FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-24843
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its
Agreement of Limited Partnership)
Delaware 47-0810385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
<PAGE> -i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999
(unaudited) Dec. 31, 1998
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 250,853 $ 920,801
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 71,720,000 71,720,000
Interest receivable 649,501 503,234
Other assets 607,939 277,890
-------------- --------------
$ 73,228,293 $ 73,421,925
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 202,781 $ 276,184
Distribution payable (Note 3) 459,100 453,597
-------------- --------------
661,881 729,781
-------------- --------------
Partners' Capital
General Partner 4,169 5,426
Beneficial Unit Certificate Holders
($7.27 per BUC in 1999 and $7.28 in 1998) 72,562,243 72,686,718
-------------- --------------
72,566,412 72,692,144
-------------- --------------
$ 73,228,293 $ 73,421,925
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
COMBINED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six
For the For the Months Ended For the Six
Quarter Ended Quarter Ended June 30, 1999 Months Ended
June 30, 1999 June 30, 1998 (combined) June 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 1,573,264 $ 1,448,408 $ 3,013,238 $ 3,032,977
Interest income on temporary cash investments 3,986 13,916 9,882 25,692
Contingent interest income (Note 5) 22,702 22,500 42,100 49,233
-------------- -------------- -------------- --------------
1,599,952 1,484,824 3,065,220 3,107,902
Expenses
General and administrative expenses (Note 6) 217,831 227,327 459,166 404,182
-------------- -------------- -------------- --------------
Net income and comprehensive income $ 1,382,121 $ 1,257,497 $ 2,606,054 $ 2,703,720
============== ============== ============== ==============
Net income allocated to:
General Partner $ 19,270 $ 17,975 $ 36,165 $ 38,853
BUC Holders 1,362,851 1,239,522 2,569,889 2,664,867
-------------- -------------- -------------- --------------
$ 1,382,121 $ 1,257,497 $ 2,606,054 $ 2,703,720
============== ============== ============== ==============
Net income, basic and diluted, per BUC $ .14 $ .13 $ .26 $ .27
============== ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -1-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- --------------- --------------
<S> <C> <C> <C>
Partners' Capital (excluding accumulated other comprehensive income)
Balance at December 31, 1998 $ 5,426 $ 73,592,718 $ 73,598,144
Net income (combined) 36,165 2,569,889 2,606,054
Cash distributions paid or accrued (Note 3) (combined) (37,422) (2,694,364) (2,731,786)
-------------- --------------- --------------
4,169 73,468,243 73,472,412
-------------- --------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 1998 and June 30, 1999 - (906,000) (906,000)
-------------- --------------- --------------
Balance at June 30, 1999 $ 4,169 $ 72,562,243 $ 72,566,412
============== =============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Six
June 30, 1999 Months Ended
(combined) June 30, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,606,054 $ 2,703,720
Adjustments to reconcile net income to net cash
from operating activities
Decrease (increase) in interest receivable (146,267) 82,230
Decrease (increase) in other assets (330,049) (56,724)
Decrease in accounts payable (73,403) (74,803)
-------------- --------------
Net cash provided by operating activities 2,056,335 2,654,423
-------------- --------------
Cash flow used in investing activity
Bond issuance costs paid - -
-------------- --------------
Cash flow used in financing activity
Distributions paid (2,726,283) (2,733,175)
-------------- --------------
Net decrease in cash and temporary cash investments (669,948) (78,752)
Cash and temporary cash investments at beginning of period 920,801 1,522,893
-------------- --------------
Cash and temporary cash investments at end of period $ 250,853 $ 1,444,141
============== ==============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
Supplemental disclosure of non-cash investing activity:
During the six months ended June 30, 1999, the tax-exempt mortgage bonds
secured by Shoals Crossing and Ashley Square with principal balances of
$4,500,000 and $6,500,000, respectively, were refinanced by their local
housing finance authorities. The bonds held by the Partnership were
terminated and new bonds in the same principal amounts were issued to the
Partnership.
Supplemental disclosure of non-cash financing activity:
In connection with the February 1, 1999, merger of the Partnership and America
First Tax Exempt Mortgage Fund Limited Partnership (the Prior Partnership)
described in Note 1 to the financial statements, unit holders of the Prior
Partnership received one Beneficial Unit Certificate (BUC) of the Partnership
for each BUC they held in the Prior Partnership as of the record date.
<PAGE> -2-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. Organization
America First Tax Exempt Investors, L.P. (the New Partnership) was formed on
April 2, 1998 under the Delaware Revised Uniform Limited Partnership Act for
the purpose of acquiring, holding, operating, selling and otherwise dealing
with a portfolio of federally tax-exempt mortgage bonds which have been issued
to provide construction and/or permanent financing of multifamily residential
apartments. The New Partnership commenced operations on February 1, 1999,
when it was merged with America First Tax Exempt Mortgage Fund Limited
Partnership (the Prior Partnership). Under the terms of the merger agreement,
the New Partnership was the surviving partnership and effectively took over
the operations of the Prior Partnership as of that date. Unit holders of the
Prior Partnership received one Beneficial Unit Certificate (BUC) of the New
Partnership for each BUC they held in the Prior Partnership as of the record
date. The Prior Partnership was terminated under the provisions of the Prior
Partnership's Partnership Agreement. The New Partnership will terminate on
December 31, 2050, unless terminated earlier under the provisions of its
Partnership Agreement. The General Partner of both the Prior Partnership and
the New Partnership is America First Capital Associates Limited Partnership
Two (AFCA 2). The New Partnership and the Prior Partnership are collectively
referred to as the Partnership.
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The accompanying 1999 financial statements include the combined accounts
of the New Partnership from February 1, 1999 (the Merger Date), through
June 30, 1999, and the accounts of the Prior Partnership from January 1,
1999 until the Merger Date. The combination of the accounts of the Prior
Partnership and the New Partnership is reflected on an "as-if" pooling
basis for a merger of entities under common control. Financial statements
for 1998 include the accounts of the Prior Partnership.
The financial statements of the Partnership are prepared without audit on
the accrual basis of accounting in accordance with generally accepted
accounting principles. The financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Prior Partnership's Annual Report on Form 10-K for the year ended
December 31, 1998 and the New Partnership's Annual Report on Form 10-K for
the year ended December 31, 1998. In the opinion of management, all
normal and recurring adjustments necessary to present fairly the financial
position at June 30, 1999, and results of operations for all periods
presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B)Investment in Tax-Exempt Mortgage Bonds
Investment securities are classified as held-to-maturity, available-for-
sale or trading. Investments classified as available-for-sale are reported
at fair value with any unrealized gains or losses excluded from earnings
and reflected as a separate component of partners' capital. Subsequent
increases and decreases in the net unrealized gain/loss on available-for-
sale securities are reflected as adjustments to the carrying value of the
portfolio and in other comprehensive income. The Partnership does not
have investment securities classified as held-to-maturity or trading. The
carrying value of tax-exempt mortgage bonds is periodically reviewed and
adjusted when there are significant changes in the estimated net
realizable value of the underlying collateral.
Accrual of mortgage bond investment income is excluded from income, when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
<PAGE> -3-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
C)Income Taxes
No provision has been made for income taxes since the Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
D)Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
E)Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (9,979,128) for all periods presented.
F)New Accounting Pronouncement
On January 1, 1999, the Partnership adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5
requires costs of start-up activities and organization costs to be
expensed as incurred. The adoption of SOP 98-5 did not have an impact on
the Partnership's financial statements.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Interest Income and Net Residual Proceeds and for the allocation of income and
expenses for tax purposes among AFCA 2 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $ 661,312 at
June 30, 1999. The reserve account was established to maintain working
capital for the Partnership and is available to supplement distributions to
BUC Holders or for any other contingencies related to the ownership of the
mortgage bonds and the operation of the Partnership.
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
June 30, 1999, are as follows:
<TABLE>
Base
Number Maturity Interest
Property Name Location of Units Date Rate
- ------------------------ ----------------- -------- -------- ---------
<S> <C> <C> <C> <C>
Arama Apartments Miami, FL 293 07/01/10 8.5% (1)
Woodbridge Apts. of
Bloomington III Bloomington, IN 280 12/01/27 7.5% (2)
Shoals Crossing Atlanta, GA 176 12/01/25 7.5% (2), (3)
Ashley Pointe at
Eagle Crest Evansville, IN 150 12/01/27 7.0% (1), (2)
Woodbridge Apts. of
Louisville II Louisville, KY 190 12/01/27 7.5% (2)
Northwoods Lake
Apartments Duluth, GA 492 09/01/25 7.5% (2)
Ashley Square Des Moines, IA 144 12/01/25 7.5% (2), (3)
</TABLE>
(1) In addition to the base interest rates shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined with
the base interest, is limited to a cumulative, noncompounded amount not
greater than 12% per annum in the case of Arama Apartments and 10.5% per annum
in the case of Ashley Pointe. The Partnership received additional contingent
interest from Arama Apartments and Ashley Pointe of $19,398 and $22,702,
respectively during the six months ended June 30, 1999.
<PAGE> -4-
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(2) In addition to the base interest rates shown, the bonds bear additional
contingent interest as defined in each revenue note of up to an additional
3.5% per annum that is payable out of 50% (100% in the case of Shoals
Crossing, Ashley Pointe Northwoods Lake Apartments and Ashley Square) of the
net cash flow generated by the respective property.
(3) The tax-exempt bonds secured by these properties were reissued by their
local housing finance authority on February 25, 1999 and June 16, 1999 for
Shoals Crossing and Ashley Square, respectively. The existing tax-exempt
bonds held by the Partnership were terminated and new bonds in the same
principal amounts were issued to the Partnership. The new bonds provide for
the payment of base interest to the Partnership at a rate of 7.5% per annum
compared to 8.5% per annum for the previous bonds.
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At June 30, 1999, the total amortized cost, gross
unrealized holding losses and aggregate fair value of available-for-sale
securities were $72,626,000, $906,000 and $71,720,000 respectively.
6. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 2 or an
affiliate and are reimbursed by the Partnership. The capitalized costs were
incurred in connection with the reissuance of the tax-exempt bonds. The
amount of such expenses reimbursed to AFCA 2 during 1998 was $620,021. The
reimbursed expenses are presented on a cash basis and do not reflect accruals
made at quarter end.
AFCA 2 is entitled to receive an administrative fee from the Partnership equal
to 0.45% of the outstanding principal balance of any tax-exempt bond or other
mortgage investment, unless the owner of the property financed by such
tax-exempt bond or other mortgage investment or another third party is
required to pay such administrative fee. Under the terms of each of the
Partnership's existing tax-exempt mortgage bonds, the property owners are
obligated to pay the administrative fee to AFCA 2. Therefore, the Partnership
did not pay any administrative fees to AFCA 2 during the six months ended
June 30, 1999. The Partnership may become obligated to pay administrative
fees to AFCA 2 in the event it acquires additional tax-exempt bonds or other
mortgage investments and is not able to negotiate the payment of these fees by
the property owners or in the event it acquires title to any of the properties
securing its existing tax-exempt bonds by reason of foreclosure. In addition,
AFCA 2 was entitled to receive approximately $359,000 in administrative fees
from the Partnership for the year ended December 31, 1989. The payment of
these fees, which has been deferred by AFCA 2, is contingent upon, and will be
paid only out of future profits realized by the Partnership from the
disposition of any Partnership assets. This amount will be recorded as an
expense by the Partnership when it is probable that these fees will be paid.
AFCA 2 received administrative fees of $160,193 during 1999 ($111,704 for the
quarter ended June 30, 1999), from the owners of properties financed by the
tax-exempt bonds held by the Partnership. Since these administrative fees are
not Partnership expenses, they have not been reflected in the accompanying
financial statements. However, such fees are payable by the property owners
prior to the payment of any contingent interest on the tax-exempt bonds
secured by these properties.
An affiliate of AFCA 2 has been retained by the owners of Ashley Square,
Northwoods Lake Apartments, Ashley Pointe at Eagle Crest and Shoals Crossing
to provide property management services for these properties. The management
fees paid to the affiliate of AFCA 2 reflect market rates for such services in
the areas in which these properties are located and totaled $158,147 in 1999
($78,637 for the quarter ended June 30, 1999). These management fees are
not Partnership expenses and, accordingly, have not been reflected in the
accompanying financial statements. However, such fees are paid out of the
revenues generated by these properties prior to the payment of any interest on
the tax-exempt bonds held by the Partnership on these properties.
<PAGE> -5-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
On February 1, 1999, America First Tax Exempt Investors, L.P. (the New
Partnership) commenced operations when it merged with America First Tax Exempt
Mortgage Fund Limited Partnership (the Prior Partnership). Under the terms of
the merger agreement, the New Partnership was the surviving partnership and
effectively took over the operations of the Prior Partnership as of that
date. Unit holders of the Prior Partnership received one Beneficial Unit
Certificate (BUC) of the New Partnership for each BUC they held in the Prior
Partnership as of the record date. The Prior Partnership was terminated under
the provisions of the Prior Partnership's Partnership Agreement. The General
Partner of both the Prior Partnership and the New Partnership is America First
Capital Associates Limited Partnership Two (AFCA 2). The New Partnership and
the Prior Partnership are collectively referred to as the Partnership.
The Partnership's primary capital resources consist of seven tax-exempt
mortgage bonds which were issued to the Partnership in order to provide
construction and/or permanent financing for the seven multifamily housing
projects listed in the following table:
<TABLE>
At June 30, 1999
----------------------------------
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Woodbridge Apts. of Bloomington III Bloomington, IN 280 228 81%
Ashley Pointe at Eagle Crest Evansville, IN 150 149 99%
Woodbridge Apts. of Louisville II Louisville, KY 190 185 97%
Northwoods Lake Apartments Duluth, GA 492 467 95%
Shoals Crossing Atlanta, GA 176 164 93%
Ashley Square Des Moines, IA 144 141 98%
Arama Apartments Miami, FL 293 289 99%
-------------- -------------- --------------
1,725 1,623 94%
============== ============== ==============
</TABLE>
The aggregate carrying value of the tax-exempt bonds at June 30, 1999 was
$71,720,000. Because the sole source of funds available for the repayment of
principal of the bonds is the net proceeds from the sale or refinancing of the
financed properties, the carrying value of the bonds reflects the general
partner's current estimate of the aggregate fair market value of the financed
properties.
Each of the bonds bears interest at a fixed rate and provides for the payment
of additional contingent interest that is payable solely from available net
cash flow generated by the financed property. The principal amount of the
bonds does not amortize over its terms. However, the principal of one of the
bonds the Partnership held was to repaid to the Partnership on July 1, 1998.
Because the net sale or refinancing proceeds from the properties is the sole
source of principal repayment and the aggregate fair value of the properties
is less than the total principal amount of the bonds, the repayment of the
bonds according to their original terms was likely to have caused a loss of
capital to the Partnership. In order to avoid this result, the Partnership
elected to continue to hold the bonds beyond their original repayment date.
However, in order to allow the bonds to continue to generate tax-exempt
interest for the Partnership, the Partnership is coordinating the reissuance
of the bonds with the local housing finance authorities at interest rates that
will allow debt service on the bonds to be paid from the net revenues
projected to be generated by the financed properties.
The tax-exempt bonds secured by Shoals Crossing and Ashley Square were
reissued by their respective local housing finance authorities on February 25,
1999 and June 16, 1999. The existing tax-exempt bonds held by the Partnership
were terminated and new bonds in the same principal amounts were issued to the
Partnership. The new bonds have terms expiring on December 1, 2025, and
provide for the payment of base interest to the Partnership at a rate of 7.5%
per annum and for the payment to the Partnership of contingent interest of up
<PAGE> -6-
to an additional 3.5% per annum that is payable out of 100% of the net cash
flow generated by the financed property.
As a result of the refinancing of the tax-exempt bonds in 1998 and 1999 and
the reduction in the base and contingent interest rates, AFCA 2 anticipates
that base and contingent interest earned on the mortgage bonds in 1999 will be
approximately $200,000 to $300,000 less than that earned in 1998. In
addition, the reduction in the base interest rates will make it more likely
that AFCA 2 will receive its administrative fees from the property owners on a
current basis. A reduction in the contingent interest rates will limit the
Partnership's potential participation in future increases, if any, in the net
cash flow generated by the financed properties and in the net proceeds
generated by the ultimate sale or refinancing of these properties. Regarding
the sole remaining tax-exempt bond which has not been reissued, the management
is considering the possible sale or refinancing of this property.
Tax-exempt interest earned on the bonds represents the Partnership's principal
source of liquidity. The Partnership also earns tax-exempt interest on
temporary investments. The Partnership's principal uses of cash are the
payment of operating expenses and distributions to BUC holders. The following
table sets forth information relating to cash distributions paid to BUC
holders for the periods shown:
<TABLE>
For the Six
Months Ended For the Six
June 30, 1999 Months Ended
(combined) June 30, 1998
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ .1350 $ .1350
============== ==============
Distributions
Paid out of current and prior undistributed cash flow $ .1350 $ .1350
============== ==============
</TABLE>
In addition to current interest income, the Partnership may draw on its
reserve to pay operating expenses or to supplement cash distributions to BUC
holders. As of June 30, 1999, the amount held by the Partnership in the
reserve was $661,312. During the six months ended June 30, 1999, a net amount
of undistributed income totaling $125,732 was withdrawn from reserves ($15,828
of income was placed into reserves for the quarter ended June 30, 1999).
Future distributions to BUC Holders will depend upon the amount of base and
contingent interest received on the mortgage bonds, the size of the reserves
established by the Partnership and the extent to which withdrawals are made
from reserves.
The Partnership believes that cash provided by interest income from its
tax-exempt bonds and temporary investments, supplemented, if necessary, by
withdrawals from its reserve, will be adequate to meet its projected
short-term and long-term liquidity requirements, including the payments
expenses and of distributions to BUC Holders. However, the General Partner
anticipates that the interest income which will be received on certain
tax-exempt bonds will decline in the future and unless the Partnership is able
to generate additional interest income that cash distributions to BUC holders
may not remain at the current level.
The Partnership intends to invest in additional tax-exempt mortgage bonds and
related investments and expects to finance such acquisitions through the sale
of senior interests in its existing tax-exempt bonds and/or by issuing
additional BUCs. By acquiring additional investments, AFCA hopes to (i)
increase the amount of tax-exempt interest available for distribution to BUC
holders, (ii) reduce risk through increased asset diversification and (iii)
achieve improved economies of scale. By financing the acquisition of
additional investments through the sale of senior interests in its existing
tax-exempt bonds, the Partnership will forego a portion of the interest it
currently earns on its existing tax-exempt bonds, but expects to reinvest the
sale proceeds in instruments which generate a greater amount of interest
income. To the extent the Partnership sells such senior interests and is
unable to reinvest the proceeds in investments that generate interest at least
as great as the interest paid on the senior interests, the amount of interest
income available to the Partnership will decline. AFCA is unable to estimate
<PAGE> -7-
the amount, if any, of additional tax-exempt mortgage bonds and other
investments that the Partnership may acquire and there can be no assurance
that the Partnership will be able to achieve any of the goals stated above.
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds in order to adjust,
when necessary, the carrying value of the mortgage bonds. Mortgage bonds are
classified as available-for-sale and are therefore carried at the estimated
fair value of the underlying collateral. The fair value of the underlying
collateral is based on management's best estimate of the net realizable value
of the properties; however the ultimate realized values may vary from these
estimates. Adjustments are made to the carrying value when there are
significant changes in the estimated net realizable value of the underlying
collateral. Internal property valuations and reviews performed during the
six months ended June 30, 1999, indicated that the mortgage bonds recorded
on the balance sheet at June 30, 1999, required no adjustments to their
current carrying amounts.
The overall status of the Partnership's mortgage bonds has generally remained
constant since March 31, 1999.
Results of Operations
The table below compares the results of operations for each period shown.
<TABLE>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1999 June 30, 1998 From 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,573,264 $ 1,448,408 $ 124,856
Interest income on temporary cash investments 3,986 13,916 (9,930)
Contingent interest income 22,702 22,500 202
-------------- -------------- --------------
1,599,952 1,484,824 115,128
General and administrative expenses 217,831 227,327 (9,496)
-------------- -------------- --------------
Net income $ 1,382,121 $ 1,257,497 $ 124,624
============== ============== ==============
For the Six
Months Ended For the Six Increase
June 30, 1999 Months Ended (Decrease)
(combined) June 30, 1998 From 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage bond investment income $ 3,013,238 $ 3,032,977 $ (19,739)
Interest income on temporary cash investments 9,882 25,692 (15,810)
Contingent interest income 42,100 49,233 (7,133)
-------------- -------------- --------------
3,065,220 3,107,902 (42,682)
General and administrative expenses 459,166 404,182 54,984
-------------- -------------- --------------
Net income $ 2,606,054 $ 2,703,720 $ (97,666)
============== ============== ==============
</TABLE>
Mortgage bond investment income for the quarter ended June 30, 1999, increased
$124,856 compared to the same period in 1998. The tax-exempt mortgage bonds
secured by Shoals Crossing, Woodbridge Apartment of Bloomington Ill,
Northwoods Lake Apartments and Ashley Square generated $153,138 more in
mortgage bond investment income for the quarter ended June 30, 1999, compared
to the same period in 1998. Approximately $116,096 of this increase is
attributable to the receipt of past due interest on the prior bonds in 1999
with the remainder being attributable to base interest paid on Shoals Crossing
and Ashley Square in excess of amounts paid for the same period in 1998. The
tax-exempt mortgage bonds secured by Woodbridge Apartments of Louisville II
and Ashley Pointe at Eagle Crest generated $28,282 less in mortgage bond
investment income for the quarter ended June 30, 1999, compared to the same
period in 1998. This decrease is attributable to the reduction in the base
interest rates on such bonds which resulted from the 1998 and 1999 bond
refinancings.
<PAGE> -8-
Mortgage bond investment income decreased $19,739 for the six months ended
June 30, 1999, compared to the same period in 1998. This decrease is
primarily attributable to the reduction in the base interest rates on such
bonds which resulted from the 1998 and 1999 bond refinancings. Mortgage bond
investment income for the six months ended June 30, 1999, decreased $210,604
compared to the same period in 1998 due to the refinancings. This decrease
was partially offset by the receipt of past due interest on the prior bonds in
1999 of $181,538. The tax-exempt mortgage bond secured by Shoals Crossing
paid $43,046 more in mortgage bond investment income, but this was offset by
the performance of the tax-exempt bonds secured by Ashley Square which paid
$33,719 less in base interest during the six months ended June 30, 1999 as
compared to the same period in 1998.
Interest income on temporary cash investments decreased $9,930 and $15,810 for
the quarter and six months ended June 30, 1999, respectively, compared to the
same periods in 1998 due primarily to withdrawals made from the Partnership's
reserve in 1998 and 1999 to supplement distributions to BUC holders.
The decreases in contingent interest income for the quarter and six months
ended June 30, 1999, compared to the same period in 1998 is attributable to a
slight reduction in net operating income generated by the Arama Apartments.
General and administrative expenses decreased $9,496 for the quarter ended
June 30, 1999, compared to the same period in 1998. The decrease for the
quarter is primarily attributable to decreases in expenses relating to
restructuring fees of approximately $32,000 offset by increases in
professional fees, insurance and travel of approximately $21,000. The
remaining offset of the restructuring expenses is attributable to an increase
in miscellaneous general and administrative expenses.
General and administrative expenses increased $54,984 for the six months
ended June 30, 1999, compared to the same period in 1998. The increase for
the six months is due to increased expenses relating to salary, insurance,
travel and property valuations of approximately $66,000. These increases were
partially offset by a decrease in restructuring fees of approximately
$24,000. The remaining increase in expenses of approximately $13,000 was
attributable to an increase in miscellaneous general and administrative
expenses.
Year 2000
The Partnership does not own or operate its own computer system and owns no
business or other equipment. However, the operation of the Partnership's
business relies on the computer system and other equipment maintained by
America First Companies L.L.C., the parent company of its general partner
("America First"). In addition, the Partnership has business relationships
with a number of third parties whose ability to perform their obligations to
the Partnership depend on such systems and equipment. Some or all of these
systems and equipment may be affected by the inability of certain computer
programs and embedded circuitry to correctly recognize dates occurring after
December 31, 1999. America First has adopted a plan to deal with this
so-called "Year 2000 problem" with respect to its information technology
("IT") systems, non-IT systems and third party business relationships.
State of Readiness
The IT system maintained by America First consists primarily of personal
computers, most of which are connected by a local area network. All
accounting and other record keeping functions relating to the Partnership that
are conducted in house by America First are performed on this PC-LAN system.
America First does not own or operate any "mainframe" computer systems. The
PC-LAN system runs software programs that America First believes are
compatible with dates after December 31, 1999. America First has engaged a
third party computer consulting firm to review and test its PC-LAN system to
ensure that it will function correctly after that date and expects that this
process, along with any necessary remediation, will be completed by early in
the final quarter of 1999. America First believes any Year 2000 problems
relating to its IT systems will be resolved without significant operational
difficulties. However, there can be no assurance that testing will discover
all potential Year 2000 problems or that it will not reveal unanticipated
material problems with the America First IT systems that will need to be
resolved.
<PAGE> -9-
Non-IT systems include embedded circuitry such as microcontrollers found in
telephone equipment, security and alarm systems, copiers, fax machines, mail
room equipment, heating and air conditioning systems and other infrastructure
systems that are used by America First in connection with the operation of the
Partnership's business. America First is reviewing its non-IT systems along
with the providers that service and maintain these systems, with initial
emphasis being placed on those, such as telephone systems, which have been
identified as necessary to America First's ability to conduct the operation of
the Partnership's business activities. America First expects that any
necessary modification or replacement of such "mission critical" systems will
be accomplished by early in the final quarter of 1999.
The Partnership has no control over the remediation efforts of third parties
with which it has material business relationships and the failure of certain
of these third parties to successfully remediate their Year 2000 issues could
have a material adverse effect on the Partnership. Accordingly, America First
has undertaken the process of contacting each such third party to determine
the state of their readiness for Year 2000. Such parties include, but are not
limited to, the obligors on the Partnership's GNMA Certificates and FHA Loan,
the Partnership's transfer and paying agent and the financial institutions
with which the Partnership maintains accounts. America First has received
initial assurances from certain of these third parties that their ability to
perform their obligations to the Partnership are not expected to be materially
adversely affected by the Year 2000 problem. America First will continue to
request updated information from these material third parties in order to
assess their Year 2000 readiness. If a material third party vender is unable
to provide assurance to America First that it is, or will be, ready for Year
2000, America First intends to seek an alternative vender to the extent
practical.
Costs
All of the IT systems and non-IT systems used to conduct the Partnership's
business operations are owned or leased by America First. Under the terms of
its partnership agreement, neither America First nor the Partnership's general
partners may be reimbursed by the Partnership for expenses associated with
their computer systems or other business equipment. Therefore, the costs
associated with the identification, remediation and testing of America First's
IT and non-IT systems will be paid by America First rather than the
Partnership. The Partnership will bear its proportionate share of the costs
associated with surveying the Year 2000 readiness of third parties. However,
the Partnership's share of the costs associated with these activities is
expected to be insignificant. Accordingly, the costs associated with
addressing the Partnership's Year 2000 issues are not expected to have a
material effect on the Partnership's results of operations, financial position
or cash flow.
Year 2000 Risks
The Partnership's general partners believe that the most reasonably likely
worst-case scenario will be that one or more of the third parties with which
it has a material business relationship will not have successfully dealt with
its Year 2000 issues and, as a result, is unable to provide services or
otherwise perform its obligations to the Partnership. For example, if an
obligor on the Partnership's GNMA Certificates or FHA Loan encounters a
serious and unexpected Year 2000 issue, it may be unable to make a timely
payment of principal and interest to the Partnership. This, in turn, could
cause a delay or temporary reduction in cash distributions to BAC holders. In
addition, if the Partnership's transfer and paying agent experiences Year
2000-related difficulties, it may cause delays in making distributions to BAC
holders or in the processing of transfers of BACs. It is also possible that
one or more of the IT and non-IT systems of America First will not function
correctly, and that such problems may make it difficult to conduct necessary
accounting and other record keeping functions for the Partnership. However,
based on currently available information, the general partners do not believe
that there will be any protracted systemic failures of the IT or non-IT
systems utilized by America First in connection with the operation of the
Partnership's business.
<PAGE> -10-
Contingency Plans
Because of the progress which America First has made toward achieving Year
2000 readiness, the Partnership has not made any specific contingency plans
with respect to the IT and non-IT systems of America First. In the event of a
Year 2000 problem with its IT system, America First may be required to
manually perform certain accounting and other record-keeping functions.
America First plans to terminate the Partnership's relationships with material
third party service providers that are not able to represent to America First
that they will be able to successfully resolve their material Year 2000 issues
in a timely manner. However, the Partnership will not be able to terminate
its relationships with certain third parties, such as the obligors on its GNMA
Certificates and FHA Loan, who may experience Year 2000 problems. The
Partnership has no specific contingency plans for dealing with Year 2000
problems experienced with these third parties.
All forecasts, estimates or other statements in this report relating to the
Year 2000 readiness of the Partnership and its affiliates are based on
information and assumptions about future events. Such "forward-looking
statements" are subject to various known and unknown risks and uncertainties
that may cause actual events to differ from such statements. Important
factors upon which the Partnership's Year 2000 forward-looking statements are
based include, but are not limited to, (a) the belief of America First that
the software used in IT systems is already able to correctly read and
interpret dates after December 31, 1999 and will require little or any
remediation; (b) the ability to identify, repair or replace mission critical
non-IT equipment in a timely manner, (c) third parties' remediation of their
internal systems to be Year 2000 ready and their willingness to test their
systems interfaces with those of America First, (d) no third party system
failures causing material disruption of telecommunications, data transmission,
payment networks, government services, utilities or other infrastructure, (e)
no unexpected failures by third parties with which the Partnership has a
material business relationship and (f) no material undiscovered flaws in
America First's Year 2000 testing process.
Forward Looking Statements
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the Partnerships market risk since
December 31, 1998.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
3. Exhibits. The following exhibits were filed as required
by Item 14(c) of this report. Exhibit numbers refer to the
paragraph numbers under Item 601 of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Five (incorporated herein by
reference to Form S-11 Registration Statement filed August 30,
1985, with the Securities and Exchange Commission by America
First Tax Exempt Mortgage Fund Limited Partnership (Commission
File No. 2-99997)).
<PAGE> -11-
4(a) Form of Certificate of Beneficial Unit Certificate
incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-4 (No. 333-50513) filed by the Registrant
on April 17, 1998.
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Form 10-K dated December 31, 1998
filed pursuant to Section 13 or 15(d) of the Securities Act of
1934 by America First Tax Exempt Investors, L.P. (commission
file No. 000-24843)).
4(c) Amended Agreement of Merger, dated June 12, 1998,
between the Registrant and America First Tax Exempt Mortgage
Fund Limited Partnership (incorporated by reference to Exhibit
4.3 to Amendment No. 3 to Registration Statement on Form S-4
(No. 333-50513) filed by the Registrant on September 14, 1998.
27. Financial Data Schedule.
(b) The Registrant did not file a report on Form 8-K during the
period covered by this report.
<PAGE> -12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 13, 1999 AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Two, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First
Capital Associates Limited
Partnership Two
By /s/ Michael Thesing
Michael Thesing
Vice President
and Principal Financial Officer
<PAGE> -13-
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