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, 1998 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: 0-14314
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0695511
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
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
<PAGE> -i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 1,444,141 $ 1,522,893
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 71,126,000 71,126,000
Interest receivable 473,787 556,017
Other assets 64,830 8,106
-------------- --------------
$ 73,108,758 $ 73,213,016
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 81,766 $ 156,569
Distribution payable (Note 3) 453,938 453,597
-------------- --------------
535,704 610,166
-------------- --------------
Partners' Capital
General Partner 10,175 10,473
Beneficial Unit Certificate Holders
($7.27 per BUC in 1998 and $7.27 in 1997) 72,562,879 72,592,377
-------------- --------------
72,573,054 72,602,850
-------------- --------------
$ 73,108,758 $ 73,213,016
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 1,448,408 $ 1,482,295 $ 3,032,977 $ 3,081,025
Interest income on temporary cash investments 13,916 14,827 25,692 25,917
Contingent interest income (Note 5) 22,500 31,993 49,233 74,883
-------------- -------------- -------------- --------------
1,484,824 1,529,115 3,107,902 3,181,825
Expenses
General and administrative expenses (Note 6) 227,327 189,186 404,182 374,731
-------------- -------------- -------------- --------------
Net income $ 1,257,497 $ 1,339,929 $ 2,703,720 $ 2,807,094
============== ============== ============== ==============
Net income allocated to:
General Partner $ 17,975 $ 21,077 $ 38,853 $ 46,042
BUC Holders 1,239,522 1,318,852 2,664,867 2,761,052
-------------- -------------- -------------- --------------
$ 1,257,497 $ 1,339,929 $ 2,703,720 $ 2,807,094
============== ============== ============== ==============
Net income, basic and diluted, per BUC $ .13 $ .13 $ .27 $ .28
============== ============== ============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -1-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- --------------- --------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding losses)
Balance at December 31, 1997 $ 10,473 $ 78,092,377 $ 78,102,850
Net income 38,853 2,664,867 2,703,720
Cash distributions paid or accrued (Note 3)
Income (39,151) (2,694,365) (2,733,516)
-------------- --------------- --------------
10,175 78,062,879 78,073,054
-------------- --------------- --------------
Net unrealized holding losses
Balance at December 31, 1997 and June 30, 1998 - (5,500,000) (5,500,000)
-------------- --------------- --------------
Balance at June 30, 1998 $ 10,175 $ 72,562,879 $ 72,573,054
============== =============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,703,720 $ 2,807,094
Adjustments to reconcile net income to net cash
from operating activities
Decrease in interest receivable 82,230 102,458
Increase in other assets (56,724) (9,134)
Decrease in accounts payable (74,803) (125,843)
-------------- --------------
Net cash provided by operating activities 2,654,423 2,774,575
Cash flow used in financing activity
Distributions paid (2,733,175) (2,739,733)
-------------- --------------
Net increase (decrease) in cash and temporary cash investments (78,752) 34,842
Cash and temporary cash investments at beginning of period 1,522,893 1,379,560
-------------- --------------
Cash and temporary cash investments at end of period $ 1,444,141 $ 1,414,402
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -2-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. Organization
America First Tax Exempt Mortgage Fund Limited Partnership (the Partnership)
was formed on November 11, 1985, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally
tax-exempt mortgage bonds collateralized by income-producing real estate
consisting of multifamily residential apartments. The Partnership will
terminate on December 31, 2015, unless terminated earlier under the provisions
of the Partnership Agreement. The General Partner of the Partnership is
America First Capital Associates Limited Partnership Two (AFCA 2).
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
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 Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at June 30,
1998, 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 adjustments to the component of partners' capital. 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.
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)Comprehensive Income
In the first quarter of 1998, the Partnership adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires the display and reporting of comprehensive
income, which includes all changes in partners' capital with the exception
of additional investments by partners or distributions to partners.
Comprehensive income for the Partnership includes net income and unrealized
holding losses on investments charged or credited to Partners' Capital.
Comprehensive income for the quarters and six months ended June 30, 1998
and 1997 equaled net income as there were no changes in the net unrealized
<PAGE> -3-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
holding losses for the respective periods.
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 $1,446,955 at
June 30, 1998. 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, 1998, are as follows:
<TABLE>
Base
Number Maturity Interest Carrying
Property Name Location of Units Date Rate1 Amount
- ------------------------ ----------------- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Performing:
Arama Apartments Miami, FL 293 07/01/10 8.5% $ 12,100,000
Woodbridge Apts. of
Bloomington III Bloomington, IN 280 12/01/15 8.5% 12,600,000
--------------
24,700,000
--------------
Nonperforming:2
Ashley Pointe at
Eagle Crest Evansville, IN 150 12/01/15 8.5% 6,700,000
Woodbridge Apts. of
Louisville II Louisville, KY 190 12/01/15 8.5% 8,976,000
Northwoods Lake
Apartments Duluth, GA 492 12/01/06 8.5% 25,250,000
Ashley Square Des Moines, IA 144 12/01/09 8.5% 6,500,000
Shoals Crossing Atlanta, GA 176 12/01/09 8.5% 4,500,000
--------------
51,926,000
--------------
76,626,000
Unrealized holding losses (5,500,000)
--------------
Balance at June 30, 1998 (at estimated fair value) $ 71,126,000
==============
</TABLE>
1 In addition to the base interest rate shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined with
the base interest, is limited to a cumulative, noncompounded amount not greater
than 16% per annum. The Partnership received additional contingent interest
from Arama Apartments of $49,233 during 1998 ($22,500 for the quarter ended
June 30, 1998).
2 Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds for 1998 was
$275,204 ($197,278 for the quarter ended June 30, 1998).
<PAGE> -4-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
6. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 2 or an affiliate and are reimbursed by the Partnership. The
amount of such expenses reimbursed to AFCA 2 during 1998 was $515,554
($231,268 for the quarter ended June 30, 1998). The reimbursed expenses are
presented on a cash basis and do not reflect accruals made at quarter end.
AFCA 2 received from property owners administrative fees of $27,225 during
1998 ($13,612 for the quarter ended June 30, 1998). Since these fees are not
Partnership expenses, they have not been reflected in the accompanying
financial statements.
AFCA 2 is entitled to an administrative fee from the Partnership in the event
the Partnership becomes the equity owner of a property by reason of
foreclosure. AFCA 2 was not entitled to any administrative fees from the
Partnership during 1998. 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.
An affiliate of AFCA 2 was retained to provide property management services
for Ashley Square, Northwoods Lake Apartments, Ashley Pointe at Eagle Crest
and Shoals Crossing. The fees for services provided represent the lower
of (i) costs incurred in providing management of the property, or
(ii) customary fees for such services determined on a competitive basis, and
amounted to $153,329 in 1998 ($77,508 for the quarter ended June 30, 1998).
7. Proposed Merger
On June 12, 1998, the Partnership entered into an Amended Agreement of Merger
with America First Tax Exempt Investors, L.P., a newly formed Delaware limited
partnership, (the New Fund) pursuant to which the Partnership will merge with
and into the New Fund and the New Fund will be the surviving limited
partnership. The merger is subject to numerous conditions, including the
consent of the holders of a majority of the BUCs of the Partnership. A
consent solicitation statement relating to the solicitation of BUC holder
consent has been filed with the Securities and Exchange Commission. As a
result of the merger, each BUC holder of the Partnership will receive similar
BUCs in the New Fund. The General Partner of the New Fund is AFCA 2 and,
accordingly, the merger will not result in a change of control. The New Fund
will have additional authority to reconfigure its assets and sell interests
therein and to reinvest the proceeds of such sales in additional tax exempt
bonds secured by multifamily housing properties. The New Fund will also have
the authority to issue additional BUCs.
<PAGE> -5-
Item 2.
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership originally acquired 14 tax-exempt mortgage bonds, the proceeds
of which were used to provide construction and/or permanent financing for 14
multifamily housing properties. The Partnership subsequently acquired seven
of the properties (Acquired Properties) through foreclosure or deed in lieu of
foreclosure of the tax-exempt mortgage bonds collateralized thereby. The
Acquired Properties were transferred to America First REIT, Inc. on June 1,
1993. At June 30, 1998, the Partnership continued to hold seven
tax-exempt mortgage bonds with a carrying value (at estimated fair value) of
$71,126,000.
The following table shows the various occupancy levels of the properties
financed by the Partnership at June 30, 1998.
<TABLE>
<CAPTION>
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 280 262 94%
Ashley Pointe at Eagle Crest Evansville, IN 150 150 100%
Woodbridge Apts. of Louisville II Louisville, KY 190 176 93%
Northwoods Lake Apartments Duluth, GA 492 473 96%
Shoals Crossing Atlanta, GA 176 154 88%
Ashley Square Des Moines, IA 144 140 97%
Arama Apartments Miami, FL 293 290 99%
-------------- -------------- --------------
1,725 1,645 95%
============== ============== ==============
</TABLE>
The tax-exempt mortgage bonds bear interest at a fixed base rate and provide
for the payment of additional contingent interest based on a participation in
the net cash flow and net sale or refinancing proceeds from the financed
properties. The base interest rate on each tax-exempt bond held by the
Partnership is 8.5% per annum. Contingent interest, when combined with base
interest, may be earned up to a maximum of 16% per annum on each of the
bonds. The principal amounts of the tax-exempt bonds do not amortize over
their terms. Principal is due and payable to the Partnership after 12 years.
Accordingly, principal and accrued interest on six of the bonds became due on
December 1, 1997 and principal and interest on the remaining bond became due
on July 1, 1998. The sole source of payment of principal and accrued interest
of any bond is the net proceeds from the sale or refinancing of the underlying
property. The value of the underlying properties is currently less than the
outstanding principal of the bonds. In order to avoid a potential loss of
principal resulting from the sale or refinancing of the properties, the General
Partner has proposed that the tax-exempt bonds continue to be held by the
Partnership. In order to do this, the General Partner has proposed that each
of the bonds be reissued pursuant to the provisions thereof. In order to
maintain the tax-exempt nature of the interest payments on the reissued
mortgage bonds, the interest rates on the bonds will be set at rates which will
allow debt service on the bonds to be paid from the projected net revenues from
the underlying properties. Accordingly, the General Partner anticipates that
the base and contingent interest rates on the reissued bonds will be less than
the current base and contingent interest rates on the bonds. Interest payments
on the tax-exempt bonds and interest on temporary cash investments represent
the principal sources of the Partnership's Income and distributable cash.
However, the General Partner does not anticipate that the reduction in base and
contingent interest rates on the Partnership's tax-exempt bonds will have a
significant effect on the amount of interest income earned by the Partnership
since the Partnership has been accepting payment of less than the full amount
of base interest on four of the tax-exempt bonds for some time. In addition,
only one of the tax-exempt bonds has generated contingent interest to date and
the amount paid to the Partnership has been below the maximum rate which will
be charged on the reissued bonds. However, a reduction in base and 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
<PAGE> -6-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
properties. In addition to current interest income, the Partnership may draw
on its reserve to pay operating expenses or to supplement cash distributions to
Beneficial Unit Certificate (BUC) Holders.
During the six months ended June 30, 1998, undistributed income totaling
$29,796 was withdrawn from reserves (a net amount of $108,748 of undistributed
income previously placed in reserves was withdrawn from reserves for the
quarter ended June 30, 1998). The total amount held in reserves at
June 30, 1998, was $1,446,955. 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 operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. Under the terms of the Partnership
Agreement, the Partnership has the authority to enter into short- and
long-term debt financing arrangements; however, the Partnership currently does
not anticipate entering into such arrangements. The Partnership is not
authorized to issue additional BUCs to meet short-term and long-term liquidity
requirements.
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ .2700 $ .2700
============== ==============
Distributions
Paid out of current and prior undistributed cash flow $ .2700 $ .2700
============== ==============
</TABLE>
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. 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, 1998,
indicated that the mortgage bonds recorded on the balance sheet at
June 30, 1998, required no adjustments to their current carrying amounts.
As previously reported, Shoals Crossing was postponing the payment of certain
trade payables and certain deferred maintenance items in order to keep current
with base interest due on its mortgage bond. During the quarter ended June
30, 1998, the property owner decided to discontinue this practice. The
Partnership does not anticipate receiving cash flow sufficient to meet base
interest due on its investment in the tax-exempt mortgage bond until such time
that the property is current on its trade payables and has addressed certain
deferred maintenance items. As a result, the Partnership reclassified its
investment in the Shoals Crossing tax-exempt mortgage bond from a performing
status to a non-performing status.
The overall status of the Partnership's other mortgage bonds has remained
relatively constant since March 31, 1998.
<PAGE> -7-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The tables below compare the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,448,408 $ 1,482,295 $ (33,887)
Interest income on temporary cash investments 13,916 14,827 (911)
Contingent interest income 22,500 31,993 (9,493)
-------------- -------------- --------------
1,484,824 1,529,115 (44,291)
General and administrative expenses 227,327 189,186 38,141
-------------- -------------- --------------
Net income $ 1,257,497 $ 1,339,929 $ (82,432)
============== ============== ==============
<CAPTION>
For the Six For the Six Increase
Months Ended Months Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage bond investment income $ 3,032,977 $ 3,081,025 $ (48,048)
Interest income on temporary cash investments 25,692 25,917 (225)
Contingent interest income 49,233 74,883 (25,650)
-------------- -------------- --------------
3,107,902 3,181,825 (73,923)
General and administrative expenses 404,182 374,731 29,451
-------------- -------------- --------------
Net income $ 2,703,720 $ 2,807,094 $ (103,374)
============== ============== ==============
</TABLE>
The decrease in mortgage bond investment income for the quarter ended
June 30, 1998, compared to the same period in 1997, is primarily attributable
to a reduction in interest income on the Shoals Crossing tax-exempt mortgage
bond. This mortgage bond has been reclassified from a performing status to a
non-performing status. As a result, interest is recognized on such bond when
it is received. The Partnership did not record any interest income on this
bond during the quarter ended June 30, 1998, while the Partnership recorded
approximately $96,000 of income on this bond during the comparable period in
1997. In addition to the decrease in mortgage bond investment income from
Shoals Crossing, mortgage bond investment income from Ashley Square decreased
approximately $27,000 due to lower occupancy rates and market competition.
Such decrease were partially offset by increases of approximately $79,000 and
$10,000 in mortgage bond investment income from Northwoods Lake Apartments and
Woodbridge Apartments of Louisville II, respectively. These increases were
primarily due to rental rate increases and increases in the average occupancy
of these properties accompanied by decreases in real estate operating expenses,
primarily taxes, labor and administrative expenses.
Excluding a decrease of approximately $96,000 from Shoals Crossing as discussed
above, mortgage bond investment income increased approximately $48,000 for the
six months ended June 30, 1998, compared to the same period in 1997. This
increase resulted from increases of approximately $66,000, $17,000 in interest
received from Northwoods Lake Apartments and Woodbridge Apartments of
Louisville II, respectively, as discussed above. In addition, mortgage bond
investment income from Ashley Point at Eagle Crest increased $9,000. These
increases were partially offset by a decrease of approximately $44,000 in cash
flow received from Ashley Square resulting from lower occupancy rates, lower
market rents, and higher operating expenses, primarily repairs and maintenance
expenses and property improvements.
<PAGE> -8-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The decrease in contingent interest income for the quarter and six months
ended June 30, 1998, compared to the same periods in 1997, is attributable to
an decrease in net operating income generated by the Arama Apartments primarily
due to an increase in operating expenses. The decrease in interest income on
temporary cash investments for the quarter and six months ended June 30, 1998,
compared to the same periods in 1997, is attributable to a decrease in the
Partnership's cash reserves resulting from withdrawals made from the reserves
during the quarter ended June 30, 1998. General and administrative expenses
increased for the quarter and six months ended June 30, 1998, compared to the
same periods in 1997, primarily as a result of costs incurred in connection
with the proposed merger described in Note 7 to the financial statements. For
the six months ended June 30, 1998, such proposed merger costs were partially
offset by a decrease in salaries and related expenses.
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.
The requirements of Item 3 of Form 10-Q are not applicable to the Partnership
prior to its Annual Report on Form 10-K for the year ending December 31, 1998.
<PAGE> -9-
PART II. OTHER INFORMATION
Item 5. Other Information
On June 12, 1998, the Partnership entered into an Amended Agreement
of Merger with America First Tax Exempt Investors, L.P., a newly
formed Delaware limited partnership, (the New Fund) pursuant to
which the Partnership will merge with and into the New Fund and the
New Fund will be the surviving limited partnership. The merger is
subject to numerous conditions, including the consent of the holders
of a majority of the BUCs of the Partnership. A consent
solicitation statement relating to the solicitation of BUC holder
consent has been filed with the Securities and Exchange Commission.
As a result of the merger, each BUC holder of the Partnership will
receive similar BUCs in the New Fund. The General Partner of the
New Fund is AFCA 2 and, accordingly, the merger will not result in a
change of control. The New Fund will have additional authority to
reconfigure its assets and sell interests therein and to reinvest the
proceeds of such sales in additional tax exempt bonds secured by
multifamily housing properties. The New Fund will also have the
authority to issue additional BUCs.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated November 11, 1985
(incorporated herein by reference to Form 10-K dated
December 31, 1986 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First Tax Exempt
Mortgage Fund Limited Partnership (Commission File
No. 0-14314)).
4(b) Form of Certificate of Beneficial Unit Certificate
(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)).
4(c) Amended Agreement of Merger, dated June 12, 1998, between
the Registrant and America First Tax Exempt Investors, L.P.
(incorporated herein by reference to Exhibit 4.3 of
Amendment No. 1 to Form S-4, dated July 17, 1998, filed
pursuant to the Securities Act of 1933 by America First Tax
Exempt Investors, L.P., (Commission File No. 333-50513)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE> -10-
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, 1998 AMERICA FIRST TAX EXEMPT MORTGAGE
FUND LIMITED PARTNERSHIP
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> -11-
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