a majority
in interest of the Limited Partners (including the Initial Limited Partner
acting on behalf of the BUC Holders) as provided in Section 10.02(a)(ii);
provided, however, that this subsection (c) shall not apply to the sale of the
last Property owned by the Partnership;
(d) borrow money from the Partnership;
(e) dissolve the Partnership without the Consent of a majority in
interest of the Limited Partners (including the Initial Limited Partner acting
on behalf of the BUC Holders) as provided in Section 10.02(a)(iii);
(f) possess Partnership property, or assign the Partnership's rights in
specific Partnership property, for other than a Partnership purpose;
(g) admit a Person as a General Partner, except as provided in this
Agreement;
(h) admit a Person as a Limited Partner, except as provided in this
Agreement;
(i) sell, lease or lend Partnership assets to the General Partner or any
Affiliate of the General Partner or purchase or lease property from the
General Partner or its Affiliates, except as permitted by Section 5.02(a)(i);
(j) underwrite the securities of other issuers;
(k) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(l) knowingly perform any act that would subject any Limited Partner or
BUC Holder to liability as a general partner in any jurisdiction;
<PAGE> - 11 -
(m) allocate any Income or Loss (or any item thereof) to any Partner or
BUC Holder if, and only to the extent that, such allocation will cause the
determinations and allocations of Income or Loss (or any item thereof)
provided for in Article IV hereof not to be permitted by Section 704(b) of the
Code and the Regulations promulgated thereunder;
(n) confess a judgment against the Partnership;
(o) issue additional BUCs or other equity securities with rights and
privileges senior to those of the BUCs;
(p) make loans to the Partnership or accept loans on behalf of the
Partnership from the General Partner or any Affiliates of the General Partner,
except as provided in Section 5.03(d)(iii);
(q) amend this Agreement, except to the extent the right to amend this
Agreement is expressly provided for in other provisions of this Agreement; or
(r) invest Partnership funds in (i) junior trust deeds, (ii) securities
of other issuers, except for temporary investments pursuant to Section
5.02(a)(xii) and interests in special purpose corporations or other entities
which have been formed for the purpose of holding Properties, (iii) land
contracts or (iv) unimproved real estate not associated with a Property or
mortgage loans secured thereby.
Section 5.05. Compensation and Fees.
(a) Except as provided in this Agreement, the General Partner will
receive no compensation from the Partnership.
(b) The Partnership will pay the General Partner a Property Acquisition
Fee in connection with the identification, evaluation and acquisition of
Properties (other than the Properties which had originally been financed by
the Bonds) and the financing thereof, including through the reissuance of
Foreclosed Bonds, in an amount equal to 1.25% of the purchase price paid by
the Partnership for such additional Properties. The Property Acquisition Fee
with respect to an acquisition of a Property will be payable at the time of
the closing of the acquisition of such Property by the Partnership.
(c) The Partnership will pay the General Partner an Administrative Fee in
connection with the ongoing administration of the business of the Partnership
in an amount equal to 0.60% per annum of the sum of (i) the original principal
amount of the Foreclosed Bonds (even if such Foreclosed Bonds are subsequently
reissued in different principal amounts) and (ii) the purchase price of any
additional Properties acquired by the Partnership. Such Administrative Fee
will be payable on a monthly basis.
(d) The Partnership may pay an Affiliate of the General Partner a
reasonable property management fee in connection with the management of the
Properties. The property management fee paid with respect to any Property
will be subject to the provisions of Section 5.03 and may not exceed 5% of the
gross revenues of such Property (in the case of residential property) or 6% or
the gross revenues of such Property (in the case of industrial or commercial
property).
(e) Subject to Section 5.05(f), the Partnership will reimburse the
General Partner or its Affiliates on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred by them
on Partnership business, direct out-of-pocket fees, expenses and charges paid
by them to third parties for rendering legal, auditing, accounting,
bookkeeping, computer, printing and public relations services, expenses of
preparing and distributing reports to Limited Partners and BUC Holders, an
allocable portion of the salaries and fringe benefits of employees of AFCA or
its Affiliates, insurance premiums (including premiums for liability insurance
which will cover the Partnership, the General Partner and its general
partner), the cost of compliance with all state and federal regulatory
requirements and stock exchange or NASDAQ listing fees and charges and other
payments to third parties for services rendered to the Partnership. Any
reimbursements pursuant to this provision shall not be in excess of the lower
of actual costs or the amount the Partnership would be required to pay
independent third parties for comparable services in the same geographic
location.
<PAGE> - 12 -
(f) The Partnership will not reimburse the General Partner or its
Affiliates for the travel expenses of the president of the general partner of
the General Partner or for any items of general overhead, including, but not
limited to, rent, utilities or the use of computers, office equipment or other
capital items owned by the General Partner or its Affiliates. The Partnership
will not reimburse the General Partner or its general partner for any salaries
or fringe benefits of any partner of the General Partner or of the officers or
board of managers of its general partner regardless of whether such persons
provide services to the Partnership.
(g) The Accountants will verify on the basis of generally accepted
auditing standards that any amounts reimbursed by the Partnership pursuant to
Section 5.05(e) were incurred by the General Partner or its Affiliates in
connection with the conduct of the business and affairs of the Partnership or
the acquisition and management of its assets and were permissible
reimbursements pursuant to Section 5.05(f).
Section 5.06. Duties and Obligations of the General Partner.
(a) The General Partner shall devote to the affairs of the Partnership
such time as it deems necessary for the proper performance of its duties under
this Agreement, but neither the General Partner, its general partner nor any
officer or manager of its general partners shall be expected to devote full
time to the performance of such duties.
(b) The General Partner shall at all times use its best efforts to
maintain its net worth (including that of its general partner) at a sufficient
level to assure that the Partnership will be classified for federal income tax
purposes as a partnership and not as an association taxable as a corporation.
(c) The General Partner shall take such action as may be necessary or
appropriate for the continuation of the Partnership's valid existence under
the laws of the State of Delaware and in order to qualify the Partnership
under the laws of any jurisdiction in which the Partnership is doing business
or in which such qualification is necessary or appropriate to protect the
limited liability of the Limited Partners and BUC Holders or in order to
continue in effect such qualification. The General Partner shall file or
cause to be filed for recordation in the office of the appropriate authorities
of the State of Delaware, and in the proper office or offices in each other
jurisdiction in which the Partnership is qualified, such certificates,
including limited partnership and fictitious name certificates, and other
documents as are required by the applicable statutes, rules or regulations of
any such jurisdiction.
(d) The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state
or local tax returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the
Partnership.
(e) The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in the General Partner's possession or control. The General Partner shall not
employ, or permit another to employ, such funds or assets in any manner except
for the exclusive benefit of the Partnership. The General Partner shall take
all steps necessary to insure that the funds of the Partnership are not
commingled with the funds of any other entity. The General Partner owes the
same fiduciary duty to the BUC Holders as the General Partner owes to the
Limited Partners.
Section 5.07. Delegation of Authority. Subject to the provisions of
this Article V, the General Partner may delegate all or any of its powers,
rights and obligations under this Agreement and may appoint, employ, contract
or otherwise deal with any Person for the transaction of the business of the
Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve. Notwithstanding any such delegation, the General Partner shall
remain liable for any acts or omissions by such Person under the standards of
responsibility for the General Partner set forth herein.
<PAGE> - 13 -
Section 5.08. Other Activities. The General Partner and its Affiliates
may engage in or possess interests in other business ventures of every kind
and description for their own accounts, including, without limitation, serving
as general partner of other partnerships which own, either directly or through
interests in other partnerships, real estate similar in nature to the
Properties. Neither the Partnership nor the Partners or BUC Holders shall
have any rights by virtue of this Agreement in or to such other business
ventures or to the income or profits derived therefrom, and the pursuit of
such ventures, even if competitive with the business of the Partnership, shall
not be deemed wrongful, improper or a breach of fiduciary duty.
Section 5.09. Limitation on Liability of the General Partner and Initial
Limited Partner; Indemnification.
(a) Neither the General Partner, the Initial Limited Partner nor their
Affiliates (including the officers, managers and members of the general
partner of AFCA) shall be liable, responsible or accountable in damages or
otherwise to the Partnership or to any of the Limited Partners or BUC Holders
for any act or omission performed or omitted by such General Partner or
Initial Limited Partner in good faith and in a manner reasonably believed by
it to be within the scope of the authority granted to it by this Agreement and
in the best interests of the Partnership, provided that such General Partner's
or Initial Limited Partner's conduct did not constitute Cause. The
Partnership shall indemnify and hold harmless the General Partner, the Initial
Limited Partner and their Affiliates (including the officers, managers and
members of the general partner of AFCA) against and for any loss, liability or
damage incurred by any of them or the Partnership by reason of any act
performed or omitted to be performed by them in connection with the business
of the Partnership, including all judgments, costs and attorneys' fees (which
attorneys' fees may be paid as incurred, except as provided in 5.09(b)) and
any amounts expended in settlement of any claims of liability, loss or damage,
provided that the indemnified Person's conduct did not constitute Cause. The
satisfaction of any indemnification obligation shall be from and limited to
Partnership assets, and no Limited Partner or BUC Holder shall have any
personal liability on account thereof. The termination of any action, suit or
proceeding, by judgment or settlement, shall not, of itself, create a
presumption that the indemnified Person did not act in good faith and in a
manner which is reasonably believed to be in or not opposed to the best
interest of the Partnership. Any indemnification under this subsection,
unless ordered by a court, shall be made by the Partnership only upon a
determination by independent legal counsel in a written opinion that
indemnification of the indemnified Person is proper in the circumstances
because he has met the applicable standard of conduct set forth in this
Agreement. Notwithstanding any provision of this subsection to the contrary,
the General Partner shall be presumed to be personally liable to creditors for
the debts of the Partnership.
(b) Notwithstanding the provisions of Section 5.09(a), neither the
General Partner, the Initial Limited Partner nor any officer, director,
manager, partner, member, employee, agent, Affiliate, subsidiary or assign of
the General Partner, the Initial Limited Partner or the Partnership shall be
indemnified with regard to any liability, loss or damage incurred by them in
connection with any claim or settlement involving allegations that the
Securities Act of 1933, as amended, or any state securities laws were violated
by the General Partner or by any such other Person unless: (A) (i) the General
Partner or other Persons seeking indemnification are successful in defending
such action on the merits of each count involving such violation, (ii) such
claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction or (iii) a court of competent jurisdiction approves a
settlement of such claims; and (B) such indemnification is specifically
approved by a court of law which shall have been advised as to the then
current position of the Securities and Exchange Commission regarding
indemnification for violations of securities laws.
Section 5.10. Special Amendments to the Agreement.
(a) Any provision to the contrary herein notwithstanding, the General
Partner may, without the Consent of the Limited Partners or BUC Holders, amend
Sections 4.03, 4.04 and 4.05 of this Agreement on the advice of Counsel or the
Accountants and upon Notice to the Limited Partners and BUC Holders mailed 10
days prior to the proposed effectiveness of such amendment (unless earlier
effectiveness is required by law) to the extent necessary to ensure compliance
with the Code and Regulations then in effect, provided that such amendments do
not materially adversely affect the interests of the Limited Partners and BUC
Holders in the sole determination of the General Partner.
<PAGE> - 14 -
(b) New allocations made by the General Partner in reliance upon the
advice of Counsel or the Accountants pursuant to Section 5.10(a) shall be
deemed to be made pursuant to the fiduciary obligation of the General Partner
to the Partnership, the Limited Partners and the BUC Holders, and no such new
allocation shall give rise to any claim or cause of action by any Limited
Partner or BUC Holder.
(c) The General Partner may take such action as it deems necessary or
appropriate, including action with respect to the manner in which BUCs are
being or may be transferred or traded, in order to preserve the status of the
Partnership as a partnership rather than an association taxable as a
corporation for federal income tax purposes or to insure that BUC Holders will
be treated as limited partners for federal income tax purposes.
ARTICLE VI
CHANGES IN GENERAL PARTNERS
Section 6.01. Withdrawal of General Partner. The General Partner shall
not be entitled to voluntarily withdraw from the Partnership or to sell,
transfer or assign all or a portion of its Partnership Interest as General
Partner unless a substitute General Partner has been admitted in accordance
with the conditions of Section 6.02.
Section 6.02. Admission of a Successor or Additional General Partner.
The General Partner may at any time designate additional Persons to be General
Partners, whose Partnership Interest in the Partnership shall be such as shall
be agreed upon by the General Partner and such additional General Partners,
provided that the Partnership Interests of the Limited Partners and the BUC
Holders shall not be reduced thereby. A Person shall be admitted as a General
Partner of the Partnership only if each of the following conditions is
satisfied:
(a) The admission of such Person shall have been Consented to by a
majority in interest of the Limited Partners (including the Initial Limited
Partner voting on behalf of the BUC Holders) as a class;
(b) such Person shall have accepted and agreed to be bound by the terms
and provisions of this Agreement by executing a counterpart hereof, and such
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner shall have been filed for
recording, and all other actions required by law in connection with such
admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the
Partnership evidence satisfactory to Counsel of its authority to become a
General Partner and to be bound by the terms and provisions of this Agreement;
(d) the Partnership shall have received an opinion of Counsel that the
admission of such Person is in conformity with the Act and that none of the
actions taken in connection with the admission of such Person is in violation
of the Act;
(e) the Partnership shall have received an opinion from Counsel or the
Accountants that the Person to be admitted has sufficient net worth when
combined with that of the other General Partners, if any, and meets all other
published requirements of the Internal Revenue Service relating to general
partners necessary to assure that the Partnership will continue to be
classified as a partnership for federal income tax purposes.
Section 6.03. Removal of a General Partner.
(a) Subject to Section 10.02, a majority in interest of the Limited
Partners (including the Initial Limited Partner voting on behalf of the BUC
Holders) acting together as a class, without the Consent or other action by
the General Partner to be removed, may remove any General Partner and, subject
to the provisions of Sections 6.02 and 8.01(a), may elect a replacement
therefor. After the Limited Partners vote to remove a General Partner
pursuant to this Section 6.03, they shall provide the removed General Partner
with Notice thereof, which Notice shall set forth the date upon which such
removal is to become effective, which date shall be no earlier than the date
upon which the General Partner receives such Notice.
<PAGE> - 15 -
(b) If the General Partner is removed for Cause, the Limited Partners or
any successor General Partner, if any, proposed by them shall have the option,
but not the obligation, to acquire, upon payment of any agreed-upon value or
the then fair market value therefor, the Partnership Interest of any General
Partner so removed which has not been assigned to the successor General
Partner pursuant to Section 6.04(b). If such Partnership Interest is not
acquired, it shall be converted to a Limited Partnership Interest as provided
in Section 6.04(b). If the General Partner has been removed without Cause,
the successor General Partner shall have the obligation to acquire the
Partnership Interest of the General Partner so removed at the then fair market
value of such Partnership Interest, unless (i) the Partnership elects to
purchase the Partnership Interest of the removed General Partner at the then
fair market value of such Partnership Interest, or (ii) the removed General
Partner elects to have its Partnership Interest converted to a Limited
Partnership Interest as provided in Section 6.04(b). The then fair market
value of such Partnership Interest shall be determined by agreement of the
removed General Partner and the Partnership or, if they cannot agree, by
arbitration in accordance with the then current rules of the American
Arbitration Association. The expense of arbitration shall be borne equally by
the removed General Partner and the Partnership. The fair market value of the
removed General Partner's Partnership Interest shall be the sum of (i) the
present value of future Administrative Fees and Net Operating Income which
would be paid to the General Partner if the removal had not occurred and (ii)
the amount the removed General Partner would receive upon dissolution and
termination of the Partnership, assuming that such dissolution or termination
occurred on the date of the terminating event and the assets of the
Partnership were sold for their then fair market value without any compulsion
on the part of the Partnership to sell such assets. The method of payment to
the removed General Partner may be in cash or a promissory note with a term of
no less than five years with equal annual installments; provided that such
note will become due and payable when the last Property held by the
Partnership is sold. Such promissory note (i) will bear interest at the then
current market interest rate available to the Partnership from an unrelated
bank, (ii) may be prepaid at any time without penalty and (iii) will have not
increased the priority of distributions to the removed General Partner in
relation to distributions to the Limited Partners and BUC Holders made
pursuant to Article IV hereof.
Section 6.04. Effect of Incapacity of a General Partner.
(a) In the event of the Incapacity of the General Partner, the business
of the Partnership shall be continued with Partnership property by any other
General Partner or General Partners; provided, however, that if the
Incapacitated General Partner is then the sole General Partner, the provisions
of Section 8.01(a)(i) shall be applicable.
(b) Upon the Incapacity of a General Partner, such General Partner shall
immediately cease to be a General Partner. Except in the case of the removal
of a General Partner without Cause, if at the time of such event the aggregate
of the Partnership Interests of the successor or remaining General Partner(s)
(including any Partnership Interest received by such successor or remaining
General Partner(s) pursuant to Section 6.04(e)) is less than 1% of all
Partnership Interests, there shall be then assigned and transferred, at the
then present fair market value as provided in Section 6.03(b), on a pro rata
basis, to the successor or remaining General Partner(s) such portion of the
Partnership Interest of the Incapacitated General Partner as shall be
necessary to increase the aggregate Partnership Interests of the successor or
remaining General Partner(s) to 1% of all Partnership Interests. To the
extent that the Partnership Interest of the Incapacitated General Partner is
not so assigned and transferred or acquired or repurchased pursuant to Section
6.03(b), such General Partner's Partnership Interest shall be converted into
that of a Limited Partner, with the same rights under Article IV as before to
share in Income, Loss, Net Operating Income, Net Sale Proceeds and Liquidation
Proceeds. However, any General Partner which becomes a Limited Partner
pursuant to this Section shall not have the right to participate in the
management of the affairs of the Partnership or to vote on any matter
requiring the Consent of the Limited Partners and shall not be entitled to any
portion of the Income, Loss, Net Operating Income, Net Sale Proceeds or
Liquidation Proceeds payable to the class comprised of Limited Partners and
BUC Holders and, further, the aggregate distributions on the Limited
Partnership Interests conveyed to the General Partner hereunder shall not
exceed the fair market value of the Partnership Interest converted, computed
<PAGE> - 16 -
as set forth in Section 6.03(b). Any General Partner which becomes a Limited
Partner pursuant to this Section shall be entitled to the allocations and
distributions such General Partner would have been entitled to as a General
Partner under Article IV of this Agreement but only to the extent of the
Partnership Interest held by such former General Partner. Nothing in this
Section 6.04 shall affect any rights, including the rights to the payment of
any fees under this Agreement, of the Incapacitated General Partner which
matured or were earned prior to the Incapacity of such General Partner. Such
Incapacitated General Partner shall remain liable for all obligations and
liabilities incurred by it as General Partner before such Incapacity shall
have become effective, but shall be free from any obligations or liability as
General Partner incurred on account of the activities of the Partnership from
and after the time such Incapacity shall have become effective.
(c) If, at the time of Incapacity of the General Partner, the
Incapacitated General Partner was not the sole General Partner of the
Partnership, the remaining General Partner or Partners shall immediately (i)
give Notice to the Limited Partners and BUC Holders of such Incapacity and
(ii) prepare such amendments to this Agreement and execute and file for
recording such amendments or documents or other instruments necessary to
reflect the assignment, transfer, termination or conversion (as the case may
be) of the Partnership Interest of the Incapacitated General Partner.
(d) All parties hereto hereby agree to take all actions and to execute
all documents necessary or appropriate to effect the foregoing provisions of
this Section 6.04.
(e) Notwithstanding any other provision of Section 6.03 or 6.04, if AFCA
is removed as the General Partner for fraud, gross negligence or willful
malfeasance, as determined by a final judgment of a court of competent
jurisdiction, and which fraud, gross negligence or willful malfeasance is
committed by the Person or Persons, if any, owning a majority of the equity
interests in America First Companies L.L.C. or by employees of America First
Companies L.L.C., then a portion of AFCA's Partnership Interest which is
proportionately equal to such Person's or Persons' interest in AFCA (including
any limited partnership interest held by such Person in AFCA) shall be
assigned and transferred, on a pro rata basis without any compensation
therefor, to the successor or remaining General Partner.
ARTICLE VII
TRANSFERABILITY OF BUCS AND LIMITED PARTNERS' INTERESTS
Section 7.01. Free Transferability of BUCs.
(a) BUCs shall be issued in registered form only and shall be freely
transferable (subject to compliance with federal or state securities law and
Section 7.02 or 11.04 of this Agreement); provided, however, nothing in this
Agreement shall impose any obligation on the General Partner, the Partnership
or any transfer agent to restrict or place conditions on the transfer of BUCs.
(b) BUCs may be transferred only on the books and records of the
Partnership.
(c) A Person shall be recognized as a BUC Holder for all purposes on the
books and records of the Partnership as of the day on which the General
Partner (or other transfer agent appointed by the General Partner) receives
evidence of the transfer of a BUC to such Person which is satisfactory to the
General Partner. All BUC Holder rights, including voting rights, rights to
receive distributions and rights to receive reports, and all allocations in
respect of BUC Holders, including allocations of Income and Loss, will vest
in, and be allocable to, each BUC Holder as of the close of business on such
day.
(d) In order to record a transfer of a BUC on the Partnership's books and
records, the General Partner may require such evidence of transfer or
assignment and authority of the transferor or assignor, including signature
guarantees, and such additional documentation as the General Partner may
determine.
<PAGE> - 17 -
(e) The General Partner is hereby authorized to do all things necessary
in order to register the BUCs under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, pursuant to the rules and
regulations of the Securities and Exchange Commission, to qualify the BUCs
with state securities regulatory authorities or to perfect exemptions from
qualification, to cause the BUCs to be listed on The NASDAQ Stock Market or a
national stock exchange and to any other actions necessary to allow the resale
of BUCs by the BUC Holders.
Section 7.02. Restrictions on Transfers of BUCs and of Interests of
Limited Partners Other Than the Initial Limited Partner.
(a) If any sale, assignment, pledge or transfer of a Limited Partnership
Interest, other than by the Initial Limited Partner, or of a BUC, when
considered with all other sales, assignments, pledges or transfers of
Partnership Interests and BUCs within the previous 12-month period, may result
in the transfer (within the meaning of Section 708 of the Code and Regulations
promulgated thereunder) of more than 45% of the Partnership Interest and BUCs,
then the sale, assignment, pledge or transfer of a Limited Partnership
Interest or a BUC may be suspended or deferred by the General Partner;
provided, however, that the General Partner will have no obligation to suspend
or defer any such sale, assignment, pledge or transfer. The seller, assignor,
pledgor or transferor shall be notified of such deferral, and any transaction
deferred pursuant to this provision shall be effected (in chronological order
to the extent practicable) as of the first day of the next succeeding period
as of which such transaction can be effected without either termination of the
Partnership for tax purposes or any material adverse effects from such
termination. In the event transactions are suspended, the General Partner
shall give written Notice of such suspension to all Limited Partners and BUC
Holders as soon as practicable.
(b) A Limited Partner (other than the Initial Limited Partner) may assign
his Limited Partnership Interests only by a duly executed written instrument
of assignment, the terms of which are not in contravention of any of the
provisions of this Agreement. Within 30 days after an assignment of Limited
Partnership Interests (other than by the Initial Limited Partner) which occurs
without a transfer of record ownership of such Limited Partnership Interests,
the assignor shall give Notice of such assignment to the General Partner.
(c) The provisions of this Section 7.02 and of Section 7.03 shall not
apply to the transfer and assignment by the Initial Limited Partner of Limited
Partnership Interests to BUC Holders in accordance with Section 11.01(a).
Section 7.03. Assignees of Limited Partners Other Than the Initial
Limited Partner.
(a) If a Limited Partner other than the Initial Limited Partner dies, his
executor, administrator or trustee, or, if he is adjudicated incompetent, his
committee, guardian or conservator, or, if he becomes Bankrupt, the trustee or
receiver of his estate, shall have all the rights of a Limited Partner for the
purpose of settling or managing his estate and such power as the deceased or
incompetent Limited Partner possessed to assign all or any part of his Limited
Partnership Interests and to join with the assignee thereof in satisfying any
conditions precedent to such assignee becoming a Limited Partner. The
Incapacity of a Limited Partner shall not dissolve the Partnership.
(b) The Partnership need not recognize for any purpose any assignment of
all or any fraction of the Limited Partnership Interests of a Limited Partner
other than the Initial Limited Partner unless there shall have been filed with
the Partnership and recorded on the Partnership's books a duly executed and
acknowledged counterpart of the instrument effecting such assignment, and
unless such instrument evidences the written acceptance by the assignee of all
of the terms and provisions of this Agreement, contains a representation that
such assignment was made in accordance with all applicable laws and
regulations (including any investor suitability requirements) and in all other
respects is satisfactory in form and substance to the General Partner.
(c) Any Limited Partner other than the Initial Limited Partner who shall
assign all of his Limited Partnership Interests shall cease to be a Limited
Partner of the Partnership, except that unless and until a Limited Partner is
admitted in his place, such assigning Limited Partner shall retain the
statutory rights and liabilities of an assignor of a limited partnership
interest under the Act.
<PAGE> - 18 -
(d) An assignee of Limited Partnership Interests (other than a BUC
Holder) may become a Limited Partner only if each of the following conditions
is satisfied:
(i) the instrument of assignment sets forth the intentions of the
assignor that the assignee succeed to the assignor's Limited Partnership
Interest in his place;
(ii) the assignee shall have fulfilled the requirements of Sections
7.03(b) and 12.03(b);
(iii) the assignee shall have paid all reasonable legal fees and
filing costs incurred by the Partnership in connection with his
substitution as a Limited Partner; and
(iv) the assignee shall have received the Consent of the General
Partner, which Consent the General Partner may withhold in its sole
discretion.
(e) This Agreement and the Certificate shall be amended as necessary to
recognize the admission of any Limited Partners and shall be submitted in a
timely manner for filing with the Delaware Secretary of State. Assignees of
Limited Partnership Interests (other than a BUC Holder) shall be recognized as
such, to the extent set forth in Section 7.03(b) or 7.03(d), as of the day on
which the Partnership has received the instrument of assignment and all of the
other conditions to the assignment are satisfied.
(f) An assignee of Limited Partnership Interests (other than a BUC
Holder) who does not become a Limited Partner and who desires to make a
further assignment of his Limited Partnership Interests shall be subject to
all of the provisions of this Article VII to the same extent and in the same
manner as a Limited Partner desiring to make an assignment of Limited
Partnership Interests.
Section 7.04. Joint Ownership of Interests. Subject to the other
provisions of this Agreement, a Limited Partnership Interest or BUC may be
acquired by two or more Persons, who shall, at the time they acquire such
Limited Partnership Interest or BUC, indicate to the Partnership whether the
Limited Partnership Interest or BUC is being held by them as joint tenants
with the right of survivorship, as tenants-in-common or as community
property. In the absence of any such designation, joint owners shall be
presumed to hold such Limited Partnership Interest or BUC as
tenants-in-common. The Consent of such joint Limited Partners or BUC Holders
shall not require the action or vote of all owners of any such jointly held
Limited Partnership Interest or BUC.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
Section 8.01. Events Causing Dissolution.
(a) The Partnership shall dissolve upon the happening of any of the
following events:
(i) ninety days following the Incapacity of a General Partner who is
at that time the sole General Partner, unless all of the remaining
Partners (it being understood that, notwithstanding any other provision
herein to the contrary, for purposes of this provision the Initial
Limited Partner shall act solely in accordance with the direction of a
majority in interest of the BUC Holders) agree in writing to continue the
business of the Partnership and a successor General Partner satisfying
the standards set forth in Section 6.02 is designated within 90 days of
the occurrence of such an Incapacity;
(ii) the passage of 180 days after the repayment, sale or other
disposition of all of the Properties and substantially all other assets,
if any, held by the Partnership;
(iii) the election by a majority in interest of the Limited Partners
(including the Initial Limited Partner voting on behalf of the BUC
Holders) pursuant to Section 10.02(a)(iii) or the election by the General
Partner to dissolve the Partnership pursuant to Section 5.04(e) with the
Consent of a majority in interest of the Limited Partners thereto;
<PAGE> - 19 -
(iv) the expiration of the term of the Partnership specified in
Section 2.04; or
(v) any other event causing the dissolution of the Partnership under
the laws of the State of Delaware.
(b) Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Partnership shall not
terminate until a certificate of cancellation is filed with the Delaware
Secretary of State and the assets of the Partnership are distributed as
provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, the business of the Partnership
and the affairs of the Partners shall continue to be governed by this
Agreement.
(c) The obligations imposed on the General Partner by Article IX of the
Agreement will cease upon the termination of the Partnership.
Section 8.02. Liquidation.
(a) Upon dissolution of the Partnership, unless all of the Partners elect
to reform the Partnership (it being understood that, notwithstanding any other
provision herein to the contrary, for purposes of this provision the Initial
Limited Partner shall act solely in accordance with the direction of a
majority in interest of the BUC Holders), the General Partner shall liquidate
the assets of the Partnership and shall apply and distribute the proceeds
thereof as contemplated by this Section 8.02 and Article IV and cause the
cancellation of the Certificate in accordance with the Act. If there is no
General Partner, a majority in interest of the Limited Partners (including the
Initial Limited Partner voting on behalf of the BUC Holders) may elect a
liquidator to liquidate the assets of the Partnership and perform the
functions of the General Partner set forth in this Section 8.02.
(b) After payment of the expenses of the liquidation and of liabilities
owing to creditors of the Partnership (including the repayment of any loans
from the General Partner or its Affiliates), the General Partner may set aside
as a reserve such amount as it deems reasonably necessary for any contingent
or unforeseen liabilities or obligations of the Partnership which may be paid
over by the General Partner to a bank, to be held in escrow for the purpose of
paying any such contingent or unforeseen liabilities or obligations, and, at
the expiration of such period as the General Partner may deem advisable, the
amount in such reserve shall be distributed in the manner set forth in Section
4.02(b) among the Partners and BUC Holders who would have been entitled to
receive such amounts had such amounts not been placed in such reserves.
(c) Notwithstanding the foregoing, if the General Partner or liquidator
shall determine that an immediate sale of part or all of the Partnership's
assets would cause undue loss to the Partners or the BUC Holders, the General
Partner or liquidator may, after giving Notice to the Limited Partners and BUC
Holders, and to the extent not then prohibited by any applicable law of any
jurisdiction in which the Partnership is then formed or qualified, defer
liquidation and withhold from distribution for a reasonable time any assets of
the Partnership, except those assets necessary to satisfy the Partnership's
debts and obligations.
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
Section 9.01. Books and Records. The Partnership shall maintain its
books and records at its principal office. The Partnership's books and
records shall be available during ordinary business hours for examination and
copying there at the reasonable request, and at the expense, of any Partner or
BUC Holder or his duly authorized representative, or copies of such books and
records may be requested in writing by any Partner or BUC Holder or his duly
authorized representative, provided that the reasonable costs of fulfilling
such request, including copying expenses, shall be paid by the Partner or BUC
Holder making such request. The Partnership's books and records shall include
the following:
(a) a current list of the full name, last known home or business address
and Partnership Interest of each Partner and BUC Holder set forth in
alphabetical order;
<PAGE> - 20 -
(b) a copy of this Agreement and the Certificate, together with executed
copies of any powers of attorney pursuant to which such Certificate, and any
amendments thereto, have been executed;
(c) copies of the Partnership's federal, state and local income tax
returns and reports, if any, for the three most recent years;
(d) copies of all financial statements of the Partnership for the three
most recent years; and
(e) all appraisals, if any, obtained with respect to the Properties
(which appraisals shall be maintained for at least five years).
Section 9.02. Accounting Basis and Fiscal Year. The books and records
of the Partnership initially shall be kept on the accrual method. The
Partnership will use a fiscal year identical to its taxable year. Unless
permission is granted by the Internal Revenue Service to use a taxable year
other than the calendar year, the Partnership will use a calendar year taxable
year. The Partnership shall not make an election under Section 754 of the
Code.
Section 9.03. Reports.
(a) Within 60 days after the end of each of the first three quarters of
each fiscal year, the General Partner shall send to each Person who was a
Limited Partner or a BUC Holder during such quarter a balance sheet and
statements of income, changes in Partners' capital and cash flow of the
Partnership (all prepared in accordance with generally accepted accounting
principles but none of which need be audited) and a statement showing
distributions of Net Operating Income and Net Sale Proceeds during such
quarter, which need not be audited, together with a report of the activities
of the Partnership during such quarter, including a description of any
Properties acquired by the Partnership during such quarter.
(b) Within 75 days after the end of each fiscal year, the General Partner
shall send to each Person who was a Limited Partner or a BUC Holder at any
time during the year then ended such tax information relating to the
Partnership as shall be necessary for the preparation by such Limited Partner
or BUC Holder of his federal income tax return and required state income and
other tax returns.
(c) Within 120 days after the end of each fiscal year, the General
Partner shall send to each Person who was a Limited Partner or BUC Holder at
any time during the year then ended a report including (i) the balance sheet
of the Partnership as of the end of such year and statements of income,
changes in Partners' capital and cash flow of the Partnership for such year,
all of which shall be prepared in accordance with generally accepted
accounting principles and accompanied by a report of the Accountants
containing an opinion of the Accountants, (ii) a report of the activities of
the Partnership during such year and (iii) a statement (which need not be
audited) showing cash distributions per Limited Partnership Interest and per
BUC by Investment Date during such year in respect of such year, which
statement shall identify distributions of (a) Net Operating Income and Net
Sale Proceeds received by the Partnership during such year, (b) Net Operating
Income and Net Sale Proceeds received during prior years which had been held
in the Reserve and (c) cash placed in Reserves during such year. The
Partnership's annual report will include a detailed statement of (i) the
amount of the fees paid to the General Partner pursuant to Sections 5.05(b),
(c) and (d) hereof and (ii) the amounts actually reimbursed to the General
Partner and its Affiliates pursuant to Section 5.05(e) hereof. The
Accountants will certify that the amounts actually reimbursed to the General
Partner pursuant to Section 5.05(e) were costs incurred by the General Partner
in connection with the conduct of the business and affairs of the Partnership
or the acquisition and management of its assets and were permissible
reimbursements under this Agreement. The methods of verification used by the
Accountants will be in accordance with generally accepted auditing standards
and include such tests of the accounting records and other auditing procedures
which the Accountants consider appropriate.
(d) A copy of each report referred to in this Section 9.03 shall be filed
with each state securities commission requiring such filing at the time
required by such commissions.
<PAGE> - 21 -
Section 9.04. Designation of Tax Matters Partner. The General Partner
is hereby authorized to designate itself or any other General Partner as Tax
Matters Partner of the Partnership, as provided in Section 6231 of the Code
and the Regulations promulgated thereunder. Each Partner, by execution of
this Agreement, and each BUC Holder, by acceptance of his BUCs, consents to
such designation of the General Partner as the Tax Matters Partner and agrees
to execute, certify, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or appropriate
to evidence the appointment of the General Partner as such.
Section 9.05. Expenses of Tax Matters Partner. The Partnership shall
reimburse the Tax Matters Partner for all expenses, including legal and
accounting fees, and shall indemnify him for claims, liabilities, losses and
damages incurred in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners and BUC Holders. The
payment of all such expenses and indemnification shall be made before any
distributions are made from Net Operating Income, Net Sale Proceeds or
Liquidation Proceeds. Neither the General Partner, nor any Affiliate, nor any
other Person shall have any obligation to provide funds for such purpose. The
taking of any action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the extent required
by law, is a matter in the sole discretion of the Tax Matters Partner, and the
provisions on limitations of liability of the General Partner and
indemnification set forth in Section 5.09 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
AND BUC HOLDERS
Section 10.01. Meetings.
(a) The General Partner may call a meeting of the Limited Partners and
BUC Holders for any purpose or call for a vote of the Limited Partners and BUC
Holders without a meeting or otherwise solicit the consent of the Limited
Partners and BUC Holders at any time and the General Partner shall call for
such a meeting or vote without a meeting or solicit the consents of the
Limited Partners and BUC Holders upon receipt of a written request for such a
meeting, vote or solicitation signed by 10% or more in interest of the Limited
Partners (it being understood that the Initial Limited Partner will act in
accordance with the directions of the BUC Holders). Any such meeting shall be
held not less than 15 days nor more than 60 days after the receipt of such
request. Any such request shall state the purpose of the proposed meeting and
the matters proposed to be acted upon at such meeting, and no matter may be
acted upon at the meeting other than as set forth in such request or as
otherwise permitted by the General Partner. Meetings shall be held at the
principal office of the Partnership or at such other place as may be
designated by the General Partner or, if the meeting is called upon the
request of the Limited Partners (including the Initial Limited Partner acting
on behalf of the BUC Holders), as designated by such Limited Partners
(including the Initial Limited Partner acting on behalf of the BUC Holders).
(b) Notice of any meeting to be held pursuant to Section 10.01(a) shall
be given (in person or by certified mail) within 10 days of the receipt by the
General Partner of the request for such meeting to each Limited Partner at his
record address, or at such other address which he may have furnished in
writing to the General Partner and to the BUC Holders at the address shown on
the Partnership's books and records kept in accordance with Section 9.01.
Such Notice shall state the place, date and hour of the meeting and shall
indicate that the Notice is being issued at the direction of, or by, the
Partner(s) calling the meeting. The Notice shall state the record date
established in Section 10.01(c) and state the purpose of the meeting. If a
meeting is adjourned to another time or place, and if an announcement of the
adjournment of time or place is made at the meeting, it shall not be necessary
to give Notice of the adjourned meeting. The presence in person or by proxy
of a majority in interest of the Limited Partners (including the Initial
Limited Partner acting for and at the direction of the BUC Holders) considered
as a class shall constitute a quorum at all meetings of the Partners and BUC
Holders; provided, however, that if no such quorum is present, holders of a
majority in interest of the Limited Partners considered as a class (it being
understood that the Initial Limited Partner shall be present at the direction
<PAGE> - 22 -
of the BUC Holders and only to the extent of such direction) so present or so
represented may adjourn the meeting from time to time without further Notice,
until a quorum shall have been obtained. No Notice of the time, place or
purpose of any meeting of Limited Partners and BUC Holders need be given (i)
to any Limited Partner or BUC Holder who attends in person or is represented
by proxy, except for a Partner attending a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
on the ground that the meeting is not lawfully called or convened, or (ii) to
any Limited Partner or BUC Holder entitled to such Notice who, in writing,
executed and filed with the records of the meeting, either before or after the
time thereof, waives such Notice.
(c) For the purpose of determining the Limited Partners entitled to vote
at any meeting of the Limited Partners and BUC Holders, and the BUC Holders
entitled to receive Notice of and direct the voting of the Initial Limited
Partner at any such meeting, or any adjournment thereof, or to act by written
Consent without a meeting, the General Partner or the Limited Partners or the
BUC Holders requesting such meeting or vote pursuant to Section 11.03(a) may
fix, in advance, a date as the record date of any such determination of
Limited Partners and BUC Holders. Such date shall not be more than 60 days
nor less than 15 days before any such meeting or not more than 60 days prior
to the initial solicitation of Consents from the Limited Partners and BUC
Holders.
(d) At each meeting of Limited Partners and BUC Holders, the Limited
Partners and BUC Holders present or represented by proxy shall elect such
officers and adopt such rules for the conduct of such meeting as they shall
deem appropriate.
Section 10.02. Voting Rights of Limited Partners and BUC Holders.
(a) Subject to Section 10.03, a majority in interest of the Limited
Partners (it being understood that the Initial Limited Partner shall act at
the direction of the BUC Holders), without the concurrence of the General
Partner, may: (i) amend this Agreement, provided that the concurrence of the
General Partner shall be required for any amendment to this Agreement which
modifies the compensation or distributions to which the General Partner is
entitled or which affects the duties of the General Partner; (ii) approve or
disapprove the sale or other disposition of all or substantially all of the
Partnership's assets in a single transaction in the circumstances provided by
Section 5.04(c); (iii) dissolve the Partnership; and (iv) remove any General
Partner and elect a successor therefor, which successor shall become a General
Partner only in accordance with Section 6.02. Amendments to this Agreement
may be proposed at any time by a writing signed by 10% or more in interest of
the Limited Partners (it being understood that the Initial Limited Partner
will act in accordance with the direction of the BUC Holders).
(b) A Limited Partner shall be entitled to cast one vote for each Limited
Partnership Interest which he owns, and a BUC Holder shall be entitled to
direct the Initial Limited Partner to cast one vote for each BUC which he owns
(it being understood that the Initial Limited Partner will act at the
direction of the BUC Holders) at a meeting, in person, by written proxy or by
a signed writing directing the manner in which he desires that his vote be
cast, which writing must be received by the General Partner prior to the
adjournment sine die of such meeting. In the alternative, BUC Holders may
Consent to actions without a meeting, by a signed writing identifying the
action taken or proposed to be taken. Every proxy must be signed by the
Limited Partner or BUC Holder or his attorney-in-fact. No proxy shall be
valid after the expiration of 12 months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
Limited Partner or the BUC Holder executing it by Notice to the Person to whom
the proxy was given. Written Consents may be irrevocable if stated in a
writing delivered to BUC Holders at the time at which their Consent is
solicited. Only the votes or Consents of Limited Partners or BUC Holders of
record on the record date established pursuant to Section 10.01(c), whether at
a meeting or otherwise, shall be counted. The General Partner shall not be
entitled to vote in its capacity as General Partner. The laws of the State of
Delaware pertaining to the validity and use of corporate proxies shall govern
the validity and use of proxies given by the Limited Partners and BUC Holders,
except to the extent such laws are inconsistent with this Agreement. The BUC
Holders may give proxies only to the Initial Limited Partner. The Initial
Limited Partner will vote in accordance with the directions of the BUC Holders
so that each BUC will be voted separately.
<PAGE> - 23 -
(c) Reference in this Agreement to a specified percentage in interest of
the Limited Partners and BUC Holders means the Limited Partners and BUC
Holders whose combined Capital Contributions (it being understood that the BUC
Holders' Capital Contributions were made by the Initial Limited Partner)
represent the specified percentage of the Capital Contributions of all Limited
Partners and BUC Holders.
Section 10.03. Opinion Regarding Effect of Action by Limited Partners
and BUC Holders. Prior to any vote or Consent by Limited Partners or BUC
Holders that might (i) materially affect the tax status of the Partnership,
(ii) impair the limited liability of the Limited Partners or BUC Holders, or
(iii) result in the dissolution or termination of the Partnership, the
Partnership will provide Limited Partners and BUC Holders written advice from
Counsel as to the possible and most likely consequences of such vote or
Consent with respect thereto.
Section 10.04. Other Activities. Except as provided in Section 12.04,
the Limited Partners and BUC Holders may engage in or possess interests in
other business ventures of every kind and description for their own accounts,
including without limitation serving as general or limited partners of other
partnerships which own, either directly or through interests in other
partnerships or otherwise, commercial real estate similar to the Properties.
Neither the Partnership nor any of the Partners or BUC Holders shall have any
rights by virtue of this Agreement in or to such business ventures or to the
income or profits derived therefrom.
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO
BUC HOLDERS AND RIGHTS OF BUC HOLDERS
Section 11.01. Assignment of Limited Partnership Interests to BUC
Holders.
(a) Except as otherwise provided herein, the Initial Limited Partner, by
the execution of this Agreement, irrevocably assigns to the Persons who are
BUC Holders of the Prior Partnership as of the record date established
therefor by the General Partner, all of the Initial Limited Partner's rights
and interest in its Partnership Interests. The rights and interest so
transferred and assigned shall include, without limitation, the following:
(i) all rights to receive distributions of Net Operating Income
pursuant to Section 4.01;
(ii) all rights to receive Net Sale Proceeds and Liquidation
Proceeds pursuant to Section 4.02;
(iii) all rights in respect of allocations of Income and Loss
pursuant to Sections 4.03 and 4.04;
(iv) all rights in respect of determinations of allocations and
distributions pursuant to Section 4.05;
(v) all rights to inspect records and to receive reports pursuant to
Article IX;
(vi) all rights to vote on Partnership matters pursuant to Article
X; and
(vii) all rights which Limited Partners have, or may have in the
future, under the Act, except as otherwise provided herein.
All Persons becoming BUC Holders shall be bound by the terms and
conditions of, and shall be entitled to all rights of, Limited Partners under
this Agreement.
(b) The Initial Limited Partner shall remain as Initial Limited Partner
on the books and records of the Partnership notwithstanding the assignment of
all of its Limited Partnership Interest until such time as the Initial Limited
Partner transfers its position as Initial Limited Partner to another Person
with the Consent of the General Partner. Other than pursuant to Section
11.01(a), the Initial Limited Partner may not transfer or assign a Limited
Partnership Interest without the prior written Consent of the General Partner.
<PAGE> - 24 -
(c) The General Partner, by the execution of this Agreement, irrevocably
Consents to and acknowledges on behalf of itself and the Partnership that (i)
the foregoing assignment pursuant to Section 11.01(a) by the Initial Limited
Partner to the BUC Holders of the Initial Limited Partner's rights and
interest in the Limited Partnership Interests is valid and binding on the
Partnership and the General Partner, and (ii) the BUC Holders are intended to
be third-party beneficiaries of all rights and privileges of the Initial
Limited Partner in respect of the Limited Partnership Interests. The General
Partner covenants and agrees that, in accordance with the foregoing transfer
and assignment, all the Initial Limited Partner's rights and privileges in
respect of the Limited Partnership Interests assigned to the BUC Holders may
be exercised by the BUC Holders, including, without limitation, those listed
in Section 11.01(a).
Section 11.02. Rights of BUC Holders.
(a) Limited Partners (including the Initial Limited Partner but only with
respect to its own Limited Partnership Interests) and BUC Holders shall share
pari passu on the basis of one Limited Partnership Interest for one BUC, and
shall be considered as a single class with respect to all rights to receive
distributions of Net Operating Income, Net Sale Proceeds and Liquidation
Proceeds, allocations of Income and Loss, and other determinations of
allocations and distributions pursuant to this Agreement.
(b) Limited Partners (including the Initial Limited Partner voting on
behalf of the BUC Holders) shall vote on all matters in respect of which they
are entitled to vote (either in person, by proxy or by written Consent), as a
single class with each entitled to one vote.
(c) A BUC Holder is entitled to the same duty (including any fiduciary
duty created by law) from the General Partner as the General Partner owes to a
Limited Partner and may sue the General Partner to enforce the same. A BUC
Holder may bring a derivative action against any Person (including the General
Partner) to enforce any right of the Partnership to recover a judgment to the
same extent as a Limited Partner has such a right under the Act.
(d) A BUC Holder is not a Limited Partner and has no right to be admitted
to the Partnership as such.
Section 11.03. Voting by the Initial Limited Partner on Behalf of BUC
Holders.
(a) Subject to Section 8.01(a)(i), the Initial Limited Partner hereby
agrees that, with respect to any matter on which a vote of the Limited
Partners is taken, the Consent of the Limited Partners is required or any
other action of the Limited Partners is required or permitted, it will not
vote its Limited Partnership Interest or grant such Consent or take such
action (other than solely administrative actions as to which the Initial
Limited Partner has no discretion) except for the sole benefit of, and in
accordance with the written instructions of, the BUC Holders with respect to
their BUCs. The Initial Limited Partner (or the Partnership on behalf of the
Initial Limited Partner) will provide Notice to the BUC Holders containing
information regarding any matters to be voted upon or as to which any Consent
or other action is requested or proposed. The Partnership and the General
Partner hereby agree to permit BUC Holders to attend any meetings of Partners
and the Initial Limited Partner shall, upon the written request of BUC Holders
owning BUCs which represent in the aggregate 10% or more of all of the
outstanding BUCs, request the General Partner to call a meeting of Partners
pursuant to Section 10.01 or to submit a matter to the Initial Limited Partner
without a meeting pursuant to this Agreement. The General Partner shall give
the BUC Holders Notice of any meeting to be held pursuant to Section 10.01(a)
at the same time and manner as such Notice is required to be given to the
Initial Limited Partner pursuant to Section 10.01(b).
(b) The Initial Limited Partner will exercise its right to vote or
Consent to any action under this Agreement in accordance with the written
instructions of holders of BUCs outstanding as of the relevant record date.
In addition, holders of a majority of the BUCs outstanding may instruct the
Initial Limited Partner to take, and upon receipt of such instruction, the
Initial Limited Partner shall take, the actions permitted by Section 10.02.
<PAGE> - 25 -
(c) The Initial Limited Partner will mail to any BUC Holder (at the
address shown on the Partnership's records kept in accordance with Section
9.01(a)) any report, financial statement or other communication received from
the Partnership or the General Partner with respect to the Limited Partnership
Interests held by the Initial Limited Partner (including, without limitation,
any financial statement or report or tax information provided pursuant to
Section 9.03). In lieu of mailing of any such document by the Initial Limited
Partner, the Initial Limited Partner may, at its option, request the General
Partner to mail any such communications directly to the BUC Holders, and the
Initial Limited Partner shall be deemed to have satisfied its obligations
under this Section 11.03(b) upon its receipt of written notification from the
General Partner that any such communication has been mailed, postage prepaid,
to all of the BUC Holders at the addresses shown on the Partnership's records.
Section 11.04. Preservation of Tax Status. With the Consent of each BUC
Holder so affected, the General Partner may at any time cause such BUC Holder
to become a Limited Partner and may take such other action with respect to the
manner in which BUCs are being or may be transferred or traded as it may deem
necessary or appropriate, in order to preserve the status of the Partnership
as a partnership rather than an association taxable as a corporation for
federal income tax purposes or to insure that BUC Holders will be treated as
limited partners for federal income tax purposes.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Appointment of the General Partner as Attorney-in-Fact.
(a) Each Limited Partner by the execution of this Agreement irrevocably
constitutes and appoints, with full power of substitution, the General Partner
as his true and lawful attorney-in-fact with full power and authority in his
name, place and stead to execute, certify, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents as may be
necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(i) the Certificate and amendments thereto, and all certificates and
other instruments (including counterparts of this Agreement), and any
amendments thereof, which any such Person deems appropriate to form,
qualify or continue the Partnership as a limited partnership (or a
partnership in which the Limited Partners will have limited liability
comparable to that provided by the Act on the date thereof) in a
jurisdiction in which the Partnership may conduct business or in which
such formation, qualification or continuation is, in the opinion of any
such Person, necessary to protect the limited liability of the Limited
Partners and BUC Holders;
(ii) any other instrument or document which may be required to be
filed by the Partnership under federal law or under the laws of any state
in which any such Person deems it advisable to file;
(iii) all amendments to this Agreement adopted in accordance with
the terms hereof and all instruments which any such Person deems
appropriate to reflect a change or modification of the Partnership in
accordance with the terms of this Agreement; and
(iv) any instrument or document, including amendments to this
Agreement, which may be required to effect the continuation of the
Partnership, the admission of a Limited Partner or an additional or
successor General Partner or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement) or to
reflect any reductions in amount of Capital Accounts.
(b) The appointment by each Limited Partner of each of such Persons as
his attorney-in-fact is irrevocable and shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Agreement will be relying upon the power of such Persons to act as
contemplated by this Agreement in any filing and other action by them on
behalf of the Partnership, and such power shall survive the Incapacity of any
Person hereby giving such power and the transfer or assignment of all or any
part of the Limited Partnership Interests of such Person; provided, however,
that in the event of a transfer by a Limited Partner of all or any part of his
Limited Partnership Interests, the foregoing power of attorney shall survive
<PAGE> - 26 -
such transfer only until such time as the transferee is admitted to the
Partnership as a Limited Partner and all required documents and instruments
are duly executed, filed and recorded to effect such substitution.
Section 12.02. Signatures. Each Limited Partner and any additional or
successor General Partner shall become a signatory hereto by signing such
number of counterpart signature pages to this Agreement and such other
instrument or instruments in such manner and at such time as the General
Partner shall determine. By so signing, each Limited Partner, successor
General Partner or additional General Partner, as the case may be, shall be
deemed to have adopted, and to have agreed to be bound by, all the provisions
of this Agreement, as amended from time to time; provided, however, that no
such counterpart shall be binding unless and until it has been accepted by the
General Partner.
Section 12.03. Amendments.
(a) In addition to any amendments otherwise authorized herein, amendments
may be made to this Agreement or the Certificate from time to time by the
General Partner, without the Consent of the Limited Partners or the BUC
Holders, (i) to add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
in this Agreement; (ii) to cure any ambiguity or correct or supplement any
provision in this Agreement which may be inconsistent with the manifest intent
of this Agreement, if such amendment is not materially adverse to the
interests of Limited Partners and BUC Holders in the sole judgment of the
General Partner; (iii) to delete or add to any provision of this Agreement
required to be deleted or added to based upon comments by the staff of the
Securities and Exchange Commission or other federal agency or by a state
securities commissioner; (iv) to delete, add or revise any provision of this
Agreement that may be necessary or appropriate, in the General Partner's
judgment, to insure that the Partnership will be treated as a partnership, and
that each BUC Holder and each Limited Partner will be treated as a limited
partner, for federal income tax purposes; (v) to reflect the withdrawal,
removal or admission of Partners; and (vi) to reflect a change in the name or
address of the Partnership's registered agent in the State of Delaware;
provided, however, that no amendment shall be adopted pursuant to this Section
12.03(a) unless the adoption thereof (A) is consistent with Section 5.01 and
is not prohibited by Section 5.04; (B) does not affect the distribution of Net
Operating Income, Net Sales Proceeds or Liquidation Proceeds or the allocation
of Income or Loss (except as provided in Section 5.10); (C) does not, in the
sole judgment of the General Partner after consultation with Counsel, affect
the limited liability of the Limited Partners or the BUC Holders or cause the
Partnership not to be treated as a partnership for federal income tax
purposes; and (D) does not amend this Section 12.03(a).
(b) If this Agreement shall be amended as a result of substituting a
Limited Partner, the amendment to this Agreement shall be signed by the
General Partner, the Person to be substituted and the assigning Limited
Partner. If this Agreement shall be amended to reflect the designation of an
additional General Partner, such amendment shall be signed by the other
General Partners and by such additional General Partner. If this Agreement
shall be amended to reflect the withdrawal of a General Partner when the
business of the Partnership is being continued, such amendment shall be signed
by the withdrawing General Partner and by the remaining or successor General
Partner. In the event the withdrawing General Partner or the assigning
Limited Partner does not sign such an amendment within 30 days following its
withdrawal or substitution, the remaining or successor General Partners are
hereby appointed by the withdrawing General Partner or the assigning Limited
Partner as its attorney-in-fact for purposes of signing such amendment.
(c) In making any amendments, there shall be prepared and filed by the
General Partner for recording such documents and certificates as shall be
required to be prepared and filed under the Act and in any other jurisdictions
under the laws of which the Partnership is then qualified.
Section 12.04. Ownership by the Limited Partners of General Partners or
Their Affiliates. No Limited Partner or BUC Holder shall at any time, either
directly or indirectly, own any stock or other interest in any General Partner
or in any Affiliate of any General Partner if such ownership by itself or in
conjunction with the stock or other interest owned by other Limited Partners
and BUC Holders would, in the opinion of Counsel, jeopardize the
classification of the Partnership as a partnership for federal income tax
purposes. Each Limited Partner and BUC Holder shall promptly supply any
information requested by the General Partner in order to establish compliance
<PAGE> - 27 -
by such Limited Partner or BUC Holder with the provisions of this Section
12.04.
Section 12.05. Binding Provisions. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
heirs, executors, administrators, personal representatives, successors and
assigns of the respective parties hereto.
Section 12.06. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware.
Section 12.07. Separability of Provisions. Each provision of this
Agreement shall be considered separable and if for any reason any provision or
provisions hereof are determined to be invalid and contrary to any law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
Section 12.08. Captions. Article and Section titles are for descriptive
purposes only and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 12.09. Entire Agreement. This Agreement, together with Schedule
A hereto, sets forth all, and is intended by all parties to be an integration
of all, of the promises, agreements and understandings among the parties
hereto with respect to the Partnership, the Partnership business and the
property of the Partnership, and there are no promises, agreements, or
understandings, oral or written, express or implied, among them other than as
set forth, incorporated or contemplated in this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the 15th
day of August, 1996.
GENERAL PARTNER:
AMERICA FIRST CAPITAL ASSOCIATES
LIMITED PARTNERSHIP FOUR
By America First Companies L.L.C.,
General Partner
By /s/ Michael B. Yanney
Michael B. Yanney, President
INITIAL LIMITED PARTNER:
AMERICA FIRST FIDUCIARY
CORPORATION NUMBER EIGHT
By /s/ Michael B. Yanney
Michael B. Yanney, President
<PAGE> - 28 -
SCHEDULE A
GENERAL PARTNER:
America First Capital $[ ]
Associates Limited
Partnership Four
Suite 400
1004 Farnam Street
Omaha, NE 68102
INITIAL LIMITED PARTNER:
America First Fiduciary $[ ]
Corporation Number Eight
Suite 400
1004 Farnam Street
Omaha, NE 68102
<PAGE> - 29 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 1,912,560 $ 1,969,975
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 31,566,526 31,566,526
Real estate acquired in settlement of bonds, net of
accumulated depreciation and valuation allowance (Note 6) 25,890,570 26,770,652
Interest receivable 196,601 189,166
Other assets 64,192 24,112
-------------- --------------
$ 59,630,449 $ 60,520,431
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 683,013 $ 655,824
Distribution payable (Note 3) 331,163 331,163
-------------- --------------
1,014,176 986,987
-------------- --------------
Partners' Capital
General Partner 7,553 4,750
Beneficial Unit Certificate Holders
($11.17 per BUC in 1995 and $11.35 in 1994) 58,608,720 59,528,694
-------------- --------------
58,616,273 59,533,444
-------------- --------------
$ 59,630,449 $ 60,520,431
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 15
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Mortgage bond investment income (Note 5) $ 2,234,610 $ 2,452,200 $ 2,327,505
Rental income 5,116,073 4,949,664 4,566,703
Interest income on temporary cash investments 55,720 37,303 43,507
-------------- -------------- --------------
7,406,403 7,439,167 6,937,715
-------------- -------------- --------------
Expenses
General and administrative expenses (Note 7) 792,300 689,987 719,720
Real estate operating expenses 2,359,827 2,397,067 2,268,252
Depreciation 1,197,490 1,183,588 1,172,244
-------------- -------------- --------------
4,349,617 4,270,642 4,160,216
-------------- -------------- --------------
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
============== ============== ==============
Net income allocated to:
General Partner $ 42,543 $ 43,521 $ 39,497
BUC Holders 3,014,243 3,125,004 2,738,002
-------------- -------------- --------------
$ 3,056,786 $ 3,168,525 $ 2,777,499
============== ============== ==============
Net income per BUC $ .57 $ .60 $ .52
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 16
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1992, TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding losses):
Balance at December 31, 1992 $ 527 $ 61,534,122 $ 61,534,649
Net income 39,497 2,738,002 2,777,499
Cash distributions paid or accrued (Note 3)
Income (39,055) (2,694,205) (2,733,260)
Return of capital - (1,240,012) (1,240,012)
-------------- ---------------- ---------------
Balance at December 31, 1993 969 60,337,907 60,338,876
Net income 43,521 3,125,004 3,168,525
Cumulative effect of adopting SFAS 115:
Unrealized losses on mortgage bonds available-for-sale (Note 2B) - 8,748,474 8,748,474
Cash distributions paid or accrued (Note 3)
Income (39,740) (2,750,629) (2,790,369)
Return of capital - (1,183,588) (1,183,588)
-------------- ---------------- ---------------
Balance at December 31, 1994 4,750 68,277,168 68,281,918
Net income 42,543 3,014,243 3,056,786
Cash distributions paid or accrued (Note 3)
Income (39,740) (2,736,727) (2,776,467)
Return of capital - (1,197,490) (1,197,490)
-------------- ---------------- ---------------
Balance at December 31, 1995 7,553 67,357,194 67,364,747
-------------- ---------------- ---------------
Net unrealized holding losses:
Cumulative effect of adopting SFAS 115:
Unrealized losses on mortgage bonds available-for-sale (Note 2B) - (8,748,474) (8,748,474)
-------------- ---------------- ---------------
Balance at December 31, 1994 and 1995 - (8,748,474) (8,748,474)
-------------- ---------------- ---------------
Balance at December 31, 1995 $ 7,553 $ 58,608,720 $ 58,616,273
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 17
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,197,490 1,183,588 1,172,244
Decrease (increase) in interest receivable (7,435) 44,775 (15,353)
Decrease (increase) in other assets (40,080) 12,683 (33,545)
Increase (decrease) in accounts payable 27,189 (2,900) 71,443
--------------- --------------- ---------------
Net cash provided by operating activities 4,233,950 4,406,671 3,972,288
Cash flow used in investing activity
Real estate capital improvements (317,408) (28,776) (46,773)
--------------- --------------- ---------------
Cash flow used in financing activity
Distributions paid (3,973,957) (3,973,957) (3,973,272)
--------------- --------------- ---------------
Net increase (decrease) in cash and temporary cash investments (57,415) 403,938 (47,757)
Cash and temporary cash investments at beginning of year 1,969,975 1,566,037 1,613,794
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 1,912,560 $ 1,969,975 $ 1,566,037
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 18
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization
America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Partnership)
was formed on September 30, 1986, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally
tax-exempt mortgage bonds collateralized by income-producing real estate,
including multifamily residential apartments and commercial properties. The
Partnership will terminate on December 31, 2016, unless terminated earlier
under the provisions of the Partnership Agreement. The General Partner of the
Partnership is America First Capital Associates Limited Partnership Four (AFCA
4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The financial statements of the Partnership are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
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
The Partnership adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of January 1, 1994. FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, investments classified as available-for-sale are reported at fair
value with any unrealized gains or losses excluded from earnings and
reflected as a separate component of partners' capital. 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 adjustments to the component of partners'
capital. The Partnership does not have investment securities classified
as held-to-maturity or trading. Unrealized losses of $8,748,474 on
tax-exempt mortgage bonds previously recognized through income were
reclassified to a separate component of partners' capital with the
adoption of FAS 115. There was no additional impact resulting from
adoption since the bonds had already been reduced to estimated fair value.
The carrying value of tax-exempt mortgage bonds is adjusted when there are
significant changes in the estimated net realizable value of the
underlying collateral (see Note 2E).
Accrual of mortgage bond investment income is excluded from income when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
C) Real Estate Acquired in Settlement of Bonds
Property acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of the unpaid bond balance or estimated net
realizable value at the date of acquisition.
D) Valuation Allowance on Real Estate Acquired
The valuation allowance on real estate acquired is a valuation reserve
which has been established for declines in the estimated fair value of
each property subsequent to acquisition (see Note 2E).
<PAGE> 19
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
E) Fair Value of Tax-Exempt Mortgage Bond Collateral and Real Estate Acquired
The fair value of the collateral for the tax-exempt mortgage bonds and the
real estate acquired is based on management's best estimate of the net
realizable value of the properties; however, the ultimate realized values
may vary from these estimates. The net realizable value of the properties
is determined based on the discounted estimated future cash flows from the
properties, including estimated sales proceeds. 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
bonds and the allowance on real estate acquired are periodically reviewed
and adjustments are made when there are significant changes in the
estimated net realizable value of the underlying collateral for the
tax-exempt mortgage bonds or the real estate acquired.
F) Depreciation
Depreciation of real estate acquired in settlement of bonds is based on
the estimated useful life of the property (27-1/2 years or 31-1/2 years on
The Exchange at Palm Bay) using the straight-line method. Depreciation of
real estate improvements is based on the term of the related lease
agreement using the straight-line method.
G) Income Taxes
No provision has been made for income taxes since 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 $11,731,916 and $11,635,996 at December 31, 1995, and
December 31, 1994, respectively.
H) Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
I) Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (5,245,623) for all years presented.
J) New Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". Among other things,
this Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or circumstances indicate that the carrying value of an
asset may not be recoverable. The Partnership plans to adopt this
Statement in 1996 and anticipates that the adoption of this Statement will
not have a material impact on the financial statements.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement 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 BUC Holders. Income and expenses will be
allocated to each BUC Holder on a monthly basis based on the number of BUCs
held by each BUC Holder as of the last day of the month 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.
<PAGE> 20
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 4 until the BUC Holders have received distributions of Net Interest
Income equal to a cumulative noncompounded annual return of 10% on their
Adjusted Capital Contributions, as defined in the Limited Partnership
Agreement, at which point all remaining Net Interest Income for such
distribution period will be distributed 90% to the BUC Holders and 10% to
AFCA 4.
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. The portion of Net Residual Proceeds representing contingent
interest will be distributed 100% to the BUC Holders until the BUC Holders
have received distributions from all sources which represent a return of $20
per BUC plus an amount equal to a cumulative, noncompounded annual return of
10% on their Adjusted Capital Contributions. Any remaining Net Residual
Proceeds representing contingent interest will be distributed 100% to AFCA 4
until the amount so distributed is equal to 10% of the Net Residual Proceeds
representing contingent interest distributed to all parties. Thereafter, any
remaining Net Residual Proceeds representing contingent interest will be
distributed 1% to BUC Holders and 99% to AFCA 4 until AFCA 4 receives an
amount equal to .25% per annum of the outstanding principal amount of the
mortgage bonds for each year beginning January 1, 1989, and thereafter, 90% to
the BUC Holders and 10% to AFCA 4.
Liquidation Proceeds, as defined in the Limited Partnership Agreement,
remaining after repayment of any debts or obligations of the Partnership
(including loans from AFCA 4) and after the establishment of any reserve AFCA
4 deems necessary, will be distributed to AFCA 4 and BUC Holders to the extent
of positive balances in their capital accounts. Any remaining Liquidation
Proceeds will be distributed in the same manner as the Net Residual Proceeds.
Cash distributions are presently made on a monthly basis but may be made
quarterly if AFCA 4 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 $1,118,898 at
December 31, 1995. 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, real estate acquired 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 and/or permanent
financing 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 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.
<PAGE> 21
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The mortgage bonds provide for the payment of base interest and for the
payment of additional contingent interest out of a portion of the net cash
flow of the properties, and out of a portion of the sale or refinancing
proceeds from a property, subject to various priority payments. The principal
of the mortgage bonds will not be amortized during the terms of the mortgage
bonds, but will be required to be repaid in lump sum payments at the
expiration of their terms. The Partnership has the right to require
prepayment of any mortgage bond at any time after the tenth year of such
mortgage bond and each mortgage bond will be prepaid to the Partnership by its
terms on the first day of its thirteenth year. The mortgage bonds are due and
payable upon the sale of a property. Accordingly, the Partnership does not
expect to hold any mortgage bond for more than 12 years and has classified all
such bonds as available-for-sale. The Partnership may waive compliance with
any of the terms of the mortgage bonds.
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Carrying
Base Amount of Income
Number Maturity Interest Bonds at Earned
Property Name Location of Units Date Rate(1) Dec. 31, 1995 in 1995
----------------------------- --------------- -------- ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Performing:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ 8,760,000 $ 744,600
----------------- ------------
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% 12,800,000 873,694
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000 616,316
----------------- ------------
31,555,000 1,490,010
----------------- ------------
40,315,000 $ 2,234,610
Unrealized holding losses (8,748,474) ============
-----------------
Balance at December 31, 1995 (at estimated fair value) $ 31,566,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the notes bear additional
contingent interest as defined in each revenue note which, when combined with
the interest shown, is limited to a cumulative, noncompounded amount not
greater than 13% per annum. The Partnership did not receive any additional
contingent interest in 1995, 1994 or 1993.
(2) Nonperforming bonds are bonds which are not fully current as to
interest payments. The amount of foregone interest on nonperforming bonds was
$1,192,165 for 1995, $974,575 for 1994, and $1,099,270 for 1993.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying amounts of the
mortgage bonds is as follows:
Balance at beginning and end of year $ 40,315,000 $ 40,315,000 $ 40,315,000
=============== =============== ===============
The following summarizes the activity in the
unrealized holding losses:
Balance at beginning and end of year $ 8,748,474 $ 8,748,474 $ 8,748,474
=============== =============== ===============
</TABLE>
<PAGE> 22
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Unaudited combined condensed financial information of the properties
collateralizing the Partnership's investment in tax-exempt mortgage bonds is
as follows:
<TABLE>
<CAPTION>
Dec. 31, 1995
---------------
<S> <C>
Assets
Real estate $ 26,604,596
Restricted deposits and funded reserves 305,542
Other assets 321,726
---------------
$ 27,231,864
===============
Liabilities and Partners' Capital
Liabilities
Mortgage and notes payable $ 43,750,000
Accrued interest payable 10,094,128
Other liabilities 1,726,448
Partners' Capital (Deficit) (28,338,712)
---------------
$ 27,231,864
===============
Rental income $ 5,722,415
===============
Net loss $ (3,050,840)
===============
</TABLE>
6. Real Estate Acquired in Settlement of Bonds
Real estate acquired in settlement of bonds at December 31, 1995, is comprised
of the following:
<TABLE>
<CAPTION>
Building Carrying Carrying
Number and Value at Value at
Property Name Location of Units Land Improvements Dec. 31, 1995 Dec. 31, 1994
-------------------------- ----------------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 12,410,000
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 1,150,318 5,006,913 6,157,231 5,839,823
The Park at Fifty Eight Chattanooga, TN 96 135,000 2,553,474 2,688,474 2,688,474
Shelby Heights Bristol, TN 100 175,000 3,275,000 3,450,000 3,450,000
Coral Point Mesa, AZ 336 2,240,000 8,960,000 11,200,000 11,200,000
-------------- -------------
35,905,705 35,588,297
Less accumulated depreciation (6,515,135) (5,317,645)
-------------- -------------
29,390,570 30,270,652
Less valuation allowance (3,500,000) (3,500,000)
-------------- -------------
Balance at end of year $ 25,890,570 $ 26,770,652
============== =============
</TABLE>
(1) Represents square feet.
<PAGE> 23
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying values of the
real estate held is as follows:
Balance at beginning of year $ 30,270,652 $ 31,425,464 $ 32,550,935
Capital improvements 317,408 28,776 46,773
Depreciation (1,197,490) (1,183,588) (1,172,244)
--------------- --------------- ---------------
Balance at end of year 29,390,570 30,270,652 31,425,464
=============== =============== ===============
The following summarizes the activity in the
valuation allowance:
Balance at beginning and end of year $ 3,500,000 $ 3,500,000 $ 3,500,000
================ ================ ================
</TABLE>
7. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 4 or an affiliate and reimbursed by the Partnership. The amounts
of such expenses reimbursed to AFCA 4 or an affiliate are shown below. The
reimbursed expenses are presented on a cash basis and do not reflect accruals
made at the end of each year.
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reimbursable salaries and benefits $ 370,211 $ 270,973 $ 261,325
Professional fees and expenses 40,360 46,180 34,262
Investor services and custodial fees 51,664 48,653 51,315
Report preparation and distribution 16,854 19,891 31,087
Consulting and travel expenses 3,936 11,097 18,591
Registration fees 18,037 17,912 13,667
Telephone 8,729 7,538 10,009
Other expenses 27,088 29,616 31,327
Insurance 19,136 14,014 3,686
--------------- --------------- ---------------
$ 556,015 $ 465,874 $ 455,269
=============== =============== ===============
</TABLE>
AFCA 4 received from property owners administrative fees of $8,066 for the
year ended December 31, 1995. AFCA 4 did not receive any administrative fees
from property owners in 1994 or 1993. Since these fees are not Partnership
expenses, they have not been reflected in the accompanying financial
statements. Pursuant to the Limited Partnership Agreement, AFCA 4 is entitled
to an administrative fee from the Partnership in the event the Partnership
becomes the equity owner of a property by reason of foreclosure. The amount
of such fees paid to AFCA 4 was $226,200 in each of the years ended December
31, 1995, 1994 and 1993.
The general partner of the property partnership which owns Jefferson Place is
principally owned by an employee of an affiliate of AFCA 4. Such employee has
a nominal interest in the affiliate. AFCA 4 and an affiliated mortgage fund
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership and the mortgage
bond. The general partner received no cash distributions from the partnership
in 1995, 1994, or 1993.
<PAGE> 24
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight and Shelby Heights, (all since
August 1992), Coral Point (beginning in March 1993) Jefferson Place (beginning
in May 1993) and Avalon Ridge (beginning in September 1994). The fees for
services provided represent the lower of (i) costs incurred in providing
management of the property, or (ii) customary fees for such services
determined on a competitive basis and amounted to $382,143 in 1995, $297,836
in 1994 and $222,445 in 1993.
8. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1995 to December 31, 1995 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,960,471 $ 1,779,901 $ 1,797,012 $ 1,869,019
Total expenses (1,088,051) (918,865) (1,171,816) (1,170,885)
--------------- --------------- --------------- ---------------
Net income $ 872,420 $ 861,036 $ 625,196 $ 698,134
=============== =============== =============== ===============
Net income per BUC $ .16 $ .16 $ .12 $ .13
=============== =============== =============== ===============
Market Price per BUC
High sale 8-1/2 8-59/64 9-1/4 9-3/8
Low sale 7-3/4 8-1/8 8-1/8 8-1/2
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1994 to December 31, 1994 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,817,734 $ 1,870,398 $ 1,793,071 $ 1,957,964
Total expenses (1,050,083) (1,060,129) (1,124,968) (1,035,462)
--------------- --------------- --------------- ---------------
Net income $ 767,651 $ 810,269 $ 668,103 $ 922,502
=============== =============== =============== ===============
Net income per BUC $ .15 $ .15 $ .13 $ .17
=============== =============== =============== ===============
Market Price per BUC
High sale 9 9-1/4 9-1/4 9-1/4
Low sale 8 8-1/2 8-1/2 7-1/8
=============== =============== =============== ==============
</TABLE>
The BUCs are quoted on the NASDAQ National Market System under the symbol
ATAXZ. The high and low quarterly prices of the BUCs shown represent the
final sales prices and were compiled from the Monthly Statistical Reports
provided to the Partnership by the National Association of Securities Dealers,
Inc.
9. Subsequent Event
On March 28, 1996, the Partnership entered into a Merger Agreement with
America First Apartment Investors, L.P. (Apartment Investors) a newly formed
Delaware limited partnership of which AFCA 4 is the general partner. Under
the Merger Agreement, Apartment Investors will be the surviving limited
partnership and will acquire all assets and liabilities of the Partnership.
BUC Holders in the Partnership will become BUC Holders in Apartment Investors
and will receive one BUC of Apartment Investors for each BUC they hold in the
Partnership as of the record date to be established for the merger. Among
other things, the merger is conditioned upon the approval of the holders of a
majority of the BUCs in the Partnership.
<PAGE> 25
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
10. Restatement
The tax-exempt mortgage bonds were previously accounted for as loans.
However, the bonds are considered debt securities under FAS 115, which was
effective January 1, 1994. Accordingly, the 1994 and 1995 financial
statements have been restated to properly present the bonds as debt
securities. The only effect of the restatement was to segregate the
$8,748,474 of unrealized losses as a separate component of partners' capital.
There was no effect on the carrying value of the bonds, total assets, total
partners' capital or net income.
<PAGE> 26
Schedule III
TAX EXEMPT MORTGAGE FUND 2
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- ------------------------------------------------------------------------ ------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- ------------------------ --------------- ------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (a) $ 1,320,000 $ 11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (a) 1,150,318 4,349,682 339,823 -
The Park at Fifty Eight Chattanooga, TN 96 (a) 135,000 2,553,474 - -
Shelby Heights Bristol, TN 100 (a) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
----------- ------------ ------------ --------
$ 5,020,318 $ 30,228,156 $ 339,823 $ -
=========== ============ ============ ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1994
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (b) (c) Construction Acquired is Computed
- ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 2,419,632 1989 1989 27.5 years
The Exchange at Palm Bay 1,150,318 4,689,505 5,839,823 1,034,322 1988 1990 31.5 years
The Park at Fifty Eight 135,000 2,553,474 2,688,474 340,464 1987 1991 27.5 years
Shelby Heights 175,000 3,275,000 3,450,000 421,781 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,101,446 1987 1991 27.5 years
----------- ------------ ------------ ------------
$ 5,020,318 $ 30,567,979 $ 35,588,297 $ 5,317,645
=========== ============ ============ ============
</TABLE>
(a) The Partnership has no encumbrances against these properties.
(b) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Balance - beginning of year $ 35,559,521
Acquisitions -
Improvements 28,776
Carrying costs -
---------------
Balance - end of year $ 35,588,297
===============
</TABLE>
(c) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Balance - beginning of year $ 4,134,057
Depreciation expense 1,183,588
---------------
Balance - end of year $ 5,317,645
===============
<PAGE> 27
Schedule III
TAX EXEMPT MORTGAGE FUND 2
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- ------------------------------------------------------------------------ ------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- ------------------------ --------------- ------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (a) $ 1,320,000 $ 11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (a) 1,150,318 4,349,682 657,231 -
The Park at Fifty Eight Chattanooga, TN 96 (a) 135,000 2,553,474 - -
Shelby Heights Bristol, TN 100 (a) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
----------- ------------ ------------ --------
$ 5,020,318 $ 30,228,156 $ 657,231 $ -
=========== ============ ============ ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1995
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (b) (c) Construction Acquired is Computed
- ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 2,822,904 1989 1989 27.5 years
The Exchange at Palm Bay 1,150,318 5,006,913 6,157,231 1,290,777 1988 1990 31.5 years
The Park at Fifty Eight 135,000 2,553,474 2,688,474 433,318 1987 1991 27.5 years
Shelby Heights 175,000 3,275,000 3,450,000 540,872 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,427,264 1987 1991 27.5 years
----------- ------------ ------------ ------------
$ 5,020,318 $ 30,885,387 $ 35,905,705 $ 6,515,135
=========== ============ ============ ============
</TABLE>
(a) The Partnership has no encumbrances against these properties.
(b) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1995
---------------
<S> <C>
Balance - beginning of year $ 35,588,297
Acquisitions -
Improvements 317,408
Carrying costs -
---------------
Balance - end of year $ 35,905,705
===============
</TABLE>
(c) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1995
---------------
<S> <C>
Balance - beginning of year $ 5,317,645
Depreciation expense 1,197,490
---------------
Balance - end of year $ 6,515,135
===============
<PAGE> 28
JEFFERSON PLACE, L.P.
(A Missouri Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 29
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENT OF INCOME 3
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-9
<PAGE> 30
The Partners
Jefferson Place, L.P.
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Jefferson Place, L.P., (a
Missouri Limited Partnership) (the "Partnership"), as of December 31, 1995,
and the related statements of income, changes in partners' equity (deficit)
and cash flows for the year 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 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 financial position of Jefferson Place, L.P., as of
December 31, 1995, and the results of its operations and the changes in
partners' equity (deficit) and cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 10 to the
financial statements, the Partnership has experienced recurring losses from
operations and has a working capital deficiency and a net capital deficiency
that raise substantial doubt about the Partnership's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
St. Louis, Missouri Mueller, Prost, Purk & Willbrand, P.C.
January 26, 1996 Certified Public Accountants
<PAGE> 31
FINANCIAL STATEMENTS
<PAGE> 32
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1995
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 108,614
Tenant accounts receivable 3,042
Prepaid expenses 22,293
---------------
Total Current Assets $ 133,949
Funded Deposits Held in Trust
Security deposits 16,438
---------------
Total Funded Deposits Held in Trust 16,438
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 34,214
---------------
Total Restricted Deposits and Funded Reserves 34,214
Property and Equipment
Land 339,063
Buildings 10,894,462
Equipment 398,521
---------------
Total Property and Equipment 11,632,046
Less: Accumulated depreciation (5,521,434)
---------------
Net Property and Equipment 6,110,612
Other Assets
Utility Deposits 2,250
---------------
Total Other Assets 2,250
---------------
Total Assets $ 6,297,463
===============
LIABILITIES
Current Liabilities
Accrued interest payable $ 3,116,962
Accrued real estate taxes 58,222
Other accrued expenses 12,623
Prepaid rent 17,943
---------------
Total Current Liabilities $ 3,205,750
Deposit Liabilities
Security deposits 53,872
---------------
Total Deposit Liabilities 53,872
Long-Term Liabilities
Mortgage payable 12,800,000
Accrued administrative fees 679,219
---------------
Total Long-Term Liabilities 13,479,219
---------------
Total Liabilities 16,738,841
PARTNERS' EQUITY (DEFICIT)
General partner (63,409)
Limited partners (10,377,969)
---------------
Total Partners' Equity (Deficit) (10,441,378)
---------------
Total Liabilities and Partners' Equity (Deficit) $ 6,297,463
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 33
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INCOME
Rental income $ 1,603,103
Interest income 10,903
Other income 95,944
Income from forfeited security deposits 15,567
---------------
Total Income $ 1,725,517
EXPENSES
Operating Expenses
Salaries and wages 186,022
Real estate taxes 116,444
Insurance 27,007
Utilities 144,925
Professional fees 11,052
Advertising and promotional fees 34,090
---------------
Total Operating Expenses 519,540
Maintenance Expenses
Repairs and maintenance 184,491
Security 5,824
Cleaning 8,603
Supplies 23,816
---------------
Total Maintenance Expenses 222,734
Management Expenses
Administrative and office 24,358
Management fees 83,866
---------------
Total Management Expenses 108,224
Mortgage Interest Expense 1,276,370
---------------
Total Mortgage Interest Expense 1,276,370
Other Expenses
Administrative fees 88,800
Depreciation 578,958
---------------
Total Other Expenses 667,758
---------------
Total Expenses 2,794,626
---------------
Net Loss $ (1,069,109)
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 34
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------------------------------------------
Special Class A
General Limited Limited
Partner Partner Partner Class B Limited Partners
----------- ---------- -------------- ----------------------------------------------
Liberty Liberty Chase Total
JHC Associates Tax Credit DRI Equity Mark D. Susan L. Properties, Limited
Corporation IV, L.P. Plus III, L.P. Corporation Rose Rose Inc. Partners
----------- ---------- -------------- ----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (52,718) $ (52,718) $ (3,781,735) $ 78,470 $(280,988) $(280,988) $(5,001,592) $ (9,319,551)
Net Loss for the Year (10,691) (10,691) (908,743) (1,390) (6,949) (6,949) (123,696) (1,058,418)
---------- ---------- ------------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1995 $ (63,409) $ (63,409) $ (4,690,478) $ 77,080 $(287,937) $(287,937) $(5,125,288) $(10,377,969)
========== ========== ============= =========== ========= ========= =========== ============
Partners' Percentage of
Partnership losses 1.00% 1.00% 85.00% 0.13% 0.65% 0.65% 11.57% 99.00%
========= ========= ============ ========== ======== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Partners'
Deficit
-------------
<S> <C>
Balance, December 31, 1994 $ (9,372,269)
Net Loss for the Year (1,069,109)
-------------
Balance, December 31, 1995 $ (10,441,378)
=============
Partners' Percentage of
Partnership losses 100.00%
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 35
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (1,069,109)
---------------
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation 578,958
Change in assets - (increase) decrease
Tenant accounts receivable (1,932)
Property tax refund receivable 8,139
Prepaid expenses (352)
Change in liabilities - increase (decrease)
Accrued interest payable 412,612
Accrued real estate taxes 10,897
Other accrued expenses (5,979)
Prepaid rent 13,605
Security deposits 5,186
Accrued administrative fees 77,800
---------------
Total Adjustments 1,098,934
---------------
Net Cash Provided by Operating Activities 29,825
---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and funded reserves 2,075
---------------
Net Cash Provided by Financing Activities 2,075
---------------
Net Increase in Cash 31,900
Cash - Beginning of Year 93,152
---------------
Cash - End of Year $ 125,052
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 36
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Jefferson Place, L.P., a Missouri limited partnership, (the "Partnership"),
was formed on April 18, 1985, pursuant to the terms of an Agreement of Limited
Partnership for the purpose of acquiring and operating the Jefferson Place
Apartments complex (the "Project"), a 352-unit apartment complex located in
Olathe, Kansas. The Partnership will dissolve on December 31, 2033, unless
sooner dissolved pursuant to any provision of the Partnership agreement.
On October 1, 1990, pursuant to the Second Amended and Restated Agreement of
Limited Partnership, DRI Equity Corporation withdrew from the Partnership as
general partner and became a Class B limited partner with a .13% interest.
DRI assigned its interest to JHC Corporation as the general partner with a 1%
interest. Liberty Associates IV L.P. is the Partnership's special limited
partner with a 1% interest and has the authority, among other things, to
remove the general partner under certain circumstances and to consent to the
sale of the Partnership's assets. The Partnership has three other Class B
limited partners, Mark D. Rose (.65%), Susan L. Rose (.65%), and Chase
Properties, Inc., a Missouri corporation (11.57%), as well as a Class A
limited partner, Liberty Tax Credit Plus III L.P., a Delaware limited
partnership who owns an 85% interest.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnership also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Project.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimated amounts.
Security Deposits
The security deposit liability exceeds the security deposit cash account by
$37,434. Management has stated that this deficiency will be funded from the
operating cash account as cash flow becomes available.
Bad Debts
The Partnership records bad debts using the direct write off method which is
not materially different from the allowance method. No bad debt expense was
recorded for the period ended December 31, 1995.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 5 to 19 years. The total depreciation expensed in
1995 was $578,958.
Concentration of Credit Risk
The Partnership maintains the majority of its cash balances in one financial
institution. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1995, the Partnership's uninsured
cash balances totaled $16,585.
<PAGE> 37
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash includes cash and security deposits.
Cash paid during the year for:
Interest $ 863,758
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution.
Disbursements from the escrow are for real estate taxes and insurance
premiums. Interest earned on the funds is transferred to the operating cash
account quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership financed the construction of the Project with Multi-Family
Housing Revenue Notes ("Notes") issued by the City of Olathe, Kansas ("City")
in the face amount of $12,800,000. On December 1, 1986, the Notes were
purchased by America First Tax-Exempt Mortgage Fund 2 Limited Partnership
("America First"). The Notes are nonrecourse obligations of the owners of the
Partnership. The Notes are not an obligation to the City, nor is the taxing
power of the City pledged to the payment of principal and interest on the
Notes. The net cash flow of the Partnership and the proceeds from the sale or
refinancing of the Partnership are the sole source of funds to pay principal
and interest on the Notes. The Notes are collateralized by all real and
personal property of the Partnership and an assignment of rents. The
principal balance of the Notes is due in a lump sum on December 1, 2010. Base
interest on the Notes accrues at 8.5% per annum.
In connection with the reorganization of the Partnership on October 1, 1990,
the terms of the Notes were amended pursuant to a mortgage modification
agreement. The mortgage modification agreement was to induce America First to
waive defaults under the original Note and to induce the new limited partners
to infuse additional capital. The mortgage modification agreement provides,
among other provisions, for the following:
1) America First agrees not to declare a default under the Notes, mortgage and
related documents during the term of the modification agreement, which
expires December 31, 2002.
2) America First agrees to accept the monthly cash flow from the Partnership
as partial payment of base interest. If the monthly cash flow is less than
the amount of base interest due for each month, the unpaid base interest
accrues and will be paid from excess cash flow in future months. The
difference between the base interest on the Notes and the payments to
America First from available monthly cash flow will bear interest at 8.5%
per annum until paid. At December 31, 1995, mortgage interest expense
included additional interest on accrued base interest of $188,370.
3) The mortgage modification agreement also specifies the allocation of sale
or refinancing proceeds of the Partnership among the partners and payment
of accrued interest to America First.
<PAGE> 38
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 ACCRUED INTEREST PAYABLE
Accrued interest payable as of December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Accrued interest payable on bond $ 2,334,194
Accrued interest on unpaid interest 782,768
------------
Total Accrued Interest Payable $ 3,116,962
============
</TABLE>
NOTE 7 CONTINGENT INTEREST
In addition to base interest, the Notes provide for the payment of additional
contingent interest that is payable only to the extent the Partnership
generates excess net cash flows or from the sale or refinancing proceeds of
the Partnership, subject to various priority payments. Contingent interest
during the construction period (December 1, 1986 through August 31, 1987) at
3.5% per annum totaled $118,890. Contingent interest at 4.5% per annum,
excluding contingent construction period interest, totaled $4,800,000 through
December 31, 1995. Contingent interest amounts have not been accrued in the
accompanying financial statements.
NOTE 8 RELATED PARTY TRANSACTIONS
Management Fees
On May 1, 1993, America First Properties Management, Inc., an affiliate of the
general partner, took over management of the Partnership. Their fee is 5% of
collected receipts, effective July, 1995. Management fees for 1995 are
$83,866. The Partnership owed America First Properties Management, Inc. $4,564
at December 31, 1995.
Administrative Fees
Under the terms of the Notes, the Partnership accrues administrative fees of
$6,400 per month to an affiliate of America First. Under the terms of the
Second Amended and Restated Agreement of Limited Partnership, the Partnership
accrues additional administrative fees of $1,000 per month to Liberty
Associates IV, L.P. Administrative fees totaled $88,800 in 1995. Accrued and
unpaid administrative fees totaled $679,219 at December 31, 1995.
Administrative fees payable to America First are to be paid solely from the
proceeds of a sale or refinancing. Administrative fees payable to Liberty
Associates IV, L.P. are paid from excess cash flow after the payment of all
operating expenses except interest.
NOTE 9 CONTINGENCIES
Pursuant to a Tax Credit Guaranty Agreement signed on October 1, 1990, the
Partnership and America First guarantee Liberty Tax Credit Plus III, L.P.
("Liberty") specified minimum amounts of tax credits to be generated by the
Partnership through the rental of apartments to qualified tenants. If the
Partnership fails to generate tax credits of approximately $131,000 annually
for years 1991 through 1997 for the benefit of Liberty, America First and the
Partnership will be required to pay Liberty an amount equal to $.633 for each
$1 of credits below the specified minimum amounts.
Tax credits generated by the Partnership in 1995 were in excess of the minimum
amount of such credits specified in the Tax Credit Guaranty Agreement.
<PAGE> 39
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $10,441,378
since commencement of rental operations in 1985, as well as recurring
operating losses. The considerations raise substantial doubt about the
Partnership's ability to continue as a going concern. Management has
addressed this concern by implementing an operating plan designed to
reposition the Project and substantially increase long-term cash flow from
operations. This plan includes: (1) investment of a significant portion of
property cash flow in upgrading and improving the condition and appearance of
the Project; and (2) implementation of stringent resident qualification
standards designed to improve the resident profile and, ultimately, property
operations. In addition, management is also considering reissuance of the
bonds at lower interest rates so that the Project can support monthly interest
payments.
<PAGE> 40
JEFFERSON PLACE, L.P.
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
for the years ended
December 31, 1994 and 1993
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners
Jefferson Place, L.P.
We have audited the accompanying balance sheet of Jefferson Place, L.P. (a
Missouri limited partnership) as of December 31, 1994 and 1993, and the
related statements of operations, partners' deficit 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 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 audits provide a reasonable basis
for our opinion.
As discussed in Notes 3 and 8 to the financial statements, the holder of the
mortgage note payable of Jefferson Place, L.P. has agreed not to declare a
default under the terms of the mortgage note.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson Place, L.P. at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Omaha, Nebraska Coopers & Lybrand L.L.P.
January 27, 1995
<PAGE> 42
JEFFERSON PLACE, L.P.
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
--------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 93,152 $ 89,236
Accounts receivable 1,110 4,544
Property tax refund receivable 8,138 -
Prepaid expenses and deposits 24,191 2,250
--------------- ---------------
Total current assets 126,591 96,030
--------------- ---------------
Restricted deposits and funded reserves:
Taxes and insurance escrow 36,289 70,877
--------------- ---------------
Total restricted deposits and funded reserves 36,289 70,877
--------------- ---------------
Property and equipment:
Land 339,063 339,063
Buildings 10,894,464 10,894,464
Equipment 398,521 398,521
--------------- ---------------
11,632,048 11,632,048
Less accumulated depreciation 4,942,476 4,364,741
--------------- ---------------
Net property and equipment 6,689,572 7,267,307
--------------- ---------------
$ 6,852,452 $ 7,434,214
=============== ===============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable $ 18,603 38,863
Accrued real estate taxes 47,325 45,373
Interest payable 2,704,349 2,338,899
Prepaid tenant rent 4,338 -
--------------- ---------------
Total current liabilities 2,774,615 2,423,135
Tenant security deposits 48,687 42,753
Mortgage notes payable 12,800,000 12,800,000
Accrued administrative fees 601,419 524,619
--------------- ---------------
Total liabilities 16,224,721 15,790,507
--------------- ---------------
Partners' deficit:
General partner (52,718) (42,558)
Limited partners (9,319,551) (8,313,735)
--------------- ---------------
Total partners' deficit (9,372,269) (8,356,293)
--------------- ---------------
$ 6,852,452 $ 7,434,214
=============== ===============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> 43
JEFFERSON PLACE, L.P.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Revenues:
Rental income $ 1,555,912 1,434,434
Interest income 5,804 4,367
Other income 123,662 73,290
Income from forfeited security deposits 15,248 13,508
--------------- ---------------
Total revenues 1,700,626 1,525,599
--------------- ---------------
Expenses:
Operating expenses:
Salaries 172,412 173,323
Real estate taxes 94,649 86,076
Personal property taxes - 1,315
Insurance 25,083 20,218
Utilities 133,614 135,903
Legal and other professional 9,704 19,115
Advertising and promotional 35,100 45,125
--------------- ---------------
Total operating expenses 470,562 481,075
--------------- ---------------
Maintenance expenses:
Repairs 2,450 12,340
Security 5,987 -
Maintenance 167,680 162,280
Cleaning 7,775 10,999
Supplies 34,376 28,881
--------------- ---------------
Total maintenance expenses 218,268 214,500
--------------- ---------------
Management expense:
Administrative and office 25,608 24,268
Management fees 75,215 55,238
--------------- ---------------
Total management expenses 100,823 79,506
--------------- ---------------
Mortgage interest 1,260,414 1,237,180
--------------- ---------------
Other expenses:
Administrative fees 88,800 88,800
Depreciation 577,735 578,396
--------------- ---------------
Total other expenses 666,535 667,196
--------------- ---------------
Total expenses 2,716,602 2,679,457
--------------- ---------------
Net loss $ (1,015,976) $ (1,153,858)
=============== ===============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> 44
JEFFERSON PLACE, L.P.
STATEMENTS OF PARTNERS' DEFICIT
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------------------------------------------
Special Class A
General Limited Limited
Partner Partner Partner Class B Limited Partners
----------- ---------- -------------- ----------------------------------------------
Liberty Liberty Chase Total
JHC Associates Tax Credit DRI Equity Mark D. Susan L. Properties, Limited
Corporation IV, L.P. Plus III, L.P. Corporation Rose Rose Inc. Partners
----------- ---------- -------------- ----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance (deficit) at
December 31, 1992 $ (31,019) $ (31,019) $ (1,937,376) $ 81,290 $(266,884) $(266,884) $(4,750,543) $ (7,171,416)
Net Loss (11,539) (11,539) (980,779) (1,500) (7,500) (7,500) (133,501) (1,142,319)
----------- ---------- ------------- ----------- --------- --------- ----------- ------------
Balance (deficit) at
December 31, 1993 (42,558) (42,558) (2,918,155) 79,790 (274,384) (274,384) (4,884,044) (8,313,735)
Net Loss (10,160) (10,160) (863,580) (1,320) (6,604) (6,604) (117,548) (1,005,816)
----------- ---------- ------------- ----------- --------- --------- ----------- ------------
Balance (deficit) at
December 31, 1994 $ (52,718) $ (52,718) $ (3,781,735) $ 78,470 $(280,988) $(280,988) $(5,001,592) $ (9,319,551)
=========== ========== ============= =========== ========= ========= =========== ============
Partners' Percentage of
Partnership losses 1.00% 1.00% 85.00% 0.13% 0.65% 0.65% 11.57% 99.00%
========== ========= ============ ========== ======== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Partners'
Deficit
-------------
<S> <C>
Balance (deficit) at
December 31, 1992 $ (7,202,435)
Net Loss (1,153,858)
-------------
Balance (deficit) at
December 31, 1993 (8,356,293)
Net Loss (1,015,976)
-------------
Balance (deficit) at
December 31, 1994 $ (9,372,269)
=============
Partners' Percentage of
Partnership losses 100.00%
============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> 45
JEFFERSON PLACE, L.P.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,015,976) $ (1,153,858)
--------------- ---------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 577,735 578,396
Decrease (increase) in:
Accounts receivable 3,434 3,791
Property tax refund receivable (8,138) -
Taxes and insurance escrow 34,588 6,751
Other assets (21,941) -
Increase (decrease) in:
Accounts payable (20,260) 4,457
Accrued real estate taxes 1,952 (11,694)
Interest payable 365,450 521,503
Prepaid tenant rent 4,338 -
Tenant security deposits 5,934 7,857
Accrued administrative fees 76,800 75,800
--------------- ---------------
Total adjustments 985,304 1,180,110
--------------- ---------------
Net cash provided by operating activities
and net change in cash 3,916 33,003
--------------- ---------------
Cash at beginning of year 89,236 56,233
--------------- ---------------
Cash at end of year $ 93,152 89,236
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 894,964 715,677
=============== ===============
The accompanying notes are an integral part
of the financial statements.
<PAGE> 46
JEFFERSON PLACE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
(a) Nature of Business:
Jefferson Place, L.P. (the Partnership) is a Missouri limited
partnership which was formed on April 18, 1985. Pursuant to the terms
of the original certificate of limited partnership, the Partnership
will continue for 31 years unless sooner terminated. The purpose of
the Partnership is to operate a 352-unit low to moderate income housing
apartment complex located in Olathe, Kansas (the Project).
On October 1, 1990, the Partnership was reorganized. The general
partner withdrew and J.H.C. Corp. was admitted as the new general
partner and several new limited partners were admitted (see Note 3).
The agreement also provides for, among other items, special allocations
of cash distributions, profits and losses in the event of sale or
refinancing of the property, as well as the distribution of any tax
credits and restrictions regarding transferability or disposition of a
partner's interest.
(b) Basis of Accounting:
The financial statements are prepared on the accrual basis and include
only those assets, liabilities and the results of operations which
relate to the Jefferson Place, L.P. The statements do not include any
assets, liabilities, revenues or expenses attributable to any of the
partners' other activities.
(c) Revenue Recognition:
Rent revenue is recognized when earned. Tenant security deposits are
recognized as liabilities until forfeited by the tenant.
(d) Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets as follows:
Life
(Years) Method
------- -------------
Buildings 19 Straight-line
Equipment 5-7 Straight-line
Maintenance and repairs are expensed as incurred; expenditures that
result in enhancement of the value of the assets are capitalized.
(e) Income Taxes:
No income tax provision has been included in the financial statements
since income and loss of the Partnership is required to be reported by
the respective partners on their income tax returns. The qualification
of the Partnership as such for tax purposes and amounts of the
Partnership losses are subject to audit by taxing authorities. If such
examinations result in changes to the Partnership qualification or
Partnership losses, the partners' tax liability would be changed
accordingly.
(f) Reclassifications:
Certain amounts from the prior year have been reclassified to conform
to the current year presentation.
2. Taxes and Insurance Escrow:
The taxes and insurance escrow consists of money market funds held in a
segregated account. These funds are carried at cost, which approximates
market. Disbursements from the escrow are for real estate taxes and
insurance premiums. Interest earned on the funds is transferred to
operating cash quarterly.
<PAGE> 47
JEFFERSON PLACE, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Mortgage Notes Payable:
The Partnership financed the construction of the Project with Multi-family
Housing Revenue Notes issued by the City of Olathe, Kansas in the face
amount of $12,800,000. On December 1, 1986, the Notes were purchased by
America First Tax-Exempt Mortgage Fund 2 Limited Partnership (America
First). The Notes are nonrecourse obligations of the owners of the Project
and the Partnership. The Notes do not constitute an obligation of the City
of Olathe, Kansas and the City is not liable on the Notes, nor is the
taxing power of the City pledged to the payment of principal and interest
on the Notes. The sole source of funds to pay principal and interest on
the Notes is the net cash flow of the Project and the proceeds from the
sale or refinancing of the Project. The Notes are collateralized by all
real and personal property of the Project and an assignment of rents. The
principal balance of the Notes is due in a lump sum on December 1, 2010.
Base interest on the Notes accrues at 8.5% per annum.
In connection with the reorganization of the Partnership described in Note
1, the terms of the Notes were amended on October 1, 1990 pursuant to a
mortgage modification agreement. The mortgage modification agreement was
entered into in order to induce America First to waive defaults under the
original Note and to induce the new limited partners to infuse additional
capital. The modification agreement provides, among other provisions, the
following:
(a) America First agrees not to declare a default under the Notes, mortgage
and related documents during the term of the modification agreement,
which expires December 31, 2002.
(b) America First agrees to accept the monthly cash flow from the Project
as partial payment of base interest. If the monthly cash flow is less
than the amount of base interest due for each month, the unpaid base
interest accrues and will be paid from excess cash flow in future
months. The difference between the base interest on the Notes and the
payments made to America First from available monthly cash flow will
bear interest at 8.5% per annum until paid. At December 31, 1994 and
1993, mortgage interest expense included additional interest on accrued
base interest of $172,414 and $149,180, respectively.
(c) America First agrees not to cause a redemption of the Notes prior to
December 31, 2002.
(d) The mortgage modification agreement also specifies the allocation of
sale or refinancing proceeds of the Project among the partners of the
Partnership and payment of accrued interest to America First.
4. Contingent Interest:
In addition to base interest, the Notes provide for the payment of
additional contingent interest that is payable only to the extent the
Project generates excess net cash flows or from the sale or refinancing
proceeds of the Project, subject to various priority payments. Contingent
interest during the construction period (December 1, 1986 through August
31, 1987) at 3.5% per annum totaled $118,890. Contingent interest at 4.5%
per annum, excluding contingent construction period interest, totaled
$4,224,000 and $3,648,000 through December 31, 1994 and 1993,
respectively. Contingent interest amounts have not been accrued in the
accompanying financial statements.
5. Related Party Transactions:
Under the terms of the Notes, the Partnership accrues administrative fees
of $6,400 per month to an affiliate of America First. Under the terms of
the new Limited Partnership Agreement, the Partnership accrues
administrative fees of $1,000 per month to Liberty Associates IV L.P.
Administrative fees totaled $88,800 in 1994 and 1993. Accrued and unpaid
administrative fees totaled $601,419 and $524,619 at December 31, 1994 and
1993, respectively.
<PAGE> 48
JEFFERSON PLACE, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Related Party Transactions, Continued:
Administrative fees payable to America First are to be paid solely from the
proceeds of sale or refinancing. Administrative fees payable to Liberty
Associates IV L.P. are paid from excess cash flow after the payment of all
operating expenses except interest.
The Project was managed January through April 1993 by a property management
company which was paid 3.5% of gross revenues actually received from the
Project. On May 1, 1993, America First Property Management Company, an
affiliate of the general partner, took over management of the project.
Their fee is 4.5% of collected receipts. Management fees for 1994 and 1993
were $75,215 and $55,238, respectively. The Partnership owed America First
Property Management Company $3,674 and $3,663 at December 31, 1994 and
1993, respectively.
6. Interest Payable:
Interest payable as of December 31, 1994 and 1993 consisted of the
following:
1994 1993
------------- -------------
Interest payable on bond $ 2,109,951 $ 1,916,916
Interest on unpaid interest 594,398 421,983
------------- -------------
Total interest payable $ 2,704,349 $ 2,338,899
============= =============
7. Contingency:
Pursuant to a Tax Credit Guaranty Agreement signed on October 1, 1990, the
Partnership and America First guarantee Liberty Tax Credit Plus III L.P.
("Liberty") specified minimum amounts of tax credits to be generated by the
Partnership. Those tax credits are generated by the Partnership through
the rental of apartments to qualified tenants. If the Partnership fails to
generate tax credits of approximately $131,000 annually for years 1991
through 1997 for the benefit of Liberty, America First and the Partnership
will be required to pay Liberty an amount equal to $.633 for each $1 of
credits below the specified minimum amounts.
Tax credits generated by the Project in 1994 were in excess of the minimum
amount of such credits specified in the Tax Credit Guaranty Agreement.
8. Liquidity:
The Partnership has consistently been unable to generate sufficient cash
flow from operations to pay base interest on the mortgage note payable.
The Partnership has, however, generated cash flows sufficient to cover the
cost of operations and partially pay base interest on the mortgage note
payable. As more fully described in Note 3, America First (the mortgagee)
has agreed not to declare a default under the terms of the mortgage note
payable.
<PAGE> 49
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 50
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENT OF INCOME 3
STATEMENT OF CHANGES IN PARTNERS'
EQUITY (DEFICIT) 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-8
<PAGE> 51
To the Partners
Sunpointe Associates Limited Partnership
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Sunpointe Associates Limited
Partnership, (a Washington Limited Partnership) (the "Partnership"), as of
December 31, 1995, and the related statements of income, changes in partners'
equity (deficit) and cash flows for the year 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 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 financial position of Sunpointe Associates Limited
Partnership as of December 31, 1995, and the results of its operations and the
changes in partners' equity (deficit) and cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $1,761,506 during the year
ended December 31, 1995, and, as of that date, had a net worth of
$(12,376,449). As discussed in Note 7 to the financial statements, the
Partnership has suffered recurring losses from its operations and has a net
capital deficiency that raises substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
St. Louis, Missouri Mueller, Prost, Purk & Willbrand, P.C.
April 30, 1996 Certified Public Accountants
<PAGE> 52
FINANCIAL STATEMENTS
<PAGE> 53
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1995
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 12,020
Tenant accounts receivable 15,748
Prepaid expenses 33,824
Other receivables 537
---------------
Total Current Assets $ 62,129
Funded Deposits Held in Trust
Security deposits 67,152
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 124,448
Property and Equipment
Land 3,261,280
Land improvements 439,162
Buildings 13,132,765
Equipment 601,082
---------------
Total Property and Equipment 17,434,289
Less: Accumulated depreciation 4,737,747
---------------
Net Property and Equipment 12,696,542
---------------
Total Assets $ 12,950,271
===============
LIABILITIES
Current Liabilities
Accounts payable 7,750
Other accrued expenses 6,500
Prepaid rents 12,075
Accrued interest payable 4,407,666
Administrative fee payable 739,724
---------------
Total Current Liabilities 5,173,715
Deposit Liabilities
Security deposits 63,005
Long-Term Liabilities
Mortgage payable 20,000,000
Due to limited partner 90,000
---------------
Total Long-Term Liabilities 20,090,000
---------------
Total Liabilities 25,326,720
PARTNERS' EQUITY (DEFICIT)
Partners' Equity (Deficit) (12,376,449)
---------------
Total Partners' Equity (Deficit) (12,376,449)
---------------
Total Liabilities and
Partners' Equity (Deficit) $ 12,950,271
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 54
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Income
Rental income $ 2,068,885
Interest income 7,341
Income from forfeited security deposits 38,021
Other income 98,087
---------------
Total Income $ 2,212,334
Expenses
Operating Expenses
Advertising 68,107
Insurance 27,518
Personal property taxes 1,862
Professional fees 72,453
Real estate taxes 211,014
Salaries and wages 238,349
Utilities 279,381
---------------
Total Operating Expenses 898,684
Maintenance Expenses
Cleaning 22,023
Repairs and maintenance 359,904
Security 85,726
Supplies 68,543
---------------
Total Maintenance Expenses 536,196
Management Expenses
Administrative and office 59,685
Management fees 74,072
---------------
Total Management Expenses 133,757
Mortgage Interest 1,718,675
Other Expenses
Administrative fees 157,255
Depreciation 529,273
---------------
Total Other Expenses 686,528
---------------
Total Expenses 3,973,840
---------------
Net Loss $ (1,761,506)
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 55
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
General
Partner Limited Partners
--------------- ---------------------------------------------------
Sunset Shelter
Terrace Corporation Shelter The Total
Investments, of Canada American Axelrod Partners'
Inc. Limited Holding, Inc. Company Deficit
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (1,083,375) $ (1,700,023) $ (5,293,142) $ (2,538,403) $ (10,614,943)
Net Loss for the Year (1,761) (440) (879,432) (879,873) (1,761,506)
--------------- --------------- --------------- --------------- ---------------
Balance, December 31, 1995 $ (1,085,136) $ (1,700,463) $ (6,172,574) $ (3,418,276) $ (12,376,449)
=============== =============== =============== =============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 56
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (1,761,506)
---------------
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 529,273
Change in assets - (increase) decrease
Tenant accounts receivable (15,748)
Prepaid expenses (20,067)
Other receivables (505)
Change in liabilities - increase (decrease)
Accounts payable (2,085)
Other accrued expenses (215)
Prepaid rents 12,075
Accrued interest payable 1,060,009
Administrative fee payable 116,888
Security deposits (4,572)
---------------
Total Adjustments 1,675,053
---------------
Net Cash Used by Operating Activities (86,453)
---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and funded reserves 11,580
---------------
Net Cash Provided by Financing Activities 11,580
---------------
Net Decrease in Cash (74,873)
Cash - Beginning of Year 86,893
---------------
Cash - End of Year $ 12,020
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 57
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Sunpointe Associates Limited Partnership, a Washington Limited Partnership,
(the "Partnership"), was formed on September 3, 1987, pursuant to the terms of
an Agreement of Limited Partnership for the purpose of acquiring and operating
the Avalon Ridge Apartments complex, a 356-unit apartment complex located in
Renton, Washington (the "Project"). The Partnership will dissolve on December
31, 2037, unless sooner dissolved pursuant to any provision of the Partnership
Agreement.
The Agreement of Limited Partnership which was amended on June 30, 1991, and
December 31, 1991, admitted a new general partner and changed the profit and
loss allocation percentages to the partners. The general partner of the
Partnership is Sunset Terrace Investments, Inc. (the "General Partner"), a
California corporation. The limited partners of the Partnership are Shelter
Corporation of Canada Limited and Shelter American Holding, Inc. which are
Canadian corporations and the Axelrod Company, a Washington corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnership also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from estimated amounts.
Bad Debts
The Partnership records bad debts using the direct write-off method which is
not materially different from the allowance method. No bad debt expense was
recorded for the period ended December 31, 1995.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 7 to 27.5 years. The total depreciation expensed in
1995 was $529,273.
NOTE 3 STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Cash paid during the year for:
Interest $ 658,666
<PAGE> 58
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution. Disbursements from the escrow are for real estate
taxes and insurance premiums. Interest earned on the funds is transferred to
operating cash quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership entered into a $1,245,000 mortgage payable agreement with
America First Participating/Preferred Equity Mortgage Fund on September 1,
1987. The note bears base interest at the rate of 10%, due on the fifteenth
day of each month. Maximum construction period deferred interest is due
during the first interest period, which extends from the date of inception to
August 17, 1989, in an amount equal to 3% per annum. The maximum construction
period deferred interest shall be paid, to the extent possible, from 50% of
the net sale or refinancing proceeds. Contingent interest and deferred
interest is due during the second interest period, which extends from August
18, 1989, to the date of full payment, at an annual rate of 3% on the
outstanding principal amount. Contingent interest and deferred interest shall
be paid from 50% of the net cash flow. Deferred interest and contingent
interest is due on the first day of each February, May, August, and November.
The note matures on September 1, 1999.
Pursuant to a promissory note dated September 1, 1987, the Partnership owes
Washington Mortgage Corporation $18,755,000 plus interest. The interest of
Washington Mortgage Corporation was purchased and assigned to Washington State
Housing Finance Commission under the Assignment of Developer Documents dated
September 1, 1987. Part of the interest of Washington State Housing Finance
Commission has been assigned to FirsTier Bank, National Association, as
Trustee under the Lender Loan Agreement and Indenture of Trust dated September
1, 1987. The note bears base interest at the rates of 9.5% per annum and 8.5%
per annum during the first and second interest periods, respectively. The
note bears deferred contingent interest in amounts equal to 3.5% per annum and
4.5% per annum during the first and second interest periods, respectively.
During the third interest period, the note bears contingent interest at an
annual rate of 4.5% on the outstanding principal amount. The note matures on
September 1, 2011.
NOTE 6 RELATED PARTY TRANSACTIONS
Management Fees
On August 20, 1994, America First Properties Management, Inc., an affiliate of
the general partner, took over management of the Partnership. Their fee is 3%
of gross receipts when net operating income is less than $97,000; 3.75% when
net operating income is between $97,001 and $103,000; and 4.5% when net
operating income is greater than $103,000. Management fees for 1995 are
$74,072. The Partnership owed America First Properties Management, Inc. $6,008
at December 31, 1995.
Due to Limited Partner
The Partnership has outstanding operating deficit loans borrowed from the
limited partner of $90,000 at December 31, 1995.
<PAGE> 59
NOTE 7 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $12,376,449
since commencement of rental operations in 1987, as well as recurring
operating losses. The considerations raise substantial doubt about the
Partnership's ability to continue as a going concern. Management has
addressed this concern by implementing an operating plan designed to
reposition the Project and substantially increase long-term cash flow from
operations. This plan includes: (1) investment of a significant portion of
property cash flow in upgrading and improving the condition and appearance of
the Project; and (2) implementation of stringent resident qualification
standards designed to improve the resident profile and, ultimately, property
operations. In addition, management is also considering reissuance of the
bonds at lower interest rates so that the Project can support monthly interest
payments.
<PAGE> 60
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 2,479,350 $ 1,912,560
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 31,566,526 31,566,526
Investment in real estate, net of accumulated depreciation
(and valuation allowance for 1995) (Note 6) 27,303,956 25,890,570
Interest receivable 183,321 196,601
Other assets 229,995 64,192
-------------- --------------
$ 61,763,148 $ 59,630,449
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 8) $ 808,900 $ 683,013
Bonds payable (Note 7) 2,750,000 -
Distribution payable (Note 3) 331,163 331,163
-------------- --------------
3,890,063 1,014,176
-------------- --------------
Partners' Capital
General Partner 5,957 7,553
Beneficial Unit Certificate Holders
($11.03 per BUC in 1996 and $11.17 in 1995) 57,867,128 58,608,720
-------------- --------------
57,873,085 58,616,273
-------------- --------------
$ 61,763,148 $ 59,630,449
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 521,648 $ 495,122 $ 1,116,553 $ 1,188,459
Rental income 1,422,169 1,270,900 2,719,570 2,525,429
Interest income on temporary cash investments 13,507 13,879 24,570 26,484
--------------- --------------- --------------- ---------------
1,957,324 1,779,901 3,860,693 3,740,372
--------------- --------------- --------------- ---------------
Expenses
General and administrative expenses (Note 8) 305,960 185,351 535,041 376,404
Real estate operating expenses 750,550 434,141 1,467,956 1,033,754
Depreciation 275,451 299,373 583,543 596,758
Interest expense 30,362 - 30,362 -
--------------- --------------- --------------- ---------------
1,362,323 918,865 2,616,902 2,006,916
--------------- --------------- --------------- ---------------
Net income $ 595,001 $ 861,036 $ 1,243,791 $ 1,733,456
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 8,704 $ 11,604 $ 18,273 $ 23,302
BUC Holders 586,297 849,432 1,225,518 1,710,154
--------------- --------------- --------------- ---------------
$ 595,001 $ 861,036 $ 1,243,791 $ 1,733,456
=============== =============== =============== ===============
Net income per BUC $ .11 $ .16 $ .23 $ .32
=============== =============== =============== ===============
</TABLE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
---------------- ---------------- ----------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding losses):
Balance at December 31, 1995 $ 7,553 $ 67,357,194 $ 67,364,747
Net income 18,273 1,225,518 1,243,791
Cash distributions paid or accrued (Note 3)
Income (19,869) (1,383,567) (1,403,436)
Return of capital - (583,543) (583,543)
---------------- ---------------- ----------------
5,957 66,615,602 66,621,559
---------------- ---------------- ----------------
Net unrealized holding losses:
Balance at December 31, 1995 and June 30, 1996 - (8,748,474) (8,748,474)
---------------- ---------------- ----------------
Balance at June 30, 1996 $ 5,957 $ 57,867,128 $ 57,873,085
================ ================ ================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<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 $ 1,243,791 $ 1,733,456
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 583,543 596,758
Decrease in interest receivable 13,280 48,077
Increase in other assets (27,700) (13,547)
Increase (decrease) in accounts payable 125,887 (14,956)
--------------- ---------------
Net cash provided by operating activities 1,938,801 2,349,788
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (82,331) (65,884)
Acquisition of real estate (1,914,598) -
--------------- ---------------
Net cash used in investing activities (1,996,929) (65,884)
--------------- ---------------
Cash flows from financing activities
Distributions paid (1,986,979) (1,986,979)
Proceeds from issuance of tax-exempt refunding bonds 2,750,000 -
Bond issuance costs paid (138,103) -
--------------- ---------------
Net cash provided by (used in) financing activities 624,918 (1,986,979)
--------------- ---------------
Net increase in cash and temporary cash investments 566,790 296,925
Cash and temporary cash investments at beginning of period 1,912,560 1,969,975
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,479,350 $ 2,266,900
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 3 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. Organization
America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Partnership)
was formed on September 30, 1986, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally
tax-exempt mortgage bonds collateralized by income-producing real estate,
including multifamily residential apartments and commercial properties. The
Partnership will terminate on December 31, 2016, unless terminated earlier
under the provisions of the Partnership Agreement. The General Partner of the
Partnership is America First Capital Associates Limited Partnership Four (AFCA
4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary, Park at Fifty Eight Limited Partnership,
which owns The Park at Fifty Eight Apartments. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The consolidated financial statements of the Partnership are prepared
without audit on the accrual basis of accounting in accordance with
generally accepted accounting principles. The consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1995. In the opinion of management, all
normal and recurring adjustments necessary to present fairly the financial
position at June 30, 1996, and results of operations for all periods
presented have been made.
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
The Partnership adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of January 1, 1994. FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, investments classified as available-for-sale are reported at fair
value with any unrealized gains or losses excluded from earnings and
reflected as a separate component of partners' capital. Subsequent
increases and decreases in the net unrealized gain/loss on the
available-for-sale securities are reflected as adjustments to the carrying
value of the portfolio and adjustments to the component of partners'
capital. The Partnership does not have investment securities classified
as held-to-maturity or trading. Unrealized losses of $8,748,474 on
tax-exempt mortgage bonds previously recognized through income were
reclassified to a separate component of partners' capital with the
adoption of FAS 115. There was no additional impact resulting from
adoption since the bonds had already been reduced to estimated fair value.
The carrying value of tax-exempt mortgage bonds is periodically reviewed
and adjusted when there are significant changes in the estimated net
realizable value of the underlying collateral.
Accrual of mortgage bond investment income is excluded from income when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
<PAGE> - 4 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
C) Investment in Real Estate
The Partnership's investment in real estate consists of property acquired
through foreclosure or deed in lieu of foreclosure and other real estate
acquired. For periods prior to January 1, 1996, property acquired through
foreclosure or deed in lieu of foreclosure was recorded at the lower of
the unpaid bond balance or estimated net realizable value at the date of
acquisition. Other real estate acquired was recorded at cost. A
valuation allowance was established for declines in the estimated net
realizable value subsequent to acquisition.
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121). Among
other things, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable. As a result of adopting FAS
121, the Partnership wrote down the carrying value of each impaired
property to estimated net realizable value thus eliminating the valuation
allowance on real estate acquired. The carrying value of each property
will be periodically reviewed and adjustments will be made to the carrying
value when there are declines in the estimated net realizable value.
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments or 31-1/2
years on The Exchange at Palm Bay) using the straight-line method.
Depreciation of real estate improvements on The Exchange at Palm Bay is
based on the term of the related tenant lease using the straight-line
method. Subsequent to January 1, 1996, depreciation is calculated based
on the adjusted carrying value of the properties.
The adoption of FAS 121 did not have a material impact on the financial
statements.
D) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
E) Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
F) Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (5,245,623) for all periods presented.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement 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 4 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $1,712,530 at June
30, 1996. The reserve account was established to maintain working capital for
the Partnership and is available to supplement distributions to investors or
for any other contingencies related to the ownership of the mortgage bonds,
real estate acquired and the operation of the Partnership.
<PAGE> - 5 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Base
Number Maturity Interest Carrying
Property Name Location of Units Date Rate(1) Amount
---------------------------------- -------------------- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Performing:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ 8,760,000
-----------------
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% 12,800,000
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000
-----------------
31,555,000
-----------------
40,315,000
Unrealized holding losses (8,748,474)
-----------------
Balance at June 30, 1996 $ 31,566,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined with
the interest shown, is limited to a cumulative, noncompounded amount not
greater than 13% per annum. The Partnership did not receive any additional
contingent interest in 1996.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds for 1996 was
$596,835 ($335,046 for the quarter ended June 30, 1996).
6. Investment in Real Estate
The Partnership's investment in real estate is comprised of the following at
June 30, 1996:
<TABLE>
<CAPTION>
Building
Number and Carrying
Property Name Location of Units Land Improvements Amount
--------------------------------- -------------------- -------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 1,150,318 3,222,792 4,373,110
The Park at Fifty Eight(2) Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights Bristol, TN 100 175,000 2,952,847 3,127,847
Coral Point Mesa, AZ 336 2,240,000 8,960,000 11,200,000
-----------------
34,402,634
Less accumulated depreciation (7,098,678)
-----------------
Balance at June 30, 1996 $ 27,303,956
=================
</TABLE>
(1) Represents square feet.
(2) Property is owned by Park at Fifty Eight Limited Partnership and consists
of Phase II (96 units acquired through foreclosure) and Phase I (100 units
purchased on May 16, 1996 for $1,914,598) (See Note 7).
<PAGE> - 6 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
7. Bonds Payable
On May 16, 1996, Park at 58 Limited Partnership received proceeds of
$2,750,000 through the offering of multifamily housing revenue refunding bonds
on The Park at Fifty Eight. The bonds were rated "A" by Standard and Poor's
Corporation and bear interest at an effective rate of 6.65%. The bonds have a
25-year maturity with annual principal payments ranging from $50,000 to
$210,000 due each March. Accrued interest is payable semi-annually in March
and September. The bonds are collateralized by The Park at Fifty Eight.
8. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 4 or an affiliate and reimbursed by the Partnership. The amount
of such expenses reimbursed to AFCA 4 during 1996 was $487,870 ($214,109 for
the quarter ended June 30, 1996). The reimbursed expenses are presented on a
cash basis and do not reflect accruals made at quarter end. AFCA 4 or an
affiliate also paid $41,056 ($13,756 for the quarter ended June 30, 1996) in
capitalized costs during 1996 which were reimbursed by the Partnership. The
capitalized costs were incurred in connection with the offering of multifamily
housing revenue refunding bonds described in Note 7.
AFCA 4 received from property owners administrative fees of $39,308 ($8,760
for the quarter ended June 30, 1996) in 1996. Since these fees are not
Partnership expenses, they have not been reflected in the accompanying
financial statements. Pursuant to the Limited Partnership Agreement, AFCA 4
is entitled to an administrative fee from the Partnership in the event the
Partnership becomes the equity owner of a property by reason of foreclosure.
The amount of such fees paid to AFCA 4 during 1995 was $113,100 ($56,550 for
the quarter ended June 30, 1996).
The general partner of the property partnership which owns Jefferson Place is
principally owned by an employee of an affiliate of AFCA 4. Such employee has
a nominal interest in the affiliate. AFCA 4 and an affiliated mortgage fund
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership and the mortgage
bond. The general partner did not receive cash distributions from the
partnership in 1996.
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight, Shelby Heights, Coral Point,
Jefferson Place and Avalon Ridge. The fees for services provided represent
the lower of (i) costs incurred in providing management of the property, or
(ii) customary fees for such services determined on a competitive basis and
amounted to $207,884 ($105,875 for the quarter ended June 30, 1996) in 1996.
9. Proposed Merger
On March 28, 1996, the Partnership entered into a Merger Agreement with
America First Apartment Investors, L.P. (Apartment Investors) a newly formed
Delaware limited partnership of which AFCA 4 is the general partner. Under
the Merger Agreement, Apartment Investors will be the surviving limited
partnership and will acquire all assets and liabilities of the Partnership.
BUC Holders in the Partnership will become BUC Holders in Apartment Investors
and will receive one BUC of Apartment Investors for each BUC they hold in the
Partnership as of the record date to be established for the merger. Among
other things, the merger is conditioned upon the approval of the holders of a
majority of the BUCs in the Partnership.
10. Restatement
The tax-exempt mortgage bonds were previously accounted for as loans.
However, the bonds are considered debt securities under FAS 115, which was
effective January 1, 1994. Accordingly, the 1995 financial statements have
been restated to properly present the bonds as debt securities. The only
effect of the restatement was to segregate the $8,748,474 of unrealized losses
as a separate component of partners' capital. There was no effect on the
carrying value of the bonds, total assets, total partners' capital or net
income.
<PAGE> - 7 -
PRO FORMA FINANCIAL INFORMATION
The audited financial statements of the Old Fund for the three years
ended December 31, 1995, 1994 and 1993 and the unaudited financial statements
for the three months ended March 31, 1996 have been incorporated by reference
into this Consent Solicitation Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
The unaudited pro forma balance sheet of the Old Fund as of March 31,
1996 has been prepared based on the historical balance sheet of the Old Fund
as of such date as adjusted to reflect (i) the probable acquisition of the
Jefferson Place and Avalon Ridge properties in settlement of the Bonds
collateralized by these properties and (ii) the purchase of Oakwood Terrace
Apartments and the related Bond refunding transaction as if each had occurred
on March 31, 1996. The unaudited pro forma statements of income of the Old
Fund for the year ended December 31, 1995 and for the three months ended March
31, 1996 have been prepared based on the historical statements of income for
such periods as adjusted to reflect each of the foregoing transactions as if
each had occurred on January 1, 1995.
<PAGE> - F-1 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
PRO FORMA BALANCE SHEET
March 31, 1996
ASSETS
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Cash and temporary cash investments $ 1,846,036 $ 650,000 (b) $ 2,496,036
Investment in tax-exempt mortgage bonds at
estimated fair value 31,566,526 (22,806,526)(a) 8,760,000
Real estate acquired in settlement of bonds, net
of accumulated depreciation 25,624,048 24,051,526 (a) 51,575,574
1,900,000 (b)
Interest receivable 186,228 - 186,228
Other 123,369 200,000 (b) 323,369
--------------- --------------- ---------------
$ 59,346,207 $ 3,995,000 $ 63,341,207
LIABILITES AND PARTNERS' CAPITAL
Liabilities
Accounts payable $ 743,470 $ - $ 743,470
Distribution payable 331,163 - 331,163
Participating loans (c) - 1,245,000 (a) 1,245,000
Bonds payable - 2,750,000 (b) 2,750,000
--------------- --------------- ---------------
1,074,633 3,995,000 5,069,633
Partners' Capital
General Partner 7,187 - 7,187
Beneficial Units Certificate Holders 58,264,387 - 58,264,387
--------------- --------------- ---------------
58,271,574 - 58,271,574
--------------- --------------- ---------------
$ 59,346,207 $ 3,995,000 $ 63,341,207
Book value per BUC $ 11.11 $ 0.00 $ 11.11
</TABLE>
The following transaction are reflected on a proforma basis:
(a) Record the acquisition of Jefferson Place and Avalon Ridge properties
in settlement of bonds.
(b) Record the purchase of Oakwood Terrace Apartments and the related
issuance of bonds payable
(c) Represent first mortgages on properties jointly financed with an
affiliated limited partnership.
<PAGE> - F-2 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF INCOME
For the Year ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Income
Mortgage investment income $ 2,234,610 $ (1,490,010)(a) $ 744,600
Rental income 5,116,073 3,937,851 (a) 9,514,752
460,828 (b)
Interest income on temporary investments 55,720 - 55,720
--------------- --------------- ---------------
7,406,403 2,908,669 10,315,072
Expenses
General and administrative expenses 566,100 - 566,100
Administrative fees 226,200 189,330 (e) 415,530
Real estate operating expenses 2,359,827 2,419,135 (a) 5,033,497
254,535 (b)
Depreciation 1,197,490 874,601 (a) 2,134,567
62,566 (b)
Interest expense - 41,157 (d) 231,432
190,275 (c)
--------------- --------------- ---------------
4,349,617 4,031,599 8,381,216
--------------- --------------- ---------------
Net income $ 3,056,786 $ (1,122,930) $ 1,933,856
Net income allocated to:
General Partner $ 42,543 $ (11,229) $ 31,314
BUC Holders 3,014,243 (1,111,701) 1,902,542
--------------- --------------- ---------------
$ 3,056,786 $ (1,122,930) $ 1,933,856
--------------- --------------- ---------------
Net income per BUC $ 0.57 $ (0.21) $ 0.36
Distribution paid or accrued:
General Partner $ 39,740 $ - $ 39,740
BUC Holders 3,934,217 - 3,934,217
--------------- --------------- ---------------
$ 3,973,957 $ - $ 3,973,957
Distributions paid or accrued per BUC $ 0.75 $ 0.00 $ 0.75
</TABLE>
The following transactions are reflected on a proforma basis:
(a) Record the operating results of Jefferson Place and Avalon Ridge
properties acquired in settlement of bonds and the elimination of related
mortgage investment income. Buildings and improvements will be depreciated
on a straight-line basis over 27.5 years.
(b) Record the operating results of Oakwood Terrace Apartments.
Buildings and improvements will be depreciated on a straight-line basis over
27.5 years.
(c) Record (i) interest expense at the effective interest rate of 6.65%
and (ii) amortization of bond issuance costs on bonds issued to finance the
acquisition of Oakwood Terrace.
(d) Record interest expense on the participating loan related to Avalon
Ridge owed to an affiliated limited partnership.
(e) Record additional administrative fees resulting from the acquisition
of Jefferson Place and Avalon Ridge.
<PAGE> - F-3 -
AMERICA FIRST TAX EXEMPT MORTGAE FUND 2 LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF INCOME
For the Three Months ended March 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Income
Mortgage bond investment income $ 594,905 $ (408,757)(a) $ 186,148
Rental income 1,297,401 925,361 (a) 2,339,841
117,079 (b)
Interest income on temporary investments 11,063 - 11,063
--------------- --------------- ---------------
1,903,369 633,683 2,537,052
Expenses
General and administrative expenses 172,631 - 172,531
Administrative fees 56,550 47,333 (e) 103,883
Real estate operating expenses 717,406 514,045 (a) 1,307,658
76,207 (b)
Depreciation and amortization 308,092 218,650 (a) 542,305
15,563 (b)
Interest expense - 10,698 (d) 56,937
46,239 (c)
--------------- --------------- ---------------
1,254,579 928,735 2,183,314
--------------- --------------- ---------------
Net income $ 648,790 $ (295,052) $ 353,738
Net income allocated to:
General Partner $ 9,569 $ (2,951) $ 6,618
BUC Holders 639,221 (292,101) 347,120
--------------- --------------- ---------------
$ 648,790 $ (295,052) $ 353,738
--------------- --------------- ---------------
Net income per BUC $ 0.12 $ (0.06) $ 0.07
Distributions paid or accrued:
General Partner $ 9,935 $ - $ 9,935
BUC Holders 983,554 - 983,554
--------------- --------------- ---------------
$ 993,489 $ - $ 993,489
Distributions paid or accrued per BUC $ 0.1875 $ 0.0000 $ 0.1875
</TABLE>
The following transactions are reflected on a proforma basis:
(a) Record the operating results of Jefferson Place and Avalon Ridge
properties acquired in settlement of bonds and the elimination of related
mortgage investment income. Buildings and improvements will be depreciated
on a straight-line basis over 27.5 years.
(b) Record the operating results of Oakwood Terrace Apartments.
Buildings and improvements will be depreciated on a straight-line basis over
27.5 years.
(c) Record (i) interest expense at the effective interest rate of 6.65%
and (ii) amortization of bond issuance costs on bonds issued to finance the
acquisition of Oakwood Terrace.
(d) Record interest expense on the participating loan related to Avalon
Ridge owed to an affiliated limited partnership.
(e) Record additional administrative fees resulting from the acquisition
of Jefferson Place and Avalon Ridge.
<PAGE> - F-4 -
