FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 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
Agreement of Limited Partnership)
Delaware 47-0695511
(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)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates representing assignments of limited
partnership interests in the America First Tax Exempt Mortgage Fund Limited
Partnership (the "BUCs")
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of the chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
As a result of a merger described herein, the BUC's ceased trading as of
the close of business on January 29, 1999. The aggregate value of the BUCs as
of that date was $ 62,993,246.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> -i-
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 3
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . 3
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 4
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . 12
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 12
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 13
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 14
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 15
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE> -ii-
PART I
Item 1. Business. America First Tax Exempt Mortgage Fund Limited
Partnership (the "Registrant" or the "Partnership") was formed as a limited
partnership on November 11, 1985, under the Delaware Revised Uniform Limited
Partnership Act to acquire a portfolio of federally tax-exempt mortgage bonds
to provide construction and/or permanent financing of multifamily residential
apartments. The General Partner of the Registrant is America First Capital
Associates Limited Partnership Two ("AFCA"). The Registrant issued a total of
9,979,128 Beneficial Unit Certificates (BUCs) representing assigned limited
partnership interests.
On February 1, 1999, the Partnership merged with America First Tax Exempt
Investors, L.P., a Delaware limited partnership (the New Fund). As a result
of the Merger, the separate existence of the Partnership terminated on that
date. The New Fund, as the surviving entity of the Merger, assumed all the
assets and liabilities of the Partnership and continued the business
operations of the Partnership. Each BUC holder of the Partnership received
one BUC of the New Fund as such BUC holder held in the Partnership. The
General Partner of the New Fund is AFCA and, accordingly, the Merger did not
result in a change in control. The New Fund has additional authority to
reconfigure its assets and sell interests therein, to issue additional BUCs
and to invest the proceeds of such asset sales and BUC issuances in additional
tax-exempt bonds secured by multifamily housing properties.
At December 31, 1998, the Registrant held seven tax-exempt mortgage bonds
with a carrying value (at estimated fair value) equal to $71,720,000. The
tax-exempt mortgage bonds were issued by various state and local housing
authorities to provide for the construction and/or permanent financing of
multifamily housing properties. Under the terms of the mortgage bonds, the
principal amounts do not amortize over their terms. The mortgage bonds
provide for the payment of base interest to the Registrant and for the payment
of contingent interest based upon net cash flow and net capital appreciation
of the underlying real estate properties. Therefore, the return to the
Registrant depends upon the economic performance of the real estate which
collateralizes its remaining mortgage bonds. For this reason, the
Registrant's investments are dependent on the economic performance of such
real estate and may be considered to be in competition with other
income-producing real estate of the same type in the same geographic areas. A
description of the seven tax-exempt mortgage bonds held by the Registrant at
December 31, 1998, (and the properties collateralizing such bonds) appears in
Note 5 of the Notes to Financial Statements filed in response to Item 8 hereof.
The amount of cash received by the Registrant from tax-exempt mortgage
bonds is a function of the net rental revenues generated by the properties
financed by the Partnership. Net rental revenues from a multifamily apartment
complex depend on the rental and occupancy rates of the property and on the
level of operating expenses. Occupancy rates and rents are directly affected
by the supply of, and demand for, apartments in the market areas in which a
property is located. This, in turn, is affected by several factors such as
local or national economic conditions, the amount of new apartment
construction and interest rates on single-family mortgage loans. In addition,
factors such as government regulation (such as zoning laws), inflation, real
estate and other taxes, labor problems and natural disasters can affect the
economic operations of a property.
In each city in which the properties financed by the Registrant are
located, such properties compete with a substantial number of other apartment
complexes. Apartment complexes also compete with single-family housing that
is either owned or leased by potential tenants. The principal method of
competition is to offer competitive rental rates. Such properties also
compete by emphasizing property location, condition and amenities.
The Registrant believes that each of the properties it has financed is in
compliance in all material respects with federal, state and local regulations
regarding hazardous waste and other environmental matters and the Registrant
is not aware of any environmental contamination at any of such properties that
would require any material capital expenditure by the Registrant for the
remediation thereof.
<PAGE> -1-
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of real estate. Accordingly, the
presentation of information about industry segments is not applicable and
would not be material to an understanding of the Registrant's business taken
as a whole.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Registrant, and the Registrant
reimburses America First Companies L.L.C. for such services at cost. The
Registrant is not charged, and does not reimburse, for the services performed
by managers and officers of America First Companies L.L.C..
Item 2. Properties. At December 31, 1998, the Registrant held seven
tax-exempt mortgage bonds collateralized by first mortgages on multifamily
housing properties. Properties collateralizing the mortgage bonds are
described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet
Property Name Location of Units Per Unit
- - ----------------------------------- ------------------- -------- -----------
<S> <C> <C> <C>
Woodbridge Apts. of Bloomington III Bloomington, IN 280 892
Ashley Pointe at Eagle Crest Evansville, IN 150 910
Woodbridge Apts. of Louisville II Louisville, KY 190 934
Northwoods Lake Apartments Duluth, GA 492 964
Ashley Square Des Moines, IA 144 963
Shoals Crossing Atlanta, GA 176 926
Arama Apartments Miami, FL 293 562
--------
1,725
========
</TABLE>
As of February 1, 1999, the seven tax-exempt mortgage bonds were transferred
to the New Fund as a result of the Merger.
<PAGE> -2-
The average annual occupancy rate and average effective rental rate per
unit for each of the properties for each of the last five years are listed in
the following table.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
WOODBRIDGE APTS. OF BLOOMINGTON III
Average Occupancy Rate 95% 90% 95% 93% 96%
Average Effective Annual Rental Per Unit $7,071 $6,957 $7,251 $6,848 $6,701
ASHLEY POINTE AT EAGLE CREST
Average Occupancy Rate 99% 99% 96% 96% 93%
Average Effective Annual Rental Per Unit $6,711 $6,423 $6,163 $6,032 $5,686
WOODBRIDGE APTS. OF LOUISVILLE II
Average Occupancy Rate 93% 95% 95% 93% 96%
Average Effective Annual Rental Per Unit $7,344 $7,075 $6,880 $6,451 $6,504
NORTHWOODS LAKE APARTMENTS
Average Occupancy Rate 97% 94% 94% 97% 98%
Average Effective Annual Rental Per Unit $7,584 $7,263 $7,188 $7,101 $6,806
ASHLEY SQUARE
Average Occupancy Rate 97% 96% 97% 98% 97%
Average Effective Annual Rental Per Unit $6,565 $6,792 $6,728 $6,764 $6,574
SHOALS CROSSING
Average Occupancy Rate 90% 95% 93% 95% 96%
Average Effective Annual Rental Per Unit $4,581 $4,942 $4,712 $4,649 $4,458
ARAMA APARTMENTS
Average Occupancy Rate 98% 98% 99% 99% 99%
Average Effective Annual Rental Per Unit $7,649 $7,467 $7,517 $7,156 $7,355
</TABLE>
In the opinion of the Partnership's management, each of the properties is
adequately covered by insurance. For additional information concerning the
properties, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 5 to the Partnership's Financial
Statements. A discussion of general competitive conditions to which these
properties are subject is included in Item 1 hereof.
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Registrant is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. On or
about September 30, 1998, the General Partner submitted a proposal for a
merger of the Registrant with America First Tax Exempt Investors, L.P. for
consent of the BUC holders. Consent to this proposal was received on or about
January 27, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The BUCs trade on The NASDAQ Stock Market under
the trading symbol "AFTXZ." The following table sets forth the high and low
final sale prices for the BUCs for each quarterly period from January 1, 1997
through December 31, 1998. BUCs ceased trading at the close of the trading on
January 29, 1999, as a result of the Merger.
<PAGE> -3-
<TABLE>
<CAPTION>
1997 High Low
<S> <C> <C>
1st Quarter $ 7-3/8 $ 6-11/16
2nd Quarter $ 7-3/8 $ 6-11/16
3rd Quarter $ 7-3/8 $ 7
4th Quarter $ 7-3/4 $ 7-1/16
1998
1st Quarter $ 8-1/8 $ 7-1/8
2nd Quarter $ 8 $ 7-1/4
3rd Quarter $ 7-11/16 $ 6-5/8
4th Quarter $ 6-15/16 $ 5-7/8
</TABLE>
(b) BUC Holders. The approximate number of BUC holders on December 31,
1998, was 5,691.
(c) Distributions. Cash distributions are being made on a monthly
basis. Total cash distributions paid or accrued to BUC Holders during the
fiscal years ended December 31, 1998, and December 31, 1997, equaled
$5,388,729 each year. The cash distributions paid per BUC during the fiscal
years ended December 31, 1998, and December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Income $ .1392 $ .5400
Return of Capital .4008 -
-------- -------
$ .5400 $ .5400
======== =======
</TABLE>
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership. The information set forth below should be read in
conjunction with the Financial Statements and Notes thereof filed in response
to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage bond investment income $ 5,813,579 $ 6,169,500 $ 6,134,812 $ 6,159,236 $ 5,973,373
Interest income on temporary cash investments 48,761 53,554 47,247 42,319 24,046
Contingent interest income 122,099 124,682 154,539 166,940 211,319
Realized loss on investment in
tax-exempt mortgage bonds (4,000,000) - - - -
General and administrative expenses (1,016,385) (678,487) (648,784) (585,926) (478,438)
------------- ------------- ------------- ------------- -------------
Net income $ 968,054 $ 5,669,249 $ 5,687,814 $ 5,782,569 $ 5,730,300
============= ============= ============= ============= =============
Net income, basic and diluted,
per Beneficial Unit Certificate (BUC) $ .09 $ .56 $ .56 $ .57 $ .56
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .5400 $ .5400 $ .5400 $ .5400 $ .5400
============= ============= ============= ============= =============
Investment in tax-exempt mortgage bonds, at
estimated fair value $ 71,720,000 $ 71,126,000 $ 66,026,000 $ 66,026,000 $ 66,026,000
============= ============= ============= ============= =============
Total assets $ 73,421,925 $ 73,213,016 $ 68,014,454 $ 67,698,916 $ 67,379,656
============= ============= ============= ============= =============
</TABLE>
<PAGE> -4-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Partnership's primary capital resource consists of the seven tax-exempt
mortgage bonds which were issued to the Partnership in 1985 and 1986 in order
to provide construction and/or permanent financing for the seven multifamily
housing projects listed in the following table:
<TABLE>
<CAPTION>
At December 31, 1998
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 280 263 94%
Ashley Pointe at Eagle Crest Evansville, IN 150 147 98%
Woodbridge Apts. of Louisville II Louisville, KY 190 174 92%
Northwoods Lake Apartments Duluth, GA 492 481 98%
Shoals Crossing Atlanta, GA 176 161 91%
Ashley Square Des Moines, IA 144 139 97%
Arama Apartments Miami, FL 293 285 97%
-------------- -------------- --------------
1,725 1,650 96%
============== ============== ==============
</TABLE>
The aggregate carrying value of the tax-exempt bonds at December 31, 1998 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. Each of the bonds originally
earned base interest at the rate of 8.5% per annum and provided for additional
contingent interest which, when combined with base interest, could equal up to
a maximum of 16% per annum.
The principal amount of the bonds does not amortize over its terms. However,
the principal of six of the bonds was to be repaid to the Partnership on
December 1, 1997 and the principal of the remaining bond 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.
In this regard, the tax-exempt bonds secured by Woodbridge Apartments of
Louisville II (Louisville), Ashley Pointe at Eagle Crest (Ashley Pointe),
Woodbridge Apartments of Bloomington III (Bloomington) and Northwoods Lake
Apartments (Northwoods) were reissued by the respective local housing finance
authorities on October 28, 29, 30 and November 19, 1998 respectively. In each
case, the existing tax-exempt bond held by the Partnership was terminated and
a new bond in the same principal amount was issued to the Partnership. The
new bonds for Louisville, Ashley Pointe and Bloomington have terms expiring on
December 1, 2027. The new bond for Northwoods has a term expiring on
September 1, 2025. The new bonds for Louisville, Bloomington and Northwoods
provide for the payment of base interest to the Partnership at a rate of 7.5%
per annum. The new bond for Ashley Pointe provides for the payment of base
interest to the Partnership at a rate of 7.0% per annum. Each of the new
<PAGE> -5-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
bonds provides for the payment to the Partnership of contingent interest of up
to an additional 3.5% per annum that is payable out of 50% (100% in the case
of Ashley Pointe and Northwoods Lake Apartments) of the net cash flow
generated by the financed property.
The Partnership expects that the remaining tax-exempt bonds will be reissued
in a similar manner and anticipates that the base and contingent interest
rates on these reissued bonds will also be less than the current base and
contingent interest rates. As a result of the reduction in the base and
contingent interest rates, the General Partner 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 the General
Partner 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.
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 years shown:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .1392 $ .5400 $ .5400
Return of Capital .4008 - -
-------------- -------------- --------------
$ .5400 $ .5400 $ .5400
============== ============== ==============
Distributions
Paid out of current and prior undistributed cash flow $ .5400 $ .5400 $ .5400
============== ============== ==============
</TABLE>
In addition to cash generated from interest income, the Partnership may also
draw on its reserve to pay operating expenses and to supplement cash
distributions. As of December 31, 1998, the amount held by the Partnership in
the reserve equaled $864,315. During the year ended December 31, 1998, a
total of $504,706 of undistributed income was withdrawn from the reserve and
distributed to BUC holders. The Partnership believes that the cash provided
by interest income from its tax-exempt bonds and temporary investments,
supplemented, if necessary, by withdraws from its reserve, will be adequate to
meet its projected short-term and long-term liquidity requirements. Under the
terms of the Partnership Agreement, the Partnership has the authority to enter
into short-term 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
or long-term liquidity requirements.
<PAGE> -6-
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. The net realizable value of the properties is determined based on
the discounted estimated future cash flows from the properties, including
estimated sales proceeds. The calculation of discounted estimated future cash
flows includes certain variables such as the assumed inflation rates for rents
and expenses, capitalization rates and discount rates. These variables are
supplied to the Partnership by an independent real estate appraisal firm based
upon local market conditions for each property. In certain cases, additional
factors such as the replacement value of the property or comparable sales of
similar properties are also taken into consideration. The carrying value of
the mortgage bonds is periodically reviewed and adjustments are made when
there are significant changes in the estimated net realizable value of the
underlying collateral of the mortgage bonds.
Based on the foregoing methodology, valuations and reviews performed during
1998 indicated that the Partnership is not likely to recover or receive its
contracted cash flows (including the repayment of principal) on its investment
in the Arama Apartments tax-exempt mortgage bond. Accordingly, the
Partnership realized a loss of $4,000,000 and the cost basis was written down
to fair value as a new cost basis. (See additional discussion
under "Arama Apartments" below.) Concurrently, the unrealized holding losses
related to the investment in tax-exempt mortgage bonds, which is a component
of accumulated comprehensive income, was reduced by $4,000,000; therefore, the
realized loss had no impact on total partners' capital. Excluding the
reclassification of this loss from unrealized to realized, the net unrealized
holding loss decreased $594,000 during 1998. As a result, at December 31,
1998, the Partnership's total unrealized loss on its investment in tax-exempt
mortgage bonds was $906,000.
The following sets forth certain information regarding the properties
collateralizing the Partnership's investment in tax-exempt mortgage bonds:
Woodbridge Apartments of Bloomington III
Woodbridge Apartments of Bloomington III, located in Bloomington, Indiana, had
an average occupancy rate of 95% during 1998, compared to 90% during 1997.
The 5% increase in average occupancy led to an increase in revenue generated
by the property; however, such increase was virtually offset by an increase in
expenses, primarily real estate taxes. Interest earned on the mortgage bond
was current during most of 1998 and 1997; however, due to the reissuance of
the mortgage bond in October 1998, the base interest rate decreased from 8.5%
to 7.5%. As a result, interest income decreased from $1,071,000 in 1997 to
$1,015,795 in 1998. At December 31, 1998, base interest on the mortgage bond,
at the new rate of 7.5%, was current.
Ashley Pointe at Eagle Crest
Ashley Pointe at Eagle Crest, located in Evansville, Indiana, had an average
occupancy rate of 99% during 1998 and 1997. Net cash flow generated by the
property increased approximately $38,000 from 1997 to 1998 due to a $57,000
increase in rental revenue which was partially offset by an increase in
operating expenses, primarily property improvements. As a result, interest
earned on this mortgage bond increased from $502,324 in 1997 to $520,571 in
1998. Interest was recognized as income on this mortgage bond on the
modified cash basis until October 1998 when the mortgage bond was reissued.
Base interest on the mortgage bond at the new interest rate of 7% has been
current since the reissuance of the mortgage bond.
<PAGE> -7-
Woodbridge Apartments of Louisville II
Woodbridge Apartments of Louisville II, located in Louisville, Kentucky, had
an average occupancy rate of 93% during 1998 compared to 95% during 1997.
Interest was recognized as income on this mortgage bond on the modified cash
basis until October 1998 when the mortgage bond was reissued. Although base
interest on the mortgage bond at the new interest rate of 7.5% has been
current since the reissuance of the mortgage bond, interest earned in 1998
decreased from $862,706 in 1997 to $811,081 in 1998. This decrease resulted
because in 1997 the Partnership received approximately $100,000 more than the
base interest due for such year as the property generated excess cash flow
which enabled it to pay prior years' past due base interest. Net cash flow
generated by the property in 1998 decreased approximately $28,000 due
primarily to an increase in repairs and maintenance expenses.
Northwoods Lake Apartments
Northwoods Lake Apartments, located in Duluth, Georgia, had an average
occupancy rate of 97% during 1998 compared to 94% during 1997. Interest earned
by the Partnership in 1998 was $1,929,491 compared to $1,845,477 in 1997. As
interest income on this mortgage bond was recognized on the modified cash
basis until the bond was reissued in November 1998, the increase in interest
income resulted from an increase in net cash flow generated by the property.
The increase in net cash flow is due primarily to a 3% increase in occupancy
rates. An increase in property improvements and repairs and maintenance
expenses partially offset the gain in revenue. At December 31, 1998, base
interest on this mortgage bond at the new rate of 7.5% was current.
Ashley Square
Ashley Square, located in Des Moines, Iowa, had an average occupancy rate of
97% during 1998, compared to 96% during 1997. Rental concessions and an
increase in repairs and maintenance expenses and property improvements led to
an overall decline in the net cash flow generated by this property in 1998
compared to 1997. As a result, interest earned in 1998 decreased to $425,036
compared to $476,993 in 1997, as interest is recognized as income on this
mortgage bond on the modified cash basis. A significant amount of property
improvements are also planned for 1999 in order to increase the attractiveness
of the property.
Shoals Crossing
Shoals Crossing, located in Atlanta, Georgia, had an average occupancy rate of
90% during 1998 compared to 95% during 1997. Due to a substantial decrease in
the net cash flow generated by this property, interest earned on this mortgage
bond also decreased substantially from $382,500 in 1997 to $83,105 in 1998, as
interest income on this mortgage bond is recognized on a modified cash basis.
The decrease in net cash flow is partially the result of a 5% decline in
average occupancy due to the implementation of a plan to improve the tenant
profile through more stringent resident qualifications. In addition, the
property manager is working to evict some of the problem tenants which has
resulted in a higher than normal turnover of units. Also contributing to the
decrease in net cash flow was an increase in repairs and maintenance expenses
and property improvements that were required in connection with reissuing the
mortgage bond (which reissuance was completed in February 1999-see Note 9 to
the financial statements). The property manager anticipates property
improvement expenses will continue to be high in 1999 as efforts are being
made to complete deferred maintenance on the property. In addition, certain
prior year expenses were not paid until 1998 due to the property's attempt to
keep current on the base interest due in prior years.
Arama Apartments
Arama Apartments, located in Miami, Florida, had an average occupancy rate of
98% during 1998 and 1997. Interest on this mortgage bond, at the base
interest rate, is current. In addition to earning base interest of $1,028,500
in 1998 and 1997, $122,099 of contingent interest was earned in 1998 compared
with $124,682 in 1997.
Since 1986, the project has received rent subsidiaries from the Department of
Housing and Urban Development ("HUD") under various Section 8 Housing
Assistance Payment contracts (the "HAP Contracts"). The various HAP Contracts
on the underlying properties are scheduled on average to expire in late 2000
<PAGE> -8-
and due to changes enacted by the Multifamily Assisted Housing Reform and
Affordability Act, the property owner does not anticipate that it will be able
to renew the HAP Contracts. The property owner currently estimates that the
net cash flow available to pay debt service that will be generated by the
property after the expiration of the HAP Contracts will not be sufficient to
pay the full amount of the base interest on the tax-exempt bond on this
property. Management of the Partnership is currently negotiating potential
modifications to the existing loan agreements with the owner of the property
in anticipation of the termination of the HAP Contracts.
In light of the above and in accordance with the Partnership's policy of
periodically reviewing the real estate collateralizing the Partnership's
mortgage bonds, the Partnership's review indicated that it is not likely to
recover or receive its contracted cash flows (including the repayment of
principal) on its investment in the Arama Apartments tax-exempt mortgage bond.
As such a $4,000,000 realized loss was recorded on such mortgage bond.
Results of Operations
The Partnership ended its thirteenth full year of operations on
December 31, 1998. The table below compares the results of operations for
each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgage bond investment income $ 5,813,579 $ 6,169,500 $ 6,134,812
Interest income on temporary cash investments 48,761 53,554 47,247
Contingent interest income 122,099 124,682 154,539
-------------- -------------- --------------
5,984,439 6,347,736 6,336,598
Realized loss on investment in tax-exempt mortgage bonds 4,000,000 - -
General and administrative expenses 1,016,385 678,487 648,784
-------------- -------------- --------------
5,016,385 678,487 648,784
-------------- -------------- --------------
Net income $ 968,054 $ 5,669,249 $ 5,687,814
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1997 From 1996
-------------- --------------
<S> <C> <C>
Mortgage bond investment income $ (355,921) $ 34,688
Interest income on temporary cash investments (4,793) 6,307
Contingent interest income (2,583) (29,857)
-------------- --------------
(363,297) 11,138
Realized loss on investment in tax-exempt mortgage bonds 4,000,000 -
General and administrative expenses 337,898 29,703
-------------- --------------
4,337,898 29,703
-------------- --------------
Net income $ (4,701,195) $ (18,565)
============== ==============
</TABLE>
Mortgage bond investment income during 1998 was approximately $356,000 less
than 1997. This decrease is attributable to decreased cash flow from Shoals
Crossing Apartments of $299,000, Woodbridge Apts. of Bloomington III of
$55,000, Woodbridge Apts. of Louisville of $52,000 and Ashley Square of
$52,000 partially offset by increases in cash flow from Northwoods Lake
Apartments of approximately $84,000 and Ashley Pointe at Eagle Crest of
approximately $18,000. See the discussion of each property in the Asset
Quality section for additional information.
<PAGE> -9-
Mortgage bond investment income during 1997 was approximately $35,000 more
than 1996. This increase is attributable to increased cash flow from
Woodbridge Apartments of Louisville II of $56,000, Ashley Pointe at Eagle
Crest of $34,000 and Ashley Square of $3,000 offset by decreases from
Woodbridge Apts. of Bloomington III of $20,000 and Northwoods Lake Apartments
of $38,000.
The decrease in interest income on temporary cash investments of $4,793 from
1997 to 1998 is attributable to a decrease in cash reserves as withdrawals
were made from reserves to supplement distributions to BUC holders, primarily
during the fourth quarter of 1998. Interest income on temporary cash
investments increased $6,307 from 1996 to 1997 attributable to an increase in
the amount of undistributed income held in reserves in 1997 and to slightly
higher interest rates.
The decreases in contingent interest income of $2,583 from 1997 to 1998 and
$29,857 from 1996 to 1997 are attributable to decreases in the net cash flow
generated by Arama Apartments during the respective year's contingent interest
period.
During 1998, management determined it is not likely to recover or receive its
contracted cash flows (including the repayment of principal) on its investment
in the Arama Apartments tax-exempt mortgage bond. Accordingly the Partnership
realized a loss of $4,000,000. No such losses were recorded in 1996 or 1997.
General and administrative expenses increased $337,898 from 1997 to 1998 due
to costs of approximately $221,000 incurred in conjunction with the Merger,
an increase of approximately $63,000 in salaries and related expenses, and an
increase of approximately $54,000 in other general and administrative
expenses. General and administrative expenses increased $29,703 from 1996 to
1997 primarily as a result of higher salaries and related 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 mid-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.
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
<PAGE> -10-
necessary modification or replacement of such "mission critical" systems will
be accomplished by mid-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 tax-exempt mortgage bonds,
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 vendor 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 vendor 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
partner 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 partner believes 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 tax-exempt mortgage bonds encounters a serious
and unexpected Year 2000 issue, it may be unable to make a timely payment of
interest to the Partnership. This, in turn, could cause a delay or temporary
reduction in cash distributions to BUC holders. In addition, if the
Partnership's transfer and paying agent experiences Year 2000-related
difficulties, it may cause delays in making distributions to BUC holders or in
the processing of trading of BUCs. 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 partner does 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.
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
tax-exempt mortgage bonds, who may experience Year 2000 problems. The
Partnership has no specific contingency plans for dealing with Year 2000
problems experienced with these third parties.
<PAGE> -11-
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 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk. The
Partnership's exposure to market risk for changes in interest rates relates
primarily to its investments in tax-exempt mortgage bonds. The tax-exempt
mortgage bonds have fixed interest rates. The principal amount of the
tax-exempt mortgage bonds does not amortize over its terms. The Partnership
does not use derivative financial instruments to hedge its investment
portfolio.
During 1998 and through March 1999, five of the seven tax-exempt mortgage
bonds held by the Partnership were reissued by the respective local finance
authorities. The Partnership expects that the remaining two tax-exempt bonds
will be reissued in a similar manner. The table below presents principal
amounts and related weighted average interest rates by year of maturity for
the reissued bonds and the bonds expected to be reissued:
<TABLE>
<CAPTION>
Weighted Average
Tax-Exempt Mortgage Bonds Principal Amount Interest Rate Maturity
- - ------------------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Reissued bonds $ 58,026,000 7.4% beyond 2003
Bonds expected to be
reissued 18,600,000 8.5% 1999(1)
(1) Although the contractual maturities of the tax-exempt mortgage bonds do
not provide for the payment of principal until after 2003, the Partnership
anticipates that the tax-exempt mortgage bonds will be reissued, possibly in
1999, in the same principal amount.
</TABLE>
The aggregate fair value of the Partnership's tax-exempt mortgage bonds was
$71,720,000 at December 31, 1998.
Item 8. Financial Statements and Supplementary Data. The Financial
Statements of the Registrant are set forth in Item 14 hereof and are
incorporated herein by reference.
<PAGE> -12-
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1998 and 1997.
The information required by this Item 9 relating to a change in accountants
has been previously reported (as that term is defined by Rule 12a-2 of the
Exchange Act) with the Commission by the Partnership on its Current Report on
Form 8-K dated December 15, 1998, as amended, and is hereby incorporated by
reference.
<PAGE> -13-
PART III
Item 10. Directors and Executive Officers of the Registrant. The
Registrant has no directors or officers. Management of the Registrant
consists of the general partner of the Registrant, America First Capital
Associates Limited Partnership Two ("AFCA") and its general partner, America
First Companies L.L.C.. The following individuals are the managers and
officers of America First Companies L.L.C., and each serves for a term of one
year.
Name Position Held Position Held Since
Michael B. Yanney Chairman of the Board, 1985
President, Chief
Executive Officer and Manager
Michael Thesing Vice President, Secretary, 1985
Treasurer and Manager,
Chief Financial and
Accounting Officer
William S. Carter, M.D. Manager 1994
Martin A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
Michael B. Yanney, 65, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. From 1977 until the organization of the first such fund in 1984, Mr.
Yanney was principally engaged in the ownership and management of commercial
banks. Mr. Yanney also has investments in private corporations engaged in a
variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha
National Bank and Omaha National Corporation (now part of U.S. Bank), where he
held various positions, including the position of Executive Vice President and
Treasurer of the holding company. Mr. Yanney also serves as a member of the
boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil
Corporation, Level 3 Communications, Inc., Freedom Communications, Inc.,
Magnum Resources, RCN Corporation, Rio Grande Medical Technologies, Inc. and
PKS Information Services, Inc.
Michael Thesing, 44, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. He serves as
President of America First Investment Advisors, LLC and is a member of the
Board of the Board of Managers of America First Companies L.L.C. From January
1984 until July 1984 he was employed by various companies controlled by Mr.
Yanney. He was a certified public accountant with Coopers & Lybrand from 1977
through 1983.
William S. Carter, M.D., 72, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
Martin A. Massengale, 65, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc. and is a member of the Board
of Trustees of the Great Plains Funds, Inc.
Alan Baer, 76, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
<PAGE> -14-
Gail Walling Yanney, 62, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney.
Mariann Byerwalter, 38, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("AFEH") and EurekaBank from
1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief
Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993
to January 1996. She was an officer of BankAmerica Corporation and its
venture capital subsidiary from 1984 to 1987. She served as Vice President
and Executive Assistant to the President of Bank of America and was a Vice
President in the bank's Corporate Planning and Development Department. Ms.
Byerwalter currently serves on the board of directors of Redwood Trust, Inc.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. Certain services are provided to the Registrant by
managers and officers of America First Companies, L.L.C. (the general partner
of AFCA). None of the managers or executive officers of America First
Companies L.L.C. receive compensation from the Registrant and AFCA receives no
reimbursement from the Registrant for any portion of their salaries.
Remuneration paid by the Registrant to the Registrant's general partner
pursuant to the terms of its limited partnership agreement during the year
ended December 31, 1998 is described in Note 6 of the Notes to the Financial
Statements filed in response to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by the Registrant to own beneficially more
than 5% of the Registrant's BUCs.
(b) No manager or officer of America First Companies L.L.C. and no
partner of AFCA owns any BUCs.
(c) There are no arrangements known to the Registrant the
operation of which may, at any subsequent date, result in a change in control
of the Registrant. As described in Item 1, the Registrant merged with the New
Fund on February 1, 1999.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Registrant is AFCA and the sole general partner of AFCA is
America First Companies L.L.C..
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA , America First Companies L.L.C.
or with any person who is: (i) a manager or executive officer of America First
Companies L.L.C. or any general partner of AFCA; (ii) a nominee for election
as a manager of America First Companies L.L.C.; (iii) an owner of more than 5%
of the BUCs; or, (iv) a member of the immediate family of any of the foregoing
persons.
During 1998, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $1,126,336 for certain costs and expenses incurred in
connection with the operation of the Registrant, including legal and
accounting fees, investor communication costs, such as printing and mailing
charges, and certain costs capitalized by the Partnerships. See Note 6 to
Notes to Financial Statements filed in response to Item 8 hereof for a
description of these costs and expenses.
AFCA received administrative fees of $90,479 in 1998. These
administrative fees are paid by the owners of the properties financed by the
tax-exempt mortgage bonds held by the Partnership out of the net cash flow
generated by the properties after payment of base interest on the bonds.
Since these fees are not Partnership expenses, they have not been reflected in
the accompanying financial statements.
AFCA is entitled to an administrative fee from the Partnership in the
event the Partnership becomes an equity owner of a property by reason of
foreclosure. AFCA was not entitled to any administrative fees from the
Partnership for the year ended December 31, 1998.
<PAGE> -15-
America First Properties Management Company, L.L.C. (the "Manager"), an
affiliate of AFCA, was retained to provide property management services with
respect to the day-to-day operation of Ashley Square, Northwoods Lake
Apartments, Ashley Pointe at Eagle Crest and Shoals Crossing. The property
management agreements provide that the Manager is entitled to receive a
management fee equal to a stated percentage of the gross revenues generated by
the property under management. Management fees payable to the Manager range
from 4% to 4.5% of gross revenues. Because the Manager is an affiliate of
AFCA the management fees payable to the Manager may not exceed the rates that
the Registrant would pay an unaffiliated manager for similar services in the
same geographic location. During the year ended December 31, 1998, the
Manager received property management fees of $310,225.
As described in Item 1, the Registrant merged with the New Fund on
February 1, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements of the Registrant. The following
financial statements of the Registrant are included in response to
Item 8 of this report:
Independent Auditors' Reports
Balance Sheets of the Registrant as of December 31, 1998, and
December 31, 1997.
Statements of Income and Comprehensive Income of the Registrant
for the years ended December 31, 1998, December 31, 1997, and
December 31, 1996.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1998, December 31, 1997, and December 31,
1996.
Statements of Cash Flows of the Registrant for the years ended
December 31, 1998, December 31, 1997, and December 31, 1996.
Notes to Financial Statements of the Registrant.
2. Financial Statement Schedules. The information required
to be set forth in the financial statement schedules is shown in
the Notes to Financial Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits were filed as required
by Item 14(c) of this report. Exhibit numbers refer to the
paragraph numbers under Item 601 of Regulation S-K:
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)).
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 Exchange 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 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> -16-
4(c).Amended Agreement of Merger, dated June 12, 1998,
between the Partnership and America First Tax Exempt Investors,
L.P. (incorporated herein by reference to Exhibit 4.3 of
Amendment No. 3 to Form S-4, dated September 14, 1998, filed
pursuant to the Securities Act of 1933 by America First Tax
Exempt Investors, L.P. (Commission File No. 333-50513))
24. Power of Attorney.
27. Financial Data Schedule.
(b) The Registrant filed the following reports on Form 8-K during
the last quarter of the period covered by this report:
Financial
Date of Report Item Reported Statements Filed
---------------- ------------------------- ----------------
November 6, 1998 Item 5. Other Events No
Item 7. Financial Statements
and Exhibits
December 15, 1998 Item 4. Change in Registrant's No
Certifying Accountant
Item 7. Financial Statements
and Exhibits
<PAGE> -17-
Independent Auditors' Report
To the Partners
America First Tax Exempt Mortgage Fund Limited Partnership:
We have audited the accompanying balance sheet of America First Tax Exempt
Mortgage Fund Limited Partnership as of December 31, 1998, and the related
statement of income and comprehensive income, partners' capital and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Tax Exempt
Mortgage Fund Limited Partnership as of December 31, 1998 and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Omaha, Nebraska
March 19, 1999 /s/KPMG Peat Marwick L.L.P.
<PAGE> -18-
Independent Auditors' Report
To the Partners
America First Tax Exempt Mortgage Fund Limited Partnership:
We have audited the accompanying balance sheet of America First Tax Exempt
Mortgage Fund Limited Partnership as of December 31, 1997, and the related
statements of income and comprehensive income, partners' capital and cash flows
for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Tax Exempt
Mortgage Fund Limited Partnership as of December 31, 1997 and the results of
its operations and its cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Omaha, Nebraska
March 26, 1998 /s/PriceWaterhouseCoopers LLP
-----------------------------
Coopers & Lybrand L.L.P.
<PAGE> -19-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 920,801 $ 1,522,893
Investment in tax-exempt mortgage bonds, at estimated
fair value (Note 5) 71,720,000 71,126,000
Interest receivable 503,234 556,017
Other assets 277,890 8,106
-------------- --------------
$ 73,421,925 $ 73,213,016
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 276,184 $ 156,569
Distribution payable (Note 3) 453,597 453,597
-------------- --------------
729,781 610,166
-------------- --------------
Partners' Capital
General Partner 5,426 10,473
Beneficial Unit Certificate Holders
($7.28 per BUC in 1998 and $7.27 in 1997) 72,686,718 72,592,377
-------------- --------------
72,692,144 72,602,850
-------------- --------------
$ 73,421,925 $ 73,213,016
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -20-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Mortgage bond investment income (Note 5) $ 5,813,579 $ 6,169,500 $ 6,134,812
Interest income on temporary cash investments 48,761 53,554 47,247
Contingent interest income (Note 5) 122,099 124,682 154,539
-------------- -------------- --------------
5,984,439 6,347,736 6,336,598
-------------- -------------- --------------
Expenses
Realized loss on investment in tax-exempt mortgage bonds 4,000,000 - -
General and administrative expenses (Note 6) 1,016,385 678,487 648,784
-------------- -------------- --------------
5,016,385 678,487 648,874
-------------- -------------- --------------
Net income 968,054 5,669,249 5,687,814
Other comprehensive income:
Unrealized gains on securities
Net unrealized holding gains arising during the year 594,000 5,100,000 -
Plus: reclassification adjustment for losses included in net income 4,000,000 - -
-------------- -------------- --------------
4,594,000 5,100,000 -
-------------- -------------- --------------
Net comprehensive income $ 5,562,054 $ 10,769,249 $ 5,687,814
============== ============== ==============
Net income allocated to:
General Partner $ 78,985 $ 86,616 $ 93,968
BUC Holders 889,069 5,582,633 5,593,846
-------------- -------------- --------------
$ 968,054 $ 5,669,249 $ 5,687,814
============== ============== ==============
Net income, basic and diluted, per BUC $ .09 $ .56 $ .56
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -21-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1995 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- --------------- --------------
<S> <C> <C> <C>
Partners' Capital (excluding accumulated other comprehensive income)
Balance at December 31, 1995 $ 6,443 $ 77,693,356 $ 77,699,799
Net income 93,968 5,593,846 5,687,814
Cash distributions paid or accrued (Note 3)
Income (91,896) (5,388,729) (5,480,625)
-------------- --------------- --------------
Balance at December 31, 1996 8,515 77,898,473 77,906,988
Net income 86,616 5,582,633 5,669,249
Cash distributions paid or accrued (Note 3)
Income (84,658) (5,388,729) (5,473,387)
-------------- --------------- --------------
Balance at December 31, 1997 10,473 78,092,377 78,102,850
Net income 78,985 889,069 968,054
Cash distributions paid or accrued (Note 3)
Income (84,032) (1,388,728) (1,472,760)
Return of capital - (4,000,000) (4,000,000)
-------------- --------------- --------------
Balance at December 31, 1998 5,426 73,592,718 73,598,144
-------------- --------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 1995 and 1996 - (10,600,000) (10,600,000)
Other comprehensive income - 5,100,000 5,100,000
-------------- --------------- --------------
Balance at December 31, 1997 - (5,500,000) (5,500,000)
Other comprehensive income - 4,594,000 4,594,000
-------------- --------------- --------------
- (906,000) (906,000)
-------------- --------------- --------------
Balance at December 31, 1998 $ 5,426 $ 72,686,718 $ 72,692,144
============== =============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -22-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 968,054 $ 5,669,249 $ 5,687,814
Adjustments to reconcile net income to net cash
from operating activities
Realized loss on investment in tax-exempt mortgage bonds 4,000,000 - -
Decrease (increase) in interest receivable 52,783 42,156 (41,707)
Decrease (increase) in other assets (2,985) 2,615 1,924
Increase (decrease) in accounts payable 119,615 (97,300) 108,349
-------------- -------------- --------------
Net cash provided by operating activities 5,137,467 5,616,720 5,756,380
-------------- -------------- --------------
Cash flow used in investing activity
Bond issuance costs paid (266,799) - -
-------------- -------------- --------------
Cash flow used in financing activity
Distributions paid (5,472,760) (5,473,387) (5,480,625)
-------------- -------------- --------------
Net increase (decrease) in cash and temporary cash investments (602,092) 143,333 275,755
Cash and temporary cash investments at beginning of year 1,522,893 1,379,560 1,103,805
-------------- -------------- --------------
Cash and temporary cash investments at end of year $ 920,801 $ 1,522,893 $ 1,379,560
============== ============== ==============
Supplemental disclosure of non-cash investing activity:
During 1998, four of the Partnership's tax-exempt mortgage bonds secured by
multifamily properties were refinanced by the respective local housing finance
authorities. In each case, the existing tax-exempt bond held by the
Partnership was terminated and a new bond in the same principal amount was
issued to the Partnership. The total principal amount refinanced was
$53,526,000.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> -23-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 terminated
on February 1, 1999, as a result of a merger with America First Tax Exempt
Investors, L.P. (the New Partnership). See Note 7. The General Partner of
the Partnership is America First Capital Associates Limited Partnership Two
(AFCA 2).
2. Summary of Significant Accounting Policies
A)Method of Accounting
The financial statements of the Partnership are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B)Investment in Tax-Exempt Mortgage Bonds
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 in other comprehensive income. 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 (see Note 2C).
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)Fair Value of Tax-Exempt Mortgage Bond Collateral
The fair value of the collateral for the tax-exempt mortgage bonds is based
on management's best estimate of the net realizable value of the
properties; however the ultimate realized values may vary from these
estimates. The net realizable value of the properties is determined based
on the discounted estimated future cash flows from the properties,
including estimated sales proceeds. The calculation of discounted
estimated future cash flows includes certain variables such as the assumed
inflation rates for rents and expenses, capitalization rates and discount
rates. These variables are supplied to the Partnership by an independent
real estate appraisal firm based upon local market conditions for each
property. In certain cases, additional factors such as the replacement
value of the property or comparable sales of similar properties are also
taken into consideration. The carrying value of the mortgage bonds is
periodically reviewed and adjustments are made when there are significant
changes in the estimated net realizable value of the underlying collateral
for the tax-exempt mortgage bonds.
D)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.
The tax basis of the Partnership's assets and liabilities exceeded the
reported amounts by $9,953,584 at December 31, 1998 and $5,953,584 at
December 31, 1997, respectively.
<PAGE> -24-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
E)Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
F)Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (9,979,128) for all years presented.
G)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 the
change in net unrealized holding gains (losses) on investments.
H)Segment Reporting
In 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. The adoption of SFAS 131 did not have an
impact on the financial reporting of the Partnership as it is engaged
solely in the business of providing financing for the acquisition and
improvement of real estate.
I)New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement provides new
accounting and reporting standards for the use of derivative instruments.
Adoption of this statement is required by the Partnership effective
January 1, 2000. Management believes that the impact of such adoption will
not have an impact to the financial statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5). This statement requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of
this statement is required by the Partnership effective January 1, 1999.
Management intends to adopt the statement as required in fiscal 1999.
Management believes that the impact of such adoption will not have an
impact to the financial statements.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Interest Income and Net Residual Proceeds and for the allocation of income and
expenses for tax purposes among AFCA 2 and BUC Holders. Income and expenses
will be allocated to each BUC Holder on a monthly basis based on the number of
BUCs held by each BUC Holder as of the last day of the month for which such
allocation is to be made. Distributions of Net Interest Income and Net
Residual Proceeds will be made to each BUC Holder of record on the last day of
each distribution period based on the number of BUCs held by each BUC Holder
as of such date.
Net Interest Income, as defined in the Limited Partnership Agreement, in each
distribution period will be distributed 99% to the BUC Holders and 1% to AFCA
2 until the BUC Holders have received distributions of Net Interest Income
equal to a cumulative noncompounded annual return of 11% on their Adjusted
Capital Contributions, as defined in the Limited Partnership Agreement, at
which point all remaining Net Interest Income for such distribution period
will be distributed 90% to the BUC Holders and 10% to AFCA 2.
The portion of Net Residual Proceeds, as defined in the Limited Partnership
Agreement, representing a return of principal will be distributed 100% to the
BUC Holders. The portion of Net Residual Proceeds representing contingent
interest will be distributed 100% to the BUC Holders until the BUC Holders
have received distributions from all sources which represent a return of $20
per BUC plus an amount equal to a cumulative noncompounded annual return of
<PAGE> -25-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
11% on their Adjusted Capital Contributions. Any remaining Net Residual
Proceeds representing contingent interest will be allocated 100% to AFCA 2 to
the extent of 10% of all Net Residual Proceeds representing contingent
interest distributed to all parties exclusive of the following described
amounts. Thereafter, any remaining Net Residual Proceeds representing
contingent interest will be distributed 90% to BUC Holders and 10% to AFCA 2.
Notwithstanding the foregoing, Net Interest Income representing contingent
interest and Net Residual Proceeds representing contingent interest in an
amount equal to .9% per annum of the principal amount of the mortgage bonds on
a cumulative basis will be distributed 75% to the BUC Holders and 25% to AFCA
2.
Under the terms of the Merger, the limited partnership agreement of the New
Partnership will control after February 1, 1999. The terms of the New
Partnership's limited partnership agreement differ in certain respects from
those of the Partnership.
Cash distributions are presently made on a monthly basis, but may be made
quarterly if AFCA 2 so elects. The cash distributions included in the
financial statements represent the actual cash distributions made during each
year and the cash distributions accrued at the end of each year.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $864,315 at
December 31, 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
The mortgage bonds are issued by various state and local governments, their
agencies and authorities to finance the construction or rehabilitation of
income-producing real estate properties. However, the mortgage bonds do not
constitute an obligation of any state or local government, agency or authority
and no state or local government, agency or authority is liable on them, nor
is the taxing power of any state or local government pledged to the payment of
principal or interest on the mortgage bonds. The mortgage bonds are
nonrecourse obligations of the respective owners of the properties. The sole
source of the funds to pay principal and interest on the mortgage bonds is the
net cash flow or the sale or refinancing proceeds from the properties. Each
mortgage bond, however, is collateralized by a first mortgage on all real and
personal property included in the related property and an assignment of rents.
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. Each of the bonds originally
earned base interest at the rate of 8.5% per annum and provided for additional
contingent interest which, when combined with base interest, could equal up to
a maximum of 16% per annum.
The principal amount of the bonds does not amortize over its terms. However,
the principal of six of the bonds was to be repaid to the Partnership on
December 1, 1997 and the principal of the remaining bond 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.
In this regard, the tax-exempt bonds secured by Woodbridge Apartments of
Louisville II (Louisville), Ashley Pointe at Eagle Crest (Ashley Pointe),
Woodbridge Apartments of Bloomington III (Bloomington) and Northwoods Lake
<PAGE> -26-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Apartments (Northwoods) were reissued by the respective local housing finance
authorities on October 28, 29, 30, and November 19, 1998, respectively. In
each case, the existing tax-exempt bond held by the Partnership was terminated
and a new bond in the same principal amount was issued to the Partnership. The
Partnership expects that the remaining tax-exempt bonds will be reissued in a
similar manner and anticipates that the base and contingent interest rates on
these reissued bonds will also be less than the current base and contingent
interest rates.
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At December 31, 1998, 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. At
December 31, 1997, the total amortized cost, gross unrealized holding losses
and aggregate fair value of available-for-sale securities were $76,626,000,
$5,500,000 and $71,126,000 respectively.
During 1998, the Partnership determined it is not likely to recover or receive
its contracted cash flows (including the repayment of principal) on its
investment in the Arama Apartments tax-exempt mortgage bond. Accordingly, the
Partnership realized a loss of $4,000,000 and the cost basis was written down
to fair value as a new cost basis. Concurrently, the unrealized holding losses
related to the investment in tax-exempt mortgage bonds, which is a component
of accumulated comprehensive income, was reduced by $4,000,000; therefore, the
realized loss had no impact on total Partners' Capital.
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Base
Number Maturity Interest Income Earned
Property Name Location of Units Date Rate in 1998
------------------------ ---------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Arama Apartments Miami, FL 293 07/01/10 8.5% (1) $ 1,028,500
Shoals Crossing Atlanta, GA 176 12/01/09 8.5% (1) 83,105
Woodbridge Apts. of
Bloomington III (4) Bloomington, IN 280 12/01/27 7.5% (2) 1,015,795
Ashley Pointe at
Eagle Crest (4) Evansville, IN 150 12/01/27 7.0% (2) 520,571
Woodbridge Apts. of
Louisville II (4) Louisville, KY 190 12/01/27 7.5% (2) 811,081
Northwoods Lake
Apartments (4) Duluth, GA 492 09/01/25 7.5% (2) 1,929,491
Ashley Square Des Moines, IA 144 12/01/09 8.5% (1) 425,036
-------------
$ 5,813,579
=============
</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 16% per annum. The Partnership received additional contingent interest
from Arama Apartments of $122,099 in 1998, $124,682 in 1997 and $154,539 in
1996.
(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 Ashley Pointe
and Northwoods Lake Apartments) of the net cash flow generated by the
respective property.
<PAGE> -27-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 tax-exempt bonds. The amounts
of such expenses reimbursed to AFCA 2 or an affiliate are shown below. The
amounts are presented on a cash basis and do not reflect accruals made at each
year end.
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Reimbursable salaries and benefits $ 505,023 $ 447,669 $ 431,747
Proposed merger transaction costs 201,651 - -
Costs capitalized by the Partnership 159,070 - -
Professional fees and expenses 60,390 32,009 36,330
Investor services and custodial fees 57,892 62,819 63,864
Other expenses 52,369 41,606 30,980
Insurance 30,240 24,033 25,780
Registration fees 24,273 17,870 18,126
Report preparation and distribution 17,107 27,686 22,616
Telephone 9,071 10,297 8,308
Consulting and travel expenses 9,250 5,246 3,723
-------------- -------------- --------------
$ 1,126,336 $ 669,235 $ 641,474
============== ============== ==============
</TABLE>
AFCA 2 is entitled to receive an administrative fee of .45% of the original
principal amount of the properties financed by the tax-exempt mortgage bonds.
The fee is payable by the owners of the properties financed by the tax-exempt
mortgage bonds after the payment of base interest on the bonds but before the
payment of contingent interest on the bonds. AFCA 2 received administrative
fees from property owners of $90,479 in 1998, $152,027 in 1997 and $176,125 in
1996. 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 for the years ended December 31, 1998, 1997 or 1996. 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
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
(beginning in July 1996) and Shoals Crossing (beginning in January 1998). 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 $310,225 in 1998, $270,616
in 1997 and $247,960 in 1996.
As described in Note 7, the Partnership merged with the New Partnership on
February 1, 1999.
7. 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 Partnership), pursuant to which the Partnership will
merge with and into the New Partnership and the New Partnership will be the
surviving limited partnership. As of December 31, 1998 the Partnership was in
the process of collecting BUC holder consents. During January 1999, the
Partnership obtained the consent of the holders of a majority of the BUCs of
<PAGE> -28-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
the Partnership. As a result, the Partnership merged with and into the New
Partnership on February 1, 1999 and the separate existence of the Partnership
terminated on that date. Each BUC holder of the Partnership received one BUC
in the New Partnership as such BUC holder held in the Partnership. The
General Partner of the New Partnership is AFCA 2 and, accordingly, the Merger
did not result in a change of control. The New Partnership has additional
authority to reconfigure its assets and sell interests therein, to issue
additional BUCs and to invest the proceeds of such asset sales and BUC
issuances in additional tax exempt bonds secured by multifamily housing
properties.
8. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1998 to December 31, 1998 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total income $ 1,623,078 $ 1,484,824 $ 1,516,564 $ 1,359,973
Total expenses (176,855) (227,327) (200,777) (4,411,426) (1)
-------------- -------------- -------------- --------------
Net income(loss) $ 1,446,223 $ 1,257,497 $ 1,315,787 $ (3,051,453)
============== ============== ============== ==============
Net income(loss), basic and diluted, per BUC $ .14 $ .13 $ .13 $ (.31)
============== ============== ============== ==============
Market Price per BUC
High sale 8-1/8 8 7-11/16 6-15/16
Low sale 7-1/8 7-1/4 6-5/8 5-7/8
============== ============== ============== ==============
(1) The Partnership incurred expenses of approximately $160,000 during the
quarter in connection with the Merger described in Note 7. In addition, the
Partnership realized a loss of $4,000,000 on its investment in tax-exempt
mortgage bonds (see Note 5).
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1997 to December 31, 1997 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total income $ 1,652,710 $ 1,529,115 $ 1,608,357 $ 1,557,554
Total expenses (185,545) (189,186) (160,828) (142,928)
-------------- -------------- -------------- --------------
Net income $ 1,467,165 $ 1,339,929 $ 1,447,529 1,414,626
============== ============== ============== ==============
Net income, basic and diluted, per BUC $ .14 $ .14 $ .14 $ .14
============== ============== ============== ==============
Market Price per BUC
High sale 7-3/8 7-3/8 7-3/8 7-3/4
Low sale 6-11/16 6-11/16 7 7-1/16
============== ============== ============== ==============
</TABLE>
The BUCs are quoted on the NASDAQ National Market System under the symbol
AFTXZ. The high and low quarterly prices of the BUCs were compiled from
on-line trading sources based on information provided by NASDAQ and represent
final sale prices. The 1997 high and low quarterly prices of the BUCs were
compiled from the Monthly Statistical Reports provided to the Partnership by
the National Association of Securities Dealers, Inc. and represent final sale
prices.
<PAGE> -29-
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
9. Subsequent Event
The tax-exempt bond secured by Shoals Crossing was reissued by the local
housing finance authority on February 25, 1999. The existing tax-exempt bond
held by the Partnership was terminated and a new bond in the same principal
amount was issued to the Partnership. The new bond has a term expiring on
December 1, 2025. The new bond provides for the payment of base interest to
the Partnership at a rate of 7.5% per annum. The new bond provides for the
payment to the Partnership of contingent interest of up to an additional 3.5%
per annum that is payable out of 100% of the net cash flow generated by the
financed property. The obligations of the owner of the financed property to
pay principal and interest on the loan underlying the bond is secured by a
first mortgage on the financed property, an assignment of rents and a security
interest in personal property associated with the financed property.
<PAGE> -30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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
Date: March 29, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 29, 1999 By /s/ Michael B. Yanney*
Michael B. Yanney,
Chairman of the Board,
President, Chief Executive Officer
and Manager
Date: March 29, 1999 By /s/ Michael Thesing
Michael Thesing,
Principal Financial Officer
and Manager
Date: March 29, 1999 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.,
Manager
Date: March 29, 1999 By /s/ Martin A. Massengale*
Martin A. Massengale,
Manager
Date: March 29, 1999 By /s/ Alan Baer*
Alan Baer,
Manager
Date: March 29, 1999 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: March 29, 1999 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
*By Michael Thesing,
Attorney-in-Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> -31-
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> -32-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> -33-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
<PAGE> -34-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> -35-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Alan Baer
Alan Baer
<PAGE> -36-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> -37-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1998 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Tax Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1999.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> -38-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 920,801
<SECURITIES> 0
<RECEIVABLES> 503,234
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,424,035
<PP&E> 0
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<TOTAL-ASSETS> 73,421,925
<CURRENT-LIABILITIES> 729,781
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<COMMON> 0
0
0
<OTHER-SE> 72,692,144
<TOTAL-LIABILITY-AND-EQUITY> 73,421,925
<SALES> 0
<TOTAL-REVENUES> 5,984,439
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,016,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 968,054
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> 968,054
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
