FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number: 0-20737
AMERICA FIRST APARTMENT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 47-0797793
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates representing assignments of limited
partnership interests in America First Apartment Investors, L.P. (the
"BUCs")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of the chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the BUCs on March 3, 1997, based upon the
final sales price per BUC reported in The Wall Street Journal on March 4,
1997, was $47,561,024.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> - i -
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
SIGNATURES 35
<PAGE> - ii -
PART I
Item 1. Business. America First Apartment Investors, L.P. (the
Registrant or the Partnership) was formed on March 7, 1996, under the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring, holding,
operating, selling and otherwise dealing with multifamily real estate and
other types of commercial real estate and interests therein. The Partnership
will pursue its purpose in order to (i) preserve investors' capital and (ii)
provide regular cash distributions to investors.
The Partnership commenced operations on August 20, 1996, when it merged
with America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Prior
Partnership). Under the terms of the merger agreement, the Partnership was
the surviving partnership and effectively took over the operations of the
Prior Partnership. As of the record date established for the Merger, a total
of 5,212,167 Beneficial Unit Certificates (BUCs) representing assigned limited
partnership interests in the Prior Partnership were outstanding. BUC holders
of the Prior Partnership received one BUC in the Partnership for each BUC of
the Prior Partnership outstanding as of the record date.
After completion of the offering of its BUCs in 1986, the Prior
Partnership acquired nine tax-exempt mortgage bonds with an aggregate
principal amount of $90,765,000. These tax-exempt bonds were issued by
various state and local authorities to provide construction and permanent
financing of eight multifamily housing properties and one commercial property
located in eight states. The Prior Partnership subsequently acquired five of
the properties through foreclosure or deed in lieu of foreclosure or through
the acquisition of an indirect ownership interest. The Prior Partnership also
acquired an additional multifamily property which is adjacent to one of the
foreclosed properties that was originally intended to be part of a
consolidated property. In addition, during 1996, the Partnership acquired
another multifamily housing property. As of December 31, 1996, these
properties had a depreciated cost of $30,199,846. A description of the real
estate acquired by the Registrant appears in Note 6 of the Notes to the
Financial Statements filed in response to Item 8 hereof. For further
information regarding these properties, see Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
These properties, along with three mortgage bonds, were acquired by the
Partnership in connection with the Merger. The other mortgage bond was repaid
by the borrower in 1988. The three remaining mortgage bonds had a carrying
value (at estimated fair value) of $31,566,526 as of December 31, 1996. Under
the terms of these bonds, the principal amounts do not amortize over their
terms. The mortgage bonds provide for the payment of base interest to the
Registrant and for the payment of contingent interest based on the levels of
net cash flow and net realized capital appreciation generated by the
underlying properties. A description of the tax-exempt mortgage bonds held by
the Registrant at December 31, 1996 (and the properties collateralizing such
bonds) appears in Note 5 of the Notes to the Financial Statements filed in
response to Item 8 hereof. For further information regarding these
properties, see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The amount of cash received by the Registrant from tax-exempt mortgage
bonds and the real estate is a function of the net rental revenues generated
by the properties financed or owned by the Partnership. Net rental revenues
from a multifamily apartment complex depend on the rental and occupancy rates
of the property and on the level of operating expenses. Occupancy rates and
rents are directly affected by the supply of, and demand for, apartments in
the market areas in which a property is located. This, in turn, is affected
by several factors such as local or national economic conditions, the amount
of new apartment construction and interest rates on single-family mortgage
loans. In addition, factors such as government regulation (such as zoning
laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property.
In each city in which the properties financed or owned by the Registrant
are located, such properties compete with a substantial number of other
apartment complexes. Apartment complexes also compete with single-family
housing that is either owned or leased by potential tenants. The principal
method of competition is to offer competitive rental rates. Such properties
also compete by emphasizing regular maintenance and property amenities.
<PAGE> - 1 -
The Registrant believes that each of the properties it has financed or
owns is in compliance in all material respects with federal, state and local
regulations regarding hazardous waste and other environmental matters and the
Registrant is not aware of any environmental contamination at any of such
properties that would require any material capital expenditure by the
Registrant for the remediation thereof.
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of real estate and the operation of real
estate acquired. Accordingly, the presentation of information about industry
segments is not applicable and would not be material to an understanding of
the Registrant's business taken as a whole.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Registrant, and the Registrant
reimburses America First Companies L.L.C. for such services at cost. The
Registrant is not charged, and does not reimburse, for the services performed
by managers and officers of America First Companies L.L.C..
Item 2. Properties. The Prior Partnership had invested in eight
mortgage bonds collateralized by first mortgages on multifamily housing
properties and one mortgage bond collateralized by a first mortgage on a
commercial property. Foreclosure proceedings and other actions were
instituted with respect to five of the properties which has resulted in the
Registrant owning or indirectly owning five of these properties at December
31, 1996. In addition, during 1996, the Partnership acquired another phase of
a real estate property acquired in foreclosure and an additional real estate
property. One mortgage bond was prepaid by the borrower in 1988. Properties
collateralizing mortgage bonds held by the Registrant and real estate acquired
are described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet Federal
Property Name Location of Units Per Unit Tax Basis
- -------------------------- ------------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 822 (1)
Jefferson Place Olathe, KS 352 663 (1)
Avalon Ridge Renton, WA 356 1,076 (1)
Covey at Fox Valley(2) Aurora, IL 216 948 $ 10,140,616
The Park at Fifty Eight(3) Chattanooga, TN 196 876 3,810,960
Shelby Heights Bristol, TN 100 980 2,790,088
Coral Point(2) Mesa, AZ 336 780 10,321,742
Park at Countryside Port Orange, FL 120 720 3,245,455
-------- ---------------
1,972 30,308,861
========
The Exchange at Palm Bay Palm Bay, FL 72,002(4) 3,762,844
======== ---------------
$ 34,071,705
===============
</TABLE>
(1) Property collateralizes a mortgage loan owned by the Partnership. Since
the Partnership does not own the property, the federal tax basis is not
applicable.
(2) Property serves as collateral on borrowings against the line of credit as
described in Note 8 to the Financial Statements filed in response to Item
8 hereof.
(3) Property serves as collateral for multifamily housing refunding bonds as
described in Note 7 to the Financial Statements filed in response to Item
8 hereof.
(4) Represents square feet.
Depreciation is taken on each property acquired on a straight-line basis
over the estimated useful life of the properties (27-1/2 years on multifamily
residential apartments and 31-1/2 years on The Exchange at Palm Bay).
<PAGE> - 2 -
The average annual occupancy rate and average effective rental rate per
unit or per square foot for each of the properties for each of the last five
years are listed in the following table. Information with respect to Park at
Countryside for periods prior to December 30, 1996, the date the property was
acquired by the Registrant, is not available to the Registrant and accordingly
is not presented in the table.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Properties Collateralizing Mortgage Bonds
- -----------------------------------------
JACKSON PARK PLACE
Average Occupancy Rate 93% 96% 95% 86% 89%
Average Effective Annual Rental Per Unit $5,703 $5,773 $5,585 $5,046 $5,139
JEFFERSON PLACE
Average Occupancy Rate 98% 97% 97% 92% 87%
Average Effective Annual Rental Per Unit $4,726 $4,557 $4,426 $4,091 $3,726
AVALON RIDGE
Average Occupancy Rate 84% 84% 84% 86% 87%
Average Effective Annual Rental Per Unit $5,264 $5,835 $6,343 $6,195 $6,030
Real Estate Acquired
- --------------------
COVEY AT FOX VALLEY
Average Occupancy Rate 95% 94% 95% 96% 91%
Average Effective Annual Rental Per Unit $8,574 $8,057 $7,782 $7,568 $7,115
THE PARK AT FIFTY EIGHT
Average Occupancy Rate 96% 97% 96% 93% 94%
Average Effective Annual Rental Per Unit $4,774 $4,937 $4,768 $4,372 $4,261
SHELBY HEIGHTS
Average Occupancy Rate 92% 95% 97% 96% 97%
Average Effective Annual Rental Per Unit $5,653 $5,611 $5,601 $5,377 $5,252
CORAL POINT
Average Occupancy Rate 96% 96% 97% 92% 89%
Average Effective Annual Rental Per Unit $5,825 $5,537 $5,183 $4,740 $4,542
THE EXCHANGE AT PALM BAY
Average Occupancy Rate 56% 43% 39% 38% 35%
Average Effective Annual Rental Per Square Foot $ 4.89 $ 3.52 $ 3.27 $ 3.16 $ 1.93
PARK AT COUNTRYSIDE
Average Occupancy Rate N/A N/A N/A N/A N/A
Average Effective Annual Rental Per Unit N/A N/A N/A N/A N/A
</TABLE>
In the opinion of the Partnership's management, each of the properties
owned by the Partnership is adequately covered by insurance. For additional
information concerning the properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 5 and 6
to the Partnership's Financial Statements. A discussion of general
competitive conditions to which these properties is included in Item 1 hereof.
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Registrant is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of the fiscal year ended December 31,
1996, to a vote of the Registrant's security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
<PAGE> - 3 -
(a) Market Information. The BUCs trade on the NASDAQ Stock Market under
the trading symbol "APROZ". Prior to August 20, 1996, the BUCs of the Prior
Partnership traded under the trading symbol "ATAXZ". The following table sets
forth the high and low final sale prices for the BUCs for each quarterly
period from January 1, 1995, through December 31, 1996.
<TABLE>
<CAPTION>
1995 High Low
----------- --------- ---------
<S> <C> <C>
1st Quarter $ 8-1/2 $ 7-3/4
2nd Quarter $ 8-59/64 $ 8-1/8
3rd Quarter $ 9-1/4 $ 8-1/8
4th Quarter $ 9-3/8 $ 8-1/2
1996(1)
-----------
1st Quarter $ 9-3/4 $ 8-1/2
2nd Quarter $ 9-3/4 $ 8-3/4
3rd Quarter $ 9-1/2 $ 7-3/4
4th Quarter $ 9-3/8 $ 8-3/8
</TABLE>
(1) The market price per share information includes that of America First
Apartment Investors L.P. from August 20, 1996 (the Merger Date), through
December 31, 1996, and America First Tax Exempt Fund 2 Limited Partnership
for periods prior to the Merger Date.
(b) BUC Holders. The approximate number of BUC holders on December 31,
1996, was 3,300.
(c) Distributions. Cash distributions are being made on a monthly
basis. Total cash distributions paid or accrued to BUC Holders during the
fiscal years ended December 31, 1996, and December 31, 1995, equaled
$3,921,671 and $3,934,217, respectively. The cash distributions paid per BUC
during the fiscal years ended December 31, 1996, and December 31, 1995, were
as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Income $ .5272 $ .5217
Return of Capital .2228 .2283
----------------- -----------------
Total $ .7500 $ .7500
================= =================
</TABLE>
See Item 7, Management Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions at the
same levels in 1997 and thereafter.
<PAGE> - 4 -
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership which includes the financial data of America First
Apartment Investors, L.P. from August 20, 1996 (the Merger Date), through
December 31, 1996, and America First Tax Exempt Fund 2 Limited Partnership for
periods prior to the Merger Date. The information set forth below should be
read in conjunction with the consolidated and combined Financial Statements
and Notes thereto filed in response to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage bond investment income $ 2,107,486 $ 2,234,610 $ 2,452,200 $ 2,327,505 $ 2,190,197
Rental income 5,763,648 5,116,073 4,949,664 4,566,703 4,363,746
Interest income on temporary cash investments 51,557 55,720 37,303 43,507 64,054
General and administrative expenses (1,146,709) (792,300) (689,987) (719,720) (757,949)
Real estate operating expenses (3,047,804) (2,359,827) (2,397,067) (2,268,252) (2,210,411)
Depreciation (1,165,059) (1,197,490) (1,183,588) (1,172,244) (1,142,482)
Interest expense (118,382) - - - -
Provision for losses on mortgage bonds - - - - (1,000,000)
Provision for losses on real estate acquired - - - - (1,000,000)
------------- ------------- ------------- ------------- -------------
Net income $ 2,444,737 $ 3,056,786 $ 3,168,525 $ 2,777,499 $ 507,155
============= ============= ============= ============= =============
Net income per Beneficial Unit Certificate (BUC) $ .46 $ .57 $ .60 $ .52 $ .09
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .7500 $ .7500 $ .7500 $ .7500 $ .7500
============= ============= ============= ============= =============
Investment in tax-exempt mortgage bonds $ 31,566,526 $ 31,566,526 $ 31,566,526 $ 31,566,526 $ 31,566,526
============= ============= ============= ============= =============
Investment in real estate, net of accumulated
depreciation (and valuation allowance for
the years 1995 and prior) $ 30,199,846 $ 25,890,570 $ 26,770,652 $ 27,925,464 $ 29,050,935
============= ============= ============= ============= =============
Total assets $ 64,923,401 $ 59,630,449 $ 60,520,431 $ 61,328,763 $ 62,453,093
============= ============= ============= ============= =============
Bonds payable $ 2,750,000 $ - $ - $ - $ -
============= ============= ============= ============= =============
</TABLE>
<PAGE> - 5 -
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
America First Tax Exempt Mortgage Fund 2 (the Prior Partnership) originally
acquired nine tax-exempt mortgage bonds, the proceeds of which were used to
provide construction and/or permanent financing for eight multifamily housing
properties and one commercial property. During 1988, one tax-exempt mortgage
bond was prepaid in full. On May 16, 1996, the Prior Partnership acquired
Phase I of the Park at Fifty Eight Apartments and on December 30, 1996, the
Partnership acquired Park at Countryside. At December 31, 1996, the
Partnership continued to hold three of these tax-exempt mortgage bonds with a
carrying value, at estimated fair value, of $31,566,526 and six real estate
properties acquired with a depreciated cost of $30,199,846.
On August 20, 1996, the Prior Partnership merged with America First Apartment
Investors, L.P. (the Partnership). Under the terms of the merger agreement,
the Partnership was the surviving partnership and effectively took over the
operations of the Prior Partnership. Unit holders of the Prior Partnership
received one Beneficial Unit Certificate (BUC) of the Partnership for each BUC
they held in the Prior Partnership as of the record date. The Prior
Partnership was terminated under the provisions of the Prior Partnership's
Partnership Agreement.
The following table shows the various occupancy levels of the properties
financed or owned by the Partnership at December 31, 1996:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 273 92%
Jefferson Place Olathe, KS 352 343 97%
Avalon Ridge Renton, WA 356 316 89%
Covey at Fox Valley(1) Aurora, IL 216 204 94%
The Park at Fifty Eight(3) Chattanooga, TN 196 182 93%
Shelby Heights(1) Bristol, TN 100 91 91%
Coral Point(1) Mesa, AZ 336 323 96%
Park at Countryside(4) Port Orange, FL 120 114 95%
---------- ---------- -----------
1,972 1,846 94%
========== ========== ===========
The Exchange at Palm Bay(1) Palm Bay, FL 72,002(2) 40,718(2) 57%
========== ========== ===========
</TABLE>
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) Represents square feet.
(3) Property consists of Phase II (96 units acquired through foreclosure) and
Phase I (100 units purchased on May 16, 1996).
(4) Property acquired by the Partnership on December 30, 1996.
The principal amounts of the tax-exempt mortgage bonds do not amortize over
their terms. The tax-exempt mortgage bonds provide for the payment of base
interest at a fixed rate. In addition, the Partnership may earn contingent
interest based on a participation in the net cash flow and net sale or
refinancing proceeds from the real estate collateralizing the tax-exempt
mortgage bonds. The base interest payments received on the tax-exempt
mortgage bonds and net rental income earned on properties owned represent the
principal sources of the Partnership's income and distributable cash. The
Partnership did not receive any contingent interest on its mortgage bonds
during 1996. The Partnership also earns income on temporary cash investments.
The Partnership may draw on reserves to pay operating expenses or to
supplement cash distributions to Beneficial Unit Certificate (BUC) Holders.
<PAGE> - 6 -
On May 16, 1996, the Prior Partnership raised $2,750,000 through the offering
of multifamily housing refunding bonds on The Park at Fifty Eight Apartments.
The Prior Partnership utilized $1,914,598 of the proceeds to acquire Phase I
of the Park at Fifty Eight with the remaining proceeds added to the Prior
Partnership's reserves. On March 13, 1997, the Partnership received proceeds
of $3,450,000 through the offering of multifamily housing revenue refunding
bonds on Shelby Heights. The bonds were rated "AA" by Standard and Poor's
Corporation, bear interest at an effective rate of 6.1% and have a 25-year
maturity. Proceeds from the offering were used to pay down on the Line of
Credit described below.
On December 19, 1996, the Partnership entered into a $15 million revolving
loan credit agreement (the Line of Credit) which will provide interim
financing for the acquisition of multifamily residential properties. The Line
of Credit bears interest at 1/2% above the Bank's base rate (8.75% as of and
for the year ended December 31, 1996). The Line of Credit expires on
December 19, 1997; however, the maturity date may be extended one year if
certain conditions are met. The Partnership had borrowings of $3,584,200
against the Line of Credit of which $3,245,454 was utilized to provide interim
financing for Park at Countryside which was acquired by the Partnership on
December 30, 1996. The Partnership had $11,415,800 of available unused credit
as of December 31, 1996. The Line of Credit contains covenants which include,
among others, restrictions on the amount of indebtedness the Partnership may
incur and minimum debt service coverage requirements. The Partnership intends
to repay borrowings under the Line of Credit through the refunding of existing
tax-exempt bonds that are associated with certain properties acquired in
foreclosure.
During the year ended December 31, 1996, $351,488 of undistributed income was
withdrawn from reserves. In addition, the Partnership withdrew $294,270 from
reserves to purchase 33,456 BUCs during 1996. The total amount held in
reserves at December 31, 1996, was $1,218,787. Future distributions to BUC
Holders will depend upon the amount of base and contingent interest and net
rental income the Partnership receives, the size of reserves established by
the Partnership and the extent to which withdrawals are made from reserves.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. Under the terms of the Partnership
Agreement, the Partnership has the authority to enter into short-term and
long-term debt financing arrangements. The Partnership is not authorized to
issue additional BUCs to meet short-term and long-term liquidity requirements.
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .5272 $ .5217 $ .5244
Return of capital .2228 .2283 .2256
--------------- --------------- ---------------
$ .7500 $ .7500 $ .7500
=============== =============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .7500 $ .7500 $ .7500
=============== =============== ===============
</TABLE>
<PAGE> - 7 -
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds and real estate
acquired and adjust, when necessary, the carrying value of the mortgage bonds
and each real estate property acquired. Mortgage bonds are classified as
available-for-sale and are therefore carried at the estimated fair value of
the underlying collateral. Each real estate property acquired is recorded at
the lower of cost or net realizable value.
The fair value of underlying collateral for the bonds and 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 mortgage bonds is periodically reviewed and adjustments are made when
there are significant changes in the estimated net realizable value of the
underlying collateral for the bonds. The carrying value of each real estate
property acquired is adjusted when there are significant declines in the
estimated net realizable value.
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 is periodically reviewed and adjustments are
made to the carrying value when there are significant declines in the
estimated net realizable value.
Based on the foregoing methodology, valuation and reviews performed during
1996 indicated that the mortgage bonds and real estate recorded on the balance
sheet at December 31, 1996, required no adjustments to the carrying amounts.
At December 31, 1996, two of the Partnership's three tax-exempt mortgage bonds
were classified as nonperforming. The bonds will continue to be classified as
nonperforming until such time that the properties collateralizing the mortgage
bonds generate sufficient net cash flow to bring the mortgage bonds fully
current as to interest payments. The Partnership's management closely
monitors each real estate property which serves as collateral for the
tax-exempt mortgage bonds in efforts to maximize cash flow generated by each
property, including the properties with bonds in a nonperforming status. In
addition, an affiliate of the Partnership's general partner provides property
management services for the real estate properties which serve as collateral
for the tax-exempt bonds classified as nonperforming. As such, the
Partnership is able to influence certain aspects of the operations of such
properties which should better position the properties to increase long-term
cash flow from operations.
Jackson Park Place
Jackson Park Place Apartments, located in Fresno, California, had an average
occupancy rate of 93% during 1996 compared to 96% during 1995. Interest of
$744,600 earned on the mortgage bond in 1996 and 1995 represents the full
amount of base interest due for the respective year. No contingent interest
was earned in 1996 or 1995 and none is expected in 1997. Due primarily to the
decrease in average occupancy, rental income decreased approximately $14,000
from 1995 to 1996. In addition, operating expenses, primarily salaries and
administrative expenses, increased approximately $45,000 from 1995 to 1996.
As a result, net cash flow, excluding interest, was approximately $59,000
lower in 1996 compared to 1995.
<PAGE> - 8 -
Jefferson Place
Jefferson Place Apartments, located in Olathe, Kansas, had an average
occupancy rate of 98% during 1996 compared to 97% during 1995. Interest is
recognized as income on this mortgage bond on a modified cash basis. Interest
earned in 1996 was $919,717 compared to $873,694 in 1995 and was approximately
$168,000 less than the amount needed to pay the base interest in 1996. The
increase in interest earned in 1996 compared to 1995 was due to an increase
in the net cash flow generated by the property. Net cash flow increased due
to a 3.8% increase in rental income resulting from a slight increase in
average occupancy and rental rate increases. The increase in rental income
was partially offset by higher real estate operating expenses, primarily due
to a 31% increase in property taxes.
Avalon Ridge
Avalon Ridge Apartments, located in Renton, Washington, had an average
occupancy rate of 84% during 1996 and 1995. Interest is recognized as income
on this mortgage bond on a cash basis. Interest earned in 1996 was $443,169
compared to $616,316 in 1995 and was approximately $1,151,000 less than the
amount needed to pay the base interest in 1996. An affiliate of the
Partnership's general partner began managing this property in September of
1994. Since that time, the property manager has implemented a plan to improve
the tenant profile through more stringent resident qualifications. In
addition, management has been working to evict some of the current problem
tenants which has resulted in a higher than normal turnover of units. In
order to attract new tenants, the property manager has had to decrease rental
rates which resulted in a decrease in rental income of $233,000 from 1995 to
1996. This decrease in rental income was partially offset by a decrease of
$48,000 in operating expenses, primarily administrative expenses. Thus, net
cash flow generated by the property, excluding interest, decreased
approximately $185,000 from 1995 to 1996. Management believes that its
efforts will improve future operating results of the property.
Covey at Fox Valley
Covey at Fox Valley Apartments, located in Aurora, Illinois, had an average
occupancy rate of 95% during 1996 compared to 94% during 1995. This property
generated net cash flow of $978,000 in 1996 compared to $1,142,000 in 1995.
Net of property tax refunds of approximately $252,000 received in 1995, net
cash flow increased $88,000 in 1996, compared to 1995. The property
experienced an increase in rental revenue of $113,000 from 1995 to 1996
resulting from increased rental rates. The increase in rental revenue and a
net decrease of $19,000 in certain real estate operating expenses were
partially offset by an increase in repairs and maintenance expenses and
property improvements of $44,000.
The Park at Fifty Eight
The Park at Fifty Eight Apartments, located in Chattanooga, Tennessee, had an
average occupancy rate of 96% during 1996 compared to 97% during 1995. This
property generated net cash flow of $234,000 in 1996 compared to $215,000 in
1995. This increase is attributable primarily to the acquisition of Phase I
of this apartment complex in May 1996. Tax-exempt refunding bonds,
collateralized by this property, were issued in May 1996. Debt service on
these bonds totaled $53,133 in 1996. The tax-exempt bonds payable had a
principal balance of $2,750,000 at December 31, 1996. The bonds bear interest
at an effective rate of 6.65%. The last principal payment is due on March 1,
2021.
Shelby Heights
Shelby Heights Apartments, located in Bristol, Tennessee, had an average
occupancy rate of 92% during 1996 compared to 95% during 1995. Despite the
decrease in average occupancy, this property generated net cash flow of
approximately $331,000 in 1996 compared to $323,000 in 1995. This increase is
attributable to a slight increase in rental income due to rental rate
increases and to slightly lower real estate operating expenses, primarily
personnel expenses and property improvements.
<PAGE> - 9 -
Coral Point
Coral Point, located in Mesa, Arizona, had an average occupancy rate of 96%
during 1996 and 1995. This property generated net cash flow of $1,124,000 in
1996 compared with $971,000 in 1995. This increase is attributable
to a $94,000 increase in revenues resulting from increased rental rates and a
decrease of $59,000 in real estate operating expenses, primarily repairs and
maintenance expenses. These expenses were higher in 1995 due to painting the
exterior of the property.
Park at Countryside
Park at Countryside is located in Port Orange, Florida. It was acquired by
the Partnership on December 30, 1996. The property was 95% occupied at
December 31, 1996.
The Exchange at Palm Bay
The Exchange at Palm Bay, located in Palm Bay, Florida, is an office/warehouse
facility. This property continues to experience low occupancy due to the
large amount of similar commercial real estate in the surrounding area. The
property's average leased space was 56% in 1996 compared to 43% in 1995.
Despite the higher occupancy, the property was only able to generate operating
cash flow of approximately $40,000 in 1996 compared to $105,000 in 1995. The
decrease in cash flow is due to an increase in real estate operating expenses
of $163,000 which were partially offset by an increase in rental revenue of
$98,000 due to the increase in average occupancy. The increase of $163,000 in
real estate operating expenses is due to leasing commissions incurred of
approximately $85,000 in 1996, an increase of $58,000 in repairs and
maintenance expenses and property improvements and net increases in other
expenses of $20,000.
Results of Operations
The table below compares the results of operations for each year shown. The
results of operations for 1996 include the combined accounts of the
Partnership from August 20, 1996 (the Merger Date), through December 31, 1996,
and the accounts of the Prior Partnership from January 1, 1996, until the
Merger Date. Results of operations for 1995 and 1994 include the accounts of
the Prior Partnership.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 2,107,486 $ 2,234,610 $ 2,452,200
Rental income 5,763,648 5,116,073 4,949,664
Interest income on temporary cash investments 51,557 55,720 37,303
--------------- --------------- ---------------
7,922,691 7,406,403 7,439,167
--------------- --------------- ---------------
General and administrative expenses 1,146,709 792,300 689,987
Real estate operating expenses 3,047,804 2,359,827 2,397,067
Depreciation 1,165,059 1,197,490 1,183,588
Interest expense 118,382 - -
--------------- --------------- ---------------
5,477,954 4,349,617 4,270,642
--------------- --------------- ---------------
Net income $ 2,444,737 $ 3,056,786 $ 3,168,525
=============== =============== ===============
</TABLE>
<PAGE> - 10 -
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1995 From 1994
--------------- ---------------
<S> <C> <C>
Mortgage bond investment income $ (127,124) $ (217,590)
Rental income 647,575 166,409
Interest income on temporary cash investments (4,163) 18,417
--------------- ---------------
516,288 (32,764)
--------------- ---------------
General and administrative expenses 354,409 102,313
Real estate operating expenses 687,977 (37,240)
Depreciation (32,431) 13,902
Interest expense 118,382 -
--------------- ---------------
1,128,337 78,975
--------------- ---------------
Net income $ (612,049) $ (111,739)
=============== ===============
</TABLE>
Mortgage bond investment income decreased $127,124 from 1995 to 1996 as a
result of a decrease in cash flow from Avalon Ridge of $173,147 which was
partially offset by an increase in the cash flow received from Jefferson Place
of $46,023. The decrease in cash flow received from Avalon Ridge is explained
in the Asset Quality section. The increase in cash flow received from
Jefferson Place is due to an increase in rental revenue which was partially
offset by higher real estate operating expenses, primarily property taxes.
Rental income increased due to a slight increase in average occupancy and
rental rate increases.
Mortgage bond investment income decreased $217,590 from 1994 to 1995 as a
result of decreases in the cash flow received from Avalon Ridge of $208,125
and Jefferson Place of $9,465. The decrease in the cash flow received from
Avalon Ridge was primarily due to a decrease in rental income resulting from
reduction in rental rates and increases in repairs and maintenance expenses
and property improvements resulting primarily from an increase in tenant
turnover. The decrease in rental income and increase in repairs and
maintenance expenses and property improvements were partially offset by
decreases in other operating expenses, primarily property taxes.
Rental income increased $647,575 from 1995 to 1996 and is primarily
attributable to: (i) a $330,000 increase from The Park at Fifty Eight
resulting primarily from the acquisition of Phase I of this apartment complex
in May 1996; (ii) an increase of $207,000 from Covey at Fox Valley and Coral
Point due primarily to rental rate increases and (iii) a $98,000 increase from
The Exchange at Palm Bay due to leasing more space during 1996. Rental income
increased $166,409 from 1994 to 1995 due primarily to higher rental rates on
properties acquired by the Partnership in foreclosure.
Excluding property tax refunds of approximately $252,000 received by Covey at
Fox Valley in 1995, real estate operating expenses increased $435,977 from
1995 to 1996. This increase is attributable to: (i) a $311,000 increase from
The Park at Fifty Eight resulting from the acquisition of Phase I of this
apartment complex in May 1996 and from various property improvements; (ii) a
$102,000 increase in repairs and maintenance expenses and property
improvements at Covey at Fox Valley and The Exchange at Palm Bay; (iii)
leasing commissions of approximately $85,000 incurred by The Exchange at Palm
Bay in connection with leasing additional space to tenants; (iv) a $31,000
increase in real estate operating expenses at certain properties acquired by
the Partnership in foreclosure; offset by (v) a $93,000 decrease in repairs
and maintenance expenses at Coral Point.
Real estate operating expenses decreased $37,240 from 1994 to 1995 due
primarily to property tax refunds of approximately $252,000 received by Covey
at Fox Valley in 1995. This decrease was partially offset by increases in
property improvements, repairs and maintenance expenses and salaries expense
at Coral Point and slight increases in overall expenses at the other
properties.
<PAGE> - 11 -
Depreciation expense decreased $32,431 from 1995 to 1996 due to the adoption
of Statement of Financial Accounting Standards No. 121 (FAS 121) on January 1,
1996, which requires that depreciation be calculated on the adjusted carrying
value of the properties. This decrease was partially offset by an increase in
depreciation expense of approximately $51,000 due to the acquisition of Phase
I of the Park at Fifty Eight.
Interest expense of $118,382 was incurred in 1996 on the $2,750,000 of bonds
payable which were issued in May 1996.
Interest income on temporary cash investments decreased $4,163 from 1995 to
1996 due primarily to a decrease in the average reserve balance attributable
to withdrawals made from Partnership reserves during 1996 to supplement
distributions to BUC Holders. Interest income on temporary cash investments
increased $18,417 from 1994 to 1995 due primarily to additions made to
Partnership reserves during 1994 and 1995 and to slightly higher interest
rates.
General and administrative expenses increased $354,409 from 1995 to 1996.
These increases were due to: (i) approximately $186,000 of costs incurred in
conjunction with the Merger; (ii) an increase of approximately $98,000 in
salaries and related expenses; (iii) an increase of approximately $32,000 in
professional fees; (iv) an increase of approximately $12,000 in servicing fees
and (v) net increases of approximately $26,000 in other general and
administrative expenses incurred. General and administrative expenses
increased $102,313 from 1994 to 1995. This increase is primarily due to
increases in salaries and related expenses and insurance expense which were
partially offset by decreases in printing and investor servicing expenses.
The table below segregates the results of operations for the Partnership's
real estate operations and tax-exempt mortgage bond investments activities for
each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Real estate operations:
Rental income $ 5,763,648 $ 5,116,073 $ 4,949,664
Operating expenses (3,047,804) (2,359,827) (2,397,067)
Depreciation (1,165,059) (1,197,490) (1,183,588)
--------------- --------------- ---------------
1,550,785 1,558,756 1,369,009
--------------- --------------- ---------------
Tax-exempt mortgage bonds investments:
Mortgage bond investment income 2,107,486 2,234,610 2,452,200
--------------- --------------- ---------------
Interest income on temporary cash investments 51,557 55,720 37,303
General and administrative expenses (1,146,709) (792,300) (689,987)
Interest expense (118,382) - -
--------------- --------------- ---------------
Net income $ 2,444,737 $ 3,056,786 $ 3,168,525
=============== =============== ===============
</TABLE>
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference. In addition, the Financial
Statements of Jefferson Place, L.P. and Sunpointe Associates Limited
Partnership (Avalon Ridge) are set forth in Item 14 hereof and are
incorporated by reference. The financial statements of Jefferson Place, L.P.
and Sunpointe Associates Limited Partnership are included pursuant to SAB
Topic 1I.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1996 and 1995.
<PAGE> - 12 -
PART III
Item 10. Directors and Executive Officers of the Registrant. The
Registrant has no directors or officers. Management of the Registrant
consists of the general partner of the Registrant, America First Capital
Associates Limited Partnership Four ("AFCA"), and its general partner, America
First Companies L.L.C. The following individuals are managers and officers of
America First Companies L.L.C., and each serves for a term of one year:
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ----------------------- -------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D. Manager 1994
George Kubat Manager 1994
Martin A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
</TABLE>
Michael B. Yanney, 63, is the Chairman and President of America First
Companies L.L.C. From 1977 until the organization of the first such fund in
1984, Mr. Yanney was principally engaged in the ownership and management of
commercial banks. Mr. Yanney also has investments in private corporations
engaged in a variety of businesses. From 1961 to 1977, Mr. Yanney was
employed by Omaha National Bank and Omaha National Corporation (subsequently
merged into FirsTier Financial, Inc.), where he held various positions,
including the position of Executive Vice President and Treasurer of the
holding company. Mr. Yanney also serves as a member of the boards of
directors of Burlington Northern Santa Fe Corporation, Forest Oil Corporation,
MFS Communications Company, Inc., C-Tec Corporation, Mid-America Apartment
Communities, Inc. and PKS Information Services, Inc..
Michael Thesing, 42, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. From January
1984 until July 1984 he was employed by various companies controlled by Mr.
Yanney. He was a certified public accountant with Coopers & Lybrand from 1977
through 1983.
William S. Carter, M.D., 70, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
George Kubat, 51, is the President and Chief Executive Officer of
Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall
and construction materials. Prior to assuming that position in November 1992,
Mr. Kubat was a certified public accountant with Coopers & Lybrand in Omaha,
Nebraska, from 1969. He was the tax partner in charge of the Omaha office
from 1981 to 1992. Mr. Kubat currently serves on the board of directors of
Sitel Corporation, American Business Information, Inc., and G.B. Foods
Corporation.
Martin A. Massengale, 63, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc..
<PAGE> - 13 -
Alan Baer, 74, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
Gail Walling Yanney, 61, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney.
Mariann Byerwalter, 36, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of AFEH and EurekaBank from 1988 to January 1996. Ms. Byerwalter
was Chief Financial Officer and Chief Operating Officer of AFEH, and Chief
Financial Officer of EurekaBank from 1993 to January 1996. She was an officer
of BankAmerica Corporation and its venture capital subsidiary from 1984 to
1987. She served as Vice President and Executive Assistant to the President
of Bank of America and was a Vice President in the bank's Corporate Planning
and Development Department, managing several acquisitions and divestitures.
During 1986, Ms. Byerwalter managed five divestitures, representing a total
purchase price of over $100 million with assets aggregating more than $5.0
billion.
Based solely on a review of Forms 3, 4 and 5 (or written representations
that no such reports were required) furnished to the Registrant and the Prior
Partnership for, or with respect to, the year ended December 31, 1996, a Form 3
was not timely filed by each of Michael B. Yanney, Michael Thesing, William
S. Carter, George Kubat, Martin A. Massengale, Alan Baer and Gail Walling
Yanney as required by Section 16(a) of the Securities Exchange Act of 1934, as
amended. In addition, a Form 5 was not timely filed by William S. Carter with
respect to such year.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. None of the managers or executive officers of
America First Companies L.L.C. (the general partner of AFCA) receive
compensation from the Registrant and AFCA receives no reimbursement from the
Registrant for any portion of their salaries. Remuneration paid by the
Registrant to AFCA pursuant to the terms of its limited partnership agreement
during the year ended December 31, 1996, is described in Note 9 of the Notes
to the Financial Statements filed in response to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by the Registrant to own beneficially more than 5%
of the Registrant's BUCs.
(b) No manager or officer of America First Companies L.L.C. and no
partner of AFCA owns any BUCs.
(c) LB I Group, Inc. is the special limited partner of AFCA, with the
right to become the managing general partner of AFCA, or to designate another
corporation or other entity as the managing general partner, upon the
happening of any of the following events: (1) the commission of any act which,
in the opinion of LB I Group, Inc., constitutes negligence, misfeasance or
breach of fiduciary duty on the part of the managing general partner; (2) the
dissolution, insolvency or bankruptcy of the managing general partner or the
occurrence of such other events which cause the managing general partner to
cease to be a general partner under Delaware law; or, (3) the happening of an
event which results in the change in control of the managing general partner
whether by operation of law or otherwise.
There exists no other arrangement known to the Registrant, the operation
of which may at any subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Fund is AFCA and the sole general partner of AFCA is America
First Companies L.L.C.
<PAGE> - 14 -
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA, America First Companies, L.L.C.
or with any person who is: (i) a manager or executive officer of America
First Companies L.L.C. or any general partner of AFCA; (ii) a nominee for
election as a manager of America First Companies L.L.C.; (iii) an owner of
more than 5% of the BUCs; or, (iv) a member of the immediate family of any of
the foregoing persons.
During 1996, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $1,101,966 for certain costs and expenses incurred in
connection with the operation of the Registrant, including legal and
accounting fees and investor communication costs, such as printing and mailing
charges. See Note 9 to Notes to Financial Statements filed in response to
Item 8 hereof for a description of these costs and expenses.
Pursuant to the Limited Partnership Agreement, AFCA is entitled to an
administrative fee from the Partnership based on the original amount of the
mortgage bonds which were foreclosed on and the purchase price of any
additional properties acquired by the Partnership. The amount of such fees
paid to AFCA 4 was $226,200 in 1996.
AFCA received from property owners administrative fees of $26,280 for the
year ended December 31, 1996. Since these fees are not Partnership expenses,
they have not been reflected in the accompanying financial statements.
AFCA is entitled to receive a property acquisition fee from the
Registrant in connection with the identification, evaluation and acquisition
of additional properties and the financing thereof. The Registrant paid
acquisition fees of $39,863 to AFCA during 1996.
The general partner of the property partnership which owns Jefferson
Place is principally owned by an employee of America First Companies L.L.C..
Such employee has a nominal interest in America First Companies L.L.C.. AFCA
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 Registrant and the mortgage bond. The general partner did not
receive cash distributions from the property partnership in 1996.
The Registrant has entered into property management agreements with
America First Properties Management Company, L.L.C. (the "Manager") with
respect to the day-to-day operation of Covey at Fox Valley, The Park at Fifty
Eight, Shelby Heights, Coral Point, Jefferson Place and Avalon Ridge. Such
property management agreements provide that the Manager is entitled to receive
a management fee equal to a stated percentage of the gross revenues generated
by the property under management. Management fees payable to the Manager
range from 4.5% to 5% of gross revenues. Because the Manager is an affiliate
of AFCA, the management fees payable by the Registrant to the Manager may not
exceed the lesser of (i) the rates that the Registrant would pay an
unaffiliated manager for similar services in the same geographic location or
(ii) the Manager's actual cost for providing such services. During the year
ended December 31, 1996, the Registrant paid the Manager property management
fees of $431,730.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K. (a) The following documents are filed as part of this report:
1A. Financial Statements of the Registrant. The following
financial statements of the Registrant are included in response to Item 8
of this report:
Independent Accountants' Report.
Balance Sheets of the Registrant as of December 31, 1996, and
December 31, 1995.
Statements of Income of the Registrant for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1996, December 31, 1995, and December 31, 1994.
<PAGE> - 15 -
Statements of Cash Flows of the Registrant for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Notes to Financial Statements of the Registrant.
Schedule III--Real Estate and Accumulated Depreciation for the
years ended December 31, 1996 and December 31, 1995.
B. Financial Statements of Jefferson Place L.P. ("Jefferson").
The following financial statements of Jefferson are included in response
to Item 8 of this report:
1. Independent Auditors' Report.
Balance Sheets of Jefferson as of December 31, 1996 and
December 31, 1995.
Statements of Income of Jefferson for the years ended
December 31, 1996 and December 31, 1995.
Statements of Changes in Partners' Equity (Deficit) of
Jefferson for the years ended December 31, 1996 and December
31, 1995.
Statements of Cash Flows of Jefferson for the years ended
December 31, 1996 and December 31, 1995.
Notes to Financial Statements of Jefferson.
2. Report of Independent Accountants'.
Balance Sheet of Jefferson as of December 31, 1994.
Statement of Operations of Jefferson for the year ended
December 31, 1994.
Statement of Partners' Deficit of Jefferson for the year
ended December 31, 1994.
Statement of Cash Flows of Jefferson for the year ended
December 31, 1994.
Notes to Financial Statements of Jefferson.
C. Financial Statements of Sunpointe Associates Limited
Partnership ("Sunpointe"). The following financial statements of
Sunpointe are included in response to Item 8 of this report:
Independent Auditors' Report.
Balance Sheets of Sunpointe as of December 31, 1996 and December
31, 1995.
Statements of Income of Sunpointe for the years ended December
31, 1996 and December 31, 1995.
Statements of Changes in Partners' Equity (Deficit) of Sunpointe
for the years ended December 31, 1996 and December 31, 1995.
Statements of Cash Flows of Sunpointe for the years ended
December 31, 1996 and December 31, 1995.
Notes to Financial Statements of Sunpointe.
2. Financial Statement Schedules. The information required to be
set forth in the financial statement schedule is included in the Financial
Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits were filed as required by
Item 14(c) of this report. Exhibit numbers refer to the paragraph numbers
under Item 601 of Regulation S-K:
<PAGE> - 16 -
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Eight (incorporated by reference to
Form S-11 Registration Statement filed May 8, 1986, with the
Securities and Exchange Commission by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 33-5521)).
4(a) Form of Certificate of Beneficial Unit Certificate
incorporated by reference to Exhibit 4.1 to Registration Statement
on Form S-4 (Commission File No. 333-2920) filed by the Registrant
on March 29, 1996).
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Exhibit 4(b) to Form 8-K (Commission
File No. 0-20737) filed by the Registrant on August 23, 1996).
4(c) 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 on Form S-4 (Commission File No.
333-2920) filed by the Registrant on May 17, 1996).
10(a). $18,755,000 Washington State Housing Finance Commission
Multifamily Housing Mortgage Revenue Note (Sunpointe Apartments
Projects) Series 1987 (incorporated herein by reference to Form
10-K dated December 31, 1987, filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 0-15329)).
10(b). Lender Loan Agreement and Indenture of Trust among
Washington State Housing Finance Commission, the Registrant and
FirsTier Bank, National Association, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(c). Construction Loan Agreement between the Registrant and
Sunpointe Associates Limited Partnership, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
24. Power of Attorney.
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE> - 17 -
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
America First Apartment Investors L.P.:
We have audited the accompanying balance sheets of America First Apartment
Investors L.P. (formerly America First Tax Exempt Mortgage Fund 2 Limited
Partnership) as of December 31, 1996 and 1995, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1996. 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 misstatements. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Apartment
Investors L.P. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1997 /s/Coopers & Lybrand L.L.P.
To the Partners
America First Apartment Investors L.P.:
Our report on the financial statements of America First Tax Exempt Mortgage
Fund 2 Limited Partnership is included in this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in Item 14.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material aspects, the information required to be
included therein.
Omaha, Nebraska
March 26, 1997 /s/Coopers & Lybrand L.L.P.
<PAGE> - 18 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 2,021,860 $ 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) 30,199,846 25,890,570
Interest receivable 186,320 196,601
Other assets 948,849 64,192
-------------- --------------
$ 64,923,401 $ 59,630,449
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 1,454,694 $ 683,013
Bonds payable (Note 7) 2,750,000 -
Line of credit (Note 8) 3,584,200 -
Distribution payable (Note 3) 329,051 331,163
-------------- --------------
8,117,945 1,014,176
-------------- --------------
Partners' Capital
General Partner 4,038 7,553
Beneficial Unit Certificate Holders
($10.90 per BUC in 1996 and $11.17 in 1995) 56,801,418 58,608,720
-------------- --------------
56,805,456 58,616,273
-------------- --------------
$ 64,923,401 $ 59,630,449
============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 19 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
(Combined)
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Mortgage bond investment income (Note 5) $ 2,107,486 $ 2,234,610 $ 2,452,200
Rental income 5,763,648 5,116,073 4,949,664
Interest income on temporary cash investments 51,557 55,720 37,303
-------------- -------------- --------------
7,922,691 7,406,403 7,439,167
-------------- -------------- --------------
Expenses
General and administrative expenses (Note 9) 1,146,709 792,300 689,987
Real estate operating expenses 3,047,804 2,359,827 2,397,067
Depreciation 1,165,059 1,197,490 1,183,588
Interest expense 118,382 - -
-------------- -------------- --------------
5,477,954 4,349,617 4,270,642
-------------- -------------- --------------
Net income $ 2,444,737 $ 3,056,786 $ 3,168,525
============== ============== ==============
Net income allocated to:
General Partner $ 36,098 $ 42,543 $ 43,521
BUC Holders 2,408,639 3,014,243 3,125,004
-------------- -------------- --------------
$ 2,444,737 $ 3,056,786 $ 3,168,525
============== ============== ==============
Net income per BUC $ .46 $ .57 $ .60
============== ============== ==============
Weighted average number of BUCs outstanding 5,228,895 5,245,623 5,245,623
============== ============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 20 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1993, TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding net unrealized
holding losses):
Balance at December 31, 1993 $ 969 5,245,623 $ 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 5,245,623 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 5,245,623 67,357,194 67,364,747
Net income 36,098 - 2,408,639 2,444,737
Cash distributions paid or accrued (Note 3)
Income (39,613) - (2,756,612) (2,796,225)
Return of capital - - (1,165,059) (1,165,059)
Purchase of units - (33,456) (294,270) (294,270)
--------------- --------------- --------------- ---------------
4,038 5,212,167 65,549,892 65,553,930
--------------- --------------- --------------- ---------------
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, 1995 and 1996 - - (8,748,474) (8,748,474)
--------------- --------------- --------------- ---------------
Balance at December 31, 1996 $ 4,038 5,212,167 $ 56,801,418 $ 56,805,456
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 21 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
(Combined)
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,444,737 $ 3,056,786 $ 3,168,525
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,165,059 1,197,490 1,183,588
Amortization 4,526 - -
Decrease (increase) in interest receivable 10,281 (7,435) 44,775
Decrease (increase) in other assets (492,459) (40,080) 12,683
Increase (decrease) in accounts payable 771,681 27,189 (2,900)
--------------- --------------- ---------------
Net cash provided by operating activities 3,903,825 4,233,950 4,406,671
--------------- --------------- ---------------
Cash flows from investing activities
Real estate capital improvements (168,599) (317,408) (28,776)
Acquisition of real estate (5,305,736) - -
--------------- --------------- ---------------
Net cash used in investing activities (5,474,335) (317,408) (28,776)
--------------- --------------- ---------------
Cash flows from financing activities
Distributions paid (3,963,396) (3,973,957) (3,973,957)
Proceeds from line of credit 3,584,200 - -
Proceeds from issuance of tax-exempt refunding bonds 2,750,000 - -
Bond issuance and line of credit costs paid (396,724) - -
Purchase of units (294,270) - -
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 1,679,810 (3,973,957) (3,973,957)
--------------- --------------- ---------------
Net increase (decrease) in cash and temporary cash investments 109,300 (57,415) 403,938
Cash and temporary cash investments at beginning of year 1,912,560 1,969,975 1,566,037
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 2,021,860 $ 1,912,560 $ 1,969,975
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 53,133 $ - $ -
=============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 22 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Organization
America First Apartment Investors, L.P. (the Partnership) was formed on March
7, 1996, under the Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, holding, operating, selling or otherwise dealing with
multifamily residential properties and other types of commercial real estate
and interests therein. The Partnership commenced operations on August 20,
1996, when it merged with America First Tax Exempt Mortgage Fund 2 Limited
Partnership (the Prior Partnership). Under the terms of the merger agreement,
the Partnership was the surviving partnership and effectively took over the
operations of the Prior Partnership. Unit holders of the Prior Partnership
received one Beneficial Unit Certificate (BUC) of the Partnership for each BUC
they held in the Prior Partnership as of the record date. The Prior
Partnership was terminated under the provisions of the Prior Partnership's
Partnership Agreement. The Partnership will terminate on December 31, 2016,
unless terminated earlier under the provisions of its 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 accompanying 1996 consolidated financial statements include the
combined accounts of the Partnership from August 20, 1996 (the Merger
Date), through December 31, 1996, and the accounts of the Prior
Partnership from January 1, 1996, until the Merger Date. Financial
Statements for 1995 and 1994 include the accounts of the Prior
Partnership.
The consolidated financial statements include the accounts of the
Partnership and its subsidiary. All significant intercompany
transactions and accounts have been eliminated in consolidation.
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 fair value of the
underlying collateral (see Note 2D).
<PAGE> - 23 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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) 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 is
periodically reviewed and adjusted when there are significant declines in
the estimated net realizable value (see Note 2D).
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments and 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) Fair Value of Tax-Exempt Mortgage Bond Collateral and Real Estate Acquired
The fair value of the underlying collateral for tax-exempt mortgage bonds
and 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.
E) 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 $11,746,353 and $11,731,916 at December 31, 1996, and
December 31, 1995, respectively.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
G) Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each year presented.
<PAGE> - 24 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
H) New Accounting Pronouncement
The Financial Accounting Standards Board has issued Financial Accounting
Standards No. 128 "Earnings Per Share" (FAS 128). FAS 128, which is
effective for periods ending after December 15, 1997, is not expected to
have an impact on the Partnership's computation, presentation or
disclosure of earnings per BUC.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Operating Income, Net Sale Proceeds and Liquidation Proceeds and for the
allocation of income and expenses for tax purposes among AFCA 4 and 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 Operating Income and Net Sale Proceeds will be made to each BUC Holder
of record on the last day of each distribution period based on the number of
BUCs held by each BUC Holder as of such date.
Net Operating 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.
The portion of Net Sale Proceeds, as defined in the Limited Partnership
Agreement, will be distributed 100% to the BUC Holders.
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 Sale Proceeds.
Cash distributions are presently made on a monthly basis but may be made
quarterly or semiannually if AFCA 4 so elects. 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 $1,218,787 at
December 31, 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,
including the acquisition of additional properties.
On July 10, 1996, management announced its intent to utilize a portion of the
reserve account to purchase up to a total of 50,000 BUCs of the Partnership in
open market transactions. Through December 31, 1996, 33,456 BUCs had been
acquired at a cost of $294,270.
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> - 25 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 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, 1996, are as follows:
<TABLE>
<CAPTION>
Base Income
Number Maturity Interest Carrying Earned
Property Name Location of Units Date Rate(1) Amount in 1996
----------------------------- --------------- -------- ------------- -------- ----------------- ------------
<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% 12,800,000 919,717
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000 443,169
----------------- ------------
31,555,000 1,362,886
----------------- ------------
40,315,000 $ 2,107,486
Unrealized holding losses (8,748,474) ============
-----------------
Balance at December 31, 1996 (at estimated fair value) $ 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, 1995 or 1994.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds was
$1,319,289 for 1996, $1,192,165 for 1995, and $974,575 for 1994.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
--------------- --------------- ---------------
<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> - 26 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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, 1996 Dec. 31, 1995
--------------- ---------------
<S> <C> <C>
Assets
Real estate $ 25,235,016 $ 26,604,596
Restricted deposits and funded reserves 319,314 305,542
Other assets 319,593 321,726
--------------- ---------------
$ 25,873,923 $ 27,231,864
=============== ===============
Liabilities and Partners' Capital
Liabilities
Mortgage and notes payable $ 43,660,000 $ 43,750,000
Accrued interest payable 11,407,628 10,094,128
Other liabilities 2,673,311 1,726,448
Partners' Capital (Deficit) (31,867,016) (28,338,712)
--------------- ---------------
$ 25,873,923 $ 27,231,864
=============== ===============
Rental income $ 5,575,983 $ 5,722,415
=============== ===============
Net loss $ (3,274,784) $ (3,050,840)
=============== ===============
</TABLE>
6. Investment in Real Estate
The Partnership's investment in real estate is comprised of the following at
December 31, 1996:
<TABLE>
<CAPTION>
Building Carrying Carrying
Number and Value at Value at
Property Name Location of Units Land Improvements Dec. 31, 1996 Dec. 31, 1995
-------------------------- ----------------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley(1) Aurora, IL 216 $ 1,320,000 $ 11,090,000 $ 11,348,338 $ 12,410,000
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 1,150,318 5,006,913 4,605,062 6,157,231
The Park at Fifty Eight(3),(5)Chattanooga, TN 196 231,113 4,122,226 4,353,339 2,688,474
Shelby Heights Bristol, TN 100 175,000 3,275,000 3,127,847 3,450,000
Coral Point(1) Mesa, AZ 336 2,240,000 8,960,000 11,200,000 11,200,000
Park at Countryside(4),(5) Port Orange, FL 120 647,000 2,598,454 3,245,454 -
-------------- -------------
37,880,040 35,905,705
Less accumulated depreciation (7,680,194) (6,515,135)
-------------- -------------
30,199,846 29,390,570
Less valuation allowance - (3,500,000)
-------------- -------------
Balance at end of year $ 30,199,846 $ 25,890,570
============== =============
</TABLE>
(1) Property is encumbered as described in Note 8.
(2) Represents square feet.
(3) 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).
(4) Property was acquired on December 30, 1996, for $3,245,454.
(5) Proforma financial information has not been presented as the impact is not
significant to reported amounts.
<PAGE> - 27 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying values of the
real estate held is as follows:
Balance at beginning of year $ 29,390,570 $ 30,270,652 $ 31,425,464
Capital improvements 168,599 317,408 28,776
Acquisition of real estate 5,305,736 - -
Write-down of impaired real estate (3,500,000) - -
Depreciation (1,165,059) (1,197,490) (1,183,588)
--------------- --------------- ---------------
Balance at end of year $ 30,199,846 $ 29,390,570 $ 30,270,652
=============== =============== ===============
The following summarizes the activity in the
valuation allowance:
Balance at beginning of year $ 3,500,000 $ 3,500,000 $ 3,500,000
Write-down of impaired real estate (3,500,000) - -
---------------- ---------------- ----------------
Balance at end of year $ - $ 3,500,000 $ 3,500,000
================ ================ ================
</TABLE>
7. Bonds Payable
On May 16, 1996, the 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%. Annual principal payments, ranging
from $50,000 to $210,000, are due each March. The final payment of principal
is due on March 1, 2021. Accrued interest is payable semi-annually in March
and September. The bonds are collateralized by The Park at Fifty Eight.
Principal maturities on the bonds payable are as follows:
Year Amount
---------- ------------
1997 $ 80,000
1998 50,000
1999 50,000
2000 55,000
2001 60,000
Thereafter 2,455,000
------------
$ 2,750,000
============
8. Line of Credit
The Partnership entered into a $15 million revolving loan credit agreement
(the Line of Credit) with The First National Bank of Boston (the Bank). The
Line of Credit will provide interim financing for the acquisition of
multifamily residential properties. It expires on December 19, 1997; however,
the maturity date may be extended one year if certain conditions are met. The
Line of Credit bears interest, which is payable monthly, at 1/2% above the
Bank's base rate (8.75% as of and for the year ended December 31, 1996). In
addition, the Partnership pays a facility fee of 1/4 of 1% on the unused
portion of the line which is payable quarterly in arrears. The Line of Credit
is collateralized by Covey at Fox Valley and Coral Point; however, the
Partnership may substitute other real estate owned as collateral, subject to
the approval of the Bank. The Partnership had borrowings of $3,584,200
against the Line of Credit and had $11,415,200 of available unused credit as
of December 31, 1996. The Line of Credit contains covenants which include,
among others, restrictions on the amount of indebtedness the Partnership may
incur and minimum debt service coverage requirements.
<PAGE> - 28 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
9. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 4 or an
affiliate and reimbursed by the Partnership. The capitalized costs were
incurred in connection with the offering of multifamily housing revenue
refunding bonds and the acquisition of properties. The amount 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>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Reimbursable salaries and benefits $ 482,635 $ 370,211 $ 270,973
Costs capitalized by the Partnership 199,060 - -
Restructuring costs 186,385 - -
Investor services and custodial fees 60,199 51,664 48,653
Professional fees and expenses 56,325 40,360 46,180
Other expenses 33,564 27,088 29,616
Registration fees 24,466 18,037 17,912
Insurance 23,030 19,136 14,014
Report preparation and distribution 16,017 16,854 19,891
Consulting and travel expenses 9,970 3,936 11,097
Telephone 8,363 8,729 7,538
Stock certificates 1,952 - -
--------------- --------------- ---------------
$ 1,101,966 $ 556,015 $ 465,874
=============== =============== ===============
</TABLE>
Pursuant to the Limited Partnership Agreement, AFCA 4 is entitled to an
administrative fee from the Partnership based on the original amount of the
mortgage bonds which were foreclosed on and the purchase price of any
additional properties acquired by the Partnership. The amount of such fees
paid to AFCA 4 was $226,200 in each of the years ended December 31, 1996, 1995
and 1994.
AFCA 4 received from property owners administrative fees of $26,280 in 1996
and $8,066 in 1995. AFCA 4 did not receive any administrative fees from
property owners in 1994. Since these fees are not Partnership expenses, they
have not been reflected in the accompanying financial statements.
Pursuant to the terms of the Limited Partnership Agreement, AFCA 4 is entitled
to receive a property acquisition fee from the Partnership in connection with
the identification, evaluation and acquisition of additional properties and
the financing thereof. The Partnership paid acquisition fees of $39,863 to
AFCA 4 during 1996. No such fees were paid to AFCA 4 during 1995 or 1994.
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, 1995 or 1994.
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 $431,730 in 1996, $382,143 in 1995 and $297,836 in 1994.
<PAGE> - 29 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments: Fair value approximates the carrying
value of such assets.
Investment in tax-exempt mortgage bonds: Fair value is based on
management's best estimate of the net realizable value of the underlying
collateral of the bonds. See Note 2D.
Bonds payable: Fair value is based on estimated future cash flows
discounted using the quoted market rate, from an independent source, of
similar obligations.
Line of Credit: Given the short-term nature of the Line of Credit as well
as its variable rate of interest, fair value approximates carrying value.
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 2,021,860 $ 2,021,860 $ 1,912,560 $ 1,912,560
Investment in tax-exempt mortgage bonds 31,566,526 31,566,526 31,566,526 31,566,526
Bonds payable 2,750,000 2,812,869 - -
Line of Credit 3,584,200 3,584,200 - -
</TABLE>
11. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1996 to December 31, 1996 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,903,369 $ 1,957,324 $ 1,978,146 $ 2,083,852
Total expenses (1,254,579) (1,362,323) (1,463,702) (1,397,350)
--------------- --------------- --------------- ---------------
Net income $ 648,790 $ 595,001 $ 514,444 $ 686,502
=============== =============== =============== ===============
Net income per BUC $ .12 $ .11 $ .10 $ .13
=============== =============== =============== ===============
Market Price per BUC(1)
High sale 9-3/4 9-3/4 9-1/2 9-3/8
Low sale 8-1/2 8-3/4 7-3/4 8-3/8
=============== =============== =============== ===============
</TABLE>
(1) The market price per share information includes that of America First
Apartment Investors L.P. from August 20, 1996 (the Merger Date), through
December 31, 1996, and America First Tax Exempt Fund 2 Limited Partnership
for periods prior to the Merger Date.
<PAGE> - 30 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<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>
The BUCs are quoted on the NASDAQ Stock Market under the symbol APROZ. Prior
to the Merger Date, the BUCs were quoted 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.
12. Subsequent Event
On March 13, 1997, the Partnership received proceeds of $3,450,000 through the
offering of multifamily housing revenue refunding bonds on Shelby Heights.
The bonds were rated "AA" by Standard and Poor's Corporation, bear interest at
an effective rate of 6.1%, and have a 25-year maturity. Proceeds from the
offering were used to pay down the Line of Credit.
<PAGE> - 31 -
Schedule III
AMERICA FIRST APARTMENT INVESTORS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<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) (d) 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) As of December 31, 1995, the aggregate cost of the Partnership's
investment in real estate for federal income tax purposes amounted to
$29,552,897.
<PAGE> - 32 -
(d) 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> - 33 -
Schedule III
AMERICA FIRST APARTMENT INVESTORS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
</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 (b) 1,296,002(d) 4,349,682 825,830 -
The Park at Fifty Eight Chattanooga, TN 196 (c) 231,113(e) 2,553,474 1,818,485 -
Shelby Heights Bristol, TN 100 (a) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (b) 2,240,000 8,960,000 - -
Park at Countryside Port Orange, FL 120 (b) 647,000 2,598,454 - -
----------- ------------ ------------ ------------
$5,909,115 $32,826,610 $ 2,644,315 $ -
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1996
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (f),(g) (h) Construction Acquired is Computed
- ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $1,320,000 $10,028,338 $11,348,338 $ 3,174,388 1989 1989 27.5 years
The Exchange at Palm Bay 1,296,002 3,309,060 4,605,062 1,540,765 1988 1990(d) 31.5 years
The Park at Fifty Eight 231,113 4,122,226 4,353,339 566,028 1987 1991(e) 27.5 years
Shelby Heights 175,000 2,952,847 3,127,847 645,930 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,753,083 1987 1991 27.5 years
Park at Countryside 647,000 2,598,454 3,245,454 - 1983 1996 27.5 years
----------- ------------ ------------ ------------
$5,909,115 $31,970,925 $37,880,040 $ 7,680,194
=========== ============ ============ ============
</TABLE>
(a) The encumbrance represents the borrowing on a line of credit with The
First National Bank of Boston which is collateralized by these
properties. The line of credit bears interest at 1/2% above of The First
National Bank of Boston's Base Rate (8.75% at December 31, 1996) and
expires on December 31, 1997.
(b) The Partnership has no encumbrances against these properties.
(c) The encumbrance represents bonds payable originated by the Partnership
through the issuance of tax-exempt refunding bonds of $2,750,000
collateralized by this property. The bonds bear interest at an effective
rate of 6.65%. The final payment of principal is due on March 1, 2021.
(d) Land with a cost of $1,150,318 and $145,684 was acquired in 1990 and 1996,
respectively.
(e) Land with a cost of $135,000 and $96,113 was acquired in 1991 and 1996,
respectively.
<PAGE> - 34 -
(f) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Balance - beginning of year $ 35,905,705
Acquisitions 5,305,736
Improvements 168,599
Write-down of impaired real estate(1) (3,500,000)
---------------
Balance - end of year $ 37,880,040
===============
</TABLE>
(1) 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). 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.
(g) As of December 31, 1996, the aggregate cost of the Partnership's
investment in real estate for federal income tax purposes amounted to
$34,071,705.
(h) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Balance - beginning of year $ 6,515,135
Depreciation expense 1,165,059
---------------
Balance - end of year $ 7,680,194
===============
</TABLE>
<PAGE> - 35 -
JEFFERSON PLACE, L.P.
(A Missouri Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
T A B L E O F C O N T E N T S
PAGE
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS ON
THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF INCOME 3
STATEMENTS OF CHANGES IN PARTNERS'
EQUITY (DEFICIT) 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-9
To the Partners
Jefferson Place, L.P.
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Jefferson Place, L.P., (a
Missouri Limited Partnership) (the "Partnership"), as of December 31, 1996 and
1995, and the related statements of income, changes in partners' equity
(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 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, 1996 and 1995, and the results of its operations and the changes
in partners' equity (deficit) and cash flows for the years 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.
January 31, 1997 /s/Mueller, Prost, Purk & Willbrand, P.C.
Certified Public Accountants
<PAGE> - 1 -
FINANCIAL STATEMENTS
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 121,353 $ 108,614
Tenant accounts receivable 14,315 3,042
Prepaid expenses 22,402 22,293
-------------- ---------------
Total Current Assets 158,070 133,949
-------------- ---------------
Funded Deposits Held in Trust
Security deposits 27,211 16,438
-------------- ---------------
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 39,407 34,214
-------------- ---------------
Property and Equipment
Land 339,063 339,063
Buildings 10,894,462 10,894,462
Equipment 398,521 398,521
-------------- ---------------
Total Property and Equipment 11,632,046 11,632,046
Less: Accumulated depreciation (6,099,164) (5,521,434)
-------------- ---------------
Net Property and Equipment 5,532,882 6,110,612
-------------- ---------------
Other Assets
Utility Deposits 2,250 2,250
-------------- ---------------
Total Assets $ 5,759,820 $ 6,297,463
============== ===============
LIABILITIES
Current Liabilities
Accounts payable $ 36,622 $ -
Other accrued expenses 14,406 12,623
Prepaid rent 7,918 17,943
Accrued real estate taxes 61,250 58,222
Accrued interest payable 3,493,114 3,116,962
--------------- ---------------
Total Current Liabilities 3,613,310 3,205,750
--------------- ---------------
Deposit Liabilities
Security deposits 64,623 53,872
--------------- ---------------
Long-Term Liabilities
Mortgage payable 12,800,000 12,800,000
Accrued administrative fees 755,019 679,219
--------------- ---------------
Total Long-Term Liabilities 13,555,019 13,479,219
--------------- ---------------
Total Liabilities 17,232,952 16,738,841
--------------- ---------------
PARTNERS' EQUITY (DEFICIT)
General partner (73,727) (63,409)
Limited partners (11,399,405) (10,377,969)
--------------- ---------------
Total Partners' Equity (Deficit) (11,473,132) (10,441,378)
--------------- ---------------
Total Liabilities and
Partners' Equity (Deficit) $ 5,759,820 $ 6,297,463
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 2 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Income
Rental income $ 1,669,087 $ 1,603,103
Interest income 11,360 10,903
Other income 99,162 95,944
Income from forfeited security deposits 16,883 15,567
--------------- ---------------
Total Income 1,796,492 1,725,517
--------------- ---------------
Expenses
Operating Expenses
Salaries and wages 195,447 186,022
Real estate taxes 122,499 116,444
Insurance 27,734 27,007
Utilities 152,644 144,925
Professional fees 9,736 11,052
Advertising and promotional fees 29,618 34,090
--------------- ---------------
Total Operating Expenses 537,678 519,540
--------------- ---------------
Maintenance Expenses
Repairs and maintenance 180,241 184,491
Security 5,880 5,824
Cleaning 9,417 8,603
Supplies 20,748 23,816
--------------- ---------------
Total Maintenance Expenses 216,286 222,734
--------------- ---------------
Management Expenses
Administrative and office 23,772 24,358
Management fees 89,436 83,866
--------------- ---------------
Total Management Expenses 113,208 108,224
--------------- ---------------
Mortgage Interest Expense 1,294,544 1,276,370
--------------- ---------------
Other Expenses
Administrative fees 88,800 88,800
Depreciation 577,730 578,958
--------------- ---------------
Total Other Expenses 666,530 667,758
--------------- ---------------
Total Expenses 2,828,246 2,794,626
--------------- ---------------
Net Loss $ (1,031,754) $ (1,069,109)
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 3 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 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)
Net Loss for the year (10,318) (10,318) (876,991) (1,341) (6,706) (6,706) (119,374) (1,021,436)
----------- ---------- -------------- ----------- ---------- ---------- ------------ -------------
Balance, December 31, 1996 $ (73,727) $ (73,727) $ (5,567,469) $ 75,739 $(294,643) $(294,643) $(5,244,662) $(11,399,405)
=========== ========== ============== =========== ========== ========== ============ =============
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)
Net Loss for the year (1,031,754)
--------------
Balance, December 31, 1996 $ (11,473,132)
==============
Partners' Percentage of
Partnership Losses 100.00%
==============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 4 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,031,754) $ (1,069,109)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 577,730 578,958
Change in assets - (increase) decrease
Tenant accounts receivable (11,273) (1,932)
Property tax refund receivable - 8,139
Prepaid expenses (109) (352)
Change in liabilities - increase (decrease)
Accounts payable 36,622 -
Other accrued expenses 1,783 (5,979)
Prepaid rent (10,025) 13,605
Accrued real estate taxes 3,028 10,897
Accrued interest payable 376,152 412,612
Security deposits 10,751 5,186
Accrued administrative fees 75,800 77,800
--------------- ---------------
Total Adjustments 1,060,459 1,098,934
--------------- ---------------
Net Cash Provided by Operating Activities 28,705 29,825
--------------- ---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and
funded reserves (15,966) (3,155)
--------------- ---------------
Net Cash Used by Financing Activities (15,966) (3,155)
--------------- ---------------
Net Increase in Cash 12,739 26,670
Cash - Beginning of Year 108,614 81,944
--------------- ---------------
Cash - End of Year $ 121,353 $ 108,614
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 5 -
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
$37,412 and $37,434 as of December 31, 1996 and 1995, respectively.
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 years ended December 31, 1996 and 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 for
1996 and 1995 was $577,730 and $578,958, respectively.
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, 1996 and 1995, the Partnership's
uninsured cash balances totaled $20,992 and $16,585, respectively.
<PAGE> - 6 -
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 years for: 1996 1995
----------- -----------
Interest $ 918,392 $ 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. For the years ended December 31, 1996 and 1995,
mortgage interest expense included additional interest on accrued base
interest of $206,542 and $188,370, respectively.
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> - 7 -
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, 1996 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accrued interest payable on bond $ 2,503,804 $ 2,334,194
Accrued interest on unpaid interest 989,310 782,768
------------- -------------
Total Accrued Interest Payable $ 3,493,114 $ 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, 1996 and 1995, respectively. 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 1996 and 1995
were $89,436 and $83,866, respectively. The Partnership owed America First
Properties Management, Inc. $7,666 and $4,564 at December 31, 1996 and 1995,
respectively.
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 for each year.
Accrued and unpaid administrative fees totaled $755,019 and $679,219 at
December 31, 1996 and 1995, respectively.
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 1996 and 1995 were in excess of
the minimum amount of such credits specified in the Tax Credit Guaranty
Agreement.
<PAGE> - 8 -
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 $11,473,132
and $10,441,378 for the years ended December 31, 1996 and 1995, respectively,
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> - 9 -
JEFFERSON PLACE, L.P.
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
for the year ended
December 31, 1994
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 the related
statements of operations, partners' 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.
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 the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Omaha, Nebraska /s/Coopers & Lybrand L.L.P.
January 27, 1995
<PAGE> - 1 -
JEFFERSON PLACE, L.P.
BALANCE SHEET
December 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 93,152
Accounts receivable 1,110
Property tax refund receivable 8,138
Prepaid expenses and deposits 24,191
---------------
Total current assets 126,591
---------------
Restricted deposits and funded reserves:
Taxes and insurance escrow 36,289
---------------
Total restricted deposits and funded reserves 36,289
---------------
Property and equipment:
Land 339,063
Buildings 10,894,464
Equipment 398,521
---------------
11,632,048
Less accumulated depreciation 4,942,476
---------------
Net property and equipment 6,689,572
---------------
$ 6,852,452
===============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable $ 18,603
Accrued real estate taxes 47,325
Interest payable 2,704,349
Prepaid tenant rent 4,338
---------------
Total current liabilities 2,774,615
Tenant security deposits 48,687
Mortgage notes payable 12,800,000
Accrued administrative fees 601,419
---------------
Total liabilities 16,224,721
---------------
Partners' deficit:
General partner (52,718)
Limited partners (9,319,551)
---------------
Total partners' deficit (9,372,269)
---------------
$ 6,852,452
===============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> - 2 -
JEFFERSON PLACE, L.P.
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C>
Revenues:
Rental income $ 1,555,912
Interest income 5,804
Other income 123,662
Income from forfeited security deposits 15,248
---------------
Total revenues 1,700,626
---------------
Expenses:
Operating expenses:
Salaries 172,412
Real estate taxes 94,649
Personal property taxes -
Insurance 25,083
Utilities 133,614
Legal and other professional 9,704
Advertising and promotional 35,100
---------------
Total operating expenses 470,562
---------------
Maintenance expenses:
Repairs 2,450
Security 5,987
Maintenance 167,680
Cleaning 7,775
Supplies 34,376
---------------
Total maintenance expenses 218,268
---------------
Management expense:
Administrative and office 25,608
Management fees 75,215
---------------
Total management expenses 100,823
---------------
Mortgage interest 1,260,414
---------------
Other expenses:
Administrative fees 88,800
Depreciation 577,735
---------------
Total other expenses 666,535
---------------
Total expenses 2,716,602
---------------
Net loss $ (1,015,976)
===============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> - 3-
JEFFERSON PLACE, L.P.
STATEMENT OF PARTNERS' DEFICIT
for the year ended December 31, 1994
<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, 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, 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> - 4 -
JEFFERSON PLACE, L.P.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (1,015,976)
---------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 577,735
Decrease (increase) in:
Accounts receivable 3,434
Property tax refund receivable (8,138)
Taxes and insurance escrow 34,588
Other assets (21,941)
Increase (decrease) in:
Accounts payable (20,260)
Accrued real estate taxes 1,952
Interest payable 365,450
Prepaid tenant rent 4,338
Tenant security deposits 5,934
Accrued administrative fees 76,800
---------------
Total adjustments 1,019,892
---------------
Net cash provided by operating activities
and net change in cash 3,916
---------------
Cash at beginning of year 89,236
---------------
Cash at end of year $ 93,152
===============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 894,964
===============
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE> - 5 -
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.
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> - 6 -
JEFFERSON PLACE, L.P.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Mortgage Notes Payable:
The Partnership financed the construction of the Project with Multifamily
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,
mortgage interest expense included additional interest on accrued base
interest of $172,414.
(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 through December 31, 1994. 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. Accrued and unpaid
administrative fees totaled $601,419 at December 31, 1994.
<PAGE> - 7 -
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 is managed by America First Property Management Company, an
affiliate of the general partner. Their fee is 4.5% of collected
receipts. Management fees for 1994 were $75,215. The Partnership owed
America First Property Management Company $3,674 at December 31, 1994.
6. Interest Payable:
Interest payable as of December 31, 1994 consisted of the following:
Interest payable on bond $ 2,109,951
Interest on unpaid interest 594,398
-------------
Total interest payable $ 2,704,349
=============
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> - 8 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
TABLE OF CONTENTS
PAGE
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS ON
THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF INCOME 3
STATEMENTS OF CHANGES IN PARTNERS'
EQUITY (DEFICIT) 4
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5-7
To the Partners
Sunpointe Associates Limited Partnership
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Sunpointe Associates
Limited Partnership, (a Washington Limited Partnership) (the "Partnership"),
as of December 31, 1996 and 1995, and the related statements of income,
changes in partners' equity (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 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, 1996 and 1995, and the results of its
operations and the changes in partners' equity (deficit) and cash flows for
the years 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 8 to the
financial statements, the Partnership has experienced recurring losses from
operations and has a working and 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.
January 31, 1997 /s/Mueller, Prost, Purk & Willbrand, P.C.
Certified Public Accountants
<PAGE> - 1 -
FINANCIAL STATEMENTS
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 38,867 $ 12,020
Tenant accounts receivable, less allowance for doubtful
accounts of $23,194 11,010 15,748
Prepaid expenses 12,930 33,824
Other receivables - 537
--------------- ---------------
Total Current Assets 62,807 62,129
--------------- ---------------
Funded Deposits Held in Trust
Security deposits 67,551 67,152
--------------- ---------------
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 120,628 124,448
--------------- ---------------
Property and Equipment
Land 3,261,280 3,261,280
Land improvements 439,162 439,162
Buildings 13,132,765 13,132,765
Equipment 601,082 601,082
--------------- ---------------
Total Property and Equipment 17,434,289 17,434,289
Less: Accumulated depreciation (5,267,020) (4,737,747)
--------------- ---------------
Net Property and Equipment 12,167,269 12,696,542
--------------- ---------------
Total Assets $ 12,418,255 $ 12,950,271
=============== ===============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 9,405 $ 7,750
Prepaid rents 17,908 12,075
Accrued expenses 27,500 6,500
Accrued interest payable 5,637,084 4,407,666
--------------- ---------------
Total Current Liabilities 5,691,897 4,433,991
--------------- ---------------
Deposit Liabilities
Security deposits 81,487 63,005
--------------- ---------------
Long-Term Liabilities
Mortgage payable 20,000,000 20,000,000
Due to limited partner 90,000 90,000
Accrued administrative fees 856,612 739,724
--------------- ---------------
Total Long-Term Liabilities 20,946,612 20,829,724
--------------- ---------------
Total Liabilities 26,719,996 25,326,720
--------------- ---------------
PARTNERS' EQUITY (DEFICIT)
Partners' Equity (Deficit) (14,301,741) (12,376,449)
--------------- ---------------
Total Liabilities and
Partners' Equity (Deficit) $ 12,418,255 $ 12,950,271
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 2 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Income
Rental income $ 1,888,209 $ 2,068,885
Interest income 8,804 7,341
Income from forfeited security deposits 23,212 38,021
Other income 88,320 98,087
--------------- ---------------
Total Income 2,008,545 2,212,334
--------------- ---------------
Expenses
Operating Expenses
Utilities 276,804 279,381
Salaries and wages 234,465 238,349
Real estate taxes 216,528 211,014
Advertising 67,239 68,107
Professional fees 52,940 72,453
Insurance 22,044 27,518
Personal property taxes - 1,862
--------------- ---------------
Total Operating Expenses 870,020 898,684
--------------- ---------------
Maintenance Expenses
Repairs and maintenance 387,251 359,904
Security 66,725 85,726
Supplies 32,712 68,543
Cleaning 12,105 22,023
-------------- ---------------
Total Maintenance Expenses 498,793 536,196
-------------- ---------------
Management Expenses
Management fees 74,870 74,072
Administrative and office 56,342 59,685
-------------- ---------------
Total Management Expenses 131,212 133,757
-------------- ---------------
Mortgage Interest 1,718,675 1,718,675
-------------- ---------------
Other Expenses
Depreciation 529,273 529,273
Administrative fees 162,670 157,255
Bad debt expense 23,194 -
-------------- ---------------
Total Other Expenses 715,137 686,528
-------------- ---------------
Total Expenses 3,933,837 3,973,840
-------------- ---------------
Net Loss $ (1,925,292) $ (1,761,506)
============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 3 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 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)
Net Loss for the Year (1,926) (480) (961,203) (961,683) (1,925,292)
--------------- ---------------- --------------- --------------- ---------------
Balance, December 31, 1996 $ (1,087,062) $ (1,700,943) $ (7,133,777) $ (4,379,959) $ (14,301,741)
=============== ================ =============== =============== ===============
</TABLE>
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,925,292) $ (1,761,506)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Depreciation 529,273 529,273
Change in assets - (increase) decrease
Tenant accounts receivable 4,738 (15,748)
Prepaid expenses 20,893 (20,067)
Other receivables 537 (505)
Change in liabilities - increase (decrease)
Accounts payable 1,655 (2,085)
Prepaid rents 5,833 12,075
Accrued expenses 21,000 (215)
Accrued interest payable 1,229,418 1,060,009
Security deposits 18,084 (4,572)
Accrued administrative fees 116,888 116,888
---------------- ---------------
Total Adjustments 1,948,319 1,675,053
---------------- ---------------
Net Cash Provided (Used) by Operating Activities 23,027 (86,453)
---------------- ---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits
and funded reserves 3,820 11,580
---------------- ---------------
Net Increase (Decrease) in Cash 26,847 (74,873)
Cash - Beginning of Year 12,020 86,893
---------------- ---------------
Cash - End of Year $ 38,867 $ 12,020
================ ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 4 -
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.
Security Deposits
The security deposit liability exceeds the security deposit cash account by
$13,936 in 1996. Management has stated that this deficiency is included in
the operating account and will be transferred to the security deposit account
as necessary.
Tenant Accounts Receivable
The Partnership provides an allowance for doubtful accounts equal to the
estimated collection loss that will be incurred in the collection of
receivables. Bad debt expense of $23,194 was recorded for the period ended
December 31, 1996. There was no bad debt expense in 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
for the years ending December 31, 1996 and 1995 was $529,273 each year.
Concentration of Credit Risk
The Project 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, 1996 and 1995, the Project's
uninsured cash balances totaled $16,586 and $0, respectively.
<PAGE> - 5 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 STATEMENTS OF CASH FLOWS
For purposes of the statements 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 years for: 1996 1995
--------------- ---------------
Interest $ 489,257 $ 658,666
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, maturing September 1, 1999. The note bears base interest at the rate of
10%, due on the fifteenth day of each month. Maximum construction period
deferred interest at the rate of 3% per annum is due during the first interest
period, which extends from the date of inception to August 17, 1989. It shall
be paid, to the extent possible, from 50% of the net sale or refinancing
proceeds. Contingent interest and deferred interest, also at 3% per annum, is
due during the second interest period, which extends from August 18, 1989, to
the date of full payment. They shall be paid from 50% of the net cash flow.
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 (the "Commission") under the Assignment of
Developer Documents dated September 1, 1987. Part of the interest of the
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 MANAGEMENT FEE TRANSACTIONS
Management Fees
On August 20, 1994, America First Properties Management Company, LLC, an
affiliate of the general partner, took over management of the Partnership.
Their fee is 3.75% of gross receipts when net operating income is less than
$103,000 and 4.5% when net operating income is greater than $103,000.
Management fees for the years ending December 31, 1996 and 1995 were $74,870
and $74,072, respectively. At December 31, 1996 and 1995, the Partnership
owed America First Properties Management Company, LLC, $6,848 and $6,008,
respectively.
NOTE 7 RELATED PARTY TRANSACTIONS
Due to Limited Partner
The Partnership has outstanding operating deficit loans borrowed from the
limited partner at December 31, 1996 and 1995, of $90,000 each year.
<PAGE> - 6 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $14,301,741
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> - 7 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 25, 1996 AMERICA FIRST APARTMENT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Four, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Vice President and Principal
Financial Officer of Registrant)
<PAGE> - 36 -
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 26, 1997 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
Date: March 26, 1997 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer
and Manager (Chief Financial and
Accounting Officer)
Date: March 26, 1997 By
William S. Carter, M.D.
Manager
Date: March 26, 1997 By /s/George Kubat*
George Kubat
Manager
Date: March 26, 1997 By /s/ Martin A. Massengale*
Martin A. Massengale
Manager
Date: March 26, 1997 By /s/ Alan Baer*
Alan Baer
Manager
Date: March 26, 1997 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: March 26, 1997 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> - 37 -
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> - 38 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> - 39 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> - 40 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ George Kubat
George Kubat
<PAGE> - 41 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> - 42 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Alan Baer
Alan Baer
<PAGE> - 43 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> - 44 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,021,860
<SECURITIES> 31,566,526
<RECEIVABLES> 186,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,208,180
<PP&E> 37,880,040
<DEPRECIATION> 7,680,194
<TOTAL-ASSETS> 64,923,401
<CURRENT-LIABILITIES> 1,783,745
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 56,805,456
<TOTAL-LIABILITY-AND-EQUITY> 64,923,401
<SALES> 0
<TOTAL-REVENUES> 7,922,691
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,477,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,444,737
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,444,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,444,737
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
