FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995 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: 0-15854
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0700550
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Commission File Number: 0-15665
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
(Exact name of registrant as specified in its charter)
Delaware 47-0700551
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1995
(Unaudited) Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which approximates market value $ 1,868,951 $ 7,806,496
Investment in U.S. government securities (Note 8) 4,989,075 -
Investment in mortgage-backed securities (Note 4) 44,062,727 45,810,512
Investment in preferred equity participations (PEPs), net of valuation allowance (Note 5) 309,352 449,510
Investment in real estate (Note 6) 6,645,352 6,970,972
Investment in participating loans, net of valuation allowance (Note 7) 2,960,000 2,960,000
Interest receivable 444,405 359,225
Investment evaluation fees, net 616,237 633,515
Other assets 3,223,680 2,842,951
--------------- ---------------
$ 65,119,779 $ 67,833,181
=============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 513,939 $ 551,365
Distributions payable (Note 3) 1,030,466 1,048,974
Mortgage notes payable (Note 10) 9,614,760 9,614,760
--------------- ---------------
11,159,165 11,215,099
--------------- ---------------
Partners' Capital
General Partner 100 100
Passthrough Certificate Holder ($23,195 per certificate in 1995 and $23,901 in 1994) 2,319,500 2,390,147
Exchangeable Unit Holders ($9.28 per unit in 1995 and $9.56 in 1994) 51,641,014 54,227,835
--------------- ---------------
53,960,614 56,618,082
--------------- ---------------
$ 65,119,779 $ 67,833,181
=============== ===============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Nine For the Nine
Quarter Ended Quarter Ended Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage and mortgage-backed securities income $ 847,493 $ 911,274 $ 2,578,554 $ 2,604,853
Equity in earnings of property partnerships 15,175 46,732 86,711 150,904
Rental income 569,747 546,633 1,702,636 1,597,136
Interest income on participating loans 60,124 62,741 190,891 197,910
Interest income on temporary cash investments and
U.S. government securities 98,095 73,125 303,340 280,643
-------------- -------------- -------------- --------------
1,590,634 1,640,505 4,862,132 4,831,446
-------------- -------------- -------------- --------------
Expenses
General and administrative expenses (Note 9) 216,344 148,220 609,547 478,136
Real estate operating expenses 152,493 144,079 659,412 665,365
Depreciation 118,750 118,750 356,250 356,250
Interest expense 298,504 283,804 686,974 575,521
-------------- -------------- -------------- --------------
786,091 694,853 2,312,183 2,075,272
-------------- -------------- -------------- --------------
Net income $ 804,543 $ 945,652 $ 2,549,949 $ 2,756,174
============== ============== ============== ==============
Net income allocated to:
General Partner $ 8,352 $ 9,448 $ 26,007 $ 31,274
Exchangeable Unit Holders 761,984 896,684 2,416,264 2,609,873
Passthrough Certificate Holder 34,207 39,520 107,678 115,027
-------------- -------------- -------------- --------------
$ 804,543 $ 945,652 $ 2,549,949 $ 2,756,174
============== ============== ============== ==============
Net income per exchangeable unit $ .1368 $ .1581 $ .4307 $ .4601
============== ============== ============== ==============
Net income per passthrough certificate $ 342.13 $ 395.20 $ 1,076.84 $ 1,150.27
============== ============== ============== ==============
Weighted average number of certificates outstanding 100 100 100 100
============== ============== ============== ==============
Weighted average number of units outstanding 5,570,692 5,672,327 5,609,606 5,672,327
============== ============== ============== ==============
</TABLE>
COMBINED STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Passthrough Certificate Exchangeable Unit
Holders Holders
--------------------------- --------------------------
General # of
Partner Certificates Amount # of Units Amount Total
-------- ------------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 100 100 $ 2,390,147 5,672,327 $ 54,227,835 $ 56,618,082
Net income 26,007 - 107,678 - 2,416,264 2,549,949
Cash distributions paid or accrued (Note 3) (26,007) - (198,700) - (4,457,928) (4,682,635)
Purchase of 106,050 units (Note 8) - - 3,157 (106,050) (931,813) (928,656)
Net unrealized holding gains (Note 8) - - 17,218 - 386,656 403,874
-------- ------------- ------------ ----------- ------------- ------------
Balance at September 30, 1995 $ 100 100 $ 2,319,500 5,566,277 $ 51,641,014 $ 53,960,614
======== ============= ============ =========== ============= ============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,549,949 $ 2,756,174
Adjustments to reconcile net income to
net cash from operating activities:
Equity in earnings of property partnerships (86,711) (150,904)
Depreciation 356,250 356,250
Amortization of discount on mortgage-backed and U.S. government securities (48,402) (32,989)
Decrease (increase) in interest receivable (85,180) 28,350
Amortization of investment evaluation fees 17,278 17,277
Increase in other assets (380,729) (415,401)
Decrease in accounts payable (37,426) (19,359)
--------------- ---------------
Net cash provided by operating activities 2,285,029 2,539,398
--------------- ---------------
Cash flows from investing activities
Acquisition of U.S. government securities (4,937,891) -
Mortgage principal payments received 2,158,879 7,878,577
Acquisition of mortgage-backed securities (10,002) (7,891,697)
Distributions received from PEPs 226,869 177,086
Investment in real estate (30,630) -
--------------- ---------------
Net cash provided by (used in) investing activities (2,592,775) 163,966
--------------- ---------------
Cash flows used in financing activities
Purchase of Units (928,656) -
Distributions paid (4,701,143) (4,791,354)
--------------- ---------------
Net cash used in investing activities (5,629,799) (4,791,354)
--------------- ---------------
Net decrease in cash and temporary cash investments (5,937,545) (2,087,990)
Cash and temporary cash investments at beginning of period 7,806,496 9,040,074
--------------- ---------------
Cash and temporary cash investments at end of period $ 1,868,951 $ 6,952,084
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 686,974 $ 575,521
=============== ===============
The accompanying notes are an integral part of the combined financial statements.
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. ORGANIZATION
America First Participating/Preferred Equity Mortgage Fund (the Fund) was
formed on November 20, 1986, as a Nebraska general partnership for the purpose
of acquiring a portfolio of federally-insured multifamily mortgages or other
investments including preferred equity participations (PEPs). PEPs consist
of equity interests which are intended to provide the Fund with a
participation in the net cash flow and net sale or refinancing proceeds of the
properties collateralizing the mortgage loans. America First
Participating/Preferred Equity Mortgage Fund Limited Partnership (the
Partnership) was also formed on November 20, 1986, under the Delaware Revised
Uniform Limited Partnership Act to serve as the managing general partner of
the Fund. The Fund and the Partnership will continue in existence until
December 31, 2036, unless terminated earlier under the provisions of the
Pooling and Servicing Agreement forming the Fund and the Partnership Agreement
forming the Partnership. The General Partner of the Partnership is America
First Capital Associates Limited Partnership Three (AFCA 3).
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The financial statements include the combined statements of the Fund and
the Partnership and have been prepared without audit. The combined
financial statements are prepared on the accrual basis of accounting in
accordance with generally accepted accounting principles. In the opinion
of management, all adjustments necessary to present fairly the financial
position at September 30, 1995, and results of operations for all periods
presented have been made.
B)Investments in Mortgage-Backed Securities, U.S. Government Securities and
Participating Loans
On January 1, 1994, the Fund adopted Statement of Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115). FAS 115 requires that investment securities be
classified as held-to-maturity, available-for-sale, or trading. Under FAS
115, investments classified as held-to-maturity are carried at amortized
cost. Investments classified as available-for-sale are reported at fair value
with any unrealized gains or losses excluded from earnings and reflected as a
separate component of partners' capital. Subsequent increases and decreases
in the net unrealized gain/loss on the available-for-sale securities will be
reflected as adjustments to the carrying value of the portfolio and
adjustments to the component of partners' capital. The Fund does not have
investment securities classified as trading. FAS 115 had no impact to
partners' capital or earnings prior to June 30, 1995, since all investment
securities were classified as held-to-maturity. As described in Note 5, on
June 30, 1995, the Fund reclassified certain investment securities from the
held-to-maturity category to the available-for-sale category.
The investment in Participating Loans is recorded at cost and reduced by
principal payments received. Interest income on Participating Loans is
excluded from income when, in the opinion of management, collection of such
interest is doubtful. This interest is recognized as income when it is
received.
C)Investment in Preferred Equity Participations (PEPs)
The investment in PEPs consist of interests in limited partnerships which
own the properties underlying the mortgage-backed securities and are
accounted for using the equity method.
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
D)Allowance for Losses on Investment in PEPs and Participating Loans
The allowances for losses on investment in PEPs and Participating Loans are
valuation reserves which have been established at a level that management
feels is adequate to absorb potential losses on investments in PEPs and
Participating Loans. The allowances are based upon management's estimates
of discounted future cash flows; however, the ultimate realized values may
vary from current estimates. These estimates are periodically reviewed and,
as adjustments become necessary, they are reported in the period in which
they become known.
E)Investment in Real Estate
The investment in real estate is recorded at the lower of cost or estimated
net realizable value at the date of acquisition.
F)Depreciation
Depreciation of real estate acquired in settlement of PEPs is based on the
estimated useful life of the properties (ranging from 6 to 27 1/2 years)
using the straight-line method.
G)Income Taxes
No provision has been made for income taxes since each Exchangeable Unit
Holder or Passthrough Certificate Holder is required to report their share
of the Partnership's or Fund's income for federal and state income tax
purposes.
H)Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
I)Investment Evaluation Fees
The investment evaluation fees were incurred in connection with the
acquisition of assets. These fees are being amortized over the life of the
Fund.
J)Net Income Per Exchangeable Unit and Passthrough Certificate
Net income per Exchangeable Unit and Passthrough Certificate was allocated
based on the weighted average number of exchangeable units and passthrough
certificates outstanding during each period presented.
3. Fund and Partnership Income, Expenses and Cash Distributions
The Partnership Agreement and the Pooling and Servicing Agreement contain
provisions for distributing the cash available for distribution and for the
allocation of income and expenses for tax purposes among AFCA 3 and investors.
Cash distributions included in the combined financial statements represent the
actual cash distributions made during each period and the cash distributions
accrued at the end of each period.
4. Investment in Mortgage-Backed Securities
The mortgage-backed securities held by the Partnership represent Government
National Mortgage Association (GNMA) Certificates and Federal National
Mortgage Association (FNMA) Certificates. The GNMA Certificates are backed by
first mortgage loans on multifamily residential properties and pools of single
family properties. The FNMA Certificates are backed by pools of single family
properties. The GNMA Certificates are debt securities issued by a private
mortgage lender and are guaranteed by GNMA as to the full and timely payment
of principal and interest on the underlying loans. The FNMA Certificates are
debt securities issued by FNMA and are guaranteed by FNMA as to the full and
timely payment of principal and interest on the underlying loans.
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
On June 30, 1995, the Fund transferred all GNMA and FNMA Certificates held in
the reserve account from the held-to-maturity classification to the
available-for-sale classification (see Note 8).
At September 30, 1995 the total amortized cost, gross unrealized holding gains
and aggregate fair value for held-to-maturity securities are $15,514,926,
$491,700 and $16,006,626, respectively.
Descriptions of the Fund's mortgage-backed securities at September 30, 1995,
are as follows:
<TABLE>
<CAPTION>
Number Interest Maturity Carrying
Type of Security and Name Location of Units Rate Date Amount
- ---------------------------------- ------------------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
The Parklane Salt Lake City, UT 94 9.25% 03/15/2029 $ 6,428,326
Grand Villa Grand Junction, CO 46 9.25% 03/15/2029 2,002,464
Cambridge Court Kearney, NE 41 9.25% 02/15/2029 1,953,851
Hickory Villa Omaha, NE 57 9.25% 02/15/2029 2,529,552
Pools of single family properties N/A 9.58% (1) 2017 2,543,836
Pools of single family properties N/A 9.62% (1) 2016 to 2017 56,897
-------------
15,514,926
-------------
Available-for-Sale
GNMA Certificates:
Pools of single family properties N/A 8.56% (1) 2016 to 2020 3,580,569 (2)
Pools of single family properties N/A 9.30% (1) 07/15/2021 2,241,971 (2)
Pools of single family properties N/A 8.76% (1) 2021 1,472,513 (2)
Pools of single family properties N/A 8.76% (1) 05/15/2021 717,929 (2)
Pools of single family properties N/A 8.25% (1) 2021 to 2022 2,785,163 (2)
Pools of single family properties N/A 6.50% (1) 2023 4,588,959 (2)
Pools of single family properties N/A 6.03% (1) 2008 2,569,174 (2)
Pools of single family properties N/A 7.13% (1) 2009 7,245,322 (2)
FNMA Certificates:
Pools of single family properties N/A 5.52% (1) 2000 3,346,201 (2)
-------------
28,547,801
-------------
Balance at September 30, 1995 $ 44,062,727
=============
(1)Represents yield to the Fund.
(2)Reserve account asset - see Note 8.
Reconciliation of the carrying amount of the mortgages is as follows:
Balance at December 31, 1994 $ 45,810,512
Additions
Acquisition of mortgage-backed securities 10,002
Amortization of discount on mortgage-backed securities 17,761
Net unrealized holding gains on available-for-sale securities 383,331
Deduction
Mortgage principal payments received (2,158,879)
-------------
Balance at September 30, 1995 $ 44,062,727
=============
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
5. Investment in Preferred Equity Participations (PEPs)
The PEPs consist of interests in limited partnerships which own properties
financed by the Fund. The limited partnership agreements provide for a
participation in the net cash flow and net sale or refinancing proceeds of the
properties subject to various priority payments.
Descriptions of the PEPs held at September 30, 1995, are as follows:
<TABLE>
<CAPTION>
Carrying
Name Location Partnership Name Amount
- -------------------------- ------------------ -------------------------------------- -------------
<S> <C> <C> <C>
The Parklane Salt Lake City, UT Congregate Care Company $ -
Harmony Bay Apartments Roswell, GA Harmony Bay Associates, Ltd. 887,388
Timber Cove Apartments Decatur, IL Timber Cove Associates 50,019
Grand Villa Grand Junction, CO Stazier Associates Grand Junction Ltd. 203,698
Cambridge Court Kearney, NE Stazier Associates Kearney Ltd. 122,515
Hickory Villa Omaha, NE Stazier Associates Omaha Ltd. -
-------------
$ 1,263,620
Less valuation allowance (954,268)
-------------
Balance at September 30, 1995 $ 309,352
=============
Reconciliation of the carrying amount of the PEPs is as follows:
Balance at December 31, 1994 $ 449,510
Equity in earnings of property partnerships 86,711
Distributions received from PREPs (226,869)
-------------
Balance at September 30, 1995 $ 309,352
=============
The following summarizes the activity in the valuation allowance:
Balance at December 31, 1994 $ 3,754,283
Write-offs (1) (2,800,015)
-------------
Balance at September 30, 1995 $ 954,268
=============
(1)The Fund no longer holds a PEP investment in Casa Sandoval or the Villages at Moonraker. During 1995, Casa Sandoval was
sold at a foreclosure auction and the Fund withdrew as a limited partner of the operating partnership which owns the
Villages at Moonraker. Therefore, the valuation allowance previously established for the full amount of these PEP
investments was written off.
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
6. Real Estate Acquired in Settlement of PEPs
The rental income and real estate operating, interest and depreciation
expenses of the properties owned by the Fund have been consolidated with the
Fund's operations and are reflected in the combined financial statements.
Real estate acquired in settlement of PEPs is comprised of the following
multifamily housing properties at September 30, 1995:
<TABLE>
<CAPTION>
Number Carrying
Name Location of Units Amount
- -------------------------- ------------------ -------- -------------
<S> <C> <C> <C>
Meadow Brook Apartments Amelia, OH 168 $ 3,470,774
Morrowood Townhouses Morrow, GA 264 5,997,096
-------------
$ 9,467,870
Less accumulated depreciation (2,822,518)
-------------
Balance at September 30, 1995 $ 6,645,352
=============
Reconciliation of the carrying amount of the PREPs is as follows:
Balance at December 31, 1994 $ 6,970,972
Additional investment in Morrowood Townhouses 30,630
Depreciation (356,250)
-------------
Balance at September 30, 1995 $ 6,645,352
=============
</TABLE>
7. Investment in Participating Loans
The Participating Loans are collateralized by first mortgages on properties
jointly financed with America First Tax Exempt Mortgage Fund 2 Limited
Partnership, whose general partner is an affiliate of AFCA 3. The
Participating Loan agreements call for payment of base interest and additional
interest out of a portion of the net cash flow or net sale or refinancing
proceeds of the properties.
Descriptions of the Participating Loans held as of September 30, 1995, are as
follows:
<TABLE>
<CAPTION>
Base
Number Interest Maturity Carrying
Name Location of Units Rate (1) Date Amount
- ---------------------------------- ------------------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Avalon Ridge Renton, WA 356 10% (2) 09/01/99 $ 1,245,000
Jackson Park Place Fresno, CA 296 10% 09/01/99 2,100,000
-------------
$ 3,345,000
Valuation allowance to net realizable value (385,000)
-------------
Balance at September 30, 1995 $ 2,960,000
=============
</TABLE>
(1)In addition to the base interest rate, the notes bear additional contingent
interest which, when combined with the base interest, is limited to a
cumulative, non-compounded amount not greater than 13% per annum. The Fund
did not receive any additional contingent interest in 1995.
(2)Interest is recognized as income on the cash basis which is at a rate lower
than the base interest rate. The amount of foregone interest for 1995 was
$59,984 ($23,501 for the quarter ended September 30, 1995).
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
8. Fund Reserve Account
The Fund maintains a reserve account which consisted of the following at
September 30, 1995:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 1,006,825
U.S. government securities 4,989,075
GNMA Certificates 25,201,600
FNMA Certificates 3,346,201
-------------
Balance at September 30, 1995 $ 34,543,701
=============
</TABLE>
The reserve account was established to maintain working capital for the Fund
and is available to supplement distributions to investors and for any
contingencies related to the ownership of the investments and the operation of
the Fund. The U.S. government securities mature in 1996, the GNMA
Certificates mature between 2008 and 2023 and the FNMA Certificates mature in
2000.
On June 30, 1995, the Partnership transferred all securities held in the
reserve account from the held-to-maturity classification to the
available-for-sale classification. At September 30, 1995 the total amortized
cost, gross unrealized holding gains, gross unrealized holding losses and the
aggregate fair value for available-for-sale securities were $33,133,002,
$642,800, $238,926 and $33,536,876 respectively.
On September 12, 1990, June 7, 1995 and July 25, 1995, management announced
its intent to utilize a portion of the reserve account to acquire a maximum of
200,000 Exchangeable Units (Units) in the over-the-counter market. As of
September 30, 1995, 156,250 Units (106,050 during 1995 and 47,812 for the
quarter ended September 30, 1995) had been acquired at a total cost of
$1,495,297 ($928,656 during 1995 and $415,871 for the quarter ended September
30, 1995).
9. Transactions with Related Parties
Substantially all of the Fund's general and administrative expenses are paid
by AFCA 3 or an affiliate and reimbursed by the Fund. The amount of such
expenses reimbursed to AFCA 3 during 1995 was $448,261 ($135,677 for the
quarter ended September 30, 1995). The reimbursed expenses are presented on a
cash basis and do not reflect accruals made at quarter end.
AFCA 3 is entitled to an administrative fee of .35% per annum of the
outstanding amount of investments of the Fund to be paid by the Fund to the
extent such amount is not paid by property owners. During 1995, AFCA 3 earned
administrative fees of $186,632 ($62,232 for the quarter ended September 30,
1995). Of this amount, $156,439 ($47,147 for the quarter ended September 30,
1995) was paid by the Fund and the remainder was paid by property owners.
An affiliate of AFCA 3 has been retained to provide property management
services for Morrowood Townhouses, Avalon Ridge and, beginning in June, 1995,
Harmony Bay Apartments. 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. Total fees amounted
to $106,197 in 1995 ($68,367 for the quarter ended September 30, 1995).
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
10.Mortgage Notes Payable
The Fund assumed the following mortgage notes payable as a result of the
acquisition of real estate in settlement of PEPs.
<TABLE>
<CAPTION>
Interest Maturity Monthly
Name Rate Date Payment Balance
- ------------------------ -------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Meadow Brook Apartments 9.50% 11/25/2022 $ 31,069 $ 3,569,236
Morrowood Townhouses 9.50% 11/19/2022 51,618 6,045,524
-------------
Balance at September 30, 1995 $ 9,614,760
=============
</TABLE>
These notes are payable to a co-insurer and are collateralized solely by the
properties above. The notes are in default; however, the Fund effectively has
no risk with respect to the mortgage notes payable since the Fund's net equity
in the properties has previously been reduced to zero. Therefore, for
accounting purposes, the Fund records interest expense only when it is paid.
<PAGE>
Item 2.
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Fund originally acquired: (i) ten mortgage-backed securities guaranteed as
to principal and interest by the Government National Mortgage Association
(GNMA) collateralized by first mortgage loans on multifamily housing
properties located in seven states, GNMA Certificates backed by pools of
single-family mortgages (the GNMA Certificates); (ii) a first mortgage loan
insured by the Federal Housing Administration (the FHA Loan) on a retirement
living center located in California; (iii) limited partnership interests
(PEPs) in eleven limited partnerships which own the multifamily properties
financed by the GNMA Certificates and the FHA Loan; and (iv) two participating
first mortgage loans (the Participating Loans) on multifamily housing
properties financed in part by an affiliated mortgage fund. The Fund
subsequently acquired three real estate properties in settlement of limited
partnership interests. The Fund continues to own two of these properties and
the third property was acquired by GNMA through foreclosure and is no longer
owned by the Fund. The FHA Loan and nine mortgage-backed securities
collateralized by properties in which the Fund made an equity investment have
been repaid by GNMA or the Department of Housing and Urban Development (HUD)
which left the Fund with only the PEPs on these properties. During the
quarter ended March 31, 1995, Casa Sandoval was sold at a foreclosure auction
in conjunction with bankruptcy proceedings. During the quarter ended
June 30, 1995, the Fund withdrew as a limited partner of the operating
partnership which owns the Villages at Moonraker. Accordingly, the Fund no
longer holds a PEP in either of these properties. Collectively, the remaining
GNMA Certificates, PEPs, real estate properties, and Participating Loans are
referred to as the Permanent Investments.
The following table shows the occupancy levels of the properties financed by
the Fund in which the Fund continues to hold an interest at September 30, 1995:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ----------------------------- ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
The Parklane Salt Lake City, UT 94 88 94%
Grand Villa Grand Junction, CO 46 37 80%
Cambridge Court Kearney, NE 41 37 90%
Hickory Villa Omaha, NE 57 51 89%
Harmony Bay Apartments Roswell, GA 300 280 93%
Timber Cove Apartments Decatur, IA 272 251 92%
Meadow Brook Apartments (1) Amelia, OH 168 156 93%
Morrowood Townhouses (1) Morrow, GA 264 251 95%
Avalon Ridge Renton, WA 356 295 83%
Jackson Park Place Fresno, CA 296 292 99%
--------- ---------- -----------
1,894 1,738 92%
========= ========== ===========
(1)Property acquired in settlement of PEP.
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DISTRIBUTIONS
Cash distributions paid or accrued were as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994
------------------------------ ------------------------------
Per Per
Per Unit Certificate Per Unit Certificate
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Regular monthly distributions
Income distributed $ .4307 $ 1,076.84 $ .5250 $ 1,312.46
Return of capital .3640 909.91 .2697 674.29
------------ ------------ ------------ ------------
$ .7947 $ 1,986.75 $ .7947 $ 1,986.75
============ ============ ============ ============
Distributions
Paid out of current and prior undistributed cash flow $ .7947 $ 1,986.75 $ .7947 $ 1,986.75
============ ============ ============ ============
</TABLE>
Regular monthly distributions to investors consist primarily of interest and
principal received on mortgage-backed securities. Additional cash for
distributions is received from PEPs and other investments. The Fund may draw
on reserves to pay operating expenses or to supplement cash distributions to
investors. The Fund is permitted to replenish its reserves through the sale
or refinancing of assets. During the nine months ended September 30, 1995, a
net amount of $166,351 ($297,661 for the quarter ended September 30, 1995) of
undistributed mortgage principal payments was placed in reserves. In addition,
the Partnership withdrew $928,656 ($415,871 for the quarter ended September
30, 1995) from reserves to purchase 106,050 Exchangeable Units (Units) (47,812
Units for the quarter ended September 30, 1995) during the nine months ended
September 30, 1995. The total amount held in reserves at September 30, 1995,
was $34,543,701 of which $33,536,876 was invested in GNMA and FNMA
Certificates and U.S. government securities.
Asset Quality
The Fund continues to receive the full amount of monthly principal and
interest payments on its GNMA and FNMA Certificates. The GNMA and FNMA
Certificates are fully guaranteed as to principal and interest by GNMA and
FNMA, respectively. The obligations of GNMA are backed by the full faith and
credit of the United States government.
PEPs and Participating Loans, however, are not insured or guaranteed. The
value of these investments is a function of the value of the real estate
underlying the PEPs or collateralizing the Participating Loans. On a regular
basis, management reviews the real estate underlying the PEPs or
collateralizing the Participating Loans in order to assess the net realizable
value of each property. It is the policy of the Fund to provide a valuation
reserve, if necessary, for potential losses on the Fund's investments.
Internal property valuations and reviews performed during the first nine
months of 1995, indicated that the Fund's investment in PEPs and Participating
Loans recorded on the balance sheet at September 30, 1995, required no
adjustments to current carrying amounts.
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the quarter ended September 30, 1995, the property partnership which
owns Timber Cove Apartments, of which the Fund is a limited partner, received
notice from HUD that the mortgage loan on the property is in foreclosure and
has been accelerated. The property partnership is in the preliminary stages
of working with HUD to resolve this condition in order to preserve the Fund's
equity position.
The overall status of the Fund's other Permanent Investments has remained
relatively constant since June 30, 1995.
Results of Operations
The table below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage and mortgage-backed securities income $ 847,493 $ 911,274 $ (63,781)
Equity in earnings of property partnerships 15,175 46,732 (31,557)
Rental income 569,747 546,633 23,114
Interest income on participating loans 60,124 62,741 (2,617)
Interest income on temporary cash investments
and U.S. government securities 98,095 73,125 24,970
--------------- --------------- ---------------
1,590,634 1,640,505 (49,871)
--------------- --------------- ---------------
General and administrative expenses 216,344 148,220 68,124
Real estate operating expenses 152,493 144,079 8,414
Depreciation 118,750 118,750 -
Interest expense 298,504 283,804 14,700
--------------- --------------- ---------------
786,091 694,853 91,238
--------------- --------------- ---------------
Net income $ 804,543 $ 945,652 $ (141,109)
=============== =============== ===============
<CAPTION>
For the Nine For the Nine Increase
Months Ended Months Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage and mortgage-backed securities income $ 2,578,554 $ 2,604,853 $ (26,299)
Equity in earnings of property partnerships 86,711 150,904 (64,193)
Rental income 1,702,636 1,597,136 105,500
Interest income on participating loans 190,891 197,910 (7,019)
Interest income on temporary cash investments
and U.S. government securities 303,340 280,643 22,697
--------------- --------------- ---------------
4,862,132 4,831,446 30,686
--------------- --------------- ---------------
General and administrative expenses 609,547 478,136 131,411
Real estate operating expenses 659,412 665,365 (5,953)
Depreciation 356,250 356,250 -
Interest expense 686,974 575,521 111,453
--------------- --------------- ---------------
2,312,183 2,075,272 236,911
--------------- --------------- ---------------
Net income $ 2,549,949 $ 2,756,174 $ (206,225)
=============== =============== ===============
</TABLE>
<PAGE>
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND
AND
AMERICA FIRST PARTICIPATING/PREFERRED EQUITY MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The decrease in mortgage and mortgage-backed securities income for the quarter
and nine months ended September 30, 1995, compared to the same periods in
1994, is a result of the continued amortization of the principal balances of
the mortgage-backed securities resulting in a decrease in such income of
approximately $268,000 during the nine months ended September 30, 1995
(approximately $64,000 during the quarter ended September 30, 1995). The
decrease for the nine months ended September 30, 1995 was partially offset by
the acquisition of additional GNMA Certificates by the Fund during June 1994,
which added approximately $242,000 of such income during the nine months ended
September 30, 1995.
Equity in earnings of property partnerships is a function of the cash flow
received by the Fund from its interest in the operating partnerships which own
certain of the properties as well as the Fund's allocable share of earnings
generated by these properties. Because of an overall decrease in the cash
flow received by the Fund from these properties, equity in earnings of
property partnerships decreased during the quarter and nine months ended
September 30, 1995, compared to the same periods in 1994. The decrease in
cash flow was primarily due to a decrease in the occupancy of Grand Villa.
Rental income, net of real estate operating expenses and depreciation, from
the properties acquired by the Fund in settlement of PEPs increased by
approximately $15,000 and $111,000 for the quarter and nine months ended
September 30, 1995, respectively, from the same periods during 1994. The
increases were due to increases in rental income from overall higher average
occupancy at these properties. The increases in rental income were partially
offset by an increase in real estate operating expenses for the quarter ended
September 30, 1995. The increases in net rental income were entirely offset
by increases in interest paid by the Fund on the mortgage loans it has assumed
on these properties. Since interest is paid only to the extent of available
cash flow from these properties, the Fund records additional interest expense
as such cash flow increases.
Interest income on participating loans decreased for the quarter and nine
months ended September 30, 1995. The decreases are due to a decrease in cash
flow generated by Avalon Ridge primarily due to increases in repairs and
maintenance expenses and property improvements. The increases in interest
income on temporary cash investments and U.S. government securities during
these same periods was principally a result of an increase in the rate of
interest earned due to the investment in the U.S. government securities.
General and administrative expenses increased by approximately 46% and 27% for
the quarter and nine months ended September 30, 1995, respectively, over the
levels of the same periods in the prior year. These increases were
principally attributable to an increase in salaries and related expenses and
insurance expense which were partially offset by a decrease in printing and
investor servicing expenses. The increase was also partially the result of
the payment of an additional $35,998 of administrative fees by the Fund to
AFCA 3 during the nine months ended September 30, 1995 ($11,673 for the
quarter ended September 30, 1995), when the PEPs did not generate sufficient
cash flow to pay the full amount of the administrative fee.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated November 20, 1986
(incorporated herein by reference to Form 10-K dated
December 31, 1986 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First Participating/
Preferred Equity Mortgage Fund Limited Partnership
(Commission File No. 0-15854)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form S-11 Registration
Statement filed February 24, 1986 with the Securities and
Exchange Commission by America First Participating/
Preferred Equity Mortgage Fund Limited Partnership
(Commission File No. 33-3566)).
4(c) Pooling and Servicing Agreement dated November 20, 1986
(including as an exhibit thereto the Form of Exchangeable
Passthrough Certificate) (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 Participating/Preferred Equity Mortgage
Fund (Commission File No. 0-15665)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 13, 1995 AMERICA FIRST PARTICIPATING/
PREFERRED EQUITY MORTGAGE FUND
LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Three, General
Partner
By America First Companies L.L.C.,
General Partner
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer
Dated: November 13, 1995 AMERICA FIRST PARTICIPATING/
PREFERRED EQUITY MORTGAGE FUND
By America First Participating/
Preferred Equity Mortgage Fund
Limited Partnership
By America First Capital
Associates Limited
Partnership Three, General
Partner
By America First Companies L.L.C.,
General Partner
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,868,951
<SECURITIES> 49,051,802
<RECEIVABLES> 444,405
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,036,396
<PP&E> 9,467,870
<DEPRECIATION> (2,822,518)
<TOTAL-ASSETS> 65,119,779
<CURRENT-LIABILITIES> 1,544,405
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 53,960,614
<TOTAL-LIABILITY-AND-EQUITY> 65,119,779
<SALES> 0
<TOTAL-REVENUES> 4,862,132
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,625,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 686,974
<INCOME-PRETAX> 2,549,949
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,549,949
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,549,949
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
