FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-15329
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
(Exact name of registrant as specified
in its Agreement of Limited Partnership)
Delaware 47-0699273
(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 America First Tax Exempt Mortgage Fund 2 Limited
Partnership (the "BUCs")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 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]
The aggregate market value of the BUCs on March 18, 1996, based upon the
final sales price per BUC reported in The Wall Street Journal on March 19,
1996, was $47,210,607.
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 2
Item 4. Submission of Matters to a Vote of Security Holders 2
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 2
Item 6. Selected Financial Data 3
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
SIGNATURES 26
<PAGE> ii
PART I
Item 1. Business. America First Tax Exempt Mortgage Fund 2 Limited
Partnership (the "Registrant" or the "Partnership") was formed as a limited
partnership on September 30, 1986, under the Delaware Revised Uniform Limited
Partnership Act to acquire a portfolio of federally tax-exempt participating
first mortgage loans to provide construction and/or permanent financing of
multifamily residential apartments and commercial properties. The
Registrant's business objectives are to provide its investors: (i) safety and
preservation of capital; (ii) regular distributions of tax-exempt interest;
and, (iii) potential for an enhanced tax-exempt yield as a result of a
participation interest in the net cash flow and net capital appreciation of
the real estate financed by the Registrant.
The Registrant registered a total of 5,350,000 Beneficial Unit
Certificates (BUCs) representing assignments of limited partnership interests
with the Securities and Exchange Commission and sold a total of 5,245,623 BUCs
at $20 per BUC for a total net capital contribution of $97,778,413 after the
payment of certain organization and offering costs.
The Registrant acquired nine tax-exempt mortgage loans with an aggregate
principal amount equal to $90,765,000. At December 31, 1995, the Registrant
continued to hold three of these mortgage loans with a carrying value, net of
allowance for loan losses, equal to $31,566,526 and five real estate
properties acquired in foreclosure or in lieu thereof with a depreciated cost,
net of a valuation allowance, of $25,890,570. The remaining mortgage loan was
prepaid by the borrower in 1988.
The tax-exempt mortgage loans that the Registrant acquired were issued by
various state and local housing authorities to provide for the construction
and/or permanent financing of eight multifamily housing properties and one
commercial property located in eight states. The Registrant subsequently
acquired five of the properties through foreclosure or in lieu of foreclosure
or through the acquisition of an indirect ownership interest. Under the terms
of the remaining mortgage loans, the principal amounts do not amortize over
their terms. The mortgage loans 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 it owns or which secures its remaining mortgage loans. For
this reason, the Registrant's investments are dependent on the economic
performance of 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 three tax-exempt mortgage loans held by the
Registrant at December 31, 1995, (and the properties collateralizing such
loans) appears in Note 5 of the Notes to Financial Statements filed in
response to Item 8 hereof. A description of the real estate acquired by the
Registrant appears in Note 6 of the Notes to Financial Statements. For
further information regarding these properties, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operation.
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of real estate and the operation of real
estate acquired in foreclosure. 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..
<PAGE> 1
Item 2. Properties. The Registrant had invested in eight mortgage loans
collateralized by first mortgages on multifamily housing properties and one
mortgage loan collateralized by a first mortgage on a commercial property.
Foreclosure proceedings and other actions were instituted with respect to five
of the properties which has resulted in the Registrant owning or indirectly
owning five properties at December 31, 1995. One mortgage loan was prepaid by
the borrower in 1988. Descriptions of the properties collateralizing mortgage
loans held by the Registrant at December 31, 1995, appear in Note 5 to the
Notes to Financial Statements filed in response to Item 8 hereof, and a
description of real estate acquired in settlement of loans appears in Note 6
to the Notes to Financial Statements filed in response to Item 8 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. No matter
was submitted during the fourth quarter of the fiscal year ended December 31,
1995, to a vote of the Registrant's security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) Market Information. The BUCs trade on The NASDAQ Stock Market under
the trading symbol "ATAXZ." The following table sets forth the high and low
final sale prices for the BUCs for each quarterly period from January 1, 1994,
through December 31, 1995.
<TABLE>
<CAPTION>
1994 High Low
----------- --------- ---------
<S> <C> <C>
1st Quarter $ 9 $ 8
2nd Quarter $ 9-1/4 $ 8-1/2
3rd Quarter $ 9-1/4 $ 8-1/2
4th Quarter $ 9-1/4 $ 7-1/8
1995
-----------
1st Quarter $ 8-1/2 $ 7-3/4
2nd Quarter $ 8-59/64 $ 8-1/8
3rd Quarter $ 9-1/4 $ 8-1/8
4th Quarter $ 9-3/8 $ 8-1/2
</TABLE>
(b) BUC Holders. The approximate number of BUC holders on December 31,
1995, was 3,515.
(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, 1995, and December 31, 1994, equaled
$3,934,217. The cash distributions paid per BUC during the fiscal years ended
December 31, 1995, and December 31, 1994, were as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Income $ .5217 $ .5244
Return of Capital .2283 .2256
----------------- -----------------
Total $ .7500 $ .7500
================= =================
</TABLE>
See Item 7, Management Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions at the
same levels in 1996 and thereafter.
<PAGE> 2
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 thereto 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, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage investment income $ 2,234,610 $ 2,452,200 $ 2,327,505 $ 2,190,197 $ 3,996,198
Rental income 5,116,073 4,949,664 4,566,703 4,363,746 2,939,708
Interest income on temporary cash investments 55,720 37,303 43,507 64,054 104,051
General and administrative expenses (792,300) (689,987) (719,720) (757,949) (870,591)
Real estate operating expenses (2,359,827) (2,397,067) (2,268,252) (2,210,411) (1,564,408)
Depreciation (1,197,490) (1,183,588) (1,172,244) (1,142,482) (835,668)
Provision for loan losses - - - (1,000,000) -
Provision for losses on real estate acquired - - - (1,000,000) -
------------- ------------- ------------- ------------- -------------
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499 $ 507,155 $ 3,769,290
============= ============= ============= ============= =============
Net income per Beneficial Unit Certificate (BUC) $ .57 $ .60 $ .52 $ .09 $ .71
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .7500 $ .7500 $ .7500 $ .7500 $ 1.0594
============= ============= ============= ============= =============
Investment in tax-exempt mortgage loans, net of
allowance for loan losses $ 31,566,526 $ 31,566,526 $ 31,566,526 $ 31,566,526 $ 32,566,526
============= ============= ============= ============= =============
Real estate acquired in settlement of loans,
net of accumulated depreciation and
valuation allowance $ 25,890,570 $ 26,770,652 $ 27,925,464 $ 29,050,935 $ 30,999,259
============= ============= ============= ============= =============
Total assets $ 59,630,449 $ 60,520,431 $ 61,328,763 $ 62,453,093 $ 65,953,167
============= ============= ============= ============= =============
</TABLE>
<PAGE> 3
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership originally acquired nine tax-exempt mortgage loans, the
proceeds of which were used to provide construction and/or permanent financing
for eight multifamily housing properties and one commercial property. During
1988, one tax-exempt mortgage loan was prepaid in full. At December 31,
1995, the Partnership continued to hold three of these tax-exempt mortgage
loans with a carrying value, net of allowance for loan losses, of $31,566,526
and five real estate properties acquired through foreclosure or deed in lieu
of foreclosure with a depreciated cost, net of a valuation allowance, of
$25,890,570.
The following table shows the various occupancy levels of the properties
financed or owned by the Partnership at December 31, 1995:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 272 92%
Jefferson Place Olathe, KS 352 338 96%
Avalon Ridge Renton, WA 356 280 79%
Covey at Fox Valley(1) Aurora, IL 216 203 94%
The Park at Fifty Eight(1) Chattanooga, TN 96 95 99%
Shelby Heights(1) Bristol, TN 100 91 91%
Coral Point(1) Mesa, AZ 336 325 97%
---------- ---------- -----------
1,752 1,604 92%
========== ========== ===========
The Exchange at Palm Bay(1) Palm Bay, FL 72,002(2) 40,607(2) 56%
========== ========== ===========
</TABLE>
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) Represents square feet.
The principal amounts of the tax-exempt mortgage loans do not amortize over
their terms. The tax-exempt mortgage loans provide for the payment of base
interest at a fixed rate. In addition, the Partnership may earn contingent
interest based on a participation in the net cash flow and net sale or
refinancing proceeds from the real estate collateralizing the tax-exempt
mortgage loans. The base interest payments received on the tax-exempt
mortgage loans and net rental income earned on properties owned represent the
principal sources of the Partnership's income and distributable cash. The
Partnership has not received any contingent interest on its mortgage loans
during 1995. The Partnership also earns income on temporary cash investments.
The Partnership may draw on reserves to pay operating expenses or to
supplement cash distributions to Beneficial Unit Certificate (BUC) Holders.
During the year ended December 31, 1995, $280,319 of undistributed income was
placed in reserves. The total amount held in reserves at December 31, 1995,
was $1,118,898. Future distributions to BUC Holders will depend upon the
amount of base and contingent interest and net rental income the Partnership
receives, the size of reserves established by the Partnership and the extent
to which withdrawals are made from reserves.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. The Partnership has no other
internal or external sources of liquidity. Under the terms of the Partnership
agreement, the Partnership is not authorized to enter into short-term or
long-term debt financing arrangements or issue additional BUCs to meet
short-term and long-term liquidity requirements.
<PAGE> 4
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .5217 $ .5244 $ .5136
Return of capital .2283 .2256 .2364
--------------- --------------- ---------------
$ .7500 $ .7500 $ .7500
=============== =============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .7500 $ .7500 $ .7371
Paid out of reserves - - .0129
--------------- --------------- ---------------
$ .7500 $ .7500 $ .7500
=============== =============== ===============
</TABLE>
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage loans or real estate
acquired by the Partnership in order to establish, when necessary, valuation
reserves on mortgage loans and real estate. A reserve for the mortgage loans
is established for the difference between the recorded investment in the
mortgage loan and the fair value of the underlying collateral. The valuation
allowance on real estate acquired is established for declines in the estimated
fair value of each property subsequent to acquisition. The fair value of the
underlying collateral for the loans and the real estate acquired 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 allowances are periodically
reviewed and adjustments are made to the allowances when there are significant
changes in the estimated net realizable value of the underlying collateral for
the loans or the real estate acquired.
Based on the foregoing methodology, valuation and reviews performed during
1995 indicated that the mortgage loans and real estate recorded on the balance
sheet at December 31, 1995, required no adjustments to the carrying amounts.
At December 31, 1995, two of the Partnership's three tax-exempt mortgage loans
were classified as nonperforming. The loans will continue to be classified as
nonperforming until such time that the properties collateralizing the mortgage
loans generate sufficient net cash flow to bring the mortgage loans fully
current as to interest payments. The Partnership has a limited amount of
influence in controlling the operations of the properties.
Jackson Park Place
Jackson Park Place Apartments, located in Fresno, California, had an average
occupancy rate of 96% during 1995 compared to 95% during 1994. Interest of
$744,600 earned on the mortgage loan in 1995 and 1994 represents the full
amount of base interest due for the respective year. No contingent interest
was earned in 1995 or 1994. The net cash flow generated by this property,
excluding interest, was approximately $14,000 higher in 1995 compared to 1994.
<PAGE> 5
Jefferson Place
Jefferson Place Apartments, located in Olathe, Kansas, had an average
occupancy rate of 97% during 1995 and 1994. Interest is recognized as income
on this loan on a modified cash basis. Interest earned in 1995 was $873,694
compared to $883,159 in 1994 and was approximately $214,000 less than the
amount needed to pay the base interest in 1995. The decrease in interest
earned from 1995 compared to 1994 was due to a slight decrease in the net cash
flow generated by the property, excluding interest.
Avalon Ridge
Avalon Ridge Apartments, located in Renton, Washington, had an average
occupancy rate of 84% during 1995 and 1994. Interest is recognized as income
on this loan on a cash basis. Interest earned in 1995 was $616,316 compared
to $824,441 in 1994 and was approximately $978,000 less than the amount needed
to pay the base interest in 1995. An affiliate of the Partnership's general
partner began managing this property in September of 1994. Since that time,
the property manager has implemented a plan to improve the tenant profile
through more stringent resident qualifications. In addition, management has
been working to evict some of the current problem tenants which has resulted
in a higher than normal turnover of units. The increase in tenant turnover
caused an increase of approximately $175,000 in repairs and maintenance
expense and property improvements. The majority of the increase was due to
expenses incurred to prepare apartment units for new rentals. In order to
attract new tenants, the property manager has had to decrease rental rates
which resulted in a decrease in rental income of $137,000 from 1994 to 1995.
This decrease in rental income and the $175,000 increase in repairs and
maintenance expenses were partially offset by a decrease of $53,000 in other
operating expenses, primarily property taxes. Thus, net cash flow generated
by the property, excluding interest, decreased approximately $259,000 from
1994 to 1995. Management believes that its efforts will improve future
operating results of the property.
Covey at Fox Valley
Covey at Fox Valley Apartments, located in Aurora, Illinois, had an average
occupancy rate of 94% during 1995 compared to 95% during 1994. This property
generated net cash flow of $1,142,000 in 1995 compared to $909,000 in 1994.
This increase is attributable primarily to property tax refunds of
approximately $262,000 that were received in 1995. In addition, the property
experienced an increase in revenue resulting from increased rental rates which
was partially offset by an overall increase in real estate operating expenses.
The Park at Fifty Eight
The Park at Fifty Eight Apartments, located in Chattanooga, Tennessee, had an
average occupancy rate of 97% during 1995 compared to 96% during 1994. This
property generated net cash flow of $215,000 in 1995 compared to $239,000 in
1994. This decrease is attributable primarily to an increase in real estate
operating expenses, primarily personnel expenses, repairs and maintenance
expenses and property improvements that more than offset increased rental
revenues from higher average occupancy.
Shelby Heights
Shelby Heights Apartments, located in Bristol, Tennessee, had an average
occupancy rate of 95% during 1995 compared to 97% during 1994. This property
generated net cash flow of approximately $323,000 in 1995 and 1994.
Coral Point
Coral Point, located in Mesa, Arizona, had an average occupancy rate of 96%
during 1995 compared to 97% during 1994. This property generated net cash
flow of $971,000 in 1995 compared with $1,026,000 in 1994. This decrease is
attributable primarily to an increase in revenues resulting from increased
rental rates being more than offset by an increase in real estate operating
expenses due to painting the exterior of the property.
<PAGE> 6
The Exchange at Palm Bay
The Exchange at Palm Bay, located in Palm Bay, Florida, is an office/warehouse
facility. This property continues to experience low occupancy due to the
large amount of similar commercial real estate in the surrounding area.
However, the property increased its leased space to approximately 56% at
December 31, 1995, due to leasing more space in December 1995. This compares
with leased space of approximately 40% at December 31, 1994. Despite the low
occupancy, the property was able to generate operating cash flow of
approximately $105,000 in 1995 compared to $64,000 in 1994. The increase in
cash flow is due to an increase in rental income due to increased occupancy
and a decrease in repairs and maintenance expenses and property improvements.
Results of Operations
The tables below compare the results of operations for each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage investment income $ 2,234,610 $ 2,452,200 $ 2,327,505
Rental income 5,116,073 4,949,664 4,566,703
Interest income on temporary cash investments 55,720 37,303 43,507
--------------- --------------- ---------------
7,406,403 7,439,167 6,937,715
--------------- --------------- ---------------
General and administrative expenses 792,300 689,987 719,720
Real estate operating expenses 2,359,827 2,397,067 2,268,252
Depreciation 1,197,490 1,183,588 1,172,244
--------------- --------------- ---------------
4,349,617 4,270,642 4,160,216
--------------- --------------- ---------------
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1994 From 1993
--------------- ---------------
<S> <C> <C>
Mortgage investment income $ (217,590) $ 124,695
Rental income 166,409 382,961
Interest income on temporary cash investments 18,417 (6,204)
--------------- ---------------
(32,764) 501,452
--------------- ---------------
General and administrative expenses 102,313 (29,733)
Real estate operating expenses (37,240) 128,815
Depreciation 13,902 11,344
--------------- ---------------
78,975 110,426
--------------- ---------------
Net income $ (111,739) $ 391,026
=============== ===============
</TABLE>
Mortgage investment income decreased $217,590 from 1994 to 1995 as a result of
decreases in the cash flow received from Avalon Ridge of $208,125 and
Jefferson Place of $9,465. The decrease in the cash flow received from Avalon
Ridge was primarily due to increases in repairs and maintenance expenses and
property improvements and to a decrease in rental income. Mortgage investment
income increased $124,695 from 1993 to 1994. This increase was a result of an
increase in the cash flow received from Jefferson Place of $150,423 offset by
a decrease in cash flow received from Avalon Ridge of $25,728. See the
discussion of each property in the Asset Quality section for additional
information.
<PAGE> 7
Rental income increased $166,409 from 1994 to 1995 and $382,961 from 1993 to
1994 due primarily to higher rental rates on properties acquired by the
Partnership in foreclosure. Real estate operating expenses decreased $37,240
from 1994 to 1995 due primarily to property tax refunds of approximately
$252,000 received by Covey at Fox Valley in 1995. This decrease was partially
offset by increases in property improvements, repair and maintenance expenses
and salaries expense at Coral Point and slight increases in overall expenses
at the other properties. Real estate operating expenses increased $128,815
from 1993 to 1994 due primarily to increases in taxes, insurance and property
improvements at various properties. Depreciation increased $13,902 from 1994
to 1995 and $11,344 from 1993 to 1994 as a result of capital improvements made
in 1992 through 1995. See the discussion of each property in the Asset
Quality section for additional information.
Interest income on temporary cash investments increased $18,417 from 1994 to
1995 due primarily to additions made to Partnership reserves during 1994 and
1995 and to slightly higher interest rates. Interest income on temporary cash
investments decreased $6,204 from 1993 to 1994 due primarily to less cash
being invested on a temporary basis because of withdrawals made from
Partnership reserves during 1993 to supplement distributions to BUC Holders.
General and administrative expenses increased $102,313 from 1994 to 1995.
This increase is primarily due to increases in salaries and related expenses
and insurance expense which were partially offset by decreases in printing and
investor servicing expenses. General and administrative expenses decreased
$29,733 from 1993 to 1994 due to overall expense reductions.
The table below segregates the results of operations for the Partnership's
real estate operations and tax-exempt mortgage lending activities for each
year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Real estate operations:
Rental income $ 5,116,073 $ 4,949,664 $ 4,566,703
Operating expenses (2,359,827) (2,397,067) (2,268,252)
Depreciation (1,197,490) (1,183,588) (1,172,244)
--------------- --------------- ---------------
1,558,756 1,369,009 1,126,207
--------------- --------------- ---------------
Tax-exempt mortgage lending:
Mortgage investment income 2,234,610 2,452,200 2,327,505
--------------- --------------- ---------------
Interest income on temporary cash investments 55,720 37,303 43,507
General and administrative expenses (792,300) (689,987) (719,720)
--------------- --------------- ---------------
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
=============== =============== ===============
</TABLE>
<PAGE> 8
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference. In addition, the Financial
Statements of Jefferson Place, L.P. and Sunpointe Associates Limited
Partnership (Avalon Ridge) are set forth in Item 14 hereof and are
incorporated by reference. The financial statements of Jefferson Place, L.P.
and Sunpointe Associates Limited Partnership are included pursuant to SAB
Topic 1I.
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, 1995 and 1994.
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 Four ("AFCA"), and its general partner, America
First Companies L.L.C. The following individuals are managers and officers of
America First Companies L.L.C., and each serves for a term of one year:
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ----------------------- -------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D. Manager 1994
George Kubat Manager 1994
Martin Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
</TABLE>
Michael B. Yanney, 62, is the Chairman and President of America First
Companies L.L.C. 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 (subsequently
merged into FirsTier Financial, Inc.), 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,
MFS Communications Company, Inc., Lozier Corporation, Mid-America Apartment
Communities, Inc. and PKS Information Services, Inc..
Michael Thesing, 41, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. 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., 69, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
George Kubat, 50, is the President and Chief Executive Officer of
Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall
and construction materials. Prior to assuming that position in November 1992,
Mr. Kubat was a certified public accountant with Coopers & Lybrand in Omaha,
Nebraska, from 1969. He was the tax partner in charge of the Omaha office
from 1981 to 1992.
<PAGE> 9
Martin Massengale, 62, is the President Emeritus of the University of
Nebraska. Prior to becoming President in 1991, he served as Interim President
from August 1989, as Chancellor of the University of Nebraska Lincoln from
June 1981 through December 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.
Alan Baer, age 73, 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.
Gail Walling Yanney, 60, 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 is a former director of
FirsTier Bank, N.A., Omaha. Ms. Yanney is the wife of Michael Yanney.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. None of the managers or executive officers of
America First Companies L.L.C. (the general partner of AFCA) receives
compensation from the Registrant and AFCA receives no reimbursement from the
Registrant for any portion of their salaries. Remuneration paid by the
Registrant to AFCA pursuant to the terms of its limited partnership agreement
during the period ending December 31, 1995, is described in Note 7 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) LB I Group, Inc. is the special limited partner of AFCA, with the
right to become the managing general partner of AFCA, or to designate another
corporation or other entity as the managing general partner, upon the
happening of any of the following events: (1) the commission of any act which,
in the opinion of LB I Group, Inc., constitutes negligence, misfeasance or
breach of fiduciary duty on the part of the managing general partner; (2) the
dissolution, insolvency or bankruptcy of the managing general partner or the
occurrence of such other events which cause the managing general partner to
cease to be a general partner under Delaware law; or, (3) the happening of an
event which results in the change in control of the managing general partner
whether by operation of law or otherwise.
There exists no other arrangement known to the Registrant, the operation
of which may at any subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Fund 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.; (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 1995, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $556,015 for certain costs and expenses incurred in
connection with the operation of the Registrant, including legal and
accounting fees and investor communication costs, such as printing and mailing
charges. See Note 7 to Notes to Financial Statements filed in response to
Item 8 hereof for a description of these costs and expenses.
<PAGE> 10
AFCA is entitled to an administrative fee from the Registrant in the
event that the Registrant becomes the equity owner of a property by reason of
foreclosure. AFCA earned, and the Registrant incurred $226,200 in such
administrative fees during 1995.
AFCA received from property owners administrative fees of $8,066 for the
year ended December 31, 1995. Since these fees are not Partnership expenses,
they have not been reflected in the accompanying financial statements.
The general partner of the property partnership which owns Jefferson
Place is principally owned by an employee of America First Companies L.L.C..
Such employee has a nominal interest in America First Companies L.L.C.. AFCA
and an affiliated mortgage fund also own small interests in the general
partner. The general partner has a nominal interest in the property
partnership's profits, losses and cash flow which is subordinate to the
interest of the Registrant and the mortgage loan. The general partner
received no cash distributions from the property partnership in 1995.
An affiliate of AFCA has been retained to provide property management
services for Covey at Fox Valley, The Park at Fifty Eight, Shelby Heights,
Coral Point, Jefferson Place and Avalon Ridge. The fees for such services
totaled $382,143 during 1995 which represents the lower of (i) the cost
incurred while providing such management services or (ii) the customary fees
for such services determined on a competitive basis.
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:
1A. Financial Statements of the Registrant. The following
financial statements of the Registrant are included in response to Item 8
of this report:
Independent Accountants' Report dated March 22, 1996.
Balance Sheets of the Registrant as of December 31, 1995, and
December 31, 1994.
Statements of Income of the Registrant for the years ended
December 31, 1995, December 31, 1994, and December 31, 1993.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1995, December 31, 1994, and December 31, 1993.
Statements of Cash Flows of the Registrant for the years ended
December 31, 1995, December 31, 1994, and December 31, 1993.
Notes to Financial Statements of the Registrant.
Schedule III--Real Estate and Accumulated Depreciation for the
years ended December 31, 1995 and December 31, 1994.
B. Financial Statements of Jefferson Place L.P. ("Jefferson").
The following financial statements of Jefferson are included in response
to Item 8 of this report:
Independent Accountants' Report dated January 26, 1996.
Balance Sheet of Jefferson as of December 31, 1995.
Statement of Income of Jefferson for the year ended December
31, 1995.
Statement of Partners' Capital of Jefferson for the year ended
December 31, 1995.
Statement of Cash Flows of Jefferson for the year ended
December 31, 1995.
Notes to Financial Statements of Jefferson.
<PAGE> 11
C. Financial Statements of Sunpointe Associates Limited
Partnership ("Sunpointe"). The following financial statements of
Sunpointe are included in response to Item 8 of this report:
Independent Accountants' Report dated January 26, 1996.
Balance Sheet of Sunpointe as of December 31, 1995.
Statement of Income of Sunpointe for the year ended December
31, 1995.
Statement of Partners' Capital of Sunpointe for the year
ended December 31, 1995.
Statement of Cash Flows of Sunpointe for the year ended
December 31, 1995.
Notes to Financial Statements of Sunpointe.
2. Financial Statement Schedules. The information required to be
set forth in the financial statement schedule is included in the 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 Rule 601 of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Eight (incorporated by reference to
Form S-11 Registration Statement filed May 8, 1986, with the
Securities and Exchange Commission by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 33-5521)).
4(a). Agreement of Limited Partnership dated October 15, 1986,
(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 2
Limited Partnership (Commission File No. 0-15329)).
4(b). Form of Certificate of Beneficial Unit Certificate
(incorporated by reference to Form S-11 Registration Statement
filed May 8, 1986, with the Securities and Exchange Commission by
America First Tax Exempt Mortgage Fund 2 Limited Partnership
(Commission File No. 33-5521)).
10(a). $18,755,000 Washington State Housing Finance Commission
Multifamily Housing Mortgage Revenue Note (Sunpointe Apartments
Projects) Series 1987 (incorporated herein by reference to Form
10-K dated December 31, 1987, filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 0-15329)).
10(b). Lender Loan Agreement and Indenture of Trust among
Washington State Housing Finance Commission, the Registrant and
FirsTier Bank, National Association, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(c). Construction Loan Agreement between the Registrant and
Sunpointe Associates Limited Partnership, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
24. Power of Attorney.
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE> 12
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
America First Tax Exempt Mortgage Fund 2 Limited Partnership:
We have audited the accompanying balance sheets of America First Tax Exempt
Mortgage Fund 2 Limited Partnership as of December 31, 1995 and 1994, and the
related statements of income, partners' capital and cash flows for each of the
three years in the period ended December 31, 1995. 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 misstatements. 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 2 Limited Partnership at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Omaha, Nebraska
March 22, 1996 Coopers & Lybrand L.L.P.
To the Partners
America First Tax Exempt Mortgage Fund 2 Limited Partnership
Our report on the financial statements of America First Tax Exempt Mortgage
Fund 2 Limited Partnership is included in this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedules listed in Item 14.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material aspects, the information required to be
included therein.
Omaha, Nebraska
March 22, 1996 Coopers & Lybrand L.L.P.
<PAGE> 13
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 1,912,560 $ 1,969,975
Investment in tax-exempt mortgage loans,
net of allowance for loan losses (Note 5) 31,566,526 31,566,526
Real estate acquired in settlement of loans, net of
accumulated depreciation and valuation allowance (Note 6) 25,890,570 26,770,652
Interest receivable 196,601 189,166
Other assets 64,192 24,112
-------------- --------------
$ 59,630,449 $ 60,520,431
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 683,013 $ 655,824
Distribution payable (Note 3) 331,163 331,163
-------------- --------------
1,014,176 986,987
-------------- --------------
Partners' Capital
General Partner 7,553 4,750
Beneficial Unit Certificate Holders
($11.17 per BUC in 1995 and $11.35 in 1994) 58,608,720 59,528,694
-------------- --------------
58,616,273 59,533,444
-------------- --------------
$ 59,630,449 $ 60,520,431
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 14
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Mortgage investment income (Note 5) $ 2,234,610 $ 2,452,200 $ 2,327,505
Rental income 5,116,073 4,949,664 4,566,703
Interest income on temporary cash investments 55,720 37,303 43,507
-------------- -------------- --------------
7,406,403 7,439,167 6,937,715
-------------- -------------- --------------
Expenses
General and administrative expenses (Note 7) 792,300 689,987 719,720
Real estate operating expenses 2,359,827 2,397,067 2,268,252
Depreciation 1,197,490 1,183,588 1,172,244
-------------- -------------- --------------
4,349,617 4,270,642 4,160,216
-------------- -------------- --------------
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
============== ============== ==============
Net income allocated to:
General Partner $ 42,543 $ 43,521 $ 39,497
BUC Holders 3,014,243 3,125,004 2,738,002
-------------- -------------- --------------
$ 3,056,786 $ 3,168,525 $ 2,777,499
============== ============== ==============
Net income per BUC $ .57 $ .60 $ .52
============== ============== ==============
</TABLE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1992, TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1992 $ 527 $ 61,534,122 $ 61,534,649
Net income 39,497 2,738,002 2,777,499
Cash distributions paid or accrued (Note 3)
Income (39,055) (2,694,205) (2,733,260)
Return of capital - (1,240,012) (1,240,012)
-------------- ---------------- ---------------
Balance at December 31, 1993 969 60,337,907 60,338,876
Net income 43,521 3,125,004 3,168,525
Cash distributions paid or accrued (Note 3)
Income (39,740) (2,750,629) (2,790,369)
Return of capital - (1,183,588) (1,183,588)
-------------- ---------------- ---------------
Balance at December 31, 1994 4,750 59,528,694 59,533,444
Net income 42,543 3,014,243 3,056,786
Cash distributions paid or accrued (Note 3)
Income (39,740) (2,736,727) (2,776,467)
Return of capital - (1,197,490) (1,197,490)
-------------- ---------------- ---------------
Balance at December 31, 1995 $ 7,553 $ 58,608,720 $ 58,616,273
============== ================ ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 15
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,056,786 $ 3,168,525 $ 2,777,499
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,197,490 1,183,588 1,172,244
Decrease (increase) in interest receivable (7,435) 44,775 (15,353)
Decrease (increase) in other assets (40,080) 12,683 (33,545)
Increase (decrease) in accounts payable 27,189 (2,900) 71,443
--------------- --------------- ---------------
Net cash provided by operating activities 4,233,950 4,406,671 3,972,288
Cash flow used in investing activity
Real estate capital improvements (317,408) (28,776) (46,773)
--------------- --------------- ---------------
Cash flow used in financing activity
Distributions paid (3,973,957) (3,973,957) (3,973,272)
--------------- --------------- ---------------
Net increase (decrease) in cash and temporary cash investments (57,415) 403,938 (47,757)
Cash and temporary cash investments at beginning of year 1,969,975 1,566,037 1,613,794
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 1,912,560 $ 1,969,975 $ 1,566,037
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 16
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization
America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Partnership)
was formed on September 30, 1986, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally
tax-exempt participating first mortgage loans collateralized by
income-producing real estate, including multifamily residential apartments and
commercial properties. The Partnership will terminate on December 31, 2016,
unless terminated earlier under the provisions of the Partnership Agreement.
The General Partner of the Partnership is America First Capital Associates
Limited Partnership Four (AFCA 4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
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 Loans
The Partnership records its investment in tax-exempt mortgage loans at
cost. Accrual of mortgage interest income 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) Real Estate Acquired in Settlement of Loans
Property acquired through foreclosure, deed in lieu of foreclosure, or
foreclosure in substance is recorded at the lower of the unpaid loan
balance or estimated net realizable value at the date of acquisition.
D) Allowance for Loan Losses and Valuation Allowance on Real Estate Acquired
The allowance for loan losses is a valuation reserve which has been
established at a level that management feels is adequate to absorb
potential losses on outstanding loans. Reserves are established for loans
which the Partnership considers impaired. Loans are considered impaired
when it is probable that the Partnership will be unable to collect amounts
due according to the contractual terms of the loan agreements. Based on
this analysis, all loans were considered impaired at December 31, 1995. A
reserve is established for the difference between the recorded investment
in the mortgage loan and the fair value of the underlying collateral.
Financial Accounting Standard (FAS) No. 114 "Accounting by Creditors for
Impairment of a Loan" had no effect on the Partnerhsip's financial
statements.
The valuation allowance on real estate acquired is a valuation reserve
which has been established for declines in the estimated fair value of
each property subsequent to acquisition.
The fair value of the collateral for the loans and the real estate
acquired 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 allowances are
periodically reviewed and adjustments are made to the allowances when
there are significant changes in the estimated net realizable value of the
underlying collateral for the loans or the real estate acquired.
<PAGE> 17
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
E) Depreciation
Depreciation of real estate acquired in settlement of loans is based on
the estimated useful life of the property (27-1/2 years or 31-1/2 years on
The Exchange at Palm Bay) using the straight-line method. Depreciation of
real estate improvements is based on the term of the related lease
agreement using the straight-line method.
F) Income Taxes
No provision has been made for income taxes since 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 $11,731,916 and $11,635,996 at December 31, 1995, and
December 31, 1994, respectively.
G) Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
H) Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (5,245,623) for all years presented.
I) New Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". Among other things,
this Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or circumstances indicate that the carrying value of an
asset may not be recoverable. The Partnership plans to adopt this
Statement in 1996 and anticipates that the adoption of this Statement will
not have a material impact on 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 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 4 until the BUC Holders have received distributions of Net Interest
Income equal to a cumulative noncompounded annual return of 10% 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 4.
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
10% on their Adjusted Capital Contributions. Any remaining Net Residual
Proceeds representing contingent interest will be distributed 100% to AFCA 4
until the amount so distributed is equal to 10% of the Net Residual Proceeds
representing contingent interest distributed to all parties. Thereafter, any
remaining Net Residual Proceeds representing contingent interest will be
distributed 1% to BUC Holders and 99% to AFCA 4 until AFCA 4 receives an
amount equal to .25% per annum of the outstanding principal amount of the
mortgage loans for each year beginning January 1, 1989, and thereafter, 90% to
the BUC Holders and 10% to AFCA 4.
<PAGE> 18
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Liquidation Proceeds, as defined in the Limited Partnership Agreement,
remaining after repayment of any debts or obligations of the Partnership
(including loans from AFCA 4) and after the establishment of any reserve AFCA
4 deems necessary, will be distributed to AFCA 4 and BUC Holders to the extent
of positive balances in their capital accounts. Any remaining Liquidation
Proceeds will be distributed in the same manner as the Net Residual Proceeds.
Cash distributions are presently made on a monthly basis but may be made
quarterly if AFCA 4 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 $1,118,898 at
December 31, 1995. 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 loans, real estate acquired and the operation of the Partnership.
5. Investment in Tax-Exempt Mortgage Loans
The mortgage loans are issued by various state and local governments, their
agencies and authorities to finance the construction and/or permanent
financing of income-producing real estate properties. However, the mortgage
loans 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 loans. The
mortgage loans are nonrecourse obligations of the respective owners of the
properties. The sole source of funds to pay principal and interest on the
mortgage loans is the net cash flow or the sale or refinancing proceeds from
the properties. Each mortgage loan, however, is collateralized by a first
mortgage on all real and personal property included in the related property
and an assignment of rents.
The mortgage loans provide for the payment of base interest and for the
payment of additional contingent interest out of a portion of the net cash
flow of the properties, and out of a portion of the sale or refinancing
proceeds from a property, subject to various priority payments. The principal
of the mortgage loans will not be amortized during the terms of the mortgage
loans, but will be required to be repaid in lump sum payments at the
expiration of their terms. The Partnership has the right to require
prepayment of any mortgage loan at any time after the tenth year of such
mortgage loan and each mortgage loan will be prepaid to the Partnership by its
terms on the first day of its thirteenth year. The mortgage loans are due and
payable upon the sale of a property. Accordingly, the Partnership does not
expect to hold any mortgage loan for more than 12 years. The Partnership may
waive compliance with any of the terms of the mortgage loans.
<PAGE> 19
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Descriptions of the tax-exempt mortgages owned by the Partnership at December
31, 1995, are as follows:
<TABLE>
<CAPTION>
Carrying
Base Amount of Income
Number Maturity Interest Mortgages at Earned
Property Name Location of Units Date Rate(1) Dec. 31, 1995 in 1995
----------------------------- --------------- -------- ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Performing Loan:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ 8,760,000 $ 744,600
----------------- ------------
Nonperforming Loans:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% 12,800,000 873,694
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000 616,316
----------------- ------------
31,555,000 1,490,010
----------------- ------------
40,315,000 $ 2,234,610
Less allowance for loan losses (8,748,474) ============
-----------------
Balance at December 31, 1995 (which approximates fair value) $ 31,566,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the notes bear additional
contingent interest as defined in each revenue note which, when combined with
the interest shown, is limited to a cumulative, noncompounded amount not
greater than 13% per annum. The Partnership did not receive any additional
contingent interest in 1995, 1994 or 1993.
(2) Nonperforming loans are loans which are not fully current as to
interest payments. The amount of foregone interest on nonperforming loans was
$1,192,165 for 1995, $974,575 for 1994, and $1,099,270 for 1993.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying amounts of the
mortgage loans is as follows:
Balance at beginning and end of year $ 40,315,000 $ 40,315,000 $ 40,315,000
=============== =============== ===============
The following summarizes the activity in the
allowance for loan losses:
Balance at beginning and end of year $ 8,748,474 $ 8,748,474 $ 8,748,474
=============== =============== ===============
</TABLE>
<PAGE> 20
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Unauditied combined condensed financial information of the properties
collateralizing the Partnership's investment in tax-exempt mortgage loans is
as follows:
<TABLE>
<CAPTION>
Dec. 31, 1995
---------------
<S> <C>
Assets
Real estate $ 26,604,596
Restricted deposits and funded reserves 305,542
Other assets 321,726
---------------
$ 27,231,864
===============
Liabilities and Partners' Capital
Liabilities
Mortgage and notes payable $ 43,750,000
Accrued interest payable 10,094,128
Other liabilities 1,726,448
Partners' Capital (Deficit) (28,338,712)
---------------
$ 27,231,864
===============
Rental income $ 5,722,415
===============
Net loss $ (3,050,840)
===============
</TABLE>
6. Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans at December 31, 1995, is comprised
of the following:
<TABLE>
<CAPTION>
Building Carrying Carrying
Number and Value at Value at
Property Name Location of Units Land Improvements Dec. 31, 1995 Dec. 31, 1994
-------------------------- ----------------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 12,410,000
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 1,150,318 5,006,913 6,157,231 5,839,823
The Park at Fifty Eight Chattanooga, TN 96 135,000 2,553,474 2,688,474 2,688,474
Shelby Heights Bristol, TN 100 175,000 3,275,000 3,450,000 3,450,000
Coral Point Mesa, AZ 336 2,240,000 8,960,000 11,200,000 11,200,000
-------------- -------------
35,905,705 35,588,297
Less accumulated depreciation (6,515,135) (5,317,645)
-------------- -------------
29,390,570 30,270,652
Less valuation allowance (3,500,000) (3,500,000)
-------------- -------------
Balance at end of year $ 25,890,570 $ 26,770,652
============== =============
</TABLE>
(1) Represents square feet.
<PAGE> 21
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying values of the
real estate held is as follows:
Balance at beginning of year $ 30,270,652 $ 31,425,464 $ 32,550,935
Capital improvements 317,408 28,776 46,773
Depreciation (1,197,490) (1,183,588) (1,172,244)
--------------- --------------- ---------------
Balance at end of year 29,390,570 30,270,652 31,425,464
=============== =============== ===============
The following summarizes the activity in the
valuation allowance:
Balance at beginning and end of year $ 3,500,000 $ 3,500,000 $ 3,500,000
================ ================ ================
</TABLE>
7. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 4 or an affiliate and reimbursed by the Partnership. The amounts
of such expenses reimbursed to AFCA 4 or an affiliate are shown below. The
reimbursed expenses are presented on a cash basis and do not reflect accruals
made at the end of each year.
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reimbursable salaries and benefits $ 370,211 $ 270,973 $ 261,325
Professional fees and expenses 40,360 46,180 34,262
Investor services and custodial fees 51,664 48,653 51,315
Report preparation and distribution 16,854 19,891 31,087
Consulting and travel expenses 3,936 11,097 18,591
Registration fees 18,037 17,912 13,667
Telephone 8,729 7,538 10,009
Other expenses 27,088 29,616 31,327
Insurance 19,136 14,014 3,686
--------------- --------------- ---------------
$ 556,015 $ 465,874 $ 455,269
=============== =============== ===============
</TABLE>
AFCA 4 received from property owners administrative fees of $8,066 for the
year ended December 31, 1995. AFCA 4 did not receive any administrative fees
from property owners in 1994 or 1993. Since these fees are not Partnership
expenses, they have not been reflected in the accompanying financial
statements. Pursuant to the Limited Partnership Agreement, AFCA 4 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. The amount
of such fees paid to AFCA 4 was $226,200 in each of the years ended December
31, 1995, 1994 and 1993.
The general partner of the property partnership which owns Jefferson Place is
principally owned by an employee of an affiliate of AFCA 4. Such employee has
a nominal interest in the affiliate. AFCA 4 and an affiliated mortgage fund
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership and the mortgage
loan. The general partner received no cash distributions from the partnership
in 1995, 1994, or 1993.
<PAGE> 22
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight and Shelby Heights, (all since
August 1992), Coral Point (beginning in March 1993) Jefferson Place (beginning
in May 1993) and Avalon Ridge (beginning in September 1994). 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 $382,143 in 1995, $297,836
in 1994 and $222,445 in 1993.
8. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1995 to December 31, 1995 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,960,471 $ 1,779,901 $ 1,797,012 $ 1,869,019
Total expenses (1,088,051) (918,865) (1,171,816) (1,170,885)
--------------- --------------- --------------- ---------------
Net income $ 872,420 $ 861,036 $ 625,196 $ 698,134
=============== =============== =============== ===============
Net income per BUC $ .16 $ .16 $ .12 $ .13
=============== =============== =============== ===============
Market Price per BUC
High sale 8-1/2 8-59/64 9-1/4 9-3/8
Low sale 7-3/4 8-1/8 8-1/8 8-1/2
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1994 to December 31, 1994 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,817,734 $ 1,870,398 $ 1,793,071 $ 1,957,964
Total expenses (1,050,083) (1,060,129) (1,124,968) (1,035,462)
--------------- --------------- --------------- ---------------
Net income $ 767,651 $ 810,269 $ 668,103 $ 922,502
=============== =============== =============== ===============
Net income per BUC $ .15 $ .15 $ .13 $ .17
=============== =============== =============== ===============
Market Price per BUC
High sale 9 9-1/4 9-1/4 9-1/4
Low sale 8 8-1/2 8-1/2 7-1/8
=============== =============== =============== ==============
</TABLE>
The BUCs are quoted on the NASDAQ National Market System under the symbol
ATAXZ. The high and low quarterly prices of the BUCs shown represent the
final sales prices and were compiled from the Monthly Statistical Reports
provided to the Partnership by the National Association of Securities Dealers,
Inc.
<PAGE> 23
Schedule III
TAX EXEMPT MORTGAGE FUND 2
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- ------------------------------------------------------------------------ ------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- ------------------------ --------------- ------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (a) $ 1,320,000 $ 11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (a) 1,150,318 4,349,682 339,823 -
The Park at Fifty Eight Chattanooga, TN 96 (a) 135,000 2,553,474 - -
Shelby Heights Bristol, TN 100 (a) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
----------- ------------ ------------ --------
$ 5,020,318 $ 30,228,156 $ 339,823 $ -
=========== ============ ============ ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1994
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (b) (c) Construction Acquired is Computed
- ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 2,419,632 1989 1989 27.5 years
The Exchange at Palm Bay 1,150,318 4,689,505 5,839,823 1,034,322 1988 1990 31.5 years
The Park at Fifty Eight 135,000 2,553,474 2,688,474 340,464 1987 1991 27.5 years
Shelby Heights 175,000 3,275,000 3,450,000 421,781 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,101,446 1987 1991 27.5 years
----------- ------------ ------------ ------------
$ 5,020,318 $ 30,567,979 $ 35,588,297 $ 5,317,645
=========== ============ ============ ============
</TABLE>
(a) The Partnership has no encumbrances against these properties.
(b) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Balance - beginning of year $ 35,559,521
Acquisitions -
Improvements 28,776
Carrying costs -
---------------
Balance - end of year $ 35,588,297
===============
</TABLE>
(c) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Balance - beginning of year $ 4,134,057
Depreciation expense 1,183,588
---------------
Balance - end of year $ 5,317,645
===============
<PAGE> 24
Schedule III
TAX EXEMPT MORTGAGE FUND 2
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- ------------------------------------------------------------------------ ------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- ------------------------ --------------- ------------ ------------ ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (a) $ 1,320,000 $ 11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (a) 1,150,318 4,349,682 657,231 -
The Park at Fifty Eight Chattanooga, TN 96 (a) 135,000 2,553,474 - -
Shelby Heights Bristol, TN 100 (a) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
----------- ------------ ------------ --------
$ 5,020,318 $ 30,228,156 $ 657,231 $ -
=========== ============ ============ ========
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1995
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (b) (c) Construction Acquired is Computed
- ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $ 11,090,000 $ 12,410,000 $ 2,822,904 1989 1989 27.5 years
The Exchange at Palm Bay 1,150,318 5,006,913 6,157,231 1,290,777 1988 1990 31.5 years
The Park at Fifty Eight 135,000 2,553,474 2,688,474 433,318 1987 1991 27.5 years
Shelby Heights 175,000 3,275,000 3,450,000 540,872 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,427,264 1987 1991 27.5 years
----------- ------------ ------------ ------------
$ 5,020,318 $ 30,885,387 $ 35,905,705 $ 6,515,135
=========== ============ ============ ============
</TABLE>
(a) The Partnership has no encumbrances against these properties.
(b) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1995
---------------
<S> <C>
Balance - beginning of year $ 35,588,297
Acquisitions -
Improvements 317,408
Carrying costs -
---------------
Balance - end of year $ 35,905,705
===============
</TABLE>
(c) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1995
---------------
<S> <C>
Balance - beginning of year $ 5,317,645
Depreciation expense 1,197,490
---------------
Balance - end of year $ 6,515,135
===============
<PAGE> 25
JEFFERSON PLACE, L.P.
(A Missouri Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENT OF INCOME 3
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-8
The Partners
Jefferson Place, L.P.
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Jefferson Place, L.P., (a
Missouri Limited Partnership) (the "Partnership"), as of December 31, 1995,
and the related statements of income, changes in partners' equity (deficit)
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 Jefferson Place, L.P., as of
December 31, 1995, and the results of its operations and the changes in
partners' equity (deficit) and cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 10 to the
financial statements, the Partnership has experienced recurring losses from
operations and has a working capital deficiency and a net capital deficiency
that raise substantial doubt about the Partnership's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Mueller, Prost, Purk & Willbrand, P.C.
January 26, 1996 Certified Public Accountants
<PAGE> 1
FINANCIAL STATEMENTS
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1995
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 108,614
Tenant accounts receivable 3,042
Prepaid expenses 22,293
---------------
Total Current Assets $ 133,949
Funded Deposits Held in Trust
Security deposits 16,438
---------------
Total Funded Deposits Held in Trust 16,438
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 34,214
---------------
Total Restricted Deposits and Funded Reserves 34,214
Property and Equipment
Land 339,063
Buildings 10,894,462
Equipment 398,521
---------------
Total Property and Equipment 11,632,046
Less: Accumulated depreciation (5,521,434)
---------------
Net Property and Equipment 6,110,612
Other Assets
Utility Deposits 2,250
---------------
Total Other Assets 2,250
---------------
Total Assets $ 6,297,463
===============
LIABILITIES
Current Liabilities
Accrued interest payable $ 3,116,962
Accrued real estate taxes 58,222
Other accrued expenses 12,623
Prepaid rent 17,943
---------------
Total Current Liabilities $ 3,205,750
Deposit Liabilities
Security deposits 53,872
---------------
Total Deposit Liabilities 53,872
Long-Term Liabilities
Mortgage payable 12,800,000
Accrued administrative fees 679,219
---------------
Total Long-Term Liabilities 13,479,219
---------------
Total Liabilities 16,738,841
PARTNERS' EQUITY (DEFICIT)
General partner (63,409)
Limited partners (10,377,969)
---------------
Total Partners' Equity (Deficit) (10,441,378)
---------------
Total Liabilities and Partners' Equity (Deficit) $ 6,297,463
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 2
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INCOME
Rental income $ 1,603,103
Interest income 10,903
Other income 95,944
Income from forfeited security deposits 15,567
---------------
Total Income $ 1,725,517
EXPENSES
Operating Expenses
Salaries and wages 186,022
Real estate taxes 116,444
Insurance 27,007
Utilities 144,925
Professional fees 11,052
Advertising and promotional fees 34,090
---------------
Total Operating Expenses 519,540
Maintenance Expenses
Repairs and maintenance 184,491
Security 5,824
Cleaning 8,603
Supplies 23,816
---------------
Total Maintenance Expenses 222,734
Management Expenses
Administrative and office 24,358
Management fees 83,866
---------------
Total Management Expenses 108,224
Mortgage Interest Expense 1,276,370
---------------
Total Mortgage Interest Expense 1,276,370
Other Expenses
Administrative fees 88,800
Depreciation 578,958
---------------
Total Other Expenses 667,758
---------------
Total Expenses 2,794,626
---------------
Net Loss $ (1,069,109)
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 3
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------------------------------------------
Special Class A
General Limited Limited
Partner Partner Partner Class B Limited Partners
----------- ---------- -------------- ----------------------------------------------
Liberty Liberty Chase Total
JHC Associates Tax Credit DRI Equity Mark D. Susan L. Properties, Limited
Corporation IV, L.P. Plus III, L.P. Corporation Rose Rose Inc. Partners
----------- ---------- -------------- ----------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (52,718) $ (52,718) $ (3,781,735) $ 78,470 $(280,988) $(280,988) $(5,001,592) $ (9,319,551)
Net Loss for the Year (10,691) (10,691) (908,743) (1,390) (6,949) (6,949) (123,696) (1,058,418)
---------- ---------- ------------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1995 $ (63,409) $ (63,409) $ (4,690,478) $ 77,080 $(287,937) $(287,937) $(5,125,288) $(10,377,969)
========== ========== ============= =========== ========= ========= =========== ============
Partners's Percentage of
Partnership losses 1.00% 1.00% 85.00% 0.13% 0.65% 0.65% 11.57% 99.00%
========= ========= ============ ========== ======== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Partners'
Deficit
-------------
<S> <C>
Balance, December 31, 1994 $ (9,372,269)
Net Loss for the Year (1,069,109)
-------------
Balance, December 31, 1995 $ (10,441,378)
=============
Partners's Percentage of
Partnership losses 100.00%
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 4
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (1,069,109)
---------------
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation 578,958
Change in assets - (increase) decrease
Tenant accounts receivable (1,932)
Property tax refund receivable 8,139
Prepaid expenses (352)
Change in liabilities - increase (decrease)
Accrued interest payable 412,612
Accrued real estate taxes 10,897
Other accrued expenses (5,979)
Prepaid rent 13,605
Security deposits 5,186
Accrued administrative fees 77,800
---------------
Total Adjustments 1,098,934
---------------
Net Cash Provided by Operating Activities 29,825
---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and funded reserves 2,075
---------------
Net Cash Provided by Financing Activities 2,075
---------------
Net Increase in Cash 31,900
Cash - Beginning of Year 93,152
---------------
Cash - End of Year $ 125,052
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 5
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Jefferson Place, L.P., a Missouri limited partnership, (the "Partnership"),
was formed on April 18, 1985, pursuant to the terms of an Agreement of Limited
Partnership for the purpose of acquiring and operating the Jefferson Place
Apartments complex (the "Project"), a 352-unit apartment complex located in
Olathe, Kansas. The Partnership will dissolve on December 31, 2033, unless
sooner dissolved pursuant to any provision of the Partnership agreement.
On October 1, 1990, pursuant to the Second Amended and Restated Agreement of
Limited Partnership, DRI Equity Corporation withdrew from the Partnership as
general partner and became a Class B limited partner with a .13% interest.
DRI assigned its interest to JHC Corporation as the general partner with a 1%
interest. Liberty Associates IV L.P. is the Partnership's special limited
partner with a 1% interest and has the authority, among other things, to
remove the general partner under certain circumstances and to consent to the
sale of the Partnership's assets. The Partnership has three other Class B
limited partners, Mark D. Rose (.65%), Susan L. Rose (.65%), and Chase
Properties, Inc., a Missouri corporation (11.57%), as well as a Class A
limited partner, Liberty Tax Credit Plus III L.P., a Delaware limited
partnership who owns an 85% interest.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnershp also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Project.
Use of Estimates
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 estimated amounts.
Security Deposits
The security deposit liability exceeds the security deposit cash account by
$37,434. Management has stated that this deficiency will be funded from the
operating cash account as cash flow becomes available.
Bad Debts
The Partnership records bad debts using the direct write off method which is
not materially different from the allowance method. No bad debt expense was
recorded for the period ended December 31, 1995.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 5 to 19 years. The total depreciation expensed in
1995 was $578,958.
Concentration of Credit Risk
The Partnership maintains the majority of its cash balances in one financial
institution. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1995, the Partnership's uninsured
cash balances totaled $16,585.
<PAGE> 6
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash includes cash and security deposits.
Cash paid during the year for:
Interest $ 863,758
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution.
Disbursements from the escrow are for real estate taxes and insurance
premiums. Interest earned on the funds is transferred to the operating cash
account quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership financed the construction of the Project with Multi-Family
Housing Revenue Notes ("Notes") issued by the City of Olathe, Kansas ("City")
in the face amount of $12,800,000. On December 1, 1986, the Notes were
purchased by America First Tax-Exempt Mortgage Fund 2 Limited Partnership
("America First"). The Notes are nonrecourse obligations of the owners of the
Partnership. The Notes are not an obligation to the City, nor is the taxing
power of the City pledged to the payment of principal and interest on the
Notes. The net cash flow of the Partnership and the proceeds from the sale or
refinancing of the Partnership are the sole source of funds to pay principal
and interest on the Notes. The Notes are collateralized by all real and
personal property of the Partnership and an assignment of rents. The
principal balance of the Notes is due in a lump sum on December 1, 2010. Base
interest on the Notes accrues at 8.5% per annum.
In connection with the reorganization of the Partnership on October 1, 1990,
the terms of the Notes were amended pursuant to a mortgage modification
agreement. The mortgage modification agreement was to induce America First to
waive defaults under the original Note and to induce the new limited partners
to infuse additional capital. The mortgage modification agreement provides,
among other provisions, for the following:
1) America First agrees not to declare a default under the Notes, mortgage and
related documents during the term of the modification agreement, which
expires December 31, 2002.
2) America First agrees to accept the monthly cash flow from the Partnership
as partial payment of base interest. If the monthly cash flow is less than
the amount of base interest due for each month, the unpaid base interest
accrues and will be paid from excess cash flow in future months. The
difference between the base interest on the Notes and the payments to
America First from available monthly cash flow will bear interest at 8.5%
per annum until paid. At December 31, 1995, mortgage interest expense
included additional interest on accrued base interest of $188,370.
3) The mortgage modification agreement also specifies the allocation of sale
or refinancing proceeds of the Partnership among the partners and payment
of accrued interest to America First.
<PAGE> 7
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 ACCRUED INTEREST PAYABLE
Accrued interest payable as of December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Accrued interest payable on bond $ 2,334,194
Accrued interest on unpaid interest 782,768
------------
Total Accrued Interest Payable $ 3,116,962
============
</TABLE>
NOTE 7 CONTINGENT INTEREST
In addition to base interest, the Notes provide for the payment of additional
contingent interest that is payable only to the extent the Partnership
generates excess net cash flows or from the sale or refinancing proceeds of
the Partnership, subject to various priority payments. Contingent interest
during the construction period (December 1, 1986 through August 31, 1987) at
3.5% per annum totaled $118,890. Contingent interest at 4.5% per annum,
excluding contingent construction period interest, totaled $4,800,000 through
December 31, 1995. Contingent interest amounts have not been accrued in the
accompanying financial statements.
NOTE 8 RELATED PARTY TRANSACTIONS
Management Fees
On May 1, 1993, America First Properties Management, Inc., an affiliate of the
general partner, took over management of the Partnership. Their fee is 5% of
collected receipts, effective July, 1995. Management fees for 1995 are
$83,866. The Partnership owed America First Properties Management, Inc. $4,564
at December 31, 1995.
Administrative Fees
Under the terms of the Notes, the Partnership accrues administrative fees of
$6,400 per month to an affiliate of America First. Under the terms of the
Second Amended and Restated Agreement of Limited Partnership, the Partnership
accrues additional administrative fees of $1,000 per month to Liberty
Associates IV, L.P. Administrative fees totaled $88,800 in 1995. Accrued and
unpaid administrative fees totaled $679,219 at December 31, 1995.
Administrative fees payable to America First are to be paid solely from the
proceeds of a sale or refinancing. Administrative fees payable to Liberty
Associates IV, L.P. are paid from excess cash flow after the payment of all
operating expenses except interest.
NOTE 9 CONTINGENCIES
Pursuant to a Tax Credit Guaranty Agreement signed on October 1, 1990, the
Partnership and America First guarantee Liberty Tax Credit Plus III, L.P.
("Liberty") specified minimum amounts of tax credits to be generated by the
Partnership through the rental of apartments to qualified tenants. If the
Partnership fails to generate tax credits of approximately $131,000 annually
for years 1991 through 1997 for the benefit of Liberty, America First and the
Partnership will be required to pay Liberty an amount equal to $.633 for each
$1 of credits below the specified minimum amounts.
Tax credits generated by the Partnership in 1995 were in excess of the minimum
amount of such credits specified in the Tax Credit Guaranty Agreement.
NOTE 10 GOING CONCERN CONSIDERATIONS
The Partnership has consistently been unable to generate sufficient cash flow
from operations to pay base interest on the mortgage payable. The Partnership
has, however, generated cash flows sufficient to cover the cost of operations
and partially pay base interest on the mortgage payable. As more fully
described in Note 5, America First (the mortgagee) has agreed not to declare a
default under the terms of the mortgage payable.
<PAGE> 8
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
BALANCE SHEET 2
STATEMENT OF INCOME (UNAUDITED) 3
STATEMENT OF CHANGES IN PARTNERS'
EQUITY (DEFICIT) (UNAUDITED) 4
STATEMENT OF CASH FLOWS (UNAUDITED) 5
NOTES TO FINANCIAL STATEMENTS 6-7
To the Partners
Sunpointe Associates Limited Partnership
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Sunpointe Associates Limited
Partnership, (a Washington Limited Partnership) (the "Partnership"), as of
December 31, 1995. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
Except as discussed in the following paragraph, 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 balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We believe that
our audit provides a reasonable basis for our opinion.
This was our first audit of the Partnership's balance sheet, and, in
accordance with management's instructions, we did not extend our auditing
procedures to enable us to express, and we do not express, an opinion on the
consistency of application of accounting principles with the preceding year.
Because we were not engaged to audit the statements of income, retained
earnings, and cash flows, we did not extend our auditing procedures to enable
us to express an opinion on the results of operations and cash flows for the
year ended December 31, 1995. Accordingly, we express no opinion on them.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of Sunpointe
Associates Limited Partnership as of December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $1,761,506 during the year
ended December 31, 1995, and, as of that date, had a net worth of
$(12,376,449). As discussed in Note 7 to the financial statements, the
Partnership has suffered recurring losses from its operations and has a net
capital deficiency that raises substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Mueller, Prost, Purk & Willbrand, P.C.
January 26, 1996 Certified Public Accountants
<PAGE> 1
FINANCIAL STATEMENTS
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 12,020
Tenant accounts receivable 15,748
Prepaid expenses 33,824
Other receivables 537
---------------
Total Current Assets $ 62,129
Funded Deposits Held in Trust
Security deposits 67,152
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 124,448
Property and Equipment
Land 3,261,280
Land improvements 439,162
Buildings 13,132,765
Equipment 601,082
---------------
Total Property and Equipment 17,434,289
Less: Accumulated depreciation 4,737,747
---------------
Net Property and Equipment 12,696,542
---------------
Total Assets $ 12,950,271
===============
LIABILITIES
Current Liabilities
Accounts payable 7,750
Other accrued expenses 6,500
Prepaid rents 12,075
Accrued interest payable 4,407,666
Administrative fee payable 739,724
---------------
Total Current Liabilities 5,173,715
Deposit Liabilities
Security deposits 63,005
Long-Term Liabilities
Mortgage payable 20,000,000
Due to limited partner 90,000
---------------
Total Long-Term Liabilities 20,090,000
---------------
Total Liabilities 25,326,720
PARTNERS' EQUITY (DEFICIT)
Partners' Equity (Deficit) (12,376,449)
---------------
Total Partners' Equity (Deficit) (12,376,449)
---------------
Total Liabilities and
Partners' Equity (Deficit) $ 12,950,271
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 2
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Income
Rental income $ 2,068,885
Interest income 7,341
Income from forfeited security deposits 38,021
Other income 98,087
---------------
Total Income $ 2,212,334
Expenses
Operating Expenses
Advertising 68,107
Insurance 27,518
Personal property taxes 1,862
Professional fees 72,453
Real estate taxes 211,014
Salaries and wages 238,349
Utilities 279,381
---------------
Total Operating Expenses 898,684
Maintenance Expenses
Cleaning 22,023
Repairs and maintenance 359,904
Security 85,726
Supplies 68,543
---------------
Total Maintenance Expenses 536,196
Management Expenses
Administrative and office 59,685
Management fees 74,072
---------------
Total Management Expenses 133,757
Mortgage Interest 1,718,675
Other Expenses
Administrative fees 157,255
Depreciation 529,273
---------------
Total Other Expenses 686,528
---------------
Total Expenses 3,973,840
---------------
Net Loss $ (1,761,506)
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 3
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
General
Partner Limited Partners
--------------- ---------------------------------------------------
Sunset Shelter
Terrace Corporation Shelter The Total
Investments, of Canada American Axelrod Partners'
Inc. Limited Holding, Inc. Company Deficit
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (1,083,375) $ (1,700,023) $ (5,293,142) $ (2,538,403) $ (10,614,943)
Net Loss for the Year (1,761) (440) (879,432) (879,873) (1,761,506)
--------------- --------------- --------------- --------------- ---------------
Balance, December 31, 1995 $ (1,085,136) $ (1,700,463) $ (6,172,574) $ (3,418,276) $ (12,376,449)
=============== =============== =============== =============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 4
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (1,761,506)
---------------
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 529,273
Change in assets - (increase) decrease
Tenant accounts receivable (15,748)
Prepaid expenses (20,067)
Other receivables (505)
Change in liabilities - increase (decrease)
Accounts payable (2,085)
Other accrued expenses (215)
Prepaid rents 12,075
Accrued interest payable 1,060,009
Administrative fee payable 116,888
Security deposits (4,572)
---------------
Total Adjustments 1,675,053
---------------
Net Cash Used by Operating Activities (86,453)
---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and funded reserves 11,580
---------------
Net Cash Provided by Financing Activities 11,580
---------------
Net Decrease in Cash (74,873)
Cash - Beginning of Year 86,893
---------------
Cash - End of Year $ 12,020
===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> 5
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Sunpointe Associates Limited Partnership, a Washington Limited Partnership,
(the "Partnership"), was formed on September 3, 1987, pursuant to the terms of
an Agreement of Limited Partnership for the purpose of acquiring and operating
the Avalon Ridge Apartments complex, a 356-unit apartment complex located in
Renton, Washington (the "Project"). The Partnership will dissolve on December
31, 2037, unless sooner dissolved pursuant to any provision of the Partnership
Agreement.
The Agreement of Limited Partnership which was amended on June 30, 1991, and
December 31, 1991, admitted a new general partner and changed the profit and
loss allocation percentages to the partners. The general partner of the
Partnership is Sunset Terrace Investments, Inc. (the "General Partner"), a
California corporation. The limited partners of the Partnership are Shelter
Corporation of Canada Limited and Shelter American Holding, Inc. which are
Canadian corporations and the Axelrod Company, a Washington corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnership also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Partnership.
Use of Estimates
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 revenue and expenses during the reporting period.
Actual results could differ from estimated amounts.
Bad Debts (Unaudited)
The Partnership records bad debts using the direct write-off method which is
not materially different from the allowance method. No bad debt expense was
recorded for the period ended December 31, 1995.
Property and Equipment (Unaudited)
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 7 to 27.5 years. The total depreciation expensed in
1995 was $529,273.
NOTE 3 STATEMENT OF CASH FLOWS (UNAUDITED)
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Cash paid during the year for:
Interest $ 658,666
<PAGE> 6
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(a Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution. Disbursements from the escrow are for real estate
taxes and insurance premiums. Interest earned on the funds is transferred to
operating cash quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership entered into a $1,245,000 mortgage payable agreement with
America First Participating/Preferred Equity Mortgage Fund on September 1,
1987. The note bears base interest at the rate of 10%, due on the fifteenth
day of each month. Maximum construction period deferred interest is due
during the first interest period, which extends from the date of inception to
August 17, 1989, in an amount equal to 3% per annum. The maximum construction
period deferred interest shall be paid, to the extent possible, from 50% of
the net sale or refinancing proceeds. Contingent interest and deferred
interest is due during the second interest period, which extends from August
18, 1989, to the date of full payment, at an annual rate of 3% on the
outstanding principal amount. Contingent interest and deferred interest shall
be paid from 50% of the net cash flow. Deferred interest and contingent
interest is due on the first day of each February, May, August, and November.
The note matures on September 1, 1999.
Pursuant to a promissory note dated September 1, 1987, the Partnership owes
Washington Mortgage Corporation $18,755,000 plus interest. The interest of
Washington Mortgage Corporation was purchased and assigned to Washington State
Housing Finance Commission under the Assignment of Developer Documents dated
September 1, 1987. Part of the interest of Washington State Housing Finance
Commission has been assigned to FirsTier Bank, National Association, as
Trustee under the Lender Loan Agreement and Indenture of Trust dated September
1, 1987. The note bears base interest at the rates of 9.5% per annum and 8.5%
per annum during the first and second interest periods, respectively. The
note bears deferred contingent interest in amounts equal to 3.5% per annum and
4.5% per annum during the first and second interest periods, respectively.
During the third interest period, the note bears contingent interest at an
annual rate of 4.5% on the outstanding principal amount. The note matures on
September 1, 2011.
NOTE 6 RELATED PARTY TRANSACTIONS
Management Fees
On August 20, 1994, America First Properties Management, Inc., an affiliate of
the general partner, took over management of the Partnership. Their fee is 3%
of gross receipts when net operating income is less than $97,000; 3.75% when
net operating income is between $97,001 and $103,000; and 4.5% when net
operating income is greater than $103,000. Management fees for 1995 are
$74,072. The Partnership owed America First Properties Management, Inc. $6,008
at December 31, 1995.
Due to Limited Partner
The Partnership has outstanding operating deficit loans borrowed from the
limited partner of $90,000 at December 31, 1995.
NOTE 7 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $12,376,449
since commencement of rental operations in 1987, as well as recurring
operating losses. These considerations raise substantial doubt about the
Partnership's ability to continue as a going concern. The Partnership has
expended operating funds to upgrade the resident profile and reposition the
property for the future. Significant cash flow has been reinvested in the
Project to pursue this repositioning.
<PAGE> 7
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 2 LIMITED PARTNERSHIP
By America First Capital Associates Limited
Partnership Four, general partner
of the Registrant
By America First Companies L.L.C.,
general partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing, Vice President
Date: March 27, 1996
<PAGE> 26
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 27, 1996 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
Date: March 27, 1996 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer
and Manager (Chief Financial and
Accounting Officer)
Date: March 27, 1996 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager
Date: March 27, 1996 By
George Kubat
Manager
Date: March 27, 1996 By /s/ Martin Massengale*
Martin Massengale
Manager
Date: March 27, 1996 By /s/ Alan Baer*
Alan Baer
Manager
Date: March 27, 1996 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> 27
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> 28
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, 1995, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 10th day of March, 1996.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> 29
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, 1995, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 2nd day of March, 1996.
/s/ William S. Carter
William S. Carter, M.D.
<PAGE> 30
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, 1995, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1996.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> 31
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, 1995, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 2nd day of March, 1996.
/s/ Martin Massingale
Martin Massingale
<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, 1995, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 3rd day of March, 1996.
/s/ Alan Baer
Alan Baer
<PAGE> 33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,912,560
<SECURITIES> 31,566,526
<RECEIVABLES> 196,601
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,109,161
<PP&E> 32,405,705
<DEPRECIATION> 6,515,135
<TOTAL-ASSETS> 59,630,449
<CURRENT-LIABILITIES> 1,014,176
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 58,616,273
<TOTAL-LIABILITY-AND-EQUITY> 59,630,449
<SALES> 0
<TOTAL-REVENUES> 7,406,403
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,349,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,056,786
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,056,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,056,786
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
