<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Exact name of Registrant as specified in its Trust Agreement)
DELAWARE 13-3949418
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 MADISON AVENUE, NEW YORK, NEW YORK 10022
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
-----------------------------
Shares of Beneficial Interest
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
------------------------------------------
American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- --
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of 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. [X]
The approximate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 9, 2000 was $242,342,101,
based on a price of $11 15/16 per share, the closing sales price for the
Registrant's shares of beneficial interest on the American Stock Exchange on
that date.
As of March 9, 2000 there were 20,582,628 outstanding shares of
the Registrant's shares of beneficial interest.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Those portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 14, 2000, which are incorporated into Items
10, 11, 12 and 13.
Index to exhibits may be found on page 52
Page 1 of 93
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K/A-1, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K/A-1 PURSUANT TO THE "SAFE HARBOR" PROVISION OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
<PAGE>
PART I
Item 1. Business.
GENERAL
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating first
mortgage bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). FMBs that
contain provisions for the Company to receive additional interest payments by
participating with the borrower in a portion of the cash flow or sale or
refinancing proceeds on the Underlying Properties are referred to as
"participating"; FMBs lacking this provision are "non-participating". As of
December 31, 1999, the Company owned a portfolio of 69 FMBs.
The Underlying Properties securing the bonds are garden apartments located in
nineteen metropolitan markets in fourteen states. The properties, range in size
from 70 units to 550 units with an average size of 231 units. All of the
properties have an amenity package, competitive for their respective markets,
with many including swimming pools, clubhouses, exercise rooms and tennis
courts. As of December 31, 1999 there are 30 FMBs with Underlying Properties
either under construction or undergoing major rehabilitation. The remaining
properties in the portfolio are completed and have stabilized occupancies. The
stabilized portfolio as of February 27, 2000 reports an average occupancy of
95.6%.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Rather, the Company utilizes low levels
of leverage and generally invests in or acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not experience the ill-effects
associated with the volatile interest rate environment during 1999 and 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. Mortgage REITs typically incur
leverage at ratios ranging from between 3:1 to 10:1.
Due to the Company's low level of leverage, the Company has not been affected by
the lack of liquidity that recently impaired mortgage REITs and its portfolio
does not contain assets that are especially vulnerable to volatility during
periods of interest rate fluctuations. In general, the FMBs that the Company
either invests in or acquires call for ten-year restrictions from prepayments,
eliminating the Company's susceptibility to significant levels of repayment risk
as a result of interest rate reductions. Consistent with the foregoing, the
Company focuses on providing investors with a stable level of distributions,
even through unstable markets.
ORGANIZATION
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of three publicly registered limited partnerships, Summit
Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax
Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III") (the
"Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Unless otherwise indicated, the "Company", as hereinafter used, refers to
Charter Municipal Mortgage Acceptance Company and its consolidated subsidiaries
and, for references prior to October 1, 1997, refers to Tax Exempt II. Pursuant
to the Consolidation, the Company issued shares of beneficial interest (the
"Shares") to all partners in each of the Partnerships in exchange for their
interests in the Partnerships based upon each partner's proportionate interest
in the Shares issued to their Partnership in the Consolidation. The Shares
commenced trading on the American Stock Exchange on October 1, 1997 under the
symbol "CHC". As of December 31, 1999, there were 20,580,986 Shares outstanding.
For financial accounting and reporting purposes, the Consolidation was accounted
for using the purchase method of accounting. Under this method, the Partnership
with the investor group receiving the largest ownership in the Company, in this
case Tax Exempt II, was deemed to be the acquirer. As the surviving entity for
accounting purposes, Tax Exempt II's assets and liabilities were recorded by the
Company at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values for each Partnership (an
aggregate of approximately $158,129,000) as set forth in the Solicitation
Statement of the Company dated June 18, 1997 (the "Solicitation Statement").
Results of operations and other operating financial data for the Company prior
to October 1, 1997 (the date of the Consolidation) is only with respect to Tax
Exempt II. Information subsequent to September 30, 1997 is with respect to the
Company and its consolidated subsidiaries which include Tax Exempt II and the
other Partnerships pursuant to the Consolidation. Prior to the Consolidation,
Tax Exempt II was a limited partnership which was formed under the laws of the
State of Delaware on April 11, 1986. The general partners of Tax Exempt II were
Related Tax Exempt Associates II, Inc., a Delaware corporation (the "Related
General Partner"), and Prudential Bache Properties, Inc. ("PBP"). The general
partners managed and controlled the affairs of Tax Exempt II prior to the
Consolidation.
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs. Through the Manager, Related offers
the Company a core group of experienced staff and executive management, who
provide the Company with services on both a full and part-time basis. These
services include, among other things, acquisition, financial, accounting,
capital markets, asset monitoring, portfolio management, investor relations and
public relations services. The Company believes that it benefits significantly
from its relationship with Related, since Related provides the Company with
resources that are not generally available to small-capitalized, self-managed
companies.
-3-
<PAGE>
BUSINESS PLAN
In order to generate increased tax exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or acquire
additional tax-exempt bonds secured by multifamily properties. The Company
believes that it can earn above market rates of interest on its bond
acquisitions by focusing its efforts primarily on affordable housing. The
Manager estimates that nearly 50% of all new multifamily development contains an
affordable component which produces tax credits pursuant to Section 42 of the
Internal Revenue Code. The Company has designed a Direct Purchase Program
specifically designed to appeal to developers of such properties. In general,
these properties are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will invest in or acquire tax-exempt bonds without the cost associated
with credit enhancement, rating agencies and investment bankers. The Company
believes that the up-front cost savings to the developer will translate into a
higher than market interest rate on the bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related. The Manager is a
single purpose affiliate of Related which is controlled by the same individuals
and entities which own Related. The Manager benefits from its affiliation with
Related because the Manager is able to utilize Related's resources and
relationships in the multifamily affordable housing finance industry to source
potential borrowers of first mortgage bonds the Company could invest in or
acquire. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 25
years. Related has provided debt and equity financing to properties valued at
over $9.0 billion. According to the 1999 National Multihousing Council survey,
Related is the third largest owner of apartments in the United States.
During 1999, the Company's growth was financed by the Private Label Tender
Option Program ("TOP"), the Preferred Offering and securitization transactions
(see below) as well as funds generated from operations in excess of
distributions. The Company's continued growth will be financed by the TOP or
similar programs, additional securitization transactions and funds generated
from operations in excess of distributions. In addition, before the end of 2000,
the Company expects to raise funds through an equity offering; however, there
can be no assurance that this initiative will be successful. During 1999, the
Company acquired 23 FMBs and received repayments of three FMBs (see "First
Mortgage Bond Repayments" below). Three of the FMBs are taxable FMBs acquired in
connection with the purchase of tax-exempt FMBs.
STRUCTURE OF ORIGINAL FIRST MORTGAGE BONDS
The original 31 FMBs (owned at the date of the Consolidation) with an aggregate
face amount of $348,602,428, call for interest only debt service payments during
their respective terms (which generally are 24 to 30 years from issuance or
re-issuance) with repayment of principal due in a lump sum "balloon" payment at
the expiration of their respective terms or upon sale or refinancing. The newly
acquired bonds call for amortization or "sinking fund" payments, generally at
the completion of rehabilitation or construction, of principal based on thirty
to forty year level debt service amortization schedules. The Company generally
has the right to require redemption approximately 12 to 15 years from issuance
or re-issuance and obligors generally are locked out of prepayment for seven to
ten years from issuance or re-issuance.
In addition to the stated base rates of interest, 28, 28 and 26 of the FMBs at
December 31, 1999, 1998 and 1997, respectively, provided for "participating
interest" which is equal to: (i) an amount equal to 50% to 100% of net property
cash flow and 50% to 100% of net sale or refinancing proceeds until the borrower
has paid, during the post-construction period, annual compound interest at a
rate ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (ii) an
amount equal to 25% to 50% of the remaining net property cash flow and 25% to
50% of the remaining net sale or refinancing proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the FMB. Both the
stated and participating interest on the FMBs are exempt from federal income
taxation. During the years ended December 31, 1999, 1998 and 1997, five, six and
five FMBs, paid participating interest amounting to approximately $728,000,
$960,000 and $353,000, respectively.
In December 1999, two of the original 31 FMBs were repaid (see "First Mortgage
Bond Repayments", below).
STRUCTURE OF MODIFIED FIRST MORTGAGE BONDS
From time to time, the Company, as an alternative to foreclosure in the event of
a default, enters into forbearance agreements and/or permanent modifications
with certain borrowers. The determination as to whether it is in the best
interest of the Company to enter into permanent modifications or forbearance
agreements on the FMBs, advance second mortgages, or alternatively, to pursue
its remedies under the loan documents, including foreclosure, is based upon
several factors. These factors include, but are not limited to, Underlying
Property performance, owner cooperation and projected costs of foreclosure and
litigation irrespective of whether the obligor has an affiliation with the
Manager or not.
The obligors of (i) thirty-three FMBs, as noted in footnote BB to the Table of
Investments above, and (ii) three RITES as noted under Other Bond Related
Investments, are partnerships in which affiliates of the Manager are partners
that own a controlling interest. In addition, the original owners of underlying
properties and obligors of five FMBs, as noted in footnote N of the Table of
Investments above, have been replaced with affiliates of the Manager who have
not made equity investments. These affiliate entities could have interests which
do not coincide with, and may be adverse to, the interests of the Company.
Negotiations, if any, with respect to modifications of FMBs between the Company
and obligors who are affiliates may be affected by these conflicts as the
Manager determines the appropriate terms and conditions of modifications or
otherwise opts for some other remedy including foreclosure.
-4-
<PAGE>
Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport
Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to
7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued
interest through August 1999 to be paid at maturity or upon a sale or
refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to
2011) and prepayment lock-out dates (to 2006). The participating interest
feature of the bonds was also modified. These modifications resulted in realized
losses on impairment in the amounts of $21,000, $23,000 and $54,000,
respectively, to write down the cost basis of each FMB to its then estimated
fair value.
Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate
of the Manager, was transferred to a third party who provided new capital in the
amount of $1,813,000. This new capital will be used primarily to provide for
repairs to the property as well as costs of the transaction. Repairs are
expected to be completed within the next 6-9 months. In conjunction with this
transfer and infusion of capital, it is anticipated that the FMB will be
formally modified within 6 to 9 months, subject to the approval of the local
issuer of the FMB. In the interim, the property will continue to operate
pursuant to a forbearance agreement with the Company which calls for a 5.5%
minimum annual interest rate. The anticipated modification of this FMB resulted
in a realized loss on impairment in the amount of $406,796, to write down the
cost basis of this FMB to its estimated fair value.
Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset
Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"),
affiliates of the Manager, transferred their interests, pursuant to a sale of
stock, to a third party equity investor. Pursuant to such transfer, the Company
entered into a modification agreement (subject to issuer approval) with the new
obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the
terms of the transaction, the Company received a payment on December 30, 1999 of
$1,500,000 in full settlement of all accrued and unpaid base interest on the
Sunset FMBs. In addition, in consideration for the waiver of the payment
requirement for the payment of past and future participating interest, a payment
of $1,000,000 is expected on or before March 31, 2000. In connection with the
transaction, it is expected that the new obligor will invest $800,000-$1,000,000
for physical improvements to the properties. The modifications of the Sunset
Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on
impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to
write down the cost basis of each of these FMBs to their estimated fair values.
The estimated fair value of the Sunset Creek FMB continues to exceed its
amortized cost basis.
In addition to the above FMBs, ten of the Company's other FMBs with an aggregate
face amount of $130,025,000, have previously been modified. These modifications
have generally encompassed an extension of the maturity together with a
prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participating interest features. Base interest rates, participating interest,
prepayment lock-outs, mandatory redemption and maturity features are arrived at
through negotiations between the Company and the owners of the Underlying
Properties and vary dependent on the facts of a particular FMB, the owner of the
Underlying Property, the Underlying Property's performance and requirements of
bond counsel and local issuers. Should negotiations break down, the Company
always has the option to pursue its other remedies including acceleration and
foreclosure. The Company may modify other FMBs to reflect generally similar
terms as those modified previously, where and as appropriate. Significant
modifications to interest rates and maturity dates are subject to final approval
of the local issuers, bond counsel and indenture trustees.
STRUCTURE OF NEW FIRST MORTGAGE BONDS
Newly acquired FMBs (bonds acquired after October 1, 1997) will generally bear a
fixed base interest rate and, to the extent permitted by existing regulations,
they may or may not also provide for participating interest and other features.
Terms are expected to be 5 to 35 years, although the Company may have the right
to cause repayment prior to maturity through a mandatory redemption feature (5
to 7 years with up to 6 month's notice). In some cases, the newly acquired bonds
call for amortization or "sinking fund" payments, generally at the completion of
rehabilitation or construction, of principal based on thirty to forty year level
debt service amortization schedules.
New FMBs are generally not expected to be subject to optional prepayment during
the first 5-10 years of the Company's ownership of the bonds and may carry
prepayment penalties thereafter beginning at 5% of the outstanding principal
balance, declining by 1% per annum. Certain new FMBs may be purchased at a
discount from their face value. Up to 15% of the Total Market Value of the
Company (as defined in its trust agreement) may be invested in FMBs secured by
Underlying Properties in which affiliates of the Manager have a controlling
interest, equity interest or security interest. The 15% limit is not applicable
to properties to which the Manager or its affiliates have taken title for the
benefit of the Company and only applies to new FMBs acquired after the
Consolidation. In selected circumstances and generally only in connection with
the acquisition of tax-exempt FMBs the Company may acquire a small amount of
taxable bonds (i) which the Company may be required to acquire in order to
satisfy state regulations with respect to the issuance of tax-exempt bonds (see
"Recent Legislation", below) and (ii) to fund certain costs associated with the
issuance of FMBs, that under current law cannot be funded by FMBs.
Since October 1, 1997, the Company has acquired 38 tax-exempt FMBs with an
aggregate face amount of $284,162,100, one of which was repaid in January 1999
(see "First Mortgage Bond Repayments" below), and three taxable FMBs with an
aggregate face amount of $3,790,000.
FIRST MORTGAGE BOND REPAYMENTS
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the
-5-
<PAGE>
repayment date of $35,417 resulting in a loss on the repayment (including the
prepayment penalty and the write off of unamortized bond selection costs) in
the amount of $25,493.
On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together
the "Players Club/Suntree Obligor") completed a sale of the properties to an
independent third party. The Players Club/Suntree Obligor then repaid the FMBs
with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of
$8,790,000 and $7,500,000 resulting in losses on the repayment (including the
write off of unamortized bond selection costs) in the amounts of $376,496 and
$61,158. In addition, the Players Club/Suntree Obligor also repaid promissory
note obligations in the amounts of $472,128 and $88,618. The Players
Club/Suntree Obligor has no further obligation to the company under the FMBs.
FIRST MORTGAGE BONDS - GENERAL
The principal and interest payments on each FMB are payable only from the cash
flows of the the Underlying Properties, including proceeds from a sale of an
Underlying Property or the refinancing of the mortgage loan securing such FMBs
(the "Mortgage Loans"). None of the FMBs constitute a general obligation of any
state or local government, agency or authority. The structure of each Mortgage
Loan mirrors the structure of the corresponding FMB which it secures.
In order to protect the tax-exempt status of the FMBs, the owners of the
Underlying Properties are required to enter into certain agreements to own,
manage and operate such Underlying Properties in accordance with requirements of
the Internal Revenue Code of 1986, as amended.
No single FMB provided interest income which exceeded 10% of the Company's total
revenue for the years ended December 31, 1999, 1998 and 1997, except for the
Bristol Village FMB which provided 10% of total revenue in 1997.
Based on the face amount of FMBs at December 31, 1999, approximately 26% of the
Underlying Properties are located in California, 14% are located in Florida, 10%
are located in Missouri and 10% are located in Georgia. No other states comprise
more than 10% of the total face amount at December 31, 1999. Based on the face
amount of FMBs at December 31, 1998, approximately 23% of the Underlying
Properties were located in California, 15% were located in Florida, 14% were
located in Missouri, 10% were located in Georgia and 10% were located in
Minnesota. No other states comprised more than 10% of the total face amount at
December 31, 1998.
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. As of December 31, 1999, the face amount of such advances was
$15,330,075, their rates range from 8% to 13% and their carrying value was
$10,148,060, which is net of purchase accounting adjustments, and a reserve for
collectibility of $138,000. Such advances with an aggregate face amount of
$5,384,808, rates ranging from 8% to 10% and an aggregate carrying amount of
$217,996 were advanced to obligors which are affiliates of the Manager.
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with
affiliates of the Manager who have not made equity investments. These entities
have assumed the day-to-day responsibilities and obligations of the Underlying
Properties. Buyers are being sought who would make equity investments in the
Underlying Properties and assume the nonrecourse obligations for the FMB. These
properties are generally paying as interest an amount equal to the net cash flow
generated by operations, which in some cases is less than stated rate of the
FMB. The Company has no present intention of declaring a default on these FMBs.
The aggregate carrying value of these four FMBs at December 31, 1999 and 1998
was approximately $41,465,000 and $42,323,000, respectively and the income
earned from them for the years ended December 31, 1999, 1998 and 1997 was
approximately $2,991,000, $3,106,000 and $2,093,000, respectively.
With respect to the FMBs which are subject to forbearance agreements with the
respective obligors, the difference between the stated interest rates and the
rates paid (whether deferred and payable out of available future cash flow or,
ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once an Underlying Property's ability to pay the stated rate
has been adequately demonstrated. Unrecorded contractual interest income was
approximately $1,916,000, $3,047,000 and $2,415,000 for the years ended December
31, 1999, 1998 and 1997, respectively. Payments under each of the existing
forbearance agreements are current as of December 31, 1999.
-6-
<PAGE>
As of December 31, 1999, the Company and its consolidated subsidiaries owned 69
FMBs (26 participating FMBs and 43 non-participating FMBs). Three of the FMBs
are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs.
The taxable FMBs are secured by the same Underlying Properties which secure the
associated tax-exempt FMBs. The following table provides certain information
with respect to each of the FMBs.
TABLE OF INVESTMENTS
<TABLE>
<CAPTION>
MINIMUM
FAIR VALUE STATED PAY RATE AT
CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER
PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999*
-------- -------- ------ ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Highpointe Club (K)(N) Harrisburg, PA 7/29/86 $ 8,900,000 $ 5,769,000 8.50% (W)
----------- -----------
OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H)
Barnaby Manor (P)(S)(BB) Washington, DC 11/23/99 4,500,000 4,500,000 7.375 7.375%
Casa Ramon (P)(BB) Orange County, CA 6/8/99 50,000(Q) 52,000 7.50 7.50
Chapel Ridge of Little Rock, AR 8/12/99 5,600,000 5,481,000 7.125 7.125
Little Rock (O)(S)(BB)
Chapel Ridge of Texarkana, AR 9/29/99 5,800,000 5,876,000 7.375 7.375
Texarkana (O)(S)(BB)
Country Lake (P) West Palm Beach, FL 11/9/99 6,255,000 6,255,000 (V) 6.00
Del Monte Pines (R)(P)(BB) Fresno, CA 5/6/99 11,000,000 10,275,000 6.80 6.80
Douglas Pointe(O)(S)(R)(BB) Miami, FL 9/28/99 7,100,000 6,827,000 7.00 7.00
Forest Hills (R)(P)(BB) Garner, NC 12/15/98 5,930,000 5,804,000 7.125 7.125
Fort Chaplin (P)(BB) Washington, DC 12/21/99 25,800,000 25,800,000 6.90 6.90
Franciscan Riviera (P)(R)(BB) Antioch, CA 8/24/99 6,587,500 6,447,000 7.125 7.125
Garfield Park (P) Washington, DC 8/31/99 3,260,000 3,247,000 7.25 7.25
Greenbriar (M)(P)(BB) Concord, CA 5/6/99 9,585,000 9,052,000 6.875 6.875
Hamilton Gardens(R)(P)(BB) Hamilton, NJ 3/26/99 6,400,000 6,264,000 (U) 7.625
Lake Jackson (R)(O)(S)(BB) Lake Jackson, TX 12/22/98 10,934,000 10,513,000 7.00 7.00
Lakemoor (O) (S) Durham, NC 12/23/99 9,000,000 9,000,000 7.25 7.25
Lake Park (P)(BB) Turlock, CA 6/8/99 (T) 3,638,000 3,623,000 7.25 7.25
Lakes Edge At Walden
(P)(M) Miami, FL 7/1/99 14,850,000 14,075,000 6.90 6.90
Lennox Park (O)(S)(M)(BB) Gainesville, GA 7/29/99 13,000,000 12,143,000 6.80 6.80
Lewis Place (O)(S)(M)(BB) Gainsville, FL 6/22/99 4,000,000 3,709,000 (I) 6.75
Mountain Ranch (R)(O)(BB) Austin, TX 12/23/98 9,128,000 8,934,000 7.125 7.125
Standiford (P)(R)(BB) Modesto, CA 9/20/99 9,520,000 9,317,000 7.125 7.125
Sunset Creek (M)(K) Lancaster, CA 3/25/88 8,275,000 6,225,000 8.50 5.48
Sunset Village (M)(K) Lancaster, CA 3/25/88 11,375,000 8,557,000 8.50 5.48
Sycamore Woods (R)(P)(BB) Antioch, CA 5/6/99 9,415,000 8,891,000 6.875 6.875
Tallwood (O)(S)(R)(BB) Virginia Beach, VA 9/30/99 6,205,000 6,179,000 7.25 7.25
----------- -----------
207,207,500 197,046,000
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE
AVERAGE RENTAL COMPETING
INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES
RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN
FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION
--------- ----------- -------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
4.72% 97% $550-725 1991 240 24
7.375 0 - 1974 124 158
7.50 0 - 1976 75 43
7.125 0 - (Y) 128 83
7.375 0 - (Y) 144 26
6.00 100 657-983 1985 192 44
6.80 57.7 388-538 1975 366 256
7.00 0 - (Y) 176 184
7.13 68.4 550-650 1982 136 5
6.90 16.9 450-1100 (X) 495 158
7.125 67.2 640-780 1972 129 17
7.25 87.2 585-695 1970 94 158
6.875 68.0 400-975 1966 199 81
7.625 92.4 625-730 1941 174 16
7.00 46.5 525-1045 (Y) 160 10
7.25 0 - (Y) 160 89
7.25 100 452-622 1973 104 24
6.90 95.8 677-898 1986 400 184
6.80 0 - (Y) 292 15
6.75 13.4 529-611 (Y) 112 91
7.13 0 - (Y) 212 453
7.125 56.3 455-625 1970 249 63
8.68 93.1 455-755 1989 148 37
8.68 93.5 495-755 1989 204 37
6.875 58.7 640-975 1970 186 17
7.25 0 - (Y) 120 86
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
MINIMUM
FAIR VALUE STATED PAY RATE AT
CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER
PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999*
-------- -------- ------ ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L)
Bay Club (K) Mt. Pleasant, SC 9/11/86 6,400,000 7,253,000 8.25 8.25
Clarendon Hills (K) Hayward, CA 12/08/86 17,600,000 13,599,000 5.52 5.52
Cypress Run (K) Tampa, FL 8/14/86 15,402,428 13,576,000 8.50 5.50
East Ridge (K) Mt. Pleasant, SC 5/20/86 8,700,000 9,859,000 8.25 8.25
Greenway Manor (K)(N) St. Louis, MO 10/09/86 12,850,000 15,003,000 8.50 8.50
The Lakes (K) Kansas City, MO 12/30/86 13,650,000 9,821,000 4.87 4.87
Loveridge (K)(N) Contra Costa, CA 11/13/86 8,550,000 6,459,000 8.00 (W)
Martin's Creek (K) Summerville, SC 5/20/86 7,300,000 8,273,000 8.25 8.25
---------- ----------
90,452,428 83,843,000
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE
AVERAGE RENTAL COMPETING
INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES
RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN
FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION
--------- ----------- -------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
10.11 94.0 635-805 1987 164 12
6.48 99.6 950-1600 1989 285 99
.68 87.6 460-775 1988 408 247
8.24 88.9 615-875 1986 200 12
8.64 95.8 520-620 1987 312 172
6.71 92.4 475-675 1989 400 152
5.00 88.3 640-875 1987 148 18
8.25 98.0 470-770 1986 200 13
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
MINIMUM
FAIR VALUE STATED PAY RATE AT
CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER
PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999*
-------- -------- ------ ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
OWNED BY CHARTER MAC OWNER TRUST I (J) (H)
Bedford Square (BB) Clovis, CA 8/25/98 3,850,000 3,371,000 (D) 7.00
Bristol Village Bloomington, MN 7/31/87 17,000,000 17,513,000 7.50 7.50
Carrington Pointe (BB) Los Banos, CA 9/24/98 3,375,000 2,955,000 6.375 6.375
Cedarbrook (BB) Hanford, CA 4/28/98 2,840,000 2,779,000 7.125 7.125
Cedar Creek (K)(N) McKinney, TX 12/29/86 8,100,000 9,457,000 8.50 8.50
Cedar Pointe (K) Nashville, TN 4/22/87 9,500,000 9,134,000 7.00 7.00
College Park (O)(S) Naples, FL 7/15/98 10,100,000 9,711,000 (C) 7.00
Crowne Pointe (K) Olympia, WA 12/31/86 5,075,000 5,054,000 7.25 8.00
Falcon Creek (O)(S)(BB) Indianapolis, IN 9/14/98 6,144,600 6,119,000 (F) 7.00
Gulfstream (P)(BB) Dania, FL 7/22/98 3,500,000 3,486,000 7.25 7.25
Highland Ridge (K) St. Paul, MN 2/02/87 15,000,000 14,938,000 7.25 7.25
Jubilee Courtyards (BB) Florida City, FL 9/15/98 4,150,000 4,062,000 (G) 7.00
Lakepoint (K) Stone Mountain, GA 11/18/87 15,100,000 12,445,000 6.00 6.00
Madalyn Landing(O)(S)(BB) Palm Bay, FL 11/13/98 14,000,000 13,461,000 7.00 7.00
The Mansion Independence, MO 5/13/86 19,450,000 19,678,000 7.25 7.25
Marsh Landings (P)(S)(BB) Portsmouth, VA 5/20/98 6,050,000 6,025,000 7.25 7.25
Newport Village (K) Tacoma, WA 2/11/87 13,000,000 12,946,000 7.25 8.00
North Glen (K) Atlanta, GA 9/30/86 12,400,000 12,775,000 (AA) 7.00
Northpointe Village
(P)(BB) Fresno, CA 8/25/98 13,250,000 13,650,000 (E) 8.125
Ocean Air (P)(S)(BB) Norfolk, VA 4/20/98 10,000,000 9,959,000 7.25 7.25
Orchard Hills (K) Tacoma, WA 12/31/86 5,650,000 5,627,000 7.25 8.00
Orchard Mill (K) Atlanta, GA 12/31/86 10,500,000 10,517,000 7.50 5.00
Pelican Cove (K)(N) St Louis, MO 2/27/87 18,000,000 19,780,000 8.00 (W)
Phoenix (BB) Stockton, CA 4/28/98 3,250,000 3,181,000 7.125 7.125
River Run (K)(BB) Miami, FL 8/7/87 7,200,000 7,912,000 8.00 8.00
Shannon Lake (K) Atlanta, GA 6/26/87 12,000,000 11,538,000 (B) 6.00
Silvercrest (BB) Clovis, CA 9/24/98 2,275,000 2,227,000 7.125 7.125
Stone Creek (O)(S)(BB) Watsonville, CA 4/28/98 8,820,000 8,632,000 7.125 7.125
Sunset Downs (K) Lancaster, CA 2/11/87 15,000,000 11,284,000 8.00 5.48
Sunset Terrace (K) Lancaster, CA 2/12/87 10,350,000 7,786,000 8.00 5.48
Thomas Lake Eagan, MN 9/02/86 12,975,000 13,367,000 7.50 7.50
Willow Creek (K) Ames, IA 2/27/87 6,100,000 6,075,000 7.25 7.25
----------- -----------
304,004,600 297,444,000
----------- -----------
Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE
AVERAGE RENTAL COMPETING
INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES
RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN
FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION
--------- ----------- -------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
7.00 96.1 388-466 (Y) 130 42
7.50 94.7 755-1299 1989 290 25
6.38 98.7 443-558 1999 80 5
7.13 100 434-554 1999 70 18
8.50 94.7 530-875 1988 250 10
7.00 96.2 550-840 1989 210 168
7.00 99.0 580-780 (Y) 210 33
7.76 96.1 495-795 1980 160 39
7.00 33.8 430-800 (Y) 131 252
7.25 36.2 575-650 1961 96 5
7.36 95.6 855-1460 1989 228 86
7.00 92.9 510-640 1999 98 2
6.08 96.7 585-835 1989 360 30
7.00 68.8 464-654 (Y) 304 8
9.84 92.7 485-825 1987 550 15
7.25 44.3 445-475 1952 250 23
7.76 90.6 460-600 1987 402 181
7.15 91.9 575-880 1987 284 371
8.12 83.0 388-538 1972 406 256
7.25 31.6 540-645 (Z) 434 60
7.76 100 475-770 1987 174 181
6.57 94.5 590-850 1990 238 371
8.08 97.0 495-680 1989 402 172
7.12 97.8 245-395 1999 184 96
9.10 90.0 733-1030 1987 164 184
6.08 92.8 465-840 1988 294 371
7.12 100 275-382 1999 100 42
7.13 65.8 646-981 (Y) 120 5
8.70 93.5 495-755 1987 264 37
8.61 92.3 495-755 1987 184 37
7.50 98.1 830-1370 1988 216 16
7.32 100 550-825 1988 138 7
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
MINIMUM
FAIR VALUE STATED PAY RATE AT
CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER
PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999*
-------- -------- ------ ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
TAXABLE FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Greenbriar (P) Concord, CA 5/6/99 2,015,000 2,015,000 9.00 9.00
Lake Park (P) Turlock, CA 7/15/99 375,000 375,000 9.00 9.00
Lakes Edge at Walden (P) Miami, FL 10/6/99 1,400,000 1,400,000 11.00 11.00
------------ -----------
Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000
------------ -----------
Total First Mortgage Bonds $614,354,528 $587,892,000
============ ===========
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE
AVERAGE RENTAL COMPETING
INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES
RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN
FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION
--------- ----------- -------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
9.00 68 400-975 1966 199 81
9.00 100 452-622 1973 104 24
11.00 95.8 677-898 1986 400 184
</TABLE>
*The average interest rate paid (which in certain cases includes the receipt of
participating interest and deferred base interest relating to prior periods)
represents the interest recorded by the Company while the stated interest rate
represents the coupon rate of the FMB and the minimum pay rate represents the
minimum rate payable pursuant to the applicable forbearance agreement, if any.
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at December 31,
1999.
(B) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 6% through July 31, 2000 and 7% thereafter.
(C) The interest rates for College Park are 7% during the construction
period and 7.25% thereafter.
(D) The interest rates for Bedford Square are 7% during the construction
period and 6.375% thereafter.
(E) The interest rates for Northpointe Village are 7.965% through
September 23, 1998, 8.125% during the remainder of the construction period
and 7.5% thereafter.
(F) The interest rates for Falcon Creek are 7% through August 31, 2000
and 7.25% thereafter.
(G) The interest rates for Jubilee Courtyards are 7% through September
30, 2000 and 7.125% thereafter.
(H) This entity is a consolidated subsidiary of the Company (see Private
Label Tender Option Program below and Item 5. Market for the Company's
Shares and Related Shareholder Matters. - Preferred Equity Offering).
(I) The interest rates for Lewis Place are 6.75% through May 31, 2001
and 7.00% thereafter.
(J) These FMBs have been transferred to Charter Mac Owner Trust I in
connection with the Company's Private Label Tender Option Program (TOP)
(see Private Label Tender Option Program below).
(K) These FMBs are participating FMBs which contain additional interest
features contingent on available cash flow.
(L) The FMBs are held as collateral in connection with the TOP (see
Private Label Tender Option Program below).
(M) These FMBs are pledged as collateral in connection with the Merrill
Lynch RITES/P-FLOATS Program (see Securitization Transactions below).
(N) The original owners of the Underlying Properties and the obligors of
these FMBs have been replaced with affiliates of the Manager.
(O) The Underlying Property is under construction. In the event
construction is not completed in a timely manner, the Company may "put"
the FMB to the construction lender at par.
P) The Underlying Property is undergoing substantial rehabilitation. In the
event rehabilitation is not completed in a timely manner, the Company may
"put" the FMB to the construction lender at par.
(Q) Initial advance on an FMB which will have a face amount of
$4,744,000 when it is fully funded. The balance of $4,694,000 is expected
to be funded in the second quarter of 2000.
(R) Held by Merrill Lynch as collateral for secured borrowings (see
Securitization Transactions below).
(S) All of the "puts" (see (O) and (P) above) are secured by a letter of
credit issued by the construction lender to the Company.
(T) Initial advance in the amount of $50,000 was funded on June 8,
1999. The balance was funded on July 15, 1999.
(U) The interest rates for Hamilton Gardens are 7.625% during the
construction period and 7.125% thereafter.
(V) The interest rates for Country Lake are 6% until expected refunding
in June 2000 and 7.25% thereafter.
(W) The minimum pay rate is the current cash flow of the property.
(X) Built in two phases in 1961 and 1963.
(Y) The property is still in construction phase as of December 31, 1999.
(Z) Originally constructed in 1949 and converted into affordable housing
in 1988.
(AA) Pursuant to a bond modification as of October 1, 1997, the base
interest rate was lowered to 7% through June 30, 2000 and 7.50% thereafter.
(BB) The obligors of these mortgage bonds are partnerships in which
affiliates of the Manager are partners that own a controlling interest.
-10-
<PAGE>
SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
In order to facilitate the securitization, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
December 31, 1999, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$53,761,000, $1,028,209 and $45,541,000, respectively.
During the period May 1999 through December 1999, the Company transferred ten
FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.8%,
annualized, for the period June 29, 1999 (inception of this program) through
December 31, 1999.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch
whereby P-FLOATS and RITES were sold. The Company purchased the related RITES
interests with an aggregate face amount of $15,000 for an aggregate purchase
price of $579,118 which includes bond selection and other transaction costs.
OTHER BOND RELATED INVESTMENTS
The Company's other bond related investments consist of investments in RITES
(see Securitization Transactions above). The following table provides certain
information with respect to each of the RITES.
<TABLE>
<CAPTION>
FACE
AMOUNT AMORTIZED FAIR
OF RITES COST BASIS AT VALUE AT
FMB DATE FACE AMOUNT INTEREST DECEMBER DECEMBER
DESCRIPTION/LOCATION PURCHASED OF FMB PURCHASED 31, 1999 31, 1999
-------------------- --------- ----------------- --------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
OWNED BY CHARTER MAC EQUITY ISSUER TRUST
RITES-Avalon Court/
Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $200,045 $200,000
RITES-Meadowview Park/
Santa Rosa, CA 6/17/99 6,250,000 5,000 162,432 160,000
RITES-The Courtyards/
Santa Rosa, CA 6/17/99 7,940,000 5,000 201,817 200,000
----------- ------- ------- -------
$22,430,000 $15,000 $564,294 $560,000
========== ====== ======= =======
</TABLE>
PRIVATE LABEL TENDER OPTION PROGRAM
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the
Company has contributed 40 issues of FMBs in the aggregate principal amount of
approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination
Trust"), a wholly-owned, indirect subsidiary of the Company, which has
contributed 32 of those FMBs, with an aggregate principal amount of
approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust")
which is controlled by the Company. The Owner Trust has issued two equity
certificates: (i) a Senior Certificate, with an outstanding face amount of
$177,000,000 at December 31, 1999, which has been deposited into another
Delaware business trust (the "Certificate Trust") which issued and sold Floater
Certificates representing proportional interests in the Senior Certificate to
new investors and (ii) a Residual Certificate representing the remaining
beneficial ownership interest in the Owner Trust, which has been issued to the
Origination Trust. The FMBs remaining in the Origination Trust (aggregate
principal amount of approximately $90,452,000) are a collateral pool for the
Owner Trust's obligations under the Senior Certificate. In addition, the Owner
Trust obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the
-11-
<PAGE>
holders of the Floater Certificates and has also arranged for a liquidity
facility, issued by a consortium of highly rated European banks, with respect
to the Floater Certificates. The Company owns no beneficial interest in, and
does not control, the Certificate Trust.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.5% and
4.9% for the year ended December 31, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
PROPOSED MERGER
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $27,382,000 and net assets of
approximately $26,030,000 at December 31, 1999. The four tax-exempt first
mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at
December 31, 1999, have interest rates of 9% and have underlying properties
located in four different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares
at December 31, 1999) will be converted into the right to receive 1.43112 Shares
of the Company. In addition, the manager of ATEBT (which owns a 1% interest in
ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the second
quarter of 2000.
COMPETITION
The Company competes with various financial institutions and credit enhancers in
regard to acquisitions of FMBs. These institutions include quasi-governmental
agencies such as FNMA and FHA as well as sponsors of investors in affordable
housing such as high yield municipal funds, private investment funds and
financial institutions which invest in affordable housing.
The Company's business is also affected by competition to the extent that the
Underlying Properties from which it derives interest and, ultimately, principal
payments may be subject to competition relating to rental rates and relative
levels of amenities from offered by comparable neighboring properties. See the
comprehensive table under the heading "First Mortgage Bonds - General", above,
for additional competitive information.
In addition, the Manager and/or its affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Company.
EMPLOYEES
The Company has no employees. Management and administrative services for the
Company and its subsidiaries are performed by the Manager and its affiliates
pursuant to the Management Agreement between the Company and the Manager dated
October 1, 1997, as amended (the "Management Agreement"). The Manager receives
compensation for such services and the Company and its subsidiaries reimburses
the Manager and certain of its affiliates for expenses incurred in connection
with the performance by their employees of services for the Company in
accordance with the Management Agreement (see Note 10 to the Company's Financial
Statements included in "Item 8. Financial Statements and Supplementary Data").
RECENT LEGISLATION
The States of California and Florida recently adopted administrative amendments
to their allocation plans pursuant to which they award bond value capital to
developers of multifamily housing. These amendments will require, in some cases,
a certain portion of the debt financing for such properties to be taxable.
Therefore, in certain cases, the Company may be required to offer taxable
financing to California and Florida developers in order to be competitive.
On March 9, 2000, the United States House of Representatives passed the Wage and
Employment Growth Act of 1999 ("HR3081"). Section 511 of HR3081 calls for an
acceleration of phase-in of increases in the volume cap on private activity
bonds. As of March 23,
-12-
<PAGE>
2000, the bill has been read twice by the Senate and has been placed on the
Senate legislative calendar. This bill would increase the amount of bonds
available annually for acquisition by the Company or other financial
institutions.
Item 2. Properties
The Company does not own or lease any property.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Shareholders
None.
PART II
Item 5. Market for the Company's Shares and Related Shareholder Matters.
As of March 9, 2000, there were 3,694 registered shareholders owning 20,582,628
Shares. The Company's Shares have been listed on the American Stock Exchange
since October 1, 1997 under the symbol "CHC". Prior to October 1, 1997, there
was no established public trading market for the Company's Shares.
The high and low prices for each quarterly period of the last two years for
which the Shares were traded is as follows:
<TABLE>
<CAPTION>
1999 1999 1998 1998
QUARTER ENDED LOW HIGH LOW HIGH
<S> <C> <C> <C> <C>
March 31 11 15/16 13 3/8 12 11/16 14 1/2
June 30 12 3/8 13 1/16 12 7/8 14 7/16
September 30 12 3/8 13 1/16 12 9/16 14 1/4
December 31 11 3/8 13 1/8 11 11/16 13
</TABLE>
The last reported sale price of Shares on the American Stock Exchange on March
9, 2000 was $11 15/16.
INCENTIVE SHARE OPTION PLAN
The Company has adopted an incentive share option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as trustees and officers and (ii) to incentivize and more closely align
the financial interests of the Manager and its employees and officers with the
interests of the shareholders by providing the Manager with substantial
financial interest in the Company's success. The Compensation Committee
administers the Incentive Share Option Plan. Pursuant to the Incentive Share
Option Plan, if the Company's distributions per Share in the immediately
preceding calendar year exceed $0.9517 per Share, the Compensation Committee has
the authority to issue options to purchase, in the aggregate, that number of
Shares which is equal to three percent of the Shares outstanding as of December
31 of the immediately preceding calendar year (or in the initial year, as of
October 1, 1997), provided that the Compensation Committee may only issue, in
the aggregate, options to purchase a maximum number of Shares over the life of
the Incentive Shares Option Plan equal to 10% of the Shares outstanding on
October 1, 1997 (2,058,748 Shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted by the Compensation Committee will have an exercise price
equal to or greater than the fair market value of the Shares on the date of the
grant. The maximum option term is ten years from the date of grant. All Share
options granted pursuant to the Incentive Share Option Plan may vest immediately
upon issuance or in accordance with the determination of the Compensation
Committee. No options were granted for the year ended December 31, 1997. In
1998, the Company distributed only $.93 per Share, thus prohibiting the
Compensation Committee, from issuing options. In 1999, the Company distributed
$.995 per Share, thus enabling the Compensation Committee, at their discretion,
to issue options. The Compensation Committee is considering granting options;
however, as of March 17, 2000, no options have been granted. Three percent of
the Shares outstanding as of December 31, 1999 are equal to 617,624 Shares.
-13-
<PAGE>
SHARE REPURCHASE PLAN
On October 9, 1998, the Board of Trustees authorized the implementation of a
Share repurchase plan, enabling the Company to repurchase, from time to time, up
to 1,500,000 of its Shares. The repurchases will be made in the open market and
the timing will be dependant on the availability of Shares and other market
conditions. As of both December 31, 1999 and 1998, the Company had acquired
8,400 of its Shares for an aggregate purchase price of $103,359 (including
commissions and service charges). Repurchased Shares are accounted for as
treasury Shares of beneficial interest.
PREFERRED EQUITY OFFERING
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprising 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries. In addition to contributing the
ownership of the Origination Trust, the Company also contributed eight FMBs to
the Issuer. As of the closing, the aggregate par value of FMBs held directly or
indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of
approximately $86,395,000 from the Preferred Offering have been used to invest
in or acquire additional tax-exempt assets for the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375
(66,986.11 per share) were paid to the preferred shareholders of the Issuer for
the period June 29, 1999 (inception) through December 31, 1999.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
OTHER
Through calendar year 1999, each independent trustee was entitled to receive
annual compensation for serving as a trustee in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or Shares valued based on the
fair market value at the date of issuance. Beginning in calendar year 2000, the
annual compensation for the two original independent trustees was increased from
$15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to
$7,500. In 2000, a third independent trustee was appointed and such trustee will
receive annual compensation in the aggregate amount of $30,000 payable in cash
(maximum of $20,000 per year) and or Shares. As of December 31, 1999 and 1998,
1910 and 372 Shares, respectively, having an aggregate value of $25,000 and
$5,000, respectively, have been issued to the independent trustees as
compensation for their services.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares were based
upon a percentage (which Class Counsel proposed to be 25%) of the increase in
value of the Company, ("the Added Value") if any, as of October 1, 1998 based
upon the difference between (i) the trading prices of the Company's shares of
beneficial interest during the six month period ended October 1, 1998 and (ii)
the trading prices of the limited partnership units and the asset values of the
Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added
Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of
Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was
entitled to receive 608,955 shares of beneficial interest in the Company. On
April 15, 1999, the Company successfully negotiated a discounted cash settlement
(the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of
the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was
approved by the Board of Trustees and it was paid on May 3, 1999.
-14-
<PAGE>
DISTRIBUTION INFORMATION
DISTRIBUTIONS PER SHARE
Quarterly cash distributions per share for the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
SHAREHOLDERS OF THE COMPANY
-------------------------------------
CASH DISTRIBUTION TOTAL AMOUNT
FOR QUARTER ENDED DATE PAID PER SHARE DISTRIBUTED
---------------- --------- --------- -------------
<S> <C> <C> <C>
March 31, 1999 5/14/99 $ .240 $ 4,939,437
June 30, 1999 8/15/99 .245 5,042,352
September 30, 1999 11/14/99 .245 5,042,352
December 31, 1999 2/14/00 .265 5,453,971
------- -----------
$ .995 $20,478,112
======= ==========
Total for 1999
March 31, 1998 5/15/98$ .23 $ 4,735,119
June 30, 1998 8/14/98 .23 4,735,205
September 30, 1998 11/14/98 .23 4,735,205
December 31, 1998 2/14/99 .24 4,939,068
------ -----------
Total for 1998 $ .93 $19,144,597
====== ==========
</TABLE>
In addition to the distributions set forth in the table above, the Company paid
the Manager a special distribution (equal to .375% per annum of the total
invested assets of the Company) which amounted to $2,018,822 and $1,477,797 for
the years ended December 31, 1999 and 1998, respectively.
There are no material legal restrictions upon the Company's present or future
ability to make distributions in accordance with the provisions of the Company's
Amended and Restated Trust Agreement. Future distributions paid by the Company
will be at the discretion of the Trustees and will depend on the actual cash
flow of the Company, its financial condition, capital requirements and such
other factors as the Trustees deem relevant.
-15-
<PAGE>
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Company.
Additional financial information is set forth in the audited financial
statements and notes thereto contained in "Item 8. Financial Statements and
Supplementary Data".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
OPERATIONS 1999 1998* 1997* 1996* 1995*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 40,437,190 $ 27,940,120 $ 14,229,774 $ 11,627,595 $ 11,854,566
Loss on impairment of assets***** (1,859,042) 0 (1,843,135) (4,000,000) (1,000,000)
Other expenses (6,316,544) (4,350,249) (2,350,831) (1,782,554) (1,666,763)
------------ ------------ ------------ ------------ ------------
Income before loss on repayment of first
mortgage bonds 32,261,604 23,589,871 10,055,808 5,845,041 9,187,803
Loss on repayment of first mortgage bonds (463,147) 0 0 0 0
------------ ------------ ------------ ------------ ------------
Income before minority interests 31,798,457 23,589,871 10,055,808 5,845,041 9,187,803
Income allocated to preferred shareholders of
subsidiary (3,014,375) 0 0 0 0
Minority interest in income of subsidiary (5,602,264) (1,563,959) 0 0 0
------------ ------------ ------------ ------------ ------------
Net income $ 23,181,818 $ 22,025,872 $ 10,055,808 $ 5,845,041 $ 9,187,801
============ ============ ============ ============ ============
Net income applicable to shareholders of
beneficial interest $ 20,951,366 $ 20,342,594 $ 2,437,538***
============ ============ ============
Net income per share (1)
Basic** $ 1.02 $ .99 $ .12***
============ ============ ============
Diluted** $ 1.02 $ .98 $ .12***
============ ============ ============
Weighted average shares
outstanding:
Basic** 20,580,756 20,587,151 20,587,465***
============ ============ ============
Diluted** 20,580,756 20,740,641 20,587,465***
============ ============ ============
DECEMBER 31,
--------------------------------------------------------------------------------
FINANCIAL POSITION 1999 1998 1997* 1996* 1995*
------------ ------------ ------------ ------------ ------------
Total assets $673,791,224 $492,585,806 $362,390,563 $154,896,475 $157,019,314
============ ============ ============ ============ ============
Secured borrowings $ 80,769,616 $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
Notes payable $ 0 $ 0 $ 21,445,340 $ 0 $ 0
============ ============ ============ ============ ============
Total liabilities $ 91,238,729 $ 15,091,600 $ 30,72,364 $ 573,874 $ 652,350
============ ============ ============ ============ ============
Minority interest in subsidiary (subject to
mandatory redemption) $177,000,000 $150,000,000 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
Preferred shares of subsidiary (subject to
mandatory repurchase) $ 90,000,000 $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
Total shareholders' equity/partners' capital $315,552,495 $327,494,206 $331,668,199 $154,322,601 $156,366,964
============ ============ ============ ============ ============
DISTRIBUTIONS
Distributions to BUC$holders N/A N/A $ 7,138,263**** $ 9,517,685 $ 9,517,685
============ ============ ============
Distributions to shareholders of
beneficial interest $ 20,478,112 $ 19,144,597 $ 4,735,120***
============ ============ ============
Distributions per share** $ 1.00 $ .93 $ .23***
============ ============ ============
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
OTHER DATA
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Cash flows from:
Operating activities $ 23,252,906 $ 22,651,186 $ 4,465,552
============== ============== ============
Investing activities $(196,857,829) $(117,243,543) $ (8,497,439)
============== ============== ============
Financing activities $ 169,165,403 $ 105,388,481 $ 2,144,509
============== ============== ============
</TABLE>
*Information prior to October 1, 1997 (the date of the Consolidation) is only
with respect to Tax Exempt II. Information subsequent to September 30, 1997 is
with respect to the Company and its consolidated subsidiaries which include Tax
Exempt II and the other Partnerships pursuant to the Consolidation.
**Net income and distribution per Share information for periods prior to October
1, 1997 is not presented because it is not indicative of the Company's
continuing capital structure.
***Represents amount for the three months ended December 31, 1997.
****Represents amount for the nine months ended September 30, 1997.
*****The losses on impairment of assets recognized in 1999, 1997, 1996 and 1995
reflect the write-down of the cost basis of certain FMBs to their estimated fair
values, upon the determination that such decline in value was other than
temporary.
(1) Net income per Share equals net income, less the special allocations to the
Manager, divided by the weighted average Shares outstanding for the period.
-17-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating first
mortgage bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). As of
December 31, 1999, the Company owned a portfolio of 69 FMBs and had net assets
of approximately $315,552,495.
The Company was formed by the consolidation (the "Consolidation"), on October 1,
1997, of Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt
L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III"),
three publicly registered limited partnerships (the "Partnerships"). One of the
general partners of the Partnerships was an affiliate of Related Capital Company
("Related").
In order to generate increased tax exempt income and, as a result, enhance the
value of the Company's Shares, the Company intends to invest in or acquire
additional tax-exempt bonds secured by multifamily properties. The Company
believes that it can earn above market rates of interest on its bond
acquisitions by focusing its efforts primarily on affordable housing. The
Manager estimates that nearly 50% of all new multifamily development contains an
affordable component which produces tax credits pursuant to Section 42 of the
Internal Revenue Code. The Company has designed a Direct Purchase Program
specifically designed to appeal to developers of such properties. In general,
these properties are smaller than traditional multifamily housing properties,
averaging 150 units. The traditional method of financing tax-exempt properties
requires the involvement of credit enhancement, rating agencies and investment
bankers. Therefore, the up-front cost of such financing is generally much higher
than traditional multifamily financing. Through its Direct Purchase Program, the
Company will invest in or acquire tax-exempt bonds without the cost associated
with credit enhancement, rating agencies and investment bankers. The Company
believes that the up-front cost savings to the developer will translate into a
higher than market interest rate on the bonds acquired by the Company.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related. The Manager is a
single purpose affiliate of Related which is controlled by the same individuals
and entities which own Related. The Manager benefits from its affiliation with
Related because the Manager is able to utilize Related's resources and
relationships in the multifamily affordable housing finance industry to source
potential borrowers of first mortgage bonds the Company could invest in or
acquire. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 25
years. Related has provided debt and equity financing to properties valued at
over $9.0 billion. According to the 1999 National Multihousing Council survey,
Related is the third largest owner of apartments in the United States.
The Company does not operate as a mortgage REIT, which generally utilize high
levels of leverage and acquire subordinated interests in commercial and/or
residential mortgage-backed securities. Rather, the Company utilizes low levels
of leverage and generally invests in or acquires long-term, fixed-rate,
tax-exempt FMBs. As a result, the Company did not experience the ill effects
associated with the volatile interest rate environment during 1999 and 1998.
Pursuant to its Trust Agreement, the Company is only able to incur leverage or
other financing up to 50% of the Company's Total Market Value (as defined in the
Trust Agreement) as of the date incurred. Mortgage REITs typically incur
leverage at ratios ranging from between 3:1 to 10:1.
In general, the FMBs that the Company either invests in or acquires call for
ten-year restrictions from prepayments, eliminating the Company's susceptibility
to significant levels of repayment risk as a result of interest rate reductions.
Consistent with the foregoing, the Company focuses on providing investors with a
stable level of distributions, even through unstable markets.
The Company requires long-term financing in order to invest in and hold its
portfolio of FMBs. To date, this long-term liquidity has come from the Company's
Private Label Tender Option Program, a preferred equity offering by a subsidiary
and secured borrowings under securitization transactions. These financing
sources have expected lives equal to the expected lives of the FMBs used to
collateralize them although, in accordance with prudent business practice and
industry standards, the surety and liquidity commitment relating to the Private
Label Tender Option Program have shorter terms. The surety commitment has three
years remaining on its five year term and the liquidity commitment is a one year
renewable commitment. The Company expects to renew or replace such commitments
upon expiration of their terms. On a short-term basis, the Company requires
funds to pay its operating expenses and to make distributions to its
shareholders. The primary sources of the Company's short-term liquidity are the
interest income from the FMBs and promissory notes in excess of the related
financing costs, and interest income from cash and temporary investments. The
Company believes that its long-term financing sources, explained in more detail
below, and its short-term liquidity are adequate to meet its current and
projected long-term and short-term liquidity requirements.
During the year ended December 31, 1999 cash and cash equivalents of the Company
and its consolidated subsidiaries decreased approximately $4,440,000. The
decrease was primarily due to the purchase of FMBs ($165,356,000), the purchase
of other bond related investments ($579,000), an increase in deferred bond
selection costs ($3,907,000), the net purchase of temporary investments
($45,541,000), an increase in restricted cash and cash equivalents ($1,028,000),
loans made to properties ($2,847,000), distributions paid to the Manager and
shareholders of the Company and to preferred shareholders of subsidiary,
($23,339,000), an increase in deferred costs relating to the Private Label
Tender Option Program ($560,000) and deferred costs relating to the issuance of
preferred stock of subsidiary ($3,605,000) which exceeded cash provided by
operating activities ($23,253,000), proceeds from repayments of FMBs
($21,395,000), an increase in minority interest ($27,000,000), proceeds from
secured borrowings ($80,770,000) and the
-18-
<PAGE>
issuance of preferred shares of subsidiary ($90,000,000). Included in the
adjustments to reconcile the net income to cash provided by operating activities
is a loss on repayments of FMBs ($463,000) a loss on impairment of assets
($1,859,000) and net amortization ($1,066,000).
The Company, as an alternative to foreclosure in the event of a default, has
entered into forbearance agreements on several FMBs and may be required to
extend these agreements or enter into new agreements in the future. Such
agreements may adversely impact liquidity; however, interest payments from FMBs
and RITES are anticipated to provide sufficient liquidity to fund the Company's
operating expenditures, debt service and distributions in future years.
The determination as to whether it is in the best interest of the Company to
enter into forbearance agreements on the FMBs or, alternatively, to pursue its
remedies under the loan documents, including foreclosure, is based upon several
factors including, but not limited to, Underlying Property performance, owner
cooperation and projected legal costs irrespective of whether the obligor has an
affiliation with the Manager or not.
The difference between the stated interest rates and the rates paid by FMBs is
not accrued as interest income for financial reporting purposes. The accrual of
interest at the stated interest rate will resume once an Underlying Property's
ability to pay the stated rate has been adequately demonstrated. Interest income
of approximately $1,916,000, $3,047,000 and $2,415,000 was not recognized for
the years ended December 31, 1999, 1998 and 1997, respectively.
In January and February 2000, distributions of $1,490,625 ($33,125 per preferred
share) and $5,453,971 ($.265 per Share), respectively, which were declared in
December 1999, were paid to the preferred shareholders of subsidiary and
shareholders of the Company, respectively, from cash flow from operations for
the quarter ended December 31, 1999.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
CAPITAL RAISING TRANSACTIONS
(i) PRIVATE LABEL TENDER OPTION PROGRAM
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the
Company has contributed 40 issues of FMBs in the aggregate principal amount of
approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination
Trust"), a wholly-owned, indirect subsidiary of the Company, which has
contributed 32 of those FMBs, with an aggregate principal amount of
approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust")
which is controlled by the Company. The Owner Trust has issued two equity
certificates: (i) a Senior Certificate, with an outstanding face amount of
$177,000,000 at December 31, 1999, which has been deposited into another
Delaware business trust (the "Certificate Trust") which issued and sold Floater
Certificates representing proportional interests in the Senior Certificate to
new investors and (ii) a Residual Certificate representing the remaining
beneficial ownership interest in the Owner Trust, which has been issued to the
Origination Trust. The FMBs remaining in the Origination Trust (aggregate
principal amount of approximately $90,452,000) are a collateral pool for the
Owner Trust's obligations under the Senior Certificate. In addition, the Owner
Trust obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates. The Company owns no beneficial interest in, and does not control,
the Certificate Trust.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certificates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.5% and
4.9% for the year ended December 31, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
(ii) PREFERRED EQUITY ISSUANCE BY SUBSIDIARY
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprising 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries (see Note 8). In addition to
contributing the ownership of the
-19-
<PAGE>
Origination Trust, the Company also contributed eight FMBs to the Issuer. As of
the closing, the aggregate par value of FMBs held directly or indirectly by the
Issuer or its subsidiaries was $463,699,028. Net proceeds of approximately
$86,395,000 from the Preferred Offering have been used to invest in or acquire
additional tax-exempt assets for the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375
(66,986.11 per share) were paid to the preferred shareholders of the Issuer for
the period June 29, 1999 (inception) through December 31, 1999.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
(iii) SECURITIZATION TRANSACTIONS
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the
Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits
each FMB into an individual special purpose trust created to hold such asset,
together with a Credit Enhancement Guarantee ("Guarantee"). Two types of
securities are then issued by each trust, evidencing ownership in the FMBs and
the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a
short-term senior security which bears interest at a floating rate that is reset
weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the
P-FLOAT security at par (up to 99% of the underlying face amount of the FMB);
and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security
which receives the residual interest payment after payment of P-FLOAT interest
and ongoing transaction fees. The P-FLOATS are sold to qualified third party,
tax-exempt investors and the RITES are sold back to the Company. The Company has
the right, with 14 days notice to the trustee, to purchase the outstanding
P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are
deposited into the P-FLOAT Trust, the Company receives the proceeds from the
sale of the P-FLOATS less certain transaction costs. In certain other cases,
Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the
trust, sell the P-FLOAT security to qualified investors and then the RITES to
the Company.
In order to facilitate the securitization, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
December 31, 1999, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$53,761,000, $1,028,209 and $45,541,000, respectively.
During the period May 1999 through December 1999, the Company transferred ten
FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.8%,
annualized, for the period June 29, 1999 (inception of this program) through
December 31, 1999.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch
whereby P-FLOATS and RITES were sold. The Company purchased the related RITES
interests with an aggregate face amount of $15,000 for an aggregate purchase
price of $579,118 which includes bond selection and other transaction costs.
ACQUISITIONS AND DISPOSITIONS
During the period January 1, 1999 through December 31, 1999 the Company acquired
23 FMBs for an aggregate purchase price of approximately $165,355,500, not
including bond selection fees and expenses of approximately $3,683,991. The
purchases were financed by the TOP, the Preferred Offering and securitization
transactions. Three of the FMBs are taxable FMBs acquired in connection with the
purchase of tax-exempt FMBs.
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the repayment date
of $35,417 resulting in a loss on the repayment (including the prepayment
penalty and the write off of unamortized bond selection costs) in the amount of
$25,493.
-20-
<PAGE>
On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together
the "Players Club/Suntree Obligor") completed a sale of the properties to an
independent third party. The Players Club/Suntree Obligor then repaid the FMBs
with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of
$8,790,000 and $7,500,000 resulting in losses on the repayment (including the
write off of unamortized bond selection costs) in the amounts of $376,496 and
$61,158. In addition, the Players Club/Suntree Obligor also repaid promissory
note obligations in the amounts of $472,128 and $88,618. The Players
Club/Suntree Obligor has no further obligation to the company under the FMBs.
FMB MODIFICATIONS
Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport
Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to
7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued
interest through August 1999 to be paid at maturity or upon a sale or
refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to
2011) and prepayment lock-out dates (to 2006). The contingent interest feature
of the bonds was also modified. These modifications resulted in realized losses
on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to
write down the cost basis of each FMB to its then estimated fair value.
Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate
of the Manager, was transferred to a third party who provided new capital in the
amount of $1,813,000. This new capital will be used primarily to provide for
repairs to the property as well as costs of the transaction. Repairs are
expected to be completed within the next 6-9 months. In conjunction with this
transfer and infusion of capital, it is anticipated that the FMB will be
formally modified within 6 to 9 months, subject to the approval of the local
issuer of the FMB. In the interim, the property will continue to operate
pursuant to a forbearance agreement with the Company which calls for a 5.5%
minimum annual interest rate. The anticipated modification of this FMB resulted
in a realized loss on impairment in the amount of $406,796, to write down the
cost basis of this FMB to its estimated fair value.
Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset
Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"),
affiliates of the Manager, transferred their interests, pursuant to a sale of
stock, to a third party equity investor. Pursuant to such transfer, the Company
entered into a modification agreement (subject to issuer approval) with the new
obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the
terms of the transaction, the Company received a payment on December 30, 1999 of
$1,500,000 in full settlement of all accrued and unpaid base interest on the
Sunset FMBs. In addition, in consideration for the waiver of the payment
requirement for the payment of past and future contingent interest, a payment of
$1,000,000 is expected on or before March 31, 2000. In connection with the
transaction, it is expected that the new obligor will invest $800,000-$1,000,000
for physical improvements to the properties. The modifications of the Sunset
Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on
impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to
write down the cost basis of each of these FMBs to their estimated fair values.
The estimated fair value of the Sunset Creek FMB continues to exceed its
amortized cost basis.
Certain of the Company's other FMBs have previously been modified. These
modifications have generally encompassed an extension of the maturity together
with a prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participation and contingent interest features. Base interest rates, contingent
interest, prepayment lock-outs, mandatory redemption and maturity features vary
dependent on the facts of a particular FMB, the developer, the Underlying
Property's performance and requirements of bond counsel and local issuers. The
Company currently anticipates that it may modify certain other FMBs to reflect
generally similar terms as those modified previously and effective in 1999,
where and as appropriate. Significant modifications to interest rates and
maturity dates are subject to final approval of the local issuers, bond counsel
and indenture trustees.
PROPOSED MERGER
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $27,382,000 and net assets of
approximately $26,030,000 at December 31, 1999. The four tax-exempt first
mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at
December 31, 1999, have interest rates of 9% and have underlying properties
located in four different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares
at December 31, 1999) will be converted into the right to receive 1.43112 Shares
of the Company. In addition, the manager of ATEBT (which owns a 1% interest in
ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the second
quarter of 2000.
-21-
<PAGE>
OTHER
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares were based
upon a percentage (which Class Counsel proposed to be 25%) of the increase in
value of the Company, ("the Added Value") if any, as of October 1, 1998 based
upon the difference between (i) the trading prices of the Company's shares of
beneficial interest during the six month period ended October 1, 1998 and (ii)
the trading prices of the limited partnership units and the asset values of the
Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added
Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of
Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was
entitled to receive 608,955 shares of beneficial interest in the Company. On
April 15, 1999, the Company successfully negotiated a discounted cash settlement
(the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of
the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was
approved by the Board of Trustees and it was paid on May 3, 1999.
RESULTS OF OPERATIONS
The following is a summary of the results of operations of the Company for the
years ended December 31, 1999, 1998 and 1997. The net income for the years ended
December 31, 1999, 1998 and 1997 was $23,181,818, $22,025,872 and $10,055,808,
respectively.
1999 VS. 1998
For the year ended December 31, 1999 as compared to 1998, total revenues, total
expenses and net income increased due to the net result of the acquisition of 23
FMBs during 1999 and 1998, the acquisition of three RITES during 1999 and the
repayment of one of three FMBs repaid during 1999. The Company's results of
operations for the year ended December 31, 1998 consisted primarily of the
results of the Company's investment in 49 FMBs.
Interest income from FMBs increased approximately $11,017,000 for the year ended
December 31, 1999 as compared to 1998. An increase of $9,473,000 was due to the
acquisition of 40 FMBs during 1999 and 1998 (the "1999 and 1998 Acquisitions"),
a decrease of $371,000 was due to the repayment of one of the three FMBs repaid
during 1999 (the "1999 Repayment") and a decrease of $412,000 was due to the
amortization of goodwill in 1999 and the accretion of excess of acquired net
assets over cost in 1998, both relating to the Consolidation (see Note 2(j) to
the Company's financial statements included in "Item 8. Financial Statements and
Supplementary Data"). Excluding the above increases and decreases, interest
income from FMBs increased approximately 10% for the year ended December 31,
1999 as compared to 1998. The increase was primarily due to the receipt of
deferred base interest relating to prior periods with respect to the Suntree,
Players Club, Sunset Creek, Sunset Village, Sunset Downs and Sunset Terrace FMBs
and the repayment of a loan made to the Obligor of the Players Club FMB which
had previously been recorded as a reduction of income, partially offset by a
decrease in interest income from the Cypress Run FMB.
Interest income from other bond related investments in the amount of
approximately $303,000 was recorded for the year ended December 31, 1999
relating to three RITES purchased in June 1999.
Interest income from temporary investments increased approximately $1,068,000
for the year ended December 31, 1999 as compared to 1998 primarily due to higher
invested cash balances in 1999.
Interest income from promissory notes increased approximately $109,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to loans made to
the obligors of the Lakepoint and Country Lake FMBs in 1999.
Interest expense increased approximately $245,000 for the year ended December
31, 1999 as compared to 1998. The increase was primarily due to secured
borrowings in 1999 which offset a decrease due to the repayment of an interim
credit facility in December 1998.
Recurring fees relating to the Private Label Tender Option program increased
approximately $962,000 for the year ended December 31, 1999 as compared to 1998
primarily due to a higher outstanding balance of the TOP during 1999.
Loan servicing and asset management fees increased approximately $353,000 for
the year ended December 31, 1999 as compared to 1998 due to an increase of
$365,000 and a decrease of $12,000 relating to the 1999 and 1998 Acquisitions
and the 1999 Repayment, respectively.
General and administrative expenses increased approximately $184,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to an increase in
public relations expenses and an increase in audit/tax fees due to the 1999 and
1998 Acquisitions.
Amortization increased approximately $223,000 for the year ended December 31,
1999 as compared to 1998 primarily due to an increase in amortization of
deferred costs relating to the TOP.
A loss on impairment of assets in the amount of approximately $1,859,000 was
recorded for the year ended December 31, 1999 to recognize other than temporary
impairment of seven FMBs based upon modifications of, and the anticipated
modification of, six and one FMBs, respectively.
A loss on repayment of three FMBs in the amount of approximately $463,000 was
recorded for the year ended December 31, 1999.
-22-
<PAGE>
Income allocated to preferred shareholders of subsidiary for the year ended
December 31, 1999 relates to the Preferred Offering executed on June 29, 1999.
Minority interest in income of subsidiary increased approximately $4,038,000 for
the year ended December 31, 1999 as compared to 1998 primarily due to a higher
outstanding balance of the TOP during 1999.
1998 VS. 1997
For the year ended December 31, 1998 as compared to 1997, total revenues, total
expenses and net income increased and the results of operations are not
comparable due to (i) the Consolidation of Tax Exempt II with two other
Partnerships on October 1, 1997, which resulted in the formation of the Company
and (ii) the acquisition of 18 FMBs after the Consolidation. The Company's
results of operations for the year ended December 31, 1998 consisted primarily
of the results of the Company's investment in 49 FMBs. The Company's results of
operations for the year ended December 31, 1997 consisted primarily of the
results of Tax Exempt II's investment in 16 FMBs. In addition, the results of
operations are not reflective of future operations due to the anticipated
continued acquisition of FMBs.
Interest income from FMBs increased approximately $13,222,000 for the year ended
December 31, 1998 as compared to 1997. An increase of $9,815,000 was due to the
16 FMBs (including Tax Exempt III's portion of the Players Club FMB) acquired
from Tax Exempt I and Tax Exempt III in the Consolidation (the "Tax Exempt I and
III Acquisitions") and an increase of $3,252,000 was due to the acquisition of
18 FMBs after the Consolidation (the "New Acquisitions"). Excluding these
acquisitions, interest income from FMBs increased approximately 1% for the year
ended December 31, 1998 as compared to 1997.
Interest income from temporary investments increased approximately $66,000 for
the year ended December 31, 1998 as compared to 1997 primarily due to higher
invested cash balances in 1998.
Interest income from promissory notes increased approximately $422,000 for the
year ended December 31, 1998 as compared to 1997. An increase of $405,000 was
due to the Tax Exempt I and III Acquisitions. Excluding these acquisitions,
interest income from promissory notes increased approximately $17,000 for the
year ended December 31, 1998 as compared to 1997 primarily due to loans to the
owners of the Suntree and Bristol Village Underlying Properties in November 1997
and June 1998, respectively.
Interest expense increased approximately $1,075,000 for the year ended December
31, 1998 as compared to 1997 primarily due to higher outstanding balances of the
Interim Credit Facility during 1998.
Recurring fees relating to the Private Label Tender Option Program were recorded
for the period May 21, 1998 (inception) through December 31, 1998.
Management fees incurred to the general partners of Tax Exempt II in the amount
of approximately $608,000 were recorded in 1997.
Loan servicing fees increased approximately $462,000 for the year ended December
31, 1998 as compared to 1997 due to increases of $349,000 and $113,000 relating
to the Tax Exempt I and III Acquisitions and the New Acquisitions, respectively.
General and administrative expenses increased approximately $518,000 for the
year ended December 31, 1998 as compared to 1997. This increase was primarily
due to an increase in printing and investor service expenses resulting from an
increase in investors, an increase in insurance expense, an increase in
audit/tax fees and expense reimbursements to the Manager and its affiliates due
to the Tax Exempt I and III Acquisitions and the New Acquisitions and fees to
the independent trustees relating to their services for 1998.
Amortization increased approximately $117,000 for the year ended December 31,
1998 as compared to 1997 primarily due to amortization of deferred costs
relating to the TOP.
A loss on impairment of assets in the amount of approximately $1,843,000 was
recorded in 1997 to recognize other than temporary impairment of the Shannon
Lake, Players Club and Lakepoint FMBs based upon operating difficulties at the
properties securing the FMBs.
Minority interest in income of subsidiary in the amount of approximately
$1,564,000 was recorded in 1998, relating to the TOP.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It is effective for the Company
beginning with the first quarter of 2001. Because the Company does not currently
utilize derivatives or engage in hedging activities, management does not
anticipate that implementation of this statement will have a material effect on
the Company's financial statements.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the
-23-
<PAGE>
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, which will, among other things, affect the availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
INFLATION
Inflation did not have a material effect on the Company's results for the
periods presented.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to gains and losses due to
fluctuations in market interest rates. Market interest rates are highly
sensitive to many factors, including governmental policies, domestic and
international political considerations and other factors beyond the control of
the Company.
The FMBs generally bear interest at fixed rates, or pay interest according to
the cash flows of the Underlying Properties, which do not fluctuate with changes
in market interest rates. In contrast, payments required under the TOP program
and on the secured borrowings under the P-FLOAT program vary based on market
interest rates, primarily Bond Market Association ("BMA") and are re-set weekly.
Thus, an increase in market interest rates would result in increased payments
under these financing programs, without a corresponding increase in cash flows
from the investments in FMBs. For example, based on the $257,769,616 outstanding
under these financing programs at December 31, 1999, the Company estimates that
an increase of 0.5% in the BMA rate would decrease the Company's annual net
income by approximately $1,289,000; a 1.0% increase in BMA would decrease annual
net income by approximately $2,578,000. For the same reasons, a decrease in
market interest rates would generally benefit the Company, as a result of
decreased allocations to the minority interest and interest expense without
corresponding decreases in interest received on the FMBs, in the same amounts as
described above. During June of 1999, a subsidiary of the Company completed a
$90 million Preferred Offering. These preferred shares carry a fixed dividend
rate of 6 5/8% through June 30, 2009, and so are not impacted by changes in
market interest rates.
Various financial vehicles exist which would allow Company management to
mitigate the impact of interest rate fluctuations on the Company's cash flows
and earnings. Although management has not engaged in any of these hedging
strategies in the past, it may do so in the future, depending on management's
analysis of the interest rate environment and the costs and risks of such
strategies.
Changes in market interest rates would also impact the estimated fair value of
the Company's portfolio of FMBs. The Company estimates the fair value for each
FMB as the present value of its expected cash flows, using a discount rate for
comparable tax-exempt investments. Therefore, as market interest rates for
tax-exempt investments increase, the estimated fair value of the company's FMBs
will generally decline, and a decline in interest rates would be expected to
result in an increase in the estimated fair values. For example, the Company
projects that a 1% increase in market rates for tax-exempt investments would
decrease the estimated fair value of its portfolio of FMBs from its December 31,
1999 value of $587,892,000 to approximately $522,849,000. A 1% decline in
interest rates would increase the value of the December 31, 1999 portfolio to
approximately $673,644,000. Changes in the estimated fair value of the FMBs do
not impact the Company's reported net income, earnings per share, distributions
or cash flows, but are reported as components of other comprehensive income and
affect reported shareholders' equity.
-24-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
<S> <C>
PAGE
(a) 1. FINANCIAL STATEMENTS ----
--------------------
Independent Auditors' Report 26
Consolidated Balance Sheets as of December 31, 1999 and 1998 27
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997 28
Consolidated Statements of Changes in Shareholders' Equity/Partners'
Capital (Deficit) for the years ended December 31, 1999, 1998 and 1997 29
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997 31
Notes to Consolidated Financial Statements 34
</TABLE>
-25-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
And Shareholders of
Charter Municipal Mortgage Acceptance Company
New York, New York
We have audited the accompanying consolidated balance sheets of Charter
Municipal Mortgage Acceptance Company and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholders' equity/partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedules listed in Item 14(a)2. These
financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Charter Municipal Mortgage
Acceptance Company and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE LLP
New York, New York
March 14, 2000
-27-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
-------------- -----------------
ASSETS
<S> <C> <C>
First mortgage bonds-at fair value $587,892,000 $458,662,600
Other bond related investments-at fair value 560,000 0
Temporary investments 45,541,000 0
Cash and cash equivalents 8,653,503 13,093,023
Cash and cash equivalents-restricted 1,028,209 0
Interest receivable, net 2,803,278 1,512,562
Promissory notes receivable 10,148,060 7,628,920
Deferred costs, net 14,222,451 7,005,965
Goodwill, net 2,674,626 4,671,236
Other assets 268,097 11,500
------------- ------------
Total assets $673,791,224 $492,585,806
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Secured borrowings $80,769,616 $ 0
Accounts payable, accrued expenses and other liabilities 2,306,306 8,993,174
Due to Manager and affiliates 1,218,211 1,159,358
Distributions payable to preferred shareholders
of subsidiary 1,490,625 0
Distributions payable to shareholders 5,453,971 4,939,068
------------- ------------
Total liabilities 91,238,729 15,091,600
------------ -----------
Minority interest in subsidiary (subject to mandatory
redemption) 177,000,000 150,000,000
----------- -----------
Preferred shares of subsidiary (subject to mandatory
repurchase) 90,000,000 0
------------- ------------
Commitments and contingencies
Shareholders' equity:
Beneficial owner's equity-manager 441,878 230,259
Beneficial owners' equity-other shareholders
(50,000,000 shares authorized; 20,589,375 issued and
20,580,975 outstanding and 20,587,837 issued and
20,579,437 outstanding in 1999 and 1998, respectively) 312,800,380 312,307,115
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive income 2,413,596 15,060,191
------------- ------------
Total shareholders' equity 315,552,495 327,494,206
------------- ------------
Total liabilities and shareholders' equity $673,791,224 $492,585,806
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-27-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Interest income:
First mortgage bonds $ 38,141,250 $ 27,124,667 $ 13,902,592
Other bond related investments 303,280 0 0
Temporary investments 1,289,669 221,270 155,460
Promissory notes 702,991 594,183 171,722
------------ ------------ ----------
Total revenues 40,437,190 27,940,120 14,229,774
------------ ------------ ----------
Expenses:
Interest expense 1,749,225 1,504,334 429,012
Recurring fees relating to the Private
Label Tender Option Program 1,416,756 454,919 0
Partnership management fees 0 0 607,969
Loan servicing and management fees 1,337,738 985,198 523,538
General and administrative 1,430,798 1,247,226 728,812
Amortization 382,027 158,572 41,500
Loss on impairment of assets 1,859,042 0 1,843,135
------------ ------------ ----------
Total expenses 8,175,586 4,350,249 4,173,966
------------ ------------ ----------
Income before loss on repayment of first
mortgage bonds 32,261,604 23,589,871 10,055,808
Loss on repayment of first mortgage bonds (463,147) 0 0
------------ ------------ ----------
Income before minority interests 31,798,457 23,589,871 10,055,808
Income allocated to preferred shareholders
of subsidiary (3,014,375) 0 0
Minority interest in income of subsidiary (5,602,264) (1,563,999) 0
------------ ------------ ----------
Net income $ 23,181,818 $ 22,025,872 $ 10,055,808
============ ============ ==========
Allocation of net income:
Special distribution to Manager $ 2,018,822 $ 1,477,797 $ 330,580*
============ ============ ==========
Manager $ 211,630 $ 205,481 $ 24,622*
============ ============ ==========
Shareholders $ 20,951,366 $ 20,342,594 $ 2,437,538*
============ ============ ==========
Net income per share:
Basic $ 1.02 $ .99 $ .12**
============ ============ ==========
Diluted $ 1.02 $ .98 $ .12**
============ ============ ==========
Weighted average shares
outstanding:
Basic 20,580,756 20,587,151 20,587,465**
============ ============ ==========
Diluted 20,580,756 20,740,641 20,587,465**
============ ============ ==========
</TABLE>
*Represents amount for the three months ended December 31, 1997.
**Represents amount for the three months ended December 31, 1997. Net income per
unit information for the period before October 1, 1997 is not presented because
it is not indicative of the Company's continuing capital structure.
See accompanying notes to consolidated financial statements
-28-
<PAGE>
<TABLE>
<CAPTION>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
BENEFICIAL
BENEFICIAL OWNERS'
OWNER'S EQUITY-
GENERAL EQUITY- OTHER
BUC$HOLDERS PARTNERS MANAGER SHAREHOLDERS
--------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 160,622,463 $ (184,260) $ 0 $ 0
Net income - January 1, 1997 to September 30, 1997 7,117,807 145,261 0 0
Distributions - January 1, 1997 to September 30, 1997 (9,517,685) (194,238) 0 0
Consolidation and issuance of shares (158,222,585) 233,237 169 316,117,946
Consolidation costs 0 0 (1) (2,497,602)
Net income - October 1, 1997 to December 31, 1997 0 0 355,202 2,437,538
Comprehensive income:
Net Income - January 1, 1997 to December 31, 1997
Other comprehensive income:
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain arising during the Period
Add: reclassification adjustment for losses included in net
income
Other comprehensive income
Comprehensive income
Distributions - October 1, 1997 to December 31, 1997 0 0 (330,582) (4,735,117)
------------- ----------- ------------ ------------
Balance at December 31, 1997 0 0 24,788 311,322,765
Comprehensive income:
Net income 0 0 1,683,278 20,342,594
Other comprehensive loss:
Net unrealized loss on first mortgage bonds:
Net unrealized holding loss arising during the Period
Comprehensive income
Issuance of shares of beneficial interest 0 0 0 5,000
Purchase of treasury shares of beneficial interest 0 0 0 0
Consolidation costs 0 0 0 (218,657)
Distributions 0 0 (1,477,807) (19,144,587)
------------- ----------- ------------ ------------
Balance at December 31, 1998 0 0 230,259 312,307,115
<CAPTION>
TREASURY ACCUMU-
SHARES OF LATED OTHER
BENEFICIAL COMPREHEN- COMPREHEN-
INTEREST SIVE INCOME SIVE INCOME TOTAL
-------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 0 $(6,115,602) $ 154,322,601
Net income - January 1, 1997 to September 30, 1997 0 $ 7,263,068 0 7,263,068
Distributions - January 1, 1997 to September 30, 1997 0 0 (9,711,923)
Consolidation and issuance of shares 0 0 158,128,767
Consolidation costs 0 0 (2,497,603)
Net income - October 1, 1997 to December 31, 1997 0 2,792,740 0 2,792,740
Comprehensive income: ----------
Net Income - January 1, 1997 to December 31, 1997 10,055,808
Other comprehensive income: ----------
Net unrealized gain on first mortgage bonds:
Net unrealized holding gain arising during the period 24,593,113
Add: reclassification adjustment for losses included in net
income 1,843,135
==========
Other comprehensive income 26,436,248 26,436,248 26,436,248
==========
Comprehensive income 36,492,056
==========
Distributions - October 1, 1997 to December 31, 1997 0 0 (5,065,699)
--------- ----------- -----------
Balance at December 31, 1997 0 20,320,646 331,668,199
Comprehensive income:
Net income 0 22,025,872 0 22,025,872
Other comprehensive loss:
Net unrealized loss on first mortgage bonds:
Net unrealized holding loss arising during the period (5,260,455) (5,260,455) (5,260,455)
----------
Comprehensive income 16,765,417
==========
Issuance of shares of beneficial interest 0 0 5,000
Purchase of treasury shares of beneficial interest (103,359) 0 (103,359)
Consolidation costs 0 0 (218,657)
Distributions 0 0 (20,622,394)
--------- ----------- -----------
Balance at December 31, 1998 (103,359) 15,060,191 327,494,206
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
BENEFICIAL
BENEFICIAL OWNERS' TREASURY
OWNER'S EQUITY- SHARES OF
GENERAL EQUITY- OTHER BENEFICIAL
BUC$HOLDERS PARTNERS MANAGER SHAREHOLDERS INTEREST
----------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Comprehensive income:
Net income 0 0 2,230,452 20,951,366 0
Other comprehensive loss:
Net unrealized loss on first mortgage bonds and bond related investments:
Net unrealized holding loss arising during the period
Add: Reclassification adjustment for losses included in net income
Other comprehensive loss
Comprehensive income
Issuance of shares of beneficial interest 0 0 0 20,000 0
Distributions 0 0 (2,018,833) (20,478,101) 0
-------------- ------------ ----------- ------------- -------------
Balance at December 31, 1999 $ 0 $ 0 $ 441,878 $312,800,380 $ (103,359)
============== ============ =========== ============= =============
<CAPTION>
ACCUMU-
LATED OTHER
COMPREHEN- COMPREHEN-
SIVE INCOME SIVE INCOME TOTAL
------------- -------------- ---------------
<S> <C> <C> <C>
Comprehensive income:
Net income 23,181,818 0 23,181,818
Other comprehensive loss: ----------
Net unrealized loss on first mortgage bonds and
bond related investments:
Net unrealized holding loss arising during the period (14,968,784)
Add: Reclassification adjustment for losses included
in net income 2,322,189
----------
Other comprehensive loss (12,646,595) (12,646,595) (12,646,595)
----------
Comprehensive income 10,535,223
==========
Issuance of shares of beneficial interest 0 20,000
Distributions 0 (22,496,934)
------------ -------------
Balance at December 31, 1999 $ 2,413,596 $ 315,552,495
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $23,181,818 $22,025,872 $10,055,808
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayments of first mortgage bonds 463,147 0 0
Loss on impairment of assets 1,859,042 0 1,843,135
Amortization 382,027 158,572 41,500
Amortization of goodwill 297,624 134,592 0
Amortization of bond selection costs 452,949 238,928 184,851
Accretion of excess of acquired net
assets over cost 0 (248,559) (82,853)
Accretion of deferred income (66,212) (66,212) (66,212)
Income allocated to preferred shareholders
of subsidiary 3,014,375 0 0
Changes in operating assets and liabilities:
Interest receivable (1,290,716) (633,043) 449,808
Other assets (5,097) 29,971 (5,503)
Accounts payable, accrued expenses and
other liabilities (4,948,125) 608,704 69,393
Due from affiliates 0 0 84,225
Due to Manager and affiliates (87,926) 402,361 (162,178)
------------- ------------ -----------
Total adjustments 71,088 625,314 2,356,166
------------- ------------ ----------
Net cash provided by operating activities 23,252,906 22,651,186 12,411,974
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from repayments of first mortgage bonds 21,395,213 0 0
Purchase of first mortgage bonds (165,355,500) (117,596,600) (5,000,000)
Purchase of other bond related investments (579,118) 0 0
Increase in deferred bond selection costs (3,906,784) (2,598,288) (130,091)
Net sale (purchase) of temporary investments (45,541,000) 3,500,000 100,000
Increase in other assets (251,500) 0 0
Increase in other deferred costs (100,000) 0 0
Loans made to properties (2,847,185) (1,055,695) (324,000)
Principal payments received from loans made to
properties 328,045 507,040 129,257
-------------- ------------- -----------
Net cash used in investing activities (196,857,829) (117,243,543) (5,224,834)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from note payable 0 96,039,231 23,945,340
Repayments of note payable 0 (117,484,571) (16,180,866)
Proceeds from secured borrowings 80,769,616 0 0
Increase in cash and cash equivalents-restricted (1,028,209) 0 0
Distributions paid to the Manager and
shareholders of the Company/partners (21,815,252) (20,331,395) (12,164,011)
Distributions paid to preferred shareholders
of subsidiary (1,523,750) 0 0
Increase in minority interest 27,000,000 150,000,000 0
Increase in deferred costs relating to the Private
Label Tender Option Program (559,632) (2,512,768) (583,727)
Issuance of preferred stock of subsidiary 90,000,000 0 0
Deferred costs relating to the issuance of
preferred stock of subsidiary (3,605,331) 0 0
Increase in other deferred costs (72,039) 0 0
Purchase of treasury shares of beneficial interest 0 (103,359) 0
Consolidation costs 0 (218,657) (2,497,603)
Cash effect of Consolidation and issuance
of shares 0 0 2,341,434
----------- ----------- -----------
Net cash provided by (used in) financing activities 169,165,403 105,388,481 (5,139,433)
----------- ----------- ----------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
-31-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents (4,439,520) 10,796,124 2,047,707
Cash and cash equivalents at the
beginning of the year 13,093,023 2,296,899 249,192
---------- ----------- ----------
Cash and cash equivalents at the
end of the year $ 8,653,503 $13,093,023 $2,296,899
=========== ========== =========
Supplemental information:
Interest paid $ 1,418,865 $ 1,507,871 $ 400,009
=========== =========== =============
Supplemental disclosure of noncash activities:
Issuance of shares of beneficial interest for
trustee fees $ 20,000 $ 5,000 $ 0
============= ============== ================
Payable to trustees liquidated through the
issuance of shares of beneficial interest:
Increase in goodwill $ 0 $(4,805,828) $ 0
Decrease in excess of acquired net
assets over cost 0 (2,982,708) 0
Increase in accounts payable, accrued
expenses and other liabilities 0 7,788,536 0
---------- ----------- ----------
$ 0 $ 0 $ 0
============= ============== ================
Adjustment to goodwill due to the
Discounted Cash Settlement:
Decrease in goodwill 1,698,986 0 0
Decrease in accounts payable, accrued
expenses and other liabilities (1,698,986) 0 0
------------- ------------ -------------
$ 0 $ 0 $ 0
============= ============== ================
Consolidation and issuance of shares:
Increase in first mortgage bonds $ 0 $ 0 $(168,557,007)
Increase in interest receivable 0 0 (593,984)
Increase in promissory notes receivable 0 0 (6,609,950)
Increase in other assets 0 0 (12,193)
Increase in notes payable 0 0 13,680,866
Increase in accounts payable, accrued
expenses and other liabilities 0 0 104,376
Increase in due to affiliates 0 0 434,351
Increase in distributions payable 0 0 2,452,088
Increase in excess of acquired net assets over cost 0 0 3,314,120
Decrease in BUC$holders' capital 0 0 (158,222,585)
Increase in general partners' capital 0 0 233,237
Issuance of shares of beneficial interest 0 0 313,776,681
------------- -------------- ----------------
$ 0 $ 0 $ 0
============= ============== ================
</TABLE>
(continued)
See accompanying notes to consolidated financial statements
-32-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Distributions to the Manager and shareholders
of the Company/partners $(22,496,934) $(20,622,394) $(14,777,622)
Increase in special distribution payable to the
Manager 166,779 87,050 330,580
Increase in distributions payable to
shareholders of the Company/partners 514,903 203,949 2,283,031
------------ ------------ -----------
Distributions paid to the Manager and shareholders
of the Company/partners $(21,815,252) $(20,331,395) $(12,164,011)
=========== =========== ===========
Distributions to preferred shareholders of
subsidiary $ (3,014,375) $ 0 $ 0
Increase in distribution payable to preferred
shareholders of subsidiary 1,490,625 0 0
------------ ------------ -----------
Distributions paid to preferred shareholders
of subsidiary $ (1,523,750) $ 0 $ 0
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-33-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware
business trust which is engaged in the acquisition and ownership (either
directly or indirectly) of tax-exempt participating and non-participating first
mortgage bonds ("FMBs") issued by various state or local governments or other
agencies or authorities and secured by participating and non-participating
mortgage loans on the underlying properties ("Underlying Properties"). As of
December 31, 1999 the Company owned a portfolio of 69 FMBs.
The Company was formed on October 1, 1997 as the result of the consolidation
(the "Consolidation") of three publicly registered limited partnerships, Summit
Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax
Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III") (the
"Partnerships", and each individually a "Partnership"). One of the general
partners of the Partnerships was an affiliate of Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm.
Unless otherwise indicated, the "Company", as hereinafter used, refers to
Charter Municipal Mortgage Acceptance Company and its consolidated subsidiaries
and, for references prior to October 1, 1997, refers to Tax Exempt II. Pursuant
to the Consolidation, the Company issued shares of beneficial interest (the
"Shares") to all partners in each of the Partnerships in exchange for their
interests in the Partnerships based upon each partner's proportionate interest
in the Shares issued to their Partnership in the Consolidation. The Shares
commenced trading on the American Stock Exchange on October 1, 1997 under the
symbol "CHC". As of December 31, 1999, there were 20,580,986 Shares outstanding.
The Company is governed by a board of trustees comprised of three independent
managing trustees and four managing trustees who are affiliated with Related.
The Company has engaged Related Charter LP (the "Manager"), an affiliate of
Related, to manage its day-to-day affairs.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Company are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").
For financial accounting and reporting purposes, the Consolidation was accounted
for using the purchase method of accounting. Under this method, the Partnership
with the investor group receiving the largest ownership in the Company, in this
case Tax Exempt II, was deemed to be the acquirer. As the surviving entity for
accounting purposes, Tax Exempt II's assets and liabilities were recorded by the
Company at their historical cost, with the assets and liabilities of the other
Partnerships recorded at their estimated fair values for each Partnership (an
aggregate of approximately $158,129,000) as set forth in the Solicitation
Statement of the Company dated June 18, 1997 (the "Solicitation Statement").
Results of operations and other operating financial data for the Company prior
to October 1, 1997 (the date of the Consolidation) is only with respect to Tax
Exempt II. Information subsequent to September 30, 1997 is with respect to the
Company and its consolidated subsidiaries which include Tax Exempt II and the
other Partnerships pursuant to the Consolidation. Prior to the Consolidation,
Tax Exempt II was a limited partnership which was formed under the laws of the
State of Delaware on April 11, 1986.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
four majority owned subsidiary business trusts which it controls: CM Holding
Trust, Charter Mac Equity Issuer Trust, Charter Mac Origination Trust I and
Charter Mac Owner Trust I (see Notes 8 and 9). All intercompany accounts and
transactions have been eliminated in consolidation.
c) FMBs and Promissory Notes Receivable
The Company accounts for its investments in the FMBs as available-for-sale debt
securities under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115").
In most cases the Company has a right to require redemption of the FMBs prior to
their maturity, although it can and may elect to hold them up to their maturity
dates unless otherwise modified. As such, SFAS 115 requires the Company to
classify these investments as "available-for-sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in other comprehensive income. Unrealized gains or losses do not
affect the cash flow generated from property operations, distributions to
shareholders, the characterization of the tax-exempt income stream or the
financial obligations under the FMBs.
The Company periodically evaluates each FMB to determine whether a decline in
fair value below the FMB's cost basis is other than temporary. Such a decline is
considered to be other than temporary if, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the existing contractual terms of the FMB. If the decline is
judged to be other than temporary, the cost basis of the FMB is written down to
its then estimated fair value, with the amount of the write-down accounted for
as a realized loss.
Because the FMBs are not readily marketable, the Company estimates fair value
for each bond as the present value of its expected cash flows using a discount
rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation,
-34-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market capitalization rates and upon determination of an appropriate market rate
of interest, all of which are based on good faith estimates and assumptions
developed by the Manager. Changes in market conditions and circumstances may
occur which would cause these estimates and assumptions to change; therefore,
actual results may vary from the estimates and the variance may be material.
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. These promissory notes are carried at cost less a valuation allowance
where appropriate. The Company periodically evaluates the collectibility of both
interest and principal of these investments to determine whether a reserve is
necessary.
For both FMBs and promissory notes, interest income is recognized at the stated
rate when collectibility of future amounts is reasonably assured. Interest
income from FMBs with modified terms or where the collectibility of future
amounts is uncertain is recognized based upon expected cash receipts.
d) Other Bond Related Investments
The Company's other bond related investments consist of investments in RITES, a
security offered by Merrill Lynch Pierce Fenner & Smith Incorporated through its
P-FLOATS/RITES program discussed more fully in Note 4. The Company accounts for
its investments in RITES as available-for-sale debt securities under the
provisions of SFAS 115. Accordingly, the RITES are carried at their estimated
fair values, with unrealized gains and losses reported in other comprehensive
income, while other than temporary impairments are recorded in operations.
Interest income is recognized as it accrues. The fair value of the RITES, which
have a limited market, is estimated by management, utilizing quotes from
external sources, such as brokers, for these or similar investments, as
necessary.
e) Temporary Investments
Temporary investments at December 31, 1999 represent puttable floating option
tax-exempt receipts ("P-FLOATS"), short-term senior securities which bear
interest at a floating rate that is reset weekly, for which cost is equal to
market value.
f) Cash and Cash Equivalents - Restricted and Unrestricted
Cash and cash equivalents - restricted as collateral relating to the
securitization of certain FMBs (see Note 4) and unrestricted cash and cash
equivalents include cash in banks and investments in short-term instruments with
an original maturity of three months or less.
g) Deferred Bond Selection Costs
Prior to the Consolidation the general partners of Tax Exempt II were paid, and
after the Consolidation the Advisor is paid, fees for the activities performed
to originate the FMBs, including evaluating and selecting FMBs, negotiating the
terms of mortgage loans and coordinating the development effort with property
developers and government agencies. These fees, and other expenditures
representing direct costs of acquiring or investing in FMBs, are capitalized and
amortized as a reduction to interest income over the terms of the FMBs. Direct
costs relating to unsuccessful acquisitions and all indirect costs relating to
the FMBs are charged to operations.
h) Deferred Costs Relating to the Private Label Tender Option Program
Costs incurred in connection with the Company's Private Label Tender Option
Program (see Note 8), such as legal, accounting documentation and other direct
costs, have been capitalized and are being amortized over the life of the
program using the effective yield method.
i) Deferred Costs Relating to the Issuance of Preferred Shares of Subsidiary
Costs incurred in connection with the issuance of preferred shares of subsidiary
(see Note 9), such as legal, accounting documentation and other direct costs,
have been capitalized and are being amortized using the straight line method
over 50 years which is the term to the mandatory repurchase in 2049.
j) Goodwill/Excess of Acquired Net Assets Over Cost
The application of purchase accounting to the Consolidation resulted in the
Company recording a deferred credit for the excess of the fair value of the net
assets acquired from Tax Exempt I and Tax Exempt III over their cost. This
deferred credit was being accreted to interest income from FMBs using the
straight-line method over 10 years, which approximated the average remaining
term to maturity of the FMBs. The accrual of the estimated value of the Counsel
Fee Shares (see Note 12) at October 1, 1998 was considered to be a purchase
price adjustment and, in accordance with the application of purchase accounting
to the Consolidation, resulted in the reversal of the carrying value of the
excess of acquired net assets over cost and the recognition of goodwill at
October 1, 1998 in the amount of $4,805,828. In April 1999, the Company
successfully negotiated a Discounted Cash Settlement (see Note 12) in lieu of
the issuance of Shares which resulted in a decrease in the liability for Counsel
Fee Shares and in goodwill in the amount of
-35-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1,698,986. Goodwill is being amortized to interest income from FMBs using the
straight-line method over nine years, which approximates the average remaining
term to maturity of the FMBs acquired in the Consolidation.
k) Fair Value of Financial Instruments
As described above, the Company's investments in FMBs and other bond related
investments are carried at estimated fair values. The Company has determined
that the fair value of its remaining financial instruments, including its
temporary investments, cash and cash equivalents, promissory notes receivable
and secured borrowings approximate their carrying values at December 31, 1999
and 1998.
l) Consolidation Costs
Costs incurred in the Consolidation including legal, accounting and registration
fees, amounting to $2,716,260, were charged to shareholders' equity.
m) Income Taxes
The Company is not required to provide for, or pay, any federal income taxes.
Income tax attributes that arise from its operations are passed directly to the
Company's shareholders. The Company may be subject to state and local taxes in
jurisdictions in which it operates. At December 31, 1999, the net tax basis of
the Company's assets and liabilities exceeded the net book basis by
approximately $63,428,000.
n) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," requires the Company to classify
items of "other comprehensive income", such as unrealized gains and losses on
its FMBs and other bond related investments, by their nature in the financial
statements and display the accumulated balance of other comprehensive income
(loss) separately from beneficial owners' equity in the shareholders' equity
section of the consolidated balance sheets. In accordance with SFAS No. 130,
cumulative unrealized gains and losses on securities available-for-sale are
classified as accumulated other comprehensive income in shareholders' equity and
current period unrealized gains and losses are included as a component of
comprehensive income.
o) Use of Estimates
The preparation of financial statements in conformity with GAAP requires the
Manager to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
p) Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires enterprises to report certain financial and descriptive
information about their reportable operating segments, and certain
enterprise-wide disclosures regarding products and services, geographic areas
and major customers. The Company is an investor in tax-exempt First Mortgage
Bonds, and operates in only one reportable segment. The Company does not have or
rely upon any major customers. All of the Company's investments are secured by
real estate properties located in the United States; accordingly, all of its
revenues were derived from U.S. operations.
q) New Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It is effective for the Company beginning with the first quarter of 2001.
Because the Company does not currently utilize derivatives or engage in hedging
activities, management does not anticipate that implementation of this statement
will have a material effect on the Company's financial statements.
r) Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
-36-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - First Mortgage Bonds
As of December 31, 1999, the Company and its consolidated subsidiaries owned 69
FMBs (26 participating FMBs (see Footnote K below) and 43 non-participating
FMBs). Three of the FMBs are taxable FMBs acquired in connection with the
purchase of tax-exempt FMBs. The taxable FMBs are secured by the same Underlying
Properties which secure the associated tax-exempt FMBs. The following table
provides certain information with respect to each of the FMBs.
<TABLE>
<CAPTION>
STATED FAIR VALUE
CLOSING INTEREST MATURITY FACE AMOUNT AT DECEMBER
PROPERTY LOCATION DATE RATE CALL DATE DATE OF FMB 31, 1999 (A)
-------- -------- -------- -------- --------- ---------- --------------- ------------
TAX-EXEMPT FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
<S> <C> <C> <C> <C> <C> <C> <C>
Highpointe Club (K)(N) Harrisburg, PA 7/29/86 8.50% June 1998 June 2006 $ 8,900,000 $ 5,769,000
------------- -------------
OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H)
Barnaby Manor (P)(S)(X) Washington, DC 11/23/99 7.375 May 2017 May 2032 4,500,000 4,500,000
Casa Ramon (P)(X) Orange County, CA 6/8/99 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000
Chapel Ridge of Little Rock Little Rock, AR 8/12/99 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000
(O)(S)(X)
Chapel Ridge of Texarkana Texarkana, AR 9/29/99 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000
(O)(S)(X)
Country Lake (P) West Palm Beach, FL 11/9/99 (V) June 2015 June 2032 6,255,000 6,255,000
Del Monte Pines (R)(P)(X) Fresno, CA 5/6/99 6.80 May 2017 May 2036 11,000,000 10,275,000
Douglas Pointe(O)(S)(R)(X) Miami, FL 9/28/99 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000
Forest Hills (R)(P)(X) Garner, NC 12/15/98 7.125 June 2016 June 2034 5,930,000 5,804,000
Fort Chaplin (P)(X) Washington, DC 12/21/99 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000
Franciscan Riviera (P)(R)(X) Antioch, CA 8/24/99 7.125 Apr. 2016 Aug. 2036 6,587,500 6,447,000
Garfield Park (P) Washington, DC 8/31/99 7.25 Aug. 2017 Aug. 2031 3,260,000 3,247,000
Greenbriar (M)(P)(X) Concord, CA 5/6/99 6.875 May 2017 May 2036 9,585,000 9,052,000
Hamilton Gardens (R)(P)(X) Hamilton, NJ 3/26/99 (U) Apr. 2015 Mar. 2035 6,400,000 6,264,000
Lake Jackson (R)(O)(S)(X) Lake Jackson, TX 12/22/98 7.00 Jan. 2018 Jan. 2041 10,934,000 10,513,000
Lakemoor (O) (S) Durham, NC 12/23/99 7.25 Jan. 2017 Dec. 2041 9,000,000 9,000,000
Lake Park (P)(X) Turlock, CA 6/8/99 (T) 7.25 Oct. 2015 Sep. 2035 3,638,000 3,623,000
Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 6.90 June 2016 May 2035 14,850,000 14,075,000
Lennox Park (O)(S)(M)(X) Gainesville, GA 7/29/99 6.80 Aug. 2021 July 2041 13,000,000 12,143,000
Lewis Place (O)(S)(M)(X) Gainsville, FL 6/22/99 (I) June 2016 June 2041 4,000,000 3,709,000
Mountain Ranch (R)(O)(X) Austin, TX 12/23/98 7.125 Jan. 2018 Jan. 2041 9,128,000 8,934,000
Standiford (P)(R)(X) Modesto, CA 9/20/99 7.125 Apr. 2016 Aug. 2036 9,520,000 9,317,000
Sunset Creek (M)(K) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 8,275,000 6,225,000
Sunset Village (M)(K) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 11,375,000 8,557,000
Sycamore Woods (R)(P)(X) Antioch, CA 5/6/99 6.875 May 2017 May 2036 9,415,000 8,891,000
Tallwood (O)(S)(R)(X) Virginia Beach, VA 9/30/99 7.25 Nov. 2017 Oct. 2041 6,205,000 6,179,000
------------- -------------
207,207,500 197,046,000
------------- -------------
OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L)
Bay Club (K) Mt. Pleasant, SC 9/11/86 8.25 Sep. 2000 Sep. 2006 6,400,000 7,253,000
Clarendon Hills (K) Hayward, CA 12/08/86 5.52 Dec. 2003 Dec. 2003 17,600,000 13,599,000
Cypress Run (K) Tampa, FL 8/14/86 8.50 Aug. 1998 Aug. 2006 15,402,428 13,576,000
East Ridge (K) Mt. Pleasant, SC 5/20/86 8.25 Mar. 2000 May 2010 8,700,000 9,859,000
Greenway Manor (K)(N) St. Louis, MO 10/09/86 8.50 Oct. 1998 Sept. 2006 12,850,000 15,003,000
The Lakes (K) Kansas City, MO 12/30/86 4.87 Dec. 2006 Dec. 2006 13,650,000 9,821,000
Loveridge (K)(N) Contra Costa, CA 11/13/86 8.00 Nov. 1998 Nov. 2006 8,550,000 6,459,000
Martin's Creek (K) Summerville, SC 5/20/86 8.25 Mar. 2000 May 2010 7,300,000 8,273,000
------------- -------------
90,452,428 83,843,000
------------- -------------
</TABLE>
-37-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATED FAIR VALUE
CLOSING INTEREST MATURITY FACE AMOUNT AT DECEMBER
PROPERTY LOCATION DATE RATE CALL DATE DATE OF FMB 31, 1999 (A)
-------- -------- -------- -------- --------- ---------- --------------- ------------
OWNED BY CHARTER MAC OWNER TRUST I (J) (H)
<S> <C> <C> <C> <C> <C> <C> <C>
Bedford Square (X) Clovis, CA 8/25/98 (D) Sep. 2017 Aug. 2040 3,850,000 3,371,000
Bristol Village Bloomington, MN 7/31/87 7.50 Jan. 2010 Dec. 2027 17,000,000 17,513,000
Carrington Pointe (X) Los Banos, CA 9/24/98 6.375 Oct. 2017 Sep. 2040 3,375,000 2,955,000
Cedarbrook (X) Hanford, CA 4/28/98 7.125 May 2017 May 2040 2,840,000 2,779,000
Cedar Creek (K)(N) McKinney, TX 12/29/86 8.50 Dec. 1998 Dec. 2006 8,100,000 9,457,000
Cedar Pointe (K) Nashville, TN 4/22/87 7.00 Apr. 2006 Apr. 2017 9,500,000 9,134,000
College Park (O)(S) Naples, FL 7/15/98 (C) Jul. 2025 Jul. 2040 10,100,000 9,711,000
Crowne Pointe (K) Olympia, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,075,000 5,054,000
Falcon Creek (O)(S)(X) Indianapolis, IN 9/14/98 (F) Sep. 2016 Aug. 2038 6,144,600 6,119,000
Gulfstream (P)(X) Dania, FL 7/22/98 7.25 Apr. 2016 Jul. 2038 3,500,000 3,486,000
Highland Ridge (K) St. Paul, MN 2/02/87 7.25 June 2010 June 2018 15,000,000 14,938,000
Jubilee Courtyards (X) Florida City, FL 9/15/98 (G) Oct. 2025 Sep. 2040 4,150,000 4,062,000
Lakepoint (K) Stone Mountain, GA 11/18/87 6.00 Jul. 2005 June 2017 15,100,000 12,445,000
Madalyn Landing (O)(S)(X) Palm Bay, FL 11/13/98 7.00 Dec. 2017 Nov. 2040 14,000,000 13,461,000
The Mansion Independence, MO 5/13/86 7.25 Jan. 2011 April 2025 19,450,000 19,678,000
Marsh Landings (P)(S)(X) Portsmouth, VA 5/20/98 7.25 Jul. 2017 Jul. 2030 6,050,000 6,025,000
Newport Village (K) Tacoma, WA 2/11/87 7.25 Jan. 1999 Aug. 2029 13,000,000 12,946,000
North Glen (K) Atlanta, GA 9/30/86 (W) Jul. 2005 June 2017 12,400,000 12,775,000
Northpointe Village (P)(X) Fresno, CA 8/25/98 (E) Sep. 2017 Aug. 2040 13,250,000 13,650,000
Ocean Air (P)(S)(X) Norfolk, VA 4/20/98 7.25 Jan. 2016 Nov. 2030 10,000,000 9,959,000
Orchard Hills (K) Tacoma, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,650,000 5,627,000
Orchard Mill (K) Atlanta, GA 12/31/86 7.50 Jul. 2005 June 2017 10,500,000 10,517,000
Pelican Cove (K)(N) St Louis, MO 2/27/87 8.00 Feb. 1999 Feb. 2007 18,000,000 19,780,000
Phoenix (X) Stockton, CA 4/28/98 7.125 Nov. 2016 Oct. 2029 3,250,000 3,181,000
River Run (K)(X) Miami, FL 8/7/87 8.00 Aug. 1999 Aug. 2007 7,200,000 7,912,000
Shannon Lake (K) Atlanta, GA 6/26/87 (B) Jul. 2005 June 2017 12,000,000 11,538,000
Silvercrest (X) Clovis, CA 9/24/98 7.125 Oct. 2017 Sep. 2040 2,275,000 2,227,000
Stone Creek (O)(S)(X) Watsonville, CA 4/28/98 7.125 May 2017 Apr. 2040 8,820,000 8,632,000
Sunset Downs (K) Lancaster, CA 2/11/87 8.00 May 1999 May 2007 15,000,000 11,284,000
Sunset Terrace (K) Lancaster, CA 2/12/87 8.00 Feb. 1999 May 2007 10,350,000 7,786,000
Thomas Lake Eagan, MN 9/02/86 7.50 Jan. 2010 Dec. 2027 12,975,000 13,367,000
Willow Creek (K) Ames, IA 2/27/87 7.25 Jan. 2010 June 2022 6,100,000 6,075,000
------------- -------------
304,004,600 297,444,000
Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000
------------- -------------
</TABLE>
-38-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATED FAIR VALUE
CLOSING INTEREST MATURITY FACE AMOUNT AT DECEMBER
PROPERTY LOCATION DATE RATE CALL DATE DATE OF FMB 31, 1999 (A)
-------- -------- -------- -------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TAXABLE FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Greenbriar (P) Concord, CA 5/6/99 9.00 May 2017 May 2036 2,015,000 2,015,000
Lake Park (P) Turlock, CA 7/15/99 9.00 Oct. 2015 Sep. 2035 375,000 375,000
Lakes Edge at Walden (P) Miami, FL 10/6/99 11.00 June 2000 Aug. 2010 1,400,000 1,400,000
------------ ------------
Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000
------------ ------------
Total First Mortgage Bonds $614,354,528 $587,892,000
============ ============
</TABLE>
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at
December 31, 1999.
(B) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 6% through July 31, 2000 and 7% thereafter.
(C) The interest rates for College Park are 7% during the construction period
and 7.25% thereafter.
(D) The interest rates for Bedford Square are 7% during the construction period
and 6.375% thereafter.
(E) The interest rates for Northpointe Village are 7.965% through September 23,
1998, 8.125% during the remainder of the construction period
and 7.5% thereafter.
(F) The interest rates for Falcon Creek are 7% through August 31, 2000 and
7.25% thereafter.
(G) The interest rates for Jubilee Courtyards are 7% through September 30, 2000
and 7.125% thereafter.
(H) This entity is a consolidated subsidiary of the Company (see Notes 8 and
9).
(I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00%
thereafter.
(J) These FMBs have been transferred to Charter Mac Owner Trust I in connection
with the Company's Private Label Tender Option Program (TOP) (see Note 8).
(K) These FMBs are participating FMBs which contain additional interest
features contingent on available cash flow. FMBs that contain provisions
for contingent interest are referred to as "participating"; FMBs lacking
this provision are "non-participating".
(L) The FMBs are held as collateral in connection with the TOP (see Note 8).
(M) These FMBs are pledged as collateral in connection with the Merrill Lynch
RITES/P-FLOATS Program (see Note 4).
(N) The original owners of the Underlying Properties and the obligors of these
FMBs have been replaced with affiliates of the Manager.
(O) The Underlying Property is under construction. In the event construction is
not completed in a timely manner, the Company may "put" the FMB to the
construction lender at par.
(P) The Underlying Property is undergoing substantial rehabilitation. In the
event rehabilitation is not completed in a timely manner, the Company may
"put" the FMB to the construction lender at par.
(Q) Initial advance on an FMB which will have a face amount of $4,744,000 when
it is fully funded. The balance of $4,694,000 is expected to be funded in
the second quarter of 2000.
(R) Held by Merrill Lynch as collateral for secured borrowings (see Note 4).
(S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit
issued by the construction lender to the Company.
(T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The
balance was funded on July 15, 1999.
(U) The interest rates for Hamilton Gardens are 7.625% during the construction
period and 7.125% thereafter.
(V) The interest rates for Country Lake are 6% until expected refunding in June
2000 and 7.25% thereafter.
(W) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 7% through June 30, 2000 and 7.50% thereafter.
(X) The obligors of these mortgage bonds are partnerships in which affiliates
of the Manager are partners that own a controlling interest.
-39-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average interest rates recognized on the face amount of the
portfolio of FMBs for the years ended December 31, 1999, 1998 and 1997 were
7.26%, 6.94% and 6.75%, respectively, based on weighted average face amounts of
approximately $525,092,000, $394,079,000 and $208,744,000, respectively.
The principal and interest payments on each FMB are payable only from the cash
flows of the the Underlying Properties, including proceeds from a sale of an
Underlying Property or the refinancing of the mortgage loan securing such FMBs
(the "Mortgage Loans"). None of the FMBs constitute a general obligation of any
state or local government, agency or authority. The structure of each Mortgage
Loan mirrors the structure of the corresponding FMB which it secures.
The original 31 FMBs (owned at the date of the Consolidation), with an aggregate
face amount of $348,602,428, call for interest only debt service payments during
their respective terms (which generally are 24 to 30 years from issuance or
re-issuance) with repayment of principal due in a lump sum "balloon" payment at
the expiration of their respective terms or upon sale or refinancing. The newly
acquired bonds (bonds acquired after October 1, 1997) call for amortization or
"sinking fund" payments, generally at the completion of rehabilitation or
construction, of principal based on thirty to forty year level debt service
amortization schedules. The Company generally has the right to require
redemption approximately 12 to 15 years from issuance or re-issuance and
obligors generally are locked out of prepayment for seven to ten years from
issuance or re-issuance.
In December 1999, two of the original 31 FMBs were repaid (see below).
The original obligors and owners of the Underlying Properties of the Cedar
Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with
affiliates of the Manager who have not made equity investments. These entities
have assumed the day-to-day responsibilities and obligations of the Underlying
Properties. Buyers are being sought who would make equity investments in the
Underlying Properties and assume the nonrecourse obligations for the FMB. These
properties are generally paying as interest an amount equal to the net cash flow
generated by operations, which in some cases is less than stated rate of the
FMB. The Company has no present intention of declaring a default on these FMBs.
The aggregate carrying value of these four FMBs at December 31, 1999 and 1998
was approximately $41,465,000 and $42,323,000, respectively and the income
earned from them for the years ended December 31, 1999, 1998 and 1997 was
approximately $2,991,000, $3,106,000 and $2,093,000, respectively.
From time to time, the Company enters into forbearance agreements and/or
permanent modifications with certain borrowers. The determination as to whether
it is in the best interest of the Company to enter into permanent modifications
or forbearance agreements on the FMBs, advance second mortgages, or
alternatively, to pursue its remedies under the loan documents, including
foreclosure, is based upon several factors. These factors include, but are not
limited to, Underlying Property performance, owner cooperation and projected
costs of foreclosure and litigation. Payments under each of the existing
forbearance agreements are current as of December 31, 1999.
Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport
Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to
7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued
interest through August 1999 to be paid at maturity or upon a sale or
refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to
2011) and prepayment lock-out dates (to 2006). The contingent interest feature
of the bonds was also modified. These modifications resulted in realized losses
on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to
write down the cost basis of each FMB to its then estimated fair value.
Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate
of the Manager, was transferred to a third party who provided new capital in the
amount of $1,813,000. This new capital will be used primarily to provide for
repairs to the property as well as costs of the transaction. Repairs are
expected to be completed within the next 6-9 months. In conjunction with this
transfer and infusion of capital, it is anticipated that the FMB will be
formally modified within 6 to 9 months, subject to the approval of the local
issuer of the FMB. In the interim, the property will continue to operate
pursuant to a forbearance agreement with the Company which calls for a 5.5%
minimum annual interest rate. The anticipated modification of this FMB resulted
in a realized loss on impairment in the amount of $406,796, to write down the
cost basis of this FMB to its estimated fair value.
Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset
Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"),
affiliates of the Manager, transferred their interests, pursuant to a sale of
stock, to a third party equity investor. Pursuant to such transfer, the Company
entered into a modification agreement (subject to issuer approval) with the new
obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the
terms of the transaction, the Company received a payment on December 30, 1999 of
$1,500,000 in full settlement of all accrued and unpaid base interest on the
Sunset FMBs. In addition, in consideration for the waiver of the payment
requirement for the payment of past and future contingent interest, a payment of
$1,000,000 is expected on or before March 31, 2000. In connection with the
transaction, it is expected that the new obligor will invest $800,000-$1,000,000
for physical improvements to the properties. The modifications of the Sunset
Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on
impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to
write down the cost basis of each of these FMBs to their estimated fair values.
The estimated fair value of the Sunset Creek FMB continues to exceed its
amortized cost basis.
In addition to the above FMBs, ten of the Company's other FMBs, with an
aggregate face amount of $130,025,000, have previously been modified. These
modifications have generally encompassed an extension of the maturity together
with a prepayment lock out feature and/or prepayment penalties together with an
extension of the mandatory redemption feature (5-10 years from modification).
Stated interest rates have also been adjusted together with a change in the
participation and contingent interest features. Base interest rates, contingent
interest, prepayment lock-outs, mandatory redemption and maturity features vary
dependent on the facts
-40-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of a particular FMB, the developer, the Underlying Property's performance and
requirements of bond counsel and local issuers. The Company may modify other
FMBs to reflect generally similar terms as those modified previously, where and
as appropriate. Significant modifications to interest rates and maturity dates
are subject to final approval of the local issuers, bond counsel and indenture
trustees.
In addition to the stated base rates of interest, 28, 28 and 26 of the FMBs at
December 31, 1999, 1998 and 1997, respectively, provided for "contingent
interest" which is equal to: (i) an amount equal to 50% to 100% of net property
cash flow and 50% to 100% of net sale or refinancing proceeds until the borrower
has paid, during the post-construction period, annual compound interest at a
rate ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (ii) an
amount equal to 25% to 50% of the remaining net property cash flow and 25% to
50% of the remaining net sale or refinancing proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the FMB. Both the
stated and contingent interest on the FMBs are exempt from federal income
taxation. During the years ended December 31, 1999, 1998 and 1997, five, six and
five FMBs, paid contingent interest amounting to approximately $728,000,
$960,000 and $353,000, respectively. FMBs that contain provisions for contingent
interest are referred to as "participating"; FMBs lacking this provision are
"non-participating".
With respect to the FMBs which are subject to forbearance agreements with the
respective obligors, the difference between the stated interest rates and the
rates paid (whether deferred and payable out of available future cash flow or,
ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once an Underlying Property's ability to pay the stated rate
has been adequately demonstrated. Unrecorded contractual interest income was
approximately $1,916,000, $3,047,000 and $2,415,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Newly acquired FMBs (bonds acquired after October 1, 1997) will generally bear a
fixed base interest rate and, to the extent permitted by existing regulations,
they may or may not also provide for contingent interest and other features.
Terms are expected to be 5 to 35 years, although the Company may have the right
to cause repayment prior to maturity through a mandatory redemption feature (5
to 7 years with up to 6 month's notice). In some cases, the newly acquired bonds
(bonds acquired after October 1, 1997) call for amortization or "sinking fund"
payments, generally at the completion of rehabilitation or construction, of
principal based on thirty to forty year level debt service amortization
schedules.
New FMBs are generally not expected to be subject to optional prepayment during
the first 5-10 years of the Company's ownership of the bonds and may carry
prepayment penalties thereafter beginning at 5% of the outstanding principal
balance, declining by 1% per annum. Certain new FMBs may be purchased at a
discount from their face value. Up to 15% of the Total Market Value of the
Company (as defined in its trust agreement) may be invested in FMBs secured by
Underlying Properties in which affiliates of the Manager have a controlling
interest, equity interest or security interest. The 15% limit is not applicable
to properties to which the Manager or its affiliates have taken title for the
benefit of the Company and only applies to new FMBs acquired after the
Consolidation. In selected circumstances and generally only in connection with
the acquisition of tax-exempt FMBs the Company may acquire a small amount of
taxable bonds (i) which the Company may be required to acquire in order to
satisfy state regulations with respect to the issuance of tax-exempt bonds and
(ii) to fund certain costs associated with the issuance of FMBs, that under
current law cannot be funded by FMBs.
Since October 1, 1997, the Company has acquired 38 tax-exempt FMBs with an
aggregate face amount of $284,162,100, one of which was repaid in January 1999
(see below), and three taxable FMBs with an aggregate face amount of $3,790,000.
In order to protect the tax-exempt status of the FMBs, the owners of the
Underlying Properties are required to enter into certain agreements to own,
manage and operate such Underlying Properties in accordance with requirements of
the Internal Revenue Code of 1986, as amended.
From time to time the Company has advanced funds to owners of certain Underlying
Properties in order to preserve the underlying asset including completion of
construction and/or when Underlying Properties have experienced operating
difficulties including past due real estate taxes and/or deferred maintenance
items. Such advances typically are secured by promissory notes and/or second
mortgages. As of December 31, 1999, the face amount of such advances was
$15,330,075, their rates range from 8% to 13% and their carrying value was
$10,148,060, which is net of purchase accounting adjustments, and a reserve for
collectibility of $138,000. Such advances with an aggregate face amount of
$5,384,808, rates ranging from 8% to 10% and an aggregate carrying amount of
$217,996 were advanced to obligors which are affiliates of the Manager.
On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside
North Obligor") completed a refinancing with an unaffiliated third party. The
Countryside North Obligor then fully repaid its outstanding debt due to the
Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a
$100,000 prepayment penalty and accrued interest due through the repayment date
of $35,417 resulting in a loss on the repayment (including the prepayment
penalty and the write off of unamortized bond selection costs) in the amount of
$25,493.
On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together
the "Players Club/Suntree Obligor") completed a sale of the properties to an
independent third party. The Players Club/Suntree Obligor then repaid the FMBs
with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of
$8,790,000 and $7,500,000 resulting in losses on the repayment (including the
write off of unamortized bond selection costs) in the amounts of $376,496 and
$61,158. In addition, the Players Club/Suntree Obligor also repaid promissory
note obligations in the amounts of $472,128 and $88,618. The Players
Club/Suntree Obligor has no further obligation to the company under the FMBs.
-41-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No single FMB provided interest income which exceeded 10% of the Company's total
revenue for the years ended December 31, 1999, 1998 and 1997, except for the
Bristol Village FMB which provided 10% of total revenue in 1997.
Based on the face amount of FMBs at December 31, 1999, approximately 26% of the
Underlying Properties are located in California, 14% are located in Florida, 10%
are located in Missouri and 10% are located in Georgia. No other states comprise
more than 10% of the total face amount at December 31, 1999. Based on the face
amount of FMBs at December 31, 1998, approximately 23% of the Underlying
Properties were located in California, 15% were located in Florida, 14% were
located in Missouri, 10% were located in Georgia and 10% were located in
Minnesota. No other states comprised more than 10% of the total face amount at
December 31, 1998.
The amortized cost basis of the Company's portfolio of 69 FMBs at December 31,
1999 and 49 FMBs at December 31, 1998 was $585,474,109 and $443,602,409,
respectively. The net unrealized gain on FMBs in the amount of $2,417,891 at
December 31, 1999 consisted of gross unrealized gains and losses of $16,484,461
and $14,066,570, respectively. The net unrealized gain on FMBs in the amount of
$15,060,191 at December 31, 1998 consisted of gross unrealized gains and losses
of $22,256,064 and $7,195,873, respectively.
During December of 1997, an unrelated publicly-registered partnership sold a
portfolio of nine bonds similar to the Company's FMBs. Based on the information
available to Company management regarding the pricing of this sale, management
determined that market conditions for the Company's FMBs were much more
favorable than was previously believed. Accordingly, the estimated fair values
of the FMBs calculated by management at December 31, 1997 increased by a total
of approximately $22,700,000 over the estimated fair values at December 31,
1996.
NOTE 4 - Securitization Transactions
To raise additional capital to acquire additional FMBs, the Company has
securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program,
the Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then
deposits each FMB into an individual special purpose trust created to hold
such asset, together with a Credit Enhancement Guarantee ("Guarantee"). Two
types of securities are then issued by each trust, evidencing ownership in
the FMBs and the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts
("P-FLOATS"), a short-term senior security which bears interest at a floating
rate that is reset weekly by the Remarketing Agent, Merrill Lynch, to result
in the sale of the P-FLOAT security at par (up to 99% of the underlying face
amount of the FMB); and (2) Residual Interest Tax Exempt Securities
("RITES"), a subordinate security which receives the residual interest
payment after payment of P-FLOAT interest and ongoing transaction fees. The
P-FLOATS are sold to qualified third party, tax-exempt investors and the
RITES are sold back to the Company. The Company has the right, with 14 days
notice to the trustee, to purchase the outstanding P-FLOATS and withdraw the
underlying FMBs from the trust. When the FMBs are deposited into the P-FLOAT
Trust, the Company receives the proceeds from the sale of the P-FLOATS less
certain transaction costs. In certain other cases, Merrill Lynch may directly
buy the FMBs from local issuers, deposit them in the trust, sell the P-FLOAT
security to qualified investors and then the RITES to the Company.
For financial reporting purposes, due to the repurchase right, the Company
accounts for the net proceeds received upon the transfer of its FMBs to Merrill
Lynch through the P-FLOATS/RITES program as secured borrowings and, accordingly,
continues to account for the FMBs as its assets in the accompanying consolidated
balance sheets. When Merrill Lynch purchases FMBs directly and sells the RITES
to the Company, such RITES are classified as other bond related investments in
the accompanying consolidated balance sheets (See Note 5).
In order to facilitate the securitization, the Company has pledged certain
additional FMBs, cash and cash equivalents and temporary investments as
collateral for the benefit of the credit enhancer or liquidity provider. At
December 31, 1999, the total carrying amount of such additional FMBs, cash and
cash equivalents and temporary investments pledged as collateral was
$53,761,000, $1,028,209 and $45,541,000, respectively.
During the period May 1999 through December 1999, the Company transferred ten
FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the
Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616.
The Company's cost of funds relating to its secured borrowings under the Merrill
Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of
the weighted average amount of the secured borrowings) was approximately 4.8%,
annualized, for the period June 29, 1999 (inception of this program) through
December 31, 1999.
During June 1999, Merrill Lynch purchased three FMBs with an aggregate face
amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch
whereby P-FLOATS and RITES were sold. The Company purchased the related RITES
interests with an aggregate face amount of $15,000 for an aggregate purchase
price of $579,118 which includes bond selection and other transaction costs.
-42-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Other Bond Related Investments
The Company's other bond related investments consist of investments in RITES
(see Note 4). The following table provides certain information with respect to
each of the RITES.
<TABLE>
<CAPTION>
FACE
AMOUNT AMORTIZED FAIR
OF RITES COST BASIS AT VALUE AT
FMB DATE FACE AMOUNT INTEREST DECEMBER DECEMBER
DESCRIPTION/LOCATION PURCHASED OF FMB PURCHASED 31, 1999 31, 1999
-------------------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OWNED BY CHARTER MAC EQUITY ISSUER TRUST
RITES-Avalon Court/
Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $ 200,045 $ 200,000
RITES-Meadowview Park/
Santa Rosa, CA 6/17/99 6,250,000 5,000 162,432 160,000
RITES-The Courtyards/
Santa Rosa, CA 6/17/99 7,940,000 5,000 201,817 200,000
----------- ----------- ----------- -----------
$22,430,000 $ 15,000 $ 564,294 $ 560,000
=========== =========== =========== ===========
</TABLE>
NOTE 6 - Deferred Costs
The components of deferred costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Deferred bond selection costs $ 9,904,683 $6,355,252
Deferred costs relating to the Private Label Tender Option
Program (see Note 8) 3,614,627 3,054,995
Deferred costs relating to the issuance of preferred shares
of subsidiary (see Note 9) 3,605,331 0
Other 172,039 0
------------ ----------
17,296,680 9,410,247
Less: Accumulated amortization (3,074,229) (2,404,282)
----------- ----------
$14,222,451 $7,005,965
=========== ==========
</TABLE>
For a description of these costs see note 2(g), (h) and (i).
NOTE 7 - Note Payable
During 1998, an interim credit facility with Goldman Sachs & Company was
available to the Company at prevailing rates of interest for such accounts
(5.98% at December 14, 1998 which was the date the facility was terminated).
NOTE 8 - Minority Interest In Subsidiary
On May 21, 1998, the Company closed on its Private Label Tender Option Program
("TOP") in order to raise additional capital to acquire additional FMBs. As of
March 31, 1999, the maximum amount of capital which could be raised under the
TOP ($150,000,000) had been raised. In April 1999, the Company successfully
negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the
Company has contributed 40 issues of FMBs in the aggregate principal amount of
approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination
Trust"), a wholly-owned, indirect subsidiary of the Company, which has
contributed 32 of those FMBs, with an aggregate principal amount of
approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust")
which is controlled by the Company. The Owner Trust has issued two equity
certificates: (i) a Senior Certificate, with an outstanding face amount of
$177,000,000 at December 31, 1999, which has been deposited into another
Delaware business trust (the "Certificate Trust") which issued and sold Floater
Certificates representing proportional interests in the Senior Certificate to
new investors and (ii) a Residual Certificate representing the remaining
beneficial ownership interest in the Owner Trust, which has been issued to the
Origination Trust. The FMBs remaining in the Origination Trust (aggregate
principal amount of approximately $90,452,000) are a collateral pool for the
Owner Trust's obligations under the Senior Certificate. In addition, the Owner
Trust obtained a municipal bond insurance policy from MBIA to credit enhance
Certificate distributions for the benefit of the holders of the Floater
Certificates and has also arranged for a liquidity facility, issued by a
consortium of highly rated European banks, with respect to the Floater
Certificates. The Company owns no beneficial interest in, and does not control,
the Certificate Trust.
The effect of the TOP structure is that a portion of the interest received by
the Owner Trust on the FMBs it holds is distributed through the Senior
Certificate to the holders of the Floater Certificates in an amount determined
each week by the remarketing agent, Goldman Sachs & Co., at the distribution
amount that is required to enable the remarketing agent to sell the Floater
Certifi-
-43-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cates at par on any weekly determination date, with the residual interest
remitted to the Origination Trust via the Residual Certificate.
For financial accounting and reporting purposes, the Owner Trust, which is
controlled by the Company, is consolidated. The equity in the Owner Trust
represented by the Senior Certificate is classified as "minority interest in
subsidiary (subject to mandatory redemption)" in the accompanying consolidated
balance sheets. Income earned by the Owner Trust is allocated to the minority
interest in an amount equal to the distributions through the Senior Certificate
to the holders of the Floater Certificates. Such allocation of income is
classified as "minority interest in income of subsidiary" in the accompanying
consolidated statements of income. Deferred costs relating to the TOP are being
amortized using the straight line method over 10 years, which approximates the
average remaining term to maturity of the FMBs contributed to the Owner Trust.
The Company's cost of funds relating to the TOP (calculated as income allocated
to the minority interest plus recurring fees as a percentage of the weighted
average amount of the outstanding Senior Certificate) was approximately 4.5% and
4.9% for the year ended December 31, 1999 and the period May 21, 1998
(inception) through December 31, 1998, respectively.
NOTE 9 - Preferred Shares of Subsidiary
On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt
preferred equity offering (the "Preferred Offering") comprising 45 shares
("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch,
Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial
Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred
Shares to qualified institutional investors.
In connection with this transaction, the Company caused 100% of the ownership of
the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the
"Issuer"), a newly formed Delaware business trust and an indirectly owned
subsidiary in which the Company owns 100% of the common equity. The Issuer then
issued the Series A Cumulative Preferred Shares. As a result of such
transaction, the Issuer became the direct and indirect owner of the entire
outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its
two directly and indirectly owned subsidiaries (see Note 8). In addition to
contributing the ownership of the Origination Trust, the Company also
contributed eight FMBs to the Issuer. As of the closing, the aggregate par value
of FMBs held directly or indirectly by the Issuer or its subsidiaries was
$463,699,028. Net proceeds of approximately $86,395,000 from the Preferred
Offering have been used to invest in or acquire additional tax-exempt assets for
the Issuer.
The Series A Cumulative Preferred Shares have an annual preferred dividend rate
of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing October 31, 1999 and
payable upon declaration thereof by the Issuer's Board of Trustees, but only to
the extent of the Issuer's tax-exempt income (net of expenses) for the
particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred
Shares are subject to mandatory tender by the holders thereof for remarketing
and purchase on June 30, 2009 and each remarketing date thereafter at a price
equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly
Net Income, an amount equal to all distributions accrued but unpaid on the
Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375
(66,986.11 per share) were paid to the preferred shareholders of the Issuer for
the period June 29, 1999 (inception) through December 31, 1999.
Holders of the Series A Cumulative Preferred Shares may elect to retain their
shares upon a remarketing, with a distribution rate to be determined immediately
prior to the remarketing date by the remarketing agent. Each holder of the
Series A Cumulative Preferred Shares will be required to tender its shares to
the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides
to remarket the shares on such date. The Issuer may not redeem the Series A
Cumulative Preferred Shares before June 30, 2009. After that date, all or a
portion of the shares may be redeemed, subject to certain conditions. The Series
A Cumulative Preferred Shares are not convertible into common shares of the
Issuer or Shares of the Company.
The Series A Cumulative Preferred Shares rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Issuer, senior to all classes or series of common shares of the Issuer and
therefore, of the Company.
For financial accounting and reporting purposes, the Series A Cumulative
Preferred Shares are classified as "Preferred shares of subsidiary (subject to
mandatory repurchase)" in the accompanying consolidated balance sheets. Net
income earned by the Issuer and its two subsidiaries is allocated to the holders
of the Series A Cumulative Preferred Shares in an amount equal to the
distributions to such holders. Such allocation of income is classified as
"Income allocated to preferred shareholders of subsidiary" in the accompanying
consolidated statements of income. Deferred costs relating to the issuance of
the Series A Cumulative Preferred Shares are included in "Deferred Costs" (see
Note 6) and are being amortized using the straight line method over 50 years
which is the term to the mandatory repurchase in 2049.
NOTE 10 - Related Parties
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY (AFTER THE CONSOLIDATION)
Pursuant to the Management Agreement, the Manager receives (inclusive of fees
paid directly to the Manager by subsidiaries of the Company) (i) bond selection
fees equal to 2% of the principal amount of each FMB or other instrument
acquired or invested in by the Company; (ii) special distributions equal to
.375% per annum of the total invested assets of the Company; (iii) loan
servicing fees equal to .25% per annum of the outstanding principal amount of
FMBs held by the Company (not including its consolidated subsidiaries) and .15%
per annum of the outstanding principal amount of FMBs held by the consolidated
subsidiaries of the Company; (iv) management fees equal to .10% per annum of the
total invested assets of the consolidated subsidiaries of the Company; (v) a
-44-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liquidation fee based on the gross sales price of assets sold by the Company in
connection with a liquidation of the Company's assets; and (vi) reimbursement of
certain administrative costs incurred by the Manager and its affiliates on
behalf of the Company. Fees payable to the Manager which are based on FMBs or
assets of the Company include such FMBs or assets which are either held directly
by the Company or held by other entities to whom the Company has transferred
such FMBs or assets to facilitate financing. In addition, the Manager receives
bond placement fees from the borrower in an amount equal to 1% to 1.5% of the
principal amount of each FMB or other instrument acquired or invested in by the
Company, and affiliates of the Manager are part of a joint venture which has a
development services agreement with the obligors of five FMBs.
The original term of the Management Agreement will terminate on October 1, 2001.
Thereafter, the Management Agreement will be renewed annually by the Company,
subject to majority approval of the Company's Board of Trustees. The Management
Agreement cannot be terminated by the Company prior to October 1, 2001, other
than for gross negligence or willful misconduct of the Manager and by a majority
vote of the Company's independent trustees. The Management Agreement may be
terminated without cause by a majority vote of the Company's independent
trustees following October 1, 2001 or by the Manager at any time.
The costs, expenses and the special distributions incurred to the Manager and
its affiliates for the year ended December 31, 1999 and 1998 and the three
months ended December 31, 1997 (after the Consolidation) were as follows:
<TABLE>
<CAPTION>
YEAR YEAR THREE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Bond selection fees $3,806,510 $2,351,932 $ 100,000
Expense reimbursement 384,231 374,315 36,747
Loan servicing fees 856,949 591,119 220,386
Management fees 480,789 394,079 0
Special distribution 2,018,822 1,477,797 330,580
--------- --------- ---------
$7,547,301 $5,189,242 $ 687,713
========= ========= =========
</TABLE>
TAX EXEMPT II (PRIOR TO THE CONSOLIDATION)
Prior to the Consolidation, the general partners of Tax Exempt II were Related
Tax Exempt Associates II, Inc., a Delaware corporation (the "Related General
Partner"), and Prudential Bache Properties, Inc. ("PBP"). The general partners
managed and controlled the affairs of Tax Exempt II prior to the Consolidation.
The general partners and their affiliates performed services for Tax Exempt II
which included, but were not limited to: accounting and financial management;
registrar, transfer and assignment functions; asset management; investor
communications; printing and other administrative services. The general partners
and their affiliates received reimbursements for costs incurred in connection
with these services, the amount of which was limited by the provisions of the
partnership agreement of Tax Exempt II. The general partners were paid, in
aggregate, an annual management fee equal to .5% of the total invested assets
(which equaled the total original face amount of the FMBs). An affiliate of the
Related General Partner received loan servicing fees in an amount of .25% per
annum of the principal amount outstanding on mortgage loans serviced by the
affiliate.
The expenses incurred by Tax Exempt II to related parties for the nine months
ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
------------
<S> <C>
PBP and affiliates
General and administrative $ 58,170
Management fee 303,984
------------
362,154
Related General Partner and affiliates ------------
General and administrative 66,222
Management fee 303,984
Loan servicing fee 303,152
------------
673,358
------------
$1,035,512
============
</TABLE>
GENERAL
As of December 31, 1999, the obligors of the River Run, Ocean Air, Phoenix,
Stone Creek, Cedarbrook, Marsh Landings, Gulfstream, Bedford Square, Northpointe
Village, Falcon Creek, Jubilee Courtyards, Silvercrest, Carrington Pointe,
Madalyn Landing, Forest Hills, Lake Jackson, Mountain Ranch, Hamilton Garden,
Del Monte Pines, Greenbriar, Sycamore Woods, Avalon Court, The Courtyards,
Meadowview Park, Casa Ramon, Lake Park, Lewis Place, Lennox Park, Chapel Ridge
of Little Rock, Franciscan Riviera, Standiford, Douglas Pointe, Chapel Ridge of
Texarkana, Tallwood, Barnaby Manor and Fort Chaplin FMBs are local partnerships
in which investment partnerships, whose general partners are affiliates of the
Manager, own a controlling partnership interest. With
-45-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respect to three of the above FMBs, the Company owns the RITES (see Note 5).
These affiliate entities could have interests which do not coincide with, and
may be adverse to, the interests of the Company. Negotiations, if any, with
respect to modifications of FMBs between the Company and obligors who are
affiliates may be affected by these conflicts as the Manager determines the
appropriate terms and conditions of modifications or otherwise opts for some
other remedy including foreclosure.
As of December 31, 1999, the original owners of the Underlying Properties and
obligors of the Cedar Creek, Highpointe, Pelican Cove and Loveridge FMBs had
been replaced with affiliates of the Manager who have not made equity
investments. These entities have assumed the day-to-day responsibilities and
obligations of the Underlying Properties. Buyers are being sought who would make
equity investments in the Underlying Properties and assume the nonrecourse
obligations for the FMB or otherwise buy the property and payoff all or most of
the FMB obligation.
NOTE 11 - Earnings Per Share, Profit and Loss Allocations and Distributions
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY (AFTER THE CONSOLIDATION) Pursuant
to the Company's Trust Agreement and the Management Agreement with the Manager,
the Manager is entitled, in its capacity as the general partner of the Company,
to a special distribution equal to .375% per annum of the Company's total
invested assets (which equals the face amount of the FMBs), payable quarterly.
After payment of the special distribution, distributions are made to the
shareholders in accordance with their percentage interests.
Income is allocated first to the Manager in an amount equal to the special
distribution. The net remaining profits or losses, after a special allocation of
1% to the Manager, are then allocated to shareholders in accordance with their
percentage interests.
Basic net income per Share in the amount of $1.02, $.99 and $.12 for the years
ended December 31, 1999 and 1998 and the three months ended December 31, 1997,
respectively, equals net income for the periods ($23,181,818, $22,025,872 and
$2,792,740, respectively), less the special allocations to the Manager
($2,230,452, $1,683,278 and $355,202, respectively), divided by the weighted
average number of Shares outstanding for the periods (20,580,756, 20,587,151 and
20,587,465, respectively).
Diluted net income per Share in the amount of $1.02, $.98 and $.12 for the years
ended December 31, 1999 and 1998 and the three months ended December 31, 1997,
respectively, equals net income for the periods, less the special allocations to
the Manager, divided by the weighted average number of diluted Shares
outstanding for the periods (20,580,756, 20,740,641 and 20,587,465,
respectively). The weighted average number of diluted Shares outstanding for the
year ended December 31, 1998 reflects the weighted average impact of an
additional 608,955 Shares presumed to be issued to counsel for the Partnerships
pursuant to an Order and Stipulation of Settlement by the United States District
Court for the Southern District of New York on February 18, 1999. In April 1999,
the Company successfully negotiated a discounted cash settlement in lieu of the
issuance of shares (see Note 9). As the Company had no contingently-issuable
Shares or potentially dilutive securities outstanding at December 31, 1999 and
1997, diluted net income per share is the same as basic net income per share.
Net income per unit information for the period before the Consolidation is not
presented because it is not indicative of the Company's continuing capital
structure.
TAX EXEMPT II (PRIOR TO THE CONSOLIDATION)
Net profits or losses and distributions were allocated 98% to the BUC$holders
and 2% to the general partners of Tax Exempt II in accordance with the Agreement
of Limited Partnership of Tax Exempt II.
NOTE 12 - Capital Stock and Share Option Plan
The Company has adopted an incentive share option plan (the "Incentive Share
Option Plan"), the purpose of which is to (i) attract and retain qualified
persons as trustees and officers and (ii) to incentivize and more closely align
the financial interests of the Manager and its employees and officers with the
interests of the shareholders by providing the Manager with substantial
financial interest in the Company's success. The Compensation Committee
administers the Incentive Share Option Plan. Pursuant to the Incentive Share
Option Plan, if the Company's distributions per Share in the immediately
preceding calendar year exceed $0.9517 per Share, the Compensation Committee has
the authority to issue options to purchase, in the aggregate, that number of
Shares which is equal to three percent of the Shares outstanding as of December
31 of the immediately preceding calendar year (or in the initial year, as of
October 1, 1997), provided that the Compensation Committee may only issue, in
the aggregate, options to purchase a maximum number of Shares over the life of
the Incentive Shares Option Plan equal to 10% of the Shares outstanding on
October 1, 1997 (2,058,748 Shares).
Subject to the limitations described in the preceding paragraph, if the
Compensation Committee does not grant the maximum number of options in any year,
then the excess of the number of authorized options over the number of options
granted in such year will be added to the number of authorized options in the
next succeeding year and will be available for grant by the Compensation
Committee in such succeeding year.
All options granted by the Compensation Committee will have an exercise price
equal to or greater than the fair market value of the Shares on the date of the
grant. The maximum option term is ten years from the date of grant. All Share
options granted pursuant to the Incentive Share Option Plan may vest immediately
upon issuance or in accordance with the determination of the Compensation
Committee. No options were granted for the year ended December 31, 1997. In
1998, the Company distributed only $.93 per Share, thus prohibiting the
Compensation Committee, from issuing options. In 1999, the Company distributed
$.995 per Share, thus
-46-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
enabling the Compensation Committee, at their discretion, to issue options. The
Compensation Committee is considering granting options; however, as of March 17,
2000, no options have been granted. Three percent of the Shares outstanding as
of December 31, 1999 are equal to 617,624 Shares.
Through calendar year 1999, each independent trustee was entitled to receive
annual compensation for serving as a trustee in the aggregate amount of $15,000
payable in cash (maximum of $5,000 per year) and/or Shares valued based on the
fair market value at the date of issuance. Beginning in calendar year 2000, the
annual compensation for the two original independent trustees was increased from
$15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to
$7,500. In 2000, a third independent trustee was appointed and such trustee will
receive annual compensation in the aggregate amount of $30,000 payable in cash
(maximum of $20,000 per year) and or Shares. As of December 31, 1999 and 1998,
1910 and 372 Shares, respectively, having an aggregate value of $25,000 and
$5,000, respectively, have been issued to the independent trustee as
compensation for their services.
On October 9, 1998, the Board of Trustees authorized the implementation of a
Share repurchase plan, enabling the Company to repurchase, from time to time, up
to 1,500,000 of its Shares. The repurchases will be made in the open market and
the timing will be dependant on the availability of Shares and other market
conditions. As of both December 31, 1999 and 1998, the Company had acquired
8,400 of its Shares for an aggregate purchase price of $103,359 (including
commissions and service charges). Repurchased Shares are accounted for as
treasury Shares of beneficial interest.
The Company was created as part of the settlement in 1997 of class action
litigation against, among others, the sponsors of the Partnerships which were
consolidated to form the Company. As part of that settlement, counsel ("Class
Counsel") for the partners of the Partnerships had the right to petition the
United States District Court for the Southern District of New York (the "Court")
for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be
determined in the Court's sole discretion. The Counsel's Fee Shares were based
upon a percentage (which Class Counsel proposed to be 25%) of the increase in
value of the Company, ("the Added Value") if any, as of October 1, 1998 based
upon the difference between (i) the trading prices of the Company's shares of
beneficial interest during the six month period ended October 1, 1998 and (ii)
the trading prices of the limited partnership units and the asset values of the
Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added
Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of
Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was
entitled to receive 608,955 shares of beneficial interest in the Company. An
accrual for this amount was included in accounts payable, accrued expenses and
other liabilities at December 31, 1998. On April 15, 1999, the Company
successfully negotiated a discounted cash settlement (the "Discounted Cash
Settlement") of $6,089,550 with Class Counsel in lieu of the issuance of shares.
On April 26, 1999, the Discounted Cash Settlement was approved by the Board of
Trustees and it was paid on May 3, 1999.
-47-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1999 QUARTER ENDED
---------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Interest income:
First mortgage bonds $ 7,921,003 $ 8,499,941 $10,045,763 $11,674,543
Other bond related investments 0 22,378 154,877 126,025
Temporary investments 102,522 155,475 556,614 475,058
Promissory notes 165,159 166,654 164,792 206,386
----------- ----------- ----------- -----------
Total revenues 8,188,684 8,844,448 10,922,046 12,482,012
---------- ----------- ---------- -----------
Expenses:
Interest expense 8,368 365,110 558,758 816,989
Recurring fees relating to the Private
Label Tender Option Program 319,750 348,919 364,265 383,822
Loan servicing and management fees 287,749 307,107 352,300 390,582
General and administrative 335,069 342,407 389,990 363,332
Amortization 78,512 85,814 105,944 111,757
Loss on impairment of assets 0 0 0 1,859,042
---------- ----------- ---------- -----------
Total expenses 1,029,448 1,449,357 1,771,257 3,925,524
---------- ----------- ---------- -----------
Income before loss on repayment of
first mortgage bonds 7,159,236 7,395,091 9,150,789 8,556,488
Loss on repayment of first mortgage bonds (25,493) 0 0 (437,654)
---------- ----------- ---------- -----------
Income before minority interests 7,133,743 7,395,091 9,150,789 8,118,834
Income allocated to preferred shareholders
of subsidiary 0 (33,125) (1,490,625) (1,490,625)
Minority interest in income of subsidiary (1,128,221) (1,409,729) (1,388,095) (1,676,219)
---------- ----------- ---------- -----------
Net income 6,005,522 5,952,237 6,272,069 4,951,990
Special allocation of net
income to the Manager (487,362) (517,514) (597,491) (416,455)
---------- ----------- ---------- -----------
Net income applicable to
shareholders $ 5,518,160 $ 5,434,723 $ 5,674,578 $ 4,535,535
========== =========== ========== ===========
Net income per share
(basic and diluted) $ .27 $ .26 $ .28 $ .22
========== =========== ========== ===========
</TABLE>
Certain amounts in the quarters prior to the quarter ended December 31, 1999
have been reclassified from amounts previously reported in the Company's Forms
10-Q to conform to such quarter's presentation.
The results for the quarter ended December 31, 1999 reflect losses on impairment
of assets, totaling $1,859,042 relating to certain FMBs whose terms were
modified and losses totaling $437,654 resulting from the repayment of two FMBs
(see Note 3).
-48-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 QUARTER ENDED
---------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Interest income:
First mortgage bonds $ 5,843,408 $ 6,511,978 $ 7,060,874 $ 7,708,407
Temporary investments 41,526 62,868 57,655 59,221
Promissory notes 145,799 144,631 148,551 155,202
---------- ---------- ---------- ----------
Total revenues 6,030,733 6,719,477 7,267,080 7,922,830
---------- ---------- ---------- ----------
Expenses:
Interest expense 344,770 328,875 305,326 525,363
Recurring fees relating to the Private
Label Tender Option Program 0 0 242,370 212,549
Loan servicing and management fees 217,974 233,604 255,200 278,420
General and administrative 220,027 347,854 367,721 311,624
Amortization 0 24,304 56,437 77,831
---------- ---------- ---------- ----------
Total expenses 782,771 934,637 1,227,054 1,405,787
---------- ---------- ---------- ----------
Income before minority interest 5,247,962 5,784,840 6,040,026 6,517,043
Minority interest in income of subsidiary 0 (256,757) (534,442) (772,800)
---------- ---------- ---------- ----------
Net income 5,247,962 5,528,083 5,505,584 5,744,243
Special allocation of net
income to the Manager (376,171) (402,183) (434,027) (470,897)
---------- ---------- ---------- ----------
Net income applicable to
shareholders $ 4,871,791 $ 5,125,900 $ 5,071,557 $ 5,273,346
========== ========== ========== ==========
Net income per share:
Basic $ .24 $ .25 $ .25 $ .26
========== ========== ========== ==========
Diluted $ .24 $ .25 $ .25 $ .25
========== ========== ========== ==========
</TABLE>
Certain amounts in the above quarterly information differ from those previously
reported in the Company's Form 10-Qs due to reclassifications made to conform to
the presentations used in the fourth quarter of 1999. These reclassifications
did not affect previously reported net income or per share amounts.
NOTE 14 - Commitments and Contingencies
On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"),
whose manager is an affiliate of the Manager of the Company, entered into a
merger agreement pursuant to which ATEBT would merge with and into CM Holding
Trust, a wholly-owned subsidiary of the Company. Following the merger, CM
Holding Trust would continue to be a wholly-owned subsidiary of the Company.
ATEBT is a Delaware business trust which owns four tax-exempt first mortgage
bonds and had total assets of approximately $27,382,000 and net assets of
approximately $26,030,000 at December 31, 1999. The four tax-exempt first
mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at
December 31, 1999, have interest rates of 9% and have underlying properties
located in four different states.
Under the terms of the merger agreement, each share of beneficial ownership in
ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares
at December 31, 1999) will be converted into the right to receive 1.43112 Shares
of the Company. In addition, the manager of ATEBT (which owns a 1% interest in
ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of
the Company. Following the merger, current ATEBT shareholders will own
approximately 9.3% of the outstanding Shares of the Company.
Consummation of the merger is subject to several conditions, including approval
by ATEBT shareholders. In addition, either entity has the ability to opt out of
the transaction if the 30-day average trading price of the Company's Shares
preceding the closing of the transaction is outside of the Company's historical
trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the
Company and ATEBT expect that this transaction will close during the second
quarter of 2000.
-49-
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Subsequent Event
On February 15, 2000, 1642 Shares, having an aggregate value of $20,000 based on
the closing price per share on February 14, 2000, were issued to the independent
trustees as compensation for their services for the year ended December 31,
1999.
On March 14, 2000, the Company acquired one FMB for a purchase price of
$5,600,000, not including bond selection fees and expenses of approximately
$112,000. The obligor of the FMB is a local partnership in which an investment
partnership, whose general partner is an affiliate of the Manager, owns a
controlling partnership interest. Further information regarding the FMB is as
follows:
<TABLE>
<CAPTION>
STATED FACE NO. OF
CLOSING INTEREST CALL DATE/ AMOUNT RENTAL
PROPERTY/LOCATION DATE RATE MATURITY DATE OF FMB UNITS
----------------- ------- -------- ------------- ------ ------
<S> <C> <C> <C> <C> <C>
TAX-EXEMPT FIRST MORTGAGE BONDS
OWNED BY CHARTER MAC EQUITY ISSUER TRUST
Summerlake 4/1/27
/Davie, FL 3/14/00 7.40% 3/1/42 $5,600,000 108
</TABLE>
-50-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Item 11. Executive Compensation.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Exchange Act.
-51-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
----------
(a) 1. Financial Statements
Independent Auditors' Report 26
Consolidated Balance Sheets as of December 31, 1999
and 1998 27
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 28
Consolidated Statements of Changes in Shareholders'
Equity/Partners' Capital (Deficit) for the years ended
December 31, 1999, 1998 and 1997 29
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 31
Notes to Consolidated Financial Statements 34
(a) 2. FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information of
Registrant 58
Schedule IV - Mortgage Loans on Real Estate at December
31, 1999 66
All other schedules have been omitted because they are
not applicable or the required information is included
in the financial statements and the notes thereto.
(a) 3. EXHIBITS
3.1(a) Certificate of Business Trust dated as of August 12,
1996 (incorporated by reference to the Company's
Registration Statement on Form 10, File No. 001-13237)
3.1(b) Certificate of Amendment of Certificate of Business Trust
dated as of April 30, 1997 (incorporated by reference to
the Company's Registration Statement on Form 10, File
No. 001-13237)
3.1(c) Trust Agreement dated as of August 12, 1996
(incorporated by reference to the Company's Registration
Statement on Form 10, File No. 001-13237)
3.1(d) Amendment No. 1 to Trust Agreement dated as of April 30,
1997 (incorporated by reference to the Company's
Registration Statement on Form 10, File No. 001-13237)
3.1(e) Amended and Restated Trust Agreement dated as of
September 30, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
-52-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
Sequential
Page
----------
3.2 Amended and Restated Bylaws (filed herewith) 71
4.1 Specimen Copy of Share Certificate for shares of
beneficial interest of the Company (incorporated by
reference to the Company's Amendment No. 1 on Form
10/A to the Company's Registration Statement on
Form 10, File No. 001-13237)
10(a) Management Agreement dated as of October 1, 1997,
between the Company and Related Charter L.P.
(incorporated by reference to the Company's Current
Report on Form 8-K, filed with the Commission on
March 19, 1998)
10(b) Agreement and Plan of Merger dated as of October 1,
1997, by and among the Company, Summit Tax Exempt Bond
Fund, L.P., Summit Tax Exempt L.P. II and Summit Tax
Exempt L.P. III (incorporated by reference to the
Company's Current Report on Form 8-K, filed with the
Commission on March 19, 1998)
10(c) Incentive Share Option Plan (incorporated by
reference to the Company's Current Report on Form 8-K,
filed with the Commission on March 19, 1998)
10(d) Contribution Agreement between CharterMac and
CharterMac Origination Trust ("Origination Trust")
dated as of May 21, 1998 (incorporated by reference
to Exhibit 10 (aaaw) in the Company's June 30, 1998
Quarterly Report on Form 10-Q)
10(e) Contribution Agreement between Origination Trust and
CharterMac Owner Trust ("Owner Trust") dated as of May
21, 1998 (incorporated by reference to Exhibit 10
(aaax) in the Company's June 30, 1998 Quarterly Report
on Form 10-Q)
10(f) Insurance Agreement among MBIA, CharterMac, Origination
Trust, Owner Trust, CharterMac Floater Certificate Trust
("Floater Certificate Trust"), First Tennessee Bank
National Association ("First Tennessee"), Related
Charter LP, and Bayerische Landesbank Girozentrale,
New York Branch ("Bayerische") dated as of May 21, 1998
(incorporated by reference to Exhibit 10 (aaay) in the
Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(g) Liquidity Agreement among Owner Trust, Floater
Certificate Trust, First Tennessee, MBIA and Bayerische
dated as of May 21, 1998 (incorporated by reference to
Exhibit 10 (aaaz) in the Company's June 30, 1998
Quarterly Report on Form 10-Q)
10(h) Liquidity Pledge and Security Agreement among
Origination Trust, Owner Trust, Floater Certificate
Trust, MBIA, First Tennessee and Bayerische dated as of
May 21, 1998 (incorporated by reference to
-53-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
10-K (continued)
Sequential
Page
----------
Exhibit 10 (aaaaa) in the Company's June 30, 1998
Quarterly Report on Form 10-Q)
10(i) Fee Agreement among Wilmington Trust Company, Floater
Certificate Trust and CharterMac dated as of May 21,
1998 (incorporated by reference to Exhibit 10 (aaaab) in
the Company's June 30, 1998 Quarterly Report on Form 10-Q)
10(j) Certificate Placement Agreement (incorporated by reference
to Exhibit 10 (aaaac) in the Company's June 30, 1998
Quarterly Report on Form 10-Q)
10(k) Remarketing Agreement (incorporated by reference to Exhibit
10 (aaaad) in the Company's June 30, 1998 Quarterly Report
on Form 10-Q)
10(l) Charter Mac Equity Issuer Trust, 6 5/8% Series A Cumulative
Preferred Shares, Purchase Agreement, dated June 14, 1999
(incorporated by reference to Exhibit 10 (aaaaz) in the
Company's June 30, 1999 Quarterly Report on Form 10-Q)
10(m) Agreement and Plan of Merger by and among Charter
Municipal Mortgage Acceptance Company, CM Holding Trust and
American Tax Exempt Bond Trust dated as of November 2, 1999
(incorporated by reference to Exhibit 99.2 in the Company's
Current Report on Form 8-K dated November 2, 1999)
12 Ratio of earnings to fixed charges and preferred share
dividends of subsidiary 91
21 Subsidiaries of the Company (filed herewith) 92
27 Financial Data Schedule (filed herewith) 93
99.1 Amended and Restated Trust Agreement by and among J. Michael
Fried, Stuart J. Boesky, Alan P. Hirmes, Robert W. Grier and
Andrew T. Panaccione as Managing Trustees, Charter Municipal
Mortgage Acceptance Company and Wilmington Trust Company, as
Registered Trustee dated June 22, 1999 relating to Charter
Mac Equity Issuer Trust (incorporated by reference to Exhibit
99 in the Company's June 30, 1999 Quarterly Report on Form
10-Q)
99.2 Agreement dated as of April 15, 1999 between Charter
Municipal Mortgage Acceptance Company and Melvyn I. Weiss,
Esq. and Lawrence A. Sucharow, Esq., as Class Counsel
co-chairmen (incorporated by reference to the Company's
current report on Form 8-K filed with the Commission on
April 29, 1999)
-54-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
10-K (continued)
Sequential
Page
----------
(b) REPORTS ON FORM 8-K
Current report on Form 8-K relating to an Agreement and
Plan of Merger providing for the merger of American Tax
Exempt Bond Trust, a Delaware Business Trust, with and
into a subsidiary of the Company, with the Company's
subsidiary as the surviving trust in the merger was
dated November 2, 1999 and was filed on November 4, 1999.
Current report on Form 8-K relating to the resignation
of J. Michael Fried as Chairman of the Board of Trustees
and Chief Executive Officer and Stuart J. Boesky as Chief
Operating Officer and the unanimous appointment of
Stephen M. Ross as Chairman of the Board of Trustees and
Stuart J. Boesky as Chief Executive Officer was dated
December 16, 1999 and was filed on January 5, 2000.
-55-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(COMPANY)
Date: July 31, 2000 By: /s/ Stuart J. Boesky
---------------------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S><C>
Signature Title Date
------------------------ ------------------------------------------------------ --------------------------
/s/ Stuart J. Boesky Managing Trustee, President
-------------------- and Chief Executive Officer July 31, 2000
Stuart J. Boesky
/s/ Stephen M. Ross Managing Trustee and
------------------- Chairman of the Board July 31, 2000
Stephen M. Ross
/s/ Michael J. Brenner Managing Trustee July 31, 2000
----------------------
Michael J. Brenner
/s/ Alan P. Hirmes
------------------ Managing Trustee, Executive Vice July 31, 2000
Alan P. Hirmes President, Chief Financial Officer,
Chief Accounting Officer and Secretary
/s/ Peter T. Allen Managing Trustee July 31, 2000
------------------
Peter T. Allen
/s/ Arthur P. Fisch Managing Trustee July 31, 2000
-------------------
Arthur P. Fisch
/s/ Thomas W. White Managing Trustee July 31, 2000
-------------------
Thomas W. White
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Summarized condensed financial information of registrant (not including its
consolidated subsidiaries)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
First mortgage bonds-at fair value $9,559,000 $75,015,000
Temporary investments 19,790,000 0
Cash and cash equivalents 3,523,956 11,887,236
Cash and cash equivalents-restricted 971,758 0
Interest receivable, net 199,548 304,713
Promissory notes receivable 10,148,060 7,628,920
Due from subsidiaries 439,108 230,221
Investment in Charter Mac Origination Trust I 9,989,851 219,715,109
Investment in CM Holding Trust 250,099,847 0
Deferred costs, net 10,653,865 7,005,965
Goodwill, net 2,674,626 4,671,235
Other assets 262,344 11,500
------------- -------------
Total assets $318,311,963 $326,469,899
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities $ 423,540 $ 8,140,184
Due to Manager and affiliates 838,567 1,035,748
Due to subsidiaries 155,717 1,483,893
Distributions payable to shareholders 5,453,971 4,939,068
------------- -------------
Total liabilities 6,871,795 15,598,893
------------- -------------
Commitments and contingencies
Shareholders' equity:
Beneficial owner's equity-manager 441,878 230,259
Beneficial owners' equity-other shareholders
(50,000,000 shares authorized; 20,589,375 issued and
20,580,975 outstanding and 20,587,837 issued and
20,579,437 outstanding in 1999 and 1998, respectively) 312,800,380 312,307,115
Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359)
Accumulated other comprehensive loss (1,698,731) (1,563,009)
------------- -------------
Total shareholders' equity 311,440,168 310,871,006
----------- -----------
Total liabilities and shareholders' equity $318,311,963 $326,469,899
=========== ===========
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <S> <C> <C>
Revenues:
Interest income:
First mortgage bonds $ 5,988,021 $20,287,754 $13,902,592
Other bond related investments 62,910 0 0
Temporary investments 662,728 213,138 155,460
Promissory notes 702,991 594,183 171,722
Income from Charter Mac Origination Trust I 9,989,851 4,570,337 0
Income from CM Holding Trust 8,187,277 0 0
------------- ------------- -------------
Total revenues 25,593,778 25,665,412 14,229,774
------------- ------------- -------------
Expenses:
Interest expense 417,263 1,504,334 429,012
Partnership management fees 0 0 607,969
Loan servicing and management fees 135,767 729,840 523,538
General and administrative 1,406,501 1,246,794 728,812
Amortization 345,282 158,572 41,500
Loss on impairment of assets 0 0 1,843,135
------------- ------------- -------------
Total expenses 2,304,813 3,639,540 4,173,966
------------- ------------- -------------
Income before loss on repayment of first
mortgage bonds 23,288,965 22,025,872 10,055,808
Loss on repayment of first mortgage bonds 107,147 0 0
------------- ------------- -------------
Net income $23,181,818 $22,025,872 $10,055,808
========== ========== ==========
Allocation of net income:
Special distribution to Manager $ 2,018,822 $ 1,477,797 $ 330,580*
=========== =========== ============
Manager $ 211,630 $ 205,481 $ 24,622*
=========== =========== ============
Shareholders $ 20,951,366 $ 20,342,594 $ 2,437,538*
=========== =========== ============
</TABLE>
*Represents amount for the three months ended December 31, 1997.
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <S> <C> <C>
Cash flows from operating activities:
Net income $23,181,818 $22,025,872 $10,055,808
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on repayments of first mortgage bonds 107,147 0 0
Loss on impairment of assets 0 0 1,843,135
Amortization 345,282 158,572 41,500
Amortization of goodwill 297,623 134,593 0
Amortization of bond selection costs 450,743 238,928 184,851
Accretion of excess of acquired net
assets over cost 0 (248,559) (82,853)
Accretion of deferred income 0 (39,753) (66,212)
Income from investment in Charter Mac
Origination Trust I (9,989,851) (4,570,337) 0
Income from investment in CM Holding Trust (8,187,277) 0 0
Distributions from Charter Mac Origination
Trust I 16,467,319 151,538,426 0
Changes in operating assets and liabilities:
Interest receivable 105,165 574,806 449,808
Other assets 656 29,971 (5,503)
Accounts payable, accrued expenses and
other liabilities (5,918,615) 70,457 69,393
Due from subsidiaries (208,887) (230,221) 84,225
Due to subsidiaries (1,328,176) 1,483,893 0
Due to Manager and affiliates (343,960) 278,751 (162,178)
---------- ----------- ----------
Total adjustments (8,202,831) 149,419,527 2,356,166
---------- ----------- ----------
Net cash provided by operating activities 14,978,987 171,445,399 12,411,974
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from repayments of first mortgage bonds 5,100,000 0 0
Purchase of first mortgage bonds (44,290,000) (117,596,600) (5,000,000)
Purchase of other bond related investments (480,162) 0 0
Proceeds from secured borrowings 52,807,000 0 0
Contribution of first mortgage bonds to
CM Holding Trust for cash 13,492,000 0 0
Contribution of other bond related investment
to CM Holding Trust for cash 15,000 0 0
Increase in deferred bond selection costs (3,906,784) (2,598,288) (130,091)
Net sale (purchase) of temporary investments (19,790,000) 3,500,000 100,000
Increase in other assets (251,500) 0 0
Increase in other deferred costs (100,000) 0 0
Loans made to properties (2,847,185) (1,055,695) (324,000)
Principal payments received from loans made to
properties 328,045 507,040 129,257
------------- ------------- -------------
Net cash provided by (used in) investing activities 76,414 (117,243,543) (5,224,834)
------------- ------------- -------------
</TABLE>
(continued)
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from note payable 0 96,039,231 23,945,340
Repayments of note payable 0 (117,484,571) (16,180,866)
Increase in cash and cash equivalents-restricted (971,758) 0 0
Distributions paid to the Manager and
shareholders of the Company/partners (21,815,252) (20,331,395) (12,164,011)
Increase in deferred costs relating to the Private
Label Tender Option Program (559,632) (2,512,768) (583,727)
Increase in other deferred costs (72,039) 0 0
Purchase of treasury shares of beneficial interest 0 (103,359) 0
Consolidation costs 0 (218,657) (2,497,603)
Cash effect of Consolidation and issuance
of shares 0 0 2,341,434
------------- ------------- -------------
Net cash used in financing activities (23,418,681) (44,611,519) (5,139,433)
------------- ------------- -------------
</TABLE>
(continued)
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents (8,363,280) 9,590,337 2,047,707
Cash and cash equivalents at the
beginning of the year 11,887,236 2,296,899 249,192
------------- ------------- -------------
Cash and cash equivalents at the
end of the year $ 3,523,956 $11,887,236 $2,296,899
============= ============= =============
Supplemental information:
Interest paid $ 417,263 $ 1,507,871 $ 400,009
============= ============= =============
Supplemental disclosure of noncash activities:
Payable to trustees liquidated through the
issuance of shares of beneficial interest $ 20,000 $ 5,000 $ 0
============= ============= =============
Shares of beneficial interest required to be issued
to counsel for the partners in the Partnership
Increase in goodwill $ 0 $ (4,805,828) $ 0
Decrease in excess of acquired net
assets over cost 0 (2,982,708) 0
Increase in accounts payable, accrued
expenses and other liabilities 0 7,788,536 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Adjustment to goodwill due to the
Discounted Cash Settlement:
Decrease in goodwill $ 1,698,986 $ 0 $ 0
Decrease in accounts payable, accrued
expenses and other liabilities (1,698,986) 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Contribution of first mortgage bonds to
Charter Mac Origination Trust I:
Decrease in first mortgage bonds $ 8,550,000 $ 366,308,931 $ 0
Increase in investment in Charter Mac
Origination Trust I $ (8,550,000) $(366,308,931) $ 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
</TABLE>
(continued)
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Contribution of other bond related
investments to CM Holding Trust:
Decrease in other bond related investments $ (83,957) $ 0 $ 0
Increase in investment in CM Holding Trust 83,957 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Contribution of first mortgage bonds to
CM Holding Trust:
Decrease in first mortgage bonds $(103,350,009) $ 0 $ 0
Increase in investment in CM Holding Trust 103,350,009 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Transfer of secured borrowings
to CM Holding Trust:
Decrease in secured borrowings $ (52,807,000) $ 0 $ 0
Decrease in investment in CM Holding Trust 52,807,000 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Distribution of first mortgage bond from
CM Holding Trust:
Increase in first mortgage bonds $ (7,000,186) $ 0 $ 0
Decrease in investment in CM Holding Trust 7,000,186 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Transfer of net investment in Charter Mac
Origination Trust I to CM Holding Trust:
Increase in investment in CM Holding Trust $(211,797,790) $ 0 $ 0
Decrease in CharterMac Origination Trust I 211,797,790 0 0
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
Consolidation and issuance of shares:
Increase in first mortgage bonds $ 0 $ 0 $(168,557,007)
Increase in interest receivable 0 0 (593,984)
Increase in promissory notes receivable 0 0 (6,609,950)
Increase in other assets 0 0 (12,193)
Increase in notes payable 0 0 13,680,866
Increase in accounts payable, accrued
expenses and other liabilities 0 0 104,376
Increase in due to affiliates 0 0 434,351
Increase in distributions payable 0 0 2,452,088
Increase in excess of acquired net assets over cost 0 0 3,314,120
Decrease in BUC$holders' capital 0 0 (158,222,585)
Increase in general partners' capital 0 0 233,237
Issuance of shares of beneficial interest 0 0 313,776,681
------------- ------------- -------------
$ 0 $ 0 $ 0
============= ============= =============
</TABLE>
(continued)
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Distributions to the Manager and shareholders
of the Company/partners $ (22,496,934) $ (20,622,394) $ (14,777,622)
Increase in special distribution payable to the
Manager 166,779 87,050 330,580
Increase in distributions payable to
shareholders of the Company/partners 514,903 203,949 2,283,031
------------- ------------- -------------
Distributions paid to the Manager and shareholders
of the Company/partners $ (21,815,252) $ (20,331,395) $ (12,164,011)
============= ============= =============
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Introduction and Basis of Presentation
Basis of Financial Information
The accompanying condensed financial statements (the "Parent Company Financial
Statements") are for Charter Municipal Mortgage Acceptance Company (not
including its consolidated subsidiaries). Charter Municipal Mortgage Company
(the "Company") had no consolidated subsidiaries during the year ended
December 31, 1997.
The Parent Company Financial Statements, including the notes thereto, should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto which are included in this Form 10-K.
2. Transactions with Subsidiaries
The Company received distributions from its consolidated subsidiaries totaling
approximately $16,467,000 and $151,538,000 during the years ended December 31,
1999 and 1998, respectively.
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
ITEM 14, SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
Participating First Mortgage Bonds
As of December 31, 1999, the Company and its consolidated subsidiaries owned 69
FMBs (26 participating FMBs and 43 non-participating FMBs). Three of the FMBs
are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs.
The taxable FMBs are secured by the same Underlying Properties which secure the
associated tax-exempt FMBs. The following table provides certain information
with respect to each of the FMBs.
<TABLE>
<CAPTION>
MINIMUM AVERAGE FAIR
STATED PAY RATE INTEREST FACE VALUE AT
INTEREST AT DECEMBER RATE PAID MATURITY AMOUNT DECEMBER
PROPERTY LOCATION RATE* 31, 1999* FOR 1999* CALL DATE DATE OF FMB 31, 1999(A)
-------- -------- -------- ----------- --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Highpointe Club (K)(N) Harrisburg, PA 8.50% (W) 4.72% June 1998 June 2006 $ 8,900,000 $ 5,769,000
----------- -----------
OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H)
Barnaby Manor (P)(S)(Y) Washington, DC 7.375 7.375% 7.375 May 2017 May 2032 4,500,000 4,500,000
Casa Ramon (P)(Y) Orange County, CA 7.50 7.50 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000
Chapel Ridge of Little Rock Little Rock, AR 7.125 7.125 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000
(O)(S)(Y)
Chapel Ridge of Texarkana Texarkana, AR 7.375 7.375 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000
(O)(S)(Y)
Country Lake (P) West Palm Beach, FL (V) 6.00 6.00 June 2015 June 2032 6,255,000 6,255,000
Del Monte Pines (R)(P)(Y) Fresno, CA 6.80 6.80 6.80 May 2017 May 2036 11,000,000 10,275,000
Douglas Pointe(O)(S)(R)(Y) Miami, FL 7.00 7.00 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000
Forest Hills (R)(P)(Y) Garner, NC 7.125 7.125 7.13 June 2016 June 2034 5,930,000 5,804,000
Fort Chaplin (P)(Y) Washington, DC 6.90 6.90 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000
Franciscan Riviera (P)(R)(Y) Antioch, CA 7.125 7.125 7.125 Apr. 2016 Aug. 2036 6,587,500 6,447,000
Garfield Park (P) Washington, DC 7.25 7.25 7.25 Aug. 2017 Aug. 2031 3,260,000 3,247,000
Greenbriar (M)(P)(Y) Concord, CA 6.875 6.875 6.875 May 2017 May 2036 9,585,000 9,052,000
Hamilton Gardens (R)(P)(Y) Hamilton, NJ (U) 7.625 7.625 Apr. 2015 Mar. 2035 6,400,000 6,264,000
Lake Jackson (R)(O)(S)(Y) Lake Jackson, TX 7.00 7.00 7.00 Jan. 2018 Jan. 2041 10,934,000 10,513,000
Lakemoor (O) (S) Durham, NC 7.25 7.25 7.25 Jan. 2017 Dec. 2041 9,000,000 9,000,000
Lake Park (P)(Y) Turlock, CA 7.25 7.25 7.25 Oct. 2015 Sep. 2035 3,638,000 3,623,000
Lakes Edge At Walden (P)(M) Miami, FL 6.90 6.90 6.90 June 2016 May 2035 14,850,000 14,075,000
Lennox Park (O)(S)(M)(Y) Gainesville, GA 6.80 6.80 6.80 Aug. 2021 July 2041 13,000,000 12,143,000
Lewis Place (O)(S)(M)(Y) Gainsville, FL (I) 6.75 6.75 June 2016 June 2041 4,000,000 3,709,000
Mountain Ranch (R)(O)(Y) Austin, TX 7.125 7.125 7.13 Jan. 2018 Jan. 2041 9,128,000 8,934,000
Standiford (P)(R)(Y) Modesto, CA 7.125 7.125 7.125 Apr. 2016 Aug. 2036 9,520,000 9,317,000
Sunset Creek (M)(K) Lancaster, CA 8.50 5.48 8.68 Mar. 2000 Mar. 2008 8,275,000 6,225,000
Sunset Village (M)(K) Lancaster, CA 8.50 5.48 8.68 Mar. 2000 Mar. 2008 11,375,000 8,557,000
Sycamore Woods (R)(P)(Y) Antioch, CA 6.875 6.875 6.875 May 2017 May 2036 9,415,000 8,891,000
Tallwood (O)(S)(R)(Y) Virginia Beach, VA 7.25 7.25 7.25 Nov. 2017 Oct. 2041 6,205,000 6,179,000
----------- ------------
207,207,500 197,046,000
----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
ITEM 14, SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
MINIMUM AVERAGE
STATED PAY RATE AT INTEREST
INTEREST DECEMBER RATE PAID
PROPERTY LOCATION RATE* 31, 1999* FOR 1999*
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C>
OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L)
Bay Club (K) Mt. Pleasant, SC 8.25 8.25 10.11
Clarendon Hills (K) Hayward, CA 5.52 5.52 6.48
Cypress Run (K) Tampa, FL 8.50 5.50 .68
East Ridge (K) Mt. Pleasant, SC 8.25 8.25 8.24
Greenway Manor (K)(N) St. Louis, MO 8.50 8.50 8.64
The Lakes (K) Kansas City, MO 4.87 4.87 6.71
Loveridge (K)(N) Contra Costa, CA 8.00 (W) 5.00
Martin's Creek (K) Summerville, SC 8.25 8.25 8.25
<CAPTION>
FAIR
FACE VALUE AT
MATURITY AMOUNT DECEMBER
PROPERTY CALL DATE DATE OF FMB 31, 1999(A)
-------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L)
Bay Club (K) Sep. 2000 Sep. 2006 6,400,000 7,253,000
Clarendon Hills (K) Dec. 2003 Dec. 2003 17,600,000 13,599,000
Cypress Run (K) Aug. 1998 Aug. 2006 15,402,428 13,576,000
East Ridge (K) Mar. 2000 May 2010 8,700,000 9,859,000
Greenway Manor (K)(N) Oct. 1998 Sept. 2006 12,850,000 15,003,000
The Lakes (K) Dec. 2006 Dec. 2006 13,650,000 9,821,000
Loveridge (K)(N) Nov. 1998 Nov. 2006 8,550,000 6,459,000
Martin's Creek (K) Mar. 2000 May 2010 7,300,000 8,273,000
------------ -------------
90,452,428 83,843,000
------------ -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
ITEM 14, SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
MINIMUM AVERAGE
STATED PAY RATE AT INTEREST
INTEREST DECEMBER RATE PAID
PROPERTY LOCATION RATE* 31, 1999* FOR 1999*
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C>
OWNED BY CHARTER MAC OWNER TRUST I (J) (H)
Bedford Square (Y) Clovis, CA (D) 7.00 7.00
Bristol Village Bloomington, MN 7.50 7.50 7.50
Carrington Pointe (Y) Los Banos, CA 6.375 6.375 6.38
Cedarbrook (Y) Hanford, CA 7.125 7.125 7.13
Cedar Creek (K)(N) McKinney, TX 8.50 8.50 8.50
Cedar Pointe (K) Nashville, TN 7.00 7.00 7.00
College Park (O)(S) Naples, FL (C) 7.00 7.00
Crowne Pointe (K) Olympia, WA 7.25 8.00 7.76
Falcon Creek (O)(S)(Y) Indianapolis, IN (F) 7.00 7.00
Gulfstream (P)(Y) Dania, FL 7.25 7.25 7.25
Highland Ridge (K) St. Paul, MN 7.25 7.25 7.36
Jubilee Courtyards (Y) Florida City, FL (G) 7.00 7.00
Lakepoint (K) Stone Mountain, GA 6.00 6.00 6.08
Madalyn Landing (O)(S)(Y) Palm Bay, FL 7.00 7.00 7.00
The Mansion Independence, MO 7.25 7.25 9.84
Marsh Landings (P)(S)(Y) Portsmouth, VA 7.25 7.25 7.25
Newport Village (K) Tacoma, WA 7.25 8.00 7.76
North Glen (K) Atlanta, GA (X) 7.00 7.15
Northpointe Village (P)(Y) Fresno, CA (E) 8.125 8.12
Ocean Air (P)(S)(Y) Norfolk, VA 7.25 7.25 7.25
Orchard Hills (K) Tacoma, WA 7.25 8.00 7.76
Orchard Mill (K) Atlanta, GA 7.50 5.00 6.57
Pelican Cove (K)(N) St Louis, MO 8.00 (W) 8.08
Phoenix (Y) Stockton, CA 7.125 7.125 7.12
River Run (K)(Y) Miami, FL 8.00 8.00 9.10
Shannon Lake (K) Atlanta, GA (B) 6.00 6.08
Silvercrest (Y) Clovis, CA 7.125 7.125 7.12
Stone Creek (O)(S)(Y) Watsonville, CA 7.125 7.125 7.13
Sunset Downs (K) Lancaster, CA 8.00 5.48 8.70
Sunset Terrace (K) Lancaster, CA 8.00 5.48 8.61
Thomas Lake Eagan, MN 7.50 7.50 7.50
Willow Creek (K) Ames, IA 7.25 7.25 7.32
<CAPTION>
FAIR
FACE VALUE AT
MATURITY AMOUNT DECEMBER
PROPERTY CALL DATE DATE OF FMB 31, 1999(A)
-------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
OWNED BY CHARTER MAC OWNER TRUST I (J) (H)
Bedford Square (Y) Sep. 2017 Aug. 2040 3,850,000 3,371,000
Bristol Village Jan. 2010 Dec. 2027 17,000,000 17,513,000
Carrington Pointe (Y) Oct. 2017 Sep. 2040 3,375,000 2,955,000
Cedarbrook (Y) May 2017 May 2040 2,840,000 2,779,000
Cedar Creek (K)(N) Dec. 1998 Dec. 2006 8,100,000 9,457,000
Cedar Pointe (K) Apr. 2006 Apr. 2017 9,500,000 9,134,000
College Park (O)(S) Jul. 2025 Jul. 2040 10,100,000 9,711,000
Crowne Pointe (K) Dec. 1998 Aug. 2029 5,075,000 5,054,000
Falcon Creek (O)(S)(Y) Sep. 2016 Aug. 2038 6,144,600 6,119,000
Gulfstream (P)(Y) Apr. 2016 Jul. 2038 3,500,000 3,486,000
Highland Ridge (K) June 2010 June 2018 15,000,000 14,938,000
Jubilee Courtyards (Y) Oct. 2025 Sep. 2040 4,150,000 4,062,000
Lakepoint (K) Jul. 2005 June 2017 15,100,000 12,445,000
Madalyn Landing (O)(S)(Y) Dec. 2017 Nov. 2040 14,000,000 13,461,000
The Mansion Jan. 2011 April 2025 19,450,000 19,678,000
Marsh Landings (P)(S)(Y) Jul. 2017 Jul. 2030 6,050,000 6,025,000
Newport Village (K) Jan. 1999 Aug. 2029 13,000,000 12,946,000
North Glen (K) Jul. 2005 June 2017 12,400,000 12,775,000
Northpointe Village (P)(Y) Sep. 2017 Aug. 2040 13,250,000 13,650,000
Ocean Air (P)(S)(Y) Jan. 2016 Nov. 2030 10,000,000 9,959,000
Orchard Hills (K) Dec. 1998 Aug. 2029 5,650,000 5,627,000
Orchard Mill (K) Jul. 2005 June 2017 10,500,000 10,517,000
Pelican Cove (K)(N) Feb. 1999 Feb. 2007 18,000,000 19,780,000
Phoenix (Y) Nov. 2016 Oct. 2029 3,250,000 3,181,000
River Run (K)(Y) Aug. 1999 Aug. 2007 7,200,000 7,912,000
Shannon Lake (K) Jul. 2005 June 2017 12,000,000 11,538,000
Silvercrest (Y) Oct. 2017 Sep. 2040 2,275,000 2,227,000
Stone Creek (O)(S)(Y) May 2017 Apr. 2040 8,820,000 8,632,000
Sunset Downs (K) May 1999 May 2007 15,000,000 11,284,000
Sunset Terrace (K) Feb. 1999 May 2007 10,350,000 7,786,000
Thomas Lake Jan. 2010 Dec. 2027 12,975,000 13,367,000
Willow Creek (K) Jan. 2010 June 2022 6,100,000 6,075,000
------------- -------------
304,004,600 297,444,000
------------- -------------
Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000
------------- -------------
</TABLE>
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
ITEM 14, SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MINIMUM AVERAGE
STATED PAY RATE AT INTEREST
INTEREST DECEMBER RATE PAID
PROPERTY LOCATION RATE* 31, 1999* FOR 1999*
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C>
TAXABLE FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Greenbriar (P) Concord, CA 9.00 9.00 9.00
Lake Park (P) Turlock, CA 9.00 9.00 9.00
Lakes Edge at Walden (P) Miami, FL 11.00 11.00 11.00
<CAPTION>
FAIR
FACE VALUE AT
MATURITY AMOUNT DECEMBER
PROPERTY CALL DATE DATE OF FMB 31, 1999(A)
-------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
TAXABLE FIRST MORTGAGE BONDS
OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES)
Greenbriar (P) May 2017 May 2036 2,015,000 2,015,000
Lake Park (P) Oct. 2015 Sep. 2035 375,000 375,000
Lakes Edge at Walden (P) June 2000 Aug. 2010 1,400,000 1,400,000
------------- -------------
Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000
------------- -------------
Total First Mortgage Bonds $614,354,528 $587,892,000
============= =============
</TABLE>
*The average interest rate paid (which in certain cases includes the receipt of
contingent interest and deferred base interest relating to prior periods)
represents the interest recorded by the Company while the stated interest rate
represents the coupon rate of the FMB and the minimum pay rate represents the
minimum rate payable pursuant to the applicable forbearance agreement, if any.
(A) The FMBs are deemed to be available-for-sale debt securities and,
accordingly, are carried at their estimated fair values at December 31,
1999.
(B) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 6% through July 31, 2000 and 7% thereafter.
(C) The interest rates for College Park are 7% during the construction period
and 7.25% thereafter.
(D) The interest rates for Bedford Square are 7% during the construction period
and 6.375% thereafter.
(E) The interest rates for Northpointe Village are 7.965% through September 23,
1998, 8.125% during the remainder of the construction period and 7.5%
thereafter.
(F) The interest rates for Falcon Creek are 7% through August 31, 2000 and
7.25% thereafter.
(G) The interest rates for Jubilee Courtyards are 7% through September 30, 2000
and 7.125% thereafter.
(H) This entity is a consolidated subsidiary of the Company (see Notes 8 and 9
to the Company's Financial Statements included in "Item 8. Financial
Statements and Supplementary Data").
(I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00%
thereafter.
(J) These FMBs have been transferred to Charter Mac Owner Trust I in connection
with the Company's Private Label Tender Option Program (TOP) (see Note 6 to
the Company's Financial Statements included in "Item 8. Financial
Statements and Supplementary Data").
(K) These FMBs are participating FMBs which contain additional interest
features contingent on available cash flow.
(L) The FMBs are held as collateral in connection with the TOP (see Note 8 to
the Company's Financial Statements included in "Item 8. Financial
Statements and Supplementary Data").
(M) These FMBs are pledged as collateral in connection with the Merrill Lynch
RITES/P-FLOATS Program (see Note 4 to the Company's Financial Statements
included in "Item 8. Financial Statements and Supplementary Data").
(N) The original owners of the Underlying Properties and the obligors of these
FMBs have been replaced with affiliates of the Manager.
(O) The Underlying Property is under construction. In the event construction is
not completed in a timely manner, the Company may "put" the FMB to the
construction lender at par.
(P) The Underlying Property is undergoing substantial rehabilitation. In the
event rehabilitation is not completed in a timely manner, the Company may
"put" the FMB to the construction lender at par.
(Q) Initial advance on an FMB which will have a face amount of $4,744,000 when
it is fully funded. The balance of $4,694,000 is expected to be funded in
the second quarter of 2000.
(R) Held by Merrill Lynch as collateral for secured borrowings (see Note 4 to
the Company's Financial Statements included in "Item 8. Financial
Statements and Supplementary Data").
(S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit
issued by the construction lender to the Company.
(T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The
balance was funded on July 15, 1999.
(U) The interest rates for Hamilton Gardens are 7.625% during the construction
period and 7.125% thereafter.
(V) The interest rates for Country Lake are 6% until expected refunding in June
2000 and 7.25% thereafter.
(W) The minimum pay rate is the current cash flow of the property.
(X) Pursuant to a bond modification as of October 1, 1997, the base interest
rate was lowered to 7% through June 30, 2000 and 7.50% thereafter.
(Y) The obligors of these mortgage bonds are partnerships in which affiliates
of the Manager are partners that own a controlling interest.
<PAGE>
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
ITEM 14, SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
Participating First Mortgage Bonds
<TABLE>
<CAPTION>
Reconciliation of FMBs:
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period: $458,662,600 $346,300,000 $148,123,426
Acquisitions 165,355,500 117,596,600 173,557,007
Proceeds from repayments of
first mortgage bonds (21,395,213) 0 0
Carrying amount of first mortgage
bonds in excess of proceeds
from the repayment (256,000) 0 0
Realized loss on impairment
of assets (1,859,042) 0 (1,843,135)
Net change in fair value of
participating first mortgage bonds (12,642,300) (5,260,455) 26,436,248
Accretion of deferred income 26,455 26,455 26,454
--------------- -------------- --------------
Balance at close of period: $587,892,000 $458,662,600 $346,300,000
=============== ============== ==============
</TABLE>
