As filed with the Securities and Exchange Commission on August [8], 1996
Registration No. 33-73688
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 4
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AMERICAN TAX-EXEMPT BOND TRUST
(Exact name of registrant as specified in governing instrument)
625 Madison Avenue
New York, New York 10022
(Address of principal executive offices)
----------------
J. Michael Fried, President
Related AMI Associates, Inc., Manager
American Tax-Exempt Bond Trust
625 Madison Avenue
New York, New York 10022
(Name and address of agent for service)
Copy to:
Peter M. Fass, Esq.
Mark Schonberger, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
Cross Reference Sheet Required by Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Location in Prospectus, as
Item Number and Caption Supplemented
----------------------- ------------
<S> <C> <C>
1. Forepart of Registration Statement and Cover Page
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Back Cover
Pages of Prospectus Page
3. Summary Information, Risk Factors Cover Page; Summary of the
and Ratio of Earnings to Fixed Offering; Risk Factors; Supplement
Charges No. 5
4. Determination of Offering Price *
5. Dilution *
6. Selling Security Holders *
7. Plan of Distribution Plan of Distribution
8. Use of Proceeds Estimated Use of Proceeds;
Investment Objectives and Policies
9. Selected Financial Data Selected Financial Data; Supplement
No. 5
10. Management's Discussion and Management's Discussion and
Analysis of Financial Condition and Analysis of Financial Condition of the
Results of Operations Trust
11. General Information as to Registrant Cover Page; Summary of the
Offering; Management; Summary of
Trust Agreement
12. Policy with Respect to Certain Investment Objectives and Policies;
Activities Summary of Trust Agreement
13. Investment Policies of Registrant Investment Objectives and Policies;
Summary of Trust Agreement
14. Description of Real Estate Supplement No. 5
15. Operating Data *
16. Tax Treatment of Registrant and its Material Federal Income Tax
Security Holders Consequences
<PAGE>
17. Market Price of and Dividends on the *
Registrant's Common Equity and
Related Stockholder Matters
18. Description of Registrant's Securities Plan of Distribution; Summary of
Trust Agreement
19. Legal Proceedings *
20. Security Ownership of Certain *
Beneficial Owners and Management
21. Directors and Executive Officers Management
22. Executive Compensation Management; Management
Compensation
23. Certain Relationships and Related Management; Management
Transactions Compensation; Conflicts of Interest
24. Selection, Management and Custody Management; Management
of Registrant's Investments Compensation; Investment Objectives
and Policies
25. Policies with Respect to Certain Conflicts of Interest; Investment
Transactions Objectives and Policies; Summary of
Trust Agreement
26. Limitations of Liability Fiduciary Responsibility; Risk
Factors; Summary of Trust
Agreement
27. Financial Statements and Information Management's Discussion and
Analysis of Financial Condition of the
Trust; Financial Information and
Balance Sheets
28. Interests of Named Experts and *
Counsel
29. Disclosure of Commission Position on Fiduciary Responsibility
Indemnification for Securities Act
Liabilities
</TABLE>
- ----------
* Not applicable.
<PAGE>
Supplement No. 5
AMERICAN TAX-EXEMPT BOND TRUST
Supplement dated August 9, 1996
to Prospectus dated November 1, 1994
This Supplement supersedes supplements dated
April 18, 1995, July 14, 1995, October 17, 1995 and April 29, 1996
- -------------------------------------------------------------------------------
SUMMARY OF SUPPLEMENT
This supplement incorporates information contained in Supplements #1, #2,
#3 and #4 and, where appropriate, updates and supersedes information in all
prior supplements.
Status of the Offering (Page 2)
This section describes the status of the Offering, general information
regarding the Offering and information with respect to the Trust's
distributions.
First Mortgage Bonds and Tax-Exempt Securities (Page 2)
This section (i) describes (a) the Trust's first two acquisitions of First
Mortgage Bonds and (b) an additional identified First Mortgage Bond and (ii)
updates the status of (a) previously identified First Mortgage Bonds with
respect to which the Trust had executed a letter of intent to purchase and
(b) Tax-Exempt Securities acquired by the Trust.
Summary of the Offering (Page 9)
This section describes a change made relating to the commencement of
Distributions of Cash Flow.
Risk Factors (Page 9)
This section provides additional information with respect to risks to
investors associated with the purchase of the Trust's Shares in the Offering.
Terms of the Offering (Page 9)
This section provides additional information relating to investor
suitability standards.
Management Compensation (Page 9)
This section describes changes made to defer one-half of the Special
Distribution that the Manager is to receive.
Prior Performance Summary (Page 13)
This section contains updated information on prior performance.
Management (Page 25)
This section provides information relating to the election of an
additional officer of the Manager.
Material Federal Income Tax Consequences (Page 26)
This section provides information regarding regulations recently proposed by
the Internal Revenue Service.
Plan of Distribution (Page 26)
This section provides further information relating to volume discounts
available to investors.
Selected Financial Data (Page 26)
This section contains selected financial data with respect to the Trust.
Management's Discussion and Analysis of Financial Condition of the Trust
(Page 27)
This section updates the discussion of the financial condition of the
Trust for the three months ended March 31, 1996 and the twelve months ended
December 31, 1995.
Financial Information and Balance Sheets (Page F-1)
This section contains (i) Balance Sheets for the Trust as of March 31,
1996 (unaudited) and 1995 and financial information for the quarter ended
March 31, 1996 (unaudited), (ii) Balance Sheets for the Trust as of December
31, 1995 and 1994 and financial information for the year ended December 31,
1995, (iii) Balance Sheets for the Manager, Related AMI Associates, Inc., as
of March 31, 1996 (unaudited) and December 31, 1995 and 1994, (iv) Balance
Sheets for Reflections Apartments as of December 31, 1995, 1994 (unaudited)
and 1993 (unaudited) and financial information as of and for the years ended
December 31, 1995, 1994 (unaudited) and 1993 (unaudited); and (v) Historical
Summary of gross income and direct operating expenses for the Rolling Ridge
Apartments for the year ended December 31, 1995.
Note: Capitalized terms not otherwise defined in this Supplement are
defined, and may be found, in the "Glossary" in the Prospectus.
- -------------------------------------------------------------------------------
1
<PAGE>
STATUS OF THE OFFERING
As of April 30, 1996, a total of 1,125,263 shares have been sold,
representing Gross Proceeds of $22,505,259 (excludes volume discounts of
$4,244). As of April 30, 1996, aggregate sales commissions of $1,125,263 and
a non-accountable due diligence expense reimbursement of $112,526 have been
paid to the broker-dealers and a non-accountable Organizational and Offering
Expense Allowance equal to $562,631 has been paid to the Manager, resulting
in an aggregate amount available for investment by the Trust of approximately
$20,704,839. Other Organizational and Offering Expenses have been paid or are
payable to the Manager or its Affiliates.
As disclosed in the Prospectus, the Offering may continue until
twenty-four months after the effective date of the Prospectus (i.e., November
1, 1996). Although the Trust reserves the right to continue the Offering of
Shares until the expiration of such twenty-four month period, as of the date
of this Supplement it expects to close the Offering no later than October 15,
1996.
General
Investors are reminded that there is no public trading market for the
Shares and none is expected to develop. The Shares are not intended to be
included for listing or quotation on any established market and no public
trading market is expected to develop for the Shares, although there may be
an informal market. An investment in the Trust should be considered a long-
term investment.
The Trust continues to offer Shares to investors at a price of $20 per
Share. As discussed in the Prospectus, the Shares are being offered at a
fixed unit price per Share throughout the offering period. The pricing
reflects, in part, the fact that the Trust is still in the process of
investing the proceeds of this Offering in a portfolio of First Mortgage
Bonds and Tax-Exempt Securities and that offerings of the type contemplated
by the Prospectus are offered on a fixed price basis.
Distributions
The Trust has made the following tax-exempt distributions to Shareholders
since inception:
<TABLE>
<CAPTION>
Cash Distri- Minimum Maximum
bution for Amount Amount Per Total Amount
Quarter Ended Date Paid Per Share Share Distributed
------------- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
30-Jun-95 8/14/96 $0.0667 $0.3333 $ 82,704
30-Sep-95 11/14/95 0.0667 0.4000 259,544
31-Dec-95 2/14/96 0.0667 0.4000 333,590
31-Mar-96 5/15/96 0.0667 0.4000 414,198
------- ------- ----------
TOTALS $0.2668 $1.5333 $1,090,036
</TABLE>
Quarterly distributions were made 45 days following the close of the
calendar quarter and were funded from (i) cash provided from earnings through
approximately the distribution dates and (ii) proceeds from the maturity of
investments. Amounts received by Shareholders varied depending on the dates
they became Shareholders.
***
FIRST MORTGAGE BONDS AND TAX-EXEMPT SECURITIES
First Mortgage Bonds
The Trust has acquired the interest described below in two First Mortgage
Bonds and tax-exempt securities with funds which represent 82% of the amount
of cash available for investment in First Mortgage Bonds and Tax-Exempt
Securities as of April 30, 1996 and is evaluating the acquisition of an
additional First Mortgage Bond with respect to which the Trust has recently
entered into a letter of intent. Information with respect to these First
Mortgage Bonds is set forth below.
In general, First Mortgage Bonds will only be acquired by the Trust
pursuant to an opinion from bond counsel or special counsel for the Trust to
the effect that interest on such bonds will be excluded from gross income for
federal income tax pur-
2
<PAGE>
poses or will be exempt from federal income taxation and that the bonds will
be valid obligations of the issuer. A more detailed discussion may be found
on page 42 of the Prospectus.
Based upon Offering proceeds raised as of April 30, 1996, the Trust has
acquired or identified for acquisition 99% of the cash available for
investment in First Mortgage Bonds and Tax-Exempt Securities.
The Manager is entitled to receive from the Trust (i) a Bond Selection
Fee, equal to 2.00% of the Gross Proceeds and (ii) an Acquisition Expense
Allowance equal to 1.00% of the Gross Proceeds. As of the date of this
Supplement, the Bond Selection Fee and Acquisition Expense Allowance have
aggregated $450,105 and $225,053, respectively.
Acquired First Mortgage Bond Investments
Reflections Apartments
- ----------------------
General
On October 10, 1995, the Trust purchased a 100% participation in
tax-exempt First Mortgage Bonds (as hereinafter referred to in this
Supplement, the "Reflections Bonds") in an aggregate remaining principal
amount of $10,700,000. The Reflections Bonds were issued by the Orange County
Housing Finance Authority (the "Issuer") and secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, a suburb of
Orlando, Florida. Reflections is owned by Casselberry-Oxford Associates, L.P.
(the "Borrower").
The Trust purchased the 100% participation in the Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership, which is not affiliated with the
Manager or the Sponsor. In making this acquisition, the Trust utilized
$12,159,091 of its Gross Proceeds from the Offering (including fees and
expenses) which represents 54% of the Gross Proceeds raised as of April 30,
1996. See Risk Factors #21 ("Unspecified Investments; Investors Cannot Assess
Investments") and #22 ("Possible Lack of Diversification") on pages 10-11 of
the Prospectus.
As required by the Trust Agreement, the Trust has received an MAI
appraisal which indicates that the principal amount of the Reflections Bonds
is less than 85% of the appraised value of the Project. It should be
recognized that appraised values are opinions and, as such, may not represent
the true worth or realizable value of the property being appraised.
Upon their acquisition by the Trust, the Reflections Bonds were in default
because they had matured. As anticipated, on December 21, 1995 the
Reflections Bonds were amended to extend the maturity, thereby curing the
default, and to meet the Trust's other investment criteria. The terms of the
Reflections Bonds, as amended, are described below. In connection with the
amendment, the Trust redeemed the 100% participation interest it previously
acquired and now directly owns the Reflections Bonds.
Payment Terms
The amended Reflections Bonds bear a fixed Current Interest Rate of 9.0%
per annum, payable monthly in arrears, together with Contingent Interest.
After payment of the fixed Current Interest, Contingent Interest is payable
as follows: (i) 25% of net property cash flow after payment of Current
Interest, third party issuer and trustee fees, required reserves, and a
preferred return to the Borrower equal to 3.7% of gross revenues; and (ii)
after repayment of outstanding principal, (a) 10% of net sale or repayment
proceeds (which may in certain circumstances when no sale proceeds are
received be measured by fair market value) up to $1,300,000, and (b) 25%
thereafter until the Borrower has paid interest at a simple annual rate of
16% over the term of the Reflections Bonds.
The amended Reflections Bonds have a term of thirty years and are subject
to mandatory redemption, at the Trust's option, after ten years. The
principal of the Reflections Bonds is payable upon sale or refinancing of the
Project and prepayment, in whole or in part, is prohibited during the first
five years following the acquisition of the Reflections Bonds, except as
described below. Prepayment in whole will be permitted thereafter subject to
the payment of a premium. If prepaid during the sixth year, the premium is
equal to 5% of the principal amount of the Reflections Bonds outstanding at
the time of prepayment. Thereafter, the premium will be reduced by 1% per
year through the tenth year, when there will be no prepayment premium
payable.
3
<PAGE>
Management Agent
NHP Management Company ("NHP") is and is expected to continue to be the
property manager for Reflections Apartments for an annual fee equal to 4.7%
of gross rental revenues. NHP acquired Oxford Management Company, an
affiliate of the Borrower's general partner, in 1993. NHP is not affiliated
with the Manager or the Sponsor.
Description of the Property
Reflections Apartments consists of 336 apartment units contained in 16
garden style buildings. The property was built in 1984 and is situated on 33
acres of land. As of June 30, 1996, Reflections was 88% occupied.
Each apartment unit in the Reflections Apartments contains central air
conditioning; private patio or balcony; washer/dryer hook-ups; and fully
equipped kitchen with dishwasher, garbage disposal, frost-free refrigerator
and self-cleaning oven. Fireplaces, washer/dryers and bay windows are
available at an additional cost in select units. The property's amenities
include: outdoor swimming pool; clubhouse with central laundry; two lighted
tennis courts; two lighted, enclosed racquetball courts; whirlpool spa; car
wash/vacuum area; basketball court; and two lakes with lighted fountains. An
exercise facility is to be developed in the clubhouse.
The Borrower has deposited $200,000 into a separate account under the
control of the Trust to fund certain capital improvements and property
enhancements. Additionally, the Borrower recently completed repairs required
to correct damage to the exterior walls of the Project caused by termites and
water penetration. As part of that remediation, the Project is undergoing
site regrading and other corrective measures to eliminate future water
penetration. The cost of these repairs is expected to be approximately
$500,000 of which approximately $400,000 has been expended to date.
Lease terms on the apartment units of Reflections range from six to twelve
months. The type and number of apartment units together with their projected
monthly rents are as follows:
<TABLE>
<CAPTION>
Approximate Projected
Number of Units Type of Unit Square Feet Monthly Rent
---------------- ------------- ------------ -------------
<S> <C> <C> <C>
64 1BR/1BA 460 $428
94 1BR/1BA 739 $514
12 1BR/1BA 911 $573
12 1BR/1BA 986 $584
34 2BR/2BA 1,007 $580
120 2BR/2BA 1,070 $604
</TABLE>
For the past five years the average annual occupancy and rental rate of
the Project has been as follows:
<TABLE>
<CAPTION>
Average Annual Average Annual
Year Occupancy Rental Rate per S/F
---- -------------- --------------------
<S> <C> <C>
1991 95.83% $6.47
1992 94.95% $6.44
1993 96.63% $6.73
1994 93.25% $6.75
1995 95.25% $6.70
</TABLE>
Rent Regulations
The Project is currently subject to the Issuer's rent regulations which
require that 40% of the apartment units be set aside for Lower Income Tenants
through December, 2006. "Lower Income Tenants" are defined as those earning
no more than 80% of the area median income. The Borrower has advised the
Trust that the Project's current operations meet the set aside requirements
and that, therefore, no immediate impact on operating income is anticipated.
4
<PAGE>
Location & Market
Reflections Apartments is located at 100 Reflections Circle in
Casselberry, Florida, a northeastern suburb of Orlando. The property's
neighborhood is new and nearly fully developed. It offers a broad range of
services that will meet the needs of its residents, and it provides excellent
access to all areas of the city and other places of employment.
Competition
There are eight apartment complexes in the area that compete directly with
Reflections. They are comparable in unit mix, rental rates, and property
amenities. These buildings vary in size from 160 units to 596 units, and
average occupancy as of July, 1996 was 94%.
Real Estate Taxes
It is estimated that annual real estate taxes with respect to Reflections
Apartments will be $197,504 for 1996.
Fees
In connection with the selection and acquisition of the Reflections Bonds,
the Manager did not receive any Mortgage Placement Fees from the Borrower.
However, the Manager is entitled to receive from the Trust (i) a Bond
Selection Fee and an Acquisition Expense Allowance in the amounts described
under "First Mortgage Bonds and Tax-Exempt Securities" above.
Project Financial Statements
Financial statements as of and for the years ended December 31, 1995, 1994
(unaudited) and 1993 (unaudited) with respect to the Borrower (d/b/a
Reflections Apartments) may be found under the heading "Financial
Statements."
Rolling Ridge Apartments
General
On August 9, 1996, the Trust purchased tax-exempt First Mortgage Bonds (as
hereinafter referred to in this Supplement, the "Rolling Ridge Bonds") in an
aggregate principal amount of $4,925,000. The Rolling Ridge Bonds were issued
by San Bernardino County (the "Issuer") and secured by a deed of trust on
Rolling Ridge Apartments (the "Project" or "Rolling Ridge"), a development
consisting of 110 apartment units in Chino Hills, California. Rolling Ridge
is owned and operated by Rolling Ridge L.L.C. (the "Borrower").
In making this acquisition, the Trust utilized $5,596,591 of its Gross
Proceeds from the Offering (including fees and expenses) which represents 25%
of the Gross Proceeds raised as of April 30, 1996. See Risk Factors #21
("Unspecified Investments; Investments Cannot Assess Investments") and #22
("Possible Lack of Diversification") on pages 10-11 of the Prospectus.
As required by the Trust Agreement, the Trust has received an MAI
appraisal which indicates that the principal amount of the Rolling Ridge
Bonds is less than 85% of the appraised value of the Project. It should be
recognized that appraised values are opinions and, as such, may not represent
the true worth or realizable value of the property being appraised.
Payment Terms
The Rolling Ridge Bonds bear a fixed Current Interest Rate of 9.0% per
annum, payable monthly in arrears, together with Contingent Interest. After
payment of the fixed Current Interest, Contingent Interest is payable out of
(i) 30% of net property cash flow and (ii) 25% of net sale or repayment
proceeds (which may in certain circumstances when no sale proceeds are
received be measured by fair market value) over repayment of outstanding
principal, until the Borrower has paid interest at a simple annual rate of
16% over the term of the Rolling Ridge Bonds.
The Rolling Ridge Bonds have a term of 30 years and are subject to
mandatory redemption, at the Trust's option, after ten years. The Borrower
will be permitted two nine-month extensions. The principal of the Rolling
Ridge Bonds will be payable upon sale or refinancing of the Project.
Prepayment, in whole or in part, is prohibited during the first five years
following the acquisition of the Rolling Ridge Bonds, except as described
below. Prepayment in whole will be permitted thereafter subject to the
payment of a premium. If prepaid during the sixth year, the premium is equal
to 5% of the principal amount of the Rolling
5
<PAGE>
Ridge Bonds outstanding at the time of prepayment. Thereafter, the premium
will be reduced by 1% per year until the tenth year, when there will be no
prepayment premium payable.
Notwithstanding the foregoing, a one-time assumption will be permitted
without prepayment penalty or Contingent Interest payment otherwise due on
sale or refinancing. Any such new assuming borrower may be rejected by the
Manager in its sole discretion and an assumption fee equal to actual costs
plus 1/2 of 1% of the outstanding principal amount will be due at the time of
assumption.
Management Agent
The Jamboree Realty Corp. ("Jamboree") is and is expected to continue to
be the property manager for Rolling Ridge for an annual fee equal to 4% of
gross rental revenues. Jamboree is not affiliated with the Manager or the
Sponsor.
Description of the Property
Rolling Ridge consists of 110 apartment units contained in 8 garden-style
buildings. Rolling Ridge was originally completed in 1985 and, as of July 2,
1996, is 95% occupied.
Each apartment unit in Rolling Ridge contains a deck or patio,
wall-to-wall carpeting, garbage disposal, dishwasher, central
air-conditioning and mini-blinds. The Project's amenities include a swimming
pool, spa, tot lot and covered parking.
Lease terms on the apartment units of Rolling Ridge range from six to
twelve months. The type and number of apartment units together with their
projected monthly rents are as follows:
<TABLE>
<CAPTION>
Approximate Contracted
Number of Units Type of Unit Square Feet Monthly Rent
---------------- ------------- ------------ ---------------
<S> <C> <C> <C>
44 2BR/2BA 875 $690-$730
66 2BR/2BA 950 $655-$695
</TABLE>
For the past five years. The average annual occupancy and rental rate of the
Project has been as follows:
<TABLE>
<CAPTION>
Average Annual Average Annual
Year Occupancy Rental Rate per S/F
---- -------------- -------------------
<S> <C> <C>
1991 97.74% $8.42
1992 95.19% $8.51
1993 97.12% $8.60
1994 97.96% $8.70
1995 97.49% $9.05
</TABLE>
Rent Regulations
The Project is currently subject to the Issuer's rent regulations which
require that 20% of the apartment units be set aside for lower income
tenants. "Lower Income Tenants" are defined as those earning no more than 80%
of the area median income. In addition, rents payable by Lower Income Tenants
may not exceed 30% of 80% of the area median income. Upon achievement of net
operating income at, or in excess of, 124% of debt service requirements for
twenty-four consecutive months, 50% of the apartment units set aside for
Lower Income Tenants will be set aside for those earnings no more than 50% of
the area median income and rents not to exceed 30% of 50% of the area median
income. The Project will be released from the 50% of median income
requirement in the event net operating income falls below 115% of debt
service requirements.
Location & Market
Rolling Ridge Apartments is located in Chino Hills, California, a newly
incorporated city located in Southwestern San Bernardino County. Chino Hills
is an upper income community and the immediate neighborhood consists of
predominantly high-end single family homes.
6
<PAGE>
Competition
Rolling Ridge competes with the Portofino Apartments which is located
across the street. There are three to four other properties in the submarket
that are comparable to Rolling Ridge in terms of unit mix, rental rates and
property amenities. Jamboree reports that all competing properties exhibit
low vacancy rates. Because of high property taxes, new development is
difficult, thereby minimizing additional competition.
Real Estate Taxes
It is estimated that annual real estate taxes with respect to Rolling
Ridge will be approximately $121,878 in 1996.
Fees
In connection with the selection and acquisition of the Rolling Ridge
Bonds, the Manager did not receive any Mortgage Loan Placement Fees from the
Borrower. However, the Manager is entitled to receive from the Trust (i) a
Bond Selection Fee and (ii) an Acquisition Expense Allowance in the amounts
described under "First Mortgage Bonds and Tax-Exempt Securities" above.
Identified First Mortgage Bond Investments
Villa Vista Apartments
General
On May 22, 1996, the Trust executed a letter of intent to purchase
tax-exempt First Mortgage Bonds (as hereinafter referred to in this
Supplement, the "Villa Vista Bonds") in an approximate principal amount of
$3,300,000. The Villa Vista Bonds are expected to be issued by the City of
Barstow, California (the "Issuer") and secured by a first mortgage and
mortgage loan on Villa Vista Apartments (the "Project" or "Villa Vista"), a
development consisting of 136 apartment units in Barstow, California. Villa
Vista is owned and operated by Villa Vista Limited Partnership.
THE TRUST HAS EXECUTED A LETTER OF INTENT TO PURCHASE TAX-EXEMPT FIRST
MORTGAGE BONDS AS DESCRIBED ABOVE. IT SHOULD BE UNDERSTOOD THAT THE INITIAL
DISCLOSURE OF ANY PROPOSED INVESTMENT CANNOT BE RELIED UPON AS AN ASSURANCE
THAT THE TRUST WILL ULTIMATELY CONSUMMATE SUCH PROPOSED INVESTMENT OR THAT
THE INFORMATION PROVIDED CONCERNING THE PROPOSED INVESTMENT WILL NOT CHANGE
BETWEEN THE DATE OF THIS SUPPLEMENT AND THE ACTUAL INVESTMENT.
Payment Terms
The Villa Vista Bonds that will be used to refinance the Project, will be
restructured to meet the Trust's investment criteria and are expected to bear
a fixed Current Interest Rate of 9.0% per annum, payable monthly in arrears,
together with Contingent Interest. The Trust expects that, after payment of
the fixed Current Interest, Contingent Interest will be payable out of (i)
30% of net property cash flow and (ii) 30% of net sale or repayment proceeds
(which may in certain circumstances when no sale proceeds are received be
measured by fair market value) over repayment of outstanding principal, until
the Borrower has paid interest at a simple annual rate of 16% over the term
of the Villa Vista Bonds. The Trust has been informed that, as of the date
hereof, the Borrower is current with respect to all payments of principal and
interest.
The Trust expects that the principal of the Villa Vista Bonds will be
payable upon sale or refinancing of the Project. It is expected that
prepayment, in whole or in part, will be prohibited during the first five
years following the acquisition of the Villa Vista Bonds, except as described
below. Prepayment in whole will be permitted thereafter subject to the
payment of a premium. If prepaid during the sixth year, the premium is
expected to equal 5% of the principal amount of the Villa Vista Bonds
outstanding at the time of prepayment. Thereafter, the premium will be
reduced by 1% per year until the tenth year, when there will be no prepayment
premium payable.
Management Agent
The Dana Management Company is and is expected to continue to be the
property manager for Villa Vista for an annual fee equal to 4% of gross
rental revenues. Dana Management Company is not affilitated with the Manager
or the Sponsor.
7
<PAGE>
Description of the Property
Villa Vista consists of 136 apartment units contained in 13 buildings
situated on 5.24 acres. Villa Vista was originally completed in 1985 and as
of May, 1996 is 99.5% occupied.
Each apartment unit in Villa Vista contains a walk-in closet, wall-to-wall
carpeting and central air conditioning. The Project's amenities include a
swimming pool and two laundry rooms.
Lease terms on the apartment units of Villa Vista are month to month. The
average rental income per square foot for the one-year period ending December
31, 1995 was $6.54. The type and number of apartment units together with
their projected monthly rents are as follows:
<TABLE>
<CAPTION>
Contracted Monthly Approximate
Number of Units Type of Unit Rent Square Feet
--------------- ------------- ----------------- -------------
<S> <C> <C> <C>
16 Studio $ 310 506
80 1 BR $395/405 672
8 1 BR $ 380 633
16 2 BR $ 465 879
16 2 BR $ 450 869
</TABLE>
Location & Market
Villa Vista, located in Barstow, California, is a community of about
22,000 and is in northern San Bernardino County. It is located at the
juncture of Interstates 15 and 40 between Los Angeles and Las Vegas and
serves as an important transportation center. It is also home to the Fort
Irwin National Training Center.
Competition
There are six properties of similar size and age as Villa Vista that are
in direct competition with the property.
Real Estate Taxes
It is estimated that annual real estate taxes with respect to Villa Vista
will be approximately $73,454 for 1996.
Fees
In connection with the selection and acquisition of the Villa Vista Bonds,
the Manager will not receive any Mortgage Loan Placement Fees from the
Borrower. However, the Manager is entitled to receive from the Trust (i) a
Bond Selection Fee and an Acquisition Expense Allowance in the amounts
described under "First Mortgage Bonds and Tax-Exempt Securities" above.
Lake Crystal Apartments
As noted previously, on January 9, 1995 the Trust executed a letter of
intent to purchase First Mortgage Bonds (the "Lake Crystal Bonds") in an
approximate aggregate principal amount of $9,600,000. The Lake Crystal Bonds
were expected to be issued by the Housing Finance Authority of Palm Beach and
secured by a first mortgage and mortgage loan on Lake Crystal Apartments, a
development consisting of 304 apartment units in West Palm Beach, Florida.
The Trust was unable to reach a satisfactory agreement with the developer
concerning capital improvements and other business issues which arose as a
result of the Manager's due diligence. The above noted letter of intent has
expired and is of no further effect and all negotiations with the developer
have been discontinued.
Tax-Exempt Securities
On May 3, 1995 the Trust used a portion of the Net Proceeds of the
Offering to purchase a Topeka, Kansas General Obligation Tax-Exempt Bond (the
"Kansas Bond") from Smith Barney. The Kansas Bond, which had a principal face
value of $200,000 and interest rate of 9.25%, was purchased at the premium
price of 101.124% or $202,480 and matured on August 1, 1995. The yield to
maturity of the Kansas Bond was 4.104%.
8
<PAGE>
On September 19, 1995 the Trust used a portion of the proceeds from the
Kansas Bond to purchase a New York State Environmental Tax-Exempt Bond (the "New
York Bond") from Smith Barney. The bond, which had a principal face value of
$200,000 and interest rate of 4.4%, was purchased at the premium price of
100.116% or $200,232 and matured on November 15, 1995. The yield to maturity of
the New York Bond was 3.506%.
On December 12, 1995 the Trust used a portion of the proceeds from the New
York Bond to purchase a Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond (the "Penn Bond") from Wheat First Butcher Singer. The bond
which had a principal face value of $200,000 and interest rate of 8.25%, was
purchased at the premium price of 102.796% or $205,592 and matured on
February 15, 1996. The yield to maturity of the Penn Bond was 3.291%.
SUMMARY OF THE OFFERING
On page 4 of the Prospectus, in the subsection "Distributions," the first
sentence is replaced with:
The Trust will begin making Cash Distributions from Cash Flow, if
available, within 45 days after the end of the first calendar quarter in
which investors are accepted as Shareholders.
***
RISK FACTORS
Possible Lack of Diversification. Reference is made to the section of the
Prospectus captioned, "Risk Factors--Business Risks--Possible Lack of
Diversification" (p. 11) which provides disclosure with respect to the risk
associated with lack of diversification. To date the Trust has acquired only
two First Mortgage Bonds and is currently negotiating for the purchase of one
additional First Mortgage Bond. However, there can be no assurance that such
negotiations will result in the consummation by the Trust of such
transaction. In addition, although it is the intention of the Trust to
further diversify its portfolio of First Mortgage Bonds, there can be no
assurance that the Trust will be able (i) to raise significant additional
proceeds and, therefore, (ii) to further diversify its portfolio, prior to
the expiration of the offering period. If, as is likely, the Trust is unable
to obtain subscriptions for the maximum number of Shares offered, the Trust
will acquire fewer First Mortgage Bonds than it otherwise would, thus
achieving less diversification of its investments.
TERMS OF THE OFFERING
Certain states which have investor suitability standards which are
different from those set forth in the Prospectus are noted by sticker
supplement where appropriate.
***
MANAGEMENT COMPENSATION
This section has been revised to implement a deferral of one-half of the
Special Distribution that the Manager is to receive. Specifically, one-half
of the Special Distribution will be payable on a deferred basis out of Sale
or Repayment Proceeds rather than out of Adjusted Cash From Operations. The
deferred portion of the Special Distribution as it relates to Sale or
Repayment Proceeds from the Disposition of a First Mortgage Bond will be
payable only with respect to Sale or Repayment Proceeds in excess of the
price at which the Trust purchased such First Mortgage Bond. As a consequence
of this change, conforming changes have been made to each of the following
sections, as reflected below: "Summary of the Offering," "Management
Compensation," "Income and Losses and Cash Distributions," "Glossary" and
"Trust Agreement."
In addition, the Property Management and Insurance Brokerage
Fees--previously described in the footnotes to the Management Compensation
Table and in the Trust Agreement--have been placed in the Management
Compensation Table proper.
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These specific changes are made to reflect the above:
Summary of the Offering
On page 4 of the Prospectus under the subsection "Distribution of Sale or
Repayment Proceeds", the lead-in is replaced with:
Distribution of Sale or Repayment Proceeds: After payment of the Special
Distribution of Sale or Repayment Proceeds, Sale or Repayment Proceeds will
be distributed:
Management Compensation
On page 17 of the Prospectus, the second sentence of the first paragraph
of this section is replaced with:
Other than as set forth in the following table (including the footnotes
thereto) and in Paragraph 9.1 of the Trust Agreement (applying to
compensation, prices or fees for services in extraordinary circumstances), no
compensation (directly or indirectly) is to be paid to the Manager and its
Affiliates.
In addition, the following changes are made to the table in this section,
which begins on page 17 of the Prospectus:
(i) The following entries are added under "Operating Stage":
<TABLE>
<S> <C> <C>
Manager or its Affiliates Property Management Fee (if the Manager or its Affiliates Not determinable at this time. (7)
ever provide property management services with respect
to a Property) equal to the lesser of (i) fees which are
competitive for similar services in the same geographic
area or (ii) 5% of the annual gross revenues of the relevant
Property, which fees shall include all rent-up, leasing
and re-leasing fees, bonuses and leasing-related services
paid to any person, bookkeeping services and fees paid
to non- related persons for property management services
(6).
Manager or its Affiliates Insurance Brokerage Fee (if the Manager or its Affiliates Not determinable at this time. (7)
ever provide insurance brokerage services with respect
to a Property) equal to no greater than the lowest quote
obtained from two unaffiliated insurance agencies, with
comparable coverage and terms. (6)
</TABLE>
(ii) The entry "Special Distribution of Adjusted Cash From Operations"
under "Operating Stage" is changed to "Special Distribution" and the first
three sentences of footnote (8) on page 20 of the Prospectus are replaced
with the following:
The Special Distribution is payable to the Manager for managing the Trust
and its portfolio of First Mortgage Bonds and Tax-Exempt Securities. The
Special Distribution shall be calculated on the Total Invested Assets as of
the last day of each quarter. With respect to First Mortgage Bonds, the
Special Distribution shall be paid only with respect to First Mortgage Bonds
held by the Trust for at least one full quarter and only with respect to
those First Mortgage Bonds which have achieved a return for the respective
quarter of not less than 7.25% per annum based upon actual collections
received not later than 60 days after the end of each such respective
quarter. With respect to the Disposition of a First Mortgage Bond, the
Manager shall receive the Special Distribution of Sale or Repayment Proceeds
(see below) only with respect to Sale or Repayment Proceeds in excess of the
price at which the Trust purchased such First Mortgage Bond. One-half of the
Special Distribution, constituting
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the Special Distribution of Adjusted Cash From Operations, shall be payable
quarterly and one-half, constituting the Special Distribution of Sale or
Repayment Proceeds, shall be payable as provided under "Liquidation Stage"
below.
(iii) The following lead-in is added to the entry "Subordinated Incentive
Fee" under "Liquidation Stage" on page 18 of the Prospectus:
After payment of the Special Distribution of Sale or Repayment
Proceeds(8), . . .
Income and Losses and Cash Distributions
On page 48 of the Prospectus, under the subsection "Sale or Repayment
Proceeds", the seventh, eighth and ninth lines of the second paragraph are
replaced with:
. . . date and will be distributed at such time as the Manager, in its
sole discretion, determines, to the Manager as payment for the Special
Distribution of Sale or Repayment Proceeds, then in the following order of
priority:
Glossary
The definition of "Special Distribution" is deleted and the following new
definitions are added to the Glossary:
"Special Distribution" shall mean the Special Distribution of Adjusted
Cash from Operations and the Special Distribution of Sale or Repayment
Proceeds.
"Special Distribution of Adjusted Cash From Operations" shall mean the
amount payable to the Manager pursuant to Paragraph 11.10.1 of the Trust
Agreement.
"Special Distribution of Sale or Repayment Proceeds" shall mean the amount
payable to the Manager pursuant to Paragraphs 11.10.1 and 11.11 of the Trust
Agreement.
Trust Agreement
The Trust Agreement (which begins on page A-i of the Prospectus) has been
revised and amended as follows:
(i) Paragraph 3. The definition of "Special Distribution" on page A-7 has
been deleted and the following new definitions have been added to the Trust
Agreement:
"Special Distribution" shall mean the Special Distribution of Adjusted
Cash from Operations and the Special Distribution of Sale or Repayment
Proceeds.
"Special Distribution of Adjusted Cash From Operations" shall mean the
amount payable to the Manager pursuant to Paragraph 11.10.1.
"Special Distribution of Sale or Repayment Proceeds" shall mean the amount
payable to the Manager pursuant to the provisions of Paragraphs 11.10.1 and
11.11 of the Trust Agreement.
(ii) Paragraph 11.6.3. This Paragraph has been changed to the following:
11.6.3 Notwithstanding the provisions of Paragraphs 11.6.1 and 11.6.2, and
subject to the provisions of Paragraph 11.9, Net Income arising from the
occurrence of a Disposition shall be allocated (a) first, to all Owners
having negative capital account balances in proportion to and to the extent
of their respective negative capital account balances (in determining the
balance in an Owner's capital account for purposes of this Paragraph
11.6.3(a), such capital account shall be increased by the Owner's share of
any Trust Minimum Gain and Shareholder Minimum Gain remaining at the close of
the final period in respect of which such allocations are being made); (b)
second, to the Manager, in an amount equal to the Special Distribution of
Sale or Repayment Proceeds distributed to the Manager; (c) then, 1% to the
Manager and 99% to the Shareholders until the capital account balance of each
Shareholder (determined after making the allocation described in Paragraph
11.6.3(a) but before distributing the Sale or Repayment Proceeds attributable
to such Disposition) is equal to his Adjusted Contribution; (d) fourth, 1% to
the Manager and 99% to the Shareholders until the capital account balance of
each Shareholder (determined after making the
11
<PAGE>
allocation described in Paragraph 11.6.3(a) and Paragraph 11.6.3(b) but
before distributing the Sale or Repayment Proceeds attributable to such
Disposition) is equal to the sum of such Shareholder's (i) Adjusted
Contribution, plus (ii) Shareholder Return (less prior distributions in
repayment thereof); and (e) the remainder of such Net Income, if any, 1% to
the Manager and 99% to the Shareholders.
(iii) Paragraph 11.10.1. This Paragraph has been changed to the following:
11.10.1 The Manager shall be entitled to receive a Special Distribution
equal to .5% per annum of the Total Invested Assets from the date of the
first investment in First Mortgage Bonds or Tax-Exempt Securities; provided
that, with respect to First Mortgage Bonds, the Manager shall receive the
Special Distribution only with respect to those First Mortgage Bonds held by
the Trust for at least one full quarter and only with respect to those First
Mortgage Bonds which have achieved a return for the respective quarter of not
less than 7.25% per annum based upon actual collections received not later
than 60 days after each such quarter; and provided further that, with respect
to the Disposition of a First Mortgage Bond, the Manager shall receive the
Special Distribution of Sale or Repayment Proceeds (see below) only with
respect to Sale or Repayment Proceeds in excess of the price at which the
Trust purchased such First Mortgage Bond. One-half of the Special
Distribution, constituting the Special Distribution of Adjusted Cash From
Operations, shall be payable quarterly and one-half, constituting the Special
Distribution of Sale or Repayment Proceeds, shall be payable as provided in
Paragraph 11.11 below.
(iv) Paragraph 11.10.2. The reference to the "Special Distribution" has
been changed to the "Special Distribution of Adjusted Cash From Operations".
(v) Paragraph 11.11. The lead-in has been changed to the following:
11.11 Distributions of Sale or Repayment Proceeds. After payment of the
Special Distribution of Sale or Repayment Proceeds, Sale or Repayment
Proceeds shall be distributed as follows:
In addition, the following changes have been made:
(i) Paragraph 9.1. This Paragraph has been revised and amended by adding a
sentence to the end of the first paragraph:
Extraordinary circumstances would only be presumed where there is an
emergency situation requiring immediate action by the Manager, and the
service is not immediately available from unaffiliated parties. Extraordinary
circumstances shall, in no event, include general and administrative
expenses, except as otherwise provided in this Paragraph 9.1.
(ii) Paragraph 15.4.8. This Paragraph has been revised and amended in its
entirety as follows:
15.4.8 cause the Trust to invest in a First Mortgage Bond secured by a
Mortgage Loan on any one Property if the aggregate amount of all mortgage
loans outstanding on the Property, including the principal amount of the
Mortgage Loan, would exceed an amount equal to 85% of the appraised value of
the Property, as determined by an independent appraiser, except where the
Trust has purchased a First Mortgage Bond at a price that is no more than 85%
of the value of the underlying Property notwithstanding that the face amount
of the outstanding mortgage loans with respect to the Property exceeds 85% of
the value of the underlying Property, provided that any loans relating to the
Property which are advanced by third parties (and which cause the aggregate
amount of all mortgage loans outstanding on the Property to exceed 85% of the
appraised value of the Property) are subordinated to the Trust's investment
and do not entitle such third party lender to any rights upon default until
after the Trust's First Mortgage Bond and related Mortgage Loan with respect
to such Property have been repaid;
***
12
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PRIOR PERFORMANCE SUMMARY
The information in this section should not be considered as indicative of
possible capitalization or operations of the Trust, because many of the
programs described herein have different structures from the Trust, and only
three of the six programs with investment objectives similar to those of the
Trust have invested in insured or guaranteed mortgage loans. The inclusion of
this information in the Prospectus does not imply or indicate that the Trust
will make comparable investments and does not imply or indicate that
purchasers of the Shares will experience returns comparable to those
experienced by investors in the partnerships described herein.
General
Affiliates of Related have, since 1972, sponsored numerous programs which
invest directly or indirectly in real estate. During the last ten years, such
Affiliates have sponsored a total of 39 programs: six publicly-offered
financing programs, 13 publicly-offered programs which invest directly in
real estate and 20 privately-offered programs which invest directly in real
estate.
Summary of Public Financing Programs
During the ten-year period ended December 31, 1995, the six
publicly-offered public financing real estate limited partnerships sponsored
by Affiliates of Related have raised in the aggregate approximately
$568,537,000 from approximately 32,390 investors. These programs have
acquired with initial proceeds 32 first mortgage bonds secured by first
mortgage loans in the principal amount of $348,602,428 and 15 FHA coinsured
or insured mortgages in the principal amount of $122,125,013, six REMIC
certificates aggregating a purchase price of $9,762,793 and three GNMA
certificates aggregating a purchase price of $8,532,847. Of the underlying 45
properties (two of the public partnerships each purchased a portion of an
issuance of first mortgage bonds on a single residential property), eight are
located in the central region, one in the east, three in the north central
region, two in the northeast, four in the northwest, three in the south, 18
in the southeast, and six in the southwest. All of the underlying properties
are residential multifamily apartment complexes. Based on the aggregate
principal amount, 14% of the properties were existing and 86% were under
construction or to be constructed at the time of acquisition.
Certain of the publicly-offered financing programs have experienced
adverse developments. (See "Public Financing Programs", below). Due to the
adverse developments experienced by these programs, cash available for
distribution has been less than what it otherwise would have been.
Summary of Public Real Estate Limited Partnerships
During the ten-year period ended December 31, 1995, the 13
publicly-offered real estate limited partnerships sponsored by Affiliates of
Related have raised in the aggregate approximately $839,966,000 from
approximately 60,890 investors. These programs have acquired directly or
purchased interests in limited partnerships which own a total of 306
underlying properties (there are six residential properties that are shared
between two public partnerships) with an aggregate investment of
approximately $1,756,829,214. These properties are located in 11 geographic
regions of the United States and the Commonwealth of Puerto Rico. Twenty-two
are located in the south, 12 in the south central region, 70 in the
southeast, 78 in the northeast, 10 in the northwest, 17 in the southwest,
nine in the west, 20 in the central region, 24 in the east, 14 in the east
central region, 20 in the north central region, and 10 in the Commonwealth of
Puerto Rico. None of the properties included in such figures has been sold.
Of the properties acquired, 292 are residential and 14 are commercial. Based
on aggregate purchase price, 45% of the properties were existing and 55% were
under construction or to be constructed at the time of acquisition. Certain
of the publicly-offered real estate limited partnerships have experienced
adverse developments. See "Public Real Estate Limited Partnerships" below.
Summary of Private Real Estate Limited Partnerships
During the ten-year period ended December 31, 1995, Affiliates of Related
have raised approximately $1,852,500 from approximately 30 investors in one
privately-offered real estate limited partnership formed to invest, as a
limited partner, in other limited partnerships which own and operate existing
multifamily rental housing projects that are financed and operated with
assistance from state and city governments. This program has acquired an
interest in one property which has a purchase price of approximately
$7,549,445.
This property is located in the northeast region of the United States and
was under construction at the time of acquisition. This private real estate
limited partnership is continuing to meet its investment objective of
providing tax losses to its investors.
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<PAGE>
During the ten-year period ended December 31, 1995, Affiliates of Related
have raised in the aggregate approximately $697,300,952 from approximately 210
investors in 19 privately-offered real estate limited partnerships formed to
invest in local limited partnerships owning apartment complexes that are
eligible for the low-income housing tax credit. These programs have purchased or
have acquired interests in a total of 84 underlying properties (there are two
residential properties that are shared between two private partnerships) which
have an aggregate purchase price of $892,319,434. These properties are located
in eight geographic regions of the United States. Nineteen are located in the
southeast, 22 in the southwest, 11 in the east, one in the central region, five
in the east central region, six in the north central region, 13 in the northeast
and seven in the northwest. Based on aggregate purchase price, 53% of the
properties were existing and 47% were newly constructed or under construction at
the time of acquisition.
Comparison of Investment Objectives
Although only one of the prior programs sponsored by Affiliates of Related
was structured as a real estate investment trust, the investment objectives
of all six of the public financing programs are similar to those of the
Trust. The one public financing program structured as a real estate
investment trust was formed to invest primarily in insured or guaranteed
mortgage investments and it originates or acquires mortgage loans on
multifamily residential properties and health care facilities. Two other
public financing programs were formed to invest in insured or guaranteed
mortgage investments and both programs originate or acquire interests in
first mortgage construction and permanent loans that finance or refinance
multifamily residential rental properties or retirement communities that have
been or will be developed or substantially rehabilitated. The remaining three
public financing programs were formed to invest in a portfolio of tax-exempt
participating first mortgage bonds issued by various state or local
governments or their agencies or authorities. The investment objectives of
these three programs are similar to those of the Trust in that the bonds are
primarily secured by first mortgage loans on multifamily residential
apartments, although such programs are providing distributions that are
exempt from federal income taxation and were, therefore, not offered to
tax-exempt investors. All of the public financing programs sponsored by
Affiliates of Related seek to provide quarterly distributions from adjusted
cash from operations and to provide additional distributions arising from
participations in the cash flow of and the sale or refinancing proceeds of an
underlying property. The investment objectives of the other public and
private real estate limited partnerships are not similar to those of the
Trust in that they invest directly or indirectly in residential or commercial
real estate.
Public Financing Programs
Summit Tax Exempt Bond Fund, L.P. ("Summit Tax I"), Summit Tax Exempt L.P.
II ("Summit Tax II") and Summit Tax Exempt L.P. III ("Summit Tax III")
comprise a series of public financing programs, each formed to invest in a
portfolio of tax-exempt participating first mortgage bonds issued by various
state or local governments or their agencies or authorities.
The Summit Tax I bonds are secured by first mortgage loans on multifamily
residential apartments developed by third party developers. The Summit Tax II
and Summit Tax III bonds are secured by first mortgage loans on multifamily
residential apartments or retirement community projects developed by third
party developers or by Affiliates of the Advisor.
Summit Tax I commenced its offering on February 19, 1986 and, as of its
final closing on March 20, 1986, had raised approximately $158,125,000 from
approximately 7,360 investors. Summit Tax I has purchased eleven first
mortgage bonds ("FMBs") in the aggregate principal amount of $134,027,428
secured by mortgage loans on apartment complexes located in California (2),
Florida (1), Georgia (1), Minnesota (1), Missouri (2), Pennsylvania (1),
South Carolina (2) and Texas (1). All eleven properties are completed and
have reached stabilized occupancy. Original stated base interest rates on the
FMBs ranged from 8.0% to 8.5%.
For certain properties collateralizing FMBs (The Mansion, High Pointe
Club, Cypress Run, Greenway Manor, Cedar Creek, Clarendon Hills, Martin's
Creek and East Ridge) the original owners of the underlying properties were
replaced by Affiliates of the Related General Partner who have not made
equity investments in the underlying properties, but have assumed the
day-to-day responsibilities and obligations of operating the underlying
properties as a result of Summit Tax I exercising its remedies as a lender
under the terms of the loan documents.
Currently three of these properties (High Pointe Club, Cedar Creek and
Greenway Manor) are still held by an affiliate of the general partner of
Summit Tax I and buyers are being sought for these properties who would make
equity investments in the underlying properties and assume the first
14
<PAGE>
mortgage obligations of the respective bonds. Reduced rates of interest are
currently being paid to Summit Tax I by the High Pointe Club and Cedar Creek
properties, based on cash flow generated by each property's operations;
however, Greenway is currently paying a rate equal to 9%. In addition, High
Pointe Club obtained additional third-party financing in 1990 to pay for
construction cost overruns in the amount of $3,250,000 secured by pari passu
mortgage bonds. Pursuant to the terms of those bonds, available cash flow
after paying operating expenses from this property is first applied to
satisfy interest due on the additional financing then applied to interest due
to Summit Tax I. Four properties (The Mansion, Clarendon Hills, Martin's
Creek and East Ridge) have been subsequently sold to various third-party
borrowers. In conjunction with the sale of three of such properties
(Clarendon Hills, Martin's Creek and East Ridge) in 1990 and 1992, such loans
were modified, currently calling for minimum debt service payments of 5.52%,
7.25% and 7.25%, respectively. These properties nevertheless are paying on an
annually adjusted basis approximately 5.52%, 7.25% and 7.25%, respectively.
The Mansion loan, which was modified in 1994 is currently paying a rate equal
to 5.7%.
Two other properties (North Glen and Thomas Lake) are in soft markets and
are not generating sufficient revenues to pay the original stated debt
service. Forbearance agreements have been entered into with the respective
obligors of the FMBs which call for a partial deferral of interest,
temporarily of up to 3.0% annually of the base rate. These deferrals are
scheduled to decrease in annual scheduled increments. The difference between
the minimum pay rate and the original stated rate is deferred and is payable
from future available cash flow or ultimately from sale/refinancing proceeds.
Currently these properties are paying interest at annual rates of
approximately 6% and 8.53%, respectively.
Effective with the May 1, 1995 payment date, due to ongoing soft market
conditions, Sunset Terrace began making payments based on the monthly net
cash flow generated by the property in accordance with and pending a
finalized forbearance agreement which became effective as of August 1, 1995.
In accordance with the terms of this agreement, Sunset Terrace will pay
interest to the extent of cash flow generated by the property. The difference
between the pay rate and the stated rate is deferred and payable from
available future cash flow. In addition, the owner has replaced the property
manager with a new property manager who is an affiliate to the Related
general partner. Other terms of the agreement call for the deed to be
transferred to the partnership or its designee no later than January 30, 1997
should the owner be unable to bring the loan fully current and all interest
due and payable (including deferred base interest) on or before that date
these and other obligations are secured by a guarantee from an affiliate of
the owner. Currently, this property is paying interest at an annual rate of
5%.
As a result of the failure to pay 1992 and 1993 real estate taxes, Summit
Tax I initiated steps to enforce its rights and remedies on the Cypress Run
property in July 1994 including acceleration of the loan and a $350,000 draw
on an irrevocable letter of credit issued on behalf of the borrower. In
response, on July 15, 1994, Cypress filed for bankruptcy under Chapter 11 of
the United States Bankruptcy Code. On March 31, 1995 pursuant to a court
order, the ownership of the Cypress Run property was transferred to an
affiliate of the Related general partner which assumed the day to day
responsibilities of running the property and obligations under the FMB. The
property is currently paying a pay rate equal to 5.8%. Pursuant to the terms
of the bond documents, approximately $348,000 of the proceeds received from
the draw on the letter of credit has been recorded as a reduction of the FMB,
with the balance applied as interest.
Summit Tax I has restated its 1995 and 1994 financial statements to reflect a
change in accounting treatment in order to comply with the provisions of
Statement of Financial Accounting Standards No. 115 in which Summit Tax I will
account for its investments in FMBs as debt securities. As such, effective
January 1, 1994, investments in FMBs are carried at their estimated fair values
resulting in realized losses being included in earnings while unrealized gains
and losses are reported as a separate component of partners' equity. The
cumulative effects of adopting this accounting treatment is (i) a cost basis
adjustment downward of approximately 1.4% of original aggregate principal amount
invested in FMBs by Summit Tax I and (ii) a cumulative unrealized holding gain
of approximately 2.5% of the original aggregate principal amount invested in
FMBs by Summit Tax I as of December 31, 1995.
The unrealized holding gains and losses as determined by Summit Tax I
management is a temporary adjustment and does not affect the cash flow
generated from properties' operations, distributions and the financial
obligation under the FMBs. However, when Summit Tax I determines that the
decline in the fair value of the FMBs is other than temporary, based on
current information and events, and it is probable that Summit Tax I will be
unable to collect all amounts due
15
<PAGE>
according to the existing contractual terms of the bonds, such impairment
will result in the cost basis of the bond being written down to its current
estimated fair value, with the amount of this impairment being accounted for
as a realized loss.
Because the FMBs are not readily marketable, Summit Tax I estimates fair
value for each bond as the present value of its expected cash flows using an
interest rate for comparable tax-exempt investment. This process is based
upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon
determination of an appropriate market rate of interest, all of which are
based on good faith estimates and assumptions developed by Summit Tax I's
management. Changes in the market conditions and circumstances may occur
which cause these estimates and assumptions to change, therefore, actual
results may vary from the estimates and the variance may be material.
Since inception, cash distributions have been funded from operating
revenues, working capital reserves (return of capital), uninvested proceeds
applied to working capital reserves (return of capital) and a loan from an
affiliate of a general partner. As of December 31, 1995, the aggregate amount
of distributions made over the past nine years representing a return of
capital, in accordance with generally accepted accounting principles (which
include amortization of deferred bond selection fees and financing fees),
approximates 27% (which represents 14% of the gross proceeds raised by Summit
Tax I). Distributions are currently being funded exclusively from operating
revenues.
Summit Tax II commenced its public offering on July 7, 1986 and, as of its
final closing on May 7, 1987, had raised approximately $183,032,000 from
approximately 10,250 investors. Summit Tax II has purchased 16 FMBs in the
aggregate principal amount of $162,125,000 secured by first mortgage loans on
apartment complexes located in California (2), Georgia (1), Florida (3), Iowa
(1), Minnesota (2), Missouri (2), South Carolina (1), Tennessee (1), and
Washington (3) (including $2,500,000 of a $9,700,000 FMB issue in which
Summit Tax III had acquired the remaining $7,200,000). There are 16
properties securing FMBs and all properties have reached stabilized
occupancies. The original stated base interest rates on all the FMBs was
8.0%.
Three properties securing FMBs (The Lakes, Pelican Cove and Bay Club) are
leased at rental rates which resulted in their making interest payments at
less than the stated debt service on the bonds, and Summit Tax II has
exercised its remedies as a lender under the terms of the loan documents and
developers of such properties were replaced by Affiliates of the Related
General Partner who have not made equity investments in the underlying
properties, but have assumed the day-to-day responsibilities and obligations
of operating the underlying properties. Two of these properties (Bay Club and
The Lakes) were subsequently sold in 1990 and 1994, respectively, to third
parties and the loan agreements related to such properties have been
modified. The Bay Club agreement currently calls for minimum debt service
payments of 7.25%. The property is currently paying an annualized rate of
7.95%. The Lakes property has a minimum pay rate of 4.87%; however, the
property paid minimum interest and contingent interest equal to an annualized
rate of 5.55% in 1995. One property (Pelican Cove) is making interest
payments to Summit Tax II based on cash flow generated from operations
currently at 7.50%. The minimum interest rate on five other FMBs (Shannon
Lakes, Bristol Village, Players Club, Suntree and Newport Village) has also
been modified pursuant to forbearance agreements reached with the respective
borrowers. These agreements called for initial temporary deferrals of up to
2% of their respective base rates. Such annual deferrals are scheduled to
decrease in annual scheduled increments. The difference between the minimum
pay rate and the original stated rate is deferred and is payable from future
cash flows or ultimately from sale/ refinancing proceeds.
Effective with the May 1, 1995 payment date, the owner of the Loveridge
and Sunset Down properties began making interest payments based on monthly
net cash flow generated by the properties in accordance with the terms of a
pending agreement which became effective August 1, 1995. In accordance with
the terms of the Sunset Down agreement, the owner will continue to pay debt
service to the extent of cash flow from the property. The difference between
the pay rate and stated rate is deferred and payable out of available future
cash flow. In addition, pursuant to the agreement the owner replaced the
property manager and leasing agent with a new property manager who is an
affiliate of the Related general partner. Other terms of the agreement call
for the deed to be transferred to the partnership or its designee no later
than January 30, 1997 should the loan not be brought fully current on all
interest due and payable (including deferred base interest) as of that date.
These and other obligations are secured by a guarantee from an affiliate of
the
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owner. The property is currently paying debt service at a rate of 5%.
Effective as of August 1, 1995 the owner of the Loveridge property
transferred the deed to the property to an affiliate of the Related general
partner for limited consideration. Pursuant to the agreement, the Related
affiliate, which has not made an equity investment in the property, assumed
the day to day responsibilities of running the property and the obligation
under the loan. The property is currently paying debt service at a rate of
5%.
Summit Tax II has restated its 1995 and 1994 financial statements to
reflect a change in accounting treatment in order to comply with the
provisions of Statement of Financial Accounting Standards No. 115 in which
Summit Tax II will account for its investments in FMBs as debt securities. As
such, effective January 1, 1994, investments in FMBs are carried at their
estimated fair values resulting in realized losses being included in earnings
while unrealized gains and losses are reported as a separate component of
partners' equity. The cumulative effects of adopting this accounting is (i) a
cost basis adjustment downward of approximately 1.5% of original aggregate
principal amount invested in FMBs by Summit Tax II and (ii) a cumulative
unrealized holding loss of approximately .19% of the original aggregate
principal amount invested in FMBs by Summit Tax II as of December 31, 1995.
The unrealized holding gains and losses as determined by Summit Tax II
management is a temporary adjustment and does not affect the cash flow
generated from properties' operations, distributions and the financial
obligation under the FMBs. However, when Summit Tax II determines that the
decline in the fair value of the FMBs is other than temporary, based on
current information and events, and it is probable that Summit Tax II will be
unable to collect all amounts due according to the existing contractual terms
of the bonds, such impairment will result in the cost basis of the bond being
written down to its current estimated fair value, with the amount of this
impairment being accounted for as a realized loss.
Because the FMBs are not readily marketable, Summit Tax II estimates fair
value for each bond as the present value of its expected cash flows using an
interest rate for comparable tax-exempt investment. This process is based
upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon
determination of an appropriate market rate of interest, all of which are
based on good faith estimates and assumptions developed by Summit Tax II's
management. Changes in the market conditions and circumstances may occur
which cause these estimates and assumptions to change, therefore, actual
results may vary from the estimates and the variance may be material.
Since inception, cash distributions have been funded from operating
revenues, working capital reserves (return of capital) and uninvested
proceeds applied to working capital reserves (return of capital). As of
December 31, 1995, the aggregate amount of distributions made over the past
nine years representing a return of capital, in accordance with generally
accepted accounting principles (which include amortization of deferred bond
selection fees), approximates 6% (which represents 3% of the gross proceeds
raised by Summit II). Distributions are currently being funded exclusively
from operating revenues.
Summit Tax III commenced its public offering on June 10, 1987 and, as of
its final closing on August 12, 1988, had raised approximately $61,633,000
from approximately 3,220 investors. Summit Tax III has purchased five FMBs in
the aggregate principal amount of $52,450,000 secured by first mortgage loans
on apartment complexes located in California (2), Florida (1) and Georgia (2)
(including $7,200,000 of a $9,700,000 first mortgage bond issue in which
Summit Tax II had acquired the remaining $2,500,000). All 5 properties are
completed and have reached stabilized occupancy. Original stated base
interest rates on all FMBs were 8% annually.
Due to soft markets, forbearance agreements have been reached with
developers of two of the properties (Player's Club and Lake Pointe). These
agreements call for a temporary deferral of up to 2% of the original base
interest rate. Such deferrals are scheduled to decrease in annual scheduled
increments. The difference between the minimum pay rate and the original
stated rate is deferred and is payable from future cash flows or ultimately
from sale/refinancing proceeds. In addition, due to a soft market, a
forbearance agreement has been reached with the developer of one property
(Orchard Mill) calling for minimum interest payments equating to an annual
rate of 5%. Payments currently equate to approximately a 5.7% annual rate.
Effective with the May 1, 1995 payment date, the Sunset Village and Sunset
Creek properties began making interest payments based on monthly net cash
flow generated by the
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properties in accordance with a pending agreement. Pursuant to that
agreement, effective August 1, 1995 the owner of Sunset Village and Sunset
Creek transferred the deeds to the properties to an affiliate of the Related
general partner for limited consideration. Pursuant to the agreement, the
Related affiliate, which has not made an equity investment in the properties,
assumed the day to day responsibilities of running the properties and the
obligations under the loan. The partnership currently receives monthly net
cash flow from the properties toward debt service at a 5% annualized rate.
Summit Tax III has restated its 1995 and 1994 financial statements to reflect
a change in accounting treatment in order to comply with the provisions of
Statement of Financial Accounting Standards No. 115 in which Summit Tax III will
account for its investments in FMBs as debt securities. As such, effective
January 1, 1994, investments in FMBs are carried at their estimated fair values
resulting in realized losses being included in earnings while unrealized gains
and losses are reported as a separate component of partners' equity. The
cumulative effects of adopting this accounting is (i) a cost basis adjustment
downward of approximately 8.6% of original aggregate principal amount invested
in FMBs by Summit Tax III and (ii) a cumulative unrealized holding gain of
approximately 1.8% of the original aggregate principal amount invested in FMBs
by Summit Tax III as of December 31, 1995.
The unrealized holding gains and losses as determined by Summit Tax III
management is a temporary adjustment and does not affect the cash flow
generated from properties' operations, distributions and the financial
obligation under the FMBs. However, when Summit Tax III determines that the
decline in the fair value of the FMBs is other than temporary, based on
current information and events, and it is probable that Summit Tax III will
be unable to collect all amounts due according to the existing contractual
terms of the bonds, such impairment will result in the cost basis of the bond
being written down to its current estimated fair value, with the amount of
this impairment being accounted for as a realized loss.
Because the FMBs are not readily marketable, Summit Tax III estimates fair
value for each bond as the present value of its expected cash flows using an
interest rate for comparable tax-exempt investment. This process is based
upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon
determination of an appropriate market rate of interest, all of which are
based on good faith estimates and assumptions developed by Summit Tax III's
management. Changes in the market conditions and circumstances may occur
which cause these estimates and assumptions to change, therefore, actual
results may vary from the estimates and the variance may be material.
Since inception, cash distributions have been and are being funded from
operating revenues, working capital reserves (return of capital) and
uninvested proceeds applied to working capital reserves (return of capital).
As of December 31, 1995, the aggregate amount of distributions made over the
past eight and half years representing a return of capital, in accordance
with generally accepted accounting principles (which include amortization of
deferred bond selection fees and organizational costs), approximates 26%
(which represents 14% of the gross proceeds raised by Summit III).
Distributions are currently being funded from operating revenues and working
capital reserves.
Eagle Insured L.P. ("Eagle") was formed to invest primarily in coinsured
mortgage investments, including equity loans not to exceed 10% of the total
loans. Eagle originated or acquired first mortgage construction and permanent
loans underlying multifamily residential rental properties. Eagle commenced
its offering on December 11, 1987 and, as of its final closing in June 1989,
had raised approximately $52,822,000 from approximately 4,460 investors.
Eagle purchased four coinsured mortgage loans in the aggregate principal
amount of $46,628,800 on properties located in Georgia (1), Florida (2), and
North Carolina (1). Three of the properties were under construction and one
of the properties was existing at the time of the investment. All the
properties financed by the first mortgage loans are at stabilized
occupancies. With respect to the Cross Creek Apartments in Charlotte, North
Carolina (aggregate commitment of $19,278,000), the principals of the
original mortgagor have assigned all rights and property interest to Cross
Creek of Columbia Inc. due to the inability to complete construction and
lease up. On August 15, 1990, Eagle closed on an unsecured working capital
line of credit for up to $4,000,000 from an unaffiliated lender to, among
other purposes, make a loan to the replacement developer of Cross Creek to
pay for costs to complete construction and to fund operating deficits. Eagle
drew down $3,060,000 on this loan repaying approximately $222,000 of
principal as of December 31, 1993. On January 31, 1994, the owners of one of
the properties secur-
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ing a first mortgage loan held by Eagle, Tivoli Lakes, sold its interest to
an unaffiliated third party. The proceeds of the sale were used by the seller
to fully repay its outstanding first mortgage loan from Eagle of $13,510,000
and to repay its equity loan from Eagle of $1,523,000 together with
prepayment penalties, interest and other fees totaling $453,000. On February
7, 1994, Eagle used a portion of the repayment proceeds to fully repay the
outstanding balance of $2,838,000 of its working capital line of credit.
Cross Creek of Columbia Inc. continues to be liable to the Partnership for
the full $3,000,000 and interest thereon.
Since inception, cash distributions have been funded from revenues,
working capital reserves (return of capital), uninvested proceeds applied to
working capital reserves (return of capital) and net proceeds from the
repayment of one of the loans. As of December 31, 1995, the aggregate amount
of distributions made over the past eight years representing a return of
capital, in accordance with generally accepted accounting principles (which
include amortization of deferred loan origination fees and principal payments
received on mortgage loans), approximates 12% excluding 32% of repayment
proceeds from a sale of one of the first mortgage loans in 1994. Such
distributions represent 4% of the gross proceeds raised by Eagle.
Distributions are currently being funded exclusively from revenues and
repayment proceeds applied to working capital reserves.
Capital Mortgage Plus L.P. ("Capital") was formed primarily to invest in
federally coinsured, insured or guaranteed mortgage investments, and
additionally in uninsured equity loans not to exceed 10% of the total loans.
Capital primarily has originated or acquired interests in first mortgage
construction and permanent loans. The mortgages finance or refinance
multifamily residential properties and retirement communities that have been
or will be developed. Capital commenced its offering on May 10, 1989, and as
of its final closing on May 23, 1991, Capital had raised approximately
$36,733,000 from approximately 3,550 investors. Capital has invested in five
insured mortgage investments of which two are coinsured mortgages in the
aggregate principal amount of $14,398,825 and three are fully insured
mortgages in the aggregate principal amount of $14,390,922. These mortgages,
in the aggregate principal amount of $28,789,747, encumber multifamily
residential rental properties located in Alabama (2), Iowa, Kansas and
Oregon. All the properties are completed and have reached stabilized
occupancy. One property (Mortensen Manor) has not been able to meet its
obligations of additional interest, and the Partnership has entered into a
modification agreement with the borrower, which calls for a reduction in
additional interest payable of approximately 1.4% annually, effective January
1995.
Since inception, cash distributions have been funded from revenues and
working capital reserves (return of capital). As of December 31, 1995, the
aggregate amount of distributions made over the past four years representing
a return of capital, in accordance with generally accepted accounting
principles (which includes amortization of acquisition expenses and equity
loans and principal payments received on mortgage loans), approximates 24%
(which represents 10% of the gross proceeds raised by Capital). Distributions
are currently being funded from operating revenues and working capital
reserves.
American Mortgage Investors Trust ("AMIT") was formed to invest primarily
in federally insured or guaranteed mortgage investments. In addition, up to
7% of AMIT's portfolio may be comprised of uninsured loans made directly to
the developers or sponsors or principals of the owner of the developments.
AMIT commenced its offering on March 29, 1993 and as of its final closing on
November 30, 1994, AMIT had raised $76,192,000 (excluding volume discounts of
$40,575) from approximately 3,470 investors. AMIT has invested in five
insured mortgage loans in the aggregate principal amount of $43,328,642 on
multifamily residential real estate properties located in Connecticut (1),
Illinois (1), South Carolina (1) and Texas (2). Three properties are complete
and have reached stabilized occupancy and two are under construction. In
addition, AMIT initially purchased six REMIC Certificates having an aggregate
purchase price of $9,672,793, three GNMA Certificates having an aggregate
purchase price of $8,532,847 and one FHA Insured Project Loan having an
aggregate purchase price of $3,377,824. One REMIC certificate was sold on May
5, 1994 and the balance was sold on October 11, 1994. A loss of $143,605 was
recorded on these sales, of which the advisor has undertaken to reimburse the
program $93,979 of these losses.
Since inception, cash distributions have been funded from cash collections
of debt service payments, operating revenues and proceeds from disposition of
investments. As of December 31, 1995, the aggregate amount of distributions
made over the past two years representing a return of capital, in accordance
with generally accepted accounting principles (which includes amortization of
loan origination costs and organizational costs and principal payments
received on
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mortgage loans), approximates 44% (which represents 6% of the gross proceeds
raised by AMIT). Distributions are currently being funded from cash
collections of debt service payments and interest income through
approximately the distribution date.
Public Real Estate Limited Partnerships
The business of ten of the public real estate limited partnerships is to
invest, as a limited partner, in other limited partnerships which own or
lease and operate existing multifamily rental housing projects that are
financed and/or operated with assistance from federal or state governments or
agencies or through the issuance of tax-exempt bonds.
Cambridge Advantaged Properties Limited Partnership, formerly Hutton
Advantaged Properties Limited Partnership ("CAP I"), as of its final closing
on March 4, 1985, had raised $60,370,000 from approximately 4,450 investors.
CAP I has purchased interests in 61 local limited partnerships which each own
one existing apartment complex. Such apartment complexes are located in
Alabama (15), Arkansas (8), California (2), Colorado (2), Florida (1),
Georgia (3), Indiana (3), Kentucky (1), Massachusetts (3), Michigan (9),
Missouri (1), North Carolina (2), Oregon (2), South Carolina (1), Texas (6),
Virginia (1) and Washington (1). In connection with its investment in the 61
local limited partnerships, CAP I made cash payments aggregating $36,308,345
and issued 9-12% purchase money notes in the aggregate principal amount of
$85,458,825. The 61 apartment complexes owned by the local limited
partnerships were subject to outstanding mortgage indebtedness aggregating
$112,165,970 at the time of the public limited partnership's investment for a
total aggregate purchase price of $233,933,140.
The general partners of CAP I have advanced funds and deferred certain
fees and expense reimbursements in order for the partnership to meet third
party obligations. Without the general partners' advances and deferment of
fees, the partnership will not be in a position to meet its obligations.
Significant negative cash flows were experienced by the following four
local partnerships: Bicentennial Associates, Ltd. ("Bicentennial"), Bellfort
Associates, Ltd. ("Bellfort"), Park of Pecan I, Ltd. ("Pecan I"), Park of
Pecan II, Ltd. ("Pecan II"). These four local limited partnerships are
located in the Houston, Texas area.
During 1991 Bicentennial was notified by HUD that the debt to HUD had been
accelerated and that their mortgage was being foreclosed. During 1995, the
mortgage was sold to a bank, who has notified Bicentennial of their intent to
foreclose. As of December 31, 1995, CAP I has made approximately $494,000 of
voluntary noninterest bearing loans to fund Bicentennial's negative cash and
approximately $700,000 has been advanced by the original guarantor.
Bicentennial's management is in the process of negotiating a provisional
workout.
At March 25, 1995, Bellfort had not made the required interest payments on
its wraparound purchase note payable (including an underlying mortgage) and
was in default on said note. During 1994 Bellfort signed a work-out agreement
with HUD. Bellfort has submitted a proposal for a new work- out which has not
been approved as of February 9, 1996. On December 31, 1995, HUD announced its
intention to sell Bellfort's mortgage in April 1996. At December 31, 1995,
Bellfort's guarantor has funded $455,550 of its commitment to fund $493,980
of non-interest bearing operating deficit loans.
Pecan I and Pecan II have experienced operating losses since inception and
have funded their operating losses by borrowing amounts pursuant to operating
deficit guaranty agreements. Such agreements expired during 1989, and the
local partnerships have not made arrangements to obtain additional funds. If
these local partnerships continue to experience significant operating losses
and are unable to obtain additional funds they may be unable to continue
operations.
Another local partnership, Saraland Apartments, Ltd. ("Saraland"), has
been designated as a "Superfund" site on the National Priorities List under
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). During 1992, CAP I was added to a lawsuit previously commenced
against Saraland and their general partners. During 1994, CAP I obtained
summary judgment dismissing CAP I from the litigation, subject to appeal
rights. In addition, during 1993, CAP I was named by the United States
Environmental Protection Agency ("EPA") as a "Potentially Responsible Party"
under Superfund in connection with the Saraland site. During July 1993,
Saraland, the local general partners and CAP I were named as Respondents in a
unilateral administrative order issued under CERCLA by EPA, directing the
Respondents to implement the EPA-selected remedy for addressing contamination
by hazardous substances at the site. During September 1993, CAP I informed
EPA that they have "sufficient cause" to not comply with the order. Since
September 1993, EPA has not noti-
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fied CAP I whether it intends to take further legal action. Given the fact
that EPA has not informed CAP I whether or not it intends to pursue CAP I
through further legal action, neither management nor management's council are
in a position, at this point, to evaluate the likelihood of an unfavorable
outcome or range of any potential loss.
Cambridge Advantaged Properties II Limited Partnership, formerly Hutton
Advantaged Properties II Limited Partnership ("CAP II"), as of its final
closing on February 14, 1986, had raised $35,750,000 from approximately 2,490
investors. CAP II has invested in twelve local limited partnerships, each
owning one apartment complex consisting of 12 existing complexes. Such
apartment complexes are located in California (2), Florida (3), Kansas (2),
Oklahoma (1), Texas (2) and Virginia (2). In connection with its investment
in the 12 local limited partnerships, CAP II made cash payments aggregating
$18,425,447, issued promissory notes in the aggregate amount of $1,020,000
and assumed mortgage indebtedness of approximately $119,950,500 for a total
aggregate purchase price of $139,395,947.
CAP II is continuing to meet its investment objective of providing tax
losses to investors; however, in order to improve the potential for cash
distributions, CAP II has embarked on a program of refinancing mortgage
indebtedness encumbering its investments that were generally incurred in
periods of high interest rates. Of CAP II's 12 properties, seven have been
refinanced and one other is expected to require refinancing. The general
partners of CAP II have advanced funds and deferred certain fees and expense
reimbursements in order for the partnership to meet third party obligations.
Without the general partners' advances and deferment of fees, the partnership
will not be in a position to meet its obligations.
Financial difficulties have been experienced by the following nine local
partnerships: Sheridan Square Associates of Lawton ("Sheridan"),
Galveston-Stewart's Landing Ltd. ("Galveston"), Players Club at Fort Meyers,
Ltd. ("Players Club"), Suntree at Fort Meyers, Ltd. ("Suntree"), Triangle
Oaks Limited ("The Oaks"), Woodridge, Ltd. ("Woodridge"), McAdam Park--336,
Ltd. ("McAdam"), Apple Creek Associates of Denton, Ltd. ("Apple Creek") and
Suncreek--268 Ltd. ("Suncreek").
During 1990, Sheridan commenced making their scheduled debt service
payments under a workout agreement with the lender. During 1993, Sheridan
completed a restructuring of its mortgage debt and amended and restated the
unsecured promissory note.
Galveston has sustained continued operating deficits. Mortgage principal
payments have not been made since 1988 and during 1991, the U.S. Department
of Housing and Urban Development ("HUD") initiated foreclosure proceedings on
the property. The mortgage payable was originally due to HUD. During 1995,
HUD assigned and transferred the mortgage debt to a bank. Galveston has
entered into a provisional work-out arrangement pending a more formal
work-out arrangement which is presently being negotiated. Operating loans of
$549,279 have been advanced to Galveston by CAP II and are noninterest
bearing.
Players Club and Suntree have incurred operating losses and cash flow
deficits due to low occupancy levels. Players Club and Suntree's operating
deficit guarantees from their general partners have expired and there is no
further obligation to continue to fund operating deficits. During 1987, these
subsidiary partnerships completed negotiations to obtain new financing and in
1993, 1994 and 1995 modified agreements with their respective bondholders.
The Oaks modified and amended its mortgage and subordinated purchase money
notes during 1988. During September 1991, the Oaks filed a petition under
Chapter 11 of the Bankruptcy Code to avoid the possibility of a required
early payment of the total mortgage debt due to a technical default. During
May 1992, the Chapter 11 petition was consensually dismissed in favor of a
court-ordered Standstill Agreement which protected the Oaks from foreclosure
while alleviating expenses relating to the Chapter 11 proceeding. The
Standstill Agreement expired on August 15, 1992. During 1993, a declaratory
relief action was filed acknowledging that default events have occurred and
prohibiting the trustee from exercising any default remedies provided that
the Oaks complies with the terms of the Standstill Agreement. During 1994,
the debt of the Oaks was modified. As a result of the modification, notes
payable in the amount of $1,472,166 were surrendered by the mortgagee and
cancelled. In addition, interest accrued was also cancelled. The reduction in
the liabilities resulted in a recognition in extraordinary gain the amount of
$3,494,274 during 1994.
At December 31, 1987, Woodridge was in default on its mortgage notes.
During July 1988 a note modification arrangement became effective. As a
result of the mortgage note modifications and a change in local general
partner,
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property and equipment and mortgage notes were each reduced by $1,023,049 and
$172,185 of extraordinary income was recognized during 1988. Effective June
1, 1995, Woodridge completed a refinancing of IRS First Mortgage Debt which
matured on June 1, 1995. As a result of the Refinancing, Forgiveness of
Indebtedness income of $1,400,000 was realized as a result of Forgiveness of
Former Debt in the amount of $700,000 and forgiveness of account's interest
in the amount of $700,000.
As of December 31, 1991, McAdam's total liabilities exceeded total assets
and during February 1991, the local general partner notified McAdam that it
was no longer willing to fund operating deficits and was removed. At the same
time, McAdam went into technical default on its mortgage. During September
1991, McAdam filed a voluntary petition of relief under Chapter 11 of the
Bankruptcy Code. During December 1992, McAdam's mortgage debt was
restructured and a petition was consensually dismissed. During 1994, CAP II
advanced to McAdam $473,007 in noninterest bearing loans to enable it to make
the required debt service payments. The loan is subordinate to the mortgage
notes and repayment can occur only from resale of the property or refinancing
of the mortgage debt. As a result of recurring losses from operations and
negative cash flows, McAdam has been unable to meet its debt obligations and
by October 30, 1994, CAP II could no longer advance funds to keep the debt
service current. Accordingly, in October 1994, McAdam stopped paying debt
service and defaulted on its mortgage debt obligations. In November 1995
McAdam completed a refinancing of its mortgage debt. Prior to completing the
refinancing, McAdam and Fannie Mae entered into an option agreement that
grants Fannie Mae the option to purchase the project for a specified price.
During 1993, Apple Creek modified its first mortgage which matured in
February 1995. On February 29, 1996, Apple Creek executed a loan modification
agreement which provides, among other things, the option to make additional
principal reductions in an amount not to exceed $300,000.
During 1995, Suncreek obtained a $10,000,000 variable rate mortgage loan
which matures 2007. In connection with the mortgage loan, Suncreek obtained a
$10,000,000 irrevocable letter of credit which was provided as additional
collateral. During April 1995, the mortgage loan was paid by drawing upon the
letter of credit. Suncreek is negotiating with the Resolution Trust
Corporation, who currently holds the original mortgage loan, to repay the
loan at a discounted amount. Suncreek is negotiating with a financial
institution to obtain permanent financing.
Liberty Tax Credit Plus L.P. ("Liberty I"), Liberty Tax Credit Plus II
L.P. ("Liberty II"), Liberty Tax Credit Plus III L.P. ("Liberty III"),
Freedom Tax Credit Plus Program ("Freedom"), Independence Tax Credit Plus
L.P. ("Independence"), Independence Tax Credit Plus L.P. II ("Independence
II"), Independence Tax Credit Plus L.P. III ("Independence III") and
Independence Tax Credit Plus L.P. IV ("Independence IV") are eight programs
in a series of public real estate programs formed to invest in local limited
partnerships owning leveraged apartment complexes that are eligible for the
Low-Income Housing Tax Credit enacted in the Tax Reform Act of 1986, and to a
lesser extent, the Historic Rehabilitation Tax Credit.
Liberty I commenced its offering on November 20, 1987 and, as of its final
closing on April 4, 1988, had raised approximately $79,940,000 from
approximately 5,530 investors. Liberty I has invested in 31 local limited
partnerships which each owns one or more apartment complexes located in
California (1), Colorado (1), Florida (4), Georgia (1), Illinois (1),
Maryland (1), Missouri (3) New Jersey (3), New York (5), Ohio (1), Oklahoma
(1), Oregon (2), Pennsylvania (5), Wisconsin (1) and Puerto Rico (1). In
connection with such investments, Liberty I made cash payments aggregating
$64,526,973 and assumed outstanding mortgage indebtedness aggregating
$178,664,855 at the time of the public partnership's investment for a total
aggregate purchase price of $243,191,828.
Of the properties acquired by Liberty I, approximately 73% were
development stage complexes and approximately 13% were existing complexes,
all of which were eligible for low-income housing tax credits. In addition,
approximately 14% were eligible for both low-income housing and historic
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition.
One of the subsidiary partnerships (Regent Street) has received from the
Internal Revenue Service a notice of final partnership administrative
adjustment. Pursuant to the notice the Internal Revenue Service has
challenged the method in which the subsidiary partnership has allocated the
below market federal financing to the properties, which challenged, if
successful, would result in the subsidiary partnership only being able to
claim a 4% credit rather than a 9%. The Internal Revenue Service has also
challenged the inclusion of a portion of the developer's fee and legal costs
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in qualified expenditures for the purpose of determining credit and
depreciable basis. The total adjustment over the ten year credit period, if
sustained, would result in a 1.58% credit adjustment claimed by the investors
in Liberty, or the amount of $25 for each $1,000 invested. The general
partners of the Regent Street subsidiary partnership intend to file a
petition for readjustment challenging each of the positions taken by the
Internal Revenue Service.
Liberty II commenced its offering on July 20, 1988 and, as of its final
closing on December 23, 1988, had raised approximately $115,918,000 from
approximately 8,430 investors. Liberty II has invested in 27 local limited
partnerships, each of which owns one or more apartment complexes in Florida
(2), Illinois (2), Kansas (1), Louisiana (1), Maryland (2), Missouri (4), New
York (9), Pennsylvania (2), Texas (1) and Puerto Rico (3). Liberty II made
cash payments aggregating $96,696,741 and assumed outstanding mortgage
indebtedness aggregating $133,356,482 at the time of the public partnership's
investment for a total aggregate purchase price of $230,053,223.
One of the local partnerships (Campeche Isle Apartments, L.P.) during
March 1996 filed a petition under Chapter 11 of the Bankruptcy Code to
protect the local partnership from its creditors. Subsequently, the local
general partner is seeking approval of a plan of reorganization with such
creditors.
Of the properties acquired by Liberty II, approximately 85% were
development stage complexes and approximately 15% were existing complexes,
all of which were eligible for low-income housing tax credits. In addition,
approximately 10% were eligible for both low-income housing and historic
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition.
Liberty III commenced its offering on February 21, 1989 and as of its
final closing on March 30, 1990 had raised approximately $139,132,000 from
approximately 9,080 investors. Liberty III has invested in 62 local limited
partnerships, each of which owns one or more apartment complexes in Alabama
(3), Arkansas (1), Delaware (1), Florida (5), Kansas (2), Louisiana (2),
Michigan (7), Mississippi (2), Missouri (1), New Jersey (1), New York (10),
Ohio (3), Oregon (2), Pennsylvania (12), Rhode Island (1), South Carolina
(1), Tennessee (6), Utah (3) and Puerto Rico (3). In connection with such
investments, Liberty III made cash payments aggregating $105,252,778 and
assumed outstanding mortgage indebtedness aggregating $204,185,763 at the
time of the public partnership's investment for a total aggregate purchase
price of $309,438,541. Of the properties acquired by Liberty III,
approximately 80% were development stage complexes, all of which were
eligible for low- income housing tax credits. In addition, approximately 20%
were eligible for both low-income housing and historic rehabilitation tax
credits, based on aggregate purchase price at the time of acquisition.
Freedom commenced its offering on February 9, 1990 and, as of its final
closing on August 8, 1991, had raised approximately $72,896,000 from
approximately 4,780 investors. Freedom has invested in 42 local limited
partnerships, each of which owns one apartment complex in Alabama (8),
California (2), Florida (2), Georgia (1), Kentucky (1), Mississippi (5), New
York (7), New Jersey (1), North Carolina (2), Ohio (2), Oklahoma (1),
Pennsylvania (4), South Carolina (1), Tennessee (1), Utah (3) and Wisconsin
(1). In connection with such investments, Freedom made cash payments
aggregating $57,358,205 and assumed outstanding mortgage indebtedness
aggregating $77,520,879 at the time of the public partnership's investment
for a total aggregate purchase price of $134,879,084. Of the properties
acquired by Freedom, approximately 79% were development stage complexes and
approximately 13% were existing complexes, all of which were eligible for
low-income housing tax credits. In addition, approximately 8% were eligible
for both low-income housing and historic rehabilitation tax credits, based on
aggregate purchase price at time of acquisition.
Independence commenced its offering on July 1, 1991 and as of its final
closing on December 30, 1992 had raised approximately $76,786,000 from
approximately 5,350 investors. Independence has invested in 28 local limited
partnerships, each of which owns one apartment complex in California (1),
Delaware (2), Florida (3), Louisiana (1), Massachusetts (3), Missouri (1),
New Jersey (1), New York (6), Oregon (1), Pennsylvania (5), Puerto Rico (3)
and Tennessee (1). In connection with such investments, Independence made
cash payments aggregating $59,710,008 and assumed outstanding mortgage
indebtedness aggregating $114,129,502 at the time of the public partnership's
investment for a total aggregate purchase price of $173,839,590. Of the
properties acquired by Independence, approximately 28% were development stage
complexes and approximately 59% were existing complexes, all of which were
eligible for low-income housing tax credits. In addition, approximately 13%
were eligible for both low-income housing and historic
23
<PAGE>
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition.
Independence II commenced its offering on January 19, 1993 and as of its
final closing on April 7, 1994 had raised approximately $58,928,000 from
approximately 3,950 investors. Independence II has invested in 15 local
limited partnerships, each of which owns one apartment complex in California
(5), Florida (1), Illinois (1), Louisiana (1), Maryland (1), New Jersey (1),
New York (1), Pennsylvania (3) and Virginia (1). In connection with such
investments, Independence II made cash payments of $46,280,375 and assumed
outstanding mortgage indebtedness of $83,723,085 at the time of the public
partner- ship's investment for a total aggregate purchase price of
$130,003,460. Of the properties acquired by Independence II, approximately
62% were development stage complexes and approximately 21% were existing
complexes, all of which were eligible for low-income housing tax credits. In
addition, approximately 17% were eligible for both low-income housing and
historic rehabilitation tax credits, based on aggregate purchase price at
time of acquisition.
Independence III commenced its offering on June 7, 1994 and, as of its
final closing on May 10, 1995, had raised approximately $43,440,000 from
approximately 3,550 investors. Independence III has invested in 13 local
limited partnerships, each of which owns one apartment complex in California
(1), Connecticut (1), Florida (2), Maryland (1), Missouri (1), New Jersey
(1), New York (4) and Pennsylvania (2). In connection with such investments,
Independence III made cash payments of $19,298,538 and assumed outstanding
mortgage indebtedness of $28,336,327 at the time of the public partnership's
investment for a total aggregate purchase price of $47,634,865. Of the
properties acquired by Independent III, approximately 30% were development
stage complexes, approximately 46% were existing complexes and approximately
24% were eligible for both low- income housing and historic rehabilitation
tax credits, based on aggregate purchase price of the time of acquisition.
Independence III is still in its acquisition phase.
Independence IV commenced its offering on July 6, 1995, and as of December
31, 1995, had raised $18,517,000 from approximately 1,200 investors.
Independence IV has invested in one local limited partnership which owns one
apartment complex in New York. In connection with the investment,
Independence IV made cash payments of $948,168 and assumed outstanding
mortgage indebtedness of $1,793,657 at the time of the public partnership's
investment for a total purchase price of $2,741,825. The property acquired by
Independence IV is a development stage complex eligible only for low-income
housing tax credits. Independence IV is still in its offering and acquisition
stage.
Summit Insured Equity L.P. ("Summit Insured I") and Summit Insured Equity
L.P. II ("Summit Insured II") are two programs in a series of public real
estate programs formed to acquire, initially on an all-cash basis, and
operate existing income-producing shopping centers and to improve, operate
and hold such properties for investment.
Summit Insured I commenced its offering on December 23, 1986 and, as of
its final closing on August 12, 1987, had raised $100,000,000 from
approximately 8,580 investors. Summit Insured I has purchased eleven existing
shopping centers for an aggregate purchase price of $81,368,700. The shopping
centers are located in Arizona (1), California (1), Florida (2), Georgia (1),
Indiana (2), Mississippi (1), Ohio (1), Oregon (1) and Tennessee (1).
Summit Insured II commenced its offering on November 13, 1987 and, as of
its final closing on June 15, 1989, had raised approximately $25,141,000 from
approximately 2,100 investors. Summit Insured II has purchased three existing
shopping centers for an aggregate purchase price of $20,450,000. The shopping
centers are located in Arizona (1), Georgia (1) and Nebraska (1).
Summit Preferred Equity L.P. ("Summit Preferred") was formed for the
purpose of acquiring on an all-cash basis, an equity interest in operating
partnerships which own and operate multifamily residential garden apartment
property that is either in the final stages of construction or completed.
Summit Preferred commenced its offering on August 6, 1987 and, as of its
final closing on February 15, 1989, had raised approximately $13,148,080 from
approximately 990 investors. Summit Preferred has invested $9,899,010 in two
local limited partnerships, each of which owns an apartment complex, located
in Missouri and Washington, respectively.
Certain preferred equity payments due Summit Preferred from one of the
local limited partnerships have not been made, resulting in a default under
the governing instruments of such local limited partnership. As a result of
this default, Summit Preferred has pursued its remedies and removed the
general partner of such local limited partnership, replaced as general
partner by the special limited partner, an affiliate of the Related general
partner. Future preferred equity pay-
24
<PAGE>
ments are expected to be less than anticipated until such time as the
property can be leased up at the anticipated rental rates sufficient to make
such payments.
Private Real Estate Partnerships
One of the prior private residential real estate limited partnerships
sponsored by Related and its Affiliates since 1985 has raised $1,852,500 and
has invested in a local limited partnership which owns an existing
multifamily rental housing project for a purchase price of $7,549,445. This
apartment complex located in Massachusetts was under construction at the time
of acquisition.
Nineteen of the prior private residential real estate limited partnerships
sponsored by Related and its Affiliates since 1985 have raised $697,300,962
and have invested in local limited partnerships which own apartment complexes
eligible for the low-income housing and historic rehabilitation tax credit
for an aggregate purchase price of $892,319,434. Of these apartment complexes
(based on purchase price), 37% were fully constructed and in service at the
time of acquisition and 63% were under construction or newly constructed at
the time of acquisition. The apartment complexes are located in Arizona (1),
California (21), Delaware (1), Florida (17), Georgia (1), Iowa (1), Maryland
(2), Michigan (4), New Jersey (7), New York (10), Ohio (5), Oregon (2),
Pennsylvania (3), Tennessee (2), Virginia (1), Washington (5) and Wisconsin
(2).
Additional Information
Certain additional information regarding the experience of the prior
programs sponsored by Affiliates of Related is contained in Appendix I in the
following "Prior Performance Tables":
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsor and Affiliates
Table III Operating Results of Prior Programs
Table V Sales or Disposals of Properties
Table IV, Results of Completed Programs, is not applicable as no programs
with similar investment objectives have completed operations during the most
recent five-year period. Table VI (Acquisition of Properties by Program) is
contained in Part II of the Registration Statement of which this Prospectus
is a part. Upon request to the address indicated below, and for no fee, the
Trust will provide a copy of such Table to any investor.
Three-Year Summary of Acquisitions by Similar Programs
During the three years ended December 31, 1995, two public financing
programs sponsored by Affiliates of Related have purchased seven coinsured or
insured mortgage loans on one property located in the central region, two
properties in the south, two properties in the southeast, one property in the
northeast and one property located in the northwest. The aggregate principal
amount of the mortgage loans is $54,422,742, of which the entire amount was
provided by capital raised from limited partners. In addition, one of the
programs has purchased six REMIC Certificates having an aggregate purchase
price of $9,762,793, three GNMA Certificates having an aggregate purchase
price of $8,532,847, and one FHA Insured Project Loan having a purchase price
of $3,377,824.
Additional Information on Programs
The Trust will provide, upon request, for no fee, a copy of the most
recent Form 10-K or Annual Report filed with the Securities and Exchange
Commission within the previous 24 months by any prior public program that is
required to file such Form or Report, sponsored by Affiliates of Related. The
Trust will also provide, upon request, for a reasonable fee, the exhibits to
each such Form 10-K. A request for a Form 10-K should be addressed to the
Trust, c/o The Related Companies, L.P., 625 Madison Avenue, New York, New
York 10022, Attention: Investor Relations.
The information set forth in this section is given solely to enable
prospective investors to better evaluate the experience of the Sponsor and
its Affiliates. Investors should not construe the inclusion of this
information in this Prospectus as implying or indicating in any manner that
the Trust will make investments comparable to those described herein or will
have comparable results with respect to distributable cash, federal income
tax consequences to investors or other factors.
MANAGEMENT
On October 1, 1995, Arthur G. Hatzopoulos became a Vice President of the
Manager.
Mr. HATZOPOULOS is a Vice President of Related Capital Company where he is
responsible for a tax-exempt multifamily bond fund and acquisitions of
low-income housing tax credit projects. Prior to joining Related, Mr.
Hatzopoulos was a First Vice President and Portfolio Manager for First
25
<PAGE>
Nationwide Bank, a Federal Savings Bank, where he was responsible for debt
restructuring, special lending relationships and asset sales. He has also
been associated with an investment banking firm where he was responsible for
monitoring a national portfolio of multifamily revenue bond projects. From
1981 to 1985 he served as Deputy Director of the Jersey City Department of
Housing and Economic development. Mr. Hatzopoulos graduated from Columbia
University with a Bachelor of Arts degree. He also holds a Masters in City
and Regional Planning from Harvard University, Kennedy School of Government.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Internal Revenue Service has recently issued final regulations which
treat contingent interest payments received with respect to certain tax-exempt
bonds as taxable capital gain rather than as tax exempt interest. Such rules
apply to tax-exempt bonds issued on or after August 13, 1996. The Trust intends
to acquire First Mortgage Bonds issued prior to August 13, 1996 and consequently
the Manager believes that the effect upon the Trust of these regulations would
be immaterial.
PLAN OF DISTRIBUTION
This section has been revised to clarify the incremental nature of volume
discounts available to "investors" who purchase $250,000 or more of the
Shares. The following two specific changes are made:
(i) The second paragraph on page 71 of the Prospectus is replaced with the
following:
A purchaser entitled to a volume discount will receive the discount
through a reduction in the purchase price payable with respect to the Shares.
The volume discounts set forth above apply incrementally, which means that
the discount per Share rate for a specified level of investment applies only
to Shares purchased at that level. For example, on a purchase of $499,000 by
any one investor, the effective percentage discount per Share would be 0% for
the first $249,999 and 1% for the next $249,001. As another example, on a
purchase of $600,000 by any one investor, the effective percentage discount
per Share would be 0% for the first $249,999, 1% for the next $250,000 and 2%
for the last $100,001. Although application of the volume discount reduces
the purchase price payable per Share, the Net Proceeds to the Trust are not
affected by the volume discounts; the amount of the selling commission
payable by the Trust on Shares sold subject to volume discount is instead
adjusted accordingly.
(ii) In order to provide further clarification, the middle three column
headings in the chart on page 70 of the Prospectus are replaced with the
following: "Discount Per Incremental Share"; "Purchase Price Per Incremental
Share" and "Selling Commission Payable by Trust Per Incremental Share".
SELECTED FINANCIAL DATA
The information set forth below presents selected financial data of the
Trust. The Trust's Offering commenced in November 1994 and the Trust did not
have any significant operations until 1995. Additional financial information
is set forth in the financial statements and footnotes thereto contained on
pages F-2 through F-22.
Three Months Ended Year Ended December
March 31, 1996 31, 1995
------------------- --------------------
Operations
- ----------
Interest Income:
First Mortgage Bonds $237,749 $226,972
Tax-Exempt Securities 2,054 2,160
Marketable Securities 52,072 147,647
---------------------
Total Revenues 291,875 376,779
Total Expenses 34,737 148,893
Net Income $257,138 $227,886
======== ========
Net Income
per weighted
average shareholders $ .25 $ 0.57
======== ========
26
<PAGE>
December 31, December 31,
1995 1994
------------- --------------
Financial Position
- ------------------
Total Assets $17,385,740 $771,890
=========== ========
Total Liabilities $ 174,470 $770,890
=========== ========
Total Shareholders' Equity $17,221,270 $ 1,000
=========== ========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE TRUST
The section of the Prospectus captioned "Management's Discussion and
Analysis of Financial Condition of the Trust" is hereby supplemented with the
following additional information with respect to results of operations of the
Trust for the quarter ended March 31, 1996 and for the year ended December
31, 1995.
Results of Operations
Three Months Ended March 31, 1996
The results of operations for the three months ended March 31, 1996 consisted
of interest income of $291,875 earned on the First Mortgage Bonds, the
marketable securities and one Tax-Exempt Security, net of general and
administrative and amortization expenses. Results of operations are not
reflective of future operations of the Trust due to the expected utilization of
the net proceeds of the offering to invest in First Mortgage Bonds and
Tax-Exempt Securities and the continued offering of shares of beneficial
ownership interest for sale.
Year Ended December 31, 1995
The results of operations for the year ended December 31, 1995 consisted
of interest income of $376,779 earned on the First Mortgage Bonds, the
marketable securities and three Tax-Exempt Securities, net of general and
administrative and amortization expenses.
Liquidity and Capital Resources
Three Months Ended March 31, 1996
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc.
as the Manager (the "Manager") of the Trust. As of March 31, 1996, the Trust
had received $21,570,459 (before volume discounts of $3,284) in Gross
Proceeds from the sale of 1,075,254 shares pursuant to the Offering and 3,269
shares through the Reinvestment Plan resulting in Net Proceeds available for
investment of approximately $19,844,822 after volume discounts, payments of
sales commissions and organization and offering expenses. For the period
ending April 1, 1996 to May 1, 1996, a total of approximately 46,740
additional shares were sold through the Offering representing Gross Proceeds
of $934,800 (before volume discounts of $960).
The Trust has invested and will continue to invest the Net Proceeds
primarily in First Mortgage Bonds issued by various state or local
governments or their agencies or authorities and secured by Mortgage Loans
principally on multifamily residential apartment projects and, secondarily,
retirement community projects owned or to be developed by third-party
developers and, to a lesser extent, by Affiliates of the Manager. The
principal amount of a Mortgage Loan at the time the loan is made or after a
First Mortgage Bond is acquired and restructured, together with all mortgage
loans on the subject property, will generally not exceed 85% of the appraised
fair market value of the related property. The First Mortgage Bonds will have
maturities of 10 to 35 years, although the Trust anticipates holding the
First Mortgage Bonds for approximately 10 to 12 years and having the right to
cause repayment of the bonds at the time. The First Mortgage Bonds will
normally be structured so that no principal payments will be due thereon
until the scheduled maturity or earlier redemption of such bonds, at which
point a lump sum or "balloon" payment of the outstanding principal will be
due. In addition, the Trust may invest up to 10% of the Gross Proceeds in
Tax-Exempt Securities which are expected to begin amortizing or to be repaid
as early as during the Offering period and from time to time throughout the
life of the Trust. The aggregate average life of the Tax-Exempt Securities
acquired by the Trust is expected to be six to eight years. As of March 31,
1996, 43.02% of the total Net Proceeds available for investment had not yet
been invested in First Mortgage Bonds or Tax-Exempt Securities. As of March
31, 1996, of the total net proceeds available for investment, 3.06% had been
invested in Tax-Exempt Securities and 53.92% in First Mortgage Bonds.
On February 15, 1996 the Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond matured.
During the three months ended March 31, 1996, cash and cash equivalents
decreased $2,035,395 primarily as a result of proceeds from the issuance of
shares of beneficial interest ($2,790,123), the Maturity of one Tax-Exempt
Security ($200,000) and an increase in cash from operating activities of
($225,553) which was exceeded by distributions to share-
27
<PAGE>
holders ($350,336), an increase in offering costs ($221,686), the purchase of
marketable securities ($4,625,000) and a decrease in accounts payable and due to
affiliates of ($54,049) from financing activities. Included in the adjustments
to reconcile the net income to cash flow from operations is amortization in the
amount of $12,538.
The Trust has established a Reserve for working capital and contingencies
in an amount equal to 1% of the Gross Proceeds of the Offering (totaling
$215,705 at March 31, 1996), an amount which is anticipated to be sufficient
to satisfy liquidity requirements, and may add to such Reserves from Cash
Flow, Sale or Repayment Proceeds and uninvested Net Proceeds. As of March 31,
1996, none of this Reserve has been used. Liquidity will be adversely
affected by unanticipated costs, including operating costs in excess of such
Reserves. The Trust may borrow funds from third parties or from the Manager
or its Affiliates to meet working capital requirements of the Trust or to
take over the operation of a Property on a short-term basis (up to 24 months)
but not for the purpose of making Distributions.
The Trust anticipates that cash generated from the operations of the
properties underlying its investment in First Mortgage Bonds (taking into
account its preferred position relative to other creditors) will be sufficent
to meet the required debt service payments to the Trust with respect to the
First Mortgage Bonds for the foreseeable future.
Year Ended December 31, 1995
As of December 31, 1995, the Trust had received $18,778,912 (before volume
discounts of $1,860) in Gross Proceeds from the sale of 937,359 shares
pursuant to the Offering and 1,587 shares through the Reinvestment Plan
resulting in Net Proceeds available for investment of approximately
$17,276,599 after volume discounts, payments of sales commissions and
organization and offering expenses.
As of December 31, 1995, 34.55% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of December 31, 1995, of the total net proceeds available for
investment, 3.52% had been invested in Tax-Exempt Securities and 61.93% in
First Mortgage Bonds.
For the year ended December 31, 1995, the Trust had purchased three
Tax-Exempt Securities in the aggregate amount of $608,086, two of which
matured in the amount of $400,000 during 1995. On December 21, 1995, the
Trust completed the amendment of the bond indenture of the $10,700,000 in
Reflections Bonds in which the Trust had previously acquired a 100%
participation on October 10, 1995. In connection with the amendment of the
Reflection Bonds, the Trust redeemed the 100% participation interest it
previously acquired and now directly owns the Reflections Bonds.
During the year ended December 31, 1995, cash and cash equivalents
increased $3,313,564 primarily as a result of proceeds from the issuance of
shares of beneficial interest ($18,777,052), net of an increase in offering
costs ($738,826), the purchase of one First Mortgage Bond ($10,700,000), the
purchase of three Tax-Exempt Securities ($608,086), two of which matured
($400,000), the purchase of marketable securities ($2,550,000) and a decrease
in accounts payable and due to affiliates of ($682,560) from financing
activities and a decrease in cash from operating activities of ($237,561).
Included in the adjustments to reconcile the net income to cash flow from
operations is amortization in the amount of $11,628.
The Trust's Reserve for working capital and contingencies totalled
$187,789 at December 31, 1995, which amount is anticipated to be sufficient
to satisfy liquidity requirements, and may add to such Reserves from Cash
Flow, Sale or Repayment Proceeds and uninvested Net Proceeds. As of December
31, 1995, none of this reserve has been used.
Distribution Policy
General
The Trust has adopted a policy of attempting to maintain stable
distributions during the offering period and acquisition stage. In order to
accomplish this result, a portion of the Net Proceeds are expected to be
invested in Tax-Exempt Securities with an aggregate average life of six to
eight years, a portion of which will amortize or be paid during such period.
Proceeds from such amortization or repayment will be distributed to
Shareholders. To date, the Trust has purchased and may be required to
continue to purchase Tax- Exempt Securities which mature quarterly during
this period. The effect of this policy has been the following: (a) a portion
of the distributions have constituted, and will continue to constitute, a
return of capital; (b) earlier investors' returns from an investment in the
Trust will be greater than later investors' returns; and (c) there will be a
decrease in funds remaining to be invested in Mortgage Investments.
Three Months Ended March 31, 1996
Of the total distributions of $350,336 made for the three months ended
March 31, 1996, $93,198 ($.09 per share or
28
<PAGE>
27%) represents a return of capital determined in accordance with generally
accepted accounting principles. The portion of the distributions which
constitute a return of capital may be significant during the acquisition stage
in order to maintain level distributions to shareholders.
Management expects that cash flow from operations, combined with the
maturity of investments described above, will be sufficient to fund
distributions at the current level in the future.
Year Ended December 31, 1995
Of the total distributions of $346,455 made for the year ended December
31, 1995, $118,569 ($.13 per share or 34%) represents a return of capital
determined in accordance with generally accepted accounting principles.
Inflation
Inflation has been consistently low during the periods presented in the
financial statements and, as a result, has not had a significant effect on
the operations of the Trust or its investments.
29
<PAGE>
FINANCIAL INFORMATION AND BALANCE SHEETS
Index
<TABLE>
<CAPTION>
<S> <C>
AMERICAN TAX EXEMPT BOND TRUST
Balance Sheets as of March 31, 1996 (Unaudited) and December 31, 1995 ......................................... F-2
Statement of Operations for the quarter ended March 31, 1996 (Unaudited) ...................................... F-3
Statement of Changes in Shareholders' Equity for the year ended December 31, 1995
and the quarter ended March 31, 1996 (Unaudited) ............................................................ F-4
Statement of Cash Flows for the three months ended March 31, 1996 (Unaudited) ................................. F-5
Notes to the Financial Statements for the quarter ended March 31, 1996 (Unaudited)
and for the year ended December 31, 1995 .................................................................... F-6
Independent Auditors' Report .................................................................................. F-11
Balance Sheets as of December 31, 1995 and 1994 ............................................................... F-12
Statement of Operations for the year ended December 31, 1995 .................................................. F-13
Statement of Changes in Shareholders' Equity for the year ended December 31, 1995 ............................. F-14
Statement of Cash Flows for the year ended December 31, 1995 .................................................. F-15
Notes to the Financial Statements for the years ended December 31, 1995 and 1994 .............................. F-16
RELATED AMI ASSOCIATES, INC
Independent Auditors' Report .................................................................................. F-23
Balance Sheets as of March 31, 1996 (Unaudited) and December 31, 1995 and 1994 ................................ F-24
Notes to Balance Sheets as of March 31, 1996 (Unaudited) and December 31, 1995 and 1994 ....................... F-25
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP d/b/a REFLECTIONS APARTMENTS
Independent Auditors' Report .................................................................................. F-29
Balance Sheet as of December 31, 1995 ......................................................................... F-30
Statement of Operations for the year ended December 31, 1995 .................................................. F-31
Statement of Partners' Deficit for the year ended December 31, 1995 ........................................... F-32
Statement of Cash Flows for the year ended December 31, 1995 .................................................. F-33
Notes to Financial Statements for the year ended December 31, 1995 ............................................ F-34
Balance Sheet as of December 31, 1994 (Unaudited) ............................................................. F-41
Statement of Operations for the year ended December 31, 1994 (Unaudited) ...................................... F-42
Statement of Partners' Deficit for the year ended December 31, 1994 (Unaudited) ............................... F-43
Statement of Cash Flows for the year ended December 31, 1994 (Unaudited) ...................................... F-44
Notes to Financial Statements for the year ended December 31, 1994 (Unaudited) ................................ F-45
Balance Sheet as of December 31, 1993 (Unaudited) ............................................................. F-51
Statement of Operations for the year ended December 31, 1993 (Unaudited) ...................................... F-52
Statement of Partners' Deficit for the year ended December 31, 1993 (Unaudited) ............................... F-53
Statement of Cash Flows for the year ended December 31, 1993 (Unaudited) ...................................... F-54
Notes to Financial Statements for the year ended December 31, 1993 (Unaudited) ................................ F-55
ROLLING RIDGE
Independent Auditors' Report .................................................................................. F-61
Historical Summary of Gross Income and Direct Operations Expenses ............................................. F-62
Notes to Historical Summary of Gross Income and Direct Operations Expenses .................................... F-63
</TABLE>
F-1
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents ................................................ $ 1,279,169 $ 3,314,564
Marketable securities .................................................... 7,175,000 2,550,000
Investment in First Mortgage Bonds (Note 2) .............................. 10,937,102 10,943,182
Investment in Tax-Exempt Securities (Note 3) ............................. 0 203,958
Deferred costs ........................................................... 281,059 224,056
Organization costs (net of accumulated amortization of $10,000 and $7,500,
respectively) .......................................................... 40,000 42,500
Other assets ............................................................. 46,900 72,220
Accrued interest receivable .............................................. 84,369 35,260
----------- -----------
Total assets ............................................................. $19,843,599 $17,385,740
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Due to affiliates ....................................................... $ 144,458 $ 131,917
Accounts payable ........................................................ 12,632 42,553
----------- -----------
Total liabilities ........................................................ 157,090 174,470
----------- -----------
Shareholders' equity:
Beneficial owner's equity-manager ....................................... (1,118) (186)
Beneficial owners' equity-shareholders .................................. 19,687,627 17,211,456
----------- -----------
Total shareholders' equity ............................................... 19,686,509 17,211,270
----------- -----------
Total liabilities and shareholders' equity ............................... $19,843,599 $17,385,740
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1996
---------------
<S> <C>
Revenues:
Interest income:
First Mortgage Bonds (Note 2) ................................... $237,749
Tax-Exempt Securities (Note 3) .................................. 2,054
Marketable Securities ........................................... 52,072
--------
Total revenues .................................................. 291,875
--------
Expenses:
General and administrative ...................................... 12,237
General and administrative-related parties (Note 4) ............. 20,000
Amortization .................................................... 2,500
--------
Total expenses .................................................. 34,737
--------
Net income ...................................................... $257,138
========
Allocation of Net Income:
Shareholders .................................................... 241,325
Manager ......................................................... 2,438
Special distributions to Manager (Note 4) ....................... 13,375
--------
Net income ...................................................... $257,138
========
Net income per weighted average share--shareholders ............. $ .25
========
</TABLE>
The Trust did not commence operations until April, 1995.
See accompanying notes to financial statements.
F-3
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE QUARTER ENDED MARCH 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Beneficial Beneficial
Owners' Equity- Owner's Equity-
Total Shareholders Manager
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1995 ............................ $ 1,000 $ 0 $ 1,000
Issuance of shares of beneficial ownership interest ... 18,777,052 18,777,052 0
Offering costs ........................................ (1,448,213) (1,448,213) 0
Net income ............................................ 227,886 224,865 3,021
Distributions ......................................... (346,455) (342,248) (4,207)
------------ ------------ --------
Balance at December 31, 1995 .......................... $ 17,211,270 $ 17,211,456 $ (186)
Issuance of shares of beneficial ownership interest ... 2,790,123 2,790,123 0
Offering costs ........................................ (221,686) (221,686) 0
Net income ............................................ 257,138 241,325 15,813
Distributions ......................................... (350,336) (333,591) (16,745)
------------ ------------ --------
Balance at March 31, 1996 ............................. $ 19,686,509 $ 19,687,627 $ (1,118)
============ ============ ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1996
--------------
<S> <C>
Cash flows from operating activities:
Net income ........................................................................... $ 257,138
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization expense--organization costs ........................................... 2,500
Amortization expense--origination costs ............................................ 6,080
Amortization of REMIC premium ...................................................... 3,958
Changes in operating assets and liabilities:
Decrease in other assets ............................................................. 25,320
Increase in accrued interest receivable .............................................. (49,109)
Increase in due to affiliates ........................................................ 36,669
Increase in deferred costs ........................................................... (57,003)
-----------
Total adjustments .................................................................. (31,585)
-----------
Net cash provided by operating activities ............................................ 225,553
-----------
Cash flows used in investing activities:
Purchases of Marketable Securities ................................................... (4,625,000)
Maturity of Tax-Exempt Securities .................................................... 200,000
-----------
Net cash used in investing activities ................................................ (4,425,000)
-----------
Cash flows provided by financing activities:
Decrease in accounts payable related to financing activities ......................... (29,921)
Decrease in due to affiliates ........................................................ (24,128)
Proceeds from issuance of shares of beneficial interest .............................. 2,790,123
Distribution to shareholders ......................................................... (350,336)
Increase in offering costs ........................................................... (221,686)
-----------
Net cash provided by financing activities ............................................ 2,164,052
-----------
Net decrease in cash and cash equivalents .............................................. (2,035,395)
Cash and cash equivalents at beginning of period ....................................... 3,314,564
-----------
Cash and cash equivalents at end of period ............................................. $ 1,279,169
===========
</TABLE>
The Trust did not commence operations until April, 1995.
See accompanying notes to financial statements.
F-5
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 (Unaudited)
AND DECEMBER 31, 1995
NOTE 1 -- GENERAL
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23,
1993 as a Delaware business trust for the primary purpose of investing in
tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by various
state or local governments or their agencies or authorities and secured by
first mortgage loans on multifamily residential apartment and retirement
community projects.
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc.
as the manager (the "Manager") of the Trust.
On November 1, 1994, the Trust commenced a public offering through Related
Equities Corporation, an affiliate of the Manager, and other broker-dealers
on a "best efforts" basis, for up to 10,000,000 shares of its shares of
beneficial interest at an initial offering price of $20 per share. As of
March 31, 1996 and December 31, 1995, a total of 1,078,523 and 938,946 shares
have been sold to the public through the offering representing Gross Proceeds
of $21,570,459 and $18,778,912 (before volume discounts of $3,284 and
$1,860).
The Trust has invested and will continue to invest the Net Proceeds
primarily in First Mortgage Bonds issued by various state or local
governments or their agencies or authorities and secured by Mortgage Loans
principally on multifamily residential apartment projects and, secondarily,
retirement community projects owned or to be developed by third-party
developers and, to a lesser extent, by Affiliates of the Manager. The
principal amount of a Mortgage Loan at the time the loan is made or after a
First Mortgage Bond is acquired and restructured, together with all mortgage
loans on the subject property, will generally not exceed 85% of the appraised
fair market value of the related Property. The First Mortgage Bonds will have
maturities of 10 to 35 years, although the Trust anticipates holding the
First Mortgage Bonds for approximately 10 to 12 years and having the right to
cause repayment of the bonds at that time. The First Mortgage Bonds will
normally be structured so that no principal payments will be due thereon
until the scheduled maturity or earlier redemption of such bonds, at which
point a lump sum or "balloon" payment of the outstanding principal will be
due. In addition, the Trust may invest up to 10% of the Gross Proceeds in
Tax-Exempt Securities which are expected to begin amortizing or to be repaid
as early as during the offering period and from time to time throughout the
life of the Trust. The aggregate average life of the Tax-Exempt Securities
acquired by the Trust is expected to be six to eight years. As of March 31,
1996, 43.02% of the total Net Proceeds available for investment had not yet
been invested in First Mortgage Bonds or Tax-Exempt Securities. As of March
31, 1996, of the total net proceeds available for investment, 3.06% had been
invested in Tax-Exempt Securities and 53.92% had been invested in First
Mortgage Bonds.
The First Mortgage Bonds will bear a Current Interest Rate which is fixed.
In addition, a majority of the First Mortgage Bonds are expected to provide
for participations in net property cash flow and the residual value of the
underlying Properties in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First
Mortgage Bonds. The First Mortgage Bonds are expected to prohibit optional
prepayments during the first five years after acquisition by the Trust and
require a redemption premium of at least 5% of the principal amount if
prepaid in the ninth year, declining 1% per year thereafter until there is no
longer a premium.
The Trust expects to invest in First Mortgage Bonds primarily by acquiring
outstanding First Mortgage Bonds which are simultaneously restructured to
change the principal, interest and other terms of those bonds to conform to
the Trust's investment objectives and policies. The multi-family rental
housing properties financed by the outstanding First Mortgage Bonds will have
been constructed and leased. The Trust may also acquire First Mortgage Bonds
that are, or prior to restructuring
F-6
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- GENERAL (continued)
were, in default because the cash flow from the property has been
insufficient to pay the debt service due on the bonds. The restructuring of
the outstanding First Mortgage Bonds will be sufficiently extensive so that
generally a restructured First Mortgage Bond held by the Trust will be
considered to be a newly issued bond for federal income tax purposes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i) the
Trust has reached a binding agreement with the owner of the underlying
property to amend the terms of the bonds in a manner that is acceptable to
the Trust and (ii) the governmental entity that is the issuer of the
outstanding bonds has agreed to ratify the change in terms and to file the
necessary forms to continue the tax-exemption of the restructured First
Mortgage Bonds or the Manager believes that there is a substantial likelihood
that the issuer will agree subsequently to take the action necessary to
continue the First Mortgage Bond's tax- exemption.
The unaudited financial statements have been prepared on the same basis as
the audited financial statements included in the Trust's annual report on
Form 10-K for the year ended December 31, 1995. In the opinion of the
Manager, the accompanying unaudited financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Trust as of March 31, 1996 and
the results of operations and cash flows for the three months ended March 31,
1996. However, the operating results for the three months ended March 31,
1996 may not be indicative of the results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto
included in the Trust's annual report on Form 10-K for the year ended
December 31, 1995.
NOTE 2 -- INVESTMENT IN FIRST MORTGAGE BONDS
On December 21, 1995, the Trust completed the amendment of the bond
indenture for the $10,700,000 in tax-exempt First Mortgage Bonds (the
"Reflections Bonds") in which the Trust had previously acquired a 100%
participation. In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida Housing
Finance Authority (the "Issuer") and are secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida.
Reflections is owned by Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership (the "Seller"), which is not
affiliated with the Manager or Related Capital Company (the "Sponsor").
The Reflections Bonds bear a fixed Current Interest Rate of 9.0%, payable
monthly in arrears, together with Contingent Interest. After payment of the
fixed Current Interest, Contingent Interest will be payable as follows: (i)
25% of net property cash flow after payment of Current Interest, third party
issuer and trustees fees, required reserves, and a preferred return to the
Borrower equal to 3.7% of gross revenues; and (ii) after repayment of
outstanding principal, (a) 10% of net sale or repayment proceeds (which may
be in certain circumstances when no sale proceeds are received be measured by
fair market value) up to $1,300,000, and (b) 25% thereafter until the
Borrower has paid interest at a simple annual rate of 16% over the term of
the Reflections Bonds.
F-7
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- INVESTMENT IN FIRST MORTGAGE BONDS (continued)
The Reflections Bonds have a term of thirty years and are subject to
mandatory redemption, at the Trust's option, after ten years. The principal
of the Reflections Bonds is payable upon sale or refinancing of the Project
and prepayment, in whole or in part, is prohibited during the first five
years, except as described below.
Prepayment in whole will be permitted thereafter subject to the payment of
a premium. If prepaid during the sixth year, the premium is equal to 5% of
the principal amount of the Reflections Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year through
the tenth year, when there will be no prepayment premium payable.
Information relating to investments in First Mortgage Bonds as of March
31, 1996 is as follows:
<TABLE>
<CAPTION>
Date of Accumulated
Investment/ Loan Amortization
Final Outstanding Origination at March 31,
Property Description Maturity Date Loan Balance Costs 1996
- ----------------- -------------------- ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Reflection Bonds
Casselbury,
Florida(a) 336 Apartment Units 12/95-12/25 $10,700,000 $243,182 $6,080
============= ============ ==============
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Interest
Final Balance Earned Net
Final Balance at December by the Trust Less 1996 Interest
Property at March 31, 1996 31, 1995 for 1996 Amortization Earned
- ----------------- ------------------ -------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Reflection Bonds
Casselbury,
Florida(a) $10,937,102 $10,943,182 $243,829 $6,080 $237,749
================== ============== ============= ========== ============
</TABLE>
[ENDED RESTUBBED TABLE]
(a) The interest rates for the Reflections are 9.00%. In addition to the
interest rate the Trust will be entitled to 25% of the cash flow, as
defined.
There was no unrealized gain or loss on the Investment in First Mortgage
Bonds at March 31, 1996 and December 31, 1995.
NOTE 3 -- INVESTMENT IN TAX-EXEMPT SECURITIES
On May 3, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Topeka Kansas General Obligation Tax-Exempt Bond from
Smith Barney (the "Kansas Bond"). The Kansas Bond, which had a principal face
value of $200,000 and interest rate of 9.25%, was purchased as a Tax-Exempt
Security investment at the premium price of 101.124% or $202,248 and matured
on August 1, 1995.
On September 19, 1995, the Trust used a portion of the proceeds of the
Kansas Bond to purchase a New York State Environmental Facilities Corp. State
Water Pollution Control Revolving Fund Series D Tax-Exempt Bond from Smith
Barney. The bond, which had a principal face value of $200,000 and interest
rate of 4.4%, was purchased as a Tax-Exempt Security investment at the
premium price of 100.123% or $200,246 and matured on November 15, 1995.
On December 12, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond from Wheat First Butcher Singer. The bond, which had a
principal face value of $200,000 and interest rate of 8.25%, was purchased as
a Tax-Exempt Security investment at the premium price of 102.796% or $205,592
and matured on February 15, 1996.
Information relating to investments in Tax-Exempt Securities for the three
months ended March 31, 1996:
<TABLE>
<S> <C>
Investment in Tax-Exempt Securities--January 1, 1996 $ 203,958
Sales: Maturity of Philadelphia Penn General
Obligation Tax-Exempt Bond (200,000)
Amortization of premium (3,958)
---------
Investment in Tax-Exempt Securities--March 31, 1996 $ 0
=========
</TABLE>
F-8
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVESTMENT IN TAX-EXEMPT SECURITIES (continued)
Information relating to investments in Tax-Exempt Securities as of March
31, 1996 is as follows:
<TABLE>
<CAPTION>
Original
Purchase
Stated Final Price Principal at Premium at
Date Interest Payment Including March 31, March 31,
Seller Purchased Rate Date Premium 1996 1996
- ------------- --------- -------- -------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Smith Barney 5/3/95 9.25% 8/1/95 $202,248 $0 $0
Smith Barney 9/19/95 4.40% 11/15/95 200,246 0 0
Wheat First 12/12/95 8.25% 2/15/96 205,592 0 0
------- ----------- ---------
$608,086 $0 $0
======= =========== =========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Accumulated Final Final Interest
Amortization Balance at Balance at Earned by Net
at March 31, March 31, December the Trust Less 1996 Interest
Seller 1996 1996 31, 1995 for 1996 Amortization Earned
- ------------- ------------ ---------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Smith Barney $0 $0 $ 0 $ 0 $ 0 $ 0
Smith Barney 0 0 0 0 0 0
Wheat First 0 0 203,958 6,012 3,958 2,054
---------- -------- -------- ----------- ----------- -------
$0 $0 $203,958 $6,012 $ 3,958 $2,054
========== ======== ======== =========== =========== =======
</TABLE>
[END OF RESTUBBED TABLE]
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Trust Agreement provides for the Manager, an affiliate of Related
Capital Company, to act as the Manager of the Trust. In accordance with the
Trust Agreement, the Manager is entitled to receive (i) compensation in
connection with the organization and start-up of the Trust and the Trust's
investment in the First Mortgage Bonds; (ii) special distributions calculated
as a percentage of total assets invested by the Trust which totaled $13,375
and $0 for the three months ended March 31, 1996 and 1995; (iii) a
subordinated incentive fee based on the gain on the sale of the First
Mortgage Bonds; (iv) reimbursement of certain administrative costs incurred
by the Manager or an affiliate on behalf of the Trust which totaled
approximately $20,000 and $0 for the three months ended March 31, 1996 and
1995; (v) acquisition expense allowance and bond selection fees calculated on
a percentage of the Gross Proceeds applicable to the First Mortgage Bonds as
of March 31, 1996 and December 31, 1995 $431,409 and $375,578 of such costs
have been incurred of which $243,182 and has been capitalized and included in
Investment in First Mortgage Bonds; and (vi) certain other fees.
The Trust has agreed to pay the Manager a nonaccountable allowance
("Expense Allowance") equal to 2.5% of the Gross Proceeds of the offering.
The Manager, to the extent not paid by an affiliate, has agreed to be
responsible for all expenses of the offering, except for the payment of the
Expense Allowance, and certain selling commissions (not to exceed 5.0% of
gross proceeds) and a due diligence expense allowance (not to exceed 0.5% of
gross proceeds) on certain sales of shares. As of March 31, 1996 and December
31, 1995 offering costs totaled $489,262 and $419,473, respectively, and
along with selling commissions (see below) are charged directly to Beneficial
Owners' Equity- Shareholders.
The Trust has agreed to pay commissions of up to 5% of the aggregate
purchase price of shares sold, subject to quantity discounts, as well as a
non-accountable due diligence expense reimbursement in an amount up to .5% of
Gross Proceeds to certain broker-dealers selected by the Dealer Manager and
approved by the Manager. At March 31, 1996 and December 31, 1995, the Company
paid $1,180,637 and $1,028,740 of commissions and due diligence to
unaffiliated broker-dealers.
NOTE 5 -- COMMITMENTS
Rolling Ridge Apartments
On July 7, 1995, the Trust executed a letter of intent to purchase
tax-exempt First Mortgage Bonds (as hereinafter referred to as the "Rolling
Ridge Bonds") in an approximate aggregate principal amount of $4,875,000. The
Rolling Ridge Bonds are expected to be issued by San Bernardino County (the
"Issuer") and secured by a first mortgage and mortgage loan on Rolling
F-9
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- COMMITMENTS (continued)
Ridge Apartments (the "Project" or "Rolling Ridge"), a development consisting
of 110 apartment units in Chino Hills, California. Rolling Ridge is owned and
operated by Duane R. Raab, Ralph E. Haun and Diane E. Haun (the "Borrower").
As of March 31, 1996, the letter of intent remains outstanding and the
Manager is still continuing its due diligence review of the Project.
The Rolling Ridge Bonds that will be used to refinance the Project will be
restructured to meet the Trust's investment criteria and are expected to bear
a fixed Current Interest Rate of 9.0%, payable monthly in arrears, together
with Contingent Interest. The Trust expects that, after payment of the fixed
Current Interest, Contingent Interest will be payable out of (i) 25% of net
property cash flow until the Borrower has paid interest up to a
still-to-be-negotiated rate, then (ii) 25% of net sale or repayment proceeds
(which may in certain circumstances when no sale proceeds are received be
measured by fair market value) over repayment of outstanding principal, until
the Borrower has paid interest at a simple annual rate of 16% over the term
of the Rolling Ridge Bonds. The Trust has been informed that, as of March 31,
1996, the Borrower is current with respect to all payments of principal and
interest.
The Trust expects that the principal of the Rolling Ridge Bonds will be
payable upon sale or refinancing of the Project. It is expected that
prepayment, in whole or in part, will be prohibited during the first five
years following the acquisition of the Rolling Ridge Bonds, except as
described below. Prepayment in whole will be permitted thereafter subject to
the payment of a premium. If prepaid during the sixth year, the premium is
expected to equal 5% of the principal amount of the Rolling Ridge Bonds
outstanding at the time of prepayment. Thereafter, the premium will be
reduced by 1% per year until the tenth year, when there will be no prepayment
premium payable.
The Trust expects that, notwithstanding the foregoing, a one-time assumption
will be permitted without prepayment penalty or contingent interest payment
otherwise due on sale or refinancing. Any such new assuming borrower may be
rejected by the Manager in its sole discretion and an assumption fee equal to
actual costs plus 1/2 of 1% of the outstanding principal amount is expected
to be due at the time of assumption.
NOTE 6 -- SUBSEQUENT EVENTS
On May 15, 1996, distributions of $410,056 and $4,142 will be paid to the
Shareholders and the Manager, respectively, representing the 1996 first
quarter distribution.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Manager
American Tax-Exempt Bond Trust:
We have audited the accompanying balance sheets of American Tax-Exempt
Bond Trust as of December 31, 1995 and 1994, and the related statements of
operations, changes in shareholders' equity, and cash flows for the year
ended December 31, 1995. These financial statements are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Tax-Exempt Bond
Trust as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 30, 1996
F-11
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
------
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Cash and cash equivalents (Note 1) ........................................ $ 3,314,564 $ 1,000
Marketable securities ..................................................... 2,550,000 0
Investment in First Mortgage Bonds (Note 3) ............................... 10,943,182 0
Investment in Tax-Exempt Securities (Note 4) .............................. 203,958 0
Offering costs ............................................................ 0 709,387
Deferred costs ............................................................ 224,056 11,503
Organization costs, net of accumulated amortization of $7,500 in 1995 ..... 42,500 50,000
Other assets .............................................................. 72,220 0
Accrued interest receivable ............................................... 35,260 0
----------- --------
Total assets .............................................................. $17,385,740 $771,890
=========== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Due to affiliates ....................................................... $ 131,917 $357,659
Accounts payable ........................................................ 42,553 413,231
----------- --------
Total liabilities ......................................................... 174,470 770,890
----------- --------
Shareholders' equity:
Beneficial owner's equity-manager ....................................... (186) 1,000
Beneficial owners' equity-shareholders .................................. 17,211,456 0
----------- --------
Total shareholders' equity ................................................ 17,211,270 1,000
----------- --------
Total liabilities and shareholders' equity ................................ $17,385,740 $771,890
=========== ========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenues:
Interest income:
First Mortgage Bonds (Note 3) ................................ $226,972
Tax-Exempt Securities (Note 4) ............................... 2,160
Marketable Securities ........................................ 147,647
--------
Total revenues ............................................... 376,779
--------
Expenses:
General and administrative ..................................... 66,535
General and administrative-related parties (Note 5) ............ 74,858
Amortization ................................................... 7,500
--------
Total expenses ............................................... 148,893
--------
Net income ................................................... $227,886
========
Allocation of Net Income:
Shareholders ................................................... $224,865
Manager ........................................................ 2,271
Special distributions to Manager (Note 5) ...................... 750
--------
Net income ..................................................... $227,886
========
Net income per weighted average share--shareholders ............ $ .57
========
See accompanying notes to financial statements.
F-13
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Beneficial Beneficial
Owners' Equity- Owner's Equity-
Total Shareholders Manager
---------- --------------- -----------------
<S> <C> <C> <C>
Balance at January 1, 1995 ................................. $ 1,000 $ 0 $ 1,000
Issuance of shares of beneficial ownership interest ........ 18,777,052 18,777,052 0
Offering costs ............................................. (1,448,213) (1,448,213) 0
Net income ................................................. 227,886 224,865 3,021
Distributions .............................................. (346,455) (342,248) (4,207)
------------ ------------ -------
Balance at December 31, 1995 ............................... $ 17,211,270 $ 17,211,456 $ (186)
============ ============ =======
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income ..................................................................................... $ 227,886
------------
Adjustments to reconcile net income to net cash used in operating activities:
Amortization expense-organization costs ...................................................... 7,500
Amortization of REMIC premium ................................................................ 4,128
Changes in operating assets and liabilities:
Increase in other assets ....................................................................... (72,220)
Increase in accrued interest receivable ........................................................ (35,260)
Increase in due to affiliates .................................................................. 86,140
Increase in deferred costs ..................................................................... (455,735)
------------
Total adjustments ............................................................................ (465,447)
------------
Net cash used in operating activities .......................................................... (237,561)
------------
Cash flows used in investing activities:
Purchase of First Mortgage Bonds ............................................................... (10,700,000)
Purchases of Marketable Securities ............................................................. (2,550,000)
Maturity of Tax-Exempt Securities .............................................................. 400,000
Purchase of Tax-Exempt Securities .............................................................. (608,086)
------------
Net cash used in investing activities .......................................................... (13,458,086)
------------
Cash flows provided by financing activities:
Decrease in accounts payable related to financing activities ................................... (370,678)
Decrease in due to affiliates .................................................................. (311,882)
Proceeds from issuance of shares of beneficial interest ........................................ 18,777,052
Distribution to shareholders ................................................................... (346,455)
Increase in offering costs ..................................................................... (738,826)
------------
Net cash provided by financing activities ...................................................... 17,009,211
------------
Net increase in cash and cash equivalents ........................................................ 3,313,564
Cash and cash equivalents at beginning of period ................................................. 1,000
------------
Cash and cash equivalents at end of period ....................................................... $ 3,314,564
============
Supplemental schedule of non cash financial activities:
Increase in offering costs .................................................................... $ (709,387)
Decrease in deferred costs ..................................................................... 952,569
Increase in investment in first mortgage bonds ................................................. (243,182)
------------
$ 0
============
</TABLE>
F-15
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1--GENERAL
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23,
1993 as a Delaware business trust for the primary purpose of investing in
tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by various
state or local governments or their agencies or authorities and secured by
first mortgage loans on multifamily residential apartment and retirement
community projects.
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc.
as the only present beneficiary and the manager (the "Manager") of the Trust.
On November 1, 1994, the Trust commenced a public offering through Related
Equities Corporation, an affiliate of the Manager, and other broker-dealers
on a "best efforts" basis, for up to 10,000,000 shares of its shares of
beneficial interest at an initial offering price of $20 per share. As of
December 31, 1995, a total of 938,946 shares have been sold to the public
through the offering and the Reinvestment Plan representing Gross Proceeds of
$18,778,912 (before volume discounts of $1,860).
The Trust intends to invest the Net Proceeds primarily in First Mortgage
Bonds issued by various state or local governments or their agencies or
authorities and secured by first mortgages and related first mortgage loans
financed by such bonds (collectively, "Mortgage Loans") principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to
a lesser extent, by Affiliates of the Manager. The principal amount of a
Mortgage Loan at the time the loan is made or after a First Mortgage Bond is
acquired and restructured, together with all mortgage loans on the subject
property, will generally not exceed 85% of the appraised fair market value of
the related Property. The First Mortgage Bonds will have maturities of 10 to
35 years, although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so
that no principal payments will be due thereon until the scheduled maturity
or earlier redemption of such bonds, at which point a lump sum or "balloon"
payment of the outstanding principal will be due. In addition, the Trust may
invest up to 10% of the Gross Proceeds in Tax-Exempt Securities which are
expected to begin amortizing or to be repaid as early as during the offering
period and from time to time throughout the life of the Trust. The aggregate
average life of the Tax-Exempt Securities acquired by the Trust is expected
to be six to eight years. As of December 31, 1995, of the total net proceeds
for investment, 3.52% had been invested in Tax-Exempt Securities and 61.93%
had been invested in First Mortgage Bonds. As of December 31, 1995, 34.55% of
the total net proceeds available for investment had not yet been invested in
First Mortgage Bonds or Tax-Exempt Securities.
The First Mortgage Bonds will bear a Current Interest Rate which is fixed.
In addition, a majority of the First Mortgage Bonds are expected to provide
for participations in net property cash flow and the residual value of the
underlying Properties in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First
Mortgage Bonds. The First Mortgage Bonds are expected to prohibit optional
prepayments during the first five years after acquisition by the Trust and
require a redemption premium of at least 5% of the principal amount if
prepaid in the sixth year, declining 1% per year thereafter until there is no
longer a premium.
The Trust expects to invest in First Mortgage Bonds primarily by acquiring
outstanding First Mortgage Bonds which are simultaneously restructured to
change the principal, interest and other terms of those bonds to conform to
the Trust's investment objectives and policies. The multi-family rental
housing properties financed by the outstanding First Mortgage Bonds will have
been constructed and leased. The Trust may also acquire First Mortgage Bonds
that are, or prior to restructuring were, in default because the cash flow
from the property will be insufficient to pay the debt service due on the
bonds. The
F-16
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1--General (continued)
restructuring of the outstanding First Mortgage Bonds will be sufficiently
extensive so that generally a restructured First Mortgage Bond held by the
Trust will be considered to be a newly issued bond for federal income tax
purposes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i) the
Trust has reached a binding agreement with the owner of the underlying
property to amend the terms of the bonds in a manner that is acceptable to
the Trust and (ii) the governmental entity that is the issuer of the
outstanding bonds has agreed to ratify the change in terms and to file the
necessary forms to continue the tax-exemption of the restructured First
Mortgage Bonds or the Manager believes that there is a substantial likelihood
that the issuer will agree subsequently to take the action necessary to
continue the First Mortgage Bond's tax- exemption.
Included in cash and cash equivalents is restricted cash of $187,789 of
working capital reserves.
NOTE 2--ACCOUNTING POLICIES
a) Basis of Accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original
maturity dates equal to or less than three months and are carried at cost
plus accrued interest, which approximates market.
c) Loan Origination Costs
Bond Selection fees and expenses incurred for the investment of mortgage
loans have been capitalized and are included in investment in First Mortgage
Bonds. Loan origination costs are being amortized on the effective yield
method over the lives of the respective mortgages.
d) Organization Costs
Costs incurred to organize the Trust including, but not limited to, legal
and accounting fees are considered organization costs. These costs have been
capitalized and are being amortized on a straight-line basis over a 60-month
period.
e) Offering Costs
Costs incurred to sell shares including brokerage and nonaccountable
expense allowance are considered offering costs. These costs have been
charged directly to shareholders' equity with the sale of shares of
beneficial interest to the public.
f) Income Taxes
The Trust is not required to provide for, or pay, any Federal income
taxes. Income tax attributes that arise from its operation are passed
directly to the individual partners. The Trust may be subject to state and
local taxes in jurisdictions in which it operates.
g) Net Income Per Weighted Average Share
Net income per weighted average share is computed based in the net income
for the period, divided by the weighted average number of shares outstanding
for the period. The weighted average number of shares outstanding for the
years ended December 31, 1995 was 399,265 shares.
F-17
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--ACCOUNTING POLICIES (continued)
h) Investments in Marketable, Equity and Other Securities
Effective January 1, 1995, the Trust has adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards ("SFAS") No. 115 Accounting for Certain Investments in Debt and
Equity Securities. At December 31, 1995, the Trust has classified its
securities as available for sale.
Available for sale securities are carried at fair value with net
unrealized gain (loss) reported as a separate component of shareholders'
equity until realized. A decline in the market value of any available for
sale security below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses for securities are included in earnings and are derived
using the specific identification method for determining the cost of the
securities sold.
Investments in Marketable, Equity and Other Securities represent
marketable securities (consisting of tax-exempt municipal preferred stock),
investment in First Mortgage Bonds and investments in Tax-Exempt Securities
which are carried at cost which approximates market.
i) Use of Estimates
Management of the Trust has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosures of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
j) Financial Instruments
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments, defines fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments held by the Company include cash and
cash equivalents, marketable securities, investments in First Mortgage Bonds
and Tax-Exempt Securities, interest receivable and accounts payable and
accrued expenses.
For cash and cash equivalents, marketable securities, interest receivable
and accounts payable and accrued expenses the carrying amounts is a
reasonable estimate of fair value.
NOTE 3--INVESTMENT IN FIRST MORTGAGE BONDS
On December 21, 1995, the Trust completed the amendment of the bond
indenture for the $10,700,000 in tax-exempt First Mortgage Bonds (the
"Reflections Bonds") in which the Trust had previously acquired a 100%
participation. In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida Housing
Finance Authority (the "Issuer") and are secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida.
Reflections is owned by Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership (the "Seller"), which is not
affiliated with the Manager or Related Capital Company (the "Sponsor").
F-18
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3--INVESTMENT IN FIRST MORTGAGE BONDS (continued)
The Reflections Bonds bear a fixed Current Interest Rate of 9.0%, payable
monthly in arrears, together with Contingent Interest. After payment of the
fixed Current Interest, Contingent Interest will be payable as follows: (i)
25% of net property cash flow after payment of Current Interest, third party
issuer and trustees fees, required reserves, and a preferred return to the
Borrower equal to 3.7% of gross revenues; and (ii) after repayment of
outstanding principal, (a) 10% of net sale or repayment proceeds (which may
be in certain circumstances when no sale proceeds are received be measured by
fair market value) up to $1,300,000, and (b) 25% thereafter until the
Borrower has paid interest at a simple annual rate of 16% over the term of
the Reflections Bonds.
The Reflections Bonds have a term of thirty years and are subject to
mandatory redemption, at the Trust's option, after ten years. The Principal
of the Reflections Bonds is payable upon sale or refinancing of the Project
and prepayment, in whole or in part, is prohibited during the first five
years, except as described below.
Prepayment in whole will be permitted thereafter subject to the payment of
a premium. If prepaid during the sixth year, the premium is equal to 5% of
the principal amount of the Reflections Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year through
the tenth year, when there will be no prepayment premium payable.
Information relating to investments in First Mortgage Bonds as of December
31, 1995 is as follows:
<TABLE>
<CAPTION>
Outstanding Loan Final Blance Interest Paid to
Date of Investment/ Loan Origination At December the Company
Property Description Final Maturity Date Balance Costs 31, 1995 in 1995
- ------------------- -------------------- -------------------- ----------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Reflection Bonds
Casselbury,
Florida(a) 336 Apartment Units 12/95 - 12/25 $10,700,000 $243,182 $10,943,182 $226,972
=========== ========= ============ ================
</TABLE>
(a) The interest rates for the Reflections are 9.00%. In addition to the
interest rate the Trust will be entitled to 25% of the cash flow, as
defined.
NOTE 4--INVESTMENT IN TAX-EXEMPT SECURITIES
On May 3, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Topeka Kansas General Obligation Tax-Exempt Bond from
Smith Barney (the "Kansas Bond"). The Kansas Bond, which had a principal face
value of $200,000 and interest rate of 9.25%, was purchased as a Tax-Exempt
Security investment at the premium price of 101.124% or $202,248 and matured
on August 1, 1995.
On September 19, 1995, the Trust used a portion of the proceeds of the
Kansas Bond to purchase a New York State Environmental Facilities Corp. State
Water Pollution Control Revolving Fund Series D Tax-Exempt Bond from Smith
Barney. The bond, which had a principal face value of $200,000 and interest
rate of 4.4%, was purchased as a Tax-Exempt Security investment at the
premium price of 100.123% or $200,246 and matured on November 15, 1995.
On December 12, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond from Wheat First Butcher Singer. The bond, which has a
principal face value of $200,000 and interest rate of 8.25%, was purchased as
a Tax-Exempt Security investment at the premium price of 102.796% or $205,592
with a maturity date of February 15, 1996.
F-19
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--INVESTMENT IN TAX-EXEMPT SECURITIES (continued)
Information relating to investments in Tax-Exempt Securities for the year
ended December 31, 1995:
Purchases:
Topeka Kansas General Obligation Tax-Exempt Bond ............... $ 202,248
New York State Environmental Tax-Exempt Bond ................... 200,246
Philadelphia Penn General Obligation Tax-Exempt Bond ........... 205,592
Sales:
Maturity of Topeka Kansas General Obligation Tax-Exempt Bond ... (200,000)
Maturity of New York State Environmental Tax-Exempt Bond ....... (200,000)
Amortization of premium ........................................ (4,128)
---------
Amortized cost at December 31, 1995 ............................ $ 203,958
=========
F-20
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--INVESTMENT IN TAX-EXEMPT SECURITIES (continued)
Information relating to investments in Tax-Exempt Securities as of
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Original
Purchase Principal
Stated Final Price at Premium at
Date Interest Payment Including December December
Seller Purchased Rate Date Premium 31, 1995 31, 1995
--------------- ------------ ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Smith Barney 5/3/95 9.25% 8/1/95 $202,248 $ 0 $ 0
Smith Barney 9/19/95 4.40% 11/15/95 200,246 0 0
Wheat First 12/12/95 8.25% 2/15/96 205,592 200,000 5,592
--------- -------- --------
$608,086 $200,000 $5,592
========= ======== ========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Accumulated Interest
Amortization Balance at Earned by Net
at December December the Trust Less 1995 Interest
Seller 31, 1995 31, 1995 for 1995 Amortization Earned
--------------- ------------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Smith Barney $ 0 $ 0 $4,162 $2,248 $1,914
Smith Barney 0 0 1,296 246 1,050
Wheat First (1,634) 203,958 830 1,634 (804)
---------- -------- --------- --------- ----------
$(1,634) $203,958 $6,288 $4,128 $2,160
========== ======== ========= ========= ==========
</TABLE>
[END OF RESTUBBED TABLE]
NOTE 5--RELATED PARTY TRANSACTIONS
The Trust Agreement provides for the Manager, an affiliate of Related
Capital Company, to act as the Manager of the Trust. In accordance with the
Trust Agreement, the Manager is entitled to receive (i) compensation in
connection with the organization and start-up of the Trust and the Trust's
investment in the tax-exempt First Mortgage Bonds; (ii) special distributions
calculated as a percentage of total assets invested by the Trust which
totaled $750 for the year ended December 31, 1995; (iii) a subordinated
incentive fee based on the gain on the sale of the tax-exempt First Mortgage
Bonds; (iv) reimbursement of certain administrative costs incurred by the
Manager or an affiliate on behalf of the Trust which totaled $74,858 for the
year ended December 31, 1995; (v) acquisition expense allowance and bond
selection fees calculated on a percentage of the Gross Proceeds applicable to
the First Mortgage Bonds; as of December 31, 1995, $375,578 of such costs
$214,000 have been capitalized and included in Investment in First Mortgage
Bonds; and (vi) certain other fees.
The Trust has agreed to pay the Manager a nonaccountable allowance
("Expense Allowance") equal to 2.5% of the Gross Proceeds of the Offering.
The Manager, to the extent not paid by an affiliate, has agreed to be
responsible for all expenses of the Offering, except for the payment of the
Expense Allowance, and certain selling commissions (not to exceed 5.0% of
gross proceeds) and a due diligence expense allowance (not to exceed 0.5% of
gross proceeds) on certain sales of shares. As of December 31, 1995, offering
costs totaled $419,473, and along with selling commissions (see below) are
charged directly to Beneficial Owners' Equity-Shareholders.
The Trust has agreed to pay commissions of up to 5% of the aggregate
purchase price of shares sold, subject to quantity discounts, as well as a
non-accountable due diligence expense reimbursement in an amount up to .5% of
Gross Proceeds to certain broker-dealers selected by the Dealer Manager and
approved by the Manager. At December 31, 1995, the Trust paid $1,028,740 of
commissions and due diligence to unaffiliated broker-dealers.
NOTE 6--COMMITMENTS
Rolling Ridge Apartments
On July 7, 1995, the Trust executed a letter of intent to purchase
tax-exempt First Mortgage Bonds (as hereinafter referred to as the "Rolling
Ridge Bonds") in an approximate aggregate principal amount of $4,875,000. The
Rolling Ridge Bonds are expected to be issued by San Bernardino County (the
"Issuer") and secured by a first mortgage and mortgage loan on Rolling Ridge
Apartments (the "Project" or "Rolling Ridge"), a development consisting of
110 apartment units in Chino Hills, California. Rolling Ridge is owned and
operated by Duane R. Raab, Ralph E. Haun and Diane E. Haun (the "Borrower").
F-21
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--COMMITMENTS (continued)
As of December 31, 1995, the letter of intent remains outstanding and the
Manager is still continuing its due diligence review of the Project.
The Rolling Ridge Bonds that will be used to refinance the Project will be
restructured to meet the Trust's investment criteria and are expected to bear
a fixed Current Interest Rate of 9.0%, payable monthly in arrears, together
with Contingent Interest. The Trust expects that, after payment of the fixed
Current Interest, Contingent Interest will be payable out of (i) 25% of net
property cash flow until the Borrower has paid interest up to a
still-to-be-negotiated rate, then (ii) 25% of net sale or repayment proceeds
(which may in certain circumstances when no sale proceeds are received be
measured by fair market value) over repayment of outstanding principal, until
the Borrower has paid interest at a simple annual rate of 16% over the term
of the Rolling Ridge Bonds. The Trust has been informed that, as of December
31, 1995, the Borrower is current with respect to all payments of principal
and interest.
The Trust expects that the principal of the Rolling Ridge Bonds will be
payable upon sale or refinancing of the Project. It is expected that
prepayment, in whole or in part, will be prohibited during the first five
years following the acquisition of the Rolling Ridge Bonds, except as
described below. Prepayment in whole will be permitted thereafter subject to
the payment of a premium. If prepaid during the sixth year, the premium is
expected to equal 5% of the principal amount of the Rolling Ridge Bonds
outstanding at the time of prepayment. Thereafter, the premium will be
reduced by 1% per year until the tenth year, when there will be no prepayment
premium payable.
The Trust expects that, notwithstanding the foregoing, a one-time
assumption will be permitted without prepayment penalty or contingent
interest payment otherwise due on sale or refinancing. Any such new assuming
borrower may be rejected by the Manager in its sole discretion and an
assumption fee equal to actual costs plus 1/2 of 1% of the outstanding
principal amount is expected to be due at the time of assumption.
NOTE 7--SUBSEQUENT EVENTS
The Trust has received an additional $2,378,848 (before volume discounts
of $1,424) of Gross Proceeds representing 118,942 shares for the period
January 1, 1996 to March 7, 1996.
On February 14, 1996, a distribution of $333,590 and $3,370 was paid to
the shareholders and the Manager, respectively, representing the 1995 fourth
quarter distribution. The distribution has been funded from cash collections
of debt service payments and interest income through approximately the
distribution date, February 14, 1996, and proceeds from the maturity of
investments.
On February 15, 1996, the Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond which was purchased from Wheat First Butcher Singer on
December 12, 1995, matured at 102.00% or $204,000.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Related AMI Associates, Inc.:
We have audited the accompanying balance sheets of Related AMI Associates,
Inc. as of December 31, 1995 and 1994. These financial statements are the
responsibility of the Company'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 balance sheets are free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet 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 audits
of the balance sheets provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in
all material respects, the financial position of Related AMI Associates, Inc.
as of December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
April 23, 1996
F-23
<PAGE>
RELATED AMI ASSOCIATES, INC.
BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
March 31, 1996 December 31, December 31,
(Unaudited) 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Cash .............................................................. $ 31,049 $ 24,053 $ 23,220
Investment in American Mortgage Investors Trust (Note 3) .......... 712,558 712,558 715,095
Investment in American Mortgage Investors Trust II (Note 3) ....... 200 200 200
Investment in American Tax-Exempt Bond Trust (Note 3) ............. 1,000 1,000 1,000
Deferred Organization and Offering Costs (Note 3) ................. 242,336 227,373 0
Due from American Mortgage Investors Trust (Note 5) ............... 399,840 370,323 28,262
Due from American Tax Exempt Bond Trust (Note 5) .................. 14,798 5,581 0
Due from Affiliate (Note 5) ....................................... 0 0 98,338
----------- ----------- -----------
Total Assets ...................................................... $ 1,401,781 $ 1,341,088 $ 866,115
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------
Liabilities:
Due to Affiliate (Note 5) ......................................... $ 875,108 $ 833,640 $ 0
Due to American Tax-Exempt Bond Trust (Note 5) .................... 0 0 357,659
----------- ----------- -----------
Total Liabilities ................................................. 875,108 833,640 357,659
----------- ----------- -----------
Commitments (Note 3)
Shareholders' Equity:
Common stock: $1 par value, 1,000 shares authorized;
100 shares issued and outstanding ............................... 100 100 100
Additional Paid-in Capital ........................................ 1,000,900 1,000,900 1,000,900
Retained Earnings ................................................. 526,673 507,448 508,456
----------- ----------- -----------
1,527,673 1,508,448 1,509,456
Less: Subscription Receivable (Note 4) ............................ (1,001,000) (1,001,000) (1,001,000)
----------- ----------- -----------
Total Shareholders' Equity ........................................ 526,673 507,448 508,456
----------- ----------- -----------
Total Liabilities and Shareholders' Equity ........................ $ 1,401,781 $ 1,341,088 $ 866,115
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEETS
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND DECEMBER 31, 1994
NOTE 1--ORGANIZATION
Related AMI Associates, Inc. (the "Company") was formed pursuant to the
laws of the State of Delaware on May 23, 1991 and acts as the Advisor of
American Mortgage Investors Trust ("AMIT") and American Mortgage Investors
Trust II ("AMIT II") and manager of American Tax-Exempt Bond Trust ("ATEBT").
As of March 31, 1996 and December 31, 1995 and 1994, a total of 3,809,601
shares of AMIT were sold to the public, either through AMIT's offering or
AMIT's dividend reinvestment plan, representing gross proceeds of $76,192,021
(before volume discounts of $40,575). AMIT's offering terminated as of
November 30, 1994. On November 1, 1994, ATEBT commenced a public offering and
as of March 31, 1996 and December 31, 1995 a total of 1,078,523 and 938,946
were sold to the public, either through ATEBT's offering or ATEBT's
reinvestment plan representing gross proceeds of $21,570,459 and $18,778,912
(before volume discounts of $3,284 and $1,860). AMIT II is currently in the
registration phase. AMIT II and ATEBT have been authorized to issue a maximum
of 12,601,010 and 10,000,000 shares of beneficial ownership interest,
respectively, for $252,020,200 and $200,000,000.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
a) Income Taxes
The shareholders of the Company have elected "S" Corporation status under
applicable provisions of the Internal Revenue Code and New York State Law.
While valid elections are in effect, the income of the Company for federal
and state income tax purposes, will be taxed directly to the shareholders.
b) Investments
The Company records its Investment in AMIT at fair value. Dividends
received from AMIT totaled $17,656, $70,020 and $62,754 for the three months
ended March 31, 1996 and the years ended December 31, 1995 and 1994,
respectively.
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". In accordance with SFAS No. 115, the Company has
classified its marketable securities as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses for available-for-sale securities are excluded from
earnings and are reported as a net amount in a separate component of
shareholders' equity until realized. A decline in the fair value of any
available-for-sale security below the amortized cost basis that is deemed
other than temporary is charged to earnings resulting in the establishment of
a new cost basis for the security.
c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
NOTE 3--INVESTMENTS
The Company made an initial investment of $200,000, representing 10,000
shares, in AMIT in December 1992.
The Company is to receive restricted shares of AMIT, which, after such
issuance, will equal 1% of the issued shares of AMIT as compensation in
connection with the start-up of AMIT and AMIT's dividend reinvestment plan.
Restricted shares received at March 31, 1996 and December 31, 1995 and 1994
were 38,481 (including 717 from the dividend reinvestment plan). As a result
of shares being redeemed pursuant to AMIT's redemption plan, the Company was
required to return 172 shares as of March 31, 1996 and December 31, 1995.
Such shares have been recorded at their estimated market value ($14.75 per
share).
F-25
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEETS -- (CONTINUED)
NOTE 3--INVESTMENTS (continued)
As of March 31, 1996 and December 31, 1995 and 1994, the carrying value of
the shares held are equal to their estimated market value.
The Company made an initial investment of $200, representing 10 shares, in
AMIT II in September 1993.
Upon commencement of the AMIT II offering, the Company will contribute
$200,000 to AMIT II and in addition will contribute an amount equal to AMIT
II's organizational and offering and acquisition expenses in consideration of
which it will receive 100 Class B Shares representing all the issued and
outstanding Class B Shares and 100 Class C Shares representing all of the
issued and outstanding Class C Shares of AMIT II (see Note 5).
The Company made an initial investment of $1,000 in ATEBT in December
1993.
NOTE 4--CAPITALIZATION
The Company is capitalized by demand notes totaling $1,000,000 and
receivables of $1,000. These notes and receivables bear no interest and are
executed by two of the officers of the Company. For accounting purposes the
demand notes and receivables are reflected as a reduction in shareholders'
equity.
NOTE 5--RELATED PARTY TRANSACTIONS
a) American Mortgage Investors Trust
The Company has entered into an agreement with AMIT to act as its advisor.
In accordance with the agreement, the Company received compensation
consisting primarily of (i) compensation in connection with the organization
and start-up of AMIT and AMIT's investment in mortgages; (ii) asset
management fees calculated as a percentage of total assets invested by AMIT;
(iii) a subordinated incentive fee based on the economic gain on the sale of
mortgages; (iv) reimbursement of certain administrative costs incurred by the
Company or an affiliate on behalf of AMIT; (v) an amount which, after
issuance, will equal 1% of all shares of AMIT issued during the offering
period or pursuant to AMIT's dividend reinvestment plan as compensation for
services rendered; (vi) acquisition fees and acquisition expense allowance
calculated as a percentage of the gross proceeds applicable to the
origination of the mortgages and related additional loans and the acquisition
of acquired mortgages and additional loans; and (vii) certain other fees.
The Company receives a non-accountable allowance ("Expense Allowance")
from AMIT equal to 2.5% of the gross proceeds of the offering. The Company
has agreed to be responsible for all expenses of the offering, except for the
payment of the Expense Allowance and certain selling commissions (not to
exceed 6.0% of gross proceeds) and due diligence expense allowance (not to
exceed 0.5% of gross proceeds) on certain sales of shares. As of March 31,
1996 the amount due from AMIT consists of asset management fees in the amount
of $349,840 and the excess of offering expenses over the Expense Allowance
totaling $50,000. As of December 31, 1995 the amount due from AMIT consists
of asset management fees in the amount of $261,578 and acquisition fees for
the Company's investment in Stony Brook totaling $108,745. As of December 31,
1994, the amount due from AMIT consists of asset management fees in the
amount of $83,240 and other amounts due to the Company totaling $402 net of
the excess of offering expenses over the Expense Allowance totaling $55,380.
In addition, the Company receives restricted shares of AMIT, which the
Company has valued at $14.75 per share, which, after such issuance, will
equal 1% of the issued shares of AMIT.
The Company is required, in accordance with an agreement with an
affiliate, to remit the asset management fees, the Expense Allowance,
mortgage placement or financing fees and subordinated incentive fees,
acquisition fees and allowances it earns
F-26
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEETS -- (CONTINUED)
NOTE 5--RELATED PARTY TRANSACTIONS (continued)
from AMIT for services performed by the affiliate, and the Company is
reimbursed from its affiliate for the expenses which the Company is
responsible to pay to AMIT.
b) American Mortgage Investors Trust II
AMIT II entered into an agreement with the Company to act as the advisor
to AMIT II. AMIT II will reimburse the Company and its affiliates for (i) the
actual costs to the Company or its affiliates of goods, materials and
services used for and by AMIT II obtained from unaffiliated parties; (ii)
administrative services necessary to the operation of AMIT II and (iii) the
cost of certain personnel employed by AMIT II and directly involved in the
organization and business of AMIT II including persons who may be employees
or officers of the Company and Affiliates and for legal, accounting, transfer
agent, reinvestment and redemption plan administration, data processing,
duplicating and investor communications services performed by employees or
officers of the Company and its affiliates which could be performed directly
for AMIT II by independent parties.
The Company will pay, on behalf of AMIT II, all organizational and
offering expenses and acquisition expenses. In return for payment of such
expenses the Company will receive (i) 100 Class B Shares representing all of
the issued and outstanding Class B Shares, pursuant to which it will be
entitled to a 10% interest in AMIT II's distributions and (ii) 100 Class C
Shares, representing all of the issued and outstanding Class C Shares
pursuant to which it will be entitled to a 5% interest in AMIT II's
distributions which will be subordinated to certain distributions to Class A
and Class B Shareholders.
As of March 31, 1996 and December 31, 1995, the Company has incurred
$242,336 and $227,373 of organization and offering expenses and acquisition
expenses for which upon closing it will receive the appropriate Class B and
Class C Shares.
Additional compensation which may be payable to the Company and its
affiliates by AMIT II is as follows:
i) Construction Fees: Affiliates of the Company may receive compensation
in connection with the construction, development and financing of any
properties which are owned by affiliates of the Company or third party
owners, payable by such owners.
ii) Escrow Interest: The Company or its affiliates may hold escrows on
behalf of mortgagors for the annual insurance premiums and property taxes, in
connection with the servicing of mortgage investments, which it may deposit
with various unaffiliated banks.
iii) Property Management, Insurance Brokerage and Real Estate Brokerage
Fees: The Company or its affiliates may receive a Property Management,
Insurance Brokerage and Real Estate Brokerage Fee for providing management,
insurance brokerage or real estate brokerage services with respect to any
property if they are retained by a property owner or if such services are
required by AMIT II in the event of a default on a mortgage investment.
c) American Tax-Exempt Bond Trust
The Company has entered into an agreement with ATEBT to act as its
manager. In accordance with the agreement, the Company is entitled to receive
(i) compensation in connection with the organization and start-up of ATEBT
and ATEBT's investment in tax-exempt first mortgage bonds; (ii) special
distributions of adjusted cash from operations calculated as a percentage of
total assets invested by ATEBT; (iii) a subordinated incentive fee based on
the gain on the sale of the tax-exempt first mortgage bonds; (iv)
reimbursement of certain administrative costs incurred by the Company or an
affiliate on behalf of ATEBT; (v) acquisition expense allowance and bond
selection fees calculated on a percentage of the gross proceeds applicable to
the first mortgage bonds; and (vi) certain other fees.
F-27
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEETS -- (CONTINUED)
NOTE 5--RELATED PARTY TRANSACTIONS (continued)
The Company received a non-accountable allowance ("Expense Allowance")
from ATEBT equal to 2.5% of the gross proceeds of the offering which totaled
$539,261 and $469,473 at March 31, 1996 and December 31, 1995. The Company,
to the extent not paid by an affiliate, has agreed to be responsible for all
expenses of the offering, except for the payment of the Expense Allowance,
and certain selling commissions (not to exceed 5.0% of gross proceeds) and a
due diligence expense allowance (not to exceed 0.5% of gross proceeds) on
certain sales of shares. As of March 31, 1996 the amount due from ATEBT
consists of $673 of bond selection fees and a special distribution for
managing ATEBT and its portfolio in the amount of $14,125. As of December 31,
1995 the amount due from ATEBT consists of $4,831 of bond selection fees and
a special distribution for managing ATEBT and its portfolio in the amount of
$750. As of December 31, 1994 the amount due to ATEBT consists of the excess
of offering expenses over the Expense Allowance in the amount of $357,659.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Casselberry-Oxford Associates Limited Partnership
We have audited the accompanying balance sheet of Casselberry-Oxford
Associates Limited Partnership as of December 31, 1995, and the related
statements of operations, partners' 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 Casselberry-Oxford
Associates Limited Partnership as of December 31, 1995, and the results of
its operations and its cash flows for the year then ended, in conformity with
general accounting principles.
As discussed in note 2, during 1995 the partnership changed its method of
reporting from the basis used for income tax purposes to a basis in
conformity with generally accepted accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
January 26, 1996
F-29
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $7,158,819
OTHER ASSETS
Cash and cash equivalents 34,237
Tenant receivables 19,337
Due from Oxford 19,116
Tenant security deposits--funded 46,844
Prepaid expenses 10,000
Mortgage escrow deposits 87,096
Refinancing escrow 107,381
Debt service reserve escrow 200,000
Unamortized costs 478,142
-----------
$8,160,972
===========
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
----------------------------------
<TABLE>
<S> <C> <C>
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage note payable .......................................... $10,700,000
Accrued interest payable ....................................... 29,425
-----------
10,729,425
OTHER LIABILITIES
Accounts payable ............................................... 407,344
Tenant security deposits ....................................... 46,141
Deferred rental revenue ........................................ 8,982
Working capital advances ....................................... 3,234
Accrued investor services fee .................................. 7,000
Working capital loan (includes accrued interest of $16,858) .... 831,858
Operating expenses loan (includes accrued interest of $67,280) . 1,233,909
Loan payable ................................................... 347,177
Deferred management fees ....................................... 148,460
Subordinated management fees ................................... 67,468
Subordinated loan payable ...................................... 153,843
-----------
13,984,841
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT
Capital contributions .......................................... $ 5,835,310
Less: Nonamortizable costs ..................................... 439,499
------------
5,395,811
Cumulative cash distributions .................................. (324,745)
Cumulative losses .............................................. (10,894,935) (5,823,869)
------------ -----------
$ 8,160,972
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-30
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Gross potential rental revenue .............. $2,128,778
Less vacancies and allowances ............... 212,097
----------
Net rental revenue ........................ 1,916,681
Interest income ............................. 18,324
Other income ................................ 128,757
----------
Total operating revenue ................. 2,063,762
----------
Operating expenses
Renting ................................... $ 26,777
Administrative ............................ 247,723
Maintenance and operating ................. 778,278
Utilities ................................. 149,225
Taxes ..................................... 187,946
Insurance ................................. 60,485 1,450,434
----------
Mortgage interest ........................... 829,838
Interest on advances and loans .............. 16,858
Depreciation ................................ 229,652
Amortization ................................ 6,981
Financing fees .............................. 293,207
Letter of credit fees ....................... 14,237
Investor services fees ...................... 7,806
Professional fees ........................... 975
Other partnership expenses .................. 8,556 1,408,110
---------- ---------
Total expenses .............................. 2,858,544
----------
Net loss .................................... $ (794,782)
==========
The accompanying notes are an integral part of this statement.
F-31
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gross Less Net Cumulative
Capital Nonamortizable Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
-------------- --------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit, 1/1/95,
as previously reported ..... $5,835,310 $(439,499) $5,395,811 $(324,745) $(14,953,375) $(9,882,309)
Adjustment to reflect the
change in method of
financial statement
reporting .................. -- -- -- -- 4,853,222 4,853,222
---------- ---------- ----------- ---------- ------------ ------------
Partners' deficit, 1/1/95,
as restated ................ 5,835,310 (439,499) 5,395,811 (324,745) (10,100,153) (5,029,087)
Net loss ..................... -- -- -- -- (794,782) (794,782)
---------- ---------- ----------- ---------- ------------ ------------
Partners' deficit, 12/31/95 .. $5,835,310 $(439,499) $5,395,811 $(324,745) $(10,894,935) $(5,823,869)
========== ========== =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-32
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss ................................................................ $ (794,782)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation .......................................................... 229,652
Amortization .......................................................... 6,981
Changes in asset and liability accounts (Increase) decrease in assets
Tenant receivables .................................................... (15,930)
Prepaid expenses ...................................................... 14,237
Unamortized costs ..................................................... (479,589)
Mortgage escrow deposits .............................................. 35,761
Debt service escrow ................................................... (107,381)
Tenant security deposits--net ......................................... (587)
Increase (decrease) in liabilities
Accounts payable ...................................................... 346,237
Accrued interest payable .............................................. (277,085)
Accrued interest--working capital loan ................................ 16,858
Deferred rental revenue ............................................... (825)
Deferred management fees .............................................. 29,170
Deferred fees payable ................................................. (333,643)
-----------
Net cash used in operating activities ............................... (1,330,926)
-----------
Cash flows from investing activities
Net disbursements from project reserve account--Fleet ................... 353,739
Net disbursements from debt service reserve escrow--Fleet ............... 350,216
Net deposits to debt service reserve escrow--Related .................... (200,000)
-----------
Net cash provided by investing activities ........................... 503,955
-----------
Cash flows from financing activities
Proceeds from working capital advances .................................. 2,484
Proceeds from working capital loan ...................................... 815,000
-----------
Net cash provided by financing activities ........................... 817,484
-----------
NET DECREASE IN CASH EQUIVALENTS ...................................... (9,487)
Cash and cash equivalents, beginning ...................................... 43,724
-----------
Cash and cash equivalents, end ............................................ $ 34,237
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest .................................. $ 1,106,923
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Suntrust Bank, Central Florida, National
Association. The agreement provides for, among other things, the rental of at
least 20% of the units to tenants whose income does not exceed 80% of the
median area income. This restriction is necessary in order for the
partnership to comply with the provisions of the Internal Revenue Code
governing preservation of the tax exempt status of the bonds issued by the
Orange County Housing Finance Authority.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the financial statements follows.
Basis of Accounting
Prior to 1995, the partnership maintained its financial records and
prepared its financial statements on the basis of accounting used for income
tax purposes. As a result, the partnership amortized construction period
interest and taxes as allowed by the Internal Revenue Code, and depreciation
was computed on the accelerated cost recovery system, rather than
capitalizing the development period costs and depreciating the buildings over
their estimated economic lives as required by generally accepted accounting
principles. Pursuant to the terms of the refinancing (note 5), the
partnership was required to change its method of reporting from the basis
used for income tax purposes to a basis in conformity with generally accepted
accounting principles. The effect of this change in accounting method was to
decrease partners' deficit at January 1, 1995, by $4,853,222 for the
cumulative effect of the change on net loss for prior years.
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 those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Cash Equivalents
The Partnership invests substantially all of its available cash in the
operating bank account in an overnight investment in commerical paper which
is considered to be a cash equivalent. The carrying amount of the investment
approximates fair value. At December 31, 1995, $31,876 was invested.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
F-34
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
NOTE 3--RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners are officers and/or affiliates of Oxford Development
Corporation (Oxford), Oxford Holding Corporation (OHC), Oxford Realty
Financial Group, Inc. (ORFG), or NHP Inc.
The following items were paid or are payable to Oxford, OHC, ORFG, NHP
Inc. or their affiliates from operating revenues or distributable net cash
flow.
Property Management Fee
The partnership has entered into an agreement with NHP Management Company,
an affiliate of NHP Inc. to provide property management services to the
partnership. The fee for such services is equal to 3.36% of gross collections
which was $66,980 in 1995. The agreement expires December 31, 1996, at which
time it can be automatically renewed for one year periods, subject to certain
limitations.
Deferral of Fees
Pursuant to the terms of the partnership agreement, 33.3% of the property
management fees are deferred in any year in which certain operating income
levels are not achieved. Deferred amounts will be repayable without interest
from distributable net cash flow (note 6) or from the proceeds of sale or
refinancing, after certain priorities. In 1995, $21,757 was deferred by NHP
Management Company and as of December 31, 1995, the cumulative amounts
deferred by NHP Management Company was $45,287. Effective December 22, 1995,
pursuant to the refinancing (note 5), the deferral requirement has been
eliminated.
Additionally, Oxford Management Company, Inc. (OMC), the former property
management agent, had deferred management fees of $87,745 in prior years.
Subordination of Fees
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
Accounting and Data Processing Fee
NHP Management Company receives an accounting and data processing fee of
$1.49 per unit per month. A fee of $6,015 was paid in 1995.
F-35
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS (continued)
Administrative Fee
NHP Management Company receives an annual fee of $895 for preparation of
workpapers and account analyses for the audit firm.
Incentive Management Fee
NHP Management Company receives an incentive management fee payable from
distributable net cash flow after certain priorities (note 6). No fee was
earned in 1995.
Capital Improvement Consulting, Oversight, and Administrative (CICOA) Fee
NHP Management Company earns a fee for its services in special planning
and oversight in connection with capital improvements made to the rental
property. The fee is 7.46% of the actual costs of certain capital
improvements, subject to certain limitations, and is payable to NHP
Management Company from operating revenue. The fee earned in 1995 was $1,707.
Cash Management Fee
NHP Management Company receives a cash management fee for managing and
investing partnership funds. The fee is 1.12% of the average monthly
investment portfolio (computed on an annualized basis) managed by NHP
Management Company. The fee earned by NHP Management Company in 1995 was
$1,019 and was offset against interest income.
Asset Management Fees
The partnership has entered into an Asset Management Agreement with ORFG
to provide certain supervisory and asset management services to the
partnership, which previously had been provided by the former property
management agent, OMC, but are not provided by NHP Management Company,
including overseeing the property manager. The fee earned for such services
in 1995 was $26,100, representing an amount equal to 34.1% of all the
above-referenced fees payable to NHP Management Company, and is currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, ORFG is required to subordinate one-third of a portion of this fee
which was $7,412 in 1995 and as of December 31, 1995, the cumulative amount
deferred was $15,428 and is included in deferred management fees. Effective
December 22, 1995, pursuant to the refinancing (note 5), the subordination
requirement has been eliminated.
Additionally, ORFG earns a fee equal to 1% of the gross receipts. This fee
is deferred and is payable from distributable net cash flow (note 6). No such
fee was expensed in 1995.
Management estimates that projected future cash flow will not be
sufficient to pay the asset management fee equal to 1% of gross receipts.
Consequently, the partnership has ceased accrual of this fee. If, in the
future, the partnership determines that projected cash flow is sufficient to
pay this fee, the partnership will accrue any prior year's fees and interest
thereon at that time.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to ORFG
for its services in preparing necessary reports for the investor limited
partners and in communicating with them concerning the partnership's affairs.
The fee may be increased by the same percentage as the average percentage
increase in the project's rent. A fee of $7,806 was expensed and paid in
1995.
Prior to January 1, 1994, Oxford Equities Corporation (OEC) was the
servicer of this information. The balance due OEC at December 31, 1995 was
$7,000.
F-36
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS (continued)
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through a common paymaster, Oxford
Realty Services Corporation (ORSC). The partnership had a deposit with ORSC
of $19,116 which represented approximately the amount advanced by ORSC to
fund payroll before being reimbursed by the partnership. This deposit will be
refunded by ORSC in accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Working Capital Advances
Oxford has provided non-interest bearing working capital advances, which
are repayable from first available distributable cash flow. As of December
31, 1995, the balance due Oxford was $3,234.
Working Capital Loan
Oxford made loans to the partnership during 1995, in the amount of
$815,000 for the purpose of enabling the partnership to extend the letter of
credit while pursuing refinancing or a sale, for the purpose of funding
obligations under the Commitment Letter, and to fund the bond refunding and
other closing costs. Repayment of this loan will be subordinated to certain
priority returns to the Preferred ILPs (note 6), with the unpaid balance
accruing interest at a simple rate equal to 10% per annum. Interest of
$16,858 was expensed in 1995. As of December 31, 1995, the amount due Oxford
was $831,858, which includes accrued interest of $16,858.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC has agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1995 which includes accrued interest
of $67,280. Pursuant to an earlier agreement no additional interest will be
charged. The loan is repayable from distributable net cash flow (note 6) or
proceeds of the sale or refinancing of the project, after certain priorities.
OMC is not required to make additional operating expense loans as the term of
this obligation has expired.
Subordinated Loan Payable
During 1988, a collateral security account funded by Oxford, in the amount
of $153,843 was drawn to pay mortgage interest of the partnership. This
amount is repayable to Oxford, without interest, upon sale or refinancing of
the project, after certain priorities.
Amounts outstanding on the above notes and loans at the time of sale or
refinancing of the project or the dissolution of the partnership are payable
from the proceeds of such sale, refinancing or partnership liquidation.
As described above, the related party notes and loans are repayable from
available cash flow, if any. Accordingly, management believes it is not
practicable to estimate the fair value of these notes and loans.
F-37
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Land ............................................. $ 700,000
Buildings ........................................ 9,173,606
Building equipment ............................... 1,598,578
------------
11,472,184
Less accumulated
depreciation ................................... (4,313,365)
------------
$ 7,158,819
============
</TABLE>
NOTE 5--MORTGAGE NOTE PAYABLE
During the year, the partnership was obligated on a mortgage loan in the
original amount of $10,700,000 which was payable to Independence One Mortgage
Corporation. The mortgage loan was financed by tax-exempt bonds issued by
Orange County Housing Finance Authority. The mortgage note provided for: (a)
interest at 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi-annual payments of interest; (c) establishment of a Project
Reserve Account; and (d) original maturity on Feburary 1, 1995, which was
extended to June 30, 1995.
The mortgage loan was secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit was secured
by a second mortgage lien on the property and a second assignment of rents
and leases
In addition, Casselberry obtained an extension of the bond maturity until
June 30, 1995 from the Orange County Housing Finance Agency. In conjunction
with the loan extension, the interest rate on the mortgage loan was reduced
from 6.875% to 4.95% until June 30, 1995. A new extension was not agreed
upon, and effective July 1, 1995, the interest rate was increased to the
default rate of 10.75%.
As part of the extension, Fleet agreed that it would not foreclose on the
property until October 31, 1995, in order to provide the partnership with
sufficient time to arrange for either a refinancing or sale. Prior to the
scheduled bond maturity, Fleet purchased the bonds in lieu of their
redemption. On August 2, 1995, the partnership signed a letter of intent with
Related Capital Company (RCC) for the refinancing of the mortgage and on
October 11, 1995, RCC purchased the mortgage bonds from Fleet.
On December 22, 1995, the refinancing with RCC closed. The new mortgage
loan provides for, among other things: (a) principal amount of $10,700,000;
(b) maturity on December 22, 2005; (c) an interest rate equal to 9% per
annum; (d) monthly payments of interest only and quarterly interest payments
equal to 25% of net cash flow after a priority payment to the partners of
3.7% of total operating income for the period to the partnership; and (e)
establishment of a replacement reserve with an initial deposit of $200,000
and for the first 24 months deposits of $8,400 per month and $7,000,
thereafter.
The carrying amount of the partnership's mortgage note payable
approximates fair value.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
In 1989, the partnership received a loan from Merrill Lynch, Hubbard,
Inc., to cover certain costs of refinancing the mortgage loan. The loan is
repayable, without interest, from the proceeds of the sale or refinancing of
the project, after certain priorities. As of December 31, 1995, the loan
balance was $347,177. Because the loan is only payable from the proceeds of
the sale or refinancing of the project, management believes it is not
practicable to estimate the fair value of this loan.
F-38
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners .... $ 260
Investor Limited Partners ............... 4,750,050
Preferred Limited Partners .............. 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at
December 31, 1995 is as follows:
Cash .................................... $ 34,237
Tenant security deposits--funded ........ 46,844
----------
81,081
Less: Accounts payable .................. $ 407,344
Tenant security deposits .......... 46,141
Deferred rental revenue ........... 8,982
Accrued interest payable .......... 29,425 491,892
--------- ----------
Distributable net cash flow ............. $ (410,811)
==========
The general partners have the right to reserve for contingencies and
future replacements in amounts determined adequate for such purposes at any
time.
Distributable net cash flow, when available, is payable as follows:
a) To the preferred limited partners, payment of an $87,000 cumulative,
annual preferred return beginning in 1996;
b) To payment of any unpaid investor services fees;
c) To ORFG, payment of any unpaid asset management fee charged to the
partnership beginning in 1996 and any accrued interest thereon;
d) To Oxford, all unpaid interest of 10%, simple interest, on Oxford working
capital loan in the original amount of $815,000 made in 1995;
e) From 50% of remaining distributable net cash flow, repayment of
outstanding principal on the Oxford working capital loan in the original
amount of $815,000;
f) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($1,068,362 as of December 31, 1995 less prior distributions to preferred
limited partners);
g) To the preferred limited partners, an amount equal to the preferred
capital contributions;
h) To ORSC and ORFG, payment of the 1992 - 1995 asset management fees from
up to 50% of distributable cash flow;
i) To OMC, NHP Management Company and ORFG, in payment of any deferred
property management fees;
j) To the investor limited partners, up to $380,000 in accordance with their
partnership interests;
k) To the special limited and general partners, up to $20,000 in accordance
with their partnership interests;
F-39
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
l) To OMC, the payment of 1987 subordinated property management fee;
m) To the payment of any operating expense loans, including interest
thereon;
n) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
o) The remaining amount will be distributed 40% to NHP Management Company as
an incentive management fee, 50% to the investor limited partners, and
10% to the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7--MAJOR REPAIRS
In 1994, management discovered that the rental property had incurred
significant structural damage caused by termite infestation and water
penetration. During 1994, management began the process of repairing the
damages which was estimated to cost a total of $500,000 - $700,000 over
several years. During 1995, the partnership incurred costs of approximately
$417,000, completing the repair work. Approximately $200,000 was accrued and
payable as of December 31, 1995.
F-40
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
(Unaudited)
ASSETS
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment ......................................... $ 7,388,468
OTHER ASSETS
Cash ........................................................... 43,724
Tenant receivables ............................................. 3,407
Due from Oxford ................................................ 19,116
Tenant security deposits--funded ............................... 37,366
Prepaid expenses ............................................... 24,237
Mortgage escrow deposits ....................................... 122,857
Debt service escrow ............................................ 350,216
Project reserve account ........................................ 353,739
Unamortized costs .............................................. 5,534
-----------
$ 8,348,664
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage note payable .......................................... $10,700,000
Accrued interest payable ....................................... 306,510
-----------
11,006,510
OTHER LIABILITIES
Accounts payable ............................................... 61,854
Tenant security deposits ....................................... 37,250
Deferred rental revenue ........................................ 9,807
Accrued investor services fee .................................. 7,000
Operating expense loan (includes accrued interest of $67,280) .. 1,233,909
Loan payable ................................................... 347,177
Deferred management fees ....................................... 119,290
Subordinated management fees ................................... 67,468
Subordinated loan payable ...................................... 153,843
Deferred fees payable (Note 5) ................................. 333,643
-----------
13,377,751
Partners' deficit (Note 6):
Capital contributions ..................... $ 5,835,310
Less: Nonamortizable costs (Note 2) ....... 439,499
-----------
5,395,811
Cumulative cash distributions ............. (324,745)
Cumulative losses ......................... (10,100,153) (5,029,087)
------------ -----------
$ 8,348,664
===========
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
Gross potential revenue .......................................... $2,087,095
Less vacancies and allowances .................................... 169,000
----------
Net rental revenue ........................................... 1,918,095
Interest income .................................................. 16,803
Other income ..................................................... 79,310
----------
Total operating revenue ...................................... 2,014,208
----------
Operating expenses
Renting .......................................... $ 30,326
Administrative ................................... 241,698
Maintenance and operating ........................ 530,980
Utilities ........................................ 138,791
Taxes ............................................ 186,851
Insurance ........................................ 46,680 1,175,326
--------
Mortage interest ................................. 735,625
Depreciation ..................................... 229,630
Amortization ..................................... 66,370
Financing fees ................................... 16,451
Letter of credit fees ............................ 168,969
Investor services fee ............................ 7,729
Professional fees ................................ 2,460
Other partnership expenses ....................... 6,429 1,233,663
-------- -----------
Total expenses ............................................. 2,408,989
-----------
Net loss ................................................... $ (394,781)
===========
The accompanying notes are an integral part of this statement.
F-42
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Less Cumulative
Gross Capital Non-amortizable Net Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
-------------- ---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit,
1/1/94 ............. $5,835,310 $(439,449) $5,395,811 $(324,745) $ (9,705,372) $(4,634,306)
Net loss ............. -- -- -- -- (394,781) (394,781)
---------- --------- ---------- ---------- ------------- ------------
Partners' deficit,
12/31/93 ........... $5,835,310 $(439,499) $5,395,811 $(324,745) $(10,100,153) $(5,029,087)
========== ========= ========== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-43
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ...................................................................... $(394,781)
Adjustments to reconcile net loss to net cash used in operating activities:
Deprectiation ................................................................ 229,630
Amortization ................................................................. 66,370
Changes in asset and liability accounts:
Tenant receivables .......................................................... (3,156)
Other accounts receivable ................................................... 150
Prepaid expenses ............................................................ (461)
Accounts payable ............................................................ 36,278
Deferred rental revenue ..................................................... (4,614)
Deferred management fees .................................................... 29,767
Net security deposits paid .................................................. 982
Net deposits to escrows for taxes and insurance ............................. (27,783)
Net deposits to debt service escrow ......................................... (3,455)
---------
Net cash used in operating activities ...................................... (71,073)
---------
Cash flows from investing activities:
Net disbursements from project reserve account ................................ 537
---------
Net cash provided by investing activities .................................. 537
---------
NET DECREASE IN CASH ....................................................... (70,536)
Cash, beginning ................................................................ 114,260
---------
Cash, end ...................................................................... $ 43,724
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ........................................ $ 735,625
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-44
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(Unaudited)
NOTE 1 -- ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Independence One Mortgage Corporation. The
agreement provides for, among other things, the rental of at least 20% of the
units to tenants whose income does not exceed 80% of the median area income.
This restriction is necessary in order for the partnership to comply with the
provisions of the Internal Revenue Code governing preservation of the tax
exempt status of the bonds issued by the Orange County Housing Finance
Authority.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the financial statements follows.
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 those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
F-45
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners are officers and/or affiliates of Oxford Development
Corporation (Oxford), Oxford Holding Corporation (OHC), Oxford Realty
Financial Group, Inc. (ORFG), or NHP, Inc.
The following items were paid or are payable to Oxford, OHC, ORFG, NHP,
Inc. or their affiliates from operating revenues or distributable net cash
flow.
Property Management Fee
The partnership has entered into an agreement with NHP Management Company,
an affilate of NHP, Inc. to provide property management services to the
partnership. The fee for such services is equal to 3.36% of gross collections
which was $66,612 in 1994. The agreement expires December 31, 1995, at which
time it can be automatically renewed for one year periods, subject to certain
limitations.
Deferral of Fees
Pursuant to the terms of the partnership agreement, 33.3% of the property
management fees are deferred in any year in which certain operating income
levels are not achieved. Deferred amounts will be repayable without interest
from distributable net cash flow (note 6) or from the proceeds of sale or
refinancing, after certain priorities. In 1994, $22,204 was subordinated by
NHP Management Company and as of December 31, 1994, the cumulative amounts
subordinated by NHP Management Company was $23,539.
Additionally, Oxford Management Company, Inc. (OMC), the former property
management agent, had subordinated $87,745 in prior years.
Subordination of Fees
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
Accounting and Data Processing Fee
NHP Management Company receives an accounting and data processing fee of
$1.49 per unit per month. A fee of $6,015 was paid in 1994.
Administrative Fee
The management agent receives an annual fee for preparation of workpapers
and account analyses for the audit firm. During 1994, $600 was paid to OMC,
the former property management agent, and $444 was paid to NHP Management
Company for their services relating to the audit work preparation of the 1993
audit.
Incentive Management Fee
NHP Management Company receives an incentive management fee payable from
distributable net cash flow after certain priorities (note 6). No fee was
earned in 1994.
F-46
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Capital Improvement Consulting, Oversight, and Administrative (CICOA) Fee
NHP Management Company earns a fee for its services in special planning
and oversight in connection with capital improvements made to the rental
property. The fee is 7.46% of the actual costs of certain capital
improvements, subject to certain limitations, and is payable to NHP
Management Company from operating revenue. The fee earned in 1994 was $8,594.
Cash Management Fee
NHP Management Company receives a cash management fee for managing and
investing partnership funds. The fee is 1.12% of the average monthly
investment portfolio (computed on an annualized basis) managed by NHP
Management Company. The fee earned by NHP Management Company in 1994 was
$1,608 and was offset against interest income.
Asset Management Fees
The partnership has entered into an Asset Management Agreement with ORFG
to provide certain supervisory and asset management services to the
partnership, which previously had been provided by the former property
management agent, OMC, but are not provided by NHP Management Company,
including overseeing the property manager. The fee earned for such services
in 1994 was $28,372, representing an amount equal to 34.1% of all the
above-referenced fees payable to NHP Management Company, and was currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, ORFG is required to subordinate one third of a portion of this fee
which was $7,563 in 1994 and as of December 31, 1994, the cumulative amount
deferred was $8,016.
Additionally, ORFG earns a fee equal to 1% of the gross receipts. This fee
is only payable out of available distributable cash flow after certain
priorities (note 6), if any. Management believes that it is not likely that
sufficient distributable cash flow will be generated for the payment of this
fee and accordingly, has ceased accrual.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to ORFG
for its services in preparing necessary reports for the investor limited
partners and in communicating with them concerning the partnership's affairs.
The fee may be increased by the same percentage as the average percentage
increase in the project's rent. A fee of $7,729 was expensed in 1994.
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through a common paymaster, Oxford
Realty Services Corporation (ORSC). The partnership had a deposit with ORSC
of $19,116 which represented approximately the amount advanced by ORSC to
fund payroll before being reimbursed by the partnership. This deposit will be
refunded by ORSC in accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC had agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1994 which includes accrued interest
of $67,280. Pursuant to an earlier agreement no additional interest will be
charged. The loan is repayable from distributable net cash flow (note
F-47
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
6) or proceeds of the sale or refinancing of the project, after certain
priorities. OMC is not required to make additional operating expense loans as
the term of this obligation has expired.
Subordinated Loan Payable
During 1988, the collateral security account funded by Oxford, in the
amount of $153,843 was drawn to pay mortgage interest of the partnership.
This amount is repayable to Oxford, without interest, upon sale or
refinancing of the project, after certain priorities.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1994 consisted of the following:
Land ............................. $ 700,000
Buildings ........................ 9,173,606
Building equipment ............... 1,598,578
------------
11,472,184
Less accumulated depreciation .... (4,083,716)
------------
$ 7,388,468
============
NOTE 5 -- MORTGAGE NOTE PAYABLE
The mortgage loan in the original amount of $10,700,000 is payable to
Independence One Mortgage Corporation. The mortgage note provides for: (a)
interest a 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi-annual payments of interest; (c) maturity on February 1,
1995; and (d) establishment of the Project Reserve Account to be used to fund
debt service escrow shortfalls and under certain circumstances, operating
expenses or distributions to partners.
The mortgage loan is secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit is secured by
a second mortgage lien on the property and a second assignment of rents and
leases. The partnership pays an annual fee to Fleet National Bank for its
issuance of the letter of credit. The fee expensed in 1994 was $168,969. In
addition, Fleet has agreed to defer $333,643 of prior years' fees without
interest. These fees are due on or before July 31, 1995 and are secured by
the Project Reserve Account.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
To cover certain costs of refinancing the mortgage loan in 1989, the
partnership received a loan from Merrill Lynch, Hubbard, Inc. The loan is
repayable, without interest, from the proceeds of the sale or refinancing of
the project, after certain priorities. As of December 31, 1994, the loan
balance was $347,177.
The partnership was not able to procure permanent refinancing to pay off the
mortgage when it was due. Casselberry's failure to repay its first mortgage loan
prior to the February 1, 1995 maturity date was an event of default under the
mortgage
F-48
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5 -- MORTGAGE NOTE PAYABLE (continued)
loan documents. Prior to the event of default, Casselberry began negotiations
with Fleet National Bank concerning the partnership's inability to repay the
existing loan. On January 31, 1995, Casselberry and Fleet National Bank
reached agreement on and implemented a five-month extension of Fleet National
Bank's letter of credit, postponing the due date on the loan until June 30,
1995. In addition, Casselberry obtained an extension of the bond maturity
until June 30, 1995 from the Orange County Housing Finance Agency, the Issuer
of the bonds. In conjunction with the loan extension, the interest rate on
the mortgage loan was reduced from 6.875% to 4.95% until June 30, 1995.
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners ........................ $ 260
Investor Limited Partners ................................... 4,750,050
----------
Preferred Limited Partners .................................. 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at December 31, 1994 is as follows:
Cash .............................................. $ 43,724
Tenant security deposits -- funded ................ 37,366
Debt service escrow ............................... 350,216
-------
431,306
Less:
Accounts payable .................................. $ 61,854
Tenant security deposits .......................... 37,250
Deferred rental revenue ........................... 9,807
Accrued interest payable .......................... 306,510 415,421
------- -------
Distributable net cash flow $ 15,885
========
The general partners have the right to reserve for contingencies and
future replacements in amounts determined adequate for such purposes at any
time.
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($787,489 as of December 31, 1994);
(b) To the preferred limited partners, an amount equal to the preferred
capital contributions;
(c) To ORFG, payment of the asset management fee from, up to 50% of
distributable cash flow;
(d) To NHP Management Corporation, in payment of any deferred property
management fees;
F-49
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
(e) To the investor limited partners, a payment equal to the lesser of
$380,000 or projected distributions to the investor limited partners for the
year, in accordance with their partnership interests;
(f) To the special limited and general partners, a payment equal to the
lesser of $20,000 or projected distributions to the special limited and
general partners for the year;
(g) To the payment of any subordinated property management fees;
(h) To the payment of any operating expense loans, including interest
thereon;
(i) To the partners, on a non-cumulative basis, a payment of up to
$400,000 reduced by any distributions under (d) and (e) above with 95%
allocated to the investor limited partners and 5% to the special limited and
general partners;
(j) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
(k) The remaining amount will be distributed 40% to OMC and/or NHP
Management Company as an incentive management fee, 50% to the investor
limited partners, and 10% to the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7 -- MAJOR REPAIRS
Management has discovered that the rental property has incurred
significant structural damage caused by termite infestation and water
penetration. During 1994, management began the process of repairing the
damages which is estimated to cost a total of $500,000-$700,000 over several
years. During 1994, the partnership incurred costs of approximately $150,000
which was paid out of project operations. Future years' repair costs will be
paid from either project operations, the project reserve account, or from
excess refinancing proceeds. Management estimates that 1995 costs will be
$350,000.
F-50
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1993
(Unaudited)
ASSETS
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment .......................................... $ 7,618,098
OTHER ASSETS
Cash ............................................................ 114,260
Tenant receivables .............................................. 251
Other accounts receivable ....................................... 150
Due from Oxford ................................................. 19,116
Tenant security deposits -- funded .............................. 20,867
Prepaid expenses ................................................ 23,776
Mortgage escrow deposits ........................................ 95,074
Debt service escrow ............................................. 346,761
Project reserve account ......................................... 354,276
Unamortized costs ............................................... 71,904
-----------
$ 8,664,533
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN
PROPERTY AND EQUIPMENT
Mortgage note payable ........................................... $10,700,000
Accrued interest payable ........................................ 306,510
-----------
11,006,510
OTHER LIABILITIES
Accounts payable ................................................ 25,576
Tenant security deposits ........................................ 19,769
Deferred rental revenue ......................................... 14,421
Accrued investor services fee ................................... 7,000
Operating expense loan (includes accrued interest of $67,280) ... 1,233,909
Loan payable .................................................... 347,177
Deferred management fees ........................................ 89,523
Subordinated management fees .................................... 67,468
Subordinated loan payable ....................................... 153,843
Deferred fees payable ........................................... 333,643
-----------
13,298,839
Partners' deficit:
Capital contributions ........................ $ 5,835,310
Less: Nonamortizable costs ................... 439,499
-----------
5,395,811
Cumulative cash distributions ................ (324,745)
Cumulative losses ............................ (9,705,372) (4,634,306)
----------- -----------
$ 8,664,533
===========
The accompanying notes are an integral part of this statement.
F-51
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
Gross potential revenue ............................................ $2,004,025
Less vacancies and allowances ...................................... 91,090
----------
Net rental revenue ............................................. 1,912,935
Interest income .................................................... 17,167
Other income ....................................................... 123,087
----------
Total operating revenue ........................................ 2,053,189
----------
Operating expenses
Renting ................................. $ 29,939
Administrative .......................... 228,371
Maintenance and operating ............... 400,442
Utilities ............................... 113,168
Taxes ................................... 184,098
Insurance ............................... 31,803 987,821
----------
Mortgage interest ......................... 735,625
Depreciation ............................ 356,649
Amortization ............................ 66,377
Financing fees .......................... 16,451
Letter of credit fees ................... 163,960
Investor services fee ................... 7,504
Other partnership expenses .............. 621 1,347,187
---------- ----------
Total expenses ............................................... 2,335,008
-----------
Net loss ..................................................... $ (281,819)
===========
The accompanying notes are an integral part of this statement.
F-52
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Gross Less Cumulative
Capital Non-amortizable Net Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
------------- --------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit, 1/1/93
as previously reported ................ $5,835,310 $(439,499) $5,395,811 $(187,149) $(13,949,047) $(8,740,395)
Adjustment to reflect the
change in method of financial
statement reporting ................... -- -- -- -- 4,525,494 4,525,494
---------- --------- ---------- --------- ------------ -----------
Partners' deficit 1/1/93, as restated ... 5,835,310 (439,499) 5,395,811 (187,159) (9,423,553) (4,214,901)
Cash distributions ...................... (137,586) (137,586)
Net loss ................................ (281,819) (281,819)
---------- --------- ---------- --------- ------------- -----------
Partners' deficit, 12/31/93 ............. $5,835,310 $(439,499) $5,395,811 $(324,745) $ (9,705,372) $(4,634,306)
========== ========= ========== ========= ============= ===========-
</TABLE>
The accompanying notes are an integral part of this statement.
F-53
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ....................................................................... $(281,819)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation ................................................................. 356,649
Amortization ................................................................. 66,377
Changes in asset and liability accounts
Tenant receivables ......................................................... (56)
Other accounts receivable .................................................. (150)
Accounts payable ........................................................... (14,610)
Deferred rental revenue .................................................... (360)
Deferred management fees ................................................... 30,554
Net security deposits paid ................................................. (485)
Net deposits to escrows for taxes and insurance ............................ (32,060)
Net deposits to debt service escrow ........................................ (3,962)
---------
Net cash provided by operating activities ................................ 120,078
---------
Cash flows from investing activities:
Net deposits to project reserve account ........................................ (1,634)
Purchase of property and equipment ............................................. (3,117)
---------
Net cash used in investing activities .................................... (4,751)
---------
Cash flows from financing activities:
Distributions to partners ...................................................... (137,586)
---------
Net cash used in financing activities .................................... (137,586)
---------
NET DECREASE IN CASH ..................................................... (22,259)
Cash, beginning .................................................................. 136,519
---------
Cash, end ........................................................................ $ 114,260
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ......................................... $ 735,625
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-54
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(Unaudited)
NOTE 1 -- ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Independence One Mortgage Corporation. The
agreement provides for, among other things, the rental of at least 20% of the
units to tenants whose income does not exceed 80% of the median area income.
This restriction is necessary in order for the partnership to comply with the
provisions of the Internal Revenue Code governing the preservation of the tax
exempt status of the bonds issued by the Orange County Housing Finance
Authority.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the financial statements follows.
Basis of Accounting
Prior to 1993, the partnership maintained its financial records and
prepared its financial statements on the basis of accounting used for income
tax purposes. As a result, the partnership amortized construction period
interest and taxes as allowed by the Internal Revenue Code, and depreciation
was computed on the accelerated cost recovery system, rather than
capitalizing the development period costs and depreciating the buildings over
their estimated economic lives as required by generally accepted accounting
principles. Effective January 1, 1993, the partnership has changed its method
of reporting from the basis used for income tax purposes to a basis in
conformity with generally accepted accounting principles. The effect of this
change in accounting method was to decrease partners' deficit at January 1,
1993 by $4,525,494 for the cumulative effect of the change on net loss for
prior years.
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 those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
F-55
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners and/or special limited partners are officers and/or
affiliates of Oxford Development Corporation (Oxford), Oxford Holding
Corporation (OHC), Oxford Asset Management Corporation (OAMCO), or NHP, Inc.
(NHP).
The following items were paid or are payable to Oxford, OHC, OAMCO, NHP or
their affiliates from operating revenues or distributable net cash flow.
Property Management Fee
The partnership had previously entered into an agreement with Oxford
Management Company, Inc. (OMC), an Oxford subsidiary, to rent and manage the
community. OMC received a property management fee equal to 4.5% of gross
collections, which was $86,328 in 1993. This agreement was cancelled on
December 10, 1993, in connection with the execution of the property
management agreement described below.
Effective December 10, 1993, the partnership entered into an agreement
with NHP Property Management, Inc. (NHP/PMI), an affiliate of NHP, to provide
property management services to the partnership. The fee for such services is
equal to 3.36% of gross collections which was $3,977 in 1993. At the same
time, the partnership entered into an asset management agreement with OAMCO
to provide various supervisory and asset management services that were
previously provided by OMC but are not provided by NHP/PMI.
The agreement expires December 31, 1994, at which time it can be
automatically renewed for one year periods, subject to certain limitations.
Deferral of Fees
Pursuant to the partnership agreement, OMC and NHP/PMI have agreed to
defer one third of their management fees in any year in which certain net
operating income levels are not achieved. Deferred amounts will be repayable
to OMC and NHP/PMI, without interest, from distributable net cash flow (note
6) or sale or refinancing proceeds after certain priorities. In 1993, $28,776
(1.5% of gross collections) in fees was deferred by OMC and $1,326 (1.12% of
gross collections) was deferred by NHP/PMI. As of December 31, 1993, the
cumulative amounts deferred by OMC and NHP/PMI were $87,745 and $1,326,
respectively.
Subordinated Management Fee
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
F-56
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Incentive Management Fee
Through December 10, 1993, OMC received an incentive management fee,
payable from distributable net cash flow, after certain priorities (note 6).
Effective December 10, 1993, this incentive management fee is earned by
NHP/PMI. No fee was earned by OMC or NHP/PMI in 1993.
Accounting and Data Processing Fee
OMC received an accounting and data processing fee through December 10,
1993. The 1993 fee paid to OMC was $8,064.
Effective December 10, 1993, the accounting and data processing fee of
$1.49 per unit per month is payable to NHP/PMI. No fee was paid to NHP/PMI in
1993.
Administrative Fee
The partnership paid OMC an annual fee of $1,200 for preparation of work
papers and account analyses for the audit firm. Effective December 10, 1993,
this fee is earned by NHP/PMI. No fee was paid to NHP/PMI in 1993.
Cash Management Fee
Oxford received a cash management fee for managing and investing
partnership funds through December 10, 1993. The fee is 1.5% of the average
monthly investment portfolio (computed on an annualized basis) managed by
Oxford. The fee earned by Oxford in 1993 was $1,900 and was offset against
interest income.
Effective December 10, 1993, the cash management fee of 1.12% of the
average monthly investment portfolio is payable to NHP/PMI. No fee was paid
to NHP/PMI in 1993.
Asset Management Fees
From January 1, 1992 through December 10, 1993, the partnership had an
agreement with Oxford Realty Services Corporation (ORSC), an Oxford
affiliate, to provide consultation and asset management services. The fee is
equal to 1% of gross receipts. The fee is payable, after certain priorities,
from 50% of the partnership's distributable net cash flow. Any unpaid fee
will bear interest at 2% per annum over the prime rate as charged by Citibank
(6% at December 31, 1993). No fee was expensed in 1993. This agreement was
cancelled on December 10, 1993, in connection with the execution of the asset
management agreement described below.
Effective December 10, 1993, the partnership entered into an Asset
Management Agreement with OAMCO to provide certain supervisory and asset
management services to the partnership, which previously had been provided by
OMC but are not provided by NHP/PMI, including overseeing the property
manager. The fee earned for such services in 1993 was $1,355, representing an
amount equal to 34.1% of all fees payable to NHP/PMI, and was currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, OAMCO has agreed to defer one third of a portion of the fee
currently payable from operations. During 1993, $452 was deferred and is
payable, after certain priorities, from distributable net cash flow. This
amount is included in deferred management fees.
Additionally, OAMCO earns a fee equal to 1% of the gross receipts. This
fee is only payable out of available distributable cash flow after certain
priorities (note 6), if any. Management believes that it is not likely that
sufficient distributable cash flow will be generated for the payment of this
fee and accordingly, has ceased accrual.
F-57
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Effective December 10, 1993, the aggregate fees paid to NHP/PMI and OAMCO,
as reflected above, were equal to the aggregate fee levels previously paid to
OMC and ORSC prior to December 10, 1993.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to
Oxford Equities Corporation for its services in preparing necessary reports
for the investor limited partners and in communicating with them concerning
the partnership's affairs. The fee may be increased by the same percentage as
the average percentage increase in the project's rent. A fee of $7,504 was
expensed in 1993.
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through common paymaster, ORSC. The
partnership had a deposit with ORSC of $19,116 which represented
approximately the amount advanced by ORSC to fund payroll before being
reimbursed by the partnership. This deposit will be refunded by ORSC in
accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC has agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1993 which includes accrued interest
of $67,280.
Pursuant to an earlier agreement, no additional interest will be charged.
The loan is repayable from distributable net cash flow (note 6) or proceeds
of the sale or refinancing of the project, after certain priorities. OMC is
not required to make additional operating expense loans as the term of this
obligation has expired.
Subordinated Loan Payable
During 1988, the collateral security account funded by Oxford, in the
amount of $153,843, was drawn to pay mortgage interest of the partnership.
This amount is repayable to Oxford, without interest, upon sale or
refinancing of the project, after certain priorities.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1993 consisted of the following:
Land .............................. $ 700,000
Buildings ......................... 9,173,606
Building equipment ................ 1,598,578
------------
11,472,184
Less accumulated depreciation ..... (3,854,086)
------------
$ 7,618,098
============
F-58
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--MORTGAGE NOTE PAYABLE
The mortgage loan in the original amount of $10,700,00 is payable to
Independence One Mortgage Corporation. The mortgage note provides for: (a)
interest at 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi- annual payments of interest; (c) maturity on February 1,
1995; and (d) establishment of the Project Reserve Account to be used to fund
debt service escrow shortfalls and under certain circumstances, operating
expenses or distributions to partners.
The mortgage loan is secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit is secured by
a second mortgage lien on the property and a second assignment of rents and
leases.
The partnership pays an annual fee to Fleet National Bank for its issuance
of the letter of credit. The fee expensed in 1993 was $163,960. In addition,
Fleet has agreed to defer $333,643 of prior years' fees, without interest.
These fees are due on or before July 31, 1995 and are secured by the Project
Reserve Account.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
To cover certain costs of refinancing the mortgage loan, the partnership
received a loan from Merrill, Lynch, Hubbard, Inc. The loan is repayable,
without interest, from the proceeds of the sale or refinancing of the
project, after certain priorities. As of December 31, 1993, the loan balance
was $347,177.
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners ............................ $ 260
Investor Limited Partners ....................................... 4,750,050
Preferred Limited Partners ...................................... 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at December 31, 1993 is as follows:
Cash ............................................................ $114,260
Tenant security deposits--funded ................................ 20,867
Debt service escrow ............................................. 346,761
--------
$481,888
Less:
Accounts payable ................................. $ 25,576
Tenant security deposits ......................... 19,769
Deferred rental revenue .......................... 14,421
Accrued interest payable ......................... 306,510 366,276
-------- --------
Distributable net cash flow ..................................... $115,612
========
F-59
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($543,251 as of December 31, 1993);
(b) To the preferred limited partners, an amount equal to the preferred
capital contributions;
(c) To ORSC and/or OAMCO, payment of the asset management fee from, up to
50% of distributable cash flow;
(d) To OMC and/or NHP/PMI, in payment of any deferred property management
fees;
(e) To the investor limited partners, a payment equal to the lesser of
$380,000 or projected distributions to the investor limited partners for the
year, in accordance with their partnership interests;
(f) To the special limited and general partners, a payment equal to the
lesser of $20,000 or projected distributions to the special limited and
general partners for the year;
(g) To OMC, in payment of any subordinated property management fees;
(h) To OMC, in payment of any operating expense loans, including interest
thereon;
(i) To the partners, on a non-cumulative basis, a payment of up to
$400,000 reduced by any distributions under (d) and (e) above with 95%
allocated to the investor limited partners and 5% to the special limited and
general partners;
(j) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
(k) The remaining amount will be distributed 40% to OMC and/or NHP/PMI as
an incentive management fee, 50% to the investor limited partners, and 10% to
the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7 -- CONTINGENCIES
The partnership maintains its operating cash balance in one bank. The
balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1993, the uninsured portion of the cash balance
held at the bank was $12,760.
F-60
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Related AMI Associates, Inc.
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses of Rolling Ridge Apartments for the year ended
December 31, 1995. This historical summary is the responsibility of the
Apartments' owners. Our responsibility is to express an opinion on the
historical summary 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 historical summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the historical summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying historical summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a current report on Form 8-K or prospectus
supplements to a registration statement of American Tax-Exempt Bond Trust) as
described in Note B and is not intended to be a complete presentation of the
Apartments' revenues and expenses.
In our opinion, the historical summary referred to above presents fairly,
in all material respects, the gross income and direct operating expenses
described in Note B of Rolling Ridge Apartments for the year ended December
31, l995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
July 16, 1996
Irvine, California
F-61
<PAGE>
ROLLING RIDGE APARTMENTS
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1995
Gross potential rental revenue ..................... $915,985
Less vacancies and allowances ...................... 45,323
--------
Net rental revenue ............................. 870,662
Other income ....................................... 20,160
--------
Total operating revenue ........................ 890,822
Direct operating expenses:
Employee compensation and benefits ............... $ 59,960
Renting and administrative ....................... 90,157
Maintenance and operating ........................ 108,076
Utilities ........................................ 56,868
Taxes ............................................ 114,267 429,328
-------- --------
Operating income ............................... $461,494
========
The accompanying notes are an integral part of this statement.
F-62
<PAGE>
ROLLING RIDGE APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A--DESCRIPTION OF PROPERTY
Rolling Ridge Apartments is a development consisting of 110 apartment
units located in Chino Hills, California. The development is owned and
operated by Duane R. Raab, Ralph E. Haun and Diane E. Haun.
NOTE B--BASIS OF PRESENTATION
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a current report on Form 8-K or prospectus
supplements to a registration statement of American Tax-Exempt Bond Trust)
and is not intended to be a complete presentation of the development's
revenues and expenses. Accordingly, the Historical Summary includes the
revenue and direct operating expenses of Rolling Ridge Apartments, and
excludes depreciation, interest and other financing charges.
F-63
<PAGE>
APPENDIX I
PRIOR PERFORMANCE TABLES
OF AFFILIATES OF THE SPONSOR
Introduction
The following Prior Performance Tables update the present information set
forth under Appendix 1 "Prior Performance Tables of Affiliates of the Sponsor"
in the Prospectus. The tables present information on certain programs previously
sponsored by Affiliates of the Sponsor. The purpose of the tables is to provide
information on the prior performance of these programs so as to evaluate the
experience of the Affiliates of the Sponsor in sponsoring such programs.
Prospective investors should read these tables carefully together with the
summary information concerning the prior programs set forth under "Prior
Performance Summary" in the Prospectus. None of these tables are covered by the
report of independent public accountants set forth elsewhere in this Prospectus.
It should not be assumed that investors in the company will experience
results comparable to those experienced by investors in the programs included
in the following tables. Investors in the Company will not have any interest
in any of the prior limited partnerships covered by the tables or in any of
the investments owned by the prior limited parnerships.
The following tables are included:
Table I. Experience in Raising and Investing Funds (updated through
December 31, 1995)
Table II. Compensation to Sponsor and Affiliates (updated through December
31, 1995)
Table III. Operating Results of Prior Programs (1995 results)
Table IV. Is not applicable as no programs with similar investment
objectives have completed operations.
Table V. Sale or Disposal of Properties/Investments
Tables I and II contain information on programs sponsored, the offerings
of which closed during the most recent three years. Table III contains
information for the programs which have closed their offerings during the
most recent five-year period. Table IV, Results of Completed Programs, is not
applicable as no programs with similar investment objectives have completed
operations during the most recent five-year period.
Affiliates of the Sponsor have sponsored six public programs with
investment objectives similar to the Trust. See "Prior Performance Summary"
and "Investment Objectives and Policies." The factors considered in
determining which programs have similar investment objectives include whether
the program invested directly or indirectly in real estate, type of principal
investments, tax aspects and structure of the program.
I-1
<PAGE>
TABLE I
Experience in Raising and Investing Funds
(Not Covered by Independent Auditors' Report)
The following table includes information concerning the experience of
Affiliates of the Sponsor and the Advisor in raising and investing funds for
prior public limited partnerships in offerings with investment objectives
similar to those of the Trust which closed between January 1, 1993 and
December 31, 1995. The table shows the percentage of the amount raised
available for investment, the dollar amount offered and raised, the amount of
funds raised from sources other than investors, the percentage of leverage
used in purchasing properties, and the time frame for raising and investing
funds.
The table should be read in conjunction with the Introduction and the
accompanying notes.
<TABLE>
<CAPTION>
American Mortgage
Investors Trust
--------------------
<S> <C>
Public Offerings
Dollar Amount Offered .......................................................................... $ 200,000,000
=============
Dollar Amount Raised (100%) .................................................................... $76,192,020(2)
Less Offering Expenses:
Selling Commissions and Discounts .......................................................... 6.5%
Organizational Expenses .................................................................... 2.5%
Reserves ....................................................................................... 0.0%
Percent of Amount Raised Available for Investment .......................................... 91.0%
Acquisition Costs:
Cash Down Payments ......................................................................... 87.0%
Prepaid Items and Fees Related to Purchase of Properties ................................... 0.0%
Acquisition Fees ........................................................................... 3.0%
Other .......................................................................................... 1.0%(1)
Total Acquisition Cost ......................................................................... 91.0%
Percentage Leverage (mortgage financing divided by total acquisition cost) ................. N/A
Date Offering Began ............................................................................ 3/29/93
Length of Offering (in months) ................................................................. 20 mos.
Months to Invest 90% of Amount Available for Investment (measured from beginning of offering) .. 23 mos.
</TABLE>
Note 1--Consists of Acquisition Expenses.
Note 2--Amount shown excludes volume discounts.
I-2
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates
(Not covered by Independent Auditors' Report)
The following table sets forth all compensation paid to Affiliates of the
Sponsor and the Advisor (and in the case of public limited partnerships, fees
paid in the aggregate to all general partners and affiliates), regardless of
the form of such compensation, with respect to prior public limited
partnerships, in offerings with investment objectives similar to those of the
Trust which closed between January 1, 1993 and December 31, 1995.
The table should be read in conjunction with the Introduction and the
accompanying notes.
I-3
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Prior
American Public Financing
Mortgage Limited
Investors Trust Partnerships (3)
--------------- ----------------
<S> <C> <C>
Offerings Information:
Date Offering Commenced ........................................... 3/29/93 --
Dollar Amount Raised .............................................. $ 76,192,020(1) $492,344,820(1)
Amount Paid and/or Payable to Sponsor from Proceeds of Offering:
Underwriting Fees ............................................... $ 98,655(5) --
Acquisition Fees:
Real Estate Commissions ....................................... -- --
Advisory Fees ................................................. -- --
Bond Selection Fees/Placement Fees ............................ $ 267,719 --
Non-accountable Expense Allowance ............................. -- --
Organization/Offering Expenses ................................ -- --
Acquisition Fee ............................................... $ 2,545,000 --
Loan Organization Fees ........................................ -- --
Other ......................................................... $ 567,594(4) --
Dollar Amount of Cash Generated from (Provided to) Operations
Before Deducting Payment to Sponsor through Fiscal Year End ..... $ 4,918,923 $ 83,374,116
Amount Paid to Sponsor from Operations through Fiscal Year End:
Property Management Fees .................................... -- --
Partnership or Investment Management Fees ................... $ 585,000 $ 8,833,633(2)
Organization and Offering Expenses .......................... -- --
Leasing Commissions ......................................... -- --
Dollar Amount of Property Sales and Refinancing Before Deducting
Payments to Sponsor:
Cash ........................................................ -- --
Notes ....................................................... -- --
Amount Paid to Sponsor from Property Sales and Refinancing:
Real Estate Commissions ..................................... -- --
Incentive Fees .............................................. -- --
Number of Limited Partnerships .................................... -- 5
</TABLE>
Note 1--Amount shown excludes volume discounts.
Note 2--Included in this amount are special distributions of Adjusted Cash
from Operations that are also payable to the general partners for managing
the affairs of the partnership equal to .5% per annum of invested assets.
Note 3--Information presented with respect to programs which closed prior
to 1993 discloses aggregate payments paid or accrued to Affiliates of the
Sponsor and the Advisor during the three year period ended December 31, 1995.
Note 4--Issuance of shares in an amount which equals 1% of all shares
issued during offering period as compensation for services rendered (received
38,481 shares).
Note 5--Amount shown are commissions received on the reinvested shares
during the offering stage only.
I-4
<PAGE>
TABLE III
Operating Results of Prior Programs
(Not Covered by Independent Auditors' Report)
The following Table summarizes the operating results of prior public
limited partnerships sponsored by Affiliates of the Sponsor and the Advisor
with investment objectives similar to those of the Trust which closed between
January 1, 1991 and December 31, 1995.
The table should be read in conjunction with the Introduction and the
accompanying notes.
I-5
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Capital Mortgage Plus L.P. (2) (9)
---------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1991 1992 1993 1994 1995
---------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues (8) ................................ $ 2,380,803 $ 2,603,482 $ 2,374,949 $ 2,536,661 $2,515,377
Less: Operating and Administrative Expense ........ (362,897) (390,410) (291,479) (297,063) (293,992)
Interest Expense ............................ -- -- -- -- --
Depreciation and Amortization ............... (136,119) (152,869) (245,080) (282,273) (280,180)
Provision for Bad Debts ..................... -- -- -- (285,000) --
------------ ----------- ------------ ----------- ----------
Net Income (Loss)--GAAP Basis ..................... $ 1,881,787 $ 2,060,203 $ 1,838,390 $ 1,672,325 $1,941,205
============ =========== ============ =========== ==========
Taxable Income (Loss) ............................. $ 1,895,706 $ 2,191,262 $ 2,051,507 $ 2,239,060 $2,283,947
============ =========== ============ =========== ==========
Cash Generated (Deficiency) From Operations ....... $ 2,157,675 $ 1,963,504 $ 2,017,743 $ 2,055,692 $2,269,475
Less: Cash Distributions to Investors from
operating cash flow ......................... 2,157,675 1,963,504 2,017,743 2,055,692 2,269,475
from sales and refinancing ................ -- -- -- -- --
from working capital reserves (return of
capital) (6) ............................. 472,692 661,848 606,380 568,125 354,314
------------ ----------- ------------ ----------- ----------
Cash Generated (Deficiency)
After Cash Distributions ........................ (472,692) (661,848) (606,380) (568,125) (354,314)
Add (Less) Special Items:
Partners' Capital Contributions, net .............. 3,566,700 -- -- -- --
Acquisition of Project .......................... (11,332,904) (3,478,039) (10,147,642) (501,622) (305,276)
Syndication and Organization Cost ............... (271,003) -- -- -- --
Decrease (Increase) in Other Assets ............. 11,121,046 11,539,073 236,345 -- --
Increase (Decrease) in Other Liabilities ........ -- -- -- -- --
Other ........................................... -- -- -- -- --
------------ ----------- ------------ ------------- ----------
Cash Generated (Deficiency)
After Cash Distributions and Special Items ...... $ 2,611,147 $ 7,399,186 $(10,517,677) $(1,069,747) $ (659,590)
------------ ----------- ------------ ------------- ----------
Tax and Distribution Data Per $1,000 Invested (1)
Federal Income Tax Results:
Ordinary Income (Loss) ............................ $ 50-56(3) $ 58 $ 55 $ 60 $ 61
============ =========== ============ ============= ==========
Cash Distributions to Investors
Source (on GAAP Basis):
Investment Income ............................... $ 49-55(3) $ 55 $ 49 $ 45 $ 52
Return of Capital ............................... 20-22(3) 15 21 25 18
Source (on Cash Basis):
Operations .................................... 57-63(3) 52 54 55 60
Sales ......................................... -- -- -- -- --
Refinancing ................................... -- -- -- -- --
Working Capital Reserves ...................... 12-14(3) 18 16 15 10
Amount (in percentage terms) Remaining Invested in
Properties at the end of the last year reported
in the Table (original total acquisition cost of
properties retained divided by original total
acquisition cost of all properties in program) .. 100% 100% 100% 100% 100%
============ =========== ============ =========== ==========
</TABLE>
I-6
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
American Mortgage Investors Trust (2) (9)
--------------------------------------------------
For the For the For the
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
Gross Revenues (8) ........................................................ $ 568,128 $ 3,635,436 $ 4,355,902
Less: Operating and Administrative Expense ................................ (199,412) (706,922) (1,198,770)
Interest Expense .................................................... -- -- --
Depreciation and Amortization ....................................... (16,377) (10,000) (10,000)
Realized Loss on Sale of REMICs and GNMAs ........................... -- (298,812) --
------------ ----------- -----------
Net Income (Loss)--GAAP Basis ............................................. $ 352,339 $ 2,619,702 $ 3,147,132
============ =========== ===========
Taxable Income (Loss) ..................................................... $ 360,413 $ 3,102,835 $ 3,805,953
============ =========== ===========
Cash Generated (Deficiency) From Operations ............................... $ 297,119 $ 3,061,890 $ 4,578,923
Less: Cash Distributions to Investors from operating cash flow ............ 214,161 3,182,766 4,578,923
from sales and refinancing .......................................... 200,000 1,657,000 --
from working capital reserves (return of capital) (7) ............... -- -- 987,686
------------ ----------- -----------
Cash Generated (Deficiency) After Cash Distributions ...................... (117,042) (1,777,876) (987,686)
Add (Less) Special Items:
Partners' Capital Contributions, net .................................... 59,610,539 16,540,907 1,450,478
Acquisition of Project .................................................. (33,142,913) (19,764,691) (4,306,318)
Syndication and Organization Cost ....................................... (6,212,248) (2,654,157) (2,194,405)
Decrease (Increase) in Other Assets (4) ................................. (1,142,176) 407,748 (4,815)
Increase (Decrease) in Other Liabilities (5) ............................ 552,781 (165,207) --
Other ................................................................... -- -- --
------------ ----------- -----------
Cash Generated (Deficiency) After Cash Distributions and Special Items .... $ 19,548,941 $ (7,413,276) $(6,042,746)
============ =========== ===========
Tax and Distribution Data Per $1,000 Invested (1)
Federal Income Tax Results:
Ordinary Income (Loss) ................................................. $ 0-12(3) $ 0-40(3) $ 49
============ =========== ===========
Cash Distributions to Investors Source (on GAAP Basis):
Investment Income ..................................................... $ 0-12(3) $ 0-34(3) $ 41
Return of Capital ..................................................... 0-2(3) 0-29(3) 31
Source (on Cash Basis):
Operations .............................................................. 0-7(3) 0-41(3) 59
Sales ................................................................... 0-7(3) 0-22(3) --
Refinancing ............................................................. -- -- --
Working Capital Reserves ................................................ -- -- 13
Amount (in percentage terms) Remaining Invested in Properties at the end
of the last year reported in the Table (original total acquisition
cost of properties retained divided by original total acquisition
cost of all properties in program) ...................................... 100% 100% 100%
============ =========== ===========
</TABLE>
I-7
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
Notes to Table III:
Note 1--Data is the amount allocable to the investors per $1,000 of total
capital invested.
Note 2--The investment objectives of these programs are similar to those
of the Trust in that these programs were formed to invest in insured or
guaranteed mortgage investments in first mortgage construction and permanent
loans that finance or refinance multi-family residential rental properties
that were newly constructed, under construction, substantially rehabilitated
or existing at the time of the investment.
Note 3--Amount depended upon date of admission to the program.
Note 4--Other assets include deferred costs and due from Advisor.
Note 5--Other liabilities include accounts payable and due to affiliates.
Note 6--Working capital reserves consist of 1% of the gross proceeds from
the offering, uninvested net proceeds and the interest earned thereon.
Note 7--Working capital reserves consist of interest earned on uninvested
net proceeds and principal repayments on investments.
Note 8--All revenues are from operations. The initial date for
commencement of operations, where applicable, is the cutoff date used for
purposes of Table III.
Note 9--Excludes any information concerning tax preferences.
I-8
<PAGE>
TABLE V
Sale or Disposal of Properties/Investments
(Not Covered by Independent Auditors' Report)
The objective of the following table is to provide investors with certain
information regarding the sales or the dispositions of an investment between
January 1, 1993 and December 31, 1995 by programs sponsored by Affiliates of the
Trust.
EAGLE INSURED L.P.
<TABLE>
<CAPTION>
Selling Price, Net of Closing Costs
------------------------------------------------------------
Cash
Received Mortgage
Net of Balance
Date Date Closing at Time
Investment Acquired Sold Costs of Sale Total
- ------------- --------- ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Tivoli Lakes 1/23/90 1/31/94 15,433,911 0 15,433,911
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Excess of Investment
Cost of Investments Cash Receipts Over
Including Closing and Soft Costs Cash Expenditures (2)
-------------------------------------------- ------------------------
Other
Purchase Price Acquisition
Investment % Amount Cost (1) Total
- ------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Tivoli Lakes 1.00 15,233,100 515,212 15,748,312 4,299,202
</TABLE>
[END OF RESTUBBED TABLE]
- -----------------
(1) Amount shown is the loan origination fee.
(2) Amount shown is cumulative interest income from inception to date of sale
(exclusive of gain).
AMERICAN MORTGAGE INVESTORS TRUST
<TABLE>
<CAPTION>
Selling Price, Net of Closing Costs
---------------------------------------------------------
Mortgage
Cash Balance
Received at
Net of Time
Date Date Closing of
Investment Acquired Sold Costs Sale Total
- -------------------- -------- ------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Fannie Mae Mortgage
Guaranteed REMIC
Pass Thru
Certificates
TR 1992-17 Class G 10/15/93 11/4/93 203,125 0 203,125
Fannie Mae Mortgage
Guaranteed REMIC
Pass Thru
Certificates
TR 1992-17 Class G 10/15/93 2/1/94 200,000(2) 0 200,000
FHLMC Mortgage
Participation
Certificate G-024C 5/4/94 5/5/94 946,875(2) 0 946,875
FHLMC Mortgage
Participation
Certificate G-024C 5/4/94 10/11/94 1,328,820(3) 0 1,328,820
--------- --- ---------
2,678,820 0 2,678,820
========= === =========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Excess of Investment
Cost of Investments Cash Receipts Over
Including Closing and Soft Costs Cash Expenditures (4)
-------------------------------------------------- ----------------------
Other
Purchase Price Acquisition
Investment % Amount Cost Total
- -------------------- -------------------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Fannie Mae Mortgage
Guaranteed REMIC
Pass Thru
Certificates
TR 1992-17 Class G 101.609375% 203,199 0(1) 203,199 688
Fannie Mae Mortgage
Guaranteed REMIC
Pass Thru
Certificates
TR 1992-17 Class G 101.609375% 203,168 0(1) 203,168 3,908
FHLMC Mortgage
Participation
Certificate G-024C 100.000000% 1,000,000 0(1) 1,000,000 0
FHLMC Mortgage
Participation
Certificate G-024C 100.000000% 1,419,300 0(1) 1,419,300 29,986
----------- --- --------- ------
2,825,667 0 2,825,667 34,582
=========== === ========= ======
</TABLE>
[END OF RESTUBBED TABLE]
- ------------------
(1) In connection with these purchases, the advisor has reimbursed the program
for all acquisition fees.
(2) The advisor has undertaken to reimburse the program for all trading losses.
(3) The advisor has undertaken to reimburse the program $40,854 of this trading
loss.
(4) Amount shown is cumulative interest income from inception to date of sale
(exclusive of gain/loss).
I-9
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST PROSPECTUS
_______________________________________________________________________________
$200,000,000 Offering - 10,000,000 Shares
_______________________________________________________________________________
$20 per Share Minimum Investment - 125 Shares ($2,500)
Minimum Offering - $2,500,000 (125,000 Shares)
_______________________________________________________________________________
AMERICAN TAX-EXEMPT BOND TRUST ("Trust") is a Delaware business trust of
which Related AMI Associates, Inc., a Delaware corporation, is the manager
(the "Manager"). Related Capital Company, an affiliate of the Manager, is the
sponsor (the "Sponsor") of this offering. See "Conflicts of
Interest--Organizational Diagram."
The Trust will invest primarily in a portfolio of tax-exempt first
mortgage bonds ("First Mortgage Bonds") issued by various state or local
governments or their agencies or authorities and secured by first mortgages
and related first mortgage loans financed by such bonds (collectively,
"Mortgage Loans") principally on multifamily residential apartment projects
and, secondarily, retirement community projects owned or to be developed by
third-party developers and, to a lesser extent, by affiliates of the Manager.
A majority of the First Mortgage Bonds are expected to contain provisions
entitling the Trust to participate in net property cash flow and the residual
value of the underlying Properties. The Trust may also invest up to 10% of
the Gross Proceeds from this offering in highly rated Tax-Exempt Securities.
88% of the Gross Proceeds raised are expected to be invested in First
Mortgage Bonds and Tax-Exempt Securities. As of the date of this prospectus,
no First Mortgage Bonds have been identified for acquisition.
None of the First Mortgage Bonds will constitute a general obligation of
any state or local government, agency or authority, and no state or local
government, agency or authority will be liable on them except to the extent
of revenues received on the Mortgage Loans, nor will the taxing power of any
state or local government be pledged to the payment of principal or interest
on the First Mortgage Bonds. See "Investment Objectives and Policies." First
Mortgage Bonds are expected to generate interest income as soon as the
investments are made. The First Mortgage Bonds will normally be structured so
that no principal (continued on following page)
THIS OFFERING INVOLVES CERTAIN RISK FACTORS
(see "Risk Factors"), including:
(bullet) Income from First Mortgage Bonds could be subject to federal
income taxation under certain circumstances.
(bullet) The receipt of additional interest is closely related to real
estate market conditions that exist during the anticipated life
of the investment. Therefore, the Trust may not be able to earn
additional interest on its First Mortgage Bonds from sharing in
net property cash flow and the resale value of the underlying
properties.
(bullet) Trust investments have not yet been identified.
(bullet) Prior participating mortgage programs sponsored by Affiliates of
the Manager have experienced some adverse business developments
at the local property level and have not yet achieved all of
their investment objectives.
(bullet) The Manager and its Affiliates will receive substantial fees from
the proceeds of the offering and will be subject to various
conflicts of interest.
(bullet) First mortgage bond investments with participating interest
features generally bear a lower current interest rate than they
would have without such participations.
(bullet) The Trust offers a redemption plan which may be terminated or
suspended at the discretion of the Manager, without the consent
of the Shareholders. There is no public trading market for the
Shares and none is expected to develop. An investment in the
Trust should be considered a long-term investment.
(bullet) In an attempt to maintain stable distributions during the
offering and acquisition stages, distributions during such stages
will include a return of capital resulting in a reduction in
Total Invested Assets.
<PAGE>
<TABLE>
<CAPTION>
Selling
Price to Commissions Proceeds to
Public (1) (2) Trust (3)
- ------------------------------------------------ ----------- ----------- ------------
<S> <C> <C> <C>
Per Share (4)................................... $ 20 $ 1.00 $ 19.00
Total Minimum Offering (125,000 Shares)......... $ 2,500,000 $ 125,000 $ 2,375,000
Total Maximum Offering (10,000,000 Shares)(5).... $200,000,000 $10,000,000 $190,000,000
</TABLE>
(footnotes on following page)
_______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
_______________________________________________________________________________
RELATED EQUITIES CORPORATION
The date of this Prospectus is November 1, 1994.
<PAGE>
(continued from column 1 of previous page)
payments will be due until the scheduled maturity or earlier redemption of
such bonds, generally in the tenth to twelfth year after acquisition by the
Trust. Many of the First Mortgage Bonds that the Trust expects to acquire
will have been restructured prior to their acquisition by the Trust because
such bonds were in default due to their inability to replace their original
credit enhancements or to meet their previously required debt service
obligations. The Manager will make all decisions with respect to the
management or control of the Trust. By contract, the Trustee's role will be
limited. Investors, therefore, should not rely on the Trustee to protect
their interests.
The tax-exempt feature of an investment in the Trust will not benefit
tax-exempt entities and, therefore, tax-exempt investors will not be
permitted to purchase Shares. An investment in the Trust may be suitable for
persons in a high federal marginal income tax bracket desiring an investment
intended to provide income which is exempt from federal income taxation. See
"Terms of the Offering."
This offering will terminate not later than twenty-four months after the
date of this Prospectus. Subscription payments by investors will be placed in
escrow until the initial closing with a qualified financial institution
designated as escrow agent by the Trust and the Dealer Manager.
______________________________________________________________________________
Footnotes:
(1) The Trust will pay selling commissions in amounts ranging from 1% to
5% of the Gross Proceeds, depending on the amount invested by an investor and
the volume discount applicable to the sale as described in "Plan of
Distribution." The Trust may also pay certain broker-dealers unaffiliated
with the Manager a non-accountable due diligence expense reimbursement in an
amount of up to .5% of Gross Proceeds attributable to sales made by them.
(See "Plan of Distribution.")
(2) The Manager (and not the Trust) may pay to certain broker-dealers
unaffiliated with the Manager a non-accountable marketing allowance in an
amount of up to .5% of the Gross Proceeds attributable to Shares sold by them
and other additional compensation. In no event shall the total compensation
to be paid to the broker-dealers and any commissions paid to Related Equities
Corporation (the "Dealer Manager") in connection with Shares issued to the
reinvestment plan participants during the offering period exceed 10% of the
Gross Proceeds, except that an additional .5% of the Gross Proceeds may be
paid in connection with due diligence activities.
(3) This is before deducting an expense allowance in an amount equal to
2.5% of the Gross Proceeds ("Expense Allowance") which is payable to the
Manager. The Manager will be responsible for the payment of all organization
and offering expenses, other than the Expense Allowance, certain selling
commissions and due diligence reimbursements that are payable by the Trust,
and escrow expenses that may be payable out of interest on the escrowed
funds. (See "Management Compensation" and "Plan of Distribution.")
(4) Volume discounts apply to sales of 12,500 Shares or more to a single
investor. The application of a volume discount will reduce the amount of
selling commissions but will not change the net proceeds to the Trust. Shares
purchased by the Trust from existing Shareholders under the Trust's Share
redemption plan after the termination of the initial offering will be
purchased at a discount from the public offering price. (See "Plan of
Distribution--Volume Discounts.")
(5) The Trust has registered a total of 12,500,000 Shares, 2,500,000 of
which will be available after the termination of the initial public offering
for purchase under the Trust's dividend reinvestment plan. (See "Reinvestment
Plan Summary.")
(6) The figure of 88% of Gross Proceeds, expected to be invested in First
Mortgage Bonds and Tax-Exempt Securities, does not reflect mortgage loan
placement fees of up to 3% (of the principal amount of any Mortgage Loan or
the amount paid by the Trust to acquire the First Mortgage Bond) which will
be paid to the Manager, an affiliate of the Manager or a third party by
borrowers or sellers of First Mortgage Bonds. (See Footnote 7 of "Estimated
Use of Proceeds.")
PENNSYLVANIA INVESTORS: Because the minimum closing amount is less than
$20,000,000, you are cautioned to carefully evaluate the program's ability to
fully accomplish its stated objectives and to inquire as to the current
dollar volume of program subscriptions. Pennsylvania investors may receive a
return of their subscription
Cover Page 2
<PAGE>
proceeds within 10 days after each 120-day period following the date of this
Prospectus, upon written request to Related AMI Associates, Inc., c/o Related
Capital Company, 625 Madison Avenue, New York, New York 10022, until the Gross
Proceeds, including subscriptions from Pennsylvania residents, equal or exceed
$10,000,000. Upon receipt by the Trust of subscriptions aggregating $10,000,000
or more, sales to Pennsylvania residents who have not requested a return of
their subscription funds will be consummated.
See "Reports to Investors" for a description of the reports that will be
furnished to investors on a periodic basis.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR
CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY
FLOW FROM AN INVESTMENT IN THIS PROGRAM ARE NOT PERMITTED. HOWEVER, SUCH
PROHIBITIONS SHOULD NOT BE CONSTRUED TO PREVENT THE TRUST FROM FILING
SUPPLEMENTALLY ANY PRO FORMA FINANCIAL STATEMENTS REQUIRED BY THE FEDERAL
SECURITIES LAWS AND REGULATIONS THEREUNDER.
Cover Page 3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
______________________________________________________________________________
TABLE OF CONTENTS
______________________________________________________________________________
Page
------
SUMMARY OF THE OFFERING.................................................... 1
The Trust ................................................................ 1
Manager................................................................... 1
Management of the Trust .................................................. 1
Trust Termination ........................................................ 1
Compensation to Manager and Affiliates... ................................ 1
Prior Programs ........................................................... 1
Investments .............................................................. 1
Trust Objectives.......................................................... 2
Risk Factors.............................................................. 2
Conflicts of Interest..................................................... 3
Capitalization ........................................................... 3
Borrowing Policies........................................................ 3
Reinvestment Plan ........................................................ 3
Redemption Plan........................................................... 4
Accounting and Income Tax Treatment of
Cash Distributions ..................................................... 4
Distributions ........................................................... 4
Distribution of Adjusted Cash From Operations............................. 4
Distribution of Sale or Repayment Proceeds................................ 4
Fiscal Year .............................................................. 4
Glossary.................................................................. 5
RISK FACTORS .............................................................. 5
A. TAX RISKS ............................................................ 5
1. Possible Failure to Obtain Tax-Exempt Income ...................... 5
2. Risk of Failure to Obtain Partnership Status ...................... 6
3. Adverse Effects of Potential Dealer Status ....................... 6
4. Limitations on Opinion of Counsel as to Tax Matters .............. 6
B. GENERAL RISKS OF OWNERSHIP OF FIRST MORTGAGE BONDS ................... 6
5. No Government Obligation .......................................... 6
6. Possible Failure to Obtain Contingent Interest and Other Payments
.................................................................. 6
7. Risks Relating to Underlying Real Estate .......................... 7
8. Previous Defaults on First Mortgage Bonds ......................... 7
9. Possible Unavailability of First Mortgage Bonds ................... 7
10. Risks from Interest Rate Fluctuations ............................ 8
11. Risk of Leverage .................................................. 8
12. Possible Difficulty of Repayment; Loan to Value Ratio ............. 8
13. Certain Contingent Interest May Be Based on Appraisals ........... 8
14. Reduced Interest on Participating Mortgage Loans ................. 9
15. First Mortgage Bonds and Mortgage Loans May Be Considered Usurious
.................................................................. 9
16. Uninsured Losses .................................................. 9
17. Construction Completion Risks ..................................... 9
C. BUSINESS RISKS ...................................................... 10
18. Adverse Developments in Prior Programs ............................ 10
19. Information Regarding Affiliates of the Manager ................... 10
20. Risk of Fees and Conflicts of Interest ............................ 10
21. Unspecified Investments; Investors Cannot Assess Investments ...... 10
22. Possible Lack of Diversification .................................. 11
23. Possible Negative Effects of Requirements with respect to
Permissible Income of Occupants of Properties .................... 11
24. Lack of Liquidity ................................................ 11
25. Delays in Making Acquisitions ..................................... 11
26. Use of Amortization or Repayment Proceeds from Investments in
Maintaining Distributions ........................................ 12
27. Competition ...................................................... 12
28. Possible Liability of Shareholders ............................... 12
29. Shareholders Must Rely on Management .............................. 12
30. Reliance on Creditworthiness of Manager .......................... 12
31. Conflict of Dealer Manager in Performing Due Diligence ........... 13
TERMS OF THE OFFERING ..................................................... 13
ESTIMATED USE OF PROCEEDS.................................................. 15
MANAGEMENT COMPENSATION.................................................... 17
CONFLICTS OF INTEREST ..................................................... 21
1. Receipt of Fees and Other Compensation by Affiliates of the Manager
................................................................... 21
i
<PAGE>
Page
2. Transactions with Affiliated Property Owners ...................... 21
3. Non-Arm's-Length Agreements ....................................... 22
4. Other Transactions with Property Owners .......................... 22
5. Competition with the Trust from Affiliates of the Manager for
the Time and Services of Common Officers and Directors ........... 22
6. Competition by the Trust with other Affiliated Entities for Purchase
and Sale of Investments ........................................... 22
7. Lack of Separate Representation .................................. 23
8. Tax Matters Partner .............................................. 24
9. Organizational Diagram ........................................... 24
FIDUCIARY RESPONSIBILITY .................................................. 25
PRIOR PERFORMANCE SUMMARY ................................................. 26
General................................................................... 26
Summary of Public Financing Programs...................................... 26
Summary of Public Real Estate Limited Partnerships ....................... 26
Summary of Private Real Estate Limited Partnerships ...................... 26
Comparison of Investment Objectives....................................... 27
Public Financing Programs................................................. 27
Public Real Estate Limited Partnerships................................... 30
Private Real Estate Partnerships.......................................... 34
Additional Information .................................................. 34
Three-Year Summary of Acquisitions by Similar Programs ................... 34
Additional Information on Programs ....................................... 34
MANAGEMENT ................................................................ 35
Management of Trust....................................................... 35
Related AMI Associates, Inc. ............................................ 35
Creditworthiness of the Manager .......................................... 36
Decisions Regarding Investments .......................................... 36
Removal or Resignation of the Manager .................................... 36
Remuneration.............................................................. 37
INVESTMENT OBJECTIVES AND POLICIES......................................... 37
Principal Investment Objectives .......................................... 37
Use of Initial Funds ..................................................... 38
Return of Uninvested Proceeds ............................................ 38
Tax-Exempt Securities..................................................... 39
Temporary Investments..................................................... 39
Information about Investments ............................................ 39
Selection of First Mortgage Bonds......................................... 39
The Regulatory Agreement.................................................. 40
The Terms of the First Mortgage Bonds and Mortgage Loans ................. 41
Construction Period Guarantees............................................ 45
Operating Deficit Guarantees.............................................. 46
Reserves.................................................................. 46
Borrowing Policies........................................................ 46
Administration of Mortgage Loans.......................................... 47
Joint Ventures and Participations ....................................... 47
Other Policies ........................................................... 47
Changes in Investment Objectives and Policies............................. 47
INCOME AND LOSSES AND CASH DISTRIBUTIONS .................................. 48
Net Income and Net Loss .................................................. 48
Adjusted Cash From Operations ............................................ 48
Sale or Repayment Proceeds ............................................... 48
Reserves.................................................................. 48
Capital Accounts.......................................................... 49
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .................................. 49
Opinion of Counsel........................................................ 50
Trust Status.............................................................. 50
General Principles of Partnership Taxation................................ 52
Reinvestment Plan ........................................................ 53
Allocation of Profit and Losses .......................................... 53
Trust Income.............................................................. 55
Treatment of Mortgage Loans Containing Contingent Interest .............. 57
Trust Expenses ........................................................... 58
Treatment of Fees ........................................................ 59
Marginal Tax Rates; Capital Gains Taxation................................ 59
Potential Dealer Status .................................................. 59
Sale of Shares; Disposition of First Mortgage Bonds; Treatment
of Market Discount ..................................................... 60
Dissolution and Liquidation of Trust...................................... 60
Tax Elections ........................................................... 60
Alternative Minimum Tax .................................................. 61
Interest Incurred by Trust and/or Shareholder............................. 61
Tax Termination of the Trust.............................................. 62
Audit of Tax Returns ..................................................... 62
Special Classes of Investors.............................................. 62
State and Local Taxes..................................................... 63
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Page
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REINVESTMENT PLAN SUMMARY................................................. 64
REDEMPTION OF SHARES...................................................... 65
DESCRIPTION OF THE SHARES................................................. 66
SUMMARY OF TRUST AGREEMENT................................................ 66
Nature of Trust.......................................................... 67
The Responsibilities of the Manager and the Trustee...................... 67
Tax Matters Partner....................................................... 67
Term and Dissolution ..................................................... 67
Voting Rights of Shareholders ............................................ 67
Meetings.................................................................. 68
Indemnification of the Manager and its Affiliates by the Trust........... 68
Indemnification of the Trustee by the Trust ............................. 68
Rollups.................................................................. 68
Borrowing Policies........................................................ 69
Liability of Shareholders................................................. 69
PLAN OF DISTRIBUTION....................................................... 70
Compensation.............................................................. 70
Volume Discounts.......................................................... 70
Other Offering Terms ..................................................... 71
Escrow Arrangements....................................................... 72
SALES MATERIAL............................................................. 72
LEGAL MATTERS.............................................................. 73
REPORTS ................................................................... 73
EXPERTS ................................................................... 73
FURTHER INFORMATION........................................................ 74
GLOSSARY................................................................... 74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
TRUST......................................................................78
Operations.................................................................78
Liquidity and Capital Resources ...........................................78
FINANCIAL INFORMATION AND BALANCE SHEETS ................................. F-1
PRIOR PERFORMANCE TABLES ................................................. I-1
TRUST AGREEMENT .......................................................... A-1
REINVESTMENT PLAN......................................................... B-1
iii
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_______________________________________________________________________________
SUMMARY OF THE OFFERING
_______________________________________________________________________________
The Trust: The Trust is a Delaware business trust formed on December 23,
1993 with its principal place of business at 625 Madison Avenue, New York,
New York 10022.
Manager: Related AMI Associates, Inc., a Delaware corporation, majority
owned and controlled by Stephen M. Ross, is the manager of the Trust
("Manager"). See "Management." The principal place of business of the Manager
is 625 Madison Avenue, New York, New York 10022, telephone (212) 421-5333.
Management of the Trust: The Manager will manage and control the affairs
of the Trust. The selection of First Mortgage Bonds and Tax-Exempt Securities
for potential investment by the Trust will be reviewed and must be approved
by the Manager. See "Management."
Trust Termination: The Trust intends to require repayment or to sell its
First Mortgage Bonds and Tax-Exempt Securities within approximately 10 to 12
years after their acquisition (assuming such First Mortgage Bonds have not
been previously repaid and assuming such Tax-Exempt Securities have not
previously matured) with a view towards liquidation of the Trust. Proceeds
from the disposition of First Mortgage Bonds and Tax-Exempt Securities may
either be distributed to Shareholders or, before the end of the fifth
calendar year following the date on which 95% of the Net Proceeds is invested
in First Mortgage Bonds and Tax-Exempt Securities, reinvested. The Trust
Agreement provides that the existence of the Trust shall continue until
December 31, 2033, unless sooner terminated.
Compensation to Manager and Affiliates: The Manager and its Affiliates
will receive substantial fees and compensation in connection with the
organization of the Trust, the offering, investment of the proceeds and the
management of the investments. In addition, certain Affiliates of the Manager
may receive substantial compensation and fees in connection with the
construction, development, financing, management and insurance brokerage of
the Properties. See "Management Compensation."
Prior Programs: Since 1972, the Manager and its Affiliates have sponsored
or provided investment banking and/or financial advisory services to more
than 236 public and private real estate investment programs. These programs
raised over $2.2 billion from approximately 98,000 investors, and have
acquired a real estate portfolio at a cost of $5.7 billion. This is the
seventh publicly offered program, including three tax-exempt bonds funds,
which have been sponsored by the Manager and its Affiliates with investment
objectives substantially similar to those referred to below. See "Prior
Performance Summary" and "Prior Performance Tables" in Appendix I for
information regarding other entities sponsored by the Manager and its
Affiliates.
Investments: The Trust intends to invest the Net Proceeds primarily in
tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by various
state or local governments or their agencies or authorities and secured by
first mortgages and related participating first mortgage loans (collectively,
"Mortgage Loans") principally on multifamily residential apartment projects
and, secondarily, retirement community projects (collectively, the
"Properties") owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a
Mortgage Loan at the time the loan is made or after a First Mortgage Bond is
acquired and restructured, together with all mortgage loans on the subject
property, will generally not exceed 85% of the appraised fair market value of
the related Property, except in certain circumstances. See "Investment
Policies and Objectives--Selection of First Mortgage Bonds." The First
Mortgage Bonds will have maturities of 10 to 35 years, although the Trust
anticipates holding the First Mortgage Bonds for approximately 10 to 12 years
and having the right to cause repayment of the bonds at that time. The First
Mortgage Bonds will normally be structured so that no principal payments will
be due thereon until the scheduled maturity or earlier redemption of such
bonds, at which point a lump sum or "balloon" payment of the outstanding
principal will be due. To the extent the First Mortgage Bonds call for
"balloon" payment of the principal instead of amortization, the Special
Distribution and Loan Servicing Fee payable to the Manager and its Affiliates
will be proportionately greater. In addition, the Trust may invest up to 10%
of the Gross Proceeds in Tax-Exempt Securities which are expected to begin
amortizing or to be repaid as early as during the offering period and from
time to time throughout the life of the Trust. The aggregate average life of
the Tax-Exempt Securities acquired by the Trust is expected to be six to
eight years.
The First Mortgage Bonds will bear a Current Interest Rate which is fixed.
In addition, a majority of the First Mortgage Bonds are expected to provide
for participations in net prop-
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erty cash flow and the residual value of the underlying Properties
("Contingent Interest") in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First
Mortgage Bonds. Unlike municipal bonds rated investment grade by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group, the First
Mortgage Bonds will not be rated and may not be of comparable
creditworthiness.
The First Mortgage Bonds are expected to prohibit optional prepayments
during the first five years after acquisition by the Trust and require a
redemption premium of at least 5% of the principal amount if prepaid in the
sixth year, declining 1% per year thereafter until there is no longer a
premium.
NO ASSURANCE CAN BE GIVEN THAT THE MANAGER WILL BE ABLE TO OBTAIN TERMS
COMPARABLE TO THOSE SET FORTH ABOVE.
Trust Objectives: The Trust's principal investment objectives are to:
(a) preserve and protect the Trust's invested capital by investing
primarily in a diversified portfolio of First Mortgage Bonds secured by
existing Properties;
(b) provide quarterly Distributions that are exempt from federal income
taxation (except as to certain separate and/or additional taxes--see
"Investment Objectives and Policies--The Terms of the First Mortgage Bonds
and Mortgage Loans--Opinion of Bond Counsel"); and
(c) provide additional Distributions in connection with First Mortgage
Bond investments from Contingent Interest payments exempt from federal income
taxation (subject to the same exception as noted in (b) above) arising from a
participation in (1) net property cash flow ("Net Property Cash Flow"); and
(2) the net proceeds of the sale, refinancing or other disposition of a
Property (or on the appraised value of the Property), less debt, customary
expenses of sale and certain other amounts ("Net Sale or Repayment
Proceeds"), in an amount equal to 25% to 50% of Net Property Cash Flow and
25% to 50% of Net Sale or Repayment Proceeds. The achievement of this
objective is closely related to the real estate market conditions that will
exist during the period in which the First Mortgage Bonds are held by the
Trust and is dependent upon improvement in the residential real estate
market. First Mortgage Bonds with Contingent Interest generally offer Current
Interest Rates below what would be available for such bonds if they did not
require Contingent Interest payments.
The Trust expects to invest in First Mortgage Bonds primarily by acquiring
outstanding First Mortgage Bonds which are simultaneously restructured to
change the principal, interest and other terms of those bonds to conform to
the Trust's investment objectives and policies. The multi-family rental
housing properties financed by the outstanding First Mortgage Bonds will have
been constructed and leased. In general, the outstanding First Mortgage Bonds
to be acquired will have been credit enhanced by the guarantee of a financial
institution and the credit enhancement will have expired or will be scheduled
to expire within 36 months. The Trust may also acquire First Mortgage Bonds
that are, or prior to restructuring were, in default because the credit
enhancement has expired or because the cash flow from the Property is
insufficient to pay the debt service due on the bonds. The restructuring of
the outstanding First Mortgage Bonds will be sufficiently extensive so that
generally a restructured First Mortgage Bond held by the Trust will be
considered to be a newly issued bond for federal income tax purposes with the
result that the restructured First Mortgage Bond may be subject to certain
additional restrictions in order for the interest thereon to remain exempt
from regular federal income taxes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i) the
Trust has reached a binding agreement with the owner of the underlying
Property to amend the terms of the bonds in a manner that is acceptable to
the Trust and (ii) the governmental entity that is the issuer of the
outstanding bonds has agreed to ratify the change in terms and to file the
necessary forms to continue the tax-exemption of the restructured First
Mortgage Bonds or the Manager believes that there is a substantial likelihood
that the issuer will agree subsequently to take the action necessary to
continue the First Mortgage Bond's tax-exemption.
There can be no assurance that such objectives will be attained. See
"Investment Objectives and Policies" and "Risk Factors."
Risk Factors: An investment in Shares will be subject to various risks,
including the following:
(bullet) Income from First Mortgage Bonds could be subject to federal
income taxation under certain circumstances.
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(bullet) The receipt of additional interest is closely related to real
estate market conditions that exist during the anticipated life
of the investment. Therefore, the Trust may not be able to earn
additional interest on its First Mortgage Bonds from sharing in
Net Property Cash Flow and Net Sale or Repayment Proceeds.
(bullet) Trust investments have not yet been identified.
(bullet) Prior participating mortgage programs sponsored by Affiliates of
the Manager have experienced some adverse business developments
at the local property level and have not yet achieved all of
their investment objectives.
(bullet) The Manager and its Affiliates will receive substantial fees from
the proceeds of the offering and will be subject to various
conflicts of interest.
(bullet) First mortgage bond investments with participating interest
features generally bear a lower current interest rate than they
would have without such participations.
(bullet) The Trust offers a redemption plan which may be terminated or
suspended at the discretion of the Manager, without the consent
of the Shareholders. There is no public trading market for the
Shares and none is expected to develop. An investment in the
Trust should be considered a long-term investment.
(bullet) In an attempt to maintain stable distributions during the
offering and acquisition stages, distributions during such stages
will include a return of capital resulting in a reduction in
Total Invested Assets.
None of the First Mortgage Bonds will constitute a general obligation of
any state or local government, agency or authority, and no state or local
government, agency or authority will be liable on them except to the extent
of revenues received on the Mortgage Loans, nor will the taxing power of any
state or local government be pledged to the payment of principal or interest
on the First Mortgage Bonds. See "Investment Objectives and Policies."
Conflicts of Interest: The Manager and its Affiliates will be subject to
various conflicts of interest in their business dealings with the Trust
including those inherent in investing in First Mortgage Bonds relating to
Properties developed or owned by Affiliates of the Manager and those due to
the structure of their compensation. In addressing these conflicts of
interest, the Manager will be required to abide by its fiduciary duties to
the Trust and the Shareholders to exercise good faith and act with integrity
in handling Trust affairs in the best interests of the Trust, and, in
connection with First Mortgage Bonds which relate to Properties in which
Affiliates hold interests, the Manager will be required to obtain a letter of
opinion from an independent adviser to the effect that the terms of the
Mortgage Loan securing such First Mortgage Bond are fair and at least as
favorable to the Trust as a loan to an unaffiliated borrower in similar
circumstances. (See "Conflicts of Interest.")
Capitalization: A minimum of $2,500,000 and a maximum of $200,000,000 in
Shares will be sold during the initial offering period pursuant to the
offering and to the Trust's dividend reinvestment plan. After the termination
of the initial public offering, Shares may also be issued pursuant to the
Trust's dividend reinvestment plan. If the minimum of 125,000 Shares is not
sold within one year from the date of this Prospectus, then all payments
received will be promptly refunded in full together with all interest to the
extent earned on the subscription proceeds. (See "Plan of Distribution--
Escrow Arrangements.")
Borrowing Policies: The Trust is permitted to incur indebtedness to meet
working capital requirements of the Trust or to take over the operation of a
Property on a short-term basis (up to 24 months), but not for the purpose of
making Distributions. The Trust may borrow such funds from third parties or
from the Manager or its Affiliates. On loans from the Manager or its
Affiliates, interest and other financing charges or fees will be paid in an
amount which will be the lesser of the interest and other financing charges
or fees which would be charged by unrelated lending institutions for a
comparable loan or the actual cost of such funds to the Manager or its
Affiliates. No prepayment charge or penalty shall be required by the Manager
or its Affiliates on a loan to the Trust secured by either a first or a
junior or all-inclusive trust deed, mortgage or encumbrance on a Property,
except to the extent that such prepayment charge or penalty is attributable
to the underlying encumbrance.
Reinvestment Plan: Investors may elect to automatically reinvest all or a
portion of Distributions in Shares through the Trust's dividend reinvestment
plan (the "Reinvestment Plan"). Shareholders who elect to participate in the
Reinvestment Plan will be treated, for federal income tax purposes, as having
received their Distributions and must include any income attributable thereto
in their gross income, although since substantially all of the Trust's income
is expected to be
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exempt from federal income taxation, no federal tax liability should result.
(See "Reinvestment Plan Summary" and "Material Federal Income Tax
Consequences--Reinvestment Plan.")
Redemption Plan: After the Final Closing Date, any person who acquired
Shares directly from the Trust or through the Reinvestment Plan may present
all or a portion of such Shares for redemption on the terms set forth in the
Trust's repurchase plan (the "Redemption Plan"). Proceeds received by the
Trust upon the issuance of Shares to the Reinvestment Plan will be used first
by the Trust to redeem Shares and to the extent such proceeds are
insufficient, Shares will be redeemed on a pro rata, whole share basis.
Shareholders may not be able to redeem Shares submitted for redemption if the
amount of proceeds received from the Reinvestment Plan is not sufficient to
allow for redemption or if the Redemption Plan is terminated. To the extent
redemption of Shares is so limited or terminated, investors should view a
purchase of Shares as a long-term investment. Any amounts remaining from the
reinvestment proceeds after all requested redemptions have been made may be
held for subsequent redemptions or may be invested by the Trust in additional
First Mortgage Bonds or Tax-Exempt Securities. (See "Reinvestment Plan
Summary" and "Redemption of Shares.")
Accounting and Income Tax Treatment of Cash Distributions: Distributions
of cash, if any, will be made from (i) Adjusted Cash From Operations, (ii)
Sale or Repayment Proceeds and (iii) cash from Reserves (provided that funds
deposited in the Reserves from uninvested Net Proceeds will not be utilized
for Distributions to Shareholders until termination of the Trust). Such
Distributions may constitute a return of capital to the Shareholders,
ordinary income, capital gain and/or items of tax preference. Distributions
of Adjusted Cash From Operations will be paid out of Cash Flow primarily from
payments of interest on First Mortgage Bonds and Tax-Exempt Securities.
For federal income tax purposes, Net Income and Net Loss of the Trust
shall generally be allocated 1% to the Manager and 99% to the Shareholders in
proportion to their Original Contributions. See "Income and Losses and Cash
Distributions."
Distributions: Cash Distributions will commence within 45 days after the
end of the first full quarter following the initial investor closing. In an
attempt to maintain stable Distributions during the offering period and
acquisition stage, the Trust expects to distribute to Shareholders the
proceeds representing amortization or repayment from Tax-Exempt Securities.
To the extent that the Trust makes such Distributions, the portion of
Distributions attributable thereto will constitute a return of capital and
will reduce Total Invested Assets. There may be a delay in Distributions
derived from First Mortgage Bonds since, except as set forth in any
supplement to this Prospectus, the Manager has not identified any possible
acquisitions of First Mortgage Bonds.
Distribution of Adjusted Cash From Operations: Distributions of Adjusted
Cash From Operations, which is calculated after the payment of the Special
Distribution and other expenses, will be distributed 99% to the Shareholders
and 1% to the Manager. Adjusted Cash From Operations prior to investment of
the Net Proceeds in First Mortgage Bonds and Tax-Exempt Securities will be
derived from interest on Temporary Investments. See "Investment Objectives
and Policies--Temporary Investments."
Distribution of Sale or Repayment Proceeds: Sale or Repayment Proceeds
will be distributed:
first, (i) 99% to the Shareholders in proportion to their Original
Contributions and (ii) 1% to the Manager, until the Shareholders have
received an amount which, when added to all prior Distributions of Sale or
Repayment Proceeds and cash from Reserves previously set aside from Gross
Proceeds or Sale or Repayment Proceeds, equals the sum of their Original
Contributions plus a 10% per annum cumulative, noncompounded return on their
Adjusted Contributions, commencing on the Final Closing Date; and
then, after payment of the Subordinated Incentive Fee (equal to 2.5% of
Sale or Repayment Proceeds remaining after the first distribution to
Shareholders and the Manager described above), 99% to the Shareholders and 1%
to the Manager.
Before the end of the fifth calendar year following the date on which 95% of
the Net Proceeds is invested in First Mortgage Bonds and Tax-Exempt
Securities, Sale or Repayment Proceeds, if any, may be reinvested in First
Mortgage Bonds or Tax-Exempt Securities, distributed to Shareholders and the
Manager as set forth above or held as Reserves. See "Management Compensation"
and "Income and Losses and Cash Distributions."
Fiscal Year: The Trust has adopted a fiscal year ending on December 31 of
each year.
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Glossary: See the Glossary at the back of this Prospectus for definitions
of certain key terms used in this Prospectus.
_______________________________________________________________________________
RISK FACTORS
_______________________________________________________________________________
Investment in Shares involves various risk factors. Therefore, prospective
purchasers should consider the following risks, among others, before making a
decision to purchase Shares.
A. TAX RISKS
1. Possible Failure to Obtain Tax-Exempt Income. The Trust will not acquire a
First Mortgage Bond unless it receives, or there has been issued previously,
an opinion of bond counsel to the effect that interest on such First Mortgage
Bond will be exempt from regular federal income taxation. Such opinion may be
reasoned or qualified on certain issues and will be based upon certain
assumptions, including the assumption that the Property will be operated to
meet the regulatory requirements that are designed to assure the use of the
Property to provide housing for families of low and moderate income and
restrictions on the use of the proceeds of tax-exempt financing issued to
construct or acquire the project. The opinion of bond counsel may rely upon
the opinions of other counsel or may be given by more than one counsel. The
opinion of bond counsel will not be binding on the Internal Revenue Service
("IRS"). The Trust will not restructure a First Mortgage Bond unless it
receives such an opinion of bond counsel or a confirmation that the
restructuring will not adversely affect the conclusions in such opinion.
Interest on the First Mortgage Bonds would be considered to be taxable if:
(a) The owner of the Property (who will not be subject to control by the
Trust) breaches certain of the regulatory requirements on the use of the
Property and the use of proceeds of tax-exempt financing;
(b) The Trust is treated as a substantial user of the Property or a
related person to such a substantial user, which risk would increase if the
Trust were to gain direct or indirect control over the Property upon a
default of a First Mortgage Bond;
(c) Certain of the fees paid in connection with a restructuring of an
outstanding First Mortgage Bond were considered to exceed certain prescribed
limits; and
(d) In the case of an acquisition and restructuring of a previously
outstanding First Mortgage Bond that constitutes a new issuance for tax
purposes, within six months before or after the restructuring, there is a
change of the ownership of the subject Property and the bonds do not then
meet all of the requirements and current restrictions in the Code.
In addition, interest on the First Mortgage Bonds would not be considered
interest if all or a portion of the First Mortgage Bonds or the right to
Contingent Interest is considered an equity interest in the Property rather
than a debt obligation and interest thereon, with the result that such
interest would be considered taxable.
Although interest on the First Mortgage Bonds will be exempt from regular
federal income taxes, such interest may be an item of tax preference subject
to the alternative minimum tax for both individuals and corporations and
could increase a corporation's environmental tax liability, an S
corporation's excess net passive income tax liability or a foreign
corporation's branch profits tax. The receipt of such interest also could
cause certain otherwise tax-free social security or railroad retirement
benefits to be subject to federal income taxation.
In those cases in which the Trust purchases First Mortgage Bonds prior to
their being restructured, the Trust expects such First Mortgage Bonds to have
a face amount in excess of the acquisition price paid by the Trust. In
restructuring the First Mortgage Bonds, if the Trust receives, or is deemed
to receive, restructured First Mortgage Bonds or other obligations with an
issue price in excess of the acquisition price paid by the Trust, then the
Trust may be deemed to recognize a taxable gain either at the time of the
restructuring or on repayment of the principal amount of the restructured
First Mortgage Bonds.
If the Trust were to acquire the underlying Property securing a Mortgage
Loan as a result of foreclosure, income recognized as a result of such
foreclosure, as well as income recognized from the Trust's ownership and
operation of the Property, would not be tax-exempt. In addition, the
deduction of any losses resulting from such a foreclosure and/or the Trust's
subsequent ownership and operation of the Property may be restricted.
In addition, if the Trust acquires a First Mortgage Bond before obtaining
the approval of the relevant government issuer to any restructuring, and in
the event it does not ulti-
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mately obtain such governmental approval, the Trust, in order to avoid the
receipt of taxable income, may be forced to sell or otherwise dispose of the
First Mortgage Bond, including through foreclosure on the underlying Property
if the Mortgage Loan is then in default. If any such sale or other
disposition produced a gain or if the Trust acquired the underlying Property
as a result of a foreclosure and was in receipt of net rental income, the
Shareholders would recognize taxable income.
Interest on a First Mortgage Bond may be includible in gross income of the
Shareholder for state income tax purposes.
2. Risk of Failure to Obtain Partnership Status. The Trust will not apply
for an IRS ruling that it will be classified as a partnership rather than an
association taxable as a corporation for federal income tax purposes.
Although the Trust has received an opinion of counsel with respect to its
status as a partnership for federal income tax purposes, such opinion is not
binding upon the IRS. In the event the Trust is treated for tax purposes as
an association taxable as a corporation, distributions made by the Trust to
the Shareholders would be treated as dividends to the extent of the Trust's
current and accumulated earnings and profits (which would include receipt of
tax-exempt interest although no tax would be imposed on the association) and
would be included in gross income of the Shareholders for federal income tax
purposes. See "Material Federal Income Tax Consequences-- Classification as a
'Partnership.'"
3. Adverse Effects of Potential Dealer Status. The Trust expects to hold
its First Mortgage Bonds for investment. However, if it were determined that
the Trust did not hold its First Mortgage Bonds for investment but for sale
in the ordinary course of its business, the Trust would be characterized as a
"dealer" for federal income tax purposes. Because the determination of
"dealer" status is dependent upon future Trust activities, counsel can render
no opinion as to whether the Trust will be characterized as a "dealer." If
the Trust were to be characterized as a "dealer", gain on the sale or other
disposition of the First Mortgage Bonds would be taxable at rates ranging up
to 39.6% for individuals, rather than at a maximum 28% rate.
4. Limitations on Opinion of Counsel as to Tax Matters. As set forth under
"Material Federal Income Tax Consequences--Opinion of Counsel," counsel to
the Trust has expressed no opinion as to certain tax matters relating to the
Trust because of the factual nature of such issues or the lack of clear
authority in the law. Accordingly, there may be a risk that the IRS would not
accept the Trust treatment of certain tax items and that the Shareholders
could be adversely affected as a result. In any event, the opinions of
counsel are not binding on the IRS.
B. GENERAL RISKS OF OWNERSHIP OF FIRST MORTGAGE BONDS
5. No Government Obligation. Even though the First Mortgage Bonds will be
issued by state or local governments or their agencies or authorities, the
principal and interest of each First Mortgage Bond will be payable only from
the revenue and appreciation generated by the Properties securing the
Mortgage Loans. None of the First Mortgage Bonds will constitute a general
obligation of any state or local government, agency or authority, and no
state or local government, agency or authority will be liable on them except
to the extent revenues are received under the Mortgage Loans, nor will the
taxing power of any state or local government be pledged to the payment of
the principal of or interest on the First Mortgage Bonds.
6. Possible Failure to Obtain Contingent Interest and Other Payments. The
Trust will attempt to invest primarily in First Mortgage Bonds which will
provide for Contingent Interest consisting of participations in Net Property
Cash Flow and Net Sale or Repayment Proceeds. Although no assurance can be
given, the Trust expects that most of the Trust's investments will contain
such provisions. However, even if they do contain such provisions, no
assurance can be given that Contingent Interest will be paid or if paid the
amount of such payments in any given year. Therefore, the rate of return on
the First Mortgage Bonds may vary from year to year. Failure to pay the
interest, including any Contingent Interest, if and when due and payable will
constitute a default under the First Mortgage Bonds and, therefore, the
Mortgage Loans. However, no assurance can be given that there will be
sufficient Net Property Cash Flow and Net Sale or Repayment Proceeds to pay
any Contingent Interest. The ability of the borrowers to make payments due
under the Mortgage Loans, the amount of Contingent Interest to be realized by
the Trust and the amount the Trust may realize after a default will be
dependent on the level of operations and the increase or decline in value of
the Properties as well as the other risks generally associated with real
estate investments described under "Risks Relating to Underlying Real Estate"
below.
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<PAGE>
7. Risks Relating to Underlying Real Estate. All mortgage loans and,
accordingly, tax-exempt bonds, are subject to some degree of risk, including
the risk of a default by the borrower and the possibility that the lender may
have to foreclose in order to protect its investment. Accordingly, the
Trust's investments may become subject to general risks inherent in the
ownership of real property, including reduction in rental income due to an
inability to maintain occupancy levels, rent controls, adverse changes in
general economic conditions, adverse local conditions (such as competitive
over-building or decrease in employment, adverse changes in real estate
zoning laws, particularly "down-zoning," which may reduce the desirability of
real estate in the area, or acts of God, such as earthquakes and floods).
Because the underlying Properties will be rentals, some of which are expected
to provide medical services to tenants, the Properties must attract and
retain tenants with the financial stability and ability (either personally or
through other sources) to pay rent and the costs of those services.
Reductions in rental income from expected levels may cause the borrower to
default on its obligations under a Mortgage Loan and result in a default
under a First Mortgage Bond. In addition, the Mortgage Loan documents will
prohibit condominium conversion of a Property during the term specified in
its Regulatory Agreement. See "Investment Objectives and Policies--The
Regulatory Agreement." The Property owners ("Property Owners") may provide
the Trust with limited guarantees against operating deficits of the
partnership or other entities which own the Properties. See "Investment
Objectives and Policies--Operating Deficit Guarantees." However, there are no
assurances that the Manager can obtain operating deficit guarantees or, if
obtained, that the Property Owners will have sufficient funds to discharge
their obligations under such operating deficit guarantees.
8. Previous Defaults on First Mortgage Bonds. It is anticipated that many
of the First Mortgage Bonds secured by Mortgage Loans on existing properties
will have been in default prior to their acquisition by the Trust. Because
such previous defaults may indicate that the debt on such Properties was too
great in relation to the value of the Properties at the time of default, the
Trust will acquire an outstanding First Mortgage Bond only if the Trust has
reached agreement with the Property Owner to restructure the First Mortgage
Bond. Furthermore, the terms of any restructuring will be subject to the
approval of the issuer. In most circumstances, the Manager expects that the
issuer will approve the restructuring of First Mortgage Bonds before the
Bonds are acquired by the Trust. However, the Trust may acquire First
Mortgage Bonds before the issuer approves such restructuring, and there is no
assurance that such approval will ultimately be obtained. When such
outstanding First Mortgage Bonds are acquired without the prior approval of
the issuer, if the Trust is unable to reach a subsequent agreement with the
issuer, the Trust, in order to attempt to avoid the receipt of taxable
income, could be forced either to sell the unrestructured First Mortgage
Bonds or to foreclose on the Property securing the First Mortgage Bonds, if
in default. However, if any such sale or other disposition produced a gain or
if the Trust acquired the underlying Property as a result of a foreclosure
and was in receipt of net rental income, the Shareholders would recognize
taxable income. See "Tax Risks--Possible Failure to Obtain Tax-Exempt Income"
and "Material Federal Income Tax Consequences--Trust Income."
9. Possible Unavailability of First Mortgage Bonds. There are certain
constraints on acquiring and restructuring outstanding First Mortgage Bonds.
If, as described above, a First Mortgage Bond was in default prior to its
acquisition by the Trust, it may well be desirable to restructure the
ownership of the Property as part of the restructuring of the First Mortgage
Bonds. However, if there is a change in the entity owning the Property within
six months before or after the restructuring of the First Mortgage Bonds,
then the restructuring will be considered the issuance of bonds in connection
with the acquisition of the Property rather than the simple refunding of a
prior issue used to construct the Property. If the restructuring is not
considered a refunding and is considered a new money issuance of bonds, the
more severe restrictions of current law would apply (including, in certain
cases, a requirement that there be a substantial rehabilitation of the
Property) in order to preserve tax-exemption of interest on the bonds. In
such event either interest on the First Mortgage Bonds might become taxable
or the economic value of the Property could be reduced.
Another obstacle to restructuring the First Mortgage Bonds is that
reducing the principal and accrued interest on the bonds will result in
ordinary income to the then current owner of the Property. Further, the
balance of outstanding First Mortgage Bonds that are in default may well have
to be reduced substantially in order to meet the 85% loan to value test prior
to acquisition by the Trust.
Notwithstanding whether outstanding First Mortgage Bonds can be acquired,
the Trust may not be able to acquire
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newly issued First Mortgage Bonds. Current law has increased the extent to
which a newly constructed or acquired Property must provide housing for low
income persons. The test now requires that either 20% of the units be rented
to tenants whose income is 50% or less of the area median gross income or 40%
of the units be rented to those whose income is 60% or less of the median
gross income. Under the prior law the requirement was only that 20% of the
units be rented to those whose income was 80% or less of the median gross
income. If the Property to be financed was previously placed in service, then
substantial rehabilitation must occur for the First Mortgage Bonds to be tax-
exempt. Finally, the volume of tax-exempt bonds that can be issued in each
state is restricted and multifamily housing projects have to compete with
other uses of tax-exempt bonds for an allocation of the state limitation.
Given these restrictions, the Trust may have difficulty in finding
multifamily housing projects whose acquisition or construction can be
financed with newly issued First Mortgage Bonds.
10. Risks from Interest Rate Fluctuations. In the event that there is a
significant increase or decrease in interest rates, the quality of First
Mortgage Bonds and value of First Mortgage Bonds and Tax-Exempt Securities
may be affected. If interest rates significantly decrease, the number and
quality of properties on which Property Owners may be willing to place a
Mortgage Loan on the terms described herein may be reduced. If interest rates
significantly increase above the interest being paid on First Mortgage Bonds
or Tax-Exempt Securities, the value of any existing First Mortgage Bonds or
Tax-Exempt Securities may decrease and, accordingly, the price the Trust
could receive if it sold or remarketed its First Mortgage Bonds or Tax-Exempt
Securities may decrease as well.
11. Risk of Leverage. Subject to certain restrictions described in
"Summary of Trust Agreement--Borrowing Policies," the Trust is allowed to
incur financing to meet working capital requirements of the Trust or to take
over the operation of a Property on a short-term basis (up to 24 months) (but
not for the purpose of making Distributions). The effect of leveraging is to
increase the risk of loss. The higher the rate of interest on the financing,
the more difficult it will be for the Trust to meet its obligations and the
greater the chance of default. Such financing is expected to be recourse to
the Trust and may be secured by a lien on the Trust's interest in one or more
First Mortgage Bonds. Accordingly, the Trust could lose its investment in the
First Mortgage Bond if the Trust were to default on the indebtedness. (See
"Investment Objectives and Policies--Borrowing Policies.")
12. Possible Difficulty of Repayment; Loan to Value Ratio. Full principal
of a Mortgage Loan will generally be required to be repaid as a lump-sum
"balloon" payment. Consequently, the ability of the borrower and Property
Owners to repay the Mortgage Loans may be dependent upon their ability to
sell the Properties or obtain refinancing. The Mortgage Loans are not
expected to be personal obligations of the Property Owners, and the Trust
will be relying solely on the value of the Properties for its security. In no
event will the principal of a Mortgage Loan at the time the loan is made or
after the related bonds are acquired and the bonds and the loan are
restructured, together with all other mortgage loans on the subject Property,
exceed 85% of the appraised fair market value of the Property unless the
Manager determines that substantial justification exists because of other
aspects of the loan, such as the net worth of the borrower, the credit rating
of the borrower based on historical financial performance, additional
collateral (such as a pledge or assignment of other real estate or another
real estate mortgage) or an assignment of rents under a lease or where the
Trust has purchased a First Mortgage Bond at a price that is no more than 85%
of the value of the underlying Property (notwithstanding that the face amount
of the outstanding mortgage loans with respect to the Property exceed 85% of
the value of the underlying Property), provided that any loans relating to
the Property which are advanced by third parties (and which cause the
aggregate amount of all mortgage loans outstanding on the Property to exceed
85% of the appraised value of the Property) are subordinated to the Trust's
investment and do not entitle such third party lender to any rights upon
default until after the Trust's First Mortgage Bond and related Mortgage Loan
with respect to such Property have been repaid. In addition, if the Trust
chooses to foreclose on a Mortgage Loan which is in default, it may result in
the Trust realizing taxable income. See "Investment Objectives and
Policies--Selection of First Mortgage Bonds."
13. Certain Contingent Interest May Be Based on Appraisals. In the event a
Property is not sold prior to the maturity or remarketing of the First
Mortgage Bonds, the Contingent Interest payable by virtue of the Trust's
participation in the Net Sale or Repayment Proceeds of the Property will be
determined on the basis of the appraised value of the Property. See
"Investment Objectives and Policies--The Terms of
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the First Mortgage Bonds and Mortgage Loans--Interest Rate." Real estate
appraisals represent only an estimate of the value of the property being
appraised and are based on subjective determinations, such as the extent to
which other properties are comparable to the property being evaluated and the
rate at which a prospective purchaser would capitalize the cash flow of the
property to determine a purchase price. Accordingly, such appraisals may
result in the Trust realizing more or less Contingent Interest from the First
Mortgage Bonds than would have been realized had such Property been sold, and
the amount realized may, to a certain extent, be based on subjective
decisions by the independent appraisers.
14. Reduced Interest on Participating Mortgage Loans. The Current Interest
Rate on the First Mortgage Bonds generally will be lower than that otherwise
available through nonparticipating loans because of the added benefit to the
Trust resulting from its right to Contingent Interest based on Net Property
Cash Flow and Net Sale or Repayment Proceeds. In addition, there is no
assurance that Contingent Interest will be earned. See "Prior Performance
Summary" and "Prior Performance Tables" in Appendix I.
15. First Mortgage Bonds and Mortgage Loans May Be Considered
Usurious. State usury laws establish restrictions, in certain circumstances,
on the maximum rate of interest that may be charged by a lender and impose
penalties on the making of usurious loans, including monetary penalties,
forfeiture of interest and unenforceability of the debt. Although the Trust
does not intend to acquire First Mortgage Bonds secured by Mortgage Loans at
usurious rates, there is a risk that First Mortgage Bonds and Mortgage Loans
could be found to be usurious as a result of uncertainties in determining the
maximum legal rate of interest in certain jurisdictions, especially with
respect to Contingent Interest. Therefore, the amount of interest to be
charged and the Trust's return from the First Mortgage Bonds will be limited
by the state usury laws. In order to minimize the risk of making a usurious
loan, the Trust Agreement requires the Manager to obtain an opinion of local
counsel to the effect that the interest rate of a proposed First Mortgage
Bond is not usurious under applicable state law. The Trust also intends to
obtain an opinion of local counsel to the effect that the interest on the
Mortgage Loan is not usurious. To obtain such opinions the Trust may have to
agree to defer or reduce the amount of interest that can be paid in any year.
Some states may prohibit the compounding of interest; in which case the Trust
may have to agree to forego the compounding feature of the First Mortgage
Bond structure.
16. Uninsured Losses. The Trust intends to require comprehensive
insurance, including liability, fire and extended coverage, which is
customarily obtained for or by a mortgagee on Properties in which it acquires
a mortgagee's interest (generally, such insurance will be obtained by the
borrower). However, there are certain types of losses (generally of a
catastrophic nature, such as earthquakes, floods and wars) which are either
uninsurable or not economically insurable. Should such a disaster occur to,
or cause the destruction of, any of such Properties, it is possible that the
Trust could lose both its invested capital and anticipated profits from its
investment in the First Mortgage Bond for such Property.
17. Construction Completion Risks. Although the Trust will invest
principally in First Mortgage Bonds secured by Mortgage Loans on existing
Properties, the Trust may, to a limited extent, invest in First Mortgage
Bonds secured by Mortgage Loans on Properties which are to be constructed.
Construction of such projects generally takes approximately two years. The
principal risk associated with construction lending is the risk of
noncompletion of construction which may arise as a result of (i)
underestimated initial construction costs; (ii) cost overruns during
construction; (iii) delays in construction; (iv) failure to obtain
governmental approvals; and (v) adverse weather and other unpredictable
contingencies beyond the control of the developer. If the construction of a
Property is not completed on a timely basis, the Trust may realize less
Contingent Interest, or no Contingent Interest at all, on the First Mortgage
Bonds than would otherwise be the case. If the Mortgage Loan is called due to
construction not being completed as required in the Mortgage Loan documents,
the Trust will have been diverted from other investments and there may be a
corresponding delay in the investment of Trust funds in First Mortgage Bonds.
See "Investment Objectives and Policies--Selection of First Mortgage Bonds."
In order to minimize certain risks which may occur during the construction
phase of each Property, the Trust will endeavor to obtain in most instances
one or more types of security during such period, including a construction
completion guarantee of principals of the Property Owner, personal recourse
to the applicable borrower of the Mortgage Loan and payment and performance
bonding of the general contractor, if any, with respect to a Property. In
addi-
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tion, the Trust may require principals of the Property Owner to provide the
Trust with an operating deficit guarantee, covering operating deficits of the
Property during an agreed upon period. The Trust may not be able, however, to
obtain such security with respect to certain Properties; in other cases, the
Trust may decide to forego certain types of available security if the Trust
determines in its sole discretion that the security is not necessary or is
too expensive to obtain in relation to the risks covered.
C. BUSINESS RISKS
18. Adverse Developments in Prior Programs. Fifteen of the 54 prior public
and private programs sponsored by Related or its Affiliates have experienced
adverse developments. Those developments, which occurred at the local
property level, include local general partner replacements, mortgage
defaults, work out agreements with lenders and borrowers and arrangements
with borrowers which allow interest on mortgages to be paid to certain prior
programs at lower than the stated rates. Six of the publicly offered programs
were financing programs, including three tax-exempt bond funds. Each of the
three prior tax-exempt bond funds have experienced one or more of these
adverse developments.
The prior participating mortgage programs, including the three tax-exempt
bond funds, have not yet achieved all of their objectives due to their
failure to produce significant additional distributions from participations.
The Sponsor does not believe that this objective will be realized until there
has been a general improvement in the real estate market.
Certain officers, directors and shareholders of the Manager, were and/or
are involved in the management of these prior programs sponsored by Related
or its Affiliates, including those prior programs that have experienced
adverse developments. See "Prior Performance Summary" for information on
programs sponsored by the Sponsor and Affiliates of the Sponsor.
19. Information Regarding Affiliates of the Manager. In 1992, an Affiliate
of the Manager, The Related Companies, L.P., a New York limited partnership,
was formed as part of a restructuring of more than $100,000,000 in unsecured
debt of The Related Companies, Inc. and its affiliates, including Stephen M.
Ross. In addition, certain financially troubled development projects were the
subjects of, in the opinion of the Sponsor, successful restructuring
arrangements. As part of the restructuring, a group of investors, who
contributed approximately $25,100,000 to the new venture, joined Mr. Ross to
create The Related Companies, L.P. Through his interests in other entities,
Mr. Ross controls the corporate general partner of The Related Companies,
L.P. and holds a significant limited partnership interest, which interests in
the aggregate total 56.8%.
20. Risk of Fees and Conflicts of Interest. The Manager and its Affiliates
will receive substantial compensation from the proceeds of the offering, as
well as ongoing compensation. See "Management Compensation" for a discussion
of the fees payable to the Manager and its Affiliates. There are numerous
conflicts between the interest of the Trust and the Shareholders, on the one
hand, and the interests of the Manager and its Affiliates, on the other hand.
There are inherent conflicts with respect to Properties owned or developed by
Affiliates of the Manager, including conflicts resulting from the provision
of construction and other services to such Properties, and may also be
additional conflicts which arise as a result of the possible property
management of and the provision of insurance brokerage services to the other
Properties by Affiliates of the Manager. These conflicts, as well as others,
are discussed under the caption "Conflicts of Interest."
21. Unspecified Investments; Investors Cannot Assess Investments. Except
as described in any supplements hereto, the Trust has not identified any
specific First Mortgage Bonds for acquisition. Therefore, a prospective
investor may not have an opportunity to evaluate some or any of the First
Mortgage Bonds, the Mortgage Loans and underlying Properties in which the
Trust will invest. In addition, even if proposed First Mortgage Bond
investments are specified, it is possible to a limited extent that certain
Properties will not have been constructed and, accordingly, that there will
be no operating history available for evaluation by prospective investors.
Any variations from the terms specified herein for First Mortgage Bonds
acquired during the distribution period will be set forth in a supplement
hereto, any of which supplements will be consolidated into a post-effective
amendment filed at least once every three months. To the extent First
Mortgage Bonds acquired after the distribution period are not specified in
any supplement hereto, the terms of such First Mortgage Bonds may vary from
the terms specified herein, and such terms may be less advantageous than
those set forth herein. In addition, it should be noted that the return from
an investment in the Trust may depend, in part, on how quickly the Trust's
funds are invested in First Mortgage
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Bonds. Certain fees and expenses are payable by the Trust irrespective of
whether the Trust is able to acquire First Mortgage Bonds with all of the Net
Proceeds available therefor. See "Estimated Use of Proceeds" and "Management
Compensation."
22. Possible Lack of Diversification. The Trust will be funded with
contributions of not less than $2,500,000 nor more than $200,000,000. To the
extent that the Trust obtains subscriptions for less than the maximum number
of Shares offered, the Trust will acquire fewer First Mortgage Bonds than it
otherwise would, thus obtaining less diversification of its investments. As a
result, the Trust's potential income would be proportionately more dependent
upon the performance of each of its individual First Mortgage Bonds than
would be the case if its investments were more diversified and Shareholders
would be proportionately more exposed to the risk of loss from defaults by
borrowers on the Mortgage Loans securing the First Mortgage Bonds. Although
the Trust intends to invest the proceeds of this offering in a number of
First Mortgage Bonds, diversification of its investments is not an investment
objective of the Trust. In addition, to the extent that less than the maximum
number of Shares is subscribed for, the returns on those Shares sold will be
reduced as a result of allocating all Trust expenses among such Shares. See
"Estimated Use of Proceeds."
23. Possible Negative Effects of Requirements with respect to Permissible
Income of Occupants of Properties. All of the Properties (except in certain
limited cases with respect to Properties owned by non-profit organizations,
if any), will be subject to certain federal, state and/or local requirements
with respect to the permissible income of occupants. Often, state or local
law establishes an income ceiling for some or all tenants. In addition,
pursuant to the Code, all of the Properties are required to have at least 20%
(and in some instances, at least 40%) of the units held for occupancy by
low- or moderate-income persons or families. Since no federal subsidies are
available in connection with the Mortgage Loans, rents must be charged on
such portions of the units at a level to permit such units to be continuously
occupied by low- or moderate-income person or families, which rents may not
be sufficient to cover all operating costs with respect to such units and
debt service on the applicable Property. In such event, the rents on the
remaining units may have to be higher than they would otherwise be in order
to cover the operating costs including debt service on all units in the
Property and may therefore exceed competitive rents, which may adversely
affect the occupancy rate of a Property and the developer's ability to
service its debt. In this regard, the Code provides that, as a general rule,
for obligations issued on or after January 1, 1986, the income limitations
for low- or moderate-income tenants will be adjusted for family size. See
"Material Federal Income Tax Consequences--Trust Income."
24. Lack of Liquidity. Shareholders may not be able to liquidate their
investment in the event of an emergency. The Shares are not intended to be
included for listing or quotation on any established market and no public
trading market is expected to develop for the Shares, although there may be
an informal market; Shares may therefore not be readily accepted as
collateral for a loan. Furthermore, even if an informal market for the sale
of Shares develops, a Shareholder may only be able to sell its Shares at a
substantial discount from the public offering price. In addition, Shares are
not freely transferable and the transfer is subject to obtaining the consent
of the Manager, which may be withheld in its discretion. Consequently, the
purchase of Shares should be considered only as a long-term investment.
Following the termination of the public offering, the Trust will provide a
Redemption Plan. Distributions that are reinvested through the Reinvestment
Plan first will be used to redeem Shares purchased or received directly from
the Trust during this public offering or from the Reinvestment Plan (these
Shares are called "Eligible Shares"). Shareholders may not be able to redeem
all Eligible Shares submitted for redemption if the amount of such proceeds
received from the Reinvestment Plan is not sufficient to allow full
redemption, in which case the redemption of Eligible Shares will be made on a
pro rata, whole share basis from available Reinvestment Proceeds. The Manager
may suspend or terminate the redemption of Eligible Shares upon notice to,
but without the consent of, the Shareholders. See "Redemption of Shares."
25. Delays in Making Acquisitions. The Trust may be delayed in making
acquisitions of First Mortgage Bonds due to delays in obtaining necessary
regulatory approvals for restructuring the First Mortgage Bonds, delays in
complying with the necessary documentation requirements for an investment in
particular First Mortgage Bonds or unforeseen delays in marketing the Shares.
In addition, there could be delays in the acquisition of First Mortgage Bonds
due to the necessity to resolve various matters (including compliance with
the provisions of the Code) with the issuers and the Property Owners. During
the time that Trust funds are held
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pending investment in First Mortgage Bonds and Tax-Exempt Securities, such
funds will be invested in Temporary Investments. The economic benefits to the
Trust from the Temporary Investments may be less during this period than the
benefits that could have been derived from the ownership of First Mortgage
Bonds.
26. Use of Amortization or Repayment Proceeds from Investments in
Maintaining Distributions. The Trust has adopted a policy of attempting to
maintain stable distributions during the offering period and acquisition
stage. In order to accomplish this result, a portion of the Net Proceeds are
expected to be invested in Tax-Exempt Securities with an aggregate average
life of six to eight years, a portion of which will amortize or be repaid
during such period. Proceeds from such amortization or repayment will be
distributed to Shareholders. To the extent that the Trust makes such
Distributions, a portion of these early Distributions will constitute a
return of capital and there will be a reduction in Total Invested Assets. In
addition, organization and offering expenses will still be paid by the Trust
with respect to the offering proceeds which are invested in such Tax-Exempt
Securities. See "Estimated Use of Proceeds."
27. Competition. In acquiring First Mortgage Bonds, the Trust will be in
competition with private investors, mortgage banking companies, lending
institutions, trust funds, pension funds and other entities, some with
similar objectives to those of the Trust. Some of these entities can be
expected to have substantially greater resources and experience in acquiring
First Mortgage Bonds than the Trust. Some of the entities which may compete
with the Trust may be affiliated investment programs. See "Conflicts of
Interest--Competition by the Trust with Other Affiliated Entities for
Purchase and Sale of First Mortgage Bonds."
28. Possible Liability of Shareholders. The Trust is governed by the laws
of the State of Delaware. Under the Trust Agreement and the Delaware Business
Trust Act, the statute applicable to Delaware business trusts (the "Delaware
Act"), Shareholders shall be entitled to the same limitation of personal
liability extended to stockholders of Delaware corporations. In general,
stockholders of a Delaware corporation are not personally liable for the
payment of a corporation's debts and obligations. They are liable only to the
extent of their investment in the Delaware corporation.
In jurisdictions which have not adopted legislative provisions regarding
business trusts similar to those of the Delaware Act, questions exist as to
whether such jurisdictions would recognize a business trust, absent a state
statute, and whether a court in such a jurisdiction would recognize the
Delaware Act as controlling. If not, a court in such jurisdictions could hold
that the Shareholders are not entitled to the limitation of liability set
forth in the Trust Agreement and, as a result, are personally liable for the
debts and obligations of the Trust. See "Liability of Shareholders."
29. Shareholders Must Rely on Management. All decisions with respect to
the management or control of the Trust will be made exclusively by the
Manager including, without limitation, the determination as to investments in
First Mortgage Bonds and Tax-Exempt Securities. The success of the Trust
will, to a large extent, depend on the selection of such investments and the
general quality of the management of the Trust. Although the Manager has
limited experience in revenue bond and real estate transactions, individual
officers, directors and employees of the Manager have had substantial prior
experience in the organization and management of real estate programs, both
public and private, and in the utilization of revenue bond financing for real
estate projects. Except for certain limited voting rights, Shareholders have
no right or power to take part in the management of the Trust. Accordingly,
no person should purchase any of the Shares offered hereby unless he or she
is willing to entrust all aspects of the management and control of the
Trust's business to the Manager and has evaluated the Manager's capabilities
to perform such functions. See "Management."
30. Reliance on Creditworthiness of Manager. The Manager has agreed to pay
certain expenses of the organization and offering of the Trust. If the
Manager defaults on this payment obligation, third party creditors of the
Manager may seek collection of the amounts due from the Trust but the Trust
will have legal recourse against the Manager, provided the Manager has
sufficient funds available to pay such expenses.
Mr. Stephen M. Ross and Mr. J. Michael Fried have each contributed to the
Manager a demand note executed in the principal amount of $500,000. A note
from an individual or an entity having at least the equivalent net worth and
comparable liquidity as Messrs. Ross and/or Fried may be substituted for
their respective notes. The Manager may draw down on these notes, if
necessary, to meet its payment obligations in connection with the expenses of
this offering, acquisition expenses, certain commissions, a marketing
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allowance and indemnification costs of the Dealer Manager and Soliciting
Dealers of this offering (and certain persons affiliated with them).
Mr. Ross has represented that as of December 31, 1993 he had a net worth
of not less than $10,000,000, determined in accordance with the standards of
personal financial statements of the American Institute of Certified Public
Accountants. Prospective investors should be aware that a significant portion
of Mr. Ross's assets is in the form of partnership interests in The Related
Companies, L.P. and stock of The Related Companies, Inc., which is pledged or
is otherwise not liquid. Furthermore, a significant portion of the cash flow
which Mr. Ross would otherwise be expected to receive from his business
operations is presently pledged to meet other obligations. Mr. Ross also has
significant contingent liabilities that, if simultaneously called upon, could
result in his having insufficient liquid assets to meet all of his current
liabilities in a timely fashion and could result in his having total
liabilities in excess of his total assets. Consequently, there can be no
assurance that Mr. Ross will have the liquidity necessary to pay all or any
portion of the demand note held by the Manager if he is called upon to do so.
Mr. Fried has represented that as of February 28, 1994 he had a net worth
of not less than $5,000,000, determined in accordance with the standards of
personal financial statements of the American Institute of Certified Public
Accountants. Mr. Fried has represented that although a significant portion of
his assets are of a non- liquid nature, he presently has sufficient liquid
assets to meet his obligations under the note.
31. Conflict of Dealer Manager in Performing Due Diligence. Related
Equities Corporation, the dealer manager of the offering, is an Affiliate of
Related. As an Affiliate of Related, the Dealer Manager may experience a
conflict in performing its obligations to exercise due diligence with respect
to the statements made in the Prospectus.
_______________________________________________________________________________
TERMS OF THE OFFERING
_______________________________________________________________________________
The Trust is offering a minimum of 125,000 and a maximum of 10,000,000
Shares, less any of such Shares issued pursuant to the Trust's Reinvestment
Plan, at $20 each.1 The Shares are being offered on a "best efforts" basis
(which means that no broker-dealer participating in the offering will be
under any obligation to purchase any Shares from the Trust) through Related
Equities Corporation (the "Dealer Manager") and broker-dealers selected by
the Dealer Manager and approved by the Manager ("Soliciting Dealers"). Unless
otherwise noted in this Prospectus, the minimum subscription is 125 Shares
with payment due upon subscription. Subscription payments will be deposited
in a special escrow account at a financial institution to be designated as
escrow agent by the Trust, with the agreement of the Dealer Manager.
The offering will terminate one year from the date of the Prospectus,
unless the Trust terminates the offering earlier (which it is entitled to do
in its sole discretion for any reason whatsoever) or extends the offering
from time to time to a date not later than 24 months after the date of the
Prospectus (subject to requalification in any state in which it is
necessary); provided, however, that if a minimum of 125,000 Shares are not
sold within one year from the date of this Prospectus, then all payments
received will be promptly refunded in full together with all interest to the
extent earned on the subscription proceeds. See "Plan of Distribution--
Escrow Arrangements." The Trust, in its sole discretion, may terminate the
offering at any time and for any reason. If 125,000 or more Shares are sold,
then interest to the extent earned (net of escrow expenses) will be payable
to all subscribers. Interest paid to subscribers may be subject to backup
withholding. The Trust reserves the right to reject subscriptions in its sole
discretion.
Shares will be sold only to a person who makes a minimum purchase of 125
Shares ($2,500).
This investment may be suitable for persons who desire an investment
intended to provide income which is exempt from federal income taxation
(except as to certain separate and/or additional taxes--see "Investment
Objectives and Policies--The Terms of the First Mortgage Bonds and Mortgage
Loans--Opinion of Bond Counsel"). The tax-exempt feature of an investment in
the Trust will not benefit tax-
_______________________________________
1 If an "investor" (as defined under "Plan of Distribution") purchases
$250,000 or more of Shares, the selling commissions payable by the Trust to
the Soliciting Dealer will be reduced and such investor will receive a
reduction in the purchase price with respect to the Shares purchased by him
equal to the commission otherwise payable. Because all subscribers will be
deemed to have an Original Contribution of $20 per Share, investors
qualifying for the volume discount may receive a slightly higher return on
their investment than other subscribers. See "Plan of Distribution--Volume
Discounts."
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exempt entities such as Individual Retirement Accounts or Keogh plans,
qualified profit sharing, pension or retirement trusts and, therefore,
tax-exempt investors will not be permitted to purchase Shares. The Dealer
Manager Agreement and the Soliciting Dealer Agreement require the Dealer
Manager and participating broker-dealers to make diligent inquiries as
required by law of all prospective purchasers in order to ascertain whether a
purchase of Shares is suitable for such persons and to maintain in their
files documents disclosing the basis upon which the determination of
suitability was reached as to each investor. By tendering payment for Shares
and by acceptance of the confirmation of purchase or delivery of the Shares
an investor represents that he satisfies any applicable suitability
standards.
Shares will be sold only to a qualified investor who represents that he
has a fair market net worth sufficient to sustain the risks inherent in an
investment in the Shares (see "Risk Factors"), which will require, at a
minimum, that he (a) has a net worth of at least $45,000 and an annual gross
income of at least $45,000 or (b) has a net worth of at least $150,000, where
net worth in all cases is determined exclusive of home, home furnishings and
automobiles. When Shares are purchased by fiduciary accounts such as trusts
which are not tax-exempt, one of the foregoing conditions must be met either
by the fiduciary account or the person who directly or indirectly supplies
the funds for the purchase of the Shares; in the case of gifts to minors, one
of the foregoing conditions must be met either by the custodian or the person
making the gift. Certain states may also require investors to execute
subscription documents which will be provided by the Dealer Manager and any
participating broker-dealers. An investor seeking to transfer his Shares may
be required to transfer his Shares only to a purchaser who meets these same
suitability standards.
Certain state securities administrators may establish investor suitability
standards different from those set forth above for the marketing and sale,
within their respective jurisdictions, of securities of issuers such as the
Trust. Except for those states listed below or in any supplement hereto, all
states in which the Trust is authorized to sell its securities have minimum
investment requirements and investor suitability standards which come within
the standards established by the Trust:
For Arizona and California investors:
(a) A minimum annual gross income of $60,000 and a minimum net worth
(exclusive of home, home furnishings and automobiles) of $60,000; or
(b) A minimum net worth (exclusive of home, home furnishings and
automobiles) of $175,000.
For Maine investors:
(a) A minimum annual gross income of $50,000 and a minimum net worth
(exclusive of home, home furnishings and automobiles) of $50,000; or
(b) A minimum net worth (exclusive of home, home furnishings and
automobiles) of $200,000.
For Michigan, Missouri, Nebraska and North Carolina investors:
(a) A minimum annual gross income of $60,000 and a minimum net worth
(exclusive of home, home furnishings and automobiles) of $60,000; or
(b) A minimum net worth (exclusive of home, home furnishings and
automobiles) of $225,000.
For Pennsylvania investors:
(a) A minimum annual gross income of $60,000 and a minimum net worth
(exclusive of home, home furnishings and automobiles) of $60,000; or
(b) A minimum net worth (exclusive of home, home furnishings and
automobiles) of $225,000.
In addition, a Pennsylvania investor's investment in the Trust may not exceed
10% of such investor's net worth.
14
<PAGE>
_______________________________________________________________________________
ESTIMATED USE OF PROCEEDS
_______________________________________________________________________________
The following table sets forth information concerning the estimated use of
proceeds of the offering of Shares assuming maximum compensation.
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
(125,000 Shares Sold) (10,000,000 Shares Sold)
------------------------- ----------------------------
Percentage
of Percentage of
Gross Gross
Amount Proceeds Amount Proceeds
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $2,500,000 100.00% $200,000,000 100.00%
Less Public Offering Expenses:
Selling Commissions (2) 125,000 5.00 10,000,000 5.00
Due Diligence Reimbursement (2) 12,500 0.50 1,000,000 0.50
Other Organization and Offering Expenses (3) 62,500 2.50 5,000,000 2.50
---------- ------ ------------ ------
Amount Available for Investment,
Net of Offering Expenses (Net Proceeds) $2,300,000 92.00% $184,000,000 92.00%
========== ====== ============ ======
Less Acquisition Fees and Expenses:
Bond Selection Fees (4) 50,000 2.00 4,000,000 2.00
Acquisition Expenses (5) 25,000 1.00 2,000,000 1.00
Working Capital Reserves 25,000 1.00 2,000,000 1.00
---------- ------ ------------ ------
Cash Available for Investment in First
Mortgage Bonds and Tax-Exempt Securities (6)(7) 2,200,000 88.00 176,000,000 88.00
Total Application of Proceeds $2,500,000 100.00% $200,000,000 100.00%
========== ====== ============ ======
</TABLE>
- ----------
(1) All proceeds of Shares will be held in trust by the Trust and will be
used by the Trust only as indicated in this section and under "Investment
Objectives and Policies." The Gross Proceeds are exclusive of any Shares
issued pursuant to the Trust's Reinvestment Plan. In addition, Gross
Proceeds do not reflect volume discounts.
(2) The Trust will pay certain unaffiliated broker-dealers selected by the
Dealer Manager and approved by the Manager selling commissions equal to a
maximum of 5% of the Gross Proceeds attributable to sales of Shares made
by them, depending on the number of Shares sold to each "investor" (as
defined under the "Plan of Distribution") and the volume discounts
applicable to such sales. With respect to sales of Shares to an investor
of $250,000 or more, a reduced commission attributable to such sales
shall be paid. On sales of $1,000,000 or more, the Trust shall pay to the
applicable broker-dealer an amount equal to 1% of the Gross Proceeds
attributable to such sales and the Manager, and not the Trust, shall pay
the balance in an amount equal to 1% of the Gross Proceeds attributable
to such sales. At any time that such sales of $1,000,000 or more to an
individual investor exceed in the aggregate 20% of the Gross Proceeds of
the offering, the Trust alone shall pay a selling commission equal to 2%
of the Gross Proceeds attributable to such Shares.
15
<PAGE>
<TABLE>
<CAPTION>
Percentage
Selling Commission
------------------------
Total Amount Invested Payable by Payable by Total Selling
in Shares by an Investor Trust Manager Commission Payable
- --------------------------- ---------- ---------- ---------------------
<S> <C> <C> <C>
$0-$249,999 5% 0% 5%
$250,000-$499,999 4% 0% 4%
$500,000-$749,999 3% 0% 3%
$750,000-$999,999 2% 0% 2%
$1,000,000 or more 1% 1% 2%
</TABLE>
Volume discounts will not affect the amount of Net Proceeds to the Trust
from the offering. (See "Plan of Distribution.") The Manager, and not the
Trust, may pay to certain broker-dealers unaffiliated with the Manager an
amount of up to .5% of the Gross Proceeds on sales made by them as a non-
accountable marketing allowance and/or additional compensation. The Trust
may reimburse certain broker-dealers unaffiliated with the Manager a
non-accountable due diligence expense reimbursement in an amount up to .5%
of Gross Proceeds on sales made by them. In no event shall the total
underwriting compensation to be paid, including selling commissions,
marketing allowances, incentive payments and public offering expense
reimbursements, exceed 10% of the Gross Proceeds, except that, at the sole
discretion of the Manager, an additional .5% of the Gross Proceeds may be
paid in connection with due diligence activities.
(3) The Trust will pay the Manager 2.5% of the Gross Proceeds as an Expense
Allowance. The Manager has agreed to pay or cause an Affiliate to pay all
Organization and Offering Expenses (other than the Expense Allowance,
certain selling commissions and due diligence reimbursements which are
payable by the Trust and escrow expenses which may be payable out of the
interest on escrowed funds). The total of all Organization and Offering
Expenses paid by the Trust will in no event exceed 15% of the Gross
Proceeds. To the extent other organization and offering expenses of the
Trust are less than the Expense Allowance, the balance will be retained
by the Manager as additional compensation.
(4) Bond Selection Fees equal to 2.25% of the Gross Proceeds may be paid to
the Manager or its Affiliates by the Trust as proceeds from the offering
are received by the Trust, for evaluating, structuring and selecting
First Mortgage Bonds, negotiating the terms of Mortgage Loans and
coordinating with Property Owners in connection therewith; provided,
however, that Bond Selection Fees in the aggregate will not exceed 2% of
the Gross Proceeds. In addition, at or prior to the closing of a Mortgage
Loan or the acquisition of a First Mortgage Bond, a mortgage placement or
financing fee not to exceed in the aggregate 3% of the principal amount
of the Mortgage Loan or the amount paid by the Trust to acquire the First
Mortgage Bond (but not to exceed in the aggregate an amount equal to 2.6%
of the Gross Proceeds) may be earned by the Manager (net of any payments
by such Manager to third parties) and will be payable by the borrower or
the seller of the First Mortgage Bond (and not by the Trust) out of the
Mortgage Loan proceeds, out of the purchase price, or otherwise. (See
"Management Compensation.")
(5) With respect to the Trust's selection and acquisition of First Mortgage
Bonds, the Trust will pay to the Manager an Acquisition Expense Allowance
equal to 1.25% of the Gross Proceeds allocable to the Trust's investments
in First Mortgage Bonds (but not to exceed an aggregate of 1% of the
Gross Proceeds) as proceeds of the offering are received by the Trust.
The Manager has agreed to pay or cause an Affiliate to pay all of the
Acquisition Expenses of the Trust, including but not limited to, legal
fees incurred in connection with acquiring First Mortgage Bonds and
Tax-Exempt Securities, due diligence and closing costs. To the extent
acquisition expenses of the Trust are less than the Acquisition Expense
Allowance, the balance will be retained by the Manager as additional
compensation.
(6) The Trust may invest up to 10% of the Gross Proceeds in Tax-Exempt
Securities. If the minimum offering is raised, then between zero and
$227,500 may be invested in such Tax-Exempt Securities and between
$2,200,000 and $1,972,500 may be invested in First Mortgage Bonds. If the
maximum offering is raised, then between zero and $18,200,000 may be
invested in such Tax-Exempt Securities and between $176,000,000 and
$157,800,000 may be invested in First Mortgage Bonds. The aggregate
average life of the Tax-Exempt Securities to be purchased by the Trust is
expected to be between six and eight years.
16
<PAGE>
(7)As noted in Footnote 4 above, a Mortgage Loan Placement Fee may be earned
by the Manager, and will be paid to the Manager, an Affiliate of the
Manager or a third party by borrowers or sellers of First Mortgage Bonds
and not by the Trust. The figure of 88% of the Gross Proceeds does not
reflect the Mortgage Loan Placement Fee of up to 3% (of either the
principal amount of any Mortgage Loan or the amount paid by the Trust to
acquire the First Mortgage Bond).
_______________________________________________________________________________
MANAGEMENT COMPENSATION
_______________________________________________________________________________
The following table summarizes the forms, estimated amounts and recipients
of compensation anticipated to be paid to the Manager and its Affiliates by
the Trust. Other than as set forth in the following table (including the
footnotes thereto) and in the Trust Agreement, no compensation (directly or
indirectly) is anticipated to be paid to the Manager and its Affiliates. Such
fees were not determined by arm's-length negotiations. See "Conflicts of
Interest."
<TABLE>
<CAPTION>
Estimated Amount Assuming Minimum
Entity Number (125,000) and Maximum Number
Receiving Compensation Form and Method of Compensation (10,000,000) of Shares is Sold
- ------------------------- -------------------------------------------------------- --------------------------------------
<S> <C> <C>
OFFERING AND ORGANIZATION STAGE
Dealer Manager Selling Commissions equal to 5% of Reinvested Actual amounts depend upon the
Distributions contributed pursuant to the amount of Distributions reinvested
Reinvestment Plan prior to the termination of the under the Reinvestment Plan and are
initial public offering.(1) not determinable at this time.
Manager Expense Allowance equal to 2.5% of the Gross Proceeds.(2) Approximately $62,500/$5,000,000.
ACQUISITION STAGE
Manager Acquisition Expense Allowance equal to 1% of the Approximately $25,000/$2,000,000.
Gross Proceeds.(3)
Manager Bond Selection Fee equal to up to 2% of the Gross Approximately $50,000/$4,000,000.
Proceeds.(4)
Manager Mortgage Loan Placement Fee payable by the borrower The maximum of these fees, which are
or the seller (and not the Trust), in an amount not to payable by third parties, are $5,280,000
exceed in the aggregate 3% of the principal amount of all
Mortgage Loans.(5)
OPERATING STAGE (6)
Manager Special Distribution of Adjusted Cash From Operations for Not determinable at this time.(7)
managing the affairs of the Trust equal to .5% per annum
of the Total Invested Assets from the date of the first
investment in First Mortgage Bonds or Tax-Exempt
Securities, payable quarterly.(8)
17
<PAGE>
Manager or its Affiliates Loan Servicing Fee equal to the lesser of (i) .25% per Not determinable at this time.(7)
annum of the principal amount outstanding from time to
time on the Mortgage Loans serviced by the Manager or its
Affiliates, or (ii) the normal and competitive fees
customarily charged by unaffiliated parties rendering
similar services in the same geographic area. (9)
Manager Interest in Adjusted Cash From Operations equal to 1%. The Not determinable at this time.(7)
Manager's 1% Interest in Adjusted Cash From Operations and
Special Distribution of Adjusted Cash From Operations will
be limited to an aggregate of 11% of Adjusted Cash From
Operations.
Manager or its Affiliates Accountable Expense Reimbursement relating to goods and Not determinable at this time.(7)
materials acquired and services performed for the Trust.
The amounts charged for such goods, materials and services
will not exceed the actual cost of such services.(10)
LIQUIDATION STAGE
Manager Subordinated Incentive Fee equal to 2.5% of Sale or Not determinable at this time.(7)
Repayment Proceeds remaining after Distributions to
Shareholders, which, together with prior Distributions of
Sale or Repayment Proceeds and Reserves in the aggregate,
equals their Original Contribution plus a 10% per annum,
noncompounded cumulative return on their Adjusted
Contribution from Distributions from all sources (other
than those used to return Original Contributions) commencing
on the Final Closing Date or the end of the calendar
quarter in which any Shareholder's Original Contribution
is made, whichever is earlier.(11)
Manager Interest In Sale or Repayment Proceeds equal to 1%. Not determinable at this time.(7)
INTEREST IN TRUST
Manager Interest in Net Income and Net Loss determined for federal Not determinable at this time.(7)
income tax purposes. In general equal to 1% of Net Income
and Net Loss.
</TABLE>
_______________________________________
Footnotes:
(1) Selling commissions in a maximum amount of 5% of the Gross Proceeds are
payable to certain broker-dealers unaffiliated with the Manager and,
with respect only to the Reinvested Distributions contributed pursuant
to the Reinvestment Plan prior to the termination of the initial public
offering, to the Dealer Manager. In addition, marketing allowances in a
maximum
18
<PAGE>
amount of .5% of the Gross Proceeds and non-accountable due diligence
reimbursements in a maximum amount of .5% of the Gross Proceeds are
payable only to broker-dealers unaffiliated with the Manager. The
selling compensation is described in "Plan of Distribution," below.
(2) Such amount is anticipated to be used in part to pay the Organization
and Offering Expenses of the Trust which are expected to include
printing, legal and accounting expenses, and filing and registration
fees. The Manager or an Affiliate will pay all Organization and Offering
Expenses of the Trust (excluding the Expense Allowance, certain selling
commissions and due diligence reimbursements payable by the Trust and
escrow expenses that may be payable out of interest on the escrowed
funds). (See "Plan of Distribution.") To the extent other Organization
and Offering Expenses of the Trust are less than the Expense Allowance,
the balance will be retained by the Manager as additional compensation.
(3) Such amount is anticipated to be used in part to pay the Acquisition
Expenses of the Trust related to the Trust's selection and acquisition
of First Mortgage Bonds, which are expected to include legal fees, due
diligence and closing costs, and is payable in advance, as proceeds from
the offering are received by the Trust. The Manager will pay all
Acquisition Expenses of the Trust. To the extent Acquisition Expenses of
the Trust are less than the Acquisition Expense allowance, the balance
will be retained by the Manager as additional compensation.
(4) Bond Selection Fees equal to 2.25% of the Gross Proceeds are payable to
the Manager, as proceeds from the offering are received by the Trust,
for evaluating, structuring and selecting First Mortgage Bonds owned or
to be developed by third-party developers for investment by the Trust,
negotiating the terms of Mortgage Loans and coordinating with Property
Owners, in connection therewith; provided, however, that Bond Selection
Fees in the aggregate will not exceed 2% of the Gross Proceeds.
(5) A Mortgage Loan Placement Fee of up to 3% of the principal amount of any
Mortgage Loan or the amount paid by the Trust to acquire the First
Mortgage Bond may be earned by the Manager (reduced by certain fees
payable by the Manager to third parties) and generally will be payable
at the closing of a Mortgage Loan or upon the first interest payment
date of the related First Mortgage Bond, out of the Mortgage Loan
proceeds, or directly by the borrower or the seller of the First
Mortgage Bonds being refinanced; provided, however, that such fee shall
only be payable with respect to a Mortgage Loan on a Property owned or
to be developed by a third-party developer. The Trust may indirectly
bear the cost of such fees because the Mortgage Loan Placement Fee may
be paid out of the Mortgage Loan proceeds or the purchase price of the
First Mortgage Bonds; however, the borrower will be responsible for
repaying the full amount of the Mortgage Loan, including interest
thereon. In addition, Affiliates of the Manager may earn fees for acting
as finders in connection with the location and introduction to the Trust
of potential investments but such fees will not be payable by the Trust
but out of the Mortgage Loan Placement Fee.
(6) Affiliates of the Manager will receive compensation in connection with
the construction, development and financing of any Properties which are
owned by Affiliates of the Manager payable by such owners. In the event
that the Trust becomes the equity owner of a Property by reason of the
foreclosure of a Mortgage Loan, the Trust may pay certain fees and
compensation to Affiliates of the Manager which would otherwise be
payable by the owner of the Property. It should also be noted that
during the operating stage, the Manager or its Affiliates may hold
escrows on behalf of mortgagors for the annual insurance premiums and
property taxes, in connection with the servicing of Mortgage Loans,
which it may deposit with various unaffiliated banks. Interest, if any,
on such funds may be credited to the account of the mortgagor or
retained for the account of the Manager or its Affiliate. The banks in
which such funds are deposited may from time to time have loans or lines
of credit outstanding to or other relationships with the Manager or its
Affiliate. In addition, the Manager or its Affiliate may receive an
indirect benefit from the deposit of such escrow funds by receiving more
favorable terms in their financial arrangements with the banks holding
such funds. The Manager or its Affiliates may receive a Property
Management Fee for providing management services with respect to any
Property if they are retained by a Property Owner or if such services
are required by the Trust in the event of a default on a Mortgage Loan.
Where the Manager or its Affiliates provide property management services
they will receive a property management fee equal to the lesser of (i)
fees which are competitive for similar services in the same geographic
area or (ii) 5% of the annual gross revenues of the relevant Property
and shall include all rent-up, leasing and re-leasing fees, bonuses and
leasing-related services paid to any person,
19
<PAGE>
bookkeeping services and fees paid to non-related persons for property
management services. Where the Manager or its Affiliates provide
property management services, any property management fees payable to
unaffiliated parties will be paid out of the Property Management Fee
paid to the Manager or its Affiliates. In addition, the Manager or its
Affiliates may receive an Insurance Brokerage Fee for providing
insurance brokerage services with respect to any Property if they are
retained by a Property Owner or if such services are required by the
Trust in the event of a default on a Mortgage Loan. With respect to any
Insurance Brokerage Fee to be paid to the Manager or its Affiliates,
such Insurance Brokerage Fee will be no greater than the lowest quote
obtained from two unaffiliated insurance agencies and the coverage and
terms likewise will be comparable. In no event may the Manager or its
Affiliates provide such insurance brokerage services unless they are
independently engaged in the business of providing such services to
other than Affiliates and at least 75% of their insurance brokerage
service gross revenue is derived from other than Affiliates.
(7) The Manager is unable to predict the amounts which could be realized.
Any such prediction would necessarily involve assumptions of future
events and operating results which cannot be made at this time.
(8) The Special Distribution of Adjusted Cash from Operations is payable
quarterly to the Manager for managing the Trust and its portfolio of
First Mortgage Bonds and Tax-Exempt Securities. The Special Distribution
shall be calculated on the Total Invested Assets as of the last day of
each quarter. The Special Distribution shall be paid only with respect
to First Mortgage Bonds held by the Trust for at least one full quarter
and only with respect to those First Mortgage Bonds which have achieved
a return for the respective quarter of not less than 7.25% per annum
based upon actual collections received not later than 60 days after the
end of each such respective quarter. Total Invested Assets generally
consist of the original amount invested in or committed to investment in
First Mortgage Bonds and Tax-Exempt Securities reduced by Sale or
Repayment Proceeds received by the Trust. Such management services may
include monitoring the physical and financial condition of all
Properties underlying First Mortgage Bonds as well as the management of
such Properties; loan compliance oversight, including monitoring
subservicers, and maintenance of loan documents; administering Trust
income and expenses and distribution levels; servicing First Mortgage
Bonds, in addition to assuring maintenance of property and casualty
insurance and the current status of reserves and real estate taxes;
underwriting Properties in order to ascertain supportable interest rates
and anticipated participations; and providing such other services as are
necessary for the operation of the Trust. To the extent that the First
Mortgage Bonds call for "balloon" payment of the principal instead of
amortization, the Special Distribution payable to the Manager and its
Affiliates will be proportionately greater.
(9) Loan servicing functions will be handled by the Manager or its
Affiliates and will be payable monthly. Certain of these services may be
delegated to unaffiliated parties, in which event the Manager or its
Affiliate will retain responsibility for supervision of such
unaffiliated parties and the cost of retaining such unaffiliated parties
shall be paid out of the Loan Servicing Fee. To the extent that the
First Mortgage Bonds call for "balloon" payment of the principal instead
of amortization, the Loan Servicing Fee payable to the Manager and its
Affiliates will be proportionately greater.
(10) The Trust shall reimburse the Manager and its Affiliates for (i) the
actual costs to the Manager or its Affiliates of goods, materials and
services used for and by the Trust obtained from unaffiliated parties;
(ii) administrative services necessary to the operation of the Trust and
(iii) the cost of certain personnel employed by the Trust and directly
involved in the organization and business of the Trust including persons
who may be employees or officers of the Manager and its Affiliates and
for legal, accounting, transfer agent, reinvestment and redemption plan
administration, data processing, duplicating and investor communications
services performed by employees, officers or directors of the Manager
and Affiliates which could be performed directly for the Trust by
independent parties. The amounts charged to the Trust for services
performed pursuant to clause (ii) above will not exceed the lesser of
(a) the actual cost of such services, or (b) the amount which the Trust
would be required to pay to independent parties for comparable services.
No reimbursement will be allowed to the Manager or its Affiliates for
services performed pursuant to clause (ii) above unless the Manager or
its Affiliates have the appropriate experience and expertise to perform
such services. The Trust will reimburse the Manager for any travel
expenses incurred in connection with the services provided hereunder and
for advertising expenses incurred by it in seeking any investments or
seeking the disposition of any investments held by the Trust.
20
<PAGE>
(11) Subordinated Incentive Fees are payable to the Manager for, among other
things, evaluating, structuring and negotiating potential prepayments or
sales of First Mortgage Bonds and as an incentive to obtain First
Mortgage Bonds with participations which are based on Net Property Cash
Flow and Net Sale or Repayment Proceeds and which are paid in addition
to base interest on the underlying Mortgage Loan. The amounts of such
fees credited to the Manager but, in fact, distributed to Shareholders,
because of the subordination provisions, thereafter will be payable to
the Manager out of Sale or Repayment Proceeds to the extent the
subordination provisions permit such payment.
_______________________________________________________________________________
CONFLICTS OF INTEREST
_______________________________________________________________________________
The relationships among the Trust, the Manager and its Affiliates will
result in various conflicts of interest. Related, the Manager and their
respective Affiliates are engaged in business activities involving real
estate-oriented investments (see "Prior Performance Summary") and anticipate
engaging in additional business activities in the future which may be
competitive with the Trust. The Manager, although not currently engaged in
any competitive activities for its own account, may engage in the future in
business activities which will be competitive with the Trust. With respect to
the conflicts of interest described in this Prospectus, the Manager will
exercise its fiduciary duty to the Trust and the Shareholders to exercise
good faith and act with integrity in handling trust affairs in the best
interests of the Trust. (See "Organizational Chart" at the end of this
section, "Prior Performance Summary" and "Fiduciary Responsibility of the
Manager.")
Certain conflicts of interest may arise in the management and operation of
the Trust, including those described below.
1. Receipt of Fees and Other Compensation by Affiliates of the
Manager. Trust transactions involving the offering of Shares and the purchase
and sale of the First Mortgage Bonds and Tax-Exempt Securities may result in
the immediate realization by the Manager and its Affiliates of fees,
compensation and other income. Such compensation includes an Expense
Allowance, Acquisition Expense Allowance, Bond Selection Fees, Loan Servicing
Fees, Mortgage Loan Placement Fees (if payable to the Manager or its
Affiliates) and the Manager's interest in all items of Net Income, Net Loss
and Distributions. With respect to the Special Distribution and Loan
Servicing Fee payable to the Manager and its Affiliates, to the extent that
the First Mortgage Bonds call for "balloon" payment of the principal instead
of amortization, such fees will be proportionately greater. The Manager and
its Affiliates may also receive certain compensation with respect to
temporary or permanent investments. Because the amount and timing of such
compensation depends in part on the timing of the transactions described
herein, First Mortgage Bonds and Tax-Exempt Securities may be acquired,
retained or sold at a time or upon terms and conditions which might not be as
advantageous to the Shareholders as they otherwise might be. The Manager has
absolute discretion with respect to all decisions relating to such
transactions.
In addition, the Manager or its Affiliates may be retained by Property
Owners to provide property management services for the Properties and
insurance brokerage services. For those Property Owners which are not
Affiliates of the Manager, such services will be at competitive rates arrived
at through arm's-length negotiations. However, conflicts of interest could
arise since management of the Properties may result in actions or inaction by
the Manager and its Affiliates regarding such management or payments to be
made or actions to be taken pursuant to the Mortgage Loans which are not
advantageous to the interests of the Trust. Furthermore, conflicts may arise
in that it may be advantageous for the Manager or its Affiliates to provide
property management or insurance brokerage services by the Manager agreeing
to less advantageous terms on Mortgage Loans and, therefore, on First
Mortgage Bonds, than might otherwise be obtainable; however, the Manager will
abide by its fiduciary duty to the Trust.
2. Transactions with Affiliated Property Owners. Up to 10% of the Gross
Proceeds raised in the offering may be invested in First Mortgage Bonds in
which Affiliates of the Manager have a controlling interest, equity interest
or security interest, including a controlling interest, equity interest or
security interest in the related Mortgage Loans or Properties, where the
Affiliates of the Manager acquire the controlling interest, equity interest
or security interest after the
21
<PAGE>
effective date of this Prospectus. There are conflicts of interest inherent
in transactions between the Trust and Affiliates of the Manager.
The terms and conditions of any such First Mortgage Bond will be reviewed
by an independent adviser and such bond will not be acquired unless the
independent adviser issues a letter of opinion to the effect that the terms
of the Mortgage Loan securing such proposed First Mortgage Bond are fair and
at least as favorable to the Trust as a loan to an unaffiliated borrower in
similar circumstances.
Certain decisions which the Trust may be required to make in its capacity
as the assignee of the Mortgage Loans may also involve conflicts of interest
with the owners of Properties which are Affiliates of the Manager. Such
decisions would include (a) whether to seek the appointment of a receiver,
negotiate a workout arrangement (and the terms of such arrangement) or
foreclose in the event of a default on a Mortgage Loan; (b) whether to permit
a prepayment of a Mortgage Loan if, at the time, the Mortgage Loan documents
prohibit a prepayment; (c) whether to waive or modify a due-on-sale or
nonassumability clause or other provision in the Mortgage Loan documents; (d)
the disposition of certain hazard insurance or condemnation proceeds; (e)
whether to require repayment of a First Mortgage Bond after the twelfth year;
(f) whether and under what conditions to permit certain capital improvements
to the Property; and (g) any other related material transaction. The Manager
is prohibited from making any of these decisions without first obtaining a
letter of opinion from an independent adviser to the effect that the proposed
transaction is fair to the Trust.
3. Non-Arm's-Length Agreements. All agreements and arrangements relating
to compensation between the Trust and the Manager or any of its Affiliates
will not be the result of arm's-length negotiations. The Manager has been
capitalized with demand notes from two individuals, which notes may be drawn
upon by the Manager solely for the purposes of paying Organization and
Offering Expenses payable by the Manager, Acquisition Expenses, meeting the
Manager's obligations to pay certain selling commissions and marketing
allowances and indemnifying the Dealer Manager and broker-dealers and certain
persons affiliated with or controlling them. If the Manager does not fulfill
its payment obligations to the Trust, the Trust may be required to seek
enforcement. Such enforcement may entail delays and expenses and involve
substantial conflicts of interest, although the Manager may be removed with
or without cause by a majority in interest of the Shareholders. See "Risk
Factors--Business Risks--Shareholders Must Rely on Management," "Summary of
Trust Agreement--Manager" and "Management--Removal or Resignation of the
Manager."
4. Other Transactions with Property Owners. Subject to the consent of the
Manager, Affiliates of the Manager may attempt to obtain from Property Owners
rights-of-first-refusal to acquire and/or syndicate Properties at such time
as Properties are to be sold or refinanced by Property Owners. Although any
right-of-first-refusal will be negotiated on an arm's-length basis and any
right-of-first-refusal will not grant an exclusive right to acquire
Properties, the existence of the right-of-first-refusal could make it more
difficult for the Property Owners to solicit third party offers and therefore
to obtain the best possible purchase price for the Properties. Consequently
the Contingent Interest earned by the Trust may be reduced. However, the
Manager intends that any purchase of a Property by its Affiliates pursuant to
a right-of-first-refusal will be on terms which are reasonable and
competitive in light of the prevailing market.
5. Competition with the Trust from Affiliates of the Manager for the Time
and Services of Common Officers and Directors. The Trust will not have
independent management and will rely on the Manager and its Affiliates for
the day-to-day management of the operations of the Trust. The Manager is
currently an adviser of a real estate investment trust and it may provide
services in this or other capacities to affiliated or unaffiliated entities
in the future. In addition, the officers and/or directors of the Manager and
its Affiliates are also individual general partners, trustees and/or officers
or directors of trusts or of corporate general partners which manage
affiliated publicly held and privately held limited partnerships.
Accordingly, conflicts of interest may arise in operating more than one
entity with respect to allocating time between such entities. The officers
and directors of the Manager and its Affiliates will devote such time to the
affairs of the Trust and to the other entities in which they are involved as
they, within their sole discretion exercised in good faith, determine to be
necessary for the benefit of the Trust and such other entities. See
"Management."
6. Competition by the Trust with other Affiliated Entities for Purchase
and Sale of Investments. The Manager and its Affiliates (including officers,
directors and/or partners for
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their own account or that of others) have formed and may in the future form
other entities, some of which may have the same or similar investment
objectives as the Trust. Further, officers, directors, employees and
Affiliates of the Manager may for their own account acquire mortgage bonds or
tax-exempt securities similar to those acquired by the Trust; provided,
however, that the Manager shall be obligated to present to the Trust any
suitable investment opportunity before acquiring it for its own account.
Summit Tax Exempt L.P., Summit Tax Exempt L.P. II and Summit Tax Exempt
L.P. III are affiliated public limited partnerships with similar objectives;
however, their net proceeds are fully invested and the period for
reinvestment has passed so there will not be a conflict with the Trust when
the Trust seeks to acquire First Mortgage Bonds.
American Mortgage Investors Trust ("AMIT") is expected to have funds
available for investment at the same time as the Trust does and is a public
real estate investment trust with similar investment objectives to the extent
it seeks to preserve and protect capital and provide distributions from,
among other things, participating and non-participating mortgage loans.
Nevertheless, there will not be a conflict between AMIT and the Trust because
AMIT invests in mortgage loans insured or guaranteed by the federal
government or federally chartered corporations and the Trust invests in First
Mortgage Bonds and Tax-Exempt Securities.
Various other entities may in the future be formed by the Manager or its
Affiliates to engage in business which may be competitive with the Trust and
which may have the same management as the Trust. To the extent that other
affiliated entities with similar investment objectives have funds available
for investment at the same time as the Trust, and/or an investment is
potentially suitable for more than one such entity, conflicts of interest
will arise as to which entity should acquire the investment. In such
situations the Manager and its Affiliates will review the investment
portfolio of each such entity and will make the decision as to which such
entity will acquire the investment on the basis of such factors as the effect
of the acquisition on each such entity's portfolio and objectives; the amount
of funds available and the then length of time such funds have been available
for investment; and the cash requirements of each such entity. If funds
should be available to two or more public entities to purchase a given
investment and the other factors enumerated above have been evaluated and
deemed equally applicable to each entity, then the Affiliates will acquire
such investment for the entities on a basis of rotation with the initial
order of priority determined by the dates of formation of the entities.
An Affiliate of Related is currently participating in a private joint
venture with an unaffiliated party. Although such venture has different
investment objectives from those of the Trust, it will among other things
invest in tax-exempt mortgage bonds. The joint venture's primary objective is
to obtain capital appreciation principally through direct investment in
properties which are subject to tax-exempt bond financing and, in connection
with such equity investments, to purchase the associated mortgage bonds which
it will seek to restructure and resell. The joint venture's investment
strategy and policies will also differ significantly from those of the Trust.
Unlike the Trust, it expects to acquire primarily subordinated interests in
mortgage bonds which are currently in default, may actively manage or oversee
the management of the underlying property in which it expects to hold an
equity interest, will not acquire mortgage bonds on to be constructed
property and does not seek tax-exempt income (although it may receive such
income). To the extent that affiliated entities with different investment
objectives than the Trust (such as the private joint venture) have funds
available for investment and, despite such differences, an investment would
be suitable for both the Trust and such entities, the same types of factors
as those described above with respect to programs having similar investment
objectives will be considered in connection with the allocation of such
investment.
There may be conflicts of interest on the part of the Manager or its
Affiliates between the Trust and any other affiliated entities which have the
same investment objectives or types of investments at such time as the Trust
attempts to sell a mortgage bond, as well as in other circumstances.
7. Lack of Separate Representation. The Trust, the Manager and the Dealer
Manager are not represented by separate counsel. The attorneys for the Trust
and various experts who provide services to the Trust also perform services
for the Manager, the Sponsor and its Affiliates, but do not represent
Shareholders. It is anticipated that such multiple representation will
continue in the future. However, should a dispute arise between the Trust and
the Manager, the Manager will cause the Trust to retain separate counsel for
such matters. Should there be a necessity in the future to negotiate or
prepare contracts and agreements between the Trust and the
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Manager for services other than those existing or contemplated on the date of
this Prospectus, such agreements must comply with Paragraph 9.1 of the Trust
Agreement which requires, among other things, that the fee be competitive,
that it be disclosed to Shareholders and that it be embodied in a written
contract. Any such future contracts and agreements will provide that they may
be terminated at the option of the Trust upon sixty days' notice without
penalty to the Trust.
8. Tax Matters Partner. Pursuant to the Trust Agreement, the Manager will
be the "tax matters partner" and, as a result, may make various
determinations which are binding on all of the Shareholders. See "Material
Federal Income Tax Consequences--Audit of Tax Returns." The Manager may serve
as the "tax matters partner" with respect to other entities which are formed
in the future. It is possible that issues could arise on which the Manager or
its Affiliates, or the partners of some of such other entities to be formed
in the future, might benefit from the Manager taking positions as "tax
matters partner" that are not in the best interests of the Shareholders.
Because the impact of such determinations on the Manager and its Affiliates
may be substantially different in certain circumstances from the impact on
the Shareholders, the Manager may be subject to a conflict of interest in
acting as the "tax matters partner."
9. Organizational Diagram. The following diagram shows the relationship of
the Trust with the Manager and various of its Affiliates which perform
services for the Trust.
[GRAPHIC]
[DIAGRAM SHOWING THE RELATIONSHIPS OF THE TRUST]
(1) Related Mortgage Corporation may perform services in connection with the
servicing of Mortgage Loans for which it will receive a Loan Servicing
Fee.
(2) Stephen M. Ross through his interests in other entities controls the
corporate general partner of The Related Companies, L.P. and holds a
significant limited partnership interest, which interests in the
aggregate total 56.8%.
(3) The Related Companies, L.P. owns 100% of the majority partner of Related
Capital Company, and through such affiliate owns 67.2% of Related Capital
Company, the Sponsor of this offering.
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_______________________________________________________________________________
FIDUCIARY RESPONSIBILITY
_______________________________________________________________________________
The Manager is accountable to the Trust as a fiduciary and consequently is
under a fiduciary duty to exercise good faith and act with integrity in
handling Trust affairs in the best interests of the Trust. Although the Trust
Agreement permits the Manager and its Affiliates to participate in other
business ventures, including mortgage bond and tax-exempt securities
ventures, for their own accounts, the Manager is required to act at all times
in a manner consistent with its fiduciary duty to the Trust.
Under the Delaware Business Trust Act, a beneficiary of a trust may bring
a legal action (1) on behalf of himself and all other similarly situated
beneficiaries (a class action) to recover damages for a breach by a trustee
of its fiduciary duty or (2) on behalf of a business trust (a trust
derivative action) to recover damages from third parties in the trust's favor
if the trustees with authority to do so have refused to bring the action or
if an effort to cause those trustees to bring an action is not likely to
succeed. In order to bring a derivative action, the beneficiary must (a) be a
beneficial owner at the time of bringing the action and (b) either: (i) have
been a beneficial owner at the time of the transaction of which he complains
or (ii) have had his status as beneficiary devolved upon him by operation of
law or pursuant to the terms of the governing instrument of the business
trust from a person who was a beneficiary at the time of the transaction. In
addition, in a derivative action, the complaint shall set forth with
particularity the effort, if any, of the plaintiff to secure initiation of
the action by the trustees, or the reasons for not making the effort. Since
the foregoing summary involves a rapidly developing and changing area of the
law, Shareholders who have questions concerning the duties of the Manager
should consult with their own counsel.
The Trust Agreement provides that the Trust shall indemnify the Manager
and its Affiliates for any loss arising out of any of their acts or omissions
in connection with the business of the Trust, provided that (i) the Manager
must have determined, in good faith, that such course of conduct was in the
best interests of the Trust and did not constitute negligence or misconduct
by the Manager or its Affiliates; (ii) such conduct was within the scope of
authority of the Manager; and (iii) any such indemnification shall be
recoverable only from the assets of the Trust and not from the assets of the
Shareholders. Notwithstanding the foregoing, the Manager or its Affiliates
shall not be indemnified for any liability, loss or damage incurred by the
Manager or its Affiliates in connection with any claim or settlement
involving allegations that federal or state securities laws were violated by
the Manager or its Affiliates unless: (a) the Manager or its Affiliates
seeking indemnification are successful in defending such action on the merits
of each count involving securities law violations; or (b) such claims have
been dismissed with prejudice on the merits by a court of competent
jurisdiction; or (c) a court of competent jurisdiction approves a settlement
of the claims against the Manager or its Affiliates seeking indemnification
involving securities law violations and finds that indemnification of the
settlement and related costs should be made; or (d) indemnification is
specifically approved by a court of competent jurisdiction in each such case.
As a result, a purchaser of Shares offered hereby may be entitled to a more
limited right of action than he would otherwise have received absent the
limitation in the Trust Agreement. A successful claim for such
indemnification could deplete the Trust's assets by the amount paid.
In the opinion of the Securities and Exchange Commission, indemnification
for liabilities arising under the Securities Act of 1933, as set forth in the
Trust Agreement, is against public policy as expressed in such Act and is
therefore unenforceable.
The Trust Agreement provides that the Manager and its Affiliates may
engage in or possess an interest in any other business or venture of every
nature and description, independently or with or for the account of others,
including, but not limited to, investments in revenue bonds or mortgages of
any type or instruments backed by or representing a participation interest in
revenue bonds or mortgages, the ownership, financing, leasing, operation,
management, brokerage and development of real property, and investments in
Tax-Exempt Securities. Neither the Trust nor any Shareholder will have any
rights in or to such other ventures or activities or to the income or
proceeds derived therefrom; however, the Manager is not relieved from its
fiduciary duty and is required to present to the Trust any suitable
investment before acquiring it for its personal account. See Paragraph 18 of
the Trust Agreement and "Conflicts of Interest--Competition by the Trust with
Other Affiliated Entities for Purchase and Sale of Investments." The
foregoing provisions may relieve the Manager from the common law fiduciary
duty, to which it may otherwise be subject, to refrain from competing on its
own behalf or on behalf of its Affiliates with the Trust for investment
opportunities.
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_______________________________________________________________________________
PRIOR PERFORMANCE SUMMARY
_______________________________________________________________________________
The information in this section should not be considered as indicative of
possible capitalization or operations of the Trust, because many of the
programs described herein have different structures from the Trust, and only
three of the five programs which have closed with investment objectives
similar to those of the Trust have invested in tax-exempt mortgage bonds. The
inclusion of this information in the Prospectus does not imply or indicate
that the Trust will make comparable investments and does not imply or
indicate that purchasers of the Shares will experience returns comparable to
those experienced by investors in the entities described herein.
General
Affiliates of Related have, since 1972, sponsored numerous programs which
invest directly or indirectly in real estate. During the period from January 1,
1984 to December 31, 1993, such Affiliates have sponsored a total of 54
programs: six publicly offered financing programs, twelve publicly offered
programs which invest directly in real estate and 36 privately offered programs
which invest directly in real estate.
Summary of Public Financing Programs
As of December 31, 1993, the six publicly offered public financing programs
sponsored by Affiliates of Related have raised in the aggregate approximately
$551,955,539 from approximately 31,888 investors. These programs have acquired
32 first mortgage bonds secured by first mortgage loans in the principal amount
of $350,950,000 and 11 coinsured or insured Mortgages in the principal amount of
$93,975,500. The underlying 42 properties (two of the public programs each
purchased a portion of an issuance of first mortgage bonds on a single
residential property) are located in four geographic regions of the United
States: 21 are located in the south, one in the northeast, ten in the midwest,
and ten in the west. All of the underlying properties are residential
multifamily apartment complexes. Based on the aggregate principal amount, 29% of
the properties were existing and 71% were under construction or to be
constructed at the time of acquisition. Certain of the publicly offered public
financing programs have experienced adverse developments. See "Public Financing
Programs" below.
Summary of Public Real Estate Limited Partnerships
During the ten-year period ended December 31, 1993, the twelve publicly
offered real estate limited partnerships sponsored by Affiliates of Related have
raised in the aggregate approximately $816,084,855 from approximately 58,729
investors. These programs have acquired directly or purchased interests in
limited partnerships which own a total of 325 properties with an aggregate
investment of $1,747,369,070. These properties are located in seven geographic
regions of the United States and the Commonwealth of Puerto Rico. One hundred
ten are located in the south and southeast, 88 in the northeast, 15 in the
southwest, 35 in the west, 67 in the midwest, and ten in the Commonwealth of
Puerto Rico. None of the properties included in such figures has been sold. Of
the properties acquired, 311 are residential and 14 are commercial. Based on
aggregate purchase price, 45% of the properties were existing and 55% were under
construction or to be constructed at the time of acquisition. Certain of the
publicly offered real estate limited partnerships have experienced adverse
developments. See "Public Real Estate Limited Partnerships" below.
Summary of Private Real Estate Limited Partnerships
As of December 31, 1993, Affiliates of Related have raised in the aggregate
approximately $139,200,391 from approximately 1,504 investors in 23 privately
offered real estate limited partnerships. These programs have purchased or have
acquired interests in 31 properties which have an aggregate purchase price of
$478,418,136. These properties are located in four geographic regions of the
United States. Nine are located in the south and southeast, 14 in the northeast,
four in the midwest and four in the west. One of the properties included in such
figures has been sold. Of the properties acquired, 78% are residential and 22%
are shopping centers. Based on aggregate purchase price, 55% of the properties
were existing and 45% were newly constructed or under construction at the time
of acquisition. All of the private real estate limited partnerships are
continuing to meet their investment objectives of providing tax losses to their
investors. It should be noted, however, that five of the prior private real
estate limited partnerships are experiencing operating deficits. Operating
deficits at four of the partnerships are being funded by an affiliate of Related
and the remaining partnership by a third party general partner who
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is not affiliated with Related. Four of the five programs experiencing
operating deficits were formed to invest in low-income housing and in
general are expected to experience such deficits as part of the operating
pattern of such properties.
As of December 31, 1993, Affiliates of Related have raised in the
aggregate approximately $186,302,494 from approximately 184 investors in 13
privately offered real estate limited partnerships formed to invest in local
limited partnerships owning apartment complexes that are eligible for the
low-income housing tax credit. These programs have purchased or have acquired
interests in 21 properties which have an aggregate purchase price of
$316,504,419. These properties are located in four geographic regions of the
United States. Ten are located in the south and southeast, five in the east,
two in the midwest and four in the west. Based on aggregate purchase price,
53% of the properties were existing and 47% were newly constructed or under
construction at the time of acquisition.
Comparison of Investment Objectives
Although none of the prior programs sponsored by Affiliates of Related was
structured as a Delaware business trust, the investment objectives of all six of
the public financing programs are similar to those of the Trust. Three public
financing programs were formed to invest in a portfolio of tax-exempt
participating first mortgage bonds issued by various state or local governments
or their agencies or authorities. The investment objectives of these three
programs are similar to those of the Trust in that they invest in participating
first mortgage bonds, primarily secured by first mortgage loans on multifamily
residential apartments, and because such programs are providing distributions
that are exempt from federal income taxation they were not offered to tax-exempt
investors. All of the public financing programs sponsored by Affiliates of
Related seek to provide quarterly distributions from adjusted cash from
operations and to provide additional distributions arising from participations
in the cash flow of and the sale or refinancing proceeds of an underlying
property. The other three public financing programs were formed to invest
primarily in insured or guaranteed mortgage investments principally with respect
to multifamily residential rental properties. The investment objectives of the
other public and private real estate limited partnerships are not similar to
those of the Trust in that they invest directly or indirectly in residential or
commercial real estate.
Public Financing Programs
Summit Tax Exempt Bond Fund, L.P. ("Summit Tax I"), Summit Tax Exempt L.P. II
("Summit Tax II") and Summit Tax Exempt L.P. III ("Summit Tax III") comprise a
series of public financing programs, each formed to invest in a portfolio of
tax-exempt participating first mortgage bonds issued by various state or local
governments, their agencies or authorities.
The Summit Tax I bonds are secured by first mortgage loans on multifamily
residential apartments developed by third party developers. The Summit Tax II
and Summit Tax III bonds are secured by first mortgage loans on multifamily
residential apartments or retirement community projects developed by third
party developers or by Affiliates of the Manager.
Summit Tax I commenced its offering on February 19, 1986 and, as of its
final closing on March 20, 1986, had raised approximately $158,125,000 from
approximately 7,400 investors. Summit Tax I has purchased eleven first
mortgage bonds in the aggregate principal amount of $134,375,000 secured by
first mortgage loans on apartment complexes located in California (2),
Florida (1), Georgia (1), Minnesota (1), Missouri (2), Pennsylvania (1),
South Carolina (2) and Texas (1).
For certain properties collateralizing first mortgage bonds (The Mansion,
High Pointe Club, Greenway Manor, Cedar Creek, Clarendon Hills, Martin's
Creek and East Ridge) the original owners of the underlying properties were
replaced as a result of Summit Tax I exercising its protective rights.
Currently only three of these properties (High Pointe Club, Cedar Creek
and Greenway Manor) are still held by an affiliate of the general partner of
Summit Tax I and buyers are being sought for these properties. Reduced rates
of interest are currently being paid to Summit Tax I by these properties. In
addition, High Pointe Club obtained additional financing for construction
costs overruns in the amount of $3,250,000 in the form of a first mortgage
bond. Available cash flow from this property is first applied to satisfy
interest due on the additional financing. Of the four properties sold
subsequently to third parties (The Mansion, Clarendon Hills, Martin's Creek
and East Ridge), three of such properties (Clarendon Hills, Martin's Creek,
and East Ridge) have experienced loan modifications, currently calling for
minimum debt service payments of 5.52%, 7.0% and 7.0%,
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respectively. These properties are currently paying approximately 5.52%, 7.0%
and 7.19%. The Mansion is currently paying approximately 5.23%.
Three other properties (North Glen, Thomas Lake and Sunset Terrace) are in
soft markets and are not generating sufficient revenues to pay the original
stated debt service and forbearance agreements have been reached with the
respective developers to initially defer temporarily up to 2.5% annually of
the base rate. These deferrals are scheduled to decrease in annual increments
through 1996, and are expected to be repaid from future available cash flow
or from sale/refinancing proceeds. Currently these properties are paying
interest at annual rates of approximately 6%, 7.5%, and 7.25%, respectively.
In addition, the property (Cypress Run) securing the first mortgage bond
which represents approximately 11.1% of the partnership's total assets, is in
arrears on its 1992 and 1993 real estate taxes. Summit Tax I initiated steps
to enforce its rights and remedies on the property. The developer, in
response to the partnership's action has filed a voluntary petition for
relief under Chapter 11. Summit Tax I anticipates that during these
proceedings monthly interest income from the property will be reduced.
A provision for impairment on two first mortgage bonds (High Pointe Club
and Greenway Manor) was recorded during the year ended December 31, 1993.
This valuation allowance represents 1.4% of the original aggregate principal
amount invested in first mortgage bonds by Summit Tax I. This provision was
taken since the properties underlying these two mortgage bonds are generating
lower than expected rentals and the capitalized estimated future income
streams to Summit Tax I from these investments are below their carrying cost.
This allowance reduced income. Summit Tax I cannot presently determine the
effects of this allowance with respect to investors' ability to receive back
all of their invested capital. Summit Tax I has invested in eleven first
mortgage bonds of which all have provided for participation features in the
sale or refinancing proceeds of such first mortgage bonds. The actual amount
of the liquidation proceeds depends upon the value of the first mortgage
bonds and their participations at that time.
Since inception, cash distributions have been funded from revenues,
working capital reserves, uninvested proceeds applied to working capital
reserves, deferrals and a loan from an affiliate of a general partner.
Distributions are currently being funded exclusively from revenues.
Summit Tax II commenced its public offering on July 7, 1986 and, as of its
final closing on May 7, 1987, had raised approximately $183,032,000 from
approximately 10,250 investors. Summit Tax II has purchased 16 first mortgage
bonds in the aggregate principal amount of $162,125,000 secured by first
mortgage loans on apartment complexes located in California (2), Florida (3),
Georgia (1), Iowa (1), Minnesota (2), Missouri (2), South Carolina (1),
Tennessee (1), and Washington (3) (including $2,500,000 of a $9,700,000 first
mortgage bond issue in which Summit Tax III had acquired the remaining
$7,200,000).
There are 16 existing properties securing first mortgage bonds and all
properties have reached stabilized occupancies. Three properties securing
first mortgage bonds (The Lakes, Pelican Cove and Bay Club) are leased at
rental rates which are lower than necessary to pay the stated debt service on
the bonds and Summit Tax II has exercised its protective rights and had the
developers of such properties replaced. One of these properties (Bay Club)
was sold to a third party and the loan agreement related to such property has
been modified calling for minimum debt service payment rate of 7.0% per annum
with the property currently paying 8.2% over the past year. Two of these
properties (Pelican Cove and The Lakes) are sending interest payments to
Summit Tax II based on cash flow generated from operations currently at 6.4%
and 4.87%. The minimum interest rate on six other bonds was modified (Shannon
Lakes, Bristol Village, Players Club, Suntree, Newport Village and Sunset
Downs), initially deferring up to 2% of the base rate temporarily. Such
annual deferrals are scheduled to decrease in annual increments through 1996.
Such deferrals are expected to be repaid from future cash flows or
sale/refinancing proceeds.
A provision for impairment on one first mortgage bond (The Lakes) was
recorded during the year ended December 31, 1993. This valuation allowance
represents .6% of the original aggregate principal amount invested in first
mortgage bonds by Summit Tax II. This provision was taken since the property
underlying this mortgage bond is generating lower than expected rentals and
the capitalized estimated future income stream to Summit Tax II from this
investment is below its carrying cost. This allowance reduced income. Summit
Tax II cannot presently determine the effects of this allowance on its
investors' ability to receive back all of their invested capital. Summit Tax
II has invested in 16 first mortgage bonds of which all have provided for
participation
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features in the sale or refinancing proceeds of such first mortgage bonds.
The actual amount of the liquidation proceeds depends upon the value of the
first mortgage bonds and their participations at that time.
Since inception, cash distributions have been funded from revenues,
working capital reserves and uninvested proceeds applied to working capital
reserves. Distributions are currently being funded exclusively from revenues.
Summit Tax III commenced its public offering on June 10, 1987 and, as of
its final closing on August 12, 1988, had raised approximately $61,633,000
from approximately 3,220 investors. Summit Tax III has purchased five first
mortgage bonds in the aggregate principal amount of $52,450,000 secured by
first mortgage loans on apartment complexes located in California (2),
Florida (1) and Georgia (2) (including $7,200,000 of a $9,700,000 first
mortgage bond issue in which Summit Tax II had acquired the remaining
$2,500,000). Due to soft markets, modification agreements have been reached
with developers of four of the properties. These agreements call for a
temporary deferral of up to 2% of the original base interest rate and
scheduled return to the original base rate in 1995 and 1996. Such deferrals
are expected to be repaid from future cash flows or sale/refinancing
proceeds. In addition, due to a soft market, an agreement has been reached
with the developer of one property calling for interest payments equating to
cash flow from the property. These payments currently equate to approximately
a 5.7% rate. A provision for impairment on one first mortgage bond (Orchard
Mill) was recorded during the year ended December 31, 1992. This valuation
allowance represents 8.6% of the original aggregate principal amount invested
in first mortgage bonds by Summit Tax III. This provision was taken since the
property underlying this mortgage bond is generating lower than expected
rentals and the capitalized estimated future income stream to Summit Tax III
from this investment is below its carrying cost. This allowance reduced
income in 1992. Such valuation allowance is unchanged for the year ended
December 31, 1993. Summit Tax III cannot presently determine the effects of
this allowance on its investors' ability to receive back all of their
invested capital. Summit Tax III has invested in five first mortgage bonds of
which all have provided for participation features in the sale or refinancing
proceeds of such first mortgage bonds. The actual amount of the liquidation
proceeds depends upon the value of the first mortgage bonds and their
participations at that time. All of the properties are fully constructed and
have reached stabilized occupancy. Since inception, cash distributions have
been funded from revenues, working capital reserves and uninvested proceeds
applied to working capital reserves. Distributions are currently being funded
exclusively from revenues.
Eagle Insured L.P. ("Eagle") was formed to invest primarily in coinsured
mortgage investments, and additionally in uninsured equity loans not to
exceed 10% of the total loans. Eagle has originated or acquired interests in
first mortgage construction and permanent loans, and financed or refinanced
multifamily residential rental properties and retirement communities that
have been or will be developed or substantially rehabilitated. Eagle
commenced its offering on December 11, 1987 and, as of its final closing on
June 16, 1989, had raised approximately $52,822,000 from approximately 4,600
investors. Eagle has purchased four coinsured Mortgages in the aggregate
principal amount of $46,608,000 on properties located in Florida (2), Georgia
(1) and North Carolina (1).
The existing properties financed by the first mortgage loans have reached
stabilized occupancy. With respect to the Cross Creek Apartments in
Charlotte, North Carolina (aggregate commitment of $19,278,000), the
principals of the mortgagor have assigned all rights and property interest to
Cross Creek of Columbia Inc. due to the inability to complete construction
and lease up. On August 15, 1990 Eagle closed on an unsecured working capital
line of credit for up to $4,000,000 from an unaffiliated lender to, among
other purposes, make a loan to the replacement developer of Cross Creek to
pay for costs incurred to complete construction and fund operating deficits.
Eagle has drawn down $3,060,000 on this loan and has repaid approximately
$222,000 of principal as of December 31, 1993. On January 31, 1994 the owner
of one of the properties securing a first mortgage loan held by Eagle, Tivoli
Lakes, sold its interest to an unaffiliated third party. The proceeds of the
sale were used by the seller to fully repay its outstanding first mortgage
loan of $13,510,000 and to repay the original equity loan amount of
$1,523,000 as well as pay prepayment penalties, interest and other fees
totaling $453,000. On February 7, 1994 Eagle used a portion of the repayment
proceeds to repay the outstanding balance of $2,838,000 of its working
capital line of credit. Cross Creek of Columbia Inc. continues to be liable
to the Partnership for the full $3,000,000 and interest thereon. Since
inception, cash distributions have been funded from revenues, working capital
reserves, uninvested
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proceeds applied to working capital reserves and net proceeds from the
repayment of one of the loans. All distributions for the last eleven quarters
have been funded exclusively from revenues and repayment proceeds.
Capital Mortgage Plus L.P. ("Capital") was formed primarily to invest in
federally coinsured, insured or guaranteed mortgage investments, and
additionally in uninsured equity loans not to exceed 10% of the total loans.
Capital primarily has originated or acquired interests in first mortgage
construction and permanent loans. The mortgages finance or refinance
multifamily residential properties and retirement communities that have been
or will be developed. Capital commenced its offering on May 10, 1989 and as
of its final closing on May 23, 1991, Capital had raised $36,733,000 from
approximately 3,550 investors. Capital has invested in five insured mortgage
investments of which two are mortgages coinsured by the Federal Housing
Administration in the aggregate principal amount of $14,399,500 and three are
fully insured mortgages and equity loans in the aggregate principal amount of
$14,821,500, for a combined aggregate principal amount of $29,221,000 on
multi-family residential rental properties located in Alabama (2), Iowa,
Kansas and Oregon. Four properties are complete and have reached stabilized
occupancy and one is under construction. Quarterly distributions have been
funded from revenues and uninvested proceeds applied to working capital
reserves which represent a return of capital.
American Mortgage Investors Trust ("AMIT") was formed to invest primarily
in federally insured or guaranteed mortgage investments. In addition, up to
7% of AMIT's net proceeds may be comprised of uninsured loans made directly
to the developers or sponsors or principals of the owner of the developments.
AMIT commenced its offering on March 29, 1993 and as of December 31, 1993,
AMIT had raised $59,610,539 (including volume discounts of $25,000) from
approximately 2,866 investors. As of December 31, 1993, AMIT had invested in
two insured mortgage investments in the aggregate principal amount of
$16,150,000 on multifamily residential rental properties located in Texas.
In connection with each of the investments, AMIT made uninsured loans in the
aggregate principal amount of $1,996,500. The properties are complete and
have reached stabilized occupancy. In addition, AMIT has purchased a Fannie
Mae Mortgage REMIC Pass-Thru Certificate TR 1992-17 Class G having a
principal face value of $10,000,000, of which $5,000,000 was deemed to be a
permanent investment. As of December 31, 1993, AMIT had sold $203,233 of its
$5,000,000 permanent investment portfolio. Quarterly distributions are being
funded from revenues and disposition proceeds which represent a return of
capital.
Public Real Estate Limited Partnerships
The business of nine of the public real estate limited partnerships is to
invest, as a limited partner, in other limited partnerships which own or lease
and operate existing multifamily rental housing projects that are financed
and/or operated with assistance from federal or state governments or agencies or
through the issuance of tax-exempt bonds.
Shearson + Related Housing Properties Limited Partnership ("Shearson +
Related"), as of its final closing on May 31, 1984, had raised $50,190,000
from approximately 3,900 investors. Shearson + Related has invested in 44
local limited partnerships which own one or more existing apartment
complexes. Such apartment complexes are located in Alabama (5), Arizona (1),
Arkansas (3), California (5), Colorado (1), Louisiana (1), Maine (1),
Massachusetts (1), Michigan (10), Mississippi (2), Missouri (1), New
Hampshire (1), New Mexico (1), Oklahoma (4), South Carolina (1), Tennessee
(1), Texas (5) and Vermont (1). In connection with its investment in the 44
local limited partnerships, Shearson + Related made cash payments aggregating
$35,686,296 and issued purchase money notes in the aggregate amount of
$61,092,115. The 45 apartment complexes owned by the local limited
partnerships were subject to outstanding mortgage indebtedness aggregating
$89,288,325 at the time of the public partnership's investment for a total
aggregate purchase price of $186,066,736.
Two subsidiary partnerships are in default of their original mortgage
agreements, but they are in compliance with the terms of their respective
provisional workout agreements. The United States Department of Housing and
Urban Development ("HUD") has assigned an agent to act as manager of one of
the subsidiary partnerships, and the subsidiary partnership has commenced
litigation against the former general partner for violation of the
partnership agreement.
Hutton Advantaged Properties Limited Partnership ("HAP I"), as of its
final closing on March 4, 1985, had raised $60,370,000 from approximately
4,400 investors. HAP I has purchased interests in 61 local limited
partnerships which each own one existing apartment complex. Such apartment
complexes are located in Alabama (15), Arkansas (8), Cali-
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fornia (2), Colorado (2), Florida (1), Georgia (3), Indiana (3), Kentucky
(1), Massachusetts (3), Michigan (9), Missouri (1), North Carolina (2),
Oregon (2), South Carolina (1), Texas (6), Virginia (1) and Washington (1).
In connection with its investment in the 61 local limited partnerships, HAP I
made cash payments aggregating $105,924,226 and issued 9-12% purchase money
notes in the aggregate principal amount of $19,798,691. The 61 apartment
complexes owned by the local limited partnerships were subject to outstanding
mortgage indebtedness aggregating $112,165,970 at the time of the public
limited partnership's investment for a total aggregate purchase price of
$237,888,887.
Two subsidiary partnerships have not made mortgage payments on the
wraparound purchase notes since 1988. One partnership's original workout
agreement with HUD expired on March 31, 1992 and a formal extension of such
workout has not yet been approved by HUD. However, payments on the loan are
being made in accordance with the proposed workout extension and a formal
agreement is expected to be finalized and approved in the near future. The
other subsidiary partnership is in technical default on the wraparound
purchase notes, but HUD has agreed to allow the mortgagor to remain in
possession of the property pending a formal loan modification. A provisional
workout agreement has been signed with HUD.
HAP I experienced cash operating deficits in fiscal years 1987, 1988 and
1990 from local partnerships in which it has invested. Such operating
deficits aggregated approximately $600,000, $653,000 and $390,000,
respectively. These deficits were funded from the following sources: (i) 53%
from operating deficit loans made by the local developer general partners
(who are not Affiliates of HAP I's General Partners) pursuant to terms agreed
to at the time that the partnership acquired its interest in these assets,
(ii) 32% from non-interest bearing loans made by HAP I from working capital
reserves, and (iii) 15% from partnership residual receipts used for major
capital improvements at one property. HAP I has informed the Sponsor that it
believes that these deficits were due to local housing market conditions.
Hutton Advantaged Properties II Limited Partnership ("HAP II"), as of its
final closing on February 14, 1986, had raised $35,750,000 from approximately
2,400 investors. HAP II has invested in twelve local limited partnerships,
each owning one apartment complex. Such apartment complexes are located in
California (2), Florida (3), Kansas (2), Oklahoma (1), Texas (2) and Virginia
(2). In connection with its investment in the 12 local limited partnerships,
HAP II made cash payments aggregating $16,616,439, issued promissory notes in
the aggregate amount of $1,020,000 and assumed mortgage indebtedness of
approximately $119,950,500 for a total aggregate purchase price of
$137,586,939.
HAP II is continuing to meet its investment objective of providing tax
losses to investors; however, in order to improve the potential for cash
distributions, HAP II has embarked on a program of refinancing mortgage
indebtedness encumbering its investments that were generally incurred in
periods of high interest rates. Of HAP II's 12 properties, six have been
refinanced and one other is expected to require refinancing. In order to keep
in place the tax-exempt bonds underlying the property's financing, one local
partnership in which HAP II invested has filed for protection from its
creditors under Chapter 11 of the Bankruptcy Code following the merger or
assumption of supervisory powers with respect to the co-participants of the
loan by Federal Saving and Loan Insurance Corporation. Subsequently, the
local general partner of such partnership sought approval of a plan of
reorganization; such plan has since been approved and the local partnership
has emerged from Chapter 11. In connection with the refinancing of the other
such property, HAP II has ceased making full debt service on the mortgages
covering such property. HAP II anticipates recasting the unpaid interest as
principal as part of the restructuring; however, if no agreement can be
reached with the lender, a foreclosure could occur with respect to such
property. An affiliate of the general partner has advanced approximately
$800,000 to HAP II and HAP II anticipates that it will need additional cash
to meet existing obligations. This cash is expected to be available from cash
flow from local partnerships or in the form of a loan from one or more
financial institutions.
HAP II experienced cash operating deficits in fiscal years 1987, 1988 and
1989 from local partnerships in which it has invested. Such operating
deficits aggregated approximately $1,086,000, $3,000,000 and $800,000,
respectively. These deficits were funded from the following sources: (i) 84%
from operating deficit loans made by the local developer general partners
(who are not affiliates of HAP II's general partners) pursuant to terms
agreed to at the time that the partnership acquired its interests in these
assets and (ii) 16%
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from non-interest bearing loans made by an affiliate of HAP II as a result of
a lender's refinancing requirement on a mortgage encumbering one of the
properties. HAP II has informed the Sponsor that it believes that these
deficits were the result of normal contingencies in the context of the
properties that were newly constructed at the time of acquisition, and that
the obligation of the local developer general partners to make operating
deficit loans was designed to respond to such contingencies.
Liberty Tax Credit Plus L.P. ("Liberty I"), Liberty Tax Credit Plus II
L.P. ("Liberty II"), Liberty Tax Credit Plus III L.P. ("Liberty III"),
Freedom Tax Credit Plus Program ("Freedom"), Independence Tax Credit Plus
Program ("Independence") and Independence Tax Credit Plus L.P. II
("Independence II") are six programs in a series of public real estate
programs formed to invest in local limited partnerships owning leveraged
apartment complexes that are eligible for the low-income housing tax credit
enacted in the Tax Reform Act of 1986, and to a lesser extent, the historic
rehabilitation tax credit.
Liberty I commenced its offering on November 20, 1987 and, as of its final
closing on April 4, 1988, had raised $79,939,500 from approximately 5,500
investors. Liberty I has invested in 31 local limited partnerships which each
owns one or more apartment complexes located in California (1), Colorado (1),
Florida (4), Georgia (1), Illinois (1), Maryland (1), Missouri (3), New
Jersey (3), New York (6), Ohio (1), Oklahoma (2), Oregon (2), Pennsylvania
(3), Wisconsin (1) and Puerto Rico (1). In connection with such investments,
Liberty I made cash payments aggregating $67,357,713 and assumed outstanding
mortgage indebtedness aggregating $157,679,772 at the time of the public
partnership's investment for a total aggregate purchase price of
$225,037,485.
Of the properties acquired by Liberty I, approximately 47% were
development stage complexes and approximately 38% were existing complexes,
all of which were eligible for low-income housing tax credits. In addition,
approximately 15% were eligible for both low-income housing and historic
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition.
One property is experiencing high vacancy rates. The subsidiary
partnership has ceased meeting the monthly operating deficits and the debt
service is not being paid currently. The local general partner was replaced
in July 1993.
Liberty II commenced its offering on July 20, 1988 and, as of its final
closing on December 27, 1988, had raised $115,917,500 from 8,400 investors.
Liberty II has invested in 27 local limited partnerships, each of which owns
one or more apartment complexes in Florida (2), Illinois (2), Kansas (1),
Louisiana (1), Maryland (2), Missouri (4), New York (9), Rhode Island (2),
Wisconsin (1) and Puerto Rico (3). Liberty II made cash payments aggregating
$97,203,758 and assumed outstanding mortgage indebtedness aggregating
$107,468,435 at the time of the public partnership's investment for a total
aggregate purchase price of $204,672,193.
Of the properties acquired by Liberty II, approximately 75% were
development stage complexes and approximately 6% were existing complexes, all
of which were eligible for low-income housing tax credits. In addition,
approximately 19% were eligible for both low-income housing and historic
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition.
Liberty III commenced its offering on February 21, 1989 and as of its
final closing on March 30, 1990 had raised $139,101,500 from approximately
9,100 investors. Liberty III has invested in 60 local limited partnerships,
each of which owns one or more apartment complexes in Alabama (3), Arkansas
(1), Delaware (1), Florida (5), Kansas (2), Louisiana (2), Michigan (3),
Mississippi (2), Missouri (1), New Jersey (1), New York (10), Ohio (3),
Oregon (2), Pennsylvania (12), Rhode Island (1), South Carolina (1),
Tennessee (6), Utah (1) and Puerto Rico (3). In connection with such
investments, Liberty III made cash payments aggregating $108,491,367 and
assumed outstanding mortgage indebtedness aggregating $209,183,748 at the
time of the public partnership's investment for a total aggregate purchase
price of $317,675,115. Of the properties acquired by Liberty III,
approximately 71% were development stage complexes and approximately 9% were
existing complexes, all of which were eligible for low-income housing tax
credits. In addition, approximately 20% were eligible for both low-income
housing and historic rehabilitation tax credits, based on aggregate purchase
price at the time of acquisition.
Freedom commenced its offering on February 9, 1990 and, as of its final
closing on August 8, 1991, had raised approximately $72,896,000 from
approximately 4,780 investors. Freedom has invested in 43 local limited
partnerships, each of which owns one apartment complex in Alabama (9),
California (2), Florida (2), Georgia (1), Kentucky
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(1), Louisiana (1), Mississippi (4), New York (7), New Jersey (1), North
Carolina (2), Ohio (2), Oklahoma (1), Pennsylvania (4), South Carolina (1),
Tennessee (1), Utah (3) and Wisconsin (1). In connection with such
investments Freedom made cash payments aggregating $64,774,889 and assumed
outstanding construction loan and mortgage indebtedness aggregating
$75,058,771 at the time of the public partnership's investment for a total
aggregate purchase price of $139,833,660. All of the properties acquired by
Freedom to date are development stage complexes eligible for low-income
housing tax credits.
Independence commenced its offering on July 1, 1991 and as of its final
closing on December 30, 1992 had raised $76,786,000 from approximately 5,351
investors. Independence has invested in 28 local limited partnerships, each
of which owns one apartment complex in California (1), Delaware (2), Florida
(3), Louisiana (1), Massachusetts (3), Missouri (1), New Jersey (1), New York
(6), Oregon (1), Pennsylvania (5), Puerto Rico (3) and Tennessee (1). In
connection with such investments, Independence made cash payments of
$61,060,189 and assumed outstanding mortgage indebtedness aggregating
$95,934,160 at the time of the public partnership's investment for a total
aggregate purchase price of $156,994,349. Of the properties acquired by
Independence, approximately 30% were development stage complexes and
approximately 56% were existing complexes, all of which were eligible for
low-income housing tax credits. In addition, approximately 14% were eligible
for both low-income housing and historic rehabilitation tax credits, based on
aggregate purchase price at the time of acquisition.
Independence II commenced its offering on January 19, 1993 and as of
December 31, 1993 had raised $46,846,000 from approximately 3,198 investors.
The offering is continuing. Independence II has invested in three local
limited partnerships, each of which owns one apartment complex in Illinois
(1) and Pennsylvania (2). In connection with such investments, Independence
II made a cash payment of $8,511,900 and assumed outstanding mortgage
indebtedness of $15,296,597 at the time of the public partnership's
investment for a total aggregate purchase price of $23,808,497. Of the
properties acquired by Independence II, approximately 63% were existing
complexes eligible for low-income housing tax credits. In addition,
approximately 37% were eligible for both low-income housing and historic
rehabilitation tax credits, based on aggregate purchase price at the time of
acquisition. Independence II is still in its acquisition phase.
Summit Insured Equity L.P. ("Summit Insured I") and Summit Insured Equity
L.P. II ("Summit Insured II") are two programs in a series of public real
estate programs formed to acquire, initially on an all-cash basis, and
operate existing income-producing shopping centers and to improve, operate
and hold such properties for investment.
Summit Insured I commenced its offering on December 23, 1986 and, as of
its final closing on August 12, 1987, had raised $100,000,000 from
approximately 8,600 investors. Summit Insured I has purchased eleven existing
shopping centers for an aggregate purchase price of $85,991,557. The shopping
centers are located in Arizona (1), California (1), Florida (2), Georgia (1),
Indiana (2), Mississippi (1), Ohio (1), Oregon (1) and Tennessee (1).
Summit Insured II commenced its offering on November 13, 1987 and, as of
its final closing on June 15, 1989, had raised approximately $25,140,575 from
approximately 2,100 investors. As of December 31, 1990, Summit Insured II has
purchased three existing shopping centers for an aggregate purchase price of
$21,995,885. The shopping centers are located in Arizona (1), Georgia (1) and
Nebraska (1).
Summit Preferred Equity L.P. ("Summit Preferred") was formed for the
purpose of acquiring on an all-cash basis, an equity interest in operating
partnerships which own and operate multifamily residential garden apartment
property that is either in the final stages of construction or completed.
Summit Preferred commenced its offering on August 6, 1987 and, as of its
final closing on February 15, 1989, had raised approximately $13,147,780 from
approximately 1,000 investors. Summit Preferred has invested $9,899,010 in
two local limited partnerships, each of which owns an apartment complex,
located in Missouri and Washington, respectively.
In 1990, certain preferred equity payments due Summit Preferred from one
of the local limited partnerships were not made, resulting in a default under
the governing instruments of such local limited partnership. As a result of
this default, Summit Preferred has pursued its remedies and removed the
general partner of such local limited partnership. Future pre-
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ferred equity payments are expected to be less than anticipated until such
time as the property can be leased up at the anticipated rental rates
sufficient to make such payments.
Private Real Estate Partnerships
Twenty-one of the prior private residential real estate limited partnerships
sponsored by Related and its Affiliates since 1984 have raised $102,931,617 and
have invested in apartment complexes or local limited partnerships which own
apartment complexes for an aggregate purchase price of $373,618,136. Of these
apartment complexes (based on purchase price), 39% were fully constructed and in
service at the time of acquisition and 61% were under construction or newly
constructed at the time of acquisition. The apartment complexes are located in
California (1), Colorado (1), Connecticut (3), Florida (9), Massachusetts (3),
Michigan (2), New Jersey (1), New York (5), Ohio (2) and Rhode Island (2).
Two prior private shopping center limited partnerships have raised
$36,268,774 and acquired two properties for an aggregate purchase price of
approximately $104,800,000. Both of these properties were fully constructed
and in service at the time of purchase. The properties are located in Texas.
Thirteen of the prior private residential real estate limited partnerships
sponsored by Related and its Affiliates since 1984 have raised $186,302,494
and have invested in local limited partnerships which own apartment complexes
eligible for the low-income housing and historic rehabilitation tax credits
for an aggregate purchase price of $316,504,419. Of these apartment complexes
(based on purchase price), 53% were fully constructed and in service at the
time of acquisition and 47% were under construction or newly constructed at
the time of acquisition. The apartment complexes are located in California
(4), Connecticut (1), Florida (10), Michigan (2), New Jersey (2) and New York
(2).
Additional Information
Certain additional information regarding the experience of the prior programs
sponsored by Affiliates of Related is contained in Appendix I in the following
"Prior Performance Tables":
Table I Experience in Raising and Investing Funds
Table II Compensation to Sponsor and Affiliates
Table III Operating Results of Prior Programs
Table V Sales or Disposals of Properties
Table IV, Results of Completed Programs, is not applicable as no programs
with similar investment objectives have completed operations during the most
recent five-year period. Table VI (Acquisition of Properties by Program) is
contained in Part II of the Registration Statement of which this Prospectus
is a part. Upon request to the address indicated below, and for no fee, the
Trust will provide a copy of such Table to any investor.
Three-Year Summary of Acquisitions by Similar Programs
During the period commencing January 1, 1991 through December 31, 1993, three
public financing programs sponsored by Affiliates of Related have purchased six
coinsured or insured mortgage loans on two properties located in the midwest,
five properties in the south and one property located in the west. The aggregate
principal amount of the mortgage loans is $57,126,245, of which the entire
amount was provided by capital raised from limited partners. One of the programs
has purchased a Fannie Mae REMIC Pass-Thru Certificate Class G in the principal
amount of $5,000,000.
Additional Information on Programs
The Trust will provide, upon request, for no fee, a copy of the most recent
Form 10-K or Annual Report filed with the Securities and Exchange Commission
within the previous 24 months by any prior public program that is required to
file such Form or Report, sponsored by Affiliates of Related. The Trust will
also provide, upon request, for a reasonable fee, the exhibits to each such Form
10-K. A request for a Form 10-K should be addressed to the Trust, c/o The
Related Companies, L.P., 625 Madison Avenue, New York, New York 10022,
Attention: Investor Relations.
The information set forth in this section is given solely to enable
prospective investors to better evaluate the experience of the Sponsor and
its Affiliates. Investors should not construe the inclusion of this
information in this Prospectus as implying or indicating in any manner that
the Trust will make investments comparable to those described herein or will
have comparable results with respect to distributable cash or federal income
tax consequences to investors.
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_______________________________________________________________________________
MANAGEMENT
_______________________________________________________________________________
Management of Trust
The manager of the Trust (the "Manager") is Related AMI Associates, Inc., a
Delaware corporation. The trustee of the Trust (the "Trustee") is Wilmington
Trust Company, a Delaware banking corporation. The Manager is affiliated with
Related Capital Company ("Related"), a New York general partnership, in which
Stephen M. Ross, through his interests in other entities, owns a significant
interest. The shares of the Manager are owned 67.2% by Stephen M. Ross and 32.8%
by three officers of the Manager. The business address of the Trust and the
Manager is 625 Madison Avenue, New York, New York 10022 (Tel. (212) 421-5333).
The business address of the Trustee is Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890. The Manager will manage and control the
affairs of the Trust directly and by engaging others, including Affiliates. The
Trustee has been appointed as a trustee solely in order to satisfy the
requirements of Section 3807 of the Delaware Business Trust Act, and its duties
and responsibilities are limited to (i) the execution, delivery and filing of
any certificates of trust and amendments thereto required to be filed pursuant
to applicable law, (ii) the execution of Trust Certificates if requested by the
Manager, (iii) the execution of any amendments to the Trust Agreement and (iv)
the execution, delivery and filing of any certificates of cancellation required
to be filed pursuant to applicable law. The Trustee has no responsibility for
monitoring the conduct of the Manager or causing the Manager to discharge its
duties under the Trust Agreement, and the Trust Agreement provides that the
Trustee shall have no liability for the acts and omissions of the Manager. See
"Summary of Trust Agreement."
The Manager and its Affiliates may be the adviser to, general partner of
or serve in similar fiduciary capacities for other subsequently formed
publicly offered affiliated trusts, partnerships or other public and private
entities, including those having the same or similar investment objectives
and policies as the Trust. Officers and directors who hold positions in more
than one entity will devote such of their time as shall be necessary to
conduct the affairs of the Trust and to perform the required services,
although other management responsibilities will limit the time they are able
to devote to Trust affairs. See "Conflicts of Interest" and "Prior
Performance Summary."
For information concerning the activities of the Manager and its
Affiliates in certain areas of real estate investment, see "Conflicts of
Interest" and "Prior Performance Summary."
Related AMI Associates, Inc.
Related AMI Associates, Inc. ("Related AMI") was incorporated in Delaware in
May 1991. It presently serves as the adviser to the American Mortgage
Investors Trust program, a real estate investment trust. The executive
officers and directors of Related AMI and their positions with Related AMI
are set forth below.
Name Age Positions Held
- --------------------- ---- --------------------------
J. Michael Fried 50 Director and President
Stuart J. Boesky 37 Director and Senior Vice
President
Alan P. Hirmes 39 Senior Vice President
Ryne A. Nishimi 36 Senior Vice President
Lawrence J. Lipton 38 Treasurer
Lynn A. McMahon 38 Secretary
Susan J. McGuire 47 Assistant Secretary
J. Michael Fried is the sole shareholder of one of the general partners of
Related, the real estate finance affiliate of The Related Companies, L.P. In
that capacity, he is generally responsible for all of the syndication,
finance, acquisition and investor reporting activities of Related and its
Affiliates. Mr. Fried practiced corporate law in New York City with the law
firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Related
in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris Doctor
degree, magna cum laude; from Long Island University Graduate School with a
Master of Science degree in Psychology; and from Michigan State University
with a Bachelor of Arts degree in History.
Stuart J. Boesky is the sole shareholder of one of the general partners of
Related. Mr. Boesky practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein from 1984 until February 1986 when he
joined Related. From 1983 to 1984 Mr. Boesky practiced law with the Boston
law firm of Kaye, Fialkow, Richmond & Rothstein and from 1978 to 1980 was a
consultant specializing in real estate at the accounting firm of Laventhol &
Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor
of Arts degree and from Wayne State School of Law with a Juris
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Doctor degree. He then received a Master of Laws degree in taxation from
Boston University School of Law.
Alan P. Hirmes is the sole shareholder of one of the general partners of
Related. Mr. Hirmes has been a Certified Public Accountant in New York since
1978. Prior to joining Related, in October 1983, Mr. Hirmes was employed by
Wiener & Co., certified public accountants. Mr. Hirmes graduated from Hofstra
University with a Bachelor of Arts degree.
Ryne A. Nishimi is the President of, and serves as the Director of
Marketing for, Related Equities Corporation and has held other positions in
marketing since joining Related in 1983. From 1981 to 1983, Mr. Nishimi
worked for Fox & Carskadon Financial Corporation as a Marketing Manager in
their real estate syndication operation. Mr. Nishimi graduated from Santa
Clara University School of Business Administration with a Bachelor of Science
Degree.
Lawrence J. Lipton is a controller of Related. Mr. Lipton has been a
Certified Public Accountant in New York since 1989. Prior to joining Related,
Mr. Lipton was employed by Deloitte & Touche from 1987-1991. Mr. Lipton
graduated from Rutgers College with a Bachelor of Arts degree and from Baruch
College with a Master of Business Administration degree.
Lynn A. McMahon has served since 1983 as assistant to J. Michael Fried.
From 1978 to 1983, she was employed at Sony Corporation of America in the
Government Relations Department.
Susan J. McGuire has, since 1977, served as Office Manager at Related.
From May 1973 to January 1977, she was employed as an administrative
assistant with Condren, Walker & Co., Inc., an investment banking firm in New
York City. Ms. McGuire attended Queensboro Community College.
Stephen M. Ross is President and general partner of The Related Companies,
L.P. and a majority shareholder of the Manager. Mr. Ross founded The Related
Companies, Inc. in order to develop, manage, finance and acquire subsidized
and conventional apartment developments. Prior to founding The Related
Companies, Inc. in 1972, Mr. Ross, a tax lawyer, was employed by two
prominent Wall Street investment banking firms in their real estate and
corporate finance departments and by Coopers & Lybrand in Detroit as a tax
specialist. Mr. Ross graduated from the University of Michigan with a
Bachelor of Business Administration degree, from Wayne State University
School of Law with a Juris Doctor degree and from New York University School
of Law with a Master of Laws degree in taxation.
The Related Companies, L.P., a New York limited partnership and an
Affiliate of the Manager, was formed in 1992 as part of a restructuring of
more than $100,000,000 in unsecured debt of The Related Companies, Inc. and
its affiliates, including Mr. Ross. In addition, certain financially troubled
development projects were the subject of, in the opinion of the Sponsor,
successful restructuring arrangements. As part of the restructuring, a group
of investors, who contributed approximately $25,100,000 to the new venture,
joined Mr. Ross to create The Related Companies, L.P. Through his interests
in other entities, Mr. Ross controls the corporate general partner of The
Related Companies, L.P. and holds a significant limited partnership interest,
which interests in the aggregate total 56.8%.
Creditworthiness of the Manager
Stephen M. Ross and J. Michael Fried have each contributed to the Manager a
demand note executed in the principal amount of $500,000. Each of Messrs. Ross
and Fried have represented that he has a net worth of not less than $10,000,000,
and $5,000,000, respectively, determined in accordance with the standards of
personal financial statements of the American Institute of Certified Public
Accountants. Prospective investors should be aware that a significant portion of
Mr. Ross' and Mr. Fried's assets is illiquid, and there can be no assurance that
Messrs. Ross and Fried will be able to pay all or any portion of the demand
promissory notes held by Related AMI if they are called upon to do so. See "Risk
Factors--Reliance on Creditworthiness of Manager."
Decisions Regarding Investments
The Manager will make all decisions related to the acquisition and later sale
or remarketing of First Mortgage Bonds and Tax-Exempt Securities. With respect
to decisions relating to the acquisition or certain subsequent decisions
concerning First Mortgage Bonds relating to Properties owned or developed by
Affiliates of the Manager, the Manager will be required to obtain fairness
opinions from an independent adviser.
Removal or Resignation of the Manager
The Trust Agreement provides that the Manager may be removed at any time upon
the Majority Vote of the outstanding Shares. Under the terms of the Trust
Agreement, Related
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AMI has agreed not to take any voluntary steps to dissolve itself or withdraw
as Manager prior to the dissolution of the Trust. See Paragraph 17 of the
Trust Agreement. Under the terms of the Trust Agreement, the Shareholders
have the right, by a Majority Vote, to elect a successor Manager upon the
removal, adjudication of bankruptcy, insolvency, dissolution or other
cessation of existence as a legal entity of the Manager. See "Summary of the
Trust Agreement--Voting Rights of Shareholders" and Paragraph 19 of the Trust
Agreement.
Remuneration
The Trust is not required to pay the officers or directors of the Manager any
remuneration. Certain personnel (who may also be employed by Related AMI and/or
its Affiliates) may also be employed by the Trust to perform accounting,
secretarial, transfer and other services required by the Trust. Such individuals
may also perform similar services for existing public and private investment
programs of which the Manager is a general partner and/or sponsor, and for other
affiliated entities now existing or to be formed in the future.
_______________________________________________________________________________
INVESTMENT OBJECTIVES AND POLICIES
_______________________________________________________________________________
Principal Investment Objectives
The Trust's principal investment objectives are to:
(a) preserve and protect the Trust's invested capital by investing
primarily in a diversified portfolio of First Mortgage Bonds secured by
existing Properties;
(b) provide quarterly Distributions which are exempt from federal income
taxation (except as to certain separate and/or additional taxes--see "The
Terms of the First Mortgage Bonds and Mortgage Loans--Opinion of Bond
Counsel"); and
(c) provide additional Distributions in connection with First Mortgage
Bond investments from Contingent Interest payments exempt from federal income
taxation (subject to the same exception as noted in (b)) arising from a
participation in (i) Net Property Cash Flow and (ii) Net Sale or Repayment
Proceeds of the Properties. The achievement of this objective is closely
related to the real estate market conditions that will exist during the
period in which First Mortgage Bonds are held by the Trust and is dependent
upon improvement in the residential real estate market. First Mortgage Bonds
with Contingent Interest generally offer Current Interest Rates below what
would be available for such bonds if they did not require Contingent Interest
payments.
There is no assurance that such objectives will be attained.
The Trust intends to invest in First Mortgage Bonds secured by Mortgage
Loans which, in turn, are secured by first mortgages on the Properties. It is
intended that all interest income on the First Mortgage Bonds will be exempt
from federal income taxation except for possible application of the
alternative minimum tax and taxes payable by certain corporations. See
"Material Federal Income Tax Consequences."
The Trust intends to invest in First Mortgage Bonds primarily by acquiring
outstanding First Mortgage Bonds which are simultaneously restructured to
change the principal, interest and other terms to conform to the Trust's
investment objectives. Substantially all of the multi-family rental housing
and retirement community projects financed by the outstanding First Mortgage
Bonds will have been constructed and leased. The Trust expects that, in
general, the outstanding First Mortgage Bonds to be acquired will have been
credit enhanced and the credit enhancement will have expired or will be
scheduled to expire within 36 months. Such credit enhancement generally
consists of a letter of credit issued by a savings and loan or by a
commercial bank or a financial guarantee issued by an insurance company. In
certain circumstances, the Trust may also acquire First Mortgage Bonds that
are in default because the credit enhancement has expired or the cash flow
from the property is insufficient to pay the debt service due on the bonds.
The restructuring of the outstanding First Mortgage Bonds will be
sufficiently extensive so that a restructured First Mortgage Bond held by the
Trust will be considered to be a newly issued bond that refunds all or some
portion of the previously outstanding First Mortgage Bond.
The Trust will only acquire an outstanding First Mortgage Bond if: (i) the
Trust has reached a binding agreement with the owner of the underlying
Property to amend the terms of the bonds in a manner that is acceptable to
the Trust and (ii) the governmental entity that is the issuer of the
outstanding bonds has agreed to ratify the change in terms and to file the
necessary forms to continue the tax-exemption of the restructured First
Mortgage Bonds or the Manager believes that there is a substantial likelihood
that the issuer will agree subsequently to take the action necessary to
continue the First Mortgage Bond's tax-exemption.
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In restructuring an outstanding First Mortgage Bond, the principal of the
restructured First Mortgage Bond, together with all other mortgage loans on the
Property, will not exceed 85% of the fair market value of the Property (unless
the Manager determines that substantial justification exists) and the interest
rate on the restructured bond will be consistent with the Trust's investment
objectives and policies. In many instances the Trust will acquire the
outstanding bonds at a discount and will reduce the principal amount and the
required interest payments to a level that the underlying Property can support
and that is consistent with the Trust's investment objectives and policies.
When outstanding First Mortgage Bonds are acquired without the prior
agreement of the governmental agency that is the issuer to approve the
restructuring of the bond's terms, if the Trust is unable to reach a
subsequent agreement with the issuer, the Trust, in order to attempt to avoid
the receipt of taxable income, could be forced to sell or otherwise dispose
of the First Mortgage Bond, including through foreclosure on the Property
securing the First Mortgage Bond, if the Mortgage Loan is then in default. In
either case, the Trust might realize income that is not tax-exempt. See
"Material Federal Income Tax Consequences--Trust Income."
The Manager intends that the Mortgage Loans securing the First Mortgage
Bonds will be with recourse to the borrowers during any construction period
and without recourse to the borrowers thereafter; however, no assurance can
be given that the Manager will be able to arrange Mortgage Loans with
recourse during the construction period of any to be built Property. Because
the Mortgage Loans are expected to be nonrecourse obligations (other than
possibly during the construction period, if any, or in the case of existing
Properties for which operating deficit guarantees have been obtained, for the
first 12-36 months of operation), the Trust will have to look solely to the
Property to remedy a default by the borrower on the payment of a Mortgage
Loan. However, the Manager will attempt to obtain operating deficit
guarantees as additional security for the Mortgage Loans from the principals
of the Property Owners. The Properties are expected to be primarily
multi-family residential apartment projects and, secondarily, retirement
community projects. The Property Owners may include individuals,
partnerships, corporations, trusts or other entities which, in most cases,
will be entities specifically organized to own the particular Properties.
Some of such owners may be Affiliates of the Manager.
A portion of the interest on the First Mortgage Bonds will be payable on a
fixed basis and a portion will be payable on a contingent basis from a
portion of both (i) Net Property Cash Flow and (ii) Net Sale or Repayment
Proceeds.
Use of Initial Funds
The Trust intends to use the Net Proceeds, estimated to be a minimum of
$2,300,000 and a maximum of $184,000,000 after the payment of the Expense
Allowance, Selling Commissions and a non-accountable due diligence expense
reimbursement (but before payment of Bond Selection Fees, the Acquisition
Expense Allowance and creating Reserves) to acquire First Mortgage Bonds and
Tax-Exempt Securities.
Return of Uninvested Proceeds
Any of the Net Proceeds of this offering which have not been invested or
committed to investment in First Mortgage Bonds or Tax-Exempt Securities within
the later of 24 months from the effective date of the Registration Statement of
which this Prospectus is a part or one year from the Final Closing Date
("Investment Period") will be distributed by the Trust to the Shareholders as a
return of capital without reduction for fees payable to the Manager or
Affiliates which would have been payable if such funds had been invested in
First Mortgage Bonds and Tax-Exempt Securities. All funds will be available for
the general use of the Trust during the Investment Period and may be expended
for operating expenses of the Trust (in which event such funds will not be
available for investment in First Mortgage Bonds and Tax- Exempt Securities) or
returned to investors. Funds will not be segregated or held separate from other
funds of the Trust pending investment in First Mortgage Bonds. No interest will
be payable directly to the Shareholders if funds which were not ultimately
invested in First Mortgage Bonds or Tax- Exempt Securities are returned to them.
However, any interest earned by the Trust on Temporary Investments would be
included in the Trust's Cash Flow. For the purpose of the foregoing provision,
funds will be deemed to have been committed to investment and will not be
returned to the Shareholders to the extent written commitments, agreements in
principle or letters of understanding were executed at any
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time relating to a First Mortgage Bond regardless of whether any such
investment may or may not be consummated. Additionally, funds which were
committed to investment but which were not subsequently invested in the First
Mortgage Bonds or Tax-Exempt Securities to which they were committed may be
held as Reserves and not distributed to the Shareholders. Such funds may be
subsequently utilized beyond the Investment Period to increase the Trust's
investment in First Mortgage Bonds and Tax-Exempt Securities.
In addition, any funds received by the Trust from any letters of credit or
other security utilized as part of the construction period guarantees during
the first 12 months after issuance of a First Mortgage Bond on a to-be-built
Property, and any funds which are returned to the Trust by the issuer of a
First Mortgage Bond at any time prior to being disbursed by the issuer to the
borrower, may, in the discretion of the Manager, be invested in additional
First Mortgage Bonds or Tax-Exempt Securities, placed in Reserves, or
refunded to Shareholders. If such funds are not so invested or placed in
Reserves within six months of the completion of construction of all of the
Properties, they will be promptly returned to Shareholders. If, for any
reason, First Mortgage Bonds and Tax-Exempt Securities may no longer be
acquired by the Trust, any funds which have not been utilized for the
acquisition of First Mortgage Bonds or Tax-Exempt Securities will be promptly
returned to Shareholders as a return of capital.
Tax-Exempt Securities
The Trust may invest up to 10% of the Gross Proceeds in Tax-Exempt Securities
(defined as securities, the income from which is exempt from federal income
taxation, which are rated not lower than A1 by Moody's Investors Service, Inc.,
A+ by Standard & Poor's Ratings Group, or which the Manager determines are of
comparable quality). The Tax-Exempt Securities are expected to mature as early
as during the offering period and from time to time throughout the life of the
Trust, with the average life expected to be approximately six to eight years.
Temporary Investments
There can be no assurance as to when the Trust will be able to invest the
full amount of the Net Proceeds not immediately invested in First Mortgage Bonds
or Tax-Exempt Securities. Pending such investments, funds will be invested in
Temporary Investments (defined as short-term highly liquid investments where
there is appropriate safety of principal such as investment grade debt
securities and money market funds or similar investment vehicles which invest in
securities, the income from which is exempt from federal income taxation,
including tax-exempt securities rated not lower than A1 by Moody's Investors
Service, Inc. or A+ by Standard & Poor's Ratings Group, or unrated tax-exempt
securities which the Manager determines are of comparable quality). Temporary
Investments pending investment in First Mortgage Bonds may produce a lower rate
of return to investors than the rate of return contemplated for the First
Mortgage Bonds.
Information about Investments
During the offering period, at such time during the negotiations for a
specific investment in a First Mortgage Bond involving the use of 10% or more of
the Net Proceeds as the Manager believes a reasonable probability exists that
such investment will be consummated by the Trust, this Prospectus will be
supplemented to disclose the negotiations and pending investment. This may occur
when the Trust signs a legally binding commitment but may occur before or after
such signing depending on the particular circumstances surrounding each
potential investment. A supplement to this Prospectus will set forth data
available with respect to the investment, which will include the proposed terms
of the First Mortgage Bond, a description of the Property, and other information
considered appropriate for an understanding of the transaction. Further data
will also be made available after any pending investment is consummated, by
means of a supplement to this Prospectus. After the offering period and until
the Trust is fully invested, the Trust shall also furnish to each Shareholder,
at least quarterly, information concerning the investments of the Trust in First
Mortgage Bonds and Tax-Exempt Securities.
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE OF ANY PROPOSED
INVESTMENT CANNOT BE RELIED UPON AS AN ASSURANCE THAT THE TRUST WILL
ULTIMATELY CONSUMMATE SUCH PROPOSED INVESTMENT OR THAT THE INFORMATION
PROVIDED CONCERNING THE PROPOSED INVESTMENT WILL NOT CHANGE BEFORE THE DATE
OF ACTUAL INVESTMENT.
Selection of First Mortgage Bonds
First Mortgage Bonds will be selected on the basis of the Trust's investment
objectives and policies provided herein.
In evaluating the First Mortgage Bonds, the Manager will consider such
factors as: if the First Mortgage Bonds are in default or otherwise in need
of restructuring, the terms on
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which such bond could be restructured and the likelihood of obtaining the
issuer's approval thereof; whether there are state or local limitations on
Contingent Interest which could affect the First Mortgage Bonds; the ratio of
the amount of the investment to the value of the Property by which it is to
be secured; the potential of the Property for capital appreciation; the
projected cash flow of the Property and the ability to increase cash flow
through capable management; the location and design of the Property;
prospects for liquidity through sale or refinancing; the potential for
economic growth of the community; and diversification. In addition, the Trust
will apply the following policies to its investments in First Mortgage Bonds:
(i) the Trust may not invest in a First Mortgage Bond secured by a Mortgage
Loan on any one Property if the principal of such First Mortgage Bond would
exceed, in the aggregate, an amount equal to 20% of the Gross Proceeds to be
raised by the Trust; (ii) the Trust may not invest in First Mortgage Bonds
secured by Mortgage Loans to any one borrower if the principal of such First
Mortgage Bonds would exceed, in the aggregate, an amount greater than 20% of
the Gross Proceeds to be raised by the Trust; (iii) the Trust may not invest
in First Mortgage Bonds secured by Mortgage Loans on unimproved real property
or Tax-Exempt Securities relating to unimproved real property in an amount in
excess of 10% of the Gross Proceeds to be raised by the Trust; and (iv) the
Trust shall not invest in a First Mortgage Bond secured by a Mortgage Loan on
any one Property if the aggregate amount of all mortgage loans outstanding on
the Property, plus the principal amount of the Mortgage Loan, would exceed an
amount equal to 85% of the appraisal value of the Property as determined by
an independent appraiser, unless the Manager determines that substantial
justification exists because of other aspects of the loan, such as the net
worth of the borrower, the credit rating of the borrower based on historical
financial performance, additional collateral (such as a pledge or assignment
of other real estate or another real estate mortgage) or an assignment of
rents under a lease or where the Trust has purchased a First Mortgage Bond at
a price that is no more than 85% of the value of the underlying Property
(notwithstanding that the face amount of the outstanding mortgage loans with
respect to the Property exceed 85% of the value of the underlying Property),
provided that any loans relating to the Property which are advanced by third
parties (and which cause the aggregate amount of all mortgage loans
outstanding on the Property to exceed 85% of the appraised value of the
Property) are subordinated to the Trust's investment and do not entitle such
third party lender to any rights upon default until after the Trust's First
Mortgage Bond and related Mortgage Loan with respect to such Property have
been repaid. Independent appraisals obtained for the purpose of establishing
the fair market value of a to-be-constructed Property will be based on the
anticipated results of operations as of the anticipated date of stabilized
occupancy or such other factors as the appraiser deems relevant. Such
appraisal value may be substantially greater than the cost of constructing
the Property. All appraisals obtained in connection with investments in First
Mortgage Bonds will be maintained by the Manager at the Trust's principal
offices for a period of five years and will be available for inspection and
duplication by Shareholders.
The Regulatory Agreement
The owners of Properties which are multi-family rental housing (other than
certain non-profit corporations, if any) will be required under the Mortgage
Loan documents, including the Regulatory Agreements in particular, to own,
manage and operate such Properties continuously as "residential rental property"
meeting the requirements of Code Section 142(d) (or, in the case of First
Mortgage Bonds subject to the provisions of the Internal Revenue Code of 1954,
as amended prior to amendments by the Tax Reform Act of 1986 (the "1954 Code" or
"prior law"), Section 103(b)(4) of the 1954 Code). To that end, each such owner
is expected to covenant substantially as follows:
(a) that the Property is acquired and constructed for the purpose of
providing multi-family rental housing, and the owner shall own, manage and
operate the Property as multifamily rental housing, all in accordance with
Code Section 142(d) (or Code Section 103(b)(4)(A) of the 1954 Code) and
Treasury Regulations Section 1.103-8(a) and (b), as the same may be amended
from time to time;
(b) that at least 95% of the net proceeds (or 90% of the transferred
proceeds in the case of certain refunding First Mortgage Bonds or 90% of net
proceeds of certain other First Mortgage Bonds subject to certain provisions
of prior law) will be or will have been used to finance the construction or
acquisition of buildings and equipment that qualify as multi-family
residential rental housing or facilities functionally related and subordinate
thereto;
(c) for the longer of the "qualified project period" as described below or
the scheduled term of the First Mortgage
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Bonds that will be used to finance the Property, the Property shall be
operated as a rental property and the owner will not convert the Property to
condominium ownership or other use (except that subsequent to the "qualified
project period" the use of the Property may be changed, subject to approval
of bond counsel rendered before or after the end of the "qualified project
period"); and
(d) either (i) 40% of the units will be occupied or reserved for
individuals or families earning 60% or less of the median gross income or 20%
of the units will be occupied or reserved for individuals or families earning
50% or less of the median gross income in the relevant locality during the
"qualified project period," with adjustments for smaller and larger families;
or (ii) for a Property subject to certain provisions of prior law, at least
20% of the completed rental units in the Property must be occupied or held
available for occupancy on a continuous basis during the "qualified project
period" by individuals or families whose incomes are 80% or less of the
median gross income for the area ("low- or moderate-income tenants") with
adjustments for smaller and larger families (if required by law).
For the purpose of complying with this requirement (under prior law, if
applicable), a unit occupied by an individual or family who at the
commencement of the occupancy qualifies as a low- or moderate-income tenant
is treated as occupied by such an individual or family during their tenancy
in such unit, even though they subsequently cease to be of low- or
moderate-income. If multi-family residential rental projects which are
subject to certain provisions of current law cease to comply with the
set-aside because the income of existing tenants increased, the existing
tenants who no longer meet the income requirements may remain tenants but the
first vacant market-rate units of comparable or smaller size to those
occupied by tenants whose income had increased must be rented to new
low-income tenants.
The "qualified project period" for certain Properties subject to certain
provisions of prior law will begin on the later of the date of issuance of
the First Mortgage Bonds or the first day on which at least 10% of the units
in the Property are occupied and will end on the later of (i) the date which
is 10 years after the date on which 50% of the rental units in the Property
are first occupied, (ii) the date which is a "qualified number of days" after
the date of initial occupancy of the Property or (iii) the date on which any
assistance is provided with respect to the Property under Section 8 of the
United States Housing Act of 1937, as amended, terminates. It is expected
that for the First Mortgage Bonds secured by such Properties, the "qualified
number of days" will be as much as approximately 4,384 (slightly over twelve
years). For First Mortgage Bonds subject to the provisions of current law,
the "qualified project period" for multi-family housing projects, during
which the foregoing low or moderate income requirements must be satisfied,
begins on the date when at least 10% of the units are first occupied and ends
on the latest of (i) 15 years after the date on which at least 50% of the
units are first occupied; (ii) the date on which none of the bonds issued to
finance the project are outstanding or (iii) the date on which any assistance
provided to the project under Section 8 of the United States Housing Act of
1937 terminates.
If the owner defaults in the performance of its obligations under the
Regulatory Agreement or breaches any covenant, agreement or warranty of the
owner set forth in the Regulatory Agreement, and if such default remains
uncured for the period specified in the Regulatory Agreement (60 days in most
instances) after notice thereof shall have been given to the owner by the
state or local government or agency or authority that made the Mortgage Loan
(or any other party authorized under the Regulatory Agreement), then the
First Mortgage Bonds may be declared in default and the issuer (and the
trustee for such First Mortgage Bonds or the Trust in many cases) may take
other action at law or in equity or otherwise, whether for specific
performance of any covenant in the Regulatory Agreement, or such other remedy
as may be deemed most effective to enforce the obligations of the borrower
with respect to the Property. If certain defaults remain uncured, interest on
the First Mortgage Bond may become taxable from the date of issuance.
The Regulatory Agreement will also contain any additional restrictions and
rental requirements which may be required by the issuers of the First
Mortgage Bonds or bond counsel. Bond counsel may approve variations in the
requirements of the Regulatory Agreement.
In certain limited cases, a Property owned by a non-profit corporation
will be exempt from the low income occupancy standards noted above.
The Terms of the First Mortgage Bonds and
Mortgage Loans
The terms of a First Mortgage Loan will be substantially parallel to the
terms of the related First Mortgage Bond insofar as the Mortgage Loans are
expected to require borrowers
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to make payments sufficient to meet debt service payments on the First
Mortgage Bonds. The intended terms of the First Mortgage Bonds and Mortgage
Loans are described below. NO ASSURANCE CAN BE GIVEN THAT THE MANAGER WILL BE
ABLE TO OBTAIN TERMS COMPARABLE TO THOSE SET FORTH BELOW.
Opinion of Bond Counsel. First Mortgage Bonds will only be acquired by the
Trust pursuant to an opinion from bond counsel (retained by the issuer of the
First Mortgage Bonds or by the Trust) or special counsel for the Trust to the
effect that interest on such bonds will be excluded from gross income for
federal income tax purposes or will be exempt from federal income taxation
(except as to the alternative minimum tax, the environmental tax, the branch
profits tax, the tax on certain passive investment income of S corporations
and the taxation of certain social security or railroad retirement benefits)
and that the bonds will be valid obligations of the issuer. In some states or
municipalities, there may not be sufficient legal authority to permit bond
counsel to render an unqualified opinion as to the validity of the Contingent
Interest or the compounding of interest. In such cases, the Trust may acquire
First Mortgage Bonds which provide that interest is payable only to the
extent permitted by law, in which event, the Trust would accept an
unqualified opinion on the validity and enforceability of the obligation to
pay principal and current interest and a qualified or reasoned opinion as to
the obligation to pay compound interest or Contingent Interest. In addition,
in situations involving Contingent Interest, compounding of interest, pending
legislation, pending regulations or certain other matters, the Trust may
accept a reasoned or qualified opinion with respect to the exemption of
interest from federal income taxation. In certain circumstances the opinion
of bond counsel may rely upon opinions of other counsel or may be given by
one or more counsel.
Nature of the Obligation. Each First Mortgage Bond will be a special
obligation of a state or local issuer payable solely from revenues received
under the Mortgage Loan to be made from the proceeds of such First Mortgage
Bond. The issuers may pledge or assign the Mortgage Loans to the Trust as
owner of the First Mortgage Bonds, or to an escrow agent or bond trustee for
the benefit of the Trust. The First Mortgage Loans will bear interest at the
same rates as the related First Mortgage Bonds in that the First Mortgage
Loans will require payments sufficient to pay debt service on the related
First Mortgage Bond. In addition, the issuers of the First Mortgage Bonds may
impose a fee or fees upon the Property Owners. Payment of the Mortgage Loan
in accordance with its terms made to the Trust, if any, will discharge both
the Property Owner's obligation to the issuer of the First Mortgage Bonds
(other than regulatory obligations and the obligation to pay the issuer's
fee) and the obligation of the issuer to the Trust.
Interest Rate. The First Mortgage Bonds will bear a fixed Current Interest
Rate. In addition, a majority of the First Mortgage Bonds are expected to
provide for Contingent Interest in an amount equal to 25% to 50% of Net
Property Cash Flow and 25% to 50% of Net Sale or Repayment Proceeds until the
borrower has paid interest at a simple annual rate of 16% over the term of
the First Mortgage Bond.
Depending upon the facts of a particular Mortgage Loan and the
requirements of counsel, Net Sale or Repayment Proceeds may be computed to
take into account any excess in value of an underlying Property over the
outstanding balance of the First Mortgage Bond at the time the bond was
restructured by the Trust or originated, if the Trust acquires a new bond.
This excess will reduce the Net Sale or Repayment Proceeds that would
otherwise result from a sale or refinancing of the Property. Any such greater
amount is expected to reflect additions to the project's cost and an excess
of original cost or appraised value over the original principal amount of the
First Mortgage Bond.
Any Cash Flow from the Property which remains after the payment of all
interest, including Contingent Interest, due and payable to the Trust
pursuant to the terms of the Mortgage Loan will accrue to the benefit of the
owner of the Property.
Term. Each Mortgage Loan is expected to be for a term of up to 10 to 35
years, although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The Trust expects that at its option it may demand
prepayment of a First Mortgage Bond by calling for redemption of the Bond at
any time after ten years on six months notice. Principal of a Mortgage Loan
may not amortize during the term of the First Mortgage Bond but may be
required to be repaid in a lump-sum "balloon" payment at the expiration of
the term of the First Mortgage Bond or at such earlier time as the Trust may
require. To the extent that the First Mortgage Bonds call for "balloon"
payment of the principal instead of amortization, the Special Distribution
and Loan Servicing Fee
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payable to the Manager and its Affiliates will be proportionately greater.
The Trust, as a general rule, intends to require that the First Mortgage Bond
and, therefore, the Mortgage Loan, be repaid in full, including all
Contingent Interest then payable, in approximately twelve years. In certain
situations, however, especially when the "qualified project period" has not
terminated, a First Mortgage Bond and Mortgage Loan may not be repaid until
after fifteen or more years.
Prepayment. The First Mortgage Bonds are expected to include substantially
the following prepayment provisions. Optional prepayment of a First Mortgage
Bond will be prohibited during the first five years of the Trust's ownership
of the bond. Optional prepayments, in whole but not in part, are expected to
be permitted at any time thereafter subject to the payment of a redemption
premium equal to at least 5% of the principal amount of the First Mortgage
Bond to be redeemed, if prepaid during the sixth year, with such premium
being reduced by 1% per year until there is no premium.
The Trust may require redemption of the First Mortgage Bond, and,
therefore, prepayment of a Mortgage Loan, upon the occurrence of a
"Determination of Taxability." For this purpose, a "Determination of
Taxability" generally includes the issuance of a written notice of deficiency
by the Internal Revenue Service to the effect that interest on any First
Mortgage Bond is subject to federal income taxation or the enactment of
legislation, rendering of a judicial decision, publication of an official
statement by the Internal Revenue Service or the occurrence or existence of
any other act, event or circumstance which prevents bond counsel from opining
that interest on the First Mortgage Bond will, either currently or
retroactively, be exempt from federal income taxation.
In the event of prepayment, whether optional or mandatory, and in the
event of the tender of a First Mortgage Bond for purchase, the redemption
price or purchase price, as the case may be, is expected to be equal to the
principal amount of the First Mortgage Bond to be redeemed or purchased,
together with interest thereon (including Contingent Interest) to the date of
redemption or tender, as the case may be. The calculation of Contingent
Interest payable is expected to be performed substantially as follows. If the
Property is sold, the Sale or Repayment Proceeds portion of the calculation
is expected to be based upon the sales price obtained. If the Property is not
sold at the time of the redemption or tender of a First Mortgage Bond, the
Contingent Interest due is expected to be based on the Sale or Repayment
Proceeds from the related Property as determined by independent appraisal.
The Trust and the Property Owner will each choose a qualified independent
appraiser. In the event such appraisers are unable to agree as to an
appraisal value for the Property, those appraisers shall in turn choose a
third qualified independent appraiser. The third appraiser shall be required
to choose the appraisal value prepared by one of the original two appraisers
which it determines is closest to the true fair market value, and such shall
be used in determining the Sale or Repayment Proceeds for purposes of
calculating the Contingent Interest payable on the First Mortgage Bond. Such
appraisal value shall be binding upon the Trust and the Property Owner.
Liability of Mortgagor. The Mortgage Loans may be recourse to the
mortgagor during any construction period, and will be nonrecourse to the
mortgagor thereafter. Therefore, in the event of default subsequent to the
construction period, the Trust will have rights only with respect to the
security interests it has acquired as owner of the First Mortgage Bond and it
will have no rights against the borrower with respect to either principal or
interest payments on the Mortgage Loan. In addition, the Manager will attempt
to obtain operating deficit guarantees from principals of the Property Owners
as additional security.
Due on Sale. The First Mortgage Bonds and, therefore, the First Mortgage
Loans are expected to be, in the discretion of the holder of the First
Mortgage Bond, subject to redemption on the sale or refinancing of a
Property, except where such clauses are unenforceable under applicable state
law.
Security. Each Mortgage Loan will be secured by a first mortgage on all
real property and a security interest in financed personal property on the
Property and by an assignment of rents. During any construction period, some
or all of the following additional security may be provided: a letter of
credit from a financial institution acceptable to the Manager in an amount
not in excess of 10% of the loan; a payment and performance bond from general
contractors or from the major subcontractors; and a guarantee of completion
of the construction of the Property by the Property Owners. See "Construction
Period Guarantees." Additional security may be provided by an operating
deficit guarantee provided by the Property Owners.
Other Indebtedness on the Properties. The Manager intends to preclude
Property Owners from obtaining second mortgages or comparable indebtedness
which is secured by
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a lien on a Property; however, if such indebtedness is allowed for a specific
Property the Manager will require that any such indebtedness shall be
subordinate to the Mortgage Loan on the Property and to other loans made to
the Property Owners by the Trust which are secured by a lien on the Property.
Where the Trust, consistent with its objectives and policies, acquires a
First Mortgage Bond which is in default, the principal amount of such First
Mortgage Bond may be significantly greater than the fair market value of the
Property securing such First Mortgage Bond. In such event, in order to avoid
adverse tax consequences to the Trust and to facilitate reaching agreement
with the Property Owner regarding the restructuring of such bond, it may be
necessary to divide the First Mortgage Bond and the related Mortgage Loan
into two portions. Thereupon, the Trust would hold the senior portion of the
First Mortgage Bond and a third party or an Affiliate of the Manager would
hold the junior portion of the First Mortgage Bond. The junior portion would
be subordinate to the senior portion in all respects, including in right of
payment of interest and Contingent Interest. In addition, the junior portion
of the bond would have no right to declare an event of default under the
First Mortgage Bond or, in the event of default, to foreclose on the
Property. In no event will an Affiliate of the Manager hold such junior
portion of the First Mortgage Bond unless the Trust first obtains an opinion
of bond counsel to the effect that it is more likely than not that there
would be a substantial risk of adverse tax consequences to the Trust if the
Trust were to retain the entire original outstanding First Mortgage Bond.
Defaults. The "events of default" under a Mortgage Loan ordinarily will
include the following and may include other provisions as well:
(a) failure of the borrower to make, or cause to be made, any debt service
payment under the Mortgage Loan documents on or before the date such payment
is due thereunder;
(b) failure of the borrower to perform or observe any of its covenants or
agreements contained in the Mortgage Loan documents (other than as specified
in paragraph (a) above), and such failure continues for the period and after
notice, if any, specified in the relevant Mortgage Loan document;
(c) failure of the guarantor to perform its obligations under its
operating deficit guarantee, if any, and such failure continues after notice
thereof; and
(d) the borrower is notified that it has failed to comply with certain
covenants in the Mortgage Loan documents which relate to the maintenance of
the tax-exempt character of the interest on the First Mortgage Bonds and 60
days have passed since delivery of such notice, unless (i) bond counsel
advises that such failure will not adversely affect the tax-exemption of the
First Mortgage Bond or that such failure can be remedied with the effect of
permitting the interest on the First Mortgage Bond to continue to be exempt
from federal income taxation and (ii) such failure does not cause a violation
of the state law that authorized the issuance of a First Mortgage Bond by the
issuer or the borrower which affects the validity of the First Mortgage Bond.
Whenever any event of default under the Mortgage Loan documents shall have
happened and be continuing, the Trust may be permitted by the documents
(either directly or indirectly, through a bond trustee) to take one of the
following actions:
(i) declare all payments under the Mortgage Loan to be immediately due and
payable and pursue all remedies permitted under the Mortgage Loan documents,
which remedies may include foreclosure of the mortgage on the Property or the
appointment of a receiver; or
(ii) enter into a work-out agreement with the borrower pursuant to which
the Manager may waive certain rights under the Mortgage Loan documents in
return for certain concessions by the borrower.
Amendments and Waivers. It is anticipated that the Mortgage Loan documents
will provide that they may not be amended or supplemented or the terms or
conditions set forth in them waived except by the express written consent of
the Trust or the trustee or other fiduciary for the Bondholder.
Title Insurance. The Trust expects that mortgagee title insurance will be
obtained in connection with each First Mortgage Bond it acquires in
substantially the outstanding principal amount of such bond (subject to
certain exceptions, including pending disbursement provisions).
Description of Certain First Mortgage Bonds and Related Properties.
General. The First Mortgage Bonds are expected to be secured by
participating First Mortgage Loans on multifamily residential apartment
projects and retirement community projects. Multifamily residential apartment
projects are expected to be primarily garden apartment projects. Retire-
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ment communities are garden apartment projects designed and developed for
elderly retired persons. Such communities will generally provide additional
services to residents beyond those provided by conventional garden apartment
projects. Such additional services ordinarily include meals provided in
community dining facilities, housekeeping services, laundry services,
scheduled transportation, 24-hour security services and organized social and
recreational activities. In addition, retirement communities may offer a
variety of special services, facilities and activities for tenants. No
nursing home-type units providing intensive nursing care are expected to be
financed with the First Mortgage Bonds. In certain circumstances, retirement
community projects financed with First Mortgage Bonds may not constitute
multifamily residential rental property. In such case, the interest on First
Mortgage Bonds financing such projects will be exempt from federal income
taxation under another exemption from taxation of bond interest.
Properties Owned by Affiliates. Up to 10% of the Gross Proceeds raised in
the offering may be invested in First Mortgage Bonds in which Affiliates of
the Manager have a controlling interest, equity interest or security
interest, including a controlling interest, equity interest or security
interest in the related Mortgage Loans or Properties, where the Affiliates of
the Manager acquire the controlling interest, equity interest or security
interest after the effective date of this Prospectus. The Trust, consistent
with its investment objectives, will not, however, invest directly in such
Properties. The terms and conditions of such First Mortgage Bonds will be
reviewed by an independent adviser and will not be acquired unless the
independent adviser issues a letter of opinion to the effect that the terms
of the Mortgage Loan securing such proposed First Mortgage Bonds are fair and
at least as favorable to the Trust as a loan to an unaffiliated borrower in
similar circumstances. In addition, the Manager will be required to obtain a
letter of opinion from an independent adviser in connection with any
Disposition, renegotiation or other material subsequent transaction involving
loans made to the Manager or its Affiliates.
The independent adviser must be a long established, nationally recognized
investment banking firm, accounting firm, mortgage banking firm, bank, real
estate financial consulting firm or advisory firm which has a staff of real
estate professionals and which is compensated by the Manager or its
Affiliates and not by the Trust (which compensation must be predetermined).
In addition, the independent adviser, directly or indirectly, must have no
interest in, nor any material business or professional relationship with, the
Trust, the Manager, the borrower, or any Affiliates thereof. Independence
will be considered to be impaired if, for example, during the period of the
adviser's engagement, or at the time of expressing his opinion, he or his
firm: (a) had, or was committed to acquire any direct or indirect ownership
interest in the Trust, the Manager, the borrower or Affiliates thereof, (b)
had any joint closely held business investment with the Trust, the Manager,
or any Affiliates thereof, which was material in relation to the adviser's
net worth, (c) had any loan to or from the Trust, the Manager, the borrower,
or Affiliates thereof or (d) had performed or had agreed to perform a real
estate property appraisal with respect to the Property underlying a First
Mortgage Bond to be acquired by the Trust. If an adviser has been engaged to
render a letter of opinion who is not the adviser previously engaged to
render this or the preceding letter of opinion, the Manager shall inform the
Shareholders (by no later than the next annual report) of the date when such
adviser was engaged, and whether there were any disagreements with the former
adviser on any matters of valuation, assumptions, methodology, accounting
principles and practice, or disclosure, which disagreements, if not resolved
to the satisfaction of the former adviser would have caused him to make
reference, in connection with the letter of opinion, to the subject matter of
the disagreement or decline to give an opinion.
In the event a loan is proposed to be made to an Affiliated borrower which
is a public real estate limited partnership, the Trust will obtain, prior to
the funding of such loan, a letter of opinion from the independent adviser
stating that the proposed transaction is fair to both the limited partners of
the borrower and the Shareholders of the Trust.
Construction Period Guarantees
With respect to those Properties, if any, which are to be built, during the
construction period one or more security mechanisms may be obtained which will
reduce some of the risk inherent in the construction period. See "Risk
Factors--General Risks of Ownership of First Mortgage Bonds--Construction
Completion."
Letter of Credit. A letter of credit may be obtained with respect to
certain Mortgage Loans from a financial institution acceptable to the Manager
as partial security for any construction guarantee and/or any operating
deficit guarantee. It is not anticipated that any letter of credit would
exceed
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10% of the amount of the Mortgage Loan. No assurance can be given that the
Manager will obtain such letters of credit.
Construction Completion Guarantees. The guarantees of construction
completion, if obtained, are expected to be separate undertakings by
principals of the Property Owners to complete the construction of a Property
according to the loan agreement and substantially in accordance with the
approved plans and specifications. No assurance can be given that the Manager
will be able to obtain such construction completion guarantees or, if
obtained, that the guarantors will have sufficient funds to discharge their
obligations under the guarantees. In some cases, such principals, will also
guarantee the payment to the Trust of all interest required to be paid on the
Mortgage Loan until completion of construction.
The General Contractors. The general contractors of the Properties, if
any, are expected to be either Affiliates of a Property Owner or independent
third-party contractors. The general contractors may be required to provide a
payment and performance bond regarding construction of the Properties. In
addition, with respect to each Property, the general contractor may be
required to undertake to the Property Owner to pay all construction cost
overruns for the Property. No assurance can be given that the general
contractors will provide such bonds or commit to such construction contracts.
Operating Deficit Guarantees
It is the intent of the Manager that principals of the Property Owners
provide the Trust (or the trustee for bondholders) with operating deficit
guarantees as additional security for the Mortgage Loans. Such guarantees will
cover operating deficits of the Properties for an agreed upon period after
acquisition of the Bonds with respect to an existing facility or the completion
of construction (usually the earlier of three years after completion of
construction or the date by which the Property has met certain collected rental
income targets). No assurance can be given that the Manager will be able to
obtain such operating deficit guarantees or that the Property Owners will have
sufficient funds to discharge their obligations under such guarantees.
Reserves
The Trust will establish Reserves for working capital and contingencies from
the proceeds of this offering in an amount equal to 1% of the Gross Proceeds and
may add to such Reserves from Cash Flow, Sale or Repayment Proceeds and
uninvested Net Proceeds. The Manager will have the authority to increase, reduce
or eliminate the Reserves. One of the purposes of the Reserves is to have funds
available over and above the funds generated from the First Mortgage Bonds or
Tax-Exempt Securities or from Temporary Investments to pay unanticipated or
extraordinary costs of operating and administering the Trust's business. If the
Reserves are used in such a fashion, the Manager may determine to replenish the
Reserves when the deficiency is recovered. It is presently anticipated that
during the construction phase of a Property, if any (when the Mortgage Loans
bear a higher Current Interest Rate than during the operations phase), a portion
of the interest payments received by the Trust may be placed in Reserves and not
distributed to Shareholders until the operations phase of a Property. A release
of funds from such Reserves would supplement the distributions of the interest
payments during the initial years of the operations phase of a Property. Funds
held in Reserves will be invested in Temporary Investments. Funds deposited in
the Reserves from uninvested Net Proceeds will not be utilized for Distributions
to Shareholders until termination of the Trust or for compensation payable by
the Trust to the Manager and its Affiliates.
Borrowing Policies
The Trust is permitted to incur indebtedness to meet working capital
requirements of the Trust or to take over the operation of a Property on a
short-term basis (up to 24 months) (but not for the purpose of making
Distributions). The Trust may borrow such funds from third parties or from the
Manager or its Affiliates. On loans from the Manager or its Affiliates, interest
and other financing charges or fees will be paid in an amount which will be the
lesser of the interest and other financing charges or fees which would be
charged by unrelated lending institutions for a comparable loan or the actual
cost of such funds to the Manager or its Affiliates. No prepayment charge or
penalty shall be required by the Manager or its Affiliates on a loan to the
Trust secured by either a first or a junior or all-inclusive trust deed,
mortgage or encumbrance on a Property, except to the extent that such prepayment
charge or penalty is attributable to the underlying encumbrance.
The Trust will not lend funds (other than the type of investments
described herein) to any person or entity, including the Manager or its
Affiliates, nor will it acquire real property other than as a result of a
default on a Mortgage Loan and, therefore, the applicable First Mortgage
Bond.
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Administration of Mortgage Loans
The Mortgage Loans are expected to be serviced by the Manager or its
Affiliates; provided, however, that if required by the issuer of a First
Mortgage Bond, the trustee for the holders of the First Mortgage Bond will
service the Mortgage Loans or may appoint a mortgage servicer in lieu of any
other entity chosen by the Manager. The Manager or its Affiliate has serviced
and may continue to service mortgage loans for other affiliated entities.
Joint Ventures and Participations
In those cases where a publicly-registered Affiliate of the Manager is acting
as a participant with the Trust in the acquisition of an investment, the Trust
Agreement provides that all of the following conditions must be met: (i) both
parties are organized with substantially identical investment objectives and
policies; (ii) there must be no duplicative fees; (iii) the Trust must have a
right-of-first refusal to buy if such Affiliate wishes to sell the investment in
which they participate; (iv) the investment of the Trust in the First Mortgage
Bonds or Tax-Exempt Securities to be acquired with an Affiliate must be made on
substantially the same or better terms and conditions as those received by the
Affiliate, although the amounts invested do not have to be comparable; and (v)
the Trust must not pay the Sponsor and Affiliates greater compensation than it
would have paid had the Trust invested in the First Mortgage Bonds or Tax-Exempt
Securities individually and not jointly. In connection with such an investment,
the Trust would be required to approve any decisions concerning the First
Mortgage Bonds or Tax-Exempt Securities. The exercise of a
right-of-first-refusal would be subject to the Trust's having the financial
resources to effectuate such a purchase, and there can be no assurance that it
would have such resources.
The investment by the Trust jointly with a publicly-registered Affiliate
or with an unaffiliated third party may, under certain circumstances, involve
risks not otherwise present, including, for example, risks associated with
the possibility that the participant may at some time have economic or
business interests or goals which are inconsistent with the business
interests or goals of the Trust. In addition, it is possible that the Trust
and such Affiliate may reach an impasse in making decisions regarding the
management or sale of the investment or that such Affiliate might be in a
position to take actions contrary to the instructions and interests of the
Trust.
Other Policies
The Trust will not underwrite securities of other issuers, offer securities
in exchange for property, or invest in securities of other issuers, other than
in Temporary Investments and Tax-Exempt Securities as described above or as
specifically permitted in the Trust Agreement and under no circumstances will
the Trust invest in securities of limited partnerships.
The Trust is not a real estate investment trust and, therefore, is not
subject to the restrictions imposed on such entities by the Code. The Trust
will use its best efforts to conduct its operations so as not to be required
to register as an investment company under the Investment Company Act of 1940
and so as not to be deemed a "dealer" in revenue bonds for federal income tax
purposes. See "Material Federal Income Tax Consequences--Potential Dealer
Status."
The Trust will not engage in any transaction which would result in the
receipt by the Manager or any of its Affiliates of any undisclosed "rebate"
or "give-up" or in any reciprocal business arrangement which results in the
circumvention of the restrictions contained in the Trust Agreement and in
applicable state securities laws and regulations upon dealings between the
Trust and the Manager and its Affiliates.
The Manager and its Affiliates, including companies, partnerships, other
trusts and entities controlled or managed by such Affiliates, may engage in
transactions described in this Prospectus, including receiving Distributions
and compensation from the Trust, purchasing and holding First Mortgage Bonds,
Tax-Exempt Securities, property and investments and engaging in other
businesses or ventures that may be in competition with the Trust. See
"Conflicts of Interest," "Management Compensation" and "Management."
Changes in Investment Objectives and Policies
Shareholders have no voting rights with respect to the establishment or
implementation of the investment objectives and policies of the Trust, all of
which are the responsibility of the Manager. However, the Manager will not make
any changes in the three primary investment objectives described under the
caption "Investment Objectives and Policies-Principal Investment Objectives,"
above, without first obtaining the written consent or approval of Shareholders,
as a class, owning in the aggregate more than 50% of the total outstanding
Shares. See "Summary of Trust Agreement."
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_______________________________________________________________________________
INCOME AND LOSSES AND CASH DISTRIBUTIONS
_______________________________________________________________________________
Net Income and Net Loss
Net Income (and, if necessary, gross income) of the Trust shall first be
allocated to the Manager in an amount equal to the Special Distribution.
Thereafter, Net Income and Net Loss of the Trust shall generally be allocated 1%
to the Manager and 99% to the Shareholders. Substantially all of the Net Income
of the Trust is expected to be exempt from federal income taxation.
The Trust Agreement provides for a convention for allocating Net Income
and Net Loss whereby investors who purchase Shares from the Trust on or prior
to the 15th day of a calendar month (including a calendar month in which a
Closing Date occurs) are treated, for all purposes, as owning such Shares as
of the first day of such month and investors who purchase Shares from the
Trust after the 15th day of such month will be treated, for all purposes, as
owning such Shares as of the 16th day of such month. That portion of Net
Income and Net Loss allocated to Shareholders shall be apportioned
semi-monthly among the Shareholders in the ratio in which the number of
Shares owned of record by each of them on the first and the sixteenth day of
such calendar month, as the case may be, bears to the total number of Shares
owned by all of them as of that date, without regard to capital accounts or
the number of days during such month in which a person was a Shareholder.
The transferee of Shares shall not be recognized as an assignee of such
Shares until the completion of the requirements set forth in the Trust
Agreement for the registration of a transferee of Shares on the books and
records of the Trust.
Adjusted Cash From Operations
Distributions of Adjusted Cash From Operations each year shall be
distributed, after payment of the Special Distribution, 1% to the Manager and
99% to the Shareholders on a quarterly basis (approximately 45 days after the
close of a quarter). Distributions of Adjusted Cash From Operations allocated to
Shareholders shall be apportioned among Shareholders in the ratio in which the
number of Shares owned by each of them on the first day and sixteenth day of
each calendar month bears to the total number of Shares owned by all of them as
of such dates.
Sale or Repayment Proceeds
The Manager may, in its sole discretion, distribute, reinvest or hold as
Reserves all Sale or Repayment Proceeds received during the period ending at the
end of the fifth calendar year following the date on which 95% of the Net
Proceeds of the offering is invested in permanent investments; provided,
however, that no Bond Selection Fee, Loan Servicing Fee, Mortgage Loan Placement
Fee or other similar fees or commissions in excess of what would have been paid
in connection with a First Mortgage Bond or Tax-Exempt Security may be paid to
the Manager or its Affiliates by any party, including the Trust, in connection
with a reinvestment; and provided further, that if any of such Sale or Repayment
Proceeds are to be reinvested during the reinvestment period, the Trust must
first have distributed such amounts of Sale or Repayment Proceeds with respect
to such calendar year which, when considered with prior Distributions, are
sufficient to allow a Shareholder in a 28% Federal income tax bracket to pay
income taxes due with respect to income derived by such Shareholder from
operations of the Trust.
Except as otherwise provided below, Distributions of Sale or Repayment
Proceeds will be allocated among Shareholders of record on the date of
receipt by the Trust of such Sale or Repayment Proceeds in the ratio in which
the number of Shares owned of record by each of them on that date bears to
the total number of Shares owned by all of them as of that date and will be
distributed at such time as the Manager, in its sole discretion, determines
in the following order of priority:
(a) first, 99% of the Sale or Repayment Proceeds shall be distributed to
the Shareholders in proportion to their Original Contributions, and 1% of
Sale or Repayment Proceeds shall be paid to the Manager until:
(i) the Shareholders have received an amount equal to their Adjusted
Contributions; plus
(ii) an amount which when added to all prior Distributions (excluding
Distributions pursuant to (i) above) equals a 10% per annum
cumulative noncompounded return on their Adjusted Contributions,
commencing on the Final Closing Date; and
(b) second, after payment of the Subordinated Incentive Fee, the remainder
(i) 99% to the Shareholders and (ii) 1% to the Manager.
Reserves
Cash from working capital reserves no longer deemed necessary by the Manager
will either (i) be allocated and distributed in the same manner as Adjusted Cash
From Opera-
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tions, to the extent such Reserves are attributable to cash generated from
Trust operations, (ii) be allocated and distributed in the same manner as
Sale or Repayment Proceeds to the extent such Reserves are attributable to
cash generated from Dispositions, or (iii) be distributed as a return of
Original Contributions to the Shareholders to the extent such Reserves are
attributable to Net Proceeds.
Capital Accounts
Separate records will be kept by the Trust showing, for each Shareholder, his
Original Contribution, his Adjusted Contribution and his capital account, which
is relevant for federal income tax purposes. The Adjusted Contribution of each
Shareholder will basically represent his Original Contribution reduced by the
cumulative amount of all Sale or Repayment Proceeds distributed to him. Adjusted
Contributions will not be reduced by reason of any Distributions of Adjusted
Cash From Operations, and will bear no relation to tax basis for the Shares. At
the end of the year in which occurs the Final Closing Date and on the
anniversary of such date in each of the next four years, the capital account of
the Manager in each such year will be increased by 20% of 1% of contributions to
the capital of the Trust made by the Shareholders (the "Deemed Contribution").
The Manager has an obligation to make a further capital contribution upon
liquidation of the Trust in an amount equal to the lesser of 1.01% of the
Original Contributions or its negative capital account balance (the "Deficit
Repayment Obligation"). However, the Deficit Repayment Obligation will be
reduced to zero at the end of the fourth year in which the anniversary of the
Final Closing Date occurs. The capital account of each newly admitted
Shareholder initially will be the amount paid by the Shareholder for his Shares,
less selling commission expenditures paid by the Trust as agent for the
Shareholders. The capital account of each Shareholder thereafter will be
increased by the amount of Net Income allocated to him, and will be reduced by
(a) an amount equal to the Deemed Contribution in the year in which the Final
Closing occurs and in each of the next four years, and (b) his distributive
share of Net Loss and Distributions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In considering the federal income tax consequences of an investment in the
Trust, a prospective investor should keep in mind that the Trust intends to
invest in First Mortgage Bonds and Tax-Exempt Securities, the interest on
which is expected to be exempt from federal income tax. However, depending
upon an investor's federal income tax situation, he may be subject to various
tax consequences, including an alternative minimum tax, on the tax-exempt
interest on certain First Mortgage Bonds. See "Alternative Minimum Tax."
The following is a brief discussion of the anticipated federal income tax
aspects to prospective Shareholders under current law. It is impractical to
set forth in this Prospectus all aspects of federal, state, local and foreign
tax law which may have tax consequences with respect to a Shareholder's
participation in the Trust. Furthermore, the discussion of various aspects of
federal, state, local and foreign taxation contained herein is based on the
Code, as amended; existing laws, judicial decisions and administrative
regulations, rulings and practice, all of which are subject to change. Any
such change could be retroactive. In addition, the Trust and/or the
Shareholders may be subject to state and local taxes in jurisdictions in
which the Trust may be deemed to be doing business or in which it owns
property or other interests. See "State and Local Taxes" below. This analysis
is not intended as a substitute for careful tax planning and prospective
investors are urged to consult their own tax advisers, attorneys or
accountants with specific reference to their own tax situation and potential
changes in the applicable law. See also "Risk Factors."
The firm of Kaye, Scholer, Fierman, Hays & Handler ("Counsel") does not
prepare or review the Trust's income tax information return, which is
prepared by the Trust. The Trust will make a number of decisions on such tax
matters as, for example, the expensing or capitalizing of particular items.
Such matters are handled by the Trust and may be reviewed with counsel in
certain circumstances.
Although the Trust anticipates that substantially all of its income will
be excluded from gross income for federal income tax purposes, the Trust
could have taxable income under certain circumstances. For example, the Trust
would have taxable income or gain if interest on the First Mortgage Bonds or
Tax-Exempt Securities were determined to be taxable, if the Trust acquired a
Property through foreclosure or upon any sale of First Mortgage Bonds.
Furthermore, interest on First Mortgage Bonds or Tax-Exempt Securities may
cause certain other tax consequences, including an alternative minimum tax,
depending upon the investor's tax situation. Because the Trust does not
believe that these events are likely, no substantial discussion of the tax
consequences of these events is provided. If, however, these events were to
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occur and the Trust were to have taxable income, the tax consequences of an
investment in the Trust would differ significantly from those described
below.
Opinion of Counsel
The Trust has obtained an opinion from Counsel concerning the likely outcome
on the merits of certain material federal income tax issues. The opinion states
that the summary of federal income tax consequences to the Shareholders set
forth in this Prospectus under the headings "Risk Factors--Tax Risks" and
"Material Federal Income Tax Consequences" has been reviewed by Counsel and, to
the extent such summary involves matters of law, Counsel is of the opinion that
such statements of law are correct under the Code, the Treasury Regulations
promulgated thereunder and existing interpretations thereof.
The opinions of Counsel are based upon the facts described in this
Prospectus and upon the facts as they have been represented by the Manager to
Counsel. Any alteration of the facts may adversely affect the opinions
rendered. Furthermore, the opinions of Counsel are based upon existing laws,
applicable current and proposed Treasury Regulations, current published
administrative positions of the IRS contained in Revenue Rulings and Revenue
Procedures, and judicial decisions, which are subject to change either
prospectively or retroactively.
Each prospective investor should note that the opinions described herein
represent only Counsel's best legal judgment and have no binding effect or
official status of any kind. Thus, in the absence of a ruling from the IRS,
there can be no assurance that the IRS will not challenge the conclusion or
propriety of any of Counsel's opinions.
Because of certain facts which can be ascertained only in the future and
in certain cases the lack of clear legal authority, Counsel has concluded
that it is not possible for them to reach a judgment as to the outcome on the
merits (either favorable or unfavorable) of the following federal income tax
issues and, accordingly, expresses no opinion with respect to them: (1)
whether the interest received with respect to First Mortgage Bonds and
Tax-Exempt Securities will be exempt from federal income taxation (an opinion
to this effect is expected to be obtained from bond counsel (retained by the
issuer of the First Mortgage Bonds or by the Trust) or special counsel for
the Trust); (2) whether the Trust will be deemed to be a "dealer" in mortgage
bonds at the time of the sale or disposition of all or a portion of the
Trust's bond portfolio, thereby resulting in the entire gain, if any, from
such sale or other disposition of a First Mortgage Bond being treated as
ordinary income; and (3) whether the Trust's inclusion of the Bond Selection
Fee in the basis of the First Mortgage Bonds will be respected. Furthermore,
no opinion is expressed as to the tax consequences for foreign investors, who
should consult with their own tax advisers as to the income, estate and gift
tax consequences of investing in Shares. See "Special Classes of
Investors-Foreign Investors," below.
Trust Status
The federal income tax treatment of an investment in the Trust will depend
upon, among other things, the classification of the Trust as a partnership for
federal income tax purposes rather than as an "association" taxable as a
corporation or as a trust. The Trust will not request (and probably could not
obtain) a ruling from the IRS that it will be treated as a partnership, but the
Trust will instead rely upon an opinion of Counsel that it will be treated as a
partnership for federal income tax purposes.
The opinion of Counsel is not binding on the IRS or the courts and there
can be no assurance that the IRS will not assert that the Trust should be
taxed as an association taxable as a corporation, in which event the
Shareholders would be treated as corporate shareholders and would not be
entitled to the favorable tax treatment outlined below. This determination
would also have a substantial adverse effect on the withholding obligations
with respect to, and the United States tax liability of, any foreign
Shareholders. See "Special Classes of Investors--Foreign Investors." The
opinion of Counsel as to partnership status assumes compliance from the date
of formation of the Trust throughout the term of its existence with the
following conditions: (1) that the Trust's activities will be conducted in
accordance with the provisions of the Trust Agreement; and (2) that the Trust
and the Shareholders will have the objective of carrying on business for
profit and dividing the gains therefrom.
Classification as a Trust. Although the Trust is formed as a business
trust under the Act, it is not treated as a trust for federal income tax
purposes merely because it is cast in the form of a trust. Treas. Reg. Sec.
301.7701-4. Rather, it would be treated as a trust only if its purpose were
to vest in the trustees the responsibility for the protection and
conservation of property for beneficiaries who cannot share in the discharge
of this responsibility and, therefore, are not associ-
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ates in a joint enterprise for the conduct of business for profit. Under the
Trust Agreement, the purpose of the Trust and the responsibility of the
Manager is not the protection and conservation of property. The Trust
Agreement provides that the purpose of the Trust is to invest in, hold, sell,
dispose of and otherwise act with respect to First Mortgage Bonds secured by
Mortgage Loans on Properties, and, to a lesser extent, Tax-Exempt Securities,
and the Trust and the Manager are granted all of the powers necessary to
carry out that purpose. Consequently, the Shareholders should be treated as
"associates in a joint enterprise for the conduct of business for profit" and
the Trust should not be treated as a trust for federal income tax purposes.
Determination of Partnership Status. Section 7701(a)(2) of the Code, and
Treas. Reg. Sec. 301.7701-2, set forth the criteria for determining whether
or not an unincorporated organization will be treated as an "association"
taxable as a corporation for federal income tax purposes. This determination
depends on whether the organization's characteristics are such that the
organization more nearly resembles a corporation than a partnership. An
unincorporated association will be treated as a partnership for federal
income tax purposes if it lacks two or more of the following four corporate
characteristics:
(i) continuity of life;
(ii) free transferability of interests;
(iii) centralization of management; and
(iv) limited liability.
(i) Continuity of Life. The Regulations provide that an organization does
not have the corporate characteristic of continuity of life if the death or
withdrawal of any member of the organization causes the dissolution of the
organization, notwithstanding the fact that the agreement by which the
organization is established provides that the business will be continued by
the remaining members following such withdrawal. Under the terms of the Trust
Agreement and as permitted by the Delaware Act, the removal, adjudication in
bankruptcy, insolvency, dissolution or other cessation of existence as a
legal entity of the Manager (which owns an interest in the Trust) will cause
a dissolution of the Trust, unless Shareholders, by a Majority Vote, elect to
continue the business of the Trust within 90 days thereof and elect a
successor Manager. Accordingly, the Trust should be deemed to lack the
corporate characteristic of continuity of life.
(ii) Free Transferability of Interests. The Regulations provide that an
organization has the corporate characteristic of free transferability of
interests if each of its members, or those members owning substantially all
of the interests in the organization, have the power, without the consent of
other members, to substitute for themselves in the same organization a person
who is not a member of the organization. In order for this power to exist,
the member must be able, without the consent of other members, to confer upon
his substitute all attributes of his interest in the organization.
Accordingly, the corporate characteristic of free transferability of
interests does not exist in a case where a member can, without the consent of
other members, assign only his right to share in profits.
Any Shareholder will have the limited right to assign the economic
attributes of his Shares to an assignee. However, the assignee of Shares can
become a substituted Shareholder only with the consent of the Manager, which
consent the Manager may grant or withhold in its sole and absolute
discretion. Accordingly, the Trust should not be deemed to have the corporate
characteristic of free transferability of interests.
(iii) Centralization of Management. The Regulations provide that an
organization has the corporate characteristic of centralized management if
any person (or any group of persons which does not include all of the
members) has continuing exclusive authority to make the management decisions
necessary to the conduct of the business for which the organization was
formed. Centralized management ordinarily exists in a limited partnership if
substantially all of the interests in the partnership are owned by the
limited partners and if the limited partners have no authority to conduct
partnership business. Under the Trust Agreement, the Manager has a one
percent interest in the profits, losses and distributions of the Trust and
has complete and exclusive discretion in the management and control of the
affairs of the Trust. Accordingly, the Trust should be deemed to possess the
corporate characteristic of centralized management.
(iv) Limited Liability. The Regulations provide that an organization
possesses the corporate characteristic of limited liability if no member is
personally liable for the debts of, or claims against, the organization.
Personal liability means that a creditor of an organization may seek personal
satisfaction from a member of the organization to the extent that the assets
of the organization are insufficient to satisfy the creditor's claim. Where a
corporation is the general part-
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ner, personal liability exists with respect to such general partner when the
corporation has substantial assets (other than its interest in the
partnership) which could be reached by a creditor of the limited partnership.
Where a general partner has no substantial assets (other than its interest in
the partnership), personal liability still exists with respect to such
general partner when it is not merely a "dummy" acting as the agent of the
limited partners. The Delaware Act provides that trustees and beneficiaries
of a Delaware business trust have limited liability except to the extent
otherwise provided in the trust instrument. The Trust Agreement provides that
the Manager and the Shareholders shall not be personally liable for the acts,
omissions or obligations of the Trust. Consequently, the Trust should be
deemed to possess the corporate characteristic of limited liability.
The absence of two of the four principal corporate characteristics is
sufficient to establish classification as a partnership for federal income
tax purposes. Since at least two of the four corporate characteristics appear
to be absent, it is the opinion of Counsel that it is more likely than not
that the Trust will be treated as a partnership for federal income tax
purposes.
Publicly Traded Partnerships A "publicly traded partnership" will be
treated as an association taxable as a corporation unless the partnership
derives certain "qualifying" income equal to at least 90% of its gross income
for each of its taxable years beginning after December 31, 1987 (the "90%
Test") ("qualifying" income generally includes interest, dividends, rents
from real property and gain from the sale of property producing such income).
A "publicly traded partnership" is any partnership whose interests are either
(i) traded on an established securities market, or (ii) readily tradeable on
a secondary market (or the substantial equivalent thereof). Applicable
Committee Reports accompanying the passage of the Revenue Act of 1987
indicate that even where there is no identifiable market maker, the
equivalent of a secondary market exists where the holder of an interest has a
readily available, regular and ongoing opportunity to sell or exchange his
interests through a public means of obtaining or providing information on
offers to buy, sell or exchange interests. Thus, a program such as a regular
plan of redemptions or repurchases can cause partnership interests, whether
or not traded on an established securities market, to be treated as "publicly
traded." The IRS has issued Notice 88-75 that provides safe harbors that can
protect a partnership whose interests are not traded on an established
securities market from having its interests being deemed to be tradeable on a
secondary market or its equivalent.
The Manager has represented that interests in the Trust will not be listed
for trading on an established securities market. However, Shares may be
acquired pursuant to the Redemption Plan and, although the Manager believes
that the amount and frequency of Shares so acquired will not cause the Trust
to be characterized as a publicly traded partnership, it is possible that the
Trust could be so characterized. However, it is likely that the Trust would
satisfy the 90% Test because the Trust's income is expected to be derived
from interest on the First Mortgage Bonds and Tax-Exempt Securities and gain
from the sale of property producing such income. Assuming that the Trust
satisfies the requirements of the 90% Test, Counsel believes that the Trust
should not be treated as a publicly traded partnership.
If the Trust were classified as a corporation for federal income tax
purposes in any taxable year, income and deductions of the Trust would be
reflected only on its tax return, rather than being passed through to the
Shareholders. The Trust would be required to pay federal income tax at
corporate tax rates (at a maximum rate of 35%) plus, possibly, additional
state and local income taxes and all or a portion of distributions made to
Shareholders would be taxable as dividends to the extent of any earnings and
profits. If after a period of operations the Trust is first deemed to be an
association for federal income tax purposes, such change in status would
result in taxable income to a Shareholder measured by the excess, if any, of
his share of the liabilities of the Trust over the adjusted basis of his
Shares. The effect of the foregoing would be to substantially reduce the
effective yield on an investment in Shares.
The Manager would cause the Trust to contest any adverse IRS determination
as to the Trust's tax status. However, investors should be aware that any
such contest would result in additional expenses. To the extent Trust funds
were then insufficient to meet such expenses, they might have to be furnished
by the Shareholders, although the Shareholders would have no obligation to do
so.
General Principles of Partnership Taxation
The Trust will not be subject to any federal income taxes. The Trust will
file federal partnership information returns reporting its operations for each
fiscal year which will be the calendar year. The Trust will provide Shareholders
or their nominees with income tax information relevant to the Trust
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and their own income tax returns, including each Shareholder's share of the
Trust's taxable income or loss, if any, and capital gain or loss, which is
generally taxable in the same manner as ordinary income. See "Marginal Tax
Rates; Capital Gains Taxation." The Trust will provide this information
within 75 days after the end of each calendar year. Shareholders whose Shares
are registered in the name of a nominee will receive such income tax
information from the nominee. The Trust, as required, will use the accrual
method of accounting.
The Trust will allocate to each Shareholder his share of Trust income. The
Trust anticipates that its income from ordinary operations will be excluded
from the gross income of its Shareholders for federal income tax purposes.
See "Trust Income." See, however, "Alternative Minimum Tax." The Trust will
allocate to each Shareholder his share of items of Trust expense. The Trust
anticipates that most individual Shareholders will not be permitted to deduct
items of Trust expense in calculating their federal income tax liability. See
"Trust Expenses."
A Shareholder will not recognize gain upon receipt of a cash distribution
from the Trust unless the distribution exceeds a Shareholder's adjusted basis
for his interest in the Trust immediately prior to the distribution. A
Shareholder's adjusted basis for his interest in the Trust generally will be
equal to the amount paid for the interest, increased by his allocable share
of Trust taxable income, if any, and his allocable share of Trust tax-exempt
income, and decreased by his share of (i) Trust Distributions, (ii) Trust tax
losses, if any, and (iii) Trust expenditures which are not deductible in
computing his taxable income and not properly chargeable to capital (such as
the Trust's expenses allocable to tax-exempt interest income).
The Trust anticipates that, generally, Distributions by the Trust will not
exceed the adjusted basis of the interest in the Trust of any Shareholder who
acquires its interest in the Trust during the offering period. Consequently,
the Trust anticipates that Trust distributions to Shareholders will not
constitute taxable gain to Shareholders for federal income tax purposes.
A Shareholder will have a disparity between the basis for his Shares and
his capital account and will therefore have a remaining basis for his shares
after liquidating distributions are made in an amount equal to the selling
commissions paid by him. Accordingly, if such investor holds his Shares until
the Trust is liquidated, he will have a capital loss upon termination in such
amount. Alternatively, such investor will be able to take such selling
commissions into account as part of his basis in determining his gain (or
loss) from the sale of Shares prior to liquidation of the Trust. See "Sale or
Disposition of First Mortgage Bonds."
Reinvestment Plan
Pursuant to the Reinvestment Plan, Shareholders may elect to have all or a
portion of their Distributions from the Trust invested in additional Shares of
the Trust through the Trust's Reinvestment Plan. Participants in the
Reinvestment Plan will be taxed on their share of Trust taxable income, if any,
in the same manner as if they received their Trust Distributions in cash; thus,
investors in the Reinvestment Plan may incur a tax liability even though they do
not receive a cash distribution. However, given the expected tax-exempt nature
of Trust income, any such tax consequences are expected to be minimal.
Allocation of Profit and Losses
Allocations of Net Income and Net Loss are described above in "Income and
Losses and Cash Distributions."
(i) General Allocations
Pursuant to Code Section 704(b)(2) and recently promulgated final
regulations thereunder (the "Final Section 704 Regulations"), an allocation
of income or loss set forth in a partnership agreement will be recognized for
federal income tax purposes provided the allocation has "substantial economic
effect." If the allocation is found to lack "substantial economic effect,"
then the allocation will be "determined in accordance with the partner's
interest in the partnership (determined by taking into account all the facts
and circumstances)."
Under the Final Section 704 Regulations, allocations of partnership
income, gain, loss, deduction or credit ("Partnership Tax Items") will have
economic effect only if, throughout the full term of the partnership, the
partnership agreement provides: (i) for the determination and maintenance of
the partners' capital accounts in accordance with the rules set forth in the
Final Section 704 Regulations; (ii) upon liquidation of the partnership (or
any partner's interest in the partnership), that liquidating distributions
are in all cases to be made in accordance with the positive capital account
balances of the partners, as determined after taking into account all capital
account adjustments for the partner-
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ship taxable year during which such liquidation occurs; and (iii) any partner
with a deficit balance in his capital account following the liquidation of
his interest in the partnership is unconditionally obligated to restore the
amount of such deficit balance to the partnership, which amount will be paid
to creditors or distributed to partners with positive capital account
balances (the "Primary Economic Effect Test").
If the Primary Economic Effect Test is not satisfied, the Final Section
704 Regulations provide an alternate test for economic effect (the "Alternate
Economic Effect Test") pursuant to which allocations of Partnership Tax Items
which do not reduce a Shareholder's capital account below zero (or increase a
deficit balance in such Shareholder's capital account) will nevertheless have
economic effect if requirements (i) and (ii) of the Primary Economic Effect
Test are satisfied and if the partnership agreement provides for a "qualified
income offset"--i.e., that a partner who unexpectedly receives an adjustment,
allocation or distribution of certain prescribed items will be allocated
income and gain in an amount and manner sufficient to eliminate such deficit
balance as quickly as possible.
Under the Final Section 704 Regulations, the effect of allocations of
Partnership Tax Items must be substantial. In general, such allocations will
be considered to be substantial if there is a reasonable possibility that the
allocation will affect substantially the dollar amounts to be received by the
partners, independent of tax consequences. Treas. Reg. Section 1.704-1(b)(2).
An allocation will be considered to be insubstantial if, as a result of the
allocation, the after-tax economic consequences of at least one partner may,
in present value terms, be enhanced, and there is a strong likelihood that
the after-tax economic consequences of no partner will, in present value
terms, be diminished. Allocations are also insubstantial if they merely shift
tax consequences within a partnership taxable year or are likely to be offset
by other allocations in subsequent taxable years.
The Shareholders will contribute virtually all of the capital to the
Trust. The Trust Agreement provides that if an allocation of Net Loss to a
Shareholder would reduce his capital account below zero (or increase a
deficit balance in his capital account), such allocation will instead be made
to Shareholders having positive capital account balances. The Trust Agreement
also provides for a "qualified income offset"; i.e., in the event that a
Shareholder's capital account balance falls below zero at the end of any year
because of distributions or certain types of losses or deductions allocated
to him, he shall be allocated Net Income or gross income as quickly as
possible to the extent necessary to eliminate his excess deficit capital
account balance. In addition, the Trust Agreement provides (i) for
determination and maintenance of Shareholders' capital accounts in accordance
with the Final Section 704 Regulations; and (ii) that liquidating
distributions will in all cases be made in accordance with the positive
capital account balances of the Shareholders.
Thus, while the allocations of Net Income and Net Loss contained in the
Trust Agreement do not satisfy the Primary Economic Effect Test, such
allocations do satisfy the Alternate Economic Effect Test. Based on the
foregoing, Counsel is of the opinion that it is more likely than not that the
allocations of Net Income and Net Loss to the Shareholders will be respected.
If the IRS prevailed in an attempt to recharacterize fees paid to the
Manager and/or its Affiliates as Trust distributions, on which issue Counsel
is not opining because such a determination is dependent on facts which are
presently unascertainable, the IRS might assert that the Shareholders'
interest in Trust Net Income and Net Loss should be reduced. However, a
successful assertion of that position should not adversely affect the
Shareholders.
(ii) Allocation Periods
(a) Allocations During Offering Period
The Trust Agreement provides that Net Income and Net Loss, other than that
attributable to a Disposition, will be allocated during the offering period
on a semi-monthly basis, so that investors who purchase Shares on or prior to
the 15th day of a month will be treated as owning Shares as of the first day
of such month and investors who purchase Shares after the 15th day will be
treated for all purposes as owning such Shares as of the 16th day of such
month. Net Income and Net Loss attributable to a Disposition is allocated to
those investors who hold Shares on the date the Trust receives the
corresponding Sale or Repayment Proceeds.
Section 706(d) of the Code requires that in determining the share of
income, loss or any special item allocable to a partner, the partner's
varying interests in the partnership during the taxable year shall be taken
into account. The IRS has not yet promulgated regulations under this
provision relating to appropriate methods of allocating income so as to
reflect the varying interests of the partners.
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The IRS, in news release IR-84-129, announced that partnerships using the
"interim-closing-of-the-books" method to take into account the varying interests
of partners during a taxable year will be permitted to use a "semi-monthly
convention" pursuant to which the varying interests of partners used to
determine their distributive shares of partnership items is determined by
treating partners entering during the first 15 days of the month as entering on
the first day of the month and partners entering after the 15th day of the month
as entering on the 16th day of the month.
The Trust intends to use the "interim-closing-of-the-books" method to
allocate Net Income and Net Loss other than from a Disposition. Based on the
foregoing, Counsel is of the opinion that it is more likely than not that the
Trust would prevail if the IRS were to challenge its method of allocation
during the offering period.
(b) Allocations After Offering Period
The Trust Agreement provides that Net Income and Net Loss will be
allocated on a semi-monthly basis to Shareholders of record on the first and
the sixteenth days of each month. For this purpose, transfers will not be
effective until the completion of the requirements set forth in the Trust
Agreement for the registration of a transferee of Shares on the books and
records of the Trust.
The Code provides that if a partner sells or exchanges his entire interest
in a partnership, then the partner's distributive share of income and loss
shall be determined for the period ending with such sale or exchange, which
may be made based on the number of days that he was a partner. Because
transfers that are consented to by the Manager are only effective upon
completion of the requirements set forth in the Trust Agreement for the
registration of a transferee of Shares on the books and records of the Trust,
this allocation method is effectively the same as a daily allocation method.
Accordingly, Counsel is of the opinion that such allocation method will be
respected. Counsel is also of the opinion that it is more likely than not
that the allocations of Net Income and Net Loss from a Disposition will be
respected because such allocations are made to Shareholders of record on the
date the Sale or Repayment Proceeds are received.
Trust Income
It is expected that all of the First Mortgage Bonds will be "private activity
bonds" as defined in the Code. The Code excludes interest on certain private
activity bonds from gross income for federal income tax purposes if certain
requirements are met. In general, these requirements include certain
limitations on the use of the Properties (e.g., percentage of units that must
be occupied by persons of low or moderate income, see below), limitation on
the investment of proceeds of the First Mortgage Bonds and other amounts and
requirements that certain earnings be rebated to the federal government.
Noncompliance with such requirements may cause interest on such obligations
to become subject to federal income taxation retroactive to the First
Mortgage Bond's date of issue, irrespective of the date of occurrence of such
noncompliance.
However, First Mortgage Bonds that finance properties owned by non-profit
corporations are generally not subject to such low and moderate income
occupancy requirements unless a subject Property is not new construction and
is not to be substantially rehabilitated.
With respect to First Mortgage Bonds issued after December 31, 1985, other
than bonds financing certain properties owned by non-profit corporations,
either 40% of the units in a tax-exempt financed multi-family housing project
must be reserved for families earning 60% or less of the median gross income
in the relevant locality, or 20% of the units must be reserved for families
earning 50% or less of such median gross income. While under prior law, a
tenant is a low- or moderate-income person or family if such tenant was low-
or moderate-income at the time of initial occupancy, the Code now provides
that if a project ceases to comply with the set-aside because of existing
tenant income increases, the existing tenants who no longer meet the income
requirements may remain tenants but the first vacant market-rate units of
comparable or smaller size to those occupied by tenants whose income had
increased must be rented to new low-income tenants. In addition, the
"qualified project period" for multi-family housing projects, during which
the foregoing low- or moderate-income requirements must be satisfied, begins
on the later of the date of issuance of the First Mortgage Bonds or the date
when at least 10% of the units are first occupied and ends on the latest of
(i) 15 years (as opposed to 10 years under prior law) after the date on which
at least 50% of the units are first occupied, (ii) the date on which none of
the bonds issued with respect to the project are outstanding (as opposed to a
"qualified number of days" as under prior law), or (iii) the date of
termination of any assistance provided to the project under Section 8 of the
United States Housing Act of 1937. This
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change in the definition of "qualified project period" generally increases
the period of time during which low- or moderate-income requirements must be
satisfied, thereby possibly delaying the sale of the project to a purchaser
desiring higher income tenants. Due to the application of the transition
rules of the 1986 Act, certain First Mortgage Bonds to be acquired by the
Trust may still be subject to the provisions of prior law (as discussed more
fully in "Investment Objectives and Policies--The Regulatory Agreement") and
may not be subject to the more stringent provisions of current law.
Current law requires that 95% (rather than 90% as under prior law) of the
proceeds of tax-exempt multi-family residential rental property bonds (other
than proceeds invested in a reasonably required reserve or replacement fund)
be expended for qualifying costs (i.e., expended for the exempt purpose of
the borrowing) in order for the interest on such bonds to be exempt from tax.
The costs of bond issuance (including attorneys' fees and underwriter's
spread) do not count toward the satisfaction of the 95% requirement. In
addition, the aggregate costs of issuance paid from bonds may not exceed 2%
of the proceeds of the bonds. As a general rule, these restrictions apply to
First Mortgage Bonds issued after August 15, 1986.
In order to comply with the above-described requirements, each borrower
(except in certain limited cases with respect to non-profit owners of
Properties) is expected to enter into a Regulatory Agreement providing, among
other things, that its Property will be maintained and available for the
period and in the manner required by the Regulations. See "Investment
Objectives and Policies--The Regulatory Agreement."
The Trust expects that it will be able to acquire outstanding First
Mortgage Bonds that are not subject to all the restrictions that apply to
private activity bonds issued after 1985 to acquire or construct multifamily
housing. The restructuring of the First Mortgage Bonds will in most cases be
considered the issuance of a new bond to refund all or a portion of the
pre-1986 First Mortgage Bond. In the restructuring, the Trust will be deemed
to have surrendered the First Mortgage Bonds it acquired in exchange for the
restructured First Mortgage Bonds. If the Trust receives, or is deemed to
receive, restructured First Mortgage Bonds or other obligations with an issue
price in excess of the acquisition price paid by the Trust, then the Trust
may be deemed to have recognized a taxable gain either at the time of the
restructuring or on repayment of the principal amount of the restructured
First Mortgage Bonds.
The Trust will not acquire a First Mortgage Bond (except certain bonds
that finance Properties owned by non-profit corporations) unless it receives
an opinion of bond counsel that, assuming continuing compliance with the
requirements of the Code (or, if applicable, the 1954 Code), under existing
laws, regulations, rulings and judicial decisions, interest on the First
Mortgage Bond (other than a portion of such interest secured by Properties
located in Texas), including Contingent Interest, will be excluded from gross
income for federal income tax purposes or will be exempt from federal income
taxation (except as to the alternative minimum tax, the environmental tax,
the branch profits tax, the tax on certain passive investment income of S
corporations and the taxation of certain social security or railroad
retirement benefits), except (in certain cases) for any period during which a
First Mortgage Bond is held by a "substantial user" of the corresponding
Property or by a "related person" to a substantial user. In addition, in
certain situations, particularly with respect to Contingent Interest, pending
legislation or pending regulations, the Trust may accept a reasoned or
qualified opinion with respect to the exemption of interest from federal
income taxation. Any interest in excess of an average annual rate of 15% with
respect to Mortgage Loans secured by Properties located in Texas is expected
to be includible in gross income for federal income tax purposes.
Except in the case of First Mortgage Bonds issued to finance certain
properties for a non-profit corporation, interest on a First Mortgage Bond
will not be excluded from the gross income of the Trust for any period during
which the Trust is a "substantial user" of the corresponding Property or a
"related person" to a substantial user. In addition, any Shareholder's
allocable share of interest income from such a First Mortgage Bond will not
be excluded from gross income for any period during which such Shareholder is
a "substantial user" of the corresponding Property or a "related person" to a
"substantial user." Applicable regulations provide that a "substantial user"
of a Property would include the corresponding borrower, and any partner of
the corresponding borrower would be considered a "related person" to a
substantial user. Therefore, if such a partner of a borrower becomes a
Shareholder, such partner will receive taxable income to the extent of its
allocable share of interest received by the Trust with regard to the First
Mortgage Bonds
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that financed the Properties owned by the borrower in which such Shareholder
is a partner. Moreover, it is possible that if such partner of a borrower
becomes a Shareholder, Distributions related to this borrower's First
Mortgage Bond may be taxable for all Shareholders.
In order to reduce the possibility that a substantial user will own an
interest in the Trust, no person who owns or otherwise uses a Property in its
trade or business will be permitted to subscribe for Shares unless, in the
opinion of counsel, ownership of the interest in the Trust will not cause the
Trust or the Shareholder to be considered "substantial users" or "related
persons" to substantial users, within the meaning of the Code.
The "original issue discount" ("OID") rules of the Code do not generally
apply to tax-exempt obligations. However, in the event that, notwithstanding
the opinion of bond counsel, interest received by the Trust on the First
Mortgage Bonds is includible in its gross income for federal income tax
purposes, then with respect to the Contingent Interest, the Trust (and
Shareholders) may be required to include a portion of the Contingent Interest
in gross income annually pursuant to a compounding method, even though the
Trust may not receive any payments on the First Mortgage Bonds in that year.
However, Proposed Regulations on the OID rules provide that the portion of
contingent interest payments which is considered interest (rather than
principal) under such regulations is not subject to the OID rules and is
includible in the payee's income and deductible from the payor's income in
their respective taxable years in which the amount of the payment becomes
fixed.
As noted in "Investment Objectives and Policies-- Principal Investment
Objectives," the Trust may purchase First Mortgage Bonds after having reached
an agreement on the terms of a proposed restructuring of such bonds with the
Property Owner but before it obtains approval of the governmental entity that
is the issuer of the First Mortgage Bonds. If the Trust is subsequently not
able to obtain the approval of the relevant government issuer to any
restructuring, the Trust, in order to avoid the receipt of taxable income,
may be forced either to foreclose on the Property securing the First Mortgage
Bond or to sell the bond, if the Mortgage Loan is then in default. However,
if any such sale or other disposition produced a gain or if the Trust
acquired the underlying Property as a result of a foreclosure and was in
receipt of net rental income, the Shareholders would recognize taxable
income.
The Superfund Amendments Reauthorization Act of 1986 imposes a tax at a
.12% rate with respect to corporations on the excess of a corporation's
"modified alternative minimum taxable income" (determined in generally the
same manner as for the corporate alternative minimum tax, including the
adjustment for adjusted current earnings) over $2 million. Regardless of
whether a corporation is subject to the alternative minimum tax, the
environmental tax applies with respect to taxable years beginning after
December 31, 1986 and before January 1, 1996.
The Code imposes a tax, at the highest income tax rate applicable to
corporations, on the "excess passive net income" of an S corporation for any
taxable year in which the S corporation has (i) Subchapter C earnings and
profits as of the close of such taxable year and (ii) passive investment
income in excess of 25% of its gross receipts for such taxable year. Interest
on the First Mortgage Bonds will be considered passive investment income for
purposes of determining whether an S corporation is subject to this tax.
The Code also provides that 100% of any otherwise allowable interest
expense of financial institutions allocable to the purchase or carrying of
First Mortgage Bonds acquired after August 7, 1986 will be disallowed. As
under prior law, interest on indebtedness incurred or continued by an
individual to purchase or carry First Mortgage Bonds will not be deductible.
The Code further provides that interest on the First Mortgage Bonds is
includible in the calculation of modified adjusted gross income in
determining whether a portion of social security or railroad retirement
benefits are to be included in taxable income of individuals.
Treatment of Mortgage Loans Containing Contingent Interest
As described above in "Investment Objectives and Policies--The Terms of the
First Mortgage Bonds and Mortgage Loans" and in "General Risks of Ownership of
First Mortgage Bonds," payment of a portion of the interest accruing on the
First Mortgage Bonds will be dependent upon the net property cash flow and the
appreciation of the Properties. In view of this, an issue may arise as to
whether the relationship between the Trust and the mortgagor is that of debtor
and creditor or whether the Trust is engaged in a partnership or joint venture
with the mortgagor. As a creditor of the mortgagor, income derived from the
mortgagor would be treated in full as interest and exempt from federal income
taxation (based on the opinion of bond counsel that interest
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on the First Mortgage Bonds is exempt). As a partner or a joint venturer with
the mortgagor, the income from such contingent interest payments and/or the
base rate of interest would be treated as a distribution of partnership
profits. A determination that the Trust is a partner or a joint venturer with
a mortgagor could cause the Trust to be treated as a "substantial user" of
the Properties and, therefore, cause interest on the First Mortgage Bonds to
be included in the Trust's gross income for federal income tax purposes. In
addition, treatment of the First Mortgage Bonds as involving an equity
investment might also result in the reallocation of taxable income and loss
from the mortgagors to the Trust.
In analyzing whether a partner's unsecured loan to a partnership should be
treated as a loan or a capital contribution (see Joseph W. Hambuechen, 43
T.C. 90 (1964)) and whether an unsecured loan creates a joint venture
relationship (see Hyman Podell, 55 T.C. 429 (1970)), courts have considered
all the facts and circumstances surrounding the transactions and at times
both lines of authority consider the same factors. Counsel believes that in
determining whether the relationship between the Trust and a mortgagor is
that of a debtor paying interest or a joint venturer distributing net
profits, a court would consider the following factors: (1) the names given to
the certificates evidencing the indebtedness; (2) the presence or absence of
a maturity date; (3) the source of the payments; (4) the right to enforce the
payment of principal and interest; (5) participation in management; (6) a
status equal to or inferior to that of regular creditors; (7) the intent of
the parties; (8) the existence of "thin" or adequate capitalization; (9)
identity of or interest between creditor and borrower; (10) payment of
interest only out of net profits; and (11) the ability of the entity to
obtain loans from outside lending institutions.
Amendments made to the Code in 1989 authorized the Treasury to prescribe
regulations to determine whether an interest in a corporation should be
treated as part stock and part debt. Although applicable by its terms to
interests in corporations, the principles leading to this amendment of the
Code could also be expanded to apply to mortgage loans which possess both
debt and equity features. For example, such treatment may be appropriate in
circumstances where a debt instrument provides for payments that are
dependent to a significant extent (whether in whole or in part) on corporate
performance, whether through equity kickers, contingent interest, significant
deferral or payment, subordination or an interest rate sufficiently high to
suggest a significant risk of default. Any regulations issued pursuant to the
Treasury's authority will apply on a prospective basis only; i.e., with
respect to instruments issued after the date on which the Treasury Department
provides public guidance as to the characterization of such instruments.
Based on current federal income tax laws and regulations thereunder, an
analysis of the above factors and certain representations made by the Manager
to Counsel concerning the terms of the Mortgage Loans underlying the First
Mortgage Bonds, Counsel is of the opinion that it is more likely than not
that, with respect to First Mortgage Bonds containing Contingent Interest for
which the representations noted above are satisfied and which are issued
prior to the time the Treasury Department provides public guidance on the
characterization of instruments which possess both debt-like and equity-like
features, the relationship between such mortgagors and the Trust, as
Bondholder, will be that of debtor and creditor and not one of equity
participants or joint venturers. Accordingly, the income from First Mortgage
Bonds containing Contingent Interest, in Counsel's opinion, more likely than
not will be deemed to be interest (including the Contingent Interest) and
therefore (based on the opinion of bond counsel (retained by the issuer of
the First Mortgage Bonds or by the Trust) or special counsel for the Trust)
should not be included in the gross income of the Trust. However, Counsel's
opinion is not binding on the IRS.
Trust Expenses
The Trust will incur expenses as described at "Estimated Use of Proceeds" and
"Management Compensation" in connection with the organization of the Trust, the
offer and sale of the Shares and the operation of the Trust. The Manager
anticipates that all of the Trust's ordinary expenses will be attributable to
the production of tax-exempt interest income. The Code prohibits the deduction
of any expense otherwise allowable under Code Section 212 which is allocable to
tax-exempt interest income. Code Section 212 permits individuals to claim a
deduction for ordinary and necessary expenses paid or incurred for the
production or collection of income or for the management, conservation or
maintenance of property held for production of income. Accordingly, the Manager
anticipates that most Shareholders who are individuals will not be permitted to
claim their share of Trust expenses in calculating their federal income tax.
To the extent that Trust expenses are not attributable to tax-exempt
interest income, current law, subject to regula-
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tions to be issued, prohibits a Shareholder's deduction of his allocable
portion of such Trust expenses except to the extent that such expenses, when
added to the Shareholder's other miscellaneous itemized deductions, exceed 2%
of the Shareholder's adjusted gross income.
However, a Shareholder which acquires Shares in the ordinary course of its
trade or business may claim its share of Trust expenses in calculating its
federal income tax. Such a deduction might be available, for example, to
Shareholders such as financial institutions or securities dealers if they
acquire Shares in the ordinary course of their trade or business. Any such
deduction will be permitted only to the extent that Trust expenses are
reasonable and properly allocable to the period in which they are deducted.
Although the Manager believes that expenses incurred by the Trust will be
reasonable and will be allocated to the proper periods, the IRS may challenge
and disallow all or a portion of any deduction allocable to the expense. In
any event, Shareholders should consult with their personal tax advisers prior
to attempting to deduct any portion of their share of Trust expenses.
Treatment of Fees
Counsel has not opined on the treatment for federal income tax purposes of
the Bond Selection Fee and the Special Distribution to the Manager because the
appropriate tax characterization involves factual determinations, which may be
contested by the IRS.
The Trust intends to capitalize the Bond Selection Fee payable to the
Manager as part of the tax basis of the First Mortgage Bonds. Upon any sale
of a First Mortgage Bond, an allocable portion of such fee would reduce the
amount of any gain realized from such sale. The IRS could contend that some
portion of such fees should be treated as a nondeductible syndication expense
and should not be included in the basis of a First Mortgage Bond. In such
event, a Shareholder's pro rata share of such fees would only be deductible
when a Shareholder sold its Shares.
The Trust Agreement provides for a special allocation of income to the
Manager in an amount equal to the Special Distribution. Under Code Section
707(a)(2) a special allocation of income in conjunction with a special
distribution made in return for the performance of services is respected only
to the extent the amount distributed would be deductible as a fee paid to a
third person or a Shareholder in the Trust.
In Rev. Rul. 81-301, 1981-2 C.B. 144, the IRS ruled that a percentage
allocation of gross income to a partner for services is subject to the tests
for deductibility under Code Section 707(a), which treats the payment as if
paid to a person not a partner in the partnership thereby making applicable
the reasonable, ordinary and necessary tests for a compensation deduction.
It is possible that the IRS may challenge the special allocation
accompanying the Special Distribution on the basis that it is excessive, or
that all or a portion of the Special Distribution should properly be
considered payment for other services performed by, or other value provided
by, the Manager or that payments for such services rendered are not
deductible. Such a challenge would be based upon factual determinations which
facts are not presently ascertainable and, therefore, Counsel is unable to
opine on this issue. However, to the extent it is held that the Special
Distribution is not excessive and the management services are actually
performed in the taxable year, it is likely that the special allocation would
be respected.
Marginal Tax Rates; Capital Gains Taxation
The Code provides a maximum marginal tax rate of 39.6% for individuals and
35% for corporations. The maximum capital gains rate for non-corporate taxpayers
is 28%. Net capital losses of non-corporate taxpayers are deductible only up to
a maximum of $3,000 per year.
Potential Dealer Status
If the Trust is deemed to be a "dealer" for federal income tax purposes, such
determination would have an adverse effect on investors in the Trust. Gain, if
any, resulting from the disposition of First Mortgage Bonds or Tax-Exempt
Securities would be treated as ordinary income to investors because the First
Mortgage Bonds or Tax-Exempt Securities would not be capital assets. See
"Marginal Tax Rates; Capital Gains Taxation."
A "dealer" is one who holds property primarily for sale to customers in
the ordinary course of his trade or business. The Trust has been organized to
acquire First Mortgage Bonds and, to a lesser extent, Tax-Exempt Securities
for investment and not to engage in the business of buying and selling First
Mortgage Bonds and Tax-Exempt Securities. Accordingly, the Manager does not
believe that the Trust will be treated as a "dealer." Since the determination
of this issue depends, however, on the facts and circumstances of the Trust's
operations existing from time to time, Counsel has not opined on the status
of the Trust as a "dealer" and no
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assurance can be given that the Trust will not be deemed to be a "dealer" in
First Mortgage Bonds and Tax-Exempt Securities.
Sale of Shares; Disposition of First Mortgage Bonds; Treatment of Market
Discount
Any gain recognized by a Shareholder on the sale or exchange of Shares will
generally be treated as a capital gain, unless the First Mortgage Bonds or
Tax-Exempt Securities held by the Trust are not capital assets or such First
Mortgage Bonds or Tax-Exempt Securities would not be capital assets if held by
the Shareholder (because the First Mortgage Bonds or Tax-Exempt Securities are
dealer property) and such First Mortgage Bonds or Tax-Exempt Securities have a
fair market value of more than 120% of their basis to the Trust. Such gain also
may not be treated as capital gain if the participation feature of a First
Mortgage Bond is deemed to be a partnership or joint venture interest. Apart
from the foregoing, although a Shareholder may otherwise be a dealer in Shares,
gain or loss on the sale of a Share will be characterized as a capital gain or
loss. See H. Clinton Pollack, Jr. v. Comm'r, 69 T.C. 142 (1977). See "Allocation
of Profits and Losses" above for a discussion of the effect of a sale on
allocations of profits and losses.
Code Section 6031(c)(1) requires that any person who holds an interest in
the Trust as a nominee for any other person (such as a broker holding Shares
in street-name) must furnish the Trust with the name, address and taxpayer
identification number of both the nominee and each beneficial owner for whom
the nominee held Shares at any time during the year, setting forth the number
of Shares owned for each beneficial owner and the number of Shares which are
transferred by the nominee during the year to the beneficial owner or to any
other person. The nominee must furnish this information to the Trust on or
before the January 31st following the close of each Trust taxable year.
Failure to properly notify the Trust will subject the nominee to IRS
penalties.
Any gain recognized by the Trust on the sale or exchange of a First
Mortgage Bond or Tax-Exempt Securities will be treated as a capital gain
unless the Trust is deemed to be a "dealer" in First Mortgage Bonds or
Tax-Exempt Securities for federal income tax purposes. In such events, the
entire gain, if any, would constitute ordinary income. See "Potential Dealer
Status." In addition, gain to the extent of "accrued market discount"
(discussed below) may be taxable as ordinary income.
As a result of the enactment of the Revenue Reconciliation Act of 1993,
gain attributable to accrued market discount on tax-exempt obligations, such
as the First Mortgage Bonds, issued after July 18, 1984, and acquired after
April 30, 1993, will be taxed as ordinary income, and any gain realized in
excess of such accrued market discount will be taxed as capital gain as long
as the obligor on the First Mortgage Bond is not an individual and the First
Mortgage Bond is held as a capital asset.
In almost all cases the restructured First Mortgage Bonds will be deemed
to have been issued after July 18, 1984 so that the market discount rules of
the Code would apply. "Market discount" is the excess of a bond's stated
redemption price at maturity over the adjusted basis of such bond immediately
after its acquisition by the taxpayer; "accrued market discount" is the sum
of the equal daily portions of the market discount during the period the
taxpayer holds the bond. In the case of a disposition of an acquired First
Mortgage Bond which was issued after July 18, 1984, the Trust will recognize
a portion of the gain on such disposition as ordinary income, equal to the
amount of accrued market discount. Under the Code, market discount on
obligations issued after July 18, 1984 is deemed to accrue on a straight-line
basis unless the holder elects to accrue such discount on a constant interest
basis. If the Trust were to make such an election, the amount of market
discount includible in income would be lower in earlier years and greater in
later years than amounts computed on a straight-line basis.
Dissolution and Liquidation of Trust
Upon the dissolution of the Trust, the assets of the Trust are to be sold,
which may result in the realization of taxable gain to the Shareholders.
Distributions of cash in complete liquidation of the Trust will generally be
treated in the same manner as non-liquidating distributions of cash.
Tax Elections
Code Section 754 permits an entity taxed as a partnership to elect to adjust
the basis of its property upon (i) the transfer of an interest in the entity by
sale or exchange or on the death of an investor in the entity, and (ii) the
distribution of property by the entity to an investor. The general effect of
such an election is that transferees of such interests are treated, for purposes
of computing gain, as though they had acquired a direct interest in the entity's
assets and the entity is treated for such purposes, upon certain distributions
to investors, as though it had newly acquired an interest in such trans-
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feree's allocable portion of such assets and therefore acquired a new cost
basis for such assets. Any such election may not be revoked unless the
consent of the IRS is obtained. As a result of the complexities and added
expense of the tax accounting required to implement such an election, the
Manager does not presently intend to make such an election, although it is
empowered to do so by the Trust Agreement. Accordingly, upon the sale of a
First Mortgage Bond or Tax-Exempt Security by the Trust subsequent to the
transfer of a Share consented to by the Manager, taxable gain or loss to the
transferee of the Share will be measured by the difference between its pro
rata share of the amount realized by the Trust on such sale and its share of
the Trust's tax basis in such First Mortgage Bond or a Tax-Exempt Security
(which, in the absence of a Section 754 election, will be unchanged by the
transfer of the Shares), rather than by the difference between its share of
the amount realized and the portion of its purchase price that was allocable
to such First Mortgage Bond or Tax-Exempt Security. As a consequence, if the
First Mortgage Bonds or Tax-Exempt Securities have appreciated in value, such
transferee may be subject to tax upon a portion of the proceeds which, as to
him, may constitute a return of capital if the purchase price of his Shares
exceeded his share of the Trust's adjusted basis in all its First Mortgage
Bonds or Tax-Exempt Securities. Therefore, any benefits which might have been
available to Shareholders by reason of such an election will not be
available.
The Trust may make various elections for federal income tax reporting
purposes which could result in items of income, gain, loss or deduction being
treated differently for tax purposes than for accounting purposes. The
determination of whether to elect a different treatment for tax purposes than
for accounting purposes with respect to a particular item will be made by the
Manager.
Alternative Minimum Tax
For taxable years beginning after 1992, individuals and corporations are
subject to an alternative minimum tax at rates up to 28% and 20% of alternative
minimum taxable income, respectively, which is payable generally to the extent
that it exceeds their regular tax liability. Alternative minimum taxable income
is based on regular tax adjusted gross income, increased by certain tax
preferences and reduced by the alternative tax itemized deductions. The
exemption amount ($45,000 for married filing jointly; $33,750 for single;
$40,000 for corporations) is reduced by 25% of the amount by which alternative
minimum taxable income exceeds $150,000 ($112,500 for single taxpayers).
Among the tax preference items for both corporate and individual corporate
alternative minimum tax purposes is the interest on private activity bonds
such as tax-exempt bonds used to finance multifamily residential rental
projects. This provision applies to interest on First Mortgage Bonds issued
after August 7, 1986, but does not apply to First Mortgage Bonds issued after
such date to refund a bond that was issued before August 8, 1986. For
corporate investors, a portion of the interest on the First Mortgage Bonds
will also be taken into account in computing the "adjusted current earnings"
adjustment item and may thereby be included in a corporation's alternative
minimum taxable income. The effect of the alternative minimum tax upon an
investor in the Trust will depend upon the investor's own tax situation.
Interest Incurred by Trust and/or Shareholder
The Code prohibits a deduction by a taxpayer for any interest on indebtedness
incurred or continued to purchase or carry First Mortgage Bonds or Tax-Exempt
Securities. Consequently, most Shareholders may not deduct interest paid or
accrued on Trust indebtedness incurred or continued to purchase or carry First
Mortgage Bonds or Tax-Exempt Securities or indebtedness incurred by a
Shareholder to purchase or carry an interest in the Trust. Although a deduction
for interest on indebtedness may be disallowed even if the purchase of an
interest in the Trust is not directly traceable to the indebtedness, the IRS
generally will not disallow a deduction for interest on indebtedness incurred
for personal purposes (e.g., a mortgage on a personal residence) or in
connection with the active conduct of a trade or business (unless it is
determined that the borrowing was in excess of business needs or that the
taxpayer could reasonably have foreseen when purchasing the tax-exempt
securities that debt would have to be incurred to meet ordinary and recurring
business needs). However, if a Shareholder acquires an interest in the Trust and
has outstanding debts which are not directly connected either with personal
expenditures or with the active conduct of a trade or business, a deduction for
interest on such debt may be disallowed.
For taxable years ending after 1986, Code Section 265(b) provides that
financial institutions cannot deduct interest expense allocable to the
purchase or carrying of First Mortgage Bonds acquired after August 7, 1986.
Interest incurred by these financial institutions to purchase or carry an
interest in the Trust will be subject to these limitations.
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Each Shareholder should consult his tax adviser to determine the application
of these provisions, including certain rules governing the allocation of
indebtedness to tax-exempt obligations, to his particular facts and
circumstances.
Tax Termination of the Trust
If 50% or more of the Shares are sold or exchanged within a 12-month period
(excluding successive transfers of the same Shares), the Trust will be treated
as terminating for federal income tax purposes. Although no assurance can be
given, the Manager believes a termination after the conclusion of the offering
is unlikely. If a termination does occur, however, the assets of the Trust will
be deemed to be constructively distributed pro rata to the Shareholders and then
recontributed by them to the Trust. Some of the adverse tax effects of a tax
termination before or after the conclusion of the offering are:
(i) The tax basis of assets in the hands of the Trust after termination
may be greater or less than the Trust's basis in such assets
immediately before the termination. Accordingly, a Shareholder's
allocable share of any taxable income or loss of the Trust may be
greater or less than his share of such income would have been if the
Trust did not terminate.
(ii) If the allocable portion of Trust cash constructively distributed to
a Shareholder exceeds the adjusted tax basis of his Shares, a
Shareholder will be required to recognize gain to the extent of such
excess. The gain will be treated as gain from the sale or exchange of
Shares.
(iii) The Trust's taxable year will end upon termination and, if a
Shareholder's taxable year differs from the Trust's calendar taxable
year, the termination could result in the "bunching" of more than
one year of Trust income or loss in the Shareholder's income tax
return for the taxable year in which the Trust terminates.
Audit of Tax Returns
Although the Trust is not being formed so as to allow investors to avail
themselves of losses or deductions generated by the Trust, the IRS may still
choose to audit the Trust's information returns. An audit of the Trust's
information returns may precipitate an audit of the individual income tax
returns of Shareholders. Any expense involved in an audit of a Shareholder's
return must be borne by such Shareholder. Prospective investors should also be
aware that if the IRS is successful in adjusting any item of income, gain,
deduction or loss reported on a Trust information return, corresponding
adjustments would be made to the individual income tax returns of Shareholders.
Further, any such audit might result in IRS adjustments to items of non-Trust
income or loss. If a tax deficiency is determined, the taxpayer is liable for
interest on such deficiency from the due date of the return.
The tax treatment of items of Trust income, gain, loss, deductions or
credit will be determined at the Trust level in a unified Trust proceeding,
rather than in separate proceedings with the Shareholders. Generally, the
"tax matters partner" of a public entity taxed as a partnership would
represent the entity before the IRS and may enter into a settlement with the
IRS as to entity tax issues, which generally will be binding on all of the
investors in the entity. Similarly, only one judicial proceeding contesting
an IRS determination may be filed on behalf of the entity and its investors.
The Trust has designated the Manager as the tax matters partner. The tax
matters partner may consent to an extension of the statute of limitations
period for all Shareholders with respect to Trust items, unless the Trust
restricts his authority to execute such a consent, and the tax matters
partner notifies the Secretary of the Treasury of such restriction. The Trust
Agreement does not deny the tax matters partner the authority to execute such
a consent.
Special Classes of Investors
The statements contained in the above discussion are primarily directed to
investors who are United States citizens or resident individuals. The tax
consequences relating to a purchase of Shares by other investors, such as
corporations, nonresident aliens, domestic and foreign trusts and estates and
foreign partnerships, will vary substantially from those affecting United States
citizens and resident individuals. The following discussion is not comprehensive
as to any such class of other potential investors and, accordingly, each such
investor should consult with his personal tax adviser, accountant or counsel
prior to making any investment in Shares.
1. Corporate Shareholders
Corporate Shareholders will be treated differently from individual
Shareholders in the following respects, among others:
(1) A corporation is taxed at rates different from those applicable to
individuals. Corporations are currently taxed at
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a maximum rate of 35%. While the receipt of tax-exempt interest on First
Mortgage Bonds would not be taxable income to a corporate Shareholder, such
income would increase a corporation's earnings and profits account, which in
effect would cause shareholders to be taxed on such interest when distributed
to them in the form of a dividend. Interest on First Mortgage Bonds will also
constitute a preference item for corporate alternative minimum tax purposes
as discussed in (2) below.
(2) A corporation is subject to an alternative minimum tax of 20% on its
alternative minimum taxable income in excess of $40,000 (which exemption
amount is reduced by 25% of the amount by which alternative minimum taxable
income exceeds $150,000). See "Alternative Minimum Tax."
2. Trusts
Trusts (other than qualified retirement trusts for which an investment in
Shares may not be suitable) which purchase Shares in the Trust may, as a
result of that investment, become associations taxable as corporations; i.e.,
all income may be taxed at corporate rates at the trust level, whether or not
the income is distributed to the beneficiaries.
Treasury Regulations provide that trusts which engage in the conduct of a
trade or business may, under some circumstances, be taxed as corporations. In
this connection, the courts have held that limited partners (whether trusts
or otherwise) are deemed to be engaged in the trade or business in which the
partnership itself is engaged. The determination of when a limited
partnership is engaged in a trade or business is in part a question of fact.
The Trust may be so engaged if it operates in the manner presently
contemplated and will be so engaged if (1) the Trust is deemed to be a
"dealer," an issue on which Counsel is not opining due to the factual nature
of such a determination although the Manager does not believe that the Trust
will be a dealer, or (2) if, notwithstanding the opinion of bond counsel to
the contrary, First Mortgage Bonds with Contingent Interest payments cause
the Trust to be deemed a partner with the underlying mortgagor. With respect
to any given trust investing in Shares, there may be a number of other
factors which are relevant in determining whether the trust is to be
classified as an association taxable as a corporation. While General Counsel
Memoranda ("G.C.M.s") prepared by the Chief Counsel of the Internal Revenue
Service cannot be cited as authority, in G.C.M. 38201 (December 14, 1979) the
Chief Counsel rejected a proposed Internal Revenue Service ruling and
concluded that a trust could not be considered to be engaged in business as a
corporation merely because the trust held a limited partnership interest as
an investment.
3. Foreign Investors
Because the income from operation of the Trust is expected to be excluded
from the gross income of the Shareholders for federal income tax purposes,
the Trust will not withhold U.S. income tax of 30% of the gross amount of
interest income allocable to foreign investors who are nonresident aliens,
foreign corporations, foreign partnerships, foreign trusts or foreign estates
within the meaning of Code Section 7701 ("foreign investors"). However, the
Trust is required to withhold at the time of sale a U.S. tax equal to 35% of
the gain realized from the sale of a First Mortgage Bond providing for
Contingent Interest, which is allocable to a foreign investor.
In the case of effectively connected taxable income allocable to foreign
partners, Code Section 1446 requires a partnership to withhold an amount
equal to the product of its (i) effectively connected taxable income and (ii)
the highest rate of tax on (A) non-corporate taxpayers (currently 39.6% ) or
(B) corporate taxpayers (currently 35%). The Code also imposes an additional
30% branch profits tax on the earnings and profits of a United States branch
of certain foreign corporations attributable to its income effectively
connected (or treated as effectively connected) with a United States trade or
business. Included in the earnings and profits of a United States branch of a
foreign corporation is income that would be effectively connected with a
United States trade or business if such income were taxable, such as the
interest on the First Mortgage Bonds. However, because the Trust's interest
income is not expected to be treated as effectively connected with the
conduct of a U.S. trade or business, Code Section 1446 is not expected to
apply to the Trust and the 30% branch profits tax is not expected to apply to
a Shareholder which is a foreign corporation as long as such corporation has
no other income which is effectively connected with a separate United States
trade or business.
Foreign investors are strongly urged to consult with their own tax
advisers concerning the federal income, estate and gift tax consequences
resulting from an investment in the Trust.
State and Local Taxes
Although substantially all of the Trust's Net Income is expected to be exempt
from federal income taxation, the
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Trust may operate in states and localities which impose a tax on the Trust's
assets or income, or on each Shareholder based upon his share of any income
(generally in excess of specified amounts) derived from the Trust's
activities in such jurisdiction. This summary will make no attempt to
summarize the state tax consequences of owning Shares in the various states
in which investors may reside, and an investor is advised to consult his own
tax counsel as to the state tax consequences in his particular state of
residence. However, an investor should be aware that many states which impose
a state income tax will tax bonds which are exempt from federal income
taxation unless the bond is issued to finance a facility in such state.
The Trust has been formed under the laws of the State of Delaware.
Prickett, Jones, Elliott, Kristol & Schnee, Delaware counsel to the Trust,
has advised that the Trust will be classified for Delaware tax purposes in
the same manner it is classified for federal income tax purposes.
If the Trust is classified as a partnership for federal income tax
purposes, the Trust will not be subject to any Delaware unincorporated
business tax and, assuming that the Trust derives no income from or connected
with sources within Delaware, neither the Shareholders, other than those who
reside or are domiciled in Delaware, nor the Trust will be subject to
Delaware personal income tax on income earned by the Trust.
If the Trust derives income from or connected with sources within
Delaware, the Shareholders, other than those who reside or are domiciled in
Delaware, may be subject to Delaware income tax in the following manner. Each
Shareholder's distributive share of items of Trust income, gain, loss, and
deduction entering into his federal taxable income (with certain
modifications) derived from or connected with sources within Delaware will be
included in the Shareholder's taxable income for determining the
Shareholder's tax liability under Delaware income tax laws.
Those Shareholders who are considered under Delaware tax law to reside or
to be domiciled in Delaware will be subject to Delaware income tax on their
entire taxable income. For such purposes, entire taxable income means the
Shareholder's federal adjusted gross income with certain modifications and
less certain deductions and personal exemptions provided by Delaware law.
If the Trust derives income from or in connection with sources within
Delaware, or if the Trust has a Shareholder who is a resident individual in
Delaware as that term is defined in the Delaware Code, then the Trust will be
required to file a tax return in Delaware for such tax year.
THIS ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. IN
ADDITION, THE ANALYSIS DOES NOT DISCUSS THE POSSIBLE COMPLEX ESTATE OR GIFT
TAX CONSEQUENCES RELATED TO THIS INVESTMENT. ACCORDINGLY, PROSPECTIVE
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO
THEIR OWN TAX SITUATION AND THE EFFECTS OF THIS INVESTMENT THEREON.
_______________________________________________________________________________
REINVESTMENT PLAN SUMMARY
_______________________________________________________________________________
A Reinvestment Plan (the "Reinvestment Plan") will be available which will
be designed to enable Shareholders to have their distributions from the Trust
invested in Shares of the Trust, or fractions thereof.
The following is a summary of the principal terms of the Reinvestment
Plan. A copy of the Plan is included as part of this Prospectus as Exhibit B.
The Reinvestment Plan will become effective commencing with the effective
date of this offering.
The Trust may retain an agent for the Reinvestment Plan (the "Agent") who
will act as independent agent for those Shareholders who wish to participate
in the Reinvestment Plan. In the event the Trust retains an agent for the
Reinvestment Plan, such agent shall be independent (i.e., not an Affiliate)
of the Trust. The Agent will be paid competitive fees for its services.
During the offering period, the price per Share purchased pursuant to the
Reinvestment Plan shall equal $20 and the Shares shall be available for
purchase (i) out of the additional 2,500,000 Shares registered with the
Securities and Exchange Commission or (ii) to the extent not sold pursuant to
the public offering, out of the Shares offered pursuant to the public
offering. After the termination of the initial public offering, Shares shall
be available for purchase pursuant to the Reinvestment Plan only out of the
additional 2,500,000 Shares registered with the Securities and Exchange
Commission. The Trust will register additional Shares for the Reinvestment
Plan in the future if so required. From the termination of the offering
period until the third anniversary of the Final Closing Date, the price per
Share purchased pur-
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suant to the Reinvestment Plan shall equal $19 and the Shares shall be
available for purchase from the Trust pursuant to an "evergreen" Prospectus.
Thereafter, the price per Share purchased pursuant to the Reinvestment Plan
shall be the greater of the public offering price or 95% of the then fair
market value of such Share (as determined by the Manager).
Following the effective date of the Reinvestment Plan, the Trust, or the
Agent, as the case may be, will use any Distributions paid on the Shares of
participants ("Reinvested Distributions") to purchase additional Shares for
participants in conformity with the terms outlined above. All Reinvested
Distributions will be paid directly to the Trust, or the Agent, as the case
may be, which will hold them in a non-interest bearing account of a bank
having capital and surplus of not less than $100,000,000 pending investment
in Shares within 30 days thereafter (or such longer period as may be
permitted). The bank account shall be specially designated as being for the
benefit of the Reinvestment Plan and disbursements shall be permitted from
such account only for purchases of Shares. If a participant's Distribution is
not large enough to buy a full Share, he will be credited with fractional
Shares, computed to three decimal places.
At the time of reinvestment, each participant will pay a service charge of
5% of the amount invested, but not less than $.75 or more than $2.50 for each
investment transaction to the Trust, or the Agent, as the case may be, to
cover expenses in providing administrative services.
Shares received pursuant to the Reinvestment Plan will entitle
participants to the same rights and be treated in the same manner as those
issued pursuant to the offering. (See "Summary of Trust Agreement" and
"Redemption of Shares.")
Following the reinvestment, each participant will be sent a detailed
statement and accounting showing the Distributions received, the service
charge, the number and price of Shares purchased, and total Shares held by
the Trust for his account under the Reinvestment Plan. Tax information for
income earned on Shares under the Reinvestment Plan for the calendar year
will be sent to each participant by the Trust, or the Agent, as the case may
be.
Shareholders may become participants at any time by completing or
authorizing their account executive to complete the appropriate authorization
form which will be available from the Trust, the Dealer Manager, the Manager
and the Agent, if applicable. Participation in the Reinvestment Plan will
commence with the next Distribution payable after receipt of a participant's
authorization of subscription; provided that the election is made no later
than 10 days before the record date for such a Distribution. A participant
will be able to invest either his entire Distribution or a portion thereof,
provided that the participant invests Distributions from at least 125 Shares.
A participant will be able to terminate his participation in the Reinvestment
Plan at any time without penalty by delivering written notice to the Manager.
If a participant terminates his participation, the Trust, or the Agent, as
the case may be, may send him a check for any fractional Shares in his
account based on the then market price of the Shares and the record books of
the Trust will be revised to reflect the ownership of record of his whole
Shares. The Dealer Manager will receive 5% of the Reinvested Distributions
prior to the termination of the initial offering period and other Soliciting
Dealers may receive compensation in connection with reinvestments made at any
time by their investors pursuant to the Reinvestment Plan.
Shareholders that participate in the Reinvestment Plan will be taxed on
their share of Trust income in the same manner as if they received their
Trust Distributions in cash; thus, participants may incur a tax liability
even though they do not receive a distribution of cash.
Experience under the Reinvestment Plan may indicate that changes are
desirable. The Reinvestment Plan gives to the Manager broad powers to modify,
consolidate or cancel the Trust's Reinvestment Plan upon notice to but
without the consent of the Shareholders. Accordingly, the Trust reserves the
right to amend, modify or consolidate any aspect of the Reinvestment Plan
effective with respect to any Distribution paid subsequent to the notice,
provided that the notice is sent to participants in the Reinvestment Plan at
least 10 days before the record date for a Distribution. The Trust also
reserves the right to terminate the Reinvestment Plan or to change the Agent
for the Reinvestment Plan, if applicable, for any reason at any time, by
sending written notice of termination or change to all participants.
_______________________________________________________________________________
REDEMPTION OF SHARES
_______________________________________________________________________________
After the Final Closing Date, any Shareholder, including the Manager or
any of its Affiliates, who acquired or received Shares directly from the
Trust or the Reinvestment Plan
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(such Shares, for so long as owned by the original holder, are called
"Eligible Shares") may present all or a portion of such Eligible Shares to
the Trust for redemption. Subject to the conditions described below, the
Trust is required to redeem such Eligible Shares presented for redemption for
cash to the extent it has sufficient net proceeds ("Reinvestment Proceeds")
from the sale of Shares under the Reinvestment Plan. There is no assurance
that there will be Reinvestment Proceeds available for redemption and,
accordingly, an investor's Shares may not be redeemed. The full amount of
Reinvestment Proceeds for any quarter will be used to redeem Eligible Shares
presented for redemption for such quarter. If the full amount of Reinvestment
Proceeds available for redemption for any given quarter exceeds the amount
necessary for such redemptions, the remaining amount may be held for
subsequent redemptions or may be invested by the Trust in additional First
Mortgage Bonds or Tax-Exempt Securities as described in this Prospectus. If
the full amount of Reinvestment Proceeds available for redemption for any
given quarter is insufficient to make all the requested redemptions, the
Trust will redeem the Eligible Shares presented for redemption on a pro rata
whole Share basis, without redemption of fractional Shares.
A Shareholder who wishes to have his Eligible Shares redeemed must mail or
deliver a written request, executed by the Shareholder, its trustee or
authorized agent, to the Trust, at such address as the Manager may designate,
initially American Tax-Exempt Bond Trust c/o Related Capital Company, 625
Madison Avenue, New York, New York 10022, Attn: Related AMI Associates, Inc.
Redemption Plan. Within 15 days following the Trust's receipt of the
Shareholder's request, the Trust will forward to such Shareholder the
documents necessary to effect the redemption, including any signature
guarantee the Trust may require. The Trust will effect such redemption after
the close of the calendar quarter in which it receives the properly completed
redemption documents relating to Eligible Shares from the Shareholder and has
sufficient Reinvestment Proceeds to redeem such Shares. The effective date of
any redemption will be the date the Trust mails a redemption check to such
Shareholder. The Trust anticipates that, assuming sufficient Reinvestment
Proceeds, the effective date of redemptions will be no later than the day
prior to the record date for the next succeeding distribution.
Upon presentment of Eligible Shares to the Trust for redemption, the
redemption price (the "Redemption Price") will be $19 per Eligible Share. The
Manager, in its sole discretion, may determine that it is appropriate to pay
a higher price than described above. The redemption price of $19 shall be
reduced by that portion of the Distributions received with respect to such
Share which represents a principal payment or other return of capital.
A Shareholder may present less than all his Eligible Shares to the Trust
for redemption, provided, however, that (i) he must always present at least
the lesser of all of his Eligible Shares or 125 Eligible Shares for
redemption, and (ii) if he would retain any Eligible Shares were the Shares
presented to be redeemed, he must retain at least 125 Eligible Shares.
The Manager may suspend or terminate the redemption of Eligible Shares
upon notice to, but without the consent of, the Shareholders. Therefore,
Shareholders should consider an investment in the Trust as a long-term
investment.
_______________________________________________________________________________
DESCRIPTION OF THE SHARES
_______________________________________________________________________________
Each Share represents the Shareholder's beneficial ownership interest in
the Trust. Each Share is deemed to represent a twenty dollar Original
Contribution to the Trust. The Shares will be recorded in the books and
records of the Trust, and, unless otherwise requested by a Shareholder, no
Trust Certificates will be issued to Shareholders. Any Trust Certificates
issued to a Shareholder will be issued in registered form only.
The Shares will not be freely transferable and transfers will be subject
to obtaining the consent of the Manager which it can withhold in its sole
discretion. The Trust does not intend to list the Shares on a national or
regional stock exchange or on the National Association of Securities Dealers
Automated Quotation System, and does not expect that any market for the
Shares will develop. Accordingly, Shares should only be considered as a
long-term investment.
_______________________________________________________________________________
SUMMARY OF TRUST AGREEMENT
_______________________________________________________________________________
The rights and obligations of the Shareholders in the Trust will be
governed by the Trust Agreement which is set out in its entirety at the end
of this Prospectus as Exhibit A. Prospective investors should study the Trust
Agreement carefully before purchasing Shares. The following statements
concerning the Trust Agreement merely outline certain provisions of, and do
not purport to be complete or in any way modify or amend, the Trust
Agreement.
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SHAREHOLDERS WILL BE BOUND BY THE PROVISIONS OF THE TRUST AGREEMENT UPON
PURCHASE OF THE SHARES AND ACCEPTANCE OF CONFIRMATION OF SUCH PURCHASE.
Nature of Trust
American Tax-Exempt Bond Trust is a business trust formed under the Delaware
Act. The Trust Agreement authorizes the issuance and sale of 20,000,000 Shares.
Up to 10,000,000 Shares are initially authorized for issuance in this public
offering.
The Responsibilities of the Manager and the Trustee
The Manager has the exclusive management and control of all aspects of the
business of the Trust and, except for certain limited voting rights contained in
the Trust Agreement, the Shareholders shall have no authority to transact
business for, or participate in the management of, the Trust. The authority of
the Manager is subject to certain express restrictions set forth in the Trust
Agreement. The Manager shall not take any action which constitutes its voluntary
dissolution or withdrawal from the Trust until the dissolution of the Trust.
The Trustee's duties and responsibilities are limited to (i) the execution,
delivery and filing of any certificates of trust and amendments thereto required
to be filed pursuant to applicable law, (ii) the execution of Trust Certificates
if requested by the Manager, (iii) the execution of any amendments to the Trust
Agreement and (iv) the execution, delivery and filing of any certificates of
cancellation required to be filed pursuant to applicable law. The Trustee has no
responsibility for monitoring the conduct of the Manager or causing the Manager
to discharge its duties under the Trust Agreement, and the Trust Agreement
provides that the Trustee shall have no liability for the acts and omissions of
the Manager. Only the Manager has signed the Registration Statement of which
this Prospectus is a part, and only the assets of the Trust and the Manager are
subject to issuer liability under the federal securities laws for the
information contained in this Prospectus and under federal and state law with
respect to the issuance and sale of the Shares. Under such laws, neither the
Trustee, either in its capacity as Trustee or in its individual capacity, nor
any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer or a director, officer or controlling person of the
issuer of the Shares. The Trustee's liability in connection with the issuance
and sale of the Shares, and with respect to the Trust's obligations under the
Shares, is limited solely to the express obligations of the Trustee set forth in
the Trust Agreement.
Tax Matters Partner
The Manager has been designated the "Tax Matters Partner" under Paragraph
15.8 of the Trust Agreement to manage administrative tax proceedings conducted
at the Trust level by the IRS with respect to Trust matters.
Term and Dissolution
The Trust will continue for a maximum period ending December 31, 2033, but
may be dissolved at an earlier date if certain contingencies occur. Shareholders
may not withdraw from the Trust prior to dissolution, but may assign their
Shares to others. The contingencies whereby the Trust may be dissolved are as
follows:
(a) removal, adjudication of bankruptcy, insolvency, dissolution or other
cessation of existence as a legal entity of the Manager, immediately after
the expiration of 90 days after the date of such event, unless Shareholders
by Majority Vote, within 90 days of the date of such event, elect to continue
the business of the Trust, in a reconstituted form if necessary, and elect a
successor Manager effective as of the date of such event (expenses incurred
in reformation, or attempted reformation, of the Trust shall be deemed
expenses of the Trust);
(b) a Majority Vote of the total outstanding Shares (which may, but need not
be solicited by the Manager) in favor of dissolution and termination of the
Trust;
(c) the expiration of the term of the Trust; or
(d) the disposition of all assets held by the Trust and the receipt of
final payment with respect to all investments.
Upon dissolution of the Trust, the Trust's assets will be liquidated and the
proceeds of liquidation will be applied first to the payment of obligations of
the Trust to third parties (other than secured creditors, whose obligations will
be assumed or otherwise transferred on liquidation of Trust assets), second to
the Manager or its Affiliates who are creditors of the Trust, and third to the
expenses of liquidation and the setting up of any reserves for contingencies
which the Manager considers necessary. Any remaining proceeds will then be
distributed to the Shareholders in the same manner as Sale or Repayment
Proceeds. See "Income and Losses and Cash Distributions."
Voting Rights of Shareholders
Shareholders have no right to participate in the control of the Trust's
business. However, Shareholders have been
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granted certain voting rights which are set forth in Paragraph 16 of the Trust
Agreement. The Shareholders, as a class, have the right by Majority Vote to vote
upon:
(a) removal of the Manager;
(b) the election of a successor Manager and the continuation of the
Trust's business pursuant to Paragraph 19.1.1 of the Trust Agreement;
(c) merger, consolidation or termination and dissolution of the Trust, except
(i) as provided in Paragraph 4 or Paragraph 26.10 of the Trust Agreement (which
Paragraphs, respectively, refer to the termination of the Trust on December 31,
2033 and a reconstitution of the Trust under the laws of another state) or (ii)
a termination and dissolution of the Trust upon the Disposition of Substantially
All of the Assets of the Trust as contemplated by this Prospectus;
(d) amendment of the Trust Agreement, provided such amendment is not for
any of the purposes set forth in Paragraph 15.3 of the Trust Agreement;
(e) the Disposition of Substantially All of the Assets of the Trust in a
single Disposition, or in multiple Dispositions in the same 12-month period,
except in the orderly liquidation and winding up of the business of the Trust
upon its termination and dissolution as contemplated by this Prospectus;
(f) pledge or encumbrance of all or Substantially All of the Assets of the
Trust at one time, other than in connection with the acquisition or
improvement of assets, or the refinancing of previous obligations;
(g) the extension of the term of the Trust Agreement;
(h) any change in the Trust's three primary investment objectives as
described in "Investment Objectives and Policies-Principal Investment
Objectives";
(i) a material modification of a contract entered into with an Affiliate
pursuant to Paragraph 9.1 of the Trust Agreement; and
(j) assignment of the Manager's interest in the Trust, except in connection
with any merger, consolidation or sale as provided in Paragraph 17.5 of the
Trust Agreement.
Meetings
The Manager may at any time call a meeting of Shareholders or call for a
vote, without a meeting, of the Shareholders on matters on which they are
entitled to vote, and shall call for such meeting or vote following receipt of a
written request therefor of Shareholders holding 10% or more of the outstanding
Shares.
Indemnification of the Manager and its Affiliates by the Trust
The Trust Agreement provides that the Trust shall indemnify the Manager and
its Affiliates for any loss arising out of any of their acts or omissions in
connection with the business of the Trust; provided that (i) the Manager or its
Affiliates must have determined, in good faith, that such course of conduct was
in the best interests of the Trust and did not constitute negligence or
misconduct by the Manager or its Affiliates; (ii) such conduct was within the
scope of authority of the Manager; and (iii) any such indemnification shall be
recoverable only from the assets of the Trust and not from the assets of the
Shareholders; subject to certain limitations regarding indemnification of the
Manager or its Affiliates in connection with allegations of violations of
federal or state securities laws. See "Fiduciary Responsibility."
Indemnification of the Trustee by the Trust
The Trust Agreement provides that the Trust shall indemnify and hold harmless
the Trustee and its Affiliates from and against any and all claims or
liabilities (including any environmental liabilities) for which any such person
may become liable by reason of the Trustee's acting as trustee under the Trust
Agreement and arising out of (i) the Trust Agreement, (ii) any breach of duty
owed to the Trust or the Shareholders by a third party or (iii) any violation or
alleged violation of federal or state securities laws. However, the Trust is not
liable to indemnify such persons for liabilities resulting from such persons'
own fraud, gross negligence or willful misconduct. In addition, The Related
Companies, L.P., an Affiliate of the Manager, has agreed to be jointly and
severally liable with the Trust with respect to the foregoing indemnification
obligations.
Rollups
The Trust may not participate in any proposed Rollup which would:
(a) result in the Shareholders having voting rights that are less than
those provided in the Trust Agreement;
(b) include provisions which would operate to materially impede or frustrate
the accumulation of Shares by any purchaser of the securities of the Rollup
Entity (except to the minimum extent necessary to preserve the tax status of the
Rollup Entity);
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(c) limit the ability of an investor to exercise the voting rights of its
securities in the Rollup Entity on the basis of the number of the Trust's Shares
held by that investor;
(d) result in investors in the Rollup Entity having rights of access to
the records of the Rollup Entity that are less than those provided in the
Trust Agreement; or
(e) place the cost of the transaction on the Trust if the Rollup is not
approved by the Shareholders;
provided, however, that nothing shall be construed to prevent participation
in any proposed Rollup which would result in Shareholders having rights and
restrictions comparable to those contained in the Trust Agreement, with the
prior approval of a majority of the Shareholders.
The Trust Agreement also requires that an appraisal of all the Trust's
assets shall be obtained from a competent independent expert in connection
with a proposed Rollup.
Borrowing Policies
The Trust is permitted to incur indebtedness to meet working capital
requirements of the Trust or to take over the operation of a Property on a
short-term basis (up to 24 months) (but not for the purpose of making
Distributions). The Trust may borrow such funds from third parties or from the
Manager or its Affiliates. On loans from the Manager or its Affiliates, interest
and other financing charges or fees will be paid in an amount which will be the
lesser of the interest and other financing charges or fees which would be
charged by unrelated lending institutions for a comparable loan or the actual
cost of such funds to the Manager or its Affiliates. No prepayment charge or
penalty shall be required by the Manager or its Affiliates on a loan to the
Trust secured by either a first or a junior or all-inclusive trust deed,
mortgage or encumbrance on a Property, except to the extent that such prepayment
charge or penalty is attributable to the underlying encumbrance.
Liability of Shareholders
The Shareholders shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware. In accordance with
Delaware law, a beneficiary of a trust may, under certain circumstances, be
required to return to the trust for the benefit of trust creditors, amounts
previously distributed to him. However, if any court of competent jurisdiction
were to hold that, notwithstanding the provisions of the Trust Agreement, any
Shareholder is obligated to make any such payment, such obligation would be the
obligation of such Shareholder and not of the Trustee or the Manager.
The Trust is governed by the laws of the State of Delaware. Under the
Trust Agreement and the Delaware Act, a Shareholder shall be entitled to the
same limitation of personal liability extended to stockholders of Delaware
corporations. In general, stockholders of a Delaware corporation are not
personally liable for the payment of the corporation's debts and obligations.
They are liable only to the extent of their investment in the Delaware
corporation. In addition, under the Delaware Act, neither the existence of
certain powers in the Trust Agreement that may be exercised by the
Shareholders nor the exercise of such powers will cause such Shareholders to
be deemed to be a trustee of the Trust or to be held personally liable for
the acts, omissions and obligations of the Trust. Even if a Shareholder were
held to be a trustee or liable for the acts, omissions and obligations of the
Trust, the Trust Agreement, consistent with the terms of the Delaware Act,
contains an express disclaimer of liability in connection with the trust
property or the acts, omissions or obligations of the Trust. Thus, the risk
of a Shareholder incurring financial loss on account of Shareholder liability
should be limited to circumstances in which the Trust itself is unable to
meet its obligations.
The principles of law governing the limitation of liability of
beneficiaries of a business trust have not been authoritatively established
as to business trusts organized under the laws of one jurisdiction but
operating or owning property, incurring obligations or having beneficiaries
resident in other jurisdictions. A number of states have adopted legislation
containing provisions comparable to the provisions of the Delaware Act.
Accordingly, in such states, the limitation of liability of beneficiaries to
the Trust provided by the Act should be respected.
In those jurisdictions which have not adopted similar legislative
provisions, questions exist as to whether such jurisdictions would recognize
a business trust, absent a state statute, and whether a court in such
jurisdictions would recognize the Delaware Act as controlling. If not, a
court in such jurisdiction could hold that the Shareholders are not entitled
to the limitation of liability set forth in the Trust Agreement and, as a
result, are personally liable for the debts and obligations of the trust.
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_______________________________________________________________________________
PLAN OF DISTRIBUTION
_______________________________________________________________________________
The Trust is offering through the Dealer Manager and such other dealer
members ("Soliciting Dealers") of the National Association of Securities
Dealers, Inc. ("NASD") as the Dealer Manager (with the concurrence of the
Manager) may designate, on a best efforts basis, up to $100,000,000 of Shares
consisting of 5,000,000 Shares priced at $20 per Share. The Dealer Manager
has also been granted the right, exercisable upon mutual concurrence with the
Manager, to sell, on behalf of the Trust up to an additional 5,000,000
Shares. However, the Manager may terminate the offering at any time in its
sole discretion. The Dealer Manager may be deemed to be an "underwriter" in
connection with this offering for the purposes of the Securities Act. The
minimum subscription is 125 Shares or $2,500.
Compensation
Soliciting Dealers unaffiliated with the Sponsor will receive from the Trust
a selling commission of up to 5% of the Gross Proceeds from the sale of Shares
attributable to them, depending on the number of Shares sold to each "investor"
(defined below) and the volume discount applicable to such sale (see "Volume
Discounts," below) and the Dealer Manager may receive 5% of the Gross Proceeds
attributable to distributions reinvested pursuant to the Reinvestment Plan prior
to the termination of the initial offering period.
The Manager (and not the Trust) may pay to certain Soliciting Dealers
unaffiliated with the Manager a marketing allowance in an amount up to .5% of
the Gross Proceeds attributable to Shares sold by them and/or other
additional compensation. The Trust may pay to certain Soliciting Dealers
unaffiliated with the Manager a non-accountable due diligence expense
allowance in an amount up to .5% of the Gross Proceeds attributable to sales
made by them.
The Dealer Manager and Soliciting Dealers may also offer special incentive
programs to their salesmen to promote the sale of Shares. The Manager or
Affiliates, but not the Trust, may pay certain broker-dealers (other than any
broker-dealer affiliated with the Manager) additional compensation. In no
event shall the total compensation to be paid, including sales commissions,
marketing allowances, incentive payments and public offering expense
reimbursements and any other payments made to broker-dealers by the Manager
or Affiliates, exceed 10% of the Gross Proceeds, except that an additional
.5% of the Gross Proceeds may be paid in connection with due diligence
activities.
The Manager has agreed that it will pay or cause to be paid all other
expenses of the offering, including legal, accounting, printing, Securities
Act registration fees, the NASD filing fees, escrow fees, marketing expenses
and blue sky fees, other than the Expense Allowance payable by the Trust to
the Manager, certain selling commissions and due diligence reimbursements
that are payable by the Trust and any escrow fees and expenses that are
payable out of interest on the escrowed funds.
Stephen M. Ross and J. Michael Fried have each contributed to the Manager,
a demand promissory note in the amount of $500,000 which can be called upon
only for certain purposes, one of which is the payment of offering expenses
assumed by the Manager in connection with this offering. Such amount, when
combined with the Expense Allowance and funds of the Manager, exceeds the
anticipated offering expenses assumed by the Manager in connection with this
offering. (See "Risk Factors--Business Risks--Shareholders Must Rely on
Management.")
Volume Discounts
Volume discounts will be available to all "investors" who purchase $250,000
or more of Shares as follows:
<TABLE>
<CAPTION>
Selling
Commission
Total Amount Purchase Payable Amount
Invested in Discount Price by Trust Available
Shares Per Per Per to Trust
by an Investor Share Share Share Per Share
- ----------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$0-249,999 -0- $20.00 $1.00 $19.00
$250,000-499,999 $.20(1%) 19.80 .80 19.00
$500,000-749,999 .40(2%) 19.60 .60 19.00
$750,000-999,999 .60(3%) 19.40 .40 19.00
$1,000,000 or more .60(3%) 19.40 .20/.40 19.00
</TABLE>
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On sales of $1,000,000 or more to an "investor", until such sales constitute
20% of the Gross Proceeds of the offering, the Trust and the Manager will each
pay to such Soliciting Dealers a selling commission equal to 1% of the Gross
Proceeds attributable to sales of such Shares. At any time that such sales of
$1,000,000 or more to an individual investor exceed in the aggregate 20% of the
Gross Proceeds of the offering, the Trust alone shall pay to the Soliciting
Dealers a selling commission equal to 2% of the Gross Proceeds attributable to
such Shares.
A purchaser entitled to a volume discount will receive the discount
through a reduction in the purchase price payable with respect to the Shares.
Although application of the volume discount reduces the purchase price
payable per Share, the Net Proceeds to the Trust are not affected by the
volume discounts; the amount of the selling commission payable by the Trust
on Shares sold subject to a volume discount is instead adjusted accordingly.
Subscriptions may be combined for the purpose of determining the volume
discount for an "investor." For purposes of volume discounts, "investor"
includes (i) an individual, his or her spouse and their children under the
age of 21 who purchase the Shares for his or her own account and all pension
or trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Shares and must have formed such group for a
purpose other than to purchase the Shares at a discount); (iii) all pension,
trust or other funds maintained by a given bank; and (iv) such other
investors as the Trust determines to be sufficiently related so as to
constitute an "investor."
Subscriptions also may be combined for the purpose of determining the
selling commission and purchase price payable in the case of subscriptions by
any purchaser described in category (i) through (iv) above who subsequent to
its initial purchase of Shares subscribes for the purchase of additional
Shares. In such event, the selling commission and purchase price payable with
respect to the subsequent purchase of Shares will equal the selling
commission and purchase price per Share which would have been payable in
accordance with the selling commission schedule set forth above if all
purchases had been made simultaneously, provided, however, that no adjustment
shall be made retroactively with respect to the purchase price per Share of
Shares previously purchased and the selling commissions paid in connection
with the earlier purchases of Shares.
Any request to combine more than one subscription must be in writing on a
form to be supplied by the Dealer Manager and must set forth the basis of the
request. Any such request will be subject to verification by the Trust that
all such purchases were made by an "investor."
Other Offering Terms
The offering will terminate one year from the date of the Prospectus, unless
the Trust terminates the offering earlier or extends the offering from time to
time to a date not later than 24 months after the date of the Prospectus
(subject to requalification in certain states) or unless the Dealer Manager
terminates the offering as provided in the Dealer Management Agreement.
If a minimum of 125,000 Shares have not been subscribed for before one
year from the date of the Prospectus, then the Trust will cancel all existing
subscriptions and all funds paid on account of such subscriptions will be
released from escrow and returned promptly to each subscriber, together with
all interest to the extent earned on the subscription proceeds, whereupon the
offering will be terminated and no further attempt will be made to offer
additional subscriptions. The first closing on Shares will occur promptly
after the receipt by the Trust of subscriptions for a minimum of 125,000
Shares. Thereafter, closings shall occur at least monthly. If any purchaser
has so requested and paid the required fees, a certificate evidencing the
Shares will be issued to such Shareholder not later than 60 days after the
subscription proceeds are released from escrow.
Shares may be purchased under the Trust's Reinvestment Plan. During the
offering period, the price per Share purchased under the Reinvestment Plan
will be $20. From the termination of the public offering until the third
anniversary of the Final Closing Date, the price per Share purchased under
the Reinvestment Plan will be $19; thereafter, the price per Share will be
the greater of the public offering price or 95% of the then fair market value
per Share (as determined by the Manager). (See "Reinvestment Plan Summary"
and the copy of the Reinvestment Plan included in this Prospectus as Exhibit
B.)
The Trust does not currently own and has not committed to acquire any
First Mortgage Bonds other than as described
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in any supplement to the Prospectus. During the offering of the Shares this
Prospectus will be supplemented at certain times to provide information about
the Trust's investments in First Mortgage Bonds and Tax-Exempt Securities.
(See "Investment Objectives and Policies--Information about Investments.")
The Dealer Manager Agreement provides that the Manager, and not the Trust,
shall indemnify the Dealer Manager with respect to any liabilities arising
out of the Securities Act. The Dealer Manager and certain Soliciting Dealers
may be deemed to be "underwriters" as that term is defined in the Securities
Act, and compensation paid the Dealer Manager and any Soliciting Dealers in
connection with the sale of Shares may be deemed to be "underwriting
commissions" within the meaning of the Securities Act.
In order to purchase Shares in the Trust, it may not be necessary for the
investor to execute an order form. However, in order for a registered
representative to place an order for Shares, the registered representative
must complete and execute the order form. In addition, certain Soliciting
Dealers may require that the investor complete and execute the order form
themselves, and investors residing in Arkansas, Maine, Minnesota, Missouri,
Nebraska, North Carolina, Oklahoma and Washington are required to execute the
order form. Payment for the Shares in an amount equal to $20 per Share, as
reduced by any applicable volume discounts as described herein, should be
delivered to the Soliciting Dealer, together with executed order forms, where
applicable.
Payment for subscriptions may be made by an investor: (a) by delivery to
the Dealer Manager or a Soliciting Dealer of a check made payable to the
escrow agent designated by the Trust and the Dealer Manager, or (b) by
authorizing his Soliciting Dealer to debit his account at such dealer, in
each case in the amount of $20 for each Share he wishes to purchase, subject
to the volume discounts as described herein, in a total amount of not less
than the minimum subscription of 125 Shares ($2,500). A subscriber who
authorizes any Soliciting Dealer to debit his securities account must have
his subscription payment in his account on, but not before, the specified
settlement date (the "Settlement Date") and such account will be debited on
that date, which will occur not later than five (5) business days following
notification to such Soliciting Dealer and the investor of the initial
approval of the subscription. Investors who do not maintain an account with
such Soliciting Dealer may open such account to subscribe for Shares.
Funds debited from an investor's account for the purchase of Shares will
be distributed to the Dealer Manager in the form of a check, from the
Soliciting Dealer, made payable to the escrow agent designated by the Trust
and the Dealer Manager, on the next business day following the Settlement
Date. Additionally, all amounts paid by subscribers for Shares received by
the Soliciting Dealers will be transmitted to the Dealer Manager by the end
of the next business day following the receipt of such amounts together with
whatever documents the Trust may require. The Dealer Manager will deposit all
funds received by noon of the next business day following its receipt of the
same in a segregated interest-bearing escrow account. (See "--Escrow
Arrangements.")
Escrow Arrangements
Commencing on the date of the Prospectus, all funds from subscriptions for
Shares will be placed in escrow with a qualified financial institution
designated as escrow agent by the Trust and the Dealer Manager. The escrow
agent, at the direction of the Trust, is given the right of investments
permitted under Rule 15c2-4 of the Securities Exchange Act of 1934 with banks
having capital and surplus in excess of $50,000,000 in bank accounts, including
savings accounts, bank money market accounts, short-term certificates of
deposit, or short-term securities issued by the United States government,
including treasury notes and obligations guaranteed by the full faith and credit
of the United States government.
If the offering is terminated without a closing, the escrow agent will
distribute the subscription proceeds and all interest earned thereon to the
subscribers, with no reduction for escrow expenses. If the initial closing
does occur, the interest earned on subscription proceeds in the escrow
account prior to the initial closing will be distributed by the escrow agent
within 10 days following the initial closing to each such subscriber, pro
rata, calculated based upon the number of days each such subscriber's funds
are held in escrow hereunder, net of escrow fees and expenses and subject to
any applicable withholding provisions of the Code. Thereafter, interest
earned on subscription proceeds in escrow pending subsequent closings will be
distributed to the Trust, net of escrow expenses.
_______________________________________________________________________________
SALES MATERIAL
_______________________________________________________________________________
In addition to and apart from this Prospectus, the Trust will utilize
certain sales material in connection with the offering
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of the Shares. This material may include fact sheets and other guides to be
used internally by broker-dealers, an investor sales promotion brochure, a
prior performance sales brochure, speeches for public seminars, audio, video
and slide presentations, invitations to attend public seminars, prospecting
letters, mailing cards, letters to limited partners and Shareholders in prior
affiliated programs, articles and publications concerning real estate and
mortgage investments, and so-called "tombstone" advertisements. In certain
jurisdictions, such sales material will not be available. Use of any
materials, including sales material to be distributed to NASD members and
their associated persons will be conditioned on filing with and, if required,
clearance by appropriate regulatory authorities. Such clearance does not
mean, however, that the agency allowing use of the sales literature has
passed on the merits of this offering or the accuracy of the material
contained in such literature.
Other than as described herein, the Trust has not authorized the use of
other sales material, other than marketing bulletins to be used internally by
broker-dealers. The offering is made only by means of this Prospectus.
Although the information contained in such material does not conflict with
any of the information contained in this Prospectus, such material does not
purport to be complete, and should not be considered as part of this
Prospectus or the Registration Statement of which this Prospectus is a part,
or as incorporated in this Prospectus or the Registration Statement by
reference, or as forming the basis of the offering of the Shares which are
offered hereby.
_______________________________________________________________________________
LEGAL MATTERS
_______________________________________________________________________________
Legal matters in connection with the Shares offered hereby will be passed
upon for the Trust by the firm of Kaye, Scholer, Fierman, Hays & Handler, 425
Park Avenue, New York, New York 10022, counsel for the Trust and the Manager.
Willkie Farr & Gallagher, One Citicorp Center, 135 East 53rd Street, New
York, New York 10022 may from time to time act as special counsel or bond
counsel for the Trust. Counsel for the Trust and the Manager will rely as to
certain matters of Delaware law on the opinion of Prickett, Jones, Elliott,
Kristol & Schnee, 1310 King Street, Wilmington, Delaware 19801. Kaye,
Scholer, Fierman, Hays & Handler has in the past represented and may continue
to represent Affiliates of the Trust with respect to certain matters.
_______________________________________________________________________________
REPORTS
_______________________________________________________________________________
The Trust will furnish to each Shareholder certain reports, statements and
tax information, as set forth in Paragraph 14, "Books, Records, Accountings
and Reports," of the Trust Agreement, including quarterly and annual
financial statements prepared in accordance with generally accepted
accounting principles, Trust information necessary in the preparation of the
Shareholders' federal income tax returns, an annual report of the business of
the Trust and quarterly statements on the Manager's compensation paid by the
Trust. Following the close of each taxable year of the Trust, the Trust shall
distribute to the Shareholders copies of the annual report and annual
financial statements (balance sheet, statement of income or loss and
shareholders' equity and statement of cash flows, accompanied by a report
containing an opinion of independent certified public accountants) within 120
days after the close of the taxable year, and all Trust information necessary
in the preparation of their federal income tax returns within 75 days after
the end of each year.
During the offering period and until the Trust is fully invested, the
Trust shall also furnish to each Shareholder, at least quarterly, information
concerning the investments of the Trust. The Trust will amend this Prospectus
by supplement at certain times during the offering period to describe the
Trust's investments in First Mortgage Bonds and Tax-Exempt Securities. See
"Investment Objectives and Policies--Information about Investments."
The Trust will furnish to each Shareholder a copy of the information
specified by the Securities and Exchange Commission Form 10-Q within 60 days
of the closing of each quarterly fiscal period, by dissemination of such Form
10-Q or any other report containing substantially the same information as
required by Form 10-Q.
_______________________________________________________________________________
EXPERTS
_______________________________________________________________________________
The balance sheets of American Tax-Exempt Bond Trust as of May 31, 1994
and Related AMI Associates, Inc. as of December 31, 1993, included herein and
elsewhere in the registration statement, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants,
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<PAGE>
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The statements under the caption "Material Federal Income Tax
Consequences" as they relate to federal income tax matters have been reviewed
by the firm of Kaye, Scholer, Fierman, Hays & Handler, and are included
herein in reliance upon the authority of such firm as experts.
The statements regarding Delaware law and attributed to Delaware counsel
to the Trust under the headings "Risk Factors--Business Risks--Liability of
Shareholders," "Material Federal Income Tax Consequences--State and Local
Taxes" and "Liability of Shareholders" have been reviewed by the firm of
Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Delaware and such
statements are included herein in reliance upon the authority of such firm as
experts.
_______________________________________________________________________________
FURTHER INFORMATION
_______________________________________________________________________________
The Prospectus does not omit any material fact and does not contain any
misstatement of a material fact. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits relating
thereto which the Trust has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended,
and to which reference is hereby made. Copies of the exhibits are on file at
the offices of the Securities and Exchange Commission in Washington, D.C. and
may be obtained upon payment of the fee prescribed by the Commission, or may
be examined without charge at the offices of the Commission.
_______________________________________________________________________________
GLOSSARY
_______________________________________________________________________________
The definitions of terms used in this Prospectus are set forth below:
"Acquisition Expense Allowance" shall mean the amount payable to the
Manager under the provisions of Paragraph 9.4 of the Trust Agreement.
"Acquisition Expenses" shall mean expenses related to the Trust's
selection and acquisition of First Mortgage Bonds and Tax-Exempt Securities,
whether or not acquired, including but not limited to legal fees and
expenses, travel and communications expenses, non-refundable option payments
on First Mortgage Bonds not acquired, insurance, costs of appraisals,
accounting fees and expenses, and miscellaneous other expenses.
"Acquisition Fees" shall mean the total of all fees and commissions paid
by any party in connection with making or investing in First Mortgage Bonds
and Tax-Exempt Securities, including the amounts payable to the Manager under
the provisions of Paragraphs 9.5 and 9.6 of the Trust Agreement. Included in
the computation of such fees or commissions shall be any loan fees or points
paid by borrowers to the Manager in connection with investing in First
Mortgage Bonds or any fee of a similar nature, however designated.
"Adjusted Cash From Operations" shall mean, with respect to any period,
Cash Flow less any amount set aside for the restoration or creation of
Reserves.
"Adjusted Contribution" shall mean the Original Contribution paid by the
original purchaser of a Share, reduced by the total of cash distributed from
Sale or Repayment Proceeds, Contingent Interest, if any, payable from Net
Sale or Repayment Proceeds, cash from Net Proceeds held as initial Reserves
and return, if any, of uninvested Net Proceeds with respect thereto.
"Affiliate" of a person shall mean (i) any person directly or indirectly
controlling, controlled by or under common control with such person, (ii) any
person owning or controlling 10% or more of the outstanding voting securities
or beneficial interests of such person, (iii) any executive officer,
director, trustee or general partner of such person and (iv) if such person
is an executive officer, director, trustee or general partner of another
entity, then the entity for which that person acts in any such capacity.
"Bond Selection Fee" shall mean a fee equal to up to 2% of the Gross
Proceeds, payable to the Manager pursuant to Paragraph 9.5 of the Trust
Agreement.
"Cash Flow" shall mean, with respect to any period, (a) all cash receipts
derived from payments of interest (including Contingent Interest, if any,
payable on the basis of Net Property Cash Flow) on First Mortgage Bonds held
by the Trust (exclusive of any Sale or Repayment Proceeds), plus (b) cash
receipts from operations (including any interest from Temporary Investments
of the Trust and Tax-Exempt Securities and any Reserves deemed no longer
necessary for Trust operations by the Manager and attributable to cash
generated from Trust operations) without deduction for
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<PAGE>
depreciation or amortization, plus (c) any interest on the cash receipts
noted in (a) and (b) pending distribution to the Owners, less (d) cash
receipts used to pay operating expenses.
"Closing" shall mean any closing of Shares sold pursuant to the
Prospectus.
"Closing Date" shall mean such date or dates designated by the Manager for
the closing of Shares sold pursuant to the Prospectus.
"Code" shall mean the Internal Revenue Code of 1986, or corresponding
provisions of subsequent revenue laws.
"Contingent Interest" shall mean additional interest payments on a First
Mortgage Bond and, therefore, on the underlying Mortgage Loan, based upon (a)
annual Net Property Cash Flow of the Property securing the Mortgage Loan and
(b) Net Sale or Repayment Proceeds from the Property.
"Current Interest Rate" shall mean the stated annual rate of interest
which a First Mortgage Bond and, therefore, a Mortgage Loan bears, payable
without regard to Net Property Cash Flow or Net Sale or Repayment Proceeds.
"Dealer Manager" shall mean Related Equities Corporation, the dealer
manager for the public offering of the Shares.
"Delaware Act" shall mean the Delaware Business Trust Act, 12 Del.C.
SS 3801-3820, or the corresponding provisions of any succeeding
law.
"Disposition" shall mean any Trust transaction not in the ordinary course
of its business including, without limitation, receipt of payments of
principal, Contingent Interest, if any, payable on the basis of Net Sale or
Repayment Proceeds, prepayments, prepayment penalties, proceeds of sales,
exchanges, foreclosures or other dispositions of First Mortgage Bonds or of
Tax-Exempt Securities, recoveries of damage awards and insurance proceeds not
used to rebuild (other than the return of principal from the issuer prior to
being disbursed by or on behalf of such issuer to the mortgagor, the receipt
of subscriptions for Shares, interest payments when due on First Mortgage
Bonds or Tax-Exempt Securities or business or rental interruption insurance
proceeds not used to rebuild).
"Distributions" shall mean any cash distributed to Owners arising from
their interest in the Trust, but shall not include any payments to the
Manager under the provisions of Paragraphs 9 or 10 of the Trust Agreement.
"Eligible Shares" shall mean Shares held by any Shareholder who acquired
them directly from the Trust whether through (i) the public offering of
Shares pursuant to the Prospectus or (ii) the Trust's Reinvestment Plan.
"Expense Allowance" shall mean the amount payable to the Manager under the
provisions of Paragraph 9.3 of the Trust Agreement.
"Final Closing Date" shall mean the date of the last closing of Shares
sold pursuant to the initial public offering of Shares.
"First Mortgage Bond" shall mean a tax-exempt first mortgage bond issued
by various state or local governments or their agencies or authorities and
secured by a Mortgage Loan on a Property.
"Front-End Fees" shall mean all fees and expenses paid by any party for
any services rendered to organize the Trust and to acquire assets for the
Trust, including, without duplication, Organization and Offering Expenses,
Acquisition Expenses, Acquisition Fees and any other similar fees, however
designated (including fees paid to the Trustee and commissions and fees paid
pursuant to the Reinvestment Plan during the initial public offering).
"Gross Proceeds" shall mean the total proceeds from the sale of Shares
during the initial public offering period (including Shares issued pursuant
to the Reinvestment Plan during such period), before deductions for
Organization and Offering Expenses and without taking into account "volume
discounts."For purposes of calculating Gross Proceeds, the purchase price of
all Shares, including those for which volume discounts apply, shall be deemed
to be $20 per Share.
"Initial Closing Date" shall mean the date on which the first closing of
Shares sold pursuant to the Prospectus occurs.
"Loan Servicing Fee" shall mean the amount payable to the Manager or its
Affiliates under the provisions of Paragraph 9.7 of the Trust Agreement.
"Majority Vote" shall mean the affirmative vote of the holders of more
than 50% of the outstanding Shares.
"Manager" shall mean Related AMI Associates, Inc., a Delaware corporation,
in its capacity as manager of the Trust, or any other person, corporation or
other entity which succeeds it in such capacity.
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<PAGE>
"Minimum Gain" shall mean the sum of the amount determined by computing with
respect to each nonrecourse liability of the Trust, the amount of gain (of
whatever character), if any, that would be realized by the Trust if it disposed
(in a taxable transaction) of the Trust Property subject to such liability in
full satisfaction thereof.
"Mortgage Loan" shall mean the first mortgage and related mortgage loan on
a Property which has been financed with the proceeds of a First Mortgage
Bond.
"Mortgage Loan Placement Fee" shall mean the amount payable to the Manager
under the provisions of Paragraph 9.6 of the Trust Agreement.
"Net Income" or "Net Loss" shall mean for each fiscal year or other
applicable period, an amount equal to the Trust's taxable income or loss for
such year or period as determined for federal income tax purposes, determined
in accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) of the Code shall be included in taxable income or loss), and
(a) by including as an item of gross income any tax-exempt income received by
the Trust and not otherwise taken into account in computing Net Income or Net
Loss; (b) by treating as a deductible expense any expenditure of the Trust
described in Section 705(a)(2)(B) of the Code (or which is treated as a
Section 705(a)(2)(B) expenditure pursuant to Section 1.704-1(b)(2)(iv)(i) of
the Regulations) and not otherwise taken into account in computing Net Income
or Net Loss; and (c) by not taking into account in computing Net Income or
Net Loss items separately allocated to the Shareholders pursuant to the
provisions of Paragraph 11 of the Trust Agreement. "Net Income" or "Net Loss"
shall also include the Trust's share of income or loss of any partnership,
venture or other entity which owns a particular First Mortgage Bond or Tax-
Exempt Security, as determined for federal income tax purposes.
"Net Proceeds" shall mean the proceeds received by the Trust with respect
to the sale of Shares, less the Organization and Offering Expenses.
"Net Property Cash Flow" shall mean, with respect to any period, all cash
receipts derived from operation of a Property (exclusive of Net Sale or
Repayment Proceeds), less operating expenses including interest (other than
Contingent Interest). The Manager shall have the discretion to vary the
components of Net Property Cash Flow.
"Net Sale or Repayment Proceeds" shall mean (a) the cash and any other
consideration received by the Property Owner from the sale, refinancing or
disposition of a Property, after retirement of all amounts of outstanding
principal on the Mortgage Loan for the Property and less all expenses related
to the sale, refinancing or disposition and other amounts specified by
counsel or (b) the appraisal value of the Property less the outstanding
principal on the Mortgage Loan for the Property, less customary costs of
sale, and other amounts specified by counsel. The Manager shall have the
discretion to vary the components of Net Sale or Repayment Proceeds.
"Organization and Offering Expenses" shall mean those expenses incurred in
connection with the formation, qualification and registration of the Trust
and subsequent offering and distribution of Shares to the public, including,
but not limited to, the Expense Allowance, escrow fees and expenses, all
advertising expenses in connection with the distribution of such Shares
(including the nonaccountable marketing allowance and due diligence expense
reimbursement) and sales commissions and expenses paid by the Trust to the
Dealer Manager and any participating broker-dealers in connection with the
distribution of the Shares.
"Original Contribution" shall mean the amount of twenty dollars ($20) for
each Share, which amount shall be attributed to such Share.
"Owners" shall mean the Shareholders and the Manager.
"Property" shall mean the land and buildings thereon upon which has been
placed a first mortgage or other encumbrance securing a Mortgage Loan.
"Property Management Fee" shall mean the fee payable to the Manager or its
Affiliates under the provisions of Paragraph 9.8 of the Trust Agreement.
"Property Owner" shall mean the individual, partnership, corporation,
trust or other entity that is the borrower on a Mortgage Loan and the owner
of the Property securing such Mortgage Loan.
"Prospectus" shall mean the final prospectus for the Trust, as amended,
filed with the Securities and Exchange Commission in connection with the
registration of Shares under the Securities Act.
"Regulatory Agreement" shall mean an agreement governing the use of a
Property by and between an issuer and the owner(s) of a Property.
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"Reinvested Distributions" shall mean the Distributions a Shareholder elects
to reinvest pursuant to the Trust's Reinvestment Plan.
"Reinvestment Plan" shall mean the Trust's distribution reinvestment plan
pursuant to which Shareholders can elect to have their Distributions
reinvested in additional Shares.
"Reinvestment Proceeds" shall mean the proceeds paid to the Trust upon the
purchase of Shares with Reinvested Distributions under the Reinvestment Plan,
net of any commissions and service charges payable with respect thereto.
"Related" shall mean Related Capital Company, a New York general
partnership, in which Stephen M. Ross, through his interests in other
entities, owns a significant interest.
"Related AMI" shall mean Related AMI Associates, Inc., a Delaware corporation.
"Reserves" shall mean the amount set aside by the Manager as reserves for
working capital and for repairs, replacements and contingencies or other
reserves from Cash Flow, Sale or Repayment Proceeds and uninvested Net Proceeds.
"Rollup" shall mean a transaction involving the acquisition, merger,
conversion or consolidation either directly or indirectly of the Trust and
the issuance of securities of a Rollup Entity. Such term does not include:
(i) a transaction involving securities of the Trust that have been listed for
at least 12 months on a national securities exchange or traded through the
National Association of Securities Dealers Automated Quotation National Market
System; or
(ii) a transaction involving the conversion of the Trust to corporate,
limited liability company or association form if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(A) Shareholders' voting rights;
(B) the term and existence of the Trust;
(C) Sponsor or Manager compensation;
(D) the Trust's investment objectives; or
(E) the limited liability of the Shareholders.
"Rollup Entity" shall mean a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Rollup transaction.
"Sale or Repayment Proceeds" shall mean receipts from Dispositions less
the following:
(i) the amount paid or to be paid in connection with or as an expense of
such Disposition;
(ii)the amount necessary for the payment of all debts and obligations of
the Trust including, but not limited to, fees to the Manager or its
Affiliates and amounts, if any, required to be paid to, arising from or
otherwise related to the particular Disposition; and
(iii)any amount set aside by the Manager for working capital reserves.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean the beneficial ownership interest of a Shareholder in the
Trust which may be evidenced by Trust Certificates. Each Share is deemed to
represent a twenty dollar ($20) Original Contribution to the capital of the
Trust.
"Shareholder" shall mean any person who holds Shares.
"Soliciting Dealers" shall mean broker-dealers selected by the Dealer
Manager participating in the offering of Shares.
"Special Distribution" shall mean the amount payable to the Manager
pursuant to Paragraph 11.10.1 of the Trust Agreement.
"Sponsor" shall mean any person directly or indirectly instrumental in
organizing, wholly or in part, the Trust or who will manage or participate in
the management of the Trust and any Affiliate of such person, but does not
include (i) any person whose only relationship with the Trust is that of an
independent asset manager whose only compensation from the Trust is as such,
(ii) wholly-independent third parties such as attorneys, accountants and
underwriters whose only compensation from the Trust is for professional services
rendered in connection with the offering of Shares or the operations of the
Trust, and (iii) the Trustee. A person may be deemed to be a Sponsor of the
Trust by (a) taking the initiative, directly or indirectly, in founding or
organizing the business of the Trust, either alone or in conjunction with one or
more other persons, (b) receiving a material participation in the Trust in
connection with the founding or organizing of the business of the Trust, in
consideration of services or
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property, or both services and property, (c) having a substantial number of
relationships and contacts with the Trust, (d) possessing significant rights
to control Trust properties, (e) receiving fees for providing services to the
Trust which are paid on a basis that is not customary in the industry or (f)
providing goods or services to the Trust on a basis which was not negotiated
at arm's length with the Trust.
"Subordinated Incentive Fee" shall mean the amount payable to the Manager
pursuant to the provisions of Paragraph 9.9 of the Trust Agreement.
"Substantially All of the Assets" shall mean First Mortgage Bonds and
Tax-Exempt Securities representing 66-2/3% or more of the net book value of
all of the Trust's First Mortgage Bonds and Tax-Exempt Securities as of the
end of the most recently completed calendar quarter.
"Tax-Exempt Securities" shall mean securities, the income from which is
exempt from federal income taxation, which are rated not lower than A1 by
Moody's Investors Service, Inc. or A+ by Standard & Poor's Ratings Group or
are unrated but the Manager determines are of comparable quality.
"Temporary Investments" shall mean short-term highly liquid investments
where there is appropriate safety of principal such as investment grade debt
securities and money market funds or similar investment vehicles which invest
in securities, the income from which is exempt from federal income taxation,
including tax-exempt securities rated not lower than A1 by Moody's Investors
Service, Inc. or A+ by Standard & Poor's Ratings Group, or unrated tax-exempt
securities which the Manager determines are of comparable quality.
"Total Invested Assets" shall mean the aggregate original amount invested
or committed to investment in First Mortgage Bonds and invested in Tax-Exempt
Securities, reduced upon the receipt of Sale or Repayment Proceeds or
insurance or guarantee proceeds, by the original amount invested in the First
Mortgage Bonds or Tax-Exempt Securities, except that in the case of a partial
repayment, Total Invested Assets shall be reduced on a pro rata basis.
"Trust" shall mean American Tax-Exempt Bond Trust.
"Trust Agreement" shall mean the Amended and Restated Business Trust
Agreement among Related AMI, as grantor, the Manager, the Trustee, and the
persons to be holders of beneficial interests in the Trust.
"Trust Certificate" shall mean a certificate signed on behalf of the Trust
by the Trustee or the Manager, evidencing the interest of a Shareholder in
the Trust.
"Trustee" shall mean Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as a trustee
hereunder, or any other person, corporation or other entity which succeeds it
in such capacity pursuant to Paragraph 22.2 of the Trust Agreement and in
compliance with Section 3807 of the Act.
_______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OF THE TRUST
_______________________________________________________________________________
Operations
The Trust has not as yet had any operations and will be dependent upon
proceeds received from the public offering of Shares to carry on any activity.
See "Estimated Use of Proceeds." The Trust intends to utilize the Net Proceeds
of the offering to acquire First Mortgage Bonds secured by participating first
Mortgage Loans on multifamily residential apartment projects and retirement
community projects. In addition, the Trust may invest in Tax-Exempt Securities.
See "Investment Objectives and Policies."
Liquidity and Capital Resources
The Trust intends to establish Reserves for working capital and contingencies
in an amount equal to 1% of the Gross Proceeds of the offering, an amount which
is anticipated to be sufficient to satisfy liquidity requirements, and may add
to such Reserves from Cash Flow, Sale or Repayment Proceeds and uninvested Net
Proceeds. Liquidity will be adversely affected by unanticipated costs, including
operating costs in excess of such Reserves.
The Trust may borrow funds from third parties or from the Manager or its
Affiliates to meet working capital requirements of the Trust or to take over
the operation of a Property on a short-term basis (up to 24 months), but not
for the purpose of making Distributions.
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_______________________________________________________________________________
FINANCIAL INFORMATION AND BALANCE SHEETS
_______________________________________________________________________________
Index
American Tax-Exempt Bond Trust
Independent Auditors' Report.............................................. F-2
Balance Sheets, September 30, 1994 (unaudited) and May 31, 1994........... F-3
Notes to Balance Sheets, September 30, 1994 (unaudited) and May 31, 1994.. F-4
Related AMI Associates, Inc.
Independent Auditors' Report.............................................. F-6
Balance Sheets, June 30, 1994 (unaudited) and December 31, 1993........... F-7
Notes to Balance Sheets, June 30, 1994 (unaudited) and December 31, 1993.. F-8
F-1
<PAGE>
_______________________________________________________________________________
INDEPENDENT AUDITOR'S REPORT
_______________________________________________________________________________
The Manager
American Tax-Exempt Bond Trust:
We have audited the accompanying balance sheet of American Tax-Exempt Bond
Trust as of May 31, 1994. This financial statement is the responsibility of
the Trust's management. Our responsibility is to express an opinion on this
financial statement 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 balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet 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
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of American Tax-Exempt Bond Trust
as of May 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
June 6, 1994
F-2
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, May 31,
1994 1994
----------- ---------
(Unaudited)
<S> <C> <C>
Cash ......................................... $ 1,000 $ 1,000
Deferred offering costs ...................... 652,125 444,712
Organization costs ........................... 50,000 50,000
-------- -------
Total assets ................................. $703,125 $495,712
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Due to affiliate ............................. $299,250 $219,010
Accounts payable ............................. 402,875 275,702
-------- --------
702,125 494,712
======== ========
Shareholder's Equity:
Beneficial owner's equity--manager ........... 1,000 1,000
-------- --------
Total liabilities and shareholder's equity ... $703,125 $495,712
======== ========
</TABLE>
See accompanying notes to balance sheets
F-3
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO BALANCE SHEETS
September 30, 1994 (Unaudited) and May 31, 1994
(Information Subsequent to May 31, 1994 is Unaudited)
Note 1--General
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23, 1993
as a Delaware business trust for the primary purpose of investing in tax exempt
first mortgage bonds issued by various state or local governments or their
agencies or authorities and secured by first mortgage loans on multifamily
residential apartment and retirement community projects. The Trust's fiscal year
ends December 31.
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc.
as the only present beneficiary.
Related AMI Associates, Inc., pursuant to the Trust Agreement, and except
as otherwise provided by the Trust Agreement is entitled to receive 1% of
each year's net income or net loss of the Trust.
The Trust intends to offer through Related Equities Corporation, an
affiliate of Related Capital Company ("Related"), and other broker-dealers on
a "best efforts" basis not less than 125,000 and up to 10,000,000 shares of
beneficial ownership interest at an initial offering price of $20 per share.
In the opinion of the Trust's management, the accompanying unaudited
balance sheet contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Trust
as of September 30, 1994.
As of September 30, 1994 and May 31, 1994, the Trust has had no
operations.
Note 2--Significant Accounting Policies
a) Basis of Accounting
The books and records of the Company are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
b) Organization Costs
Costs incurred to organize the Company including, but not limited to,
legal and accounting fees are considered organization costs. These costs have
been capitalized and will be amortized on a straight line basis over a
60-month period.
c) Offering Costs
Costs incurred to sell shares including brokerage and nonaccountable
expense allowance are considered offering costs. These costs have been
capitalized as deferred offering costs and will be charged directly to
shareholders' equity upon the sale of shares of beneficial interest to the
public.
d) Income Taxes
The Company is not required to provide for, or pay, any federal income
taxes. Income tax attributes that arise from its operation are passed
directly to the individual partners. The Company may be subject to state and
local taxes in jurisdictions in which it operates.
F-4
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO BALANCE SHEETS (Continued)
September 30, 1994 (Unaudited) and May 31, 1994
(Information Subsequent to May 31, 1994 is Unaudited)
Note 3--Related Party Transactions
The Trust Agreement provides for Related AMI Associates, Inc., an affiliate
of Related, to act as the Manager of the Trust. In accordance with the Trust
Agreement, the Manager is entitled to receive (i) compensation in connection
with the organization and start-up of the Trust and the Trust's investment in
the tax-exempt first mortgage bonds; (ii) special distributions of adjusted
cash from operations calculated as a percentage of total assets invested by
the Trust; (iii) a subordinated incentive fee based on the gain on the sale
of the tax-exempt first mortgage bonds; (iv) reimbursement of certain
administrative costs incurred by the Manager or an affiliate on behalf of the
Trust; and (v) certain other fees.
Contingent upon the sale of at least 125,000 shares to the public, the
Trust will be liable for a nonaccountable allowance ("Expense Allowance")
payable to the Manager equal to 2.5% of the gross proceeds of the offering.
The Manager, to the extent not paid by an affiliate, has agreed to be
responsible for all expenses of the offering, except for the payment of the
Expense Allowance, and certain selling commissions (not to exceed 5.0% of
gross proceeds) and a due diligence expense allowance (not to exceed 0.5% of
gross proceeds) on certain sales of shares.
F-5
<PAGE>
_______________________________________________________________________________
INDEPENDENT AUDITORS' REPORT
_______________________________________________________________________________
The Board of Directors
Related AMI Associates, Inc.:
We have audited the accompanying balance sheet of Related AMI Associates,
Inc. as of December 31, 1993. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement 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 balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet 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
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Related AMI Associates, Inc. as
of December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
June 6, 1994
F-6
<PAGE>
RELATED AMI ASSOCIATES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
(Unaudited)
<S> <C> <C>
Cash ...................................................................... $ 28,105 $ 0
Investment in American Mortgage Investors Trust (Note 3)................... 693,176 591,755
Investment in American Mortgage Investors Trust II (Note 3)................ 200 200
Investment in American Tax-Exempt Bond Trust (Note 3)...................... 1,000 1,000
Due from Affiliate (Note 5)................................................ 232,915 340,003
--------- ------------
Total Assets .............................................................. $ 955,396 $ 932,958
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to American Mortgage Investors Trust (Note 5).......................... $ 466,826 $ 541,253
--------- ------------
Shareholders' Equity:
Common stock: $1 par value, 1,000 shares authorized; 100 shares issued
and outstanding ......................................................... 100 100
Additional Paid-in Capital ................................................ 1,000,900 1,000,900
Retained Earnings ......................................................... 488,570 391,705
---------- ------------
1,489,570 1,392,705
Less: Subscription Receivable (Note 4).................................... (1,001,000) (1,001,000)
---------- ------------
Total Shareholders' Equity ............................................... 488,570 391,705
---------- ------------
Total Liabilities and Shareholders' Equity ............................... $ 955,396 $ 932,958
========== ============
</TABLE>
See accompanying notes to balance sheets.
F-7
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEET
June 30, 1994 (Unaudited) and December 31, 1993
(Information Subsequent to December 31, 1993 is Unaudited)
Note 1--Organization
Related AMI Associates, Inc. (the "Company") was formed pursuant to the laws
of the State of Delaware on May 23, 1991 and acts as the Advisor of American
Mortgage Investors Trust ("AMIT"), American Mortgage Investors Trust II
("AMIT II"), and manager of American Tax-Exempt Bond Trust ("ATEBT").
As of December 31, 1993, a total of approximately 2,981,777 shares have
been sold to the public, either through AMIT's offering or AMIT's
Reinvestment Plan, representing Gross Proceeds of $59,610,539 (net of volume
discounts of $25,000). As of June 30, 1994 shares totaled approximately
3,671,691 representing Gross Proceeds of $73,393,890 (net of volume discounts
of $39,934). AMIT II and ATEBT are currently in the registration phase and
each have been authorized to issue a maximum of 10,000,000 shares of common
stock and beneficial ownership interest, respectively, for $200,000,000.
Note 2--Significant Accounting Policies
a) Income Taxes
As of December 31, 1993 and June 30, 1994 the Company has not adopted
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes" because the shareholders of the Company have elected "S"
Corporation status under applicable provisions of the Internal Revenue Code
and New York State Law. While valid elections are in effect, the income of
the Company for federal and state income tax purposes, will be taxed directly
to the shareholders.
b) Investments
The Company records its Investment in AMIT on the cost method. Dividends
received from AMIT totaled $28,640 and $8,005 for the six months ended June
30, 1994 and the period May 23, 1991 (date of inception) to December 31,
1993. Such amounts are recorded as dividend income.
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". In accordance with SFAS No. 115, the Company has
classified its marketable securities as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses for available-for-sale securities are excluded from
earnings and are reported as a net amount in a separate component of
shareholders' equity until realized. A decline in the fair value of any
available-for-sale security below the amortized cost basis that is deemed
other than temporary is charged to earnings resulting in the establishment of
a new cost basis for the security.
Note 3--Investments
The Company made an initial investment of $200,000, representing 10,000
shares, in AMIT in December 1992. As of December 31, 1993, the Company has
reduced its initial investment in AMIT by $52,500 to reflect the estimated
market value of the shares.
The Company is to receive restricted shares of AMIT, which, after such
issuance, will equal 1% of the issued shares of AMIT as compensation in
connection with the start-up of AMIT and AMIT's mortgages. Restricted shares
received at June 30, 1994 and December 31, 1993 were 36,995 and 30,119,
respectively. Such shares have been recorded at their estimated market value.
As of June 30, 1994 and December 31, 1993, the carrying value of the
shares held are equal to their estimated market value.
The Company made investments of $200 in AMIT II in September 1993 and
$1,000 in ATEBT in December 1993.
F-8
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEET (Continued)
June 30, 1994 (Unaudited) and December 31, 1993
(Information Subsequent to December 31, 1993 is Unaudited)
Note 4--Capitalization
The Company is capitalized by demand notes totalling $1,000,000 and $1,000 in
receivables. The notes bear no interest and were executed by two of the officers
of the Company.
Note 5--Related Party Transactions
a) American Mortgage Investors Trust
The Company has entered into an agreement with AMIT to act as its advisor.
In accordance with the Agreement, the Company received compensation
consisting primarily of (i) compensation in connection with the organization
and start-up of AMIT and AMIT's investment in mortgages; (ii) asset
management fees calculated as a percentage of total assets invested by AMIT;
(iii) a subordinated incentive fee based on the economic gain on the sale of
mortgages; (iv) reimbursement of certain administrative costs incurred by the
Company or an affiliate on behalf of AMIT; (v) an amount which, after
issuance, will equal 1% of all shares of AMIT issued during the offering
period or pursuant to AMIT's dividend reinvestment plan as compensation for
services rendered; (vi) acquisition fees and acquisition expense allowance
calculated as a percentage of the Gross Proceeds applicable to the
origination of the mortgages and related additional loans and the acquisition
of acquired mortgages and additional loans; and (vii) certain other fees.
The Company receives a nonaccountable expense allowance ("Expense
Allowance") from AMIT equal to 2.5% of the gross proceeds of the offering.
The Company has agreed to be responsible for all expenses of the offering,
except for the payment of the Expense Allowance and certain selling
commissions (not to exceed 6.0% of gross proceeds) and due diligence expense
allowance (not to exceed 0.5% of gross proceeds) on certain sales of shares.
As of June 30, 1994 and December 31, 1993, the amount due to AMIT consists of
the excess of offering expenses over the Expense Allowance in the amount of
$640,786 and $557,512, net of amounts due to the Company totaling $173,960
and $16,259.
In addition, the Company receives restricted shares of AMIT, which the
Company has valued at $14.75, which, after such issuance, will equal 1% of
the issued shares, of AMIT.
The Company is required, in accordance with an agreement with an
affiliate, to remit the asset management fees, the Expense Allowance,
mortgage placement or financing fees and subordinated incentive fees,
acquisition fees and allowances it earns from AMIT for services performed by
the affiliate, and the Company is reimbursed from its affiliate for the
expenses which the Company is responsible to pay to AMIT.
b) American Mortgage Investors Trust II
The Company entered into an agreement with AMIT II to act as its advisor.
The Company will receive (i) compensation in connection with the organization
and start-up of AMIT II and AMIT II's investments in the mortgages; (ii)
asset management fees calculated as a percentage of total assets invested by
AMIT II; (iii) a subordinated incentive fee based on the economic gain on the
sale of mortgages; (iv) reimbursement of certain administrative costs
incurred by the Company or an affiliate on behalf of AMIT II; and (v) certain
other fees.
Contingent upon the sale of at least 125,000 shares to the public, AMIT II
will be liable for a nonaccountable expense allowance ("Expense Allowance")
payable to the Company equal to 2.5% of the gross proceeds of the offering.
The Company, to the extent not paid by an affiliate, has agreed to be
responsible for all expenses of the offering, except for the payment of the
Expense Allowance, and certain selling commissions (not to exceed 6.0% of
gross proceeds) and a due diligence expense allowance (not to exceed 0.5% of
gross proceeds) on certain sales of shares.
F-9
<PAGE>
RELATED AMI ASSOCIATES, INC.
NOTES TO BALANCE SHEET (Continued)
June 30, 1994 (Unaudited) and December 31, 1993
(Information Subsequent to December 31, 1993 is Unaudited)
In addition, the Company is to receive shares of AMIT II, which, after such
issuance, will equal 1% of the issued shares, in consideration for services
rendered.
c) American Tax-Exempt Bond Trust
The Company has entered into an agreement with ATEBT to act as its
manager. In accordance with the agreement, the Company is entitled to receive
(i) compensation in connection with the organization and start-up of the
ATEBT and the ATEBT's investment in tax-exempt first mortgage bonds; (ii)
special distributions of adjusted cash from operations calculated as a
percentage of total assets invested by ATEBT; (iii) a subordinated incentive
fee based on the gain of the sale of the tax-exempt first mortgage bonds;
(iv) reimbursement of certain administrative costs incurred by the Company or
an affiliate on behalf of ATEBT; and (v) certain other fees.
Contingent upon the sale of at least 125,000 shares to the public, ATEBT
will be liable for a nonaccountable expense allowance ("Expense Allowance")
payable to the Company equal to 2.5% of the gross proceeds of the offering.
The Company, to the extent not paid by an affiliate, has agreed to be
responsible for all expenses of the offering, except for the payment of the
Expense Allowance, and certain selling commissions (not to exceed 5.0% of
gross proceeds) and a due diligence expense allowance (not to exceed 0.5% of
gross proceeds) on certain sales of shares.
F-10
<PAGE>
APPENDIX I
_______________________________________________________________________________
PRIOR PERFORMANCE TABLES
OF AFFILIATES OF THE SPONSOR
_______________________________________________________________________________
Introduction
The following Prior Performance Tables present information on certain
programs previously sponsored by Affiliates of the Sponsor. The purpose of the
tables is to provide information on the prior performance of these programs so
as to evaluate the experience of the Affiliates of the Sponsor in sponsoring
such programs. Prospective investors should read these tables carefully together
with the summary information concerning the prior programs set forth under
"Prior Performance Summary" in the Prospectus. None of these tables are covered
by the report of independent public accountants set forth elsewhere in this
Prospectus.
It should not be assumed that investors in the company will experience
results comparable to those experienced by investors in the programs included
in the following tables. Investors in the Company will not have any interest
in any of the prior limited partnerships covered by the tables or in any of
the investments owned by the prior limited parnerships.
The following tables are included:
Table I. Experience in Raising and Investing Funds (updated through
December 31, 1993)
Table II. Compensation to Sponsor and Affiliates (updated through December
31, 1993)
Table III. Operating Results of Prior Programs (1993 results)
Table IV. Is not applicable as no programs with similar investment
objectives have completed operations.
Table V. Sale or Disposal of Properties/Investments
Tables I and II contain information on programs sponsored, the offerings
of which closed during the most recent three years. Table III contains
information for the programs which have closed their offerings during the
most recent five-year period. Table IV, Results of Completed Programs, is not
applicable as no programs with similar investment objectives have completed
operations during the most recent five-year period.
Affiliates of the Sponsor have sponsored six public programs with
investment objectives similar to the Trust. See "Prior Performance Summary"
and "Investment Objectives and Policies." The factors considered in
determining which programs have similar investment objectives include whether
the program invested directly or indirectly in real estate, type of principal
investments, tax aspects and structure of the program.
I-1
<PAGE>
TABLE I
Experience in Raising and Investing Funds
(Not Covered by Independent Auditors' Report)
The following table includes information concerning the experience of
Affiliates of the Sponsor and the Advisor in raising and investing funds for
prior public limited partnership in offerings with investment objectives
similar to those of the Trust which closed between January 1, 1991 and
December 31, 1993. The table shows the percentage of the amount raised
available for investment, the dollar amount offered and raised, the amount of
funds raised from sources other than investors, the percentage of leverage
used in purchasing properties, and the time frame for raising and investing
funds.
The table should be read in conjunction with the Introduction and the
accompanying notes.
<TABLE>
<CAPTION>
Capital
Mortgage
Plus L.P.
--------------
<S> <C>
Public Offerings
Dollar Amount Offered .......................................................... $50,000,000
===========
Dollar Amount Raised (100%) ................................................... $36,733,200
Less Offering Expenses:
Selling Commissions and Discounts .......................................... 7.0%
Organizational Expenses ....................................................... 2.0%
Reserves........................................................................ 1.3%
Percent of Amount Raised Available for Investment.............................. 89.7%
Acquisition Costs:
Cash Down Payments ............................................................ 87.2%
Prepaid Items and Fees Related to Purchase of Properties....................... 0.0%
Acquisition Fees .............................................................. 0.0%
Other 2.5%(1)
Total Acquisition Cost ......................................................... 89.7%
Percentage Leverage (mortgage financing divided by total acquisition cost)..... N/A
Date Offering Began ............................................................ 5/10/89
Length of Offering (in months).................................................. 24 mos.
Months to Invest 90% of Amount Available for Investment (measured from
beginning of offering) ........................................................ 29 mos.
</TABLE>
Note 1--Consists of Loan Organization Fees, payable to General Partners or
affiliates.
I-2
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates
(Not covered by Independent Auditors' Report)
The following table sets forth all compensation paid to Affiliates of the
Sponsor and the Advisor (and in the case of public limited partnerships, fees
paid in the aggregate to all general partners and affiliates), regardless of
the form of such compensation, with respect to prior public limited
partnerships, in offerings with investment objectives similar to those of the
Trust which closed between January 1, 1991 and December 31, 1993.
The table should be read in conjunction with the Introduction and the
accompanying notes.
I-3
<PAGE>
TABLE II
Compensation to Sponsor and Affiliates--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Prior
Public Financing
Capital Mortgage Limited
Plus L.P. Partnerships (3)
---------------- ------------------
<S> <C> <C>
Offerings Information:
Date Offering Commenced ........................................................ 5/10/89 --
Dollar Amount Raised............................................................ $36,733,200 $455,611,620(1)
Amount Paid and/or Payable to Sponsor from Proceeds of Offering:
Underwriting Fees ............................................................. -- --
Acquisition Fees:
Real Estate Commissions ...................................................... -- --
Advisory Fees ................................................................ -- --
Bond Selection Fees/Placement Fees ........................................... $ 206,693 $ 171,372
Non-accountable Expense Allowance ............................................ --
Organization/Offering Expenses ............................................... -- --
Acquisition Fee
Loan Organization Fees ....................................................... $ 452,350 --
Other ........................................................................ -- --
Dollar Amount of Cash Generated from (Provided to) Operations
Before Deducting Payment to Sponsor through Fiscal Year End .................. $ 8,380,020 $ 77,911,030
Amount Paid to Sponsor from Operations through Fiscal Year End:
Property Management Fees ...................................................... -- --
Partnership or Investment Management Fees ..................................... -- $ 7,767,353(2)
Organization and Offering Expenses ............................................ -- --
Leasing Commissions ........................................................... -- --
Dollar Amount of Property Sales and Refinancing Before Deducting
Payments to Sponsor:
Cash .......................................................................... -- --
Notes.......................................................................... -- --
Amount Paid to Sponsor from Property Sales and Refinancing:
Real Estate Commissions ....................................................... -- --
Incentive Fees ................................................................ -- --
Number of Limited Partnerships ................................................ -- 4
</TABLE>
Note 1--Amount shown includes volume discounts.
Note 2--Included in this amount are special distributions of Adjusted Cash
from Operations that are also payable to the general partners for managing
the affairs of the partnership equal to .5% per annum of invested assets.
Note 3--Information presented with respect to programs which closed prior
to 1991 discloses aggregate payments paid or accrued to Affiliates of the
Sponsor and the Advisor during the three year period ended December 31, 1993.
I-4
<PAGE>
TABLE III
Operating Results of Prior Programs
(Not Covered by Independent Auditors' Report)
The following table summarizes the operating results of prior public
limited partnerships sponsored by Affiliates of the Sponsor and the Advisor
with investment objectives similar to those of the Trust which closed between
January 1, 1989 and December 31, 1993.
The table should be read in conjunction with the Introduction and the
accompanying notes.
I-5
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Eagle Insured L.P. (3)
-----------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1989 1990 1991 1992 1993
----------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues .............................. $ 4,629,616 $ 3,917,610 $4,022,395 $3,967,183 $3,872,390
Less: Operating and Administrative Expense . (2,778,360 (902,354) (950,774) (798,984) (348,014)
Interest Expense ..................... -- (79,372) (279,311) (223,656) (213,832)
Depreciation and Amortization ........ (203,695) (201,078) (202,978) (202,993) (44,400)
----------- ------------ ---------- ---------- ----------
Net Income (Loss)--GAAP Basis ................ $ 1,647,561 $ 2,734,806 $2,589,332 $2,741,550 $3,266,144
=========== ============ ========== ========== ==========
Taxable Income (Loss) ......................... $ 4,629,616 $ 3,917,609 $3,247,558 $3,519,397 $3,493,789
=========== ============ ========== ========== ===========
Cash Generated (Deficiency) From Operations ... $ 4,385,814 $ 3,054,210 $3,535,627 $3,682,561 $3,535,739
Less: Cash Distributions to Investors from
operating cash flow ......................... 4,282,714 3,054,210 3,466,238 3,473,494 3,467,023
from sales and refinancing ................... -- -- -- -- --
from working capital reserves (return of
capital)(7) ................................ -- 653,711 -- -- --
----------- ------------ ---------- ---------- ----------
Cash Generated (Deficiency) After Cash
Distributions ............................... 103,100 (653,711) 69,389 209,067 68,716
Add (Less) Special Items:
Partners' Capital Contributions, net .. 2,753,000 -- -- -- --
Acquisition of Project ...................... (14,167,939) (15,195,609) 120,764 194,614 --
Syndication and Organization Cost ........... (192,710) -- -- -- --
Decrease (Increase) in Other Assets (5)...... 14,021,833 (2,272,615) (787,385) -- 175,147
Increase (Decrease) in Other Liabilities (6) -- 2,272,615 787,385 -- (222,447)
Other -- -- -- -- --
----------- ------------ ---------- ---------- ----------
Cash Generated (Deficiency) After Cash
Distributions and Special Items .............. $ 2,517,284 $(15,849,320) $ 190,153 $ 403,681 $ 21,416
=========== ============ ========== ========== ==========
Tax and Distribution Data Per $1,000 Invested (2)
Federal Income Tax Results:
Ordinary Income (Loss) .................. 86 $ 73 $ 60 $ 65 $ 65
=========== ============ ========== ========== ==========
Cash Distributions to Investors Source
(on GAAP Basis):
Investment Income ....................... $ 31 $ 45 $ 45 $ 47 $ 57
Return of Capital ....................... 50 16 15 13 3
Source (on Cash Basis):
Operations .............................. 81 50 60 60 60
Sales ................................... -- -- -- -- --
Refinancing ............................. -- -- -- -- --
Working Capital Reserves................. -- 11 -- -- --
Amount (in percentage terms) Remaining Invested
in Properties at the end of the last year
reported in the Table (original total
acquisition cost of properties retained
divided by original total acquisition cost
of all properties in program) ................. 100% 100% 100% 100% 100%
=========== =========== ========= ========= =========
</TABLE>
I-6
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Capital Mortgage Plus L.P. (3)
--------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1989 1990 1991 1992 1993
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues ............................... $ 443,624 $ 2,020,101 $ 2,380,803 $2,603,482 $ 2,374,949
Less: Operating and Administrative Expenses .. (92,541) (170,410) (362,897) (390,410) (291,479)
Interest Expenses ...................... -- -- -- -- --
Depreciation and Amortization .......... (7,500) (12,975) (136,119) (152,869) (245,080)
----------- ----------- ----------- ---------- ------------
Net Income (Loss)--GAAP Basis ................ $ 343,583 $ 1,836,716 $ 1,881,787 2,060,203 $ 1,838,390
=========== =========== =========== ========== ============
Taxable Income (Loss) ........................ $ 343,583 $ 1,836,716 $ 1,895,706 2,191,262 $ 2,051,507
=========== =========== =========== ========== ============
Cash Generated (Deficiency)
From Operations ............................. $ 436,465 $ 1,804,633 $ 2,157,675 1,963,504 $ 2,017,743
Less: Cash Distributions to Investors
from operating cash flow .................... 116,068 1,804,633 2,157,675 1,963,504 2,017,743
from sales and refinancing ................. -- -- -- -- --
from working capital reserves
(return of capital)(7)..................... -- 121,662 472,692 661,848 606,380
----------- ----------- ----------- ---------- ------------
Cash Generated (Deficiency)
After Cash Distributions ................... 320,397 (121,662) (472,692) (661,848) (606,380)
Add (Less) Special Items:
Partners' Capital Contributions, net ........ 18,636,200 14,527,300 3,566,700 -- --
Acquisition of Project ...................... (465,980) (3,676,137) (11,332,904) (3,478,039) (10,147,642)
Syndication and Organization Cost ........... (1,677,528) (1,357,457) (271,003) -- --
Decrease (Increase) in Other Assets -- (22,734,089) 11,121,046 11,539,073 236,345
Increase (Decrease) in Other Liabilities -- -- -- -- --
Other -- -- -- -- --
----------- ----------- ----------- ---------- ------------
Cash Generated (Deficiency)
After Cash Distributions and Special Items .. $16,813,089 (13,362,045) $ 2,611,147 7,399,186 $(10,517,677)
=========== =========== =========== ========== ============
Tax and Distribution Data Per
$1,000 Invested (2)
Federal Income Tax Results:
Ordinary Income (Loss) ............... $ 5-26(4) $ 5-56(4) $ 50-56(4) $ 58 $ 55
=========== =========== =========== ========== ============
Cash Distributions to Investors Source
(on GAAP Basis):
Investment Income ....................... $ 13-34(4) $ 19-76(4) $ 49-55(4) $ 55 $ 49
Return of Capital ....................... -- 1-4(4) 20-22(4) 15 21
Source (on Cash Basis):
Operations ................................ 13-34(4) 19-75(4) 57-63(4) 52 54
Sales ..................................... -- -- -- -- --
Refinancing ............................... -- -- -- -- --
Working Capital Reserves .................. -- 1-5(4) 12-14(4) 18 16
Amount (in percentage terms) Remaining
Invested in Properties at the end
of the last year reported in the
Table (original total acquisition cost
of properties retained divided by original
total acquisition cost of all properties
in program).................................. 100% 100% 100% 100% 100%
========== ========= =========== ========== ==========
</TABLE>
I-7
<PAGE>
TABLE III
Operating Results of Prior Programs--(Continued)
(Not Covered by Independent Auditors' Report)
Notes to Table III:
Note 1--The investment objectives of this partnership are similar to those of
the Trust in that this partnership was formed to invest in first mortgage bonds
secured by first mortgage loans on multi-family residential rental properties
and retirement communities that were newly constructed, under construction or
substantially rehabilitated at the time of the investment.
Note 2--Data is the amount allocable to the investors per $1,000 of total
capital invested.
Note 3--The investment objectives of this partnership are similar to those
of the Trust in that this partnership was formed to invest in insured or
guaranteed mortgage investments in first mortgage construction and permanent
loans that finance or refinance multi-family residential rental properties
that were newly constructed, under construction or substantially
rehabilitated at the time of the investment.
Note 4--Amount depended upon date of admission to the partnership.
Note 5--Other assets include restricted funds, loans receivable,
marketable securities and temporary investments.
Note 6--Other liabilities include loans payable.
Note 7--Working capital reserves consist of 1% of the gross proceeds from
the offering, uninvested net proceeds and the interest earned thereon.
I-8
<PAGE>
TABLE V
Sale or Disposal of Properties/Investments
The objective of the following table is to provide investors with certain
information regarding the sales or the dispositions of an investment between
January 1, 1991 and December 31, 1993 by programs sponsored by Affiliates of the
Trust.
CAPITAL MORTGAGE PLUS L.P.
<TABLE>
<CAPTION>
Excess of Investment
Cost of Investments Cash Receipts Over
Selling Price, Net of Closing Costs Including Closing and Soft Costs Cash Expenditures(2)
-------------------------------------------- ------------------------------------- ------------------
Cash
Received Mortgage
Net of Balance Other
Date Date Closing at Tiime Purchase Price Acquisition
Investment Acquired Sold Costs of Sale Total % Amount Cost(1) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fannie Mae Mortgage 9/01/91 12/92 4,000,000 0 4,000,000 98.1875% 3,927,500 0 3,927,500 398,556
Guaranteed REMIC Pass 9/30/91 12/92 4,000,000 0 4,000,000 97.9062% 3,916,250 0 3,916,250 47,201
--------- - --------- --------- - -------- -------
Thru Certificates
TR 1991-98 Class T 8,000,000 0 8,000,000 7,843,750 0 7,843,750 745,757
======== = ========= ========= = ========= =======
</TABLE>
_____________________________
(1) In connection with the purchase of the REMIC Certificates, the general
partners of the partnership did not receive any loan placement fee.
(2) Amount shown is cumulative interest income from inception to date of sale
(exclusive of the gain).
I-9
<PAGE>
TABLE V
Sale or Disposal of Properties/Investments
The objective of the following table is to provide investors with certain
information regarding the sales or the dispositions of an investment between
January 1, 1991 and December 31, 1993 by programs sponsored by Affiliates of
the Trust.
AMERICAN MORTGAGE INVESTORS TRUST
<TABLE>
<CAPTION>
Excess of Investment
Cost of Investments Cash Receipts Over
Selling Price, Net of Closing Costs Including Closing and Soft Costs Cash Expenditures(2)
-------------------------------------------- ------------------------------------- ------------------
Cash
Received Mortgage
Net of Balance Other
Date Date Closing at Time Purchase Price Acquisition
Investment Acquired Sold Costs of Sale Total % Amount Cost(1) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fannie Mae Mortgage
Guaranteed REMIC
Pass Thru
Certificates
TR 1991-17 Class G 10/15/93 11/4/93 203,125 0 203,125 101.609375% 203,199 0 203,199 688
======= == ======= ======= = ======= ===
</TABLE>
_______________________
(1) In connection with the purchase of the REMIC Certificates, the general
partners of the partnership did not receive any loan placement fee.
(2) Amount shown is cumulative interest income from inception to date of sale
(exclusive of the gain).
I-10
<PAGE>
EXHIBIT A
AMERICAN TAX-EXEMPT BOND TRUST
Index to Business Trust Agreement
Page
-------
1. ORGANIZATION ........................................................ A-1
2. PURPOSES AND RESERVES ............................................... A-2
3. DEFINITIONS AND GLOSSARY OF TERMS ................................... A-2
4. TERM ................................................................ A-8
5. MANAGER ............................................................. A-8
6. SHAREHOLDERS ........................................................ A-9
7. TRUST CAPITAL ....................................................... A-9
8. LIABILITY OF THE SHAREHOLDERS AND TRUSTEE ........................... A-9
9. COMPENSATION TO THE MANAGER AND ITS AFFILIATES ...................... A-10
10. TRUST EXPENSES ...................................................... A-12
11. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS......................... A-13
12. TRUST CERTIFICATES .................................................. A-18
13. REGISTRATION AND TRANSFER OF SHARES ................................. A-18
14. BOOKS, RECORDS, ACCOUNTINGS AND REPORTS ............................. A-20
15. RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES
AND DUTIES OF THE MANAGER ......................................... A-21
16. RIGHTS AND POWERS OF SHAREHOLDERS ................................... A-29
17. REMOVAL, BANKRUPTCY OR DISSOLUTION OF THE MANAGER AND
TRANSFER OF THE MANAGER'S INTEREST.................................. A-31
18. FIDUCIARY DUTY; CERTAIN TRANSACTIONS ................................ A-32
19. TERMINATION AND DISSOLUTION OF THE TRUST ............................ A-32
20. SPECIAL POWER OF ATTORNEY ........................................... A-33
21. INDEMNIFICATION ..................................................... A-34
22. CONCERNING THE TRUSTEE .............................................. A-34
23. ROLLUPS ............................................................. A-36
24. DISTRIBUTION REINVESTMENT PLAN ...................................... A-37
25. REDEMPTION PLAN ..................................................... A-37
26. MISCELLANEOUS ....................................................... A-37
A-i
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
_______________________________________________________________________________
AMERICAN TAX-EXEMPT BOND TRUST
AMENDED AND RESTATED BUSINESS TRUST AGREEMENT
_______________________________________________________________________________
This AMENDED AND RESTATED BUSINESS TRUST AGREEMENT ("Trust Agreement")
entered into as of October 18, 1994 by and among Related AMI Associates,
Inc., a Delaware corporation ("Related AMI"), as Grantor (the "Grantor"),
Related AMI, as manager (the "Manager"), Wilmington Trust Company, a Delaware
banking corporation, as Trustee (the "Trustee"), and the other persons to be
holders of beneficial interests in the Trust pursuant to the terms of this
Trust Agreement. Capitalized terms used but not defined have the meanings
assigned to such terms in Paragraph 3.
W I T N E S S E T H :
WHEREAS, pursuant to a Business Trust Agreement dated as of December 23,
1993, as amended and restated to date, among the Grantor, the Manager and the
Trustee, and a Certificate of Trust filed with the Secretary of State of the
State of Delaware on December 23, 1993, as amended by a Certificate of
Amendment of Certificate of Trust filed with the Secretary of State of the
State of Delaware on September 28, 1994, the Grantor and the Trustee
established a trust to invest (i) principally in tax-exempt First Mortgage
Bonds, with or without Contingent Interest, issued by various state or local
governments or their agencies or authorities and secured by first Mortgage
Loans primarily on existing multi-family residential apartment projects and,
secondarily, retirement community projects, which projects may have been
developed by third party developers or Affiliates of the Manager and (ii) to
a lesser extent, in Tax-Exempt Securities;
WHEREAS, the Grantor and the Trustee desire that the beneficial interest
in the assets of the Trust be divided into transferable beneficial interests
in the Trust as hereinafter provided; and
WHEREAS, the Grantor, the Manager and the Trustee desire to further amend
and restate the Trust Agreement;
NOW THEREFORE, the Grantor and the Trustee hereby declare that all money
and property contributed to the Trust established hereunder shall be held and
managed in trust for the benefit of the holders of beneficial interests in
the Trust, subject to the provisions hereof.
1. ORGANIZATION
1.1 Name. The trust hereby created shall be known as American Tax-Exempt Bond
Trust (the "Trust") in which name the Trustee and the Manager may conduct
business or any subsequent name as shall be selected by the Manager.
1.2 Office. The Office of the Trust shall be in care of the Manager, 625
Madison Avenue, New York, New York 10022, Attn: Stuart J. Boesky, or at such
other address as the Manager may designate by notice to the Shareholders.
1.3 Appointment of the Trustees. Except as otherwise permitted by this
Agreement, the number of the trustees shall be one (1). The Grantor hereby
appoints the Trustee as trustee of the Trust effective as of December 23,
1993, to have all the rights, powers and duties as set forth herein. The
Trustee acknowledges receipt in trust from the Grantor as of December 23,
1993, of the sum of one thousand dollars ($1,000), constituting the initial
Trust Property.
1.4 Declaration of Trust. The Trustee hereby declares that it will hold
the Trust Property in trust upon and subject to the conditions set forth
herein for the use and benefit of the Owners. It is the intention of the
parties hereto that the Trust constitute a business trust under the Delaware
Act and that this Trust Agreement constitute the governing instrument of the
Trust.
1.5 Manager. The Manager shall devote to the affairs of the Trust such
time as may be necessary for the proper performance of its duties hereunder,
but neither the Manager nor the officers, directors, trustees, shareholders
or partners of the Manager shall be expected to devote their full time to the
performance of such duties. The business and affairs of the Trust and all
responsibility and authority for matters to be determined or conducted by the
Trust is hereby delegated to the Manager as set forth herein; provided
further, however, that the Trustee shall have the duties set forth in
Paragraph 1.6. The Manager shall have the interest in Net Income, Net Loss
and Distributions as provided in Paragraph 11.
A-1
<PAGE>
1.6 Trustee. The Trustee has been appointed as trustee and joined as a
party hereunder in order to satisfy the requirements of Section 3807 of the
Delaware Act. In the event of the resignation or removal of the Trustee, the
Manager shall appoint a successor Trustee in accordance with Paragraph 22.2.
The Trustee shall be responsible for performing only the following duties
with respect to the Trust: (i) to execute, deliver, acknowledge and file any
certificates of trust and any amendments thereto required to be filed
pursuant to applicable law, (ii) to execute any Trust Certificates
representing Shares issued to Shareholders pursuant to Paragraph 12 if
requested to do so by written instruction from the Manager, (iii) to execute
any amendments to this Trust Agreement and (iv) to execute, deliver,
acknowledge and file any certificates of cancellation required to be filed
pursuant to applicable law. The Trustee shall provide prompt notice to the
Manager of its performance of any of the foregoing. The Manager shall keep
the Trustee reasonably informed of any actions of the Manager or other
circumstances that could affect the rights, duties or liabilities of the
Trustee. The Trustee shall have no other authority, duties or liabilities,
except as are expressly set forth above or as directed in writing by the
Manager and consented to by the Trustee, and shall have no implied authority
or duties with respect to the affairs of the Trust.
2. PURPOSES AND RESERVES
2.1 Purposes. The nature of the business to be conducted or promoted by the
Trust is to invest in, hold, sell, dispose of and otherwise act with respect
to (i) First Mortgage Bonds secured by Mortgage Loans on Properties,
including the operation of real estate acquired as a result of foreclosure
and (ii) Tax-Exempt Securities.
2.2 Reserves. The Trust shall establish Reserves for working capital and
contingencies in an amount equal to one percent (1%) of the Gross Proceeds
and may add to such Reserves from Cash Flow, Sale or Repayment Proceeds and
uninvested Net Proceeds. The Manager may increase or decrease Reserves as it
deems necessary for the proper operation of the business of the Trust. Any
cash reserve used need not be restored. The amount of a reduction in Reserves
for a particular quarter may either (i) be allocated and distributed in the
same manner as Adjusted Cash From Operations to the extent such Reserves are
attributable to cash generated from Trust operations; or (ii) be allocated
and distributed in the same manner as Sale or Repayment Proceeds to the
extent such Reserves are attributable to cash generated from Dispositions; or
(iii) be allocated and distributed as a return of Original Contributions to
the Shareholders to the extent such Reserves are attributable to Net
Proceeds; provided, however, that Reserves attributable to Net Proceeds shall
not be distributed to Shareholders until the termination of the Trust and
shall not be used to fund any compensation payable by the Trust to the
Manager and its Affiliates.
3. DEFINITIONS AND GLOSSARY OF TERMS
The following terms used in this Trust Agreement shall (unless otherwise
expressly provided herein or unless the context otherwise requires) have the
following respective meanings:
"Acquisition Expense Allowance" shall mean the amount payable to the
Manager under the provisions of Paragraph 9.4.
"Acquisition Expenses" shall mean expenses related to the Trust's
selection and acquisition of First Mortgage Bonds and Tax-Exempt Securities,
whether or not acquired, including but not limited to legal fees and
expenses, travel and communications expenses, non-refundable option payments
on First Mortgage Bonds not acquired, insurance, costs of appraisals,
accounting fees and expenses, and miscellaneous other expenses.
"Acquisition Fees" shall mean the total of all fees and commissions paid
by any party in connection with making or investing in First Mortgage Bonds
and Tax-Exempt Securities, including the amounts payable to the Manager under
the provisions of Paragraphs 9.5 and 9.6. Included in the computation of such
fees or commissions shall be any loan fees or points paid by borrowers to the
Manager in connection with investing in First Mortgage Bonds or any fee of a
similar nature, however designated.
"Adjusted Capital Account Deficit" shall have the meaning ascribed thereto
in Paragraph 11.5.
"Adjusted Cash From Operations" shall mean, with respect to any period,
Cash Flow less any amount set aside for the restoration or creation of
Reserves.
A-2
<PAGE>
"Adjusted Contribution" shall mean the Original Contribution paid by the
original purchaser of a Share, reduced by the total of cash distributed from
Sale or Repayment Proceeds, Contingent Interest, if any, payable from Net
Sale or Repayment Proceeds, cash from Net Proceeds held as initial Reserves
and return, if any, of uninvested Net Proceeds with respect thereto.
"Affiliate" of a person shall mean (i) any person directly or indirectly
controlling, controlled by or under common control with such person, (ii) any
person owning or controlling 10% or more of the outstanding voting securities
or beneficial interests of such person, (iii) any executive officer,
director, trustee or general partner of such person and (iv) if such person
is an executive officer, director, trustee or general partner of another
entity, then the entity for which that person acts in any such capacity.
"Bond Selection Fees" shall mean the fees equal to no more than 2% of the
Gross Proceeds, payable to the Manager pursuant to Paragraph 9.5.
"Carried Interest" shall mean the interest equal to up to 1% of Adjusted
Cash From Operations and up to 1% of Sale or Repayment Proceeds, which the
Manager shall have pursuant to Paragraphs 11.10 and 11.11.
"Cash Flow" shall mean, with respect to any period, (a) all cash receipts
derived from payments of interest (including Contingent Interest, if any,
payable on the basis of Net Property Cash Flow) on First Mortgage Bonds and
Tax-Exempt Securities held by the Trust (exclusive of any Sale or Repayment
Proceeds), plus (b) cash receipts from operations (including any interest
from Temporary Investments of the Trust and Tax-Exempt Securities and any
Reserves deemed no longer necessary for Trust operations by the Manager and
attributable to cash generated from Trust operations) without deduction for
depreciation or amortization, plus (c) any interest on the cash receipts
noted in (a) and (b) pending distribution to the Owners, less (d) cash
receipts used to pay operating expenses.
"Closing" shall mean any closing of Shares sold pursuant to the
Prospectus.
"Closing Date" shall mean such date or dates designated by the Manager for
the closing of Shares sold pursuant to the Prospectus.
"Code" shall mean the Internal Revenue Code of 1986, or corresponding
provisions of subsequent revenue laws.
"Contingent Interest" shall mean additional interest payments on a First
Mortgage Bond and, therefore, on the underlying Mortgage Loan, based upon (a)
annual Net Property Cash Flow of the Property securing the Mortgage Loan and
(b) Net Sale or Repayment Proceeds from the Property.
"Current Interest Rate" shall mean the stated annual rate of interest
which a First Mortgage Bond and, therefore, a Mortgage Loan bears, payable
without regard to Net Property Cash Flow or Net Sale or Repayment Proceeds.
"Dealer Manager" shall mean Related Equities Corporation, the dealer
manager for the public offering of the Shares.
"Deficit Repayment Obligation" shall mean the amount payable by the
Manager to the Trust under the provisions of Paragraph 5.3.
"Delaware Act" shall mean the Delaware Business Trust Act, 12 Del.C.
SS 3801-3820, or the corresponding provisions of any succeeding
law.
"Disposition" shall mean any Trust transaction not in the ordinary course
of its business including, without limitation, receipt of payments of
principal, Contingent Interest, if any, payable on the basis of Net Sale or
Repayment Proceeds, prepayments, prepayment penalties, proceeds of sales,
exchanges, foreclosures or other dispositions of First Mortgage Bonds or of
Tax-Exempt Securities, recoveries of damage awards and insurance proceeds
not used to rebuild (other than the return of principal from the issuer prior
to being disbursed by or on behalf of such issuer to the mortgagor, the
receipt of subscriptions for Shares, interest payments when due on First
Mortgage Bonds or Tax-Exempt Securities or business or rental interruption
insurance proceeds not used to rebuild).
A-3
<PAGE>
"Distributions" shall mean any cash distributed to Owners arising from
their interest in the Trust, but shall not include any payments to the
Manager under the provisions of Paragraph 9 or 10.
"Eligible Shares" shall mean Shares held by any Shareholder who acquired
them directly from the Trust whether through (i) the public offering of
Shares pursuant to the Prospectus or (ii) the Trust's Reinvestment Plan.
"Escrow Fees and Expenses" shall mean the fees and expenses related to the
deposit of all Original Contributions in an escrow account in a financial
institution designated by the Manager as escrow holder for the Original
Contributions, pursuant to Paragraph 6.3.
"Expense Allowance" shall mean the amount payable to the Manager under the
provisions of Paragraph 9.3.
"Final Closing Date" shall mean the date of the last closing of Shares
sold pursuant to the initial public offering of Shares.
"Financing" shall mean all indebtedness encumbering Properties, the
operations of which the Trust has taken over, or incurred by the Trust, the
principal amount of which is scheduled to be paid over a period of not less
than 48 months, and not more than 50% of the principal amount of which is
scheduled to be paid during the first 24 months. Nothing in this definition
shall be construed as prohibiting a bona-fide prepayment provision in the
financing agreement.
"First Mortgage Bond" shall mean a tax-exempt first mortgage bond issued
by various state or local governments or their agencies or authorities and
secured by a Mortgage Loan on a Property.
"Front-End Fees" shall mean all fees and expenses paid by any party for
any services rendered to organize the Trust and to acquire assets for the
Trust, including, without duplication, Organization and Offering Expenses,
Acquisition Expenses, Acquisition Fees and any other similar fees, however
designated (including fees paid to the Trustee and commissions and fees paid
pursuant to the Reinvestment Plan during the initial public offering).
"Grantor" shall mean Related AMI Associates, Inc., a Delaware corporation.
"Gross Proceeds" shall mean the total proceeds from the sale of Shares
during the initial public offering period (including Shares issued pursuant
to the Reinvestment Plan during such period), before deductions for
Organization and Offering Expenses and without taking into account "volume
discounts." For purposes of calculating Gross Proceeds, the purchase price of
all Shares, including those for which volume discounts apply, shall be deemed
to be $20 per Share.
"Independent Expert" shall mean a person with no material current or prior
business or personal relationship with the Manager and who is engaged, to a
substantial extent, in the business of rendering opinions regarding the value
of assets of the type held by the Trust.
"Initial Closing Date" shall mean the date on which the first closing of
Shares sold pursuant to the Prospectus occurs.
"Insurance Brokerage Fee" shall mean the fee payable to the Manager or its
Affiliates under the provisions of Paragraph 9.10.
"Investment in First Mortgage Bonds and Tax-Exempt Securities" shall mean
the amount of Gross Proceeds (including Reserves not in excess of 5%
allocable thereto) used to make or invest in First Mortgage Bonds and used to
make or invest in Tax-Exempt Securities, and other cash payments such as
interest and taxes but excluding Front-End Fees.
"Loan Servicing Fee" shall mean the amount payable to the Manager or its
Affiliates under the provisions of Paragraph 9.7.
"Majority Vote" shall mean the affirmative vote of the holders of more
than 50% of the outstanding Shares.
"Manager" shall mean Related AMI Associates, Inc., a Delaware corporation,
in its capacity as manager of the Trust, or any other person, corporation or
other entity which succeeds it in such capacity.
A-4
<PAGE>
"Marketing Allowances" shall mean the amounts (up to .5% of the Gross
Proceeds) payable by the Manager to certain broker-dealers unaffiliated with
the Manager pursuant to Paragraph 9.2.
"Mortgage Loan" shall mean the first mortgage and related mortgage loan on
a Property which has been financed with the proceeds of a First Mortgage
Bond.
"Mortgage Loan Placement Fee" shall mean the amount payable to the Manager
under the provisions of Paragraph 9.6.
"Net Income" or "Net Loss" shall mean for each fiscal year or other
applicable period, an amount equal to the Trust's taxable income or loss for
such year or period as determined for federal income tax purposes (including
any amounts received by the Trust pursuant to the repayment by the Manager of
any Special Distribution pursuant to Paragraph 11.10.1), determined in
accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) of the Code shall be included in taxable income or loss), and
(a) by including as an item of gross income any tax-exempt income received by
the Trust and not otherwise taken into account in computing Net Income or Net
Loss; (b) by treating as a deductible expense any expenditure of the Trust
described in Section 705(a)(2)(B) of the Code (or which is treated as a
Section 705(a)(2)(B) expenditure pursuant to Section 1.704-1(b)(2)(iv)(i) of
the Regulations) and not otherwise taken into account in computing Net Income
or Net Loss; and (c) by not taking into account in computing Net Income or
Net Loss items separately allocated to the Shareholders pursuant to the
provisions of Paragraph 11 hereof. "Net Income" or "Net Loss" shall also
include the Trust's share of income or loss of any partnership, venture or
other entity which owns a particular First Mortgage Bond or Tax-Exempt
Security, as determined for federal income tax purposes.
"Net Proceeds" shall mean the proceeds received by the Trust with respect
to the sale of Shares, less the Organization and Offering Expenses.
"Net Property Cash Flow" shall mean, with respect to any period, all cash
receipts derived from operation of a Property (exclusive of Net Sale or
Repayment Proceeds), less operating expenses including interest (other than
Contingent Interest). With respect to Net Property Cash Flow as it relates
only to terms of First Mortgage Bonds, the Manager shall have the discretion
to vary the components of Net Property Cash Flow.
"Net Sale or Repayment Proceeds" shall mean (a) the cash and any other
consideration received by the Property Owner from the sale, refinancing or
disposition of a Property, after retirement of all amounts of outstanding
principal on the Mortgage Loan for the Property and less all expenses related
to the sale, refinancing or disposition and other amounts specified by
counsel or (b) the appraisal value of the Property less the outstanding
principal on the Mortgage Loan for the Property, less customary costs of
sale, and other amounts specified by counsel; provided, however, that Net
Sale or Repayment Proceeds shall be calculated exclusive of Contingent
Interest. With respect to Net Sale or Repayment Proceeds as they relate only
to the terms of First Mortgage Bonds, the Manager shall have the discretion
to vary the components of Net Sale or Repayment Proceeds.
"Nonaccountable Due Diligence Reimbursements" shall mean the amounts paid
to certain broker-dealers unaffiliated with the Manager pursuant to Paragraph
9.2.
"Organization and Offering Expenses" shall mean, without duplication,
those expenses incurred in connection with the formation, qualification and
registration of the Trust and subsequent offering and distribution of Shares
to the public, including, but not limited to, the Expense Allowance, Escrow
Fees and Expenses, Selling Commissions, Marketing Allowances and
Nonaccountable Due Diligence Reimbursements.
"Original Contribution" shall mean the amount of twenty dollars ($20) for
each Share, which amount shall be attributed to such Share.
"Owners" shall mean the Shareholders and the Manager.
A-5
<PAGE>
"Property" shall mean the land and buildings thereon upon which has been
placed a first mortgage or other encumbrance securing a Mortgage Loan.
"Property Management Fee" shall mean the fee payable to the Manager or its
Affiliates under the provisions of Paragraph 9.8.
"Property Owner" shall mean the individual, partnership, corporation,
trust or other entity that is the borrower on a Mortgage Loan and the owner
of the Property securing such Mortgage Loan.
"Prospectus" shall mean the final prospectus for the Trust, as amended,
filed with the Securities and Exchange Commission in connection with the
registration of Shares under the Securities Act.
"Reinvested Distributions" shall mean the Distributions a Shareholder
elects to reinvest pursuant to the Trust's Reinvestment Plan.
"Reinvestment Plan" shall mean the Trust's distribution reinvestment plan
pursuant to which Shareholders can elect to have their Distributions
reinvested in additional Shares.
"Reinvestment Proceeds" shall mean the proceeds paid to the Trust upon the
purchase of Shares with Reinvested Distributions under the Reinvestment Plan,
net of any commissions and service charges payable with respect thereto.
"Related AMI" shall mean Related AMI Associates, Inc., a Delaware
corporation.
"Reserves" shall mean the amount set aside by the Manager as reserves for
working capital and for repairs, replacements and contingencies or other
reserves from Cash Flow, Sale or Repayment Proceeds and uninvested Net
Proceeds.
"Rollup" shall mean a transaction involving the acquisition, merger,
conversion or consolidation either directly or indirectly of the Trust and
the issuance of securities of a Rollup Entity. Such term does not include:
(i) a transaction involving securities of the Trust that have been listed for
at least 12 months on a national securities exchange or traded through the
National Association of Securities Dealers Automated Quotation National
Market System; or
(ii) a transaction involving the conversion of the Trust to corporate,
limited liability company or association form if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(A) Shareholders' voting rights;
(B) the term and existence of the Trust;
(C) Sponsor or Manager compensation;
(D) the Trust's investment objectives; or
(E) the limited liability of the Shareholders.
"Rollup Entity" shall mean a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Rollup transaction.
"Sale or Repayment Proceeds" shall mean receipts from Dispositions less
the following:
(i) the amount paid or to be paid in connection with or as an expense of such
Disposition;
(ii) the amount necessary for the payment of all debts and obligations of
the Trust including, but not limited to, fees to the Manager or its
Affiliates and amounts, if any, required to be paid to, arising from or
otherwise related to the particular Disposition; and
A-6
<PAGE>
(iii) any amount set aside by the Manager for working capital reserves.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Commissions" shall mean the percentages of Gross Proceeds payable
to broker-dealers for sales of Shares made by such broker-dealers and to an
Affiliate of the Manager for Reinvested Distributions contributed pursuant to
the Reinvestment Plan prior to the Final Closing Date, pursuant to Paragraph
9.2.
"Share" shall mean the beneficial ownership interest of a Shareholder in
the Trust which may be evidenced by Trust Certificates. Each Share is deemed
to represent a twenty dollar ($20) Original Contribution to the capital of
the Trust.
"Shareholder" shall mean any person who holds Shares.
"Shareholder Minimum Gain" shall mean an amount, with respect to each
Shareholder Nonrecourse Debt, equal to the Trust Minimum Gain (assuming, for
this purpose, that the Trust's only liability was the Shareholder Nonrecourse
Debt), that would result if such Shareholder Nonrecourse Debt were treated as
a nonrecourse liability, determined in accordance with Treas. Reg. S
1.704-2(i)(3).
"Shareholder Nonrecourse Debt" shall have the meaning ascribed to "partner
nonrecourse debt" set forth in Treas. Reg. S 1.704-2(b)(4).
"Shareholder Nonrecourse Deductions" shall have the meaning ascribed to
"partner nonrecourse deductions" set forth in Treas. Reg. S 1.704-2(i)(2).
"Shareholder Return" shall mean the return to be paid to Shareholders on
their Adjusted Contributions pursuant to Paragraph 11.11.1.
"Special Distribution" shall mean the amount payable to the Manager
pursuant to Paragraph 11.10.1.
"Sponsor" shall mean any person directly or indirectly instrumental in
organizing, wholly or in part, the Trust or who will manage or participate in
the management of the Trust and any Affiliate of such person, but does not
include (i) any person whose only relationship with the Trust is that of an
independent asset manager whose only compensation from the Trust is as such,
(ii) wholly-independent third parties such as attorneys, accountants and
underwriters whose only compensation from the Trust is for professional
services rendered in connection with the offering of Shares or the operations
of the Trust, and (iii) the Trustee. A person may be deemed to be a Sponsor
of the Trust by (a) taking the initiative, directly or indirectly, in
founding or organizing the business of the Trust, either alone or in
conjunction with one or more other persons, (b) receiving a material
participation in the Trust in connection with the founding or organizing of
the business of the Trust, in consideration of services or property, or both
services and property, (c) having a substantial number of relationships and
contacts with the Trust, (d) possessing significant rights to control Trust
properties, (e) receiving fees for providing services to the Trust which are
paid on a basis that is not customary in the industry or (f) providing goods
or services to the Trust on a basis which was not negotiated at arm's length
with the Trust.
"Subordinated Incentive Fee" shall mean the amount payable to the Manager
pursuant to the provisions of Paragraph 9.9.
"Substantially All of the Assets" shall mean First Mortgage Bonds and
Tax-Exempt Securities representing 66-2/3% or more of the net book value of
all of the Trust's First Mortgage Bonds and Tax-Exempt Securities as of the
end of the most recently completed calendar quarter.
"Tax-Exempt Securities" shall mean securities, the income from which is
exempt from federal income taxation, which are rated not lower than A1 by
Moody's Investors Service, Inc. or A+ by Standard & Poor's Ratings Group, or
are unrated but which the Manager determines are of comparable quality.
"Temporary Investments" shall mean short-term highly liquid investments
where there is appropriate safety of principal such as investment grade debt
securities and money market funds or similar investment vehicles which invest
in securities, the
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income from which is exempt from federal income taxation, including
tax-exempt securities rated not lower than A1 by Moody's Investors Service,
Inc. or A+ by Standard & Poor's Ratings Group, or unrated tax-exempt
securities which the Manager determines are of comparable quality.
"Total Invested Assets" shall mean the aggregate original amount invested
or committed to investment in First Mortgage Bonds and invested in Tax-Exempt
Securities reduced upon the receipt of Sale or Repayment Proceeds, by the
original amount invested in the First Mortgage Bonds or Tax-Exempt
Securities, except that in the case of a partial repayment, Total Invested
Assets shall be reduced on a pro rata basis.
"Transfer" shall mean the sale, assignment, conveyance, transfer, gift,
pledge, hypothecation, mortgage, exchange or other disposition whether
voluntary, involuntary, by operation of law or otherwise, of any Share or any
right, title or interest therein or thereto.
"Trust" shall mean American Tax-Exempt Bond Trust.
"Trust Agreement" shall mean this Amended and Restated Business Trust
Agreement among the Grantor, the Manager, the Trustee, and the persons to be
holders of beneficial interests in the Trust, as the same may be further
amended, restated or supplemented.
"Trust Certificate" shall mean a certificate signed on behalf of the Trust
by the Trustee or the Manager, evidencing the interest of a Shareholder in
the Trust.
"Trust Minimum Gain" shall mean the sum of the amounts determined by
computing with respect to each nonrecourse liability of the Trust, the amount
of gain (of whatever character), if any, that would be realized by the Trust
if it disposed (in a taxable transaction) of the Trust Property subject to
such liability for no consideration other than full satisfaction of such
liability.
"Trust Property" shall mean all right, title and interest of the Trust in
and to any property contributed to the Trust by the Grantor and Owners or
otherwise acquired by the Trust, including, without limitation, all
distributions or payments thereon or proceeds therefrom. Title to the Trust
Property shall be vested in the Trust as a separate legal entity, except to
the extent that local law requires title to be vested in the Trustee or the
Manager, in which case title to such Trust Property shall be deemed to be
vested in the Manager, subject to Paragraph 15.2.7.
"Trustee" shall mean Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as a trustee
hereunder, or any other person, corporation or other entity which succeeds it
in such capacity pursuant to Paragraph 22.2 and in compliance with Section
3807 of the Delaware Act.
4. TERM
The Trust commenced on December 23, 1993, and shall continue until the 31st
day of December 2033, unless previously terminated in accordance with the
provisions of this Trust Agreement.
5. MANAGER
5.1 Capital Contributions; Interest in the Trust. The Manager shall be deemed
to have contributed an amount in cash (the "Deemed Contribution") on the Final
Closing Date, and on each anniversary thereof, up to and including the fourth
such anniversary date, equal to 20% of 1% of (a) the excess of (i) the Original
Contribution per Share, less (ii) the amount of Selling Commissions per Share,
multiplied by (b) the aggregate number of Shares purchased during the offering
period (which amounts have been paid to the Manager by the Trust as agent for
the Shareholders purchasing Shares, said amounts being deemed to have been paid
directly to the Manager). At all times during the existence of the Trust, the
Manager shall have a beneficial ownership interest in the Trust and a present
and continuing interest in Net Income, Net Loss and Distributions according to
the provisions of Paragraph 11.
5.2 Capital Accounts. A separate capital account shall be maintained for
the Manager pursuant to Paragraph 11.4 hereof.
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5.3 Deficiencies. In the event that, immediately prior to the dissolution
of the Trust referred to in Paragraph 19.2, the Manager shall have a
deficiency in its capital account as determined in accordance with tax
accounting principles, then the Manager shall contribute in cash to the
capital of the Trust an amount equal to whichever is the lesser of (a) the
deficiency in the Manager's capital account or (b) the excess of 1.01% of the
total Original Contributions over the total capital contribution of the
Manager (the "Deficit Repayment Obligation"). The Deficit Repayment
Obligation shall be reduced to zero at the end of the year in which occurs
the fourth anniversary of the Final Closing Date.
6. SHAREHOLDERS
6.1 Authorization of Shares. The Trust is authorized to sell and issue not
more than 20,000,000 Shares.
6.2 Capital Accounts. A separate capital account shall be maintained for
each Shareholder pursuant to Paragraph 11.4 hereof in respect of its Original
Contribution and shall reflect Net Income, Net Loss and Distributions
attributable to the Shares held by the Shareholders.
6.3 Original Contributions. All Original Contributions shall be received
by the Trust in trust, and, commencing on the date of the Prospectus and
continuing until the minimum proceeds are received, shall be deposited in an
escrow account in a financial institution designated by the Manager as escrow
holder for the Original Contributions. Upon receipt of Original Contributions
from purchasers of a minimum of 125,000 Shares, the escrow agent shall
release such funds to the Manager which shall immediately transmit such funds
to the Trust. Subscriptions shall be accepted or rejected by the Manager
within 30 days of their receipt and, if rejected, all of such rejected
subscribers' monies shall be returned to such purchasers within 10 business
days after rejection. Investors shall be admitted as Shareholders promptly
after receipt of the minimum Original Contributions and within 15 days after
release of funds to the Trust (as to the first admission) and, thereafter, on
a semi- monthly basis or more frequently as may be determined by the Manager,
subject to the acceptance by the Manager of the subscriptions of the proposed
Shareholders. Any interest earned on subscription funds during the period
they are held in escrow prior to the Initial Closing Date (less Escrow Fees
and Expenses) shall be paid to the investors. If the minimum number of Shares
are not sold on or before one year from the date of the Prospectus, all
monies held in escrow shall be returned to subscribers with any interest
earned thereon, subject to backup withholding, if any.
7. TRUST CAPITAL
Subject to the last two sentences of Paragraph 6.3, no investor shall be paid
interest on any Original Contribution. No Shareholder shall have the right to
withdraw, or receive any return of, its Original Contribution, except as
specifically provided herein. No Shareholder shall have priority over any other
Shareholder as to the return of its Original Contribution or as to profits,
losses or distributions. Under circumstances requiring a return of any Original
Contribution, no Shareholder shall have the right to demand or receive property
other than cash.
8. LIABILITY OF THE SHAREHOLDERS AND TRUSTEE
8.1 Shareholders. The Shareholders shall be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of Delaware.
In accordance with Delaware law, a beneficiary of a trust may, under certain
circumstances, be required to return to the trust for the benefit of trust
creditors, amounts previously distributed to him. However, if any court of
competent jurisdiction holds that, notwithstanding the provisions of this
Trust Agreement, any Shareholder is obligated to make any such payment, such
obligation shall be the obligation of such Shareholder and not of the Trustee
or the Manager.
8.2 Trustee. The Trustee shall not be personally liable to the Trust,
Shareholders or third parties for any act, omission or obligation of the
Trust, the Trustee or the Manager, under any circumstance, except (x) for its
own gross negligence or willful misconduct or (y) for taxes, fees or other
charges on, based on or measured by any fees, commissions or compensation
received by it in connection with any of the transactions contemplated by
this Agreement. In particular, but not by way of limitation:
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(i) The Trustee shall not be liable for any error of judgment made in good
faith to be in the best interests of the Trust, and which did not constitute
negligence or misconduct by it;
(ii) No provision of this Trust Agreement shall require the Trustee to
take any action, to expend or risk its personal funds or otherwise incur any
financial liability in the performance of its rights, powers or obligations
hereunder, if it shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such action, risk or liability is
not reasonably assured or provided to it;
(iii) Under no circumstance shall the Trustee be personally liable for any
representation, warranty, covenant or other obligation or indebtedness of the
Trust;
(iv) The Trustee shall not be personally responsible for or in respect of
the validity or sufficiency of this Trust Agreement, or the form, validity,
value or sufficiency of the Trust Property;
(v) The Trustee shall not be personally liable for its good faith reliance
on the provisions of this Trust Agreement;
(vi) Under no circumstances shall the Trustee be personally liable for (x)
any action it takes or omits to take in good faith in accordance with the
instruction of the Manager, (y) the acts or omissions of the Manager or (z)
the supervision of or the failure of the Manager to discharge its duties
hereunder; and
(vii) The Trustee shall not incur any liability to anyone in acting upon
any document believed in good faith by it to be genuine and believed in good
faith by it to be signed by the proper party or parties and need not
investigate any fact or matter pertaining to or in any such document. The
Trustee may accept a certified copy of a resolution of the board of directors
or other governing body of any person as conclusive evidence that such
resolution has been duly adopted by such person and that the same is in full
force and effect. As to any fact or matter, the method of the determination
of which is not specifically prescribed herein, the Trustee may for all
purposes hereof rely on a certificate, signed by any officer of the relevant
person, as to such fact or matter, and such certificate shall constitute full
protection to the Trustee for any action taken or omitted to be taken by it
in good faith in reliance thereon.
8.3 Reliance on Agents, Attorneys, Etc. In the exercise of its rights and
obligations hereunder, the Trustee (i) may act directly, or at the expense of
the Trust, through agents or attorneys pursuant to agreements entered into
with any of them, and it shall not be liable for the default or misconduct of
such agents or attorneys if such agent or attorney shall have been selected
by it in good faith and (ii) may, at the expense of the Trust, consult with
counsel to be selected in good faith, and employed by it, and such party
shall not be liable for anything done, suffered or omitted in good faith by
it in accordance with the advice or opinion of any such counsel.
9. COMPENSATION TO THE MANAGER AND ITS AFFILIATES
9.1 General. The Manager and its Affiliates will receive compensation and
reimbursement from the Trust only as specified by Paragraphs 9, 10 and 11 of
this Trust Agreement. No services (other than those permitted in Paragraphs 9
and 15 of this Trust Agreement) may be performed by the Manager or its
Affiliates for the Trust except in extraordinary circumstances. Any such
other services must meet the following criteria: (i) the compensation, price
or fee therefor must be comparable and competitive with the compensation,
price or fee of any other person who is rendering comparable services or
selling or leasing comparable goods which could reasonably be made available
to the Trust and shall be on competitive terms, (ii) the fees and other terms
of the contract shall be fully disclosed to Shareholders, (iii) the Manager
or its Affiliates must be previously engaged in the business of rendering
such services or selling or leasing such goods, independently of the Trust
and as an ordinary and ongoing business and (iv) all services for which the
Manager or its Affiliates are to receive compensation shall be embodied in a
written contract which (a) precisely describes the services to be rendered
and all compensation to be paid, (b) may only be modified in a material way
by a Majority Vote of the Shareholders and (c) contains a clause allowing
termination without penalty on 60 days' notice.
In the event that the Trust becomes the equity owner of a Property by
reason of the foreclosure of a Mortgage Loan, the Trust may pay certain fees
and compensation to Affiliates of the Manager which would otherwise be
payable by the owner of the Property.
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9.2 Selling Commissions and Expenses. Certain broker-dealers unaffiliated
with the Manager may receive Selling Commissions of up to 5% of the Gross
Proceeds attributable to sales of Shares made by them depending on the number
of Shares sold to each investor. An Affiliate of the Manager may also receive
Selling Commissions from the Trust of up to 5% of the Gross Proceeds
attributable to Reinvested Distributions contributed pursuant to the
Reinvestment Plan prior to the Final Closing Date. In addition, Marketing
Allowances of up to .5% of Gross Proceeds payable by the Manager and
Nonaccountable Due Diligence Reimbursements of up to .5% of the Gross
Proceeds payable by the Trust may be paid only to certain broker-dealers
unaffiliated with the Manager in connection with the initial public offering
of Shares.
9.3 Expense Allowance. The Manager will receive an Expense Allowance for
the payment of all Organization and Offering Expenses (exclusive of the
Expense Allowance, Selling Commissions and Nonaccountable Due Diligence
Reimbursements payable by the Trust and that portion of the Escrow Fees and
Expenses that may be paid out of interest earned on the escrowed funds) in an
amount equal in the aggregate to 2.5% of Gross Proceeds. All other
Organization and Offering Expenses shall be paid by the Manager. The Expense
Allowance shall be due and payable at each Closing out of the subscription
proceeds received by the Trust at such Closing.
9.4 Acquisition Expense Allowance. The Manager will receive an Acquisition
Expense Allowance for the payment of Acquisition Expenses of the Trust in an
amount equal to 1.25% of Gross Proceeds attributable to the Trust's
investments in First Mortgage Bonds (but not to exceed an aggregate of 1% of
Gross Proceeds), from which the Manager shall pay Acquisition Expenses of the
Trust in connection with acquiring First Mortgage Bonds. All other
Acquisition Expenses shall be paid by the Manager. The Acquisition Expense
Allowance shall be due and payable at each Closing out of the subscription
proceeds received by the Trust at such Closing.
9.5 Bond Selection Fee. The Manager shall receive a Bond Selection Fee in
an amount equal to 2.25% of the Gross Proceeds for the evaluation, selection
and acquisition of First Mortgage Bonds with respect to Properties owned or
to be developed by third-party developers; provided, however, that Bond
Selection Fees shall not in the aggregate exceed 2% of the Gross Proceeds.
Bond Selection Fees shall be due and payable out of the subscription proceeds
received by the Trust at each Closing. Bond selection services may include
any of the following as required: identifying marketing areas, preparing
economic analyses and performance models; reviewing demographic information;
inspecting sites; investigating and evaluating the financial strength and
experience of developers, general contractors, general partners and principal
personnel, including owners and managing agents, if identified; serving as
liaison with applicable government officials; reviewing rental structures;
examining operating increases and taxes; causing to be reviewed material
issues which may affect operating in the jurisdiction; causing to be reviewed
all applicable state and local laws and regulations, including zoning, rental
control and rent stabilization laws; negotiating and structuring
transactions; coordinating closings, including selecting counsel; causing to
be reviewed legal documentation; endorsing and disbursing loan proceeds;
causing filings to be made, if necessary; causing a review of and approving
all title insurance; or preparing reports for the Trust and other similar
services.
9.6 Mortgage Loan Placement Fee. The Manager may earn a Mortgage Loan
Placement Fee, payable by the borrower of any Mortgage Loan on a Property
owned or to be developed by a third-party developer in an amount not to
exceed 3% of the principal amount of all Mortgage Loans on such Properties,
payable out of Mortgage Loan proceeds or otherwise. In addition, Affiliates
of the Manager may earn fees for acting as finders in connection with the
location and introduction to the Trust of potential investments. Such fees
shall be payable out of the applicable Mortgage Loan Placement Fee.
9.7 Loan Servicing Fee. The Manager or its Affiliates, may earn a Loan
Servicing Fee in connection with servicing Mortgage Loans in an amount equal
to the lesser of (i) .25% per annum of the principal amount outstanding from
time to time on the Mortgage Loans serviced by the Manager or its Affiliates,
or (ii) the normal and competitive fees customarily charged by unaffiliated
third parties rendering similar services in the same geographic area.
9.8 Property Management Fee. The Manager or its Affiliates may receive a
Property Management Fee for providing management services with respect to any
Property if they are retained by a Property Owner or if such services are
required by the Trust in the event of a default on a Mortgage Loan. With
respect to any Property Management Fees to be paid to the Manager
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or its Affiliates, such Property Management Fees will be equal to the lesser
of (a) fees which are competitive for similar services in the same geographic
area or (b) 5% of the annual gross revenues of the Property and shall include
all rent-up, leasing and re-leasing fees, bonuses and leasing-related
services paid to any person, bookkeeping services and fees paid to nonrelated
persons for property management services. Where the Manager or its Affiliates
provide property management services, any property management fees payable to
unaffiliated parties will be paid out of the Property Management Fee paid to
the Manager or its Affiliates.
9.9 Subordinated Incentive Fee. The Manager shall be entitled to receive a
Subordinated Incentive Fee in an amount equal to 2.5% of Sale or Repayment
Proceeds relating to Dispositions of First Mortgage Bonds remaining after
Shareholders have received an amount which, when added to all prior
Distributions of Sale or Repayment Proceeds and Reserves, equals the sum of
(a) their Original Contributions; plus (b) an amount which, when added to all
prior Distributions (excluding Distributions pursuant to clause (a)), equals
a 10% per annum cumulative noncompounded return on their Adjusted
Contributions, commencing on the Final Closing Date or the end of the
calendar quarter in which any Shareholder's Original Contribution is made,
whichever is earlier.
9.10 Insurance Brokerage Fee. The Manager or its Affiliates may receive an
Insurance Brokerage Fee for providing insurance brokerage services with
respect to any Property if they are retained by a Property Owner or if such
services are required by the Trust in the event of a default on a Mortgage
Loan. With respect to any Insurance Brokerage Fee to be paid to the Manager
or its Affiliates, such Insurance Brokerage Fee will be no greater than the
lowest quote obtained from two unaffiliated insurance agencies and the
coverage and terms likewise will be comparable. In no event may the Manager
or its Affiliates provide such insurance brokerage services unless they are
independently engaged in the business of providing such services to other
than Affiliates and at least 75% of their insurance brokerage service gross
revenue is derived from other than Affiliates.
9.11 Payment of Fees. Should the Manager be removed from the Trust, any
portion of any of the foregoing fees or any other fee payable under this
Trust Agreement which is then accrued and due but not yet paid, shall be paid
by the Trust to the Manager or its Affiliates, as the case may be, in cash
within 30 days of the date of removal as stated in the written notice of
removal, unless such amount is included in the purchase price of the
Manager's interest in the Trust as determined under Paragraph 17.2 hereof
subject to Section 706 of the Code, provided that the method of payment must
protect the solvency and liquidity of the Trust.
10. TRUST EXPENSES
10.1 Reimbursement of Expenses. Except as otherwise provided in Paragraphs 9
and 22 and in this Paragraph 10.1, all of the Trust's expenses will be billed
directly to and paid by the Trust. Except as otherwise provided in Paragraph
9 and in Paragraph 10.2, to the extent the Manager or its Affiliates pay any
expenses directly, they will be reimbursed by the Trust for: (i) the actual
costs to the Manager or its Affiliates of goods, materials and services
obtained from unaffiliated third parties and used for and by the Trust; (ii)
administrative services necessary to the prudent operation of the Trust,
provided that reimbursement for administrative services will be at the lower
of (a) the actual cost of such services, or (b) the amount which the Trust
would be required to pay to independent parties for comparable services, and
provided further that no reimbursement for administrative services will be
allowed to the Manager or its Affiliates pursuant to this clause (ii) unless
the Manager or its Affiliates have the appropriate experience and expertise
to perform such services; and (iii) the cost of certain personnel employed by
the Trust and directly involved in the organization and business of the Trust
including persons who may be employees or officers of the Manager and its
Affiliates and for legal, accounting, transfer agent, reinvestment and
redemption plan administration, data processing, duplicating and investor
communications services performed by employees, officers or directors of the
Manager and Affiliates which could be performed directly for the Trust by
independent parties. The Trust will reimburse the Manager for any travel
expenses incurred in connection with the services provided hereunder and for
advertising expenses incurred by it in seeking any investments or seeking the
disposition of any investments held by the Trust.
10.2 Manager's Obligations. The Manager and its Affiliates will not be
reimbursed by the Trust for the following expenses.
10.2.1 services for which the Manager or its Affiliates are entitled to
compensation in the form of a separate fee pursuant to Paragraph 9 hereof;
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10.2.2 rent or depreciation, utilities, capital equipment or other
administrative items generally constituting the Manager's overhead;
10.2.3 Organization and Offering Expenses in excess of 2.5% of the Gross
Proceeds, payment of any such excess to be the obligation of the Manager, which
hereby agrees to pay the same;
10.2.4 Acquisition Expenses in excess of 1% of the Gross Proceeds,
payment of any such excess to be the obligation of the Manager which hereby
agrees to pay the same;
10.2.5 salaries, fringe benefits, travel expenses or other
administrative items incurred by or allocated to any Controlling Person of the
Manager or its Affiliates. For purposes of this subparagraph, "Controlling
Person" shall mean any person, regardless of title, who performs executive or
senior management functions for the Manager or its Affiliates similar to those
of executive management or senior management, and directors, or those holding 5%
or more equity interest in the Manager or its Affiliates, or persons having the
power to direct or cause the direction of the Manager or its Affiliates through
ownership of voting securities, by contract or otherwise. It is not intended
that every person who carries a title such as vice president, senior vice
president, secretary or treasurer be considered a Controlling Person.
11. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS
11.1 Allocations. That portion of Net Income, Net Loss and Adjusted Cash From
Operations shall be allocated in the manner hereinafter provided.
11.2 Apportionment Among Shareholders of Net Income, Net Loss and
Distributions Generally.
11.2.1 Investors who purchase Shares on or prior to the 15th day of a
calendar month (including a calendar month in which a Closing Date occurs) will
be treated as having owned such Shares as of the first day of such month and
investors who purchase Shares after the 15th day will be treated for all
purposes as owning such Shares as of the 16th day of such month, and Net Income,
Net Loss and Distributions, other than Net Income, Net Loss and Distributions
attributable to a Disposition, allocated to the Shareholders shall be
apportioned semi-monthly among Shareholders in the ratio which the number of
Shares owned by each Shareholder on the first and the sixteenth day of such
calendar month, as the case may be, bears to the total number of Shares owned by
all Shareholders on such dates, without regard to capital accounts or the number
of days during such calendar month in which a person was a Shareholder.
11.2.2 That portion of Distributions attributable to Dispositions and
allocations of Net Income and Net Loss from Dispositions which is allocated to
the Shareholders shall be apportioned among Shareholders of record on the date
on which the Trust received the Sale or Repayment Proceeds in the ratio in which
the number of Shares owned by each Shareholder on that date bears to the total
number of Shares owned by all of them as of such date.
11.3 Consent to Methods. The methods set forth in this Paragraph 11 by
which Distributions and allocations of Net Income and Net Loss are made and
apportioned are hereby expressly consented to by each Owner as an express
condition to becoming an Owner.
11.4 Capital Accounts.
11.4.1 A separate capital account shall be maintained for each Owner.
Each Owner's capital account shall be increased by (1) the amount of money
contributed by such Owner to the capital of the Trust, which, in the case of the
Manager, shall be the amount set forth in Paragraph 5.1 hereof; and (2) such
Owner's share of Trust Net Income. Each Owner's capital account shall be
decreased by (i) the amount of money distributed to such Owner by the Trust;
(ii) such Owner's share of Net Loss for federal income tax purposes; and (iii)
in the case of a Shareholder, such Shareholder's pro rata share of the Deemed
Contribution provided for in Paragraph 5.1.
11.4.2 An Owner who has more than one interest in the Trust shall have a
single capital account that reflects all such interests, regardless of the class
of interests owned by such Owner and regardless of the time or manner in which
such interests were acquired.
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11.4.3 In the event that property (other than cash) is contributed (or
deemed contributed pursuant to the provisions of Code Section 708) by an Owner
to the Trust, the computation of capital accounts, as set forth in this
Paragraph 11.4, shall be adjusted as follows:
(i) the contributing Owner's capital account shall be increased
by the fair market value of the property contributed to the Trust by such Owner
(net of liabilities securing such contributed property that the Trust is
considered to assume or take subject to under Code Section 752); and
(ii) as required by Treas. Reg. SS 1.704-1(b)(2)(iv)(g) and
1.704-1(b)(4)(i), if any Owner's capital account reflects a fair market value
for property which differs from such property's adjusted basis, each Owner's
capital account shall be adjusted to take account of the amount of Book Gain and
Book Loss, as defined below (other than Book Loss attributable to expenditures
of the Trust described in Paragraph 11.4.1(iii)), allocated to such Owner
pursuant to Paragraph 11.7 hereof and shall not take into account the Net Income
and Net Loss for tax purposes allocated to such Owner pursuant to this Paragraph
11.
11.4.4 In the event that property is distributed (or deemed distributed
pursuant to the provisions of Code Section 708) by the Trust to an Owner, the
following special rules shall apply:
(i) the capital account of the Owner receiving the distribution
first shall be adjusted (as provided in Treas. Reg. S 1.704-1(b)(2)(iv)(e)) to
reflect the manner in which the unrealized income, gain, loss and deduction
inherent in such property (that has not already been reflected in such Owner's
capital account) would be allocated to such Owner if there were a taxable
disposition of such property for its fair market value on the date of
distribution; and
(ii) the capital account of the Owner who is receiving the
distribution of property from the Trust shall be charged with the fair market
value of the property at the time of distribution (net of liabilities secured by
such property that such Owner is considered to assume or take subject to under
Code Section 752).
11.4.5 The foregoing provisions are intended to satisfy the capital
account maintenance requirements of Treas. Reg. SS 1.704-1(b) and 1.704-2 and
such provisions shall be modified to the extent required by such section or any
successor provision thereto.
11.5 Allocations Causing Negative Capital Accounts. Notwithstanding
Paragraph 11.2, to the extent that any allocation of Net Loss to a
Shareholder would reduce such Shareholder's capital account balance
(determined after taking into account all prior distributions and all prior
allocations of Net Income and Net Loss) below zero or would increase the
negative balance in such Shareholder's capital account at a time when another
Shareholder has a positive capital account balance, such Net Loss shall
instead be allocated pro rata to Shareholders having positive capital account
balances in proportion to their respective positive capital account balances
until such capital account balances are reduced to zero, provided, however,
that in no event shall there be a reallocation of any item of income, gain,
loss or deduction allocated among the Owners pursuant to this Trust Agreement
for prior years.
If the provisions of this Paragraph 11.5 prohibit the allocation of any
portion of Net Loss to every Shareholder, such portion of the Net Loss shall
instead be allocated to the Manager.
For purposes of determining a Shareholder's capital account balance under
this Paragraph 11.5, Distributions made prior to or contemporaneous with any
allocation to a Shareholder shall be reflected in such Shareholder's capital
account prior to making such allocation to such Shareholder. For purposes of
this Paragraph 11.5, an Owner's capital account shall be reduced for:
(x) allocations of Net Loss (or items thereof) which, as of the end of
each Trust year, are reasonably expected to be allocated to such Owner pursuant
to Code Section 704(e)(2), Code Section 706(d) and Treas. Reg. S
1.751-1(b)(2)(ii); and
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(y) Distributions that, as of the end of such year, reasonably are
expected to be made to such Owner to the extent they exceed offsetting increases
to such Owner's capital account that reasonably are expected to occur during (or
prior to) the Trust taxable years in which such Distributions reasonably are
expected to be made.
For purposes of determining the amount of expected Distributions and expected
capital account increases described in (y) above: (A) the rule set forth in
Treas. Reg. S 1.704-1(b)(2)(iii)(c) concerning the presumed value of property
shall apply, and (B) gross income or Net Income allocated to an Owner pursuant
to Paragraph 11.9 hereof shall be taken into account. For purposes of this
Paragraph 11.5 and Paragraph 11.9, an Owner's capital account shall be increased
(i) to the extent that such Owner is obligated to fund deficits in such Owner's
capital account upon liquidation of the Trust (or is treated as obligated to so
restore such deficits pursuant to Treas. Reg. S 1.704-1(b)(2)(ii)(c)), and (ii)
to the extent of such Owner's share of any Trust Minimum Gain and Shareholder
Minimum Gain remaining at the close of the fiscal period in respect of which
such allocations are being made. A capital account which has a negative balance
after adjustment in accordance with clauses (i) and (ii) shall be referred to as
an "Adjusted Capital Account Deficit."
11.6 Allocation of Net Income and Net Loss.
11.6.1 First, Net Income (and, if necessary gross income), other than
Net Income attributable to a Disposition, shall be allocated to the Manager in
an amount equal to the amount distributed to the Manager pursuant to Paragraph
11.10.1 hereof; and
11.6.2 Second, except as otherwise provided in Paragraphs 11.5, 11.8 and
11.9, in each year Net Income and Net Loss remaining after the allocations made
pursuant to the provisions of Paragraph 11.6.1, other than Net Income and Net
Loss attributable to a Disposition, shall be allocated 1% to the Manager and 99%
to the Shareholders.
11.6.3 Notwithstanding the provisions of Paragraphs 11.6.1 and 11.6.2,
and subject to the provisions of Paragraph 11.9, Net Income arising from the
occurrence of a Disposition shall be allocated (a) first, to all Owners having
negative capital account balances in proportion to and to the extent of their
respective negative capital account balances (in determining the balance in an
Owner's capital account for purposes of this Paragraph 11.6.3(a), such capital
account shall be increased by the Owner's share of any Trust Minimum Gain and
Shareholder Minimum Gain remaining at the close of the final period in respect
of which such allocations are being made); (b) then, 1% to the Manager and 99%
to the Shareholders until the capital account balance of each Shareholder
(determined after making the allocation described in Paragraph 11.6.3(a) but
before distributing the Sale or Repayment Proceeds attributable to such
Disposition) is equal to his Adjusted Contribution; (c) third, 1% to the Manager
and 99% to the Shareholders until the capital account balance of each
Shareholder (determined after making the allocation described in Paragraph
11.6.3(a) and Paragraph 11.6.3(b) but before distributing the Sale or Repayment
Proceeds attributable to such Disposition) is equal to the sum of such
Shareholder's (i) Adjusted Contribution, plus (ii) Shareholder Return (less
prior distributions in repayment thereof); and (d) the remainder of such Net
Income, if any, 1% to the Manager and 99% to the Shareholders.
11.6.4. The Owners intend that the allocation provisions of this Article
11 shall result in final positive Capital Account balances of the Owners under
Section 19.2.4 hereof which are in the ratio of 1% for the Manager and 99% for
the Shareholders (the "Final Ratio"). To the extent that such final positive
Capital Account balances are not in the Final Ratio, income and loss of the
Partnership for the current year and future years, as computed for book
purposes, shall be allocated among the Owners so as to result in final positive
Capital Account balances which are in the Final Ratio. This Paragraph 11.6.4
shall control notwithstanding any reallocation of income, loss, or items
thereof, as computed for book purposes, by the Internal Revenue Service or any
other taxing authority.
11.7 Allocation of Book Items. In cases where property of the Trust is, under
Treas. Reg. S 1.704-1(b)(2)(iv)(g), properly reflected in the capital
accounts of the Owners at a fair market value that differs from the adjusted
basis of such property (such difference is hereinafter referred to as the "Book
Disparity"), then depreciation, amortization and gain or loss as computed for
book purposes with respect to such property ("Book Depreciation," "Book
Amortization," and "Book Gain," and "Book Loss,"
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respectively) will be greater or less than the depreciation, amortization or
gain or loss as computed for tax purposes. The Manager shall adopt, pursuant to
Treas. Reg. S 1.704-1(b)(2)(iv)(g), a reasonable method of computing Book
Depreciation and Book Amortization. Such Book Depreciation and Book Amortization
shall be allocated among the Owners and reflected in Owners' capital accounts
under Paragraph 11.4 hereof, in a manner so as to eliminate to the extent
possible, the Book Disparity.
11.8 Mandatory Allocations. Any allocation of Net Income or Net Loss for
tax purposes which is required to be allocated among the Owners to take into
account the disparity between the fair market value of a Trust asset and its
adjusted basis (e.g., allocations under Code Section 704(c) for contributed
property) shall be allocated among the Owners in accordance with the
requirements of the Code and the regulations promulgated thereunder.
11.9 Minimum Gain Chargeback and Qualified Income Offset. Notwithstanding
any other provision of this Paragraph 11, the following special allocations
shall be made in the following order of priority:
11.9.1 Minimum Gain Chargeback (Nonrecourse Liabilities) Except as
otherwise provided in Treas. Reg. S 1.704-2(f), if there is a net decrease in
Trust Minimum Gain for any Trust fiscal year, each Shareholder shall be
specially allocated items of Trust income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Shareholder's share of
the net decrease in Trust Minimum Gain to the extent required by Treas. Reg. S
1.704-2(f). The items to be so allocated shall be determined in accordance with
Treas. Reg. SS 1.704-2(f) and (i). This subparagraph 11.9.1 is intended to
comply with the minimum gain chargeback requirement in Treas. Reg. S 1.704-2(f)
and shall be interpreted consistently therewith. Allocations pursuant to this
subparagraph 11.9.1 shall be made in proportion to the respective amounts
required to be allocated to each Shareholder pursuant hereto.
11.9.2 Shareholder Minimum Gain Chargeback. Except as otherwise provided
in Treas. Reg. S 1.704-2(i)(4), if there is a net decrease in Shareholder
Minimum Gain attributable to a Shareholder Nonrecourse Debt during any fiscal
year, each Shareholder who has a share of the Shareholder Minimum Gain
attributable to such Shareholder Nonrecourse Debt, determined in accordance with
Treas. Reg. S 1.704-2(i)(5), shall be specially allocated items of Trust income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to that Shareholder's share of the net decrease in the Shareholder Minimum Gain
attributable to such Shareholder Nonrecourse Debt to the extent and in the
manner required by Treas. Reg. SS 1.704-2(i). The items to be so allocated shall
be determined in accordance with Treas. Reg. SS 1.704-2(i)(4) and (j)(2). This
subparagraph 11.9.2 is intended to comply with the minimum gain chargeback
requirement with respect to Shareholder Nonrecourse Debt contained in said
Treas. Reg. S 1.704-2(i) and shall be interpreted consistently therewith.
Allocations pursuant to this subparagraph 11.9.2 shall be made in proportion to
the respective amounts required to be allocated to each Shareholder pursuant
hereto.
11.9.3 Qualified Income Offset. In the event a Shareholder unexpectedly
receives any adjustments, allocations or distributions described in Treas. Reg.
SS 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such Shareholder has an Adjusted
Capital Account Deficit, items of Trust income (including gross income) and gain
shall be specially allocated to such Shareholder in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit as quickly as
possible. This subparagraph 11.9.3 is intended to constitute a "qualified income
offset" under Treas. Reg. S 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
11.9.4 Other Chargeback of Impermissible Negative Capital Account. To
the extent any Shareholder has an Adjusted Capital Account Deficit at the end of
any Trust fiscal year, each such Shareholder shall be specially allocated items
of Trust income (including gross income) and gain in the amount of such excess
as quickly as possible, provided that an allocation pursuant to this
subparagraph 11.9.4 shall be made if and only to the extent that such
Shareholder would have an Adjusted Capital Account Deficit in excess of such sum
after all other allocations provided for in this Paragraph 11 have been
tentatively made as if this subparagraph 11.9.4 were not in the Agreement.
11.9.5 Shareholder Nonrecourse Deductions. Shareholder Nonrecourse
Deductions for any fiscal year or other applicable period with respect to a
Shareholder Nonrecourse Debt shall be specially allocated to the Shareholder
that bears the economic risk of loss for such Shareholder Nonrecourse Debt (as
determined under Treas. Reg. SS 1.704-2(b)(4) and (i)(1).
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11.10 Distributions of Adjusted Cash From Operations. In each year
Adjusted Cash From Operations shall be distributed as follows, provided that
in no event will the Manager receive distributions from Adjusted Cash From
Operations under this Paragraph 11.10 aggregating more than 11% of Adjusted
Cash From Operations:
11.10.1 The Manager shall be entitled to receive a Special Distribution
of Adjusted Cash From Operations equal to .5% per annum of the Total Invested
Assets from the date of the first investment in First Mortgage Bonds or
Tax-Exempt Securities, payable quarterly; provided that the Manager shall
receive the Special Distribution only with respect to those First Mortgage Bonds
held by the Trust for at least one full quarter and only with respect to those
First Mortgage Bonds which have achieved a return for the respective quarter of
not less than 7.25% per annum based upon actual collections received not later
than 60 days after each such quarter.
11.10.2 After payment of the Special Distribution, Distribution of the
remaining Adjusted Cash From Operations shall be made 99% to the Shareholders
and 1% to the Manager.
11.11 Distributions of Sale or Repayment Proceeds. Sale or Repayment
Proceeds shall be distributed as follows:
11.11.1 first, (i) 99% to the Shareholders in proportion to their
Original Contributions and (ii) 1% to the Manager, until the Shareholders have
received an amount which is equal to the sum of (A) their Adjusted
Contributions; plus (B) an amount which, when added to all prior Distributions
(excluding Distributions pursuant to Paragraph 11.11.1(A)), equals a 10% per
annum cumulative noncompounded return on their Adjusted Contributions,
commencing on the Final Closing Date or the end of the calendar quarter in which
any Shareholder's Original Contribution is made, whichever is earlier (the
"Shareholder Return"); and
11.11.2 then, after payment of the Subordinated Incentive Fee, any
remaining amount, 99% to the Shareholders and 1% to the Manager.
Sale or Repayment Proceeds received during the period ending five years
after the date on which 95% of Net Proceeds shall have been invested in First
Mortgage Bonds or Tax-Exempt Securities may, in the sole discretion of the
Manager, be reinvested by the Trust in First Mortgage Bonds and Tax-Exempt
Securities, distributed to Shareholders and the Manager as set forth above or
held as Reserves.
11.12 Manager's Interest. In no event will the Manager be allocated less
than 1% of Net Income or Net Loss for tax purposes.
11.13 Deductions of Manager. Except as otherwise provided in this
Paragraph 11.13, to the extent that the Trust shall be entitled to any
deduction for federal income tax purposes as a result of any interest in Net
Income, Net Loss and Distributions granted to the Manager, such deduction
shall be allocated for federal income tax purposes to the Manager. The
preceding sentence shall not apply to the extent the Trust is entitled to a
deduction (a) by reason of any distribution made to the Manager pursuant to
Paragraph 11.10.1, which deduction shall be allocated to the Shareholders,
subject only to the other limitations on allocations of Net Loss or deduction
contained in this Paragraph 11; or (b) by reason of the reduction in the
Shareholders' capital accounts pursuant to Paragraph 11.4.1(iii), which
deduction shall be allocated to the Shareholders, subject only to the other
limitations on allocations of Net Loss or deduction contained in this
Paragraph 11.
11.14 Unutilized Net Proceeds. In the event that any portion of the Net
Proceeds are not invested or committed for investment within the later of 24
months from the effective date of the registration statement of which the
Prospectus is a part or 12 months from the Final Closing Date (except for any
amounts previously utilized to pay operating expenses or amounts set aside
for Reserves), such portion of the Net Proceeds shall be distributed to the
Shareholders as a return of capital. For the purposes of this Paragraph,
funds will be deemed to have been committed to investment and will not be
returned to the extent written agreements in principle, commitment letters,
letters of intent or understanding, option agreements or other similar
understandings or contracts were at any time executed or entered into,
regardless of whether any such investment may or
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may not be consummated, and to the extent any funds have been set aside as
Reserves or to make contingent payments in connection with any First Mortgage
Bonds, regardless of whether any such payments are ultimately made.
11.15 Restrictions.
11.15.1 The Trust may be restricted under Delaware law from making
Distributions under certain circumstances, as well as under the terms of notes,
mortgages or other types of debt obligations which it may issue or assume in
conjunction with borrowed funds, if any. In addition, Distributions are subject
to the payment of Trust expenses and to the maintenance of sufficient Reserves.
Distributions may also be restricted or suspended in circumstances when the
Manager determines, in its absolute discretion, that such action is in the best
interest of the Trust.
11.15.2 As security for any withholding tax or other liability or
obligation (or reduced deduction for federal income tax purposes) to which the
Trust may be subject as a result of any act or status of any Owner or to which
the Trust becomes subject with respect to any Share, the Trust shall have, and
there is hereby granted to the Trust, a security interest in all Adjusted Cash
From Operations and Reserves and Sale or Repayment Proceeds distributable to
such Owner or with respect to such Shares, to the extent of the amount of such
withholding tax or other liability or obligation or the cost to the other Owners
of any reduced deduction of the Trust (as reasonably determined by the Manager).
The Trust shall have a right of set-off against any such Distributions of
Adjusted Cash From Operations and Reserves and Sale or Repayment Proceeds in the
amount of such withholding tax or other liability or obligation or the cost of
such reduced deduction. For purposes of this Agreement, any amount of federal,
state or local tax required to be withheld by the Trust with respect to any
amount distributable by the Trust to any Owner shall be deemed to be a
Distribution to such Owner and shall reduce the amount otherwise distributable
to such Owner under this Agreement.
11.16 Escheat of Distributions. If, upon the termination and dissolution
of the Trust, there remains outstanding on the books of the Trust a material
amount of Distribution checks which have not been negotiated for payment by
Shareholders, then the Manager may, if it is deemed to be in the best
interests of the Trust and if permitted by law, cause such amounts to be
redistributed pro rata to Shareholders of record on such final distribution
date who have previously cashed all of their Distribution checks, provided,
however, that the Trust, and not the Manager, shall be liable for any
subsequent claims for payment of such redistributed Distributions. The
Manager is not required to make such a redistribution, in which case such
amounts will escheat to the appropriate state.
12. TRUST CERTIFICATES
Shareholders may request a Trust Certificate which will represent the number
of Shares purchased. Each Trust Certificate shall be executed by manual or
facsimile signature on behalf of either the Trustee or the Manager by one of its
authorized officers. Trust Certificates bearing the manual or facsimile
signature of an individual who was, at the time when such signature was affixed,
authorized to sign on behalf of either the Trustee or the Manager shall bind the
Trust, notwithstanding that such individual has ceased to be so authorized prior
to the delivery of such Trust Certificate or does not hold such office at the
date of such Trust Certificate. Each Trust Certificate shall be dated the date
of its issuance.
13. REGISTRATION AND TRANSFER OF SHARES
13.1 Registration and Transfer. The Manager shall maintain at its office
referred to in Paragraph 1.2, or at the office of any agent appointed by it,
a register for the registration and transfer of Shares. No Transfer of Shares
in the Trust shall be made unless such Transfer is made pursuant to an
effective registration statement under the Securities Act and applicable
state securities laws, or if such Transfer is exempt from the registration
requirements under the Securities Act and applicable state securities laws.
13.1.1 Subject to compliance with the foregoing, a transferee of Shares
shall only be registered as a Shareholder on the books and records of the Trust
if all of the following conditions have been satisfied:
(i) a duly executed and acknowledged written instrument of
assignment covering Shares representing an Original Contribution of at least
$2,500 shall have been filed with the Trust which instrument shall specify the
Shares being transferred and set forth the intention of the transferor that the
transferee succeed to the transferor's interest as a Shareholder in his place;
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(ii) the Shareholder and his transferee shall have executed and
acknowledged such other instruments as the Manager may deem necessary or
desirable to effect such Transfer, including the written acceptance and adoption
by the transferee of the provisions of this Trust Agreement, as the same may be
amended, and his execution, acknowledgment and delivery to the Manager of a
special power of attorney, the form and content of which are described herein;
(iii) the Shareholder shall have obtained the consent of the
Manager to the Transfer, the granting of which consent shall be in the Manager's
sole and absolute discretion; and
(iv) a transfer fee sufficient to cover all expenses connected
with such substitution (which fee shall not exceed the actual expenses in
connection therewith) shall have been paid to the Trust.
13.1.2 Promptly upon the receipt of such documents and, if applicable,
receipt by the Manager of the transferor's Trust Certificate, the Manager shall
record the name of such transferee as a Shareholder and the number of Shares
transferred in the Trust register and, if requested, shall issue, execute and
deliver to such Shareholder a Trust Certificate evidencing such Shares. In the
event a transferor transfers only a portion of its beneficial interest in the
Trust, the Manager shall register and may issue to such transferor a new Trust
Certificate evidencing such transferor's remaining Shares. Subsequent to a
Transfer and upon the issuance of any new Trust Certificate or Trust
Certificates, the Manager shall cancel and destroy any Trust Certificate
surrendered to it in connection with such Transfer. The Manager may treat the
person in whose name any Trust Certificate is registered as the sole Shareholder
of Shares evidenced by such Trust Certificate. No fractional Shares shall be
created by the Transfer of Shares.
13.1.3 As a condition precedent to any registration of Transfer, the
Manager may require the payment of a sum sufficient to cover the payment of any
tax or taxes or other governmental charges required to be paid in connection
with such Transfer.
13.1.4 Notwithstanding the foregoing, no Shareholder may transfer any
Shares:
(i) if in the opinion of counsel for the Trust such Transfer,
when considered with all other Transfers of Shares within the previous 12
months, may result in the Trust being considered to have been terminated within
the meaning of Section 708 of the Code;
(ii) if in the opinion of counsel for the Trust such Transfer
would be in violation of any applicable federal or state securities laws
(including any investor suitability standards); or
(iii) unless such Shareholder transfers to each transferee
Shares representing an Original Contribution of at least $2,500. (The foregoing
restriction shall not apply to Transfers by gift or inheritance, intra-family
Transfers, Transfers resulting from family dissolutions, Transfers to
Affiliates, and Transfers of all of a transferor's remaining Shares.)
Any attempted Transfer in contravention of the provisions of this
Paragraph shall, in the sole discretion of the Manager, be voided and deemed
ineffectual and shall not bind or be recognized by the Trust.
13.2 Lost, Stolen, Mutilated or Destroyed Certificates. If (i) any
mutilated Trust Certificate is surrendered to the Manager, or (ii) the
Manager receives evidence to its satisfaction that any Trust Certificate has
been destroyed, lost or stolen, and upon proof of ownership satisfactory to
the Manager, together with such security or indemnity as may be requested by
the Manager to save it harmless, either the Manager, or the Trustee upon
written instruction from the Manager, shall execute and deliver a new Trust
Certificate for the same number of Shares as the Trust Certificate so
mutilated, destroyed, lost or stolen, of like tenor and bearing a different
issue number, with such notations, if any, as the Manager shall determine.
13.3 Effective Date; Records. No attempted Transfer of Shares shall be
effective, and the Trust and the Manager shall be entitled to treat the
assignor of such Shares as the absolute owner thereof in all respects, and
shall incur no liability for allocations of Net Income, Net Loss or
Distributions or transmittal of reports and notices required to be given to
Shares hereunder which are made in good faith to such assignor, until the
"effective date," which shall be the first day following completion
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of the requirements set forth above. The Manager shall cause the records of
the Trust and this Trust Agreement (and, if required by law, any separate
certificate of trust) to be amended to reflect the admission of Shareholders
as of the "effective date."
14. BOOKS, RECORDS, ACCOUNTINGS AND REPORTS
14.1 Location of Records. The Trust's books and records, the Trust Agreement
and all amendments hereto or restatements hereof, any separate certificates
of trust and amendments thereto or restatements thereof, a list of the names
and addresses of the Shareholders, copies of all contracts between Affiliates
of the Manager and developers and owners of the Properties which are
Affiliates of the Manager, and any contracts between the Trust and the
Trustee shall be maintained at the principal office of the Trust or such
other place as the Manager may determine and, subject to Paragraph 16.11,
shall be open to inspection and examination by Shareholders or their duly
authorized representatives at all reasonable times.
14.2 Annual Financial Statements. The Manager shall have prepared at least
annually, at Trust expense, financial statements (balance sheet, statement of
income or loss, shareholder's equity and statement of cash flows) prepared in
accordance with generally accepted accounting principles and accompanied by a
report thereon containing an opinion of an independent certified public
accounting firm. Copies of such statements and report shall be distributed
within 120 days after the close of each taxable year of the Trust to each
person who was a Shareholder on the last day of the year then ended.
14.3 Annual Report. The Manager shall have prepared at least annually, at
Trust expense: (i) Trust information necessary in the preparation of the
Shareholders' federal income tax returns, (ii) a report of the business of
the Trust, (iii) a statement as to the compensation received by the Manager
and its Affiliates during the year from the Trust, which statement shall set
forth the services rendered by the Manager and the amount of fees received,
and a report identifying Distributions from: (a) Adjusted Cash From
Operations of that year, (b) Sale or Repayment Proceeds, (c) Reserves
(including whether from operations, Dispositions or Net Proceeds) and (d) any
other sources, showing Distributions per Share by admission date during such
year in respect of such year, and (iv) the engagement of the Trust's
independent certified public accountants to inspect, observe and inquire of
the Manager as to the time records and specific nature of the work performed
by each individual employee the cost of whose services were reimbursed. Such
information shall be distributed within 120 days after the close of each
taxable year of the Trust to each person who was a Shareholder as of the end
of the year then ended; provided, however, that all Trust information
necessary in the preparation of the Shareholder's federal income tax returns
shall be distributed not later than 75 days subsequent to December 31 of each
year to each person who was a Shareholder on the last day of any quarter
during the year then ended. Shareholders whose Trust Certificates are
registered in the name of a nominee will receive such income tax information
from the nominee.
14.4 Quarterly Report. The Manager shall prepare, at Trust expense,
commencing with the fiscal quarter in which the Initial Closing Date occurs,
a quarterly report covering each of the first three quarterly fiscal year
periods of Trust operations in each fiscal year, unaudited financial
statements (balance sheet, statement of income or loss for such quarterly
period and statement of cash flows for such quarterly period), a statement as
to the compensation received by the Manager and its Affiliates during such
quarter from the Trust and a statement of other pertinent information
regarding the Trust and its activities during the quarterly period covered by
the report. Copies of such statements and other pertinent information shall
be distributed within 60 days after the close of the quarterly period covered
by the report of the Trust to each person who was a Shareholder at the end of
the quarter then ended. The Trust will send to the Shareholder the
information specified by Form 10-Q, within 60 days of the end of each
quarterly period for which it is required to file such a report with the
Securities and Exchange Commission, by dissemination of such Form 10-Q or any
other report containing substantially the same information as required by
Form 10-Q.
14.5 Report on Acquisitions. The Manager shall have prepared, at Trust
expense, for each fiscal quarter in which First Mortgage Bonds or Tax-Exempt
Securities are acquired, a report containing (i) a description of such First
Mortgage Bonds and/or Tax-Exempt Securities, (ii) a description of the
Mortgage Loans securing the First Mortgage Bonds, (iii) a description of the
Properties underlying the Mortgage Loans, (iv) the principal amount and
remaining term of the First Mortgage Bonds, and (v) such other relevant
information with respect to the acquisition of such First Mortgage Bonds
and/or Tax-Exempt Securities as the Manager deems appropriate. Copies of such
report shall be distributed to each Shareholder within 60 days after the end
of such quarter.
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14.6 Information Returns. The Manager, at Trust expense, shall cause
information returns for the Trust to be prepared and timely filed with the
appropriate authorities.
14.7 Miscellaneous Reports. The Manager, at Trust expense, shall cause to
be prepared and timely filed, with appropriate federal and state regulatory
and administrative bodies, all other reports required to be filed with such
entities under then current applicable laws, rules and regulations. Such
other reports shall be prepared on the accounting or reporting basis required
by such regulatory bodies. Any Shareholder shall be provided with a copy of
any such other reports upon request without expense to him.
15. RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE MANAGER
15.1 Services of the Manager. The Manager shall only be responsible for the
following services to the Trust:
15.1.1 supervising the organization of the Trust and the offering and
sale of Shares and providing continuing administrative and executive support,
advice, consultation, analysis and supervision with respect to the functions of
the Trust;
15.1.2 arranging for (i) the identification of First Mortgage Bonds and
Tax-Exempt Securities suitable for investment by the Trust; (ii) a review of the
significant factors in deciding whether or not to invest in a particular First
Mortgage Bond or Tax- Exempt Securities; and (iii) if a decision is made to make
a particular investment, the making of such investment;
15.1.3 supervising Trust management, which includes (i) establishing
policies for the operation of the Trust; (ii) causing the Trust's agents or
employees to arrange for the provision of services necessary to the operation of
the Trust (including investor, accounting and legal services, and services
relating to Distributions by the Trust); (iii) when necessary or appropriate,
approving actions to be taken by the Trust; (iv) providing advice, consultation,
analysis and supervision with respect to the functions of the Trust as an owner
of First Mortgage Bonds and Tax- Exempt Securities (including, without
limitation, decisions regarding adjustments to payments of principal and
interest, including accrued interest and Contingent Interest, and compliance
with federal, state and local regulatory requirements and procedures); (v)
executing documents on behalf of the Trust; (vi) the safekeeping and use of all
funds of the Trust, whether or not in the Manager's immediate possession or
control; and (vii) making all decisions as to accounting matters; and
15.1.4 approving the terms of the sale or disposition of First Mortgage
Bonds and Tax-Exempt Securities, including establishing the terms for and
arranging any such transaction.
15.2 Powers of the Manager. The conduct of the Trust's business shall be
controlled solely by the Manager in accordance with this Trust Agreement,
subject to Paragraph 1.6. The Manager shall have all authority, rights and
powers conferred by law and those required or appropriate to the management
of the Trust's business which, by way of illustration but not by way of
limitation, shall, subject only to the provisions of Paragraph 15.4
following, include the right, authority and power:
15.2.1 to make all filings as may be necessary or proper in order to
form the Trust or to provide that this Trust Agreement shall constitute, for all
purposes, an agreement of trust under the laws of the State of Delaware as in
effect from time to time;
15.2.2 to offer and sell Shares in the Trust to the public directly or
through Related Equities Corporation or any licensed Affiliate thereof for a
period of 12 months, which period may be extended to 24 months in the sole
discretion of the Manager, and to employ personnel, agents and dealers for such
purpose;
15.2.3 to invest the Net Proceeds in Temporary Investments prior to
investment in First Mortgage Bonds or Tax-Exempt Securities;
15.2.4 to acquire, hold, sell, dispose of and otherwise act with respect
to First Mortgage Bonds, any portion of a First Mortgage Bond or Tax-Exempt
Securities in such principal amounts and upon such terms and conditions and in
conjunction with such other person or persons as the Manager deems, in its sole
discretion, to be in the best interests of the Trust;
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provided, however, that no more than 10% of the Gross Proceeds will be
invested in Tax-Exempt Securities; and provided further, that no First
Mortgage Bond will be acquired, or, if acquired thereafter to be restructured
to suit the Trust's investment objectives, restructured unless:
(i) the Trust has received an opinion of appropriate legal
counsel (which may be more than one) which may be qualified in certain respects
to the effect that substantially all interest payments will be exempt from
federal income taxation under current law, that the First Mortgage Bond shall be
characterized as debt for federal income tax purposes and that the Trust shall
not be a "substantial user" of the Property or a "related person" of a
substantial user as those terms are used in the Code solely by virtue of the
terms of the First Mortgage Bonds;
(ii) the Trust has received an opinion of local counsel (which
may be qualified in certain respects and which may be based upon a requirement
that interest be reduced in certain events) to the effect that the interest rate
payable on the First Mortgage Bond is not usurious under applicable state law;
(iii) mortgagee title insurance will be obtained in connection
with each First Mortgage Bond in substantially the outstanding principal amount
thereof (subject to certain exceptions, including pending disbursement
provisions); and
(iv) an appraisal is obtained from an independent appraiser.
15.2.5 to purchase First Mortgage Bonds in its own name or in the name
of a nominee, a trust or a corporate "nominee" or otherwise and hold title
thereto for the purpose of facilitating the acquisition of such First Mortgage
Bonds or any other purpose related to the business of the Trust; provided that
the Manager shall not purchase such First Mortgage Bonds from a program in which
the Manager or an Affiliate of the Manager has an interest; and provided further
that in the event of the acquisition of First Mortgage Bonds by the Trust from
the Manager or its Affiliates, (i)(a) if such First Mortgage Bonds are acquired
by the Trust within two years of the purchase thereof by the Manager or its
Affiliates as described above, the purchase price paid by the Trust may not
exceed (y) the cost of the First Mortgage Bonds to the seller thereof plus,
where applicable, Bond Selection Fees paid by the Trust, or (z) the present fair
market value of the property, as determined by a qualified independent
appraiser, plus Bond Selection Fees paid by the Trust, or (b) if such First
Mortgage Bonds are acquired by the Trust after two years after the purchase
thereof by the Manager or its Affiliates as described above, the purchase price
paid by the Trust may not exceed (y) if the present fair market value of the
First Mortgage Bonds as determined by a qualified independent appraiser is not
more than 10% above or below their cost to the seller thereof, the cost of the
First Mortgage Bonds to the seller thereof plus, where applicable, Bond
Selection Fees paid by the Trust or (z) if the present fair market value of the
First Mortgage Bonds as determined by a qualified independent appraiser is more
than 10% above or below their cost to the seller thereof, the present fair
market value of the First Mortgage Bonds plus, where applicable, Bond Selection
Fees paid by the Trust, (ii) no compensation or other benefit (including all
income generated and expenses associated with First Mortgage Bonds acquired
pursuant to this Paragraph 15.2.5) may accrue to the Manager or its Affiliates
except as otherwise permitted herein and except that the Manager or its
Affiliates may be reimbursed for the costs incurred to carry the First Mortgage
Bonds and (iii) the Manager or its Affiliates may not have held the First
Mortgage Bonds for a period in excess of twelve months prior to the date of this
Trust Agreement;
15.2.6 subject to Paragraph 15.4.29, to originate or acquire First
Mortgage Bonds in which Affiliates of the Manager have a controlling interest,
equity interest or security interest, including a controlling interest, equity
interest or security interest in the related Mortgage Loans or the related
Properties, provided the Affiliates of the Manager acquire the controlling
interest, equity interest or security interest after the effective date of the
Prospectus, and provided further that the following conditions are met:
(i) an independent and qualified adviser must issue a letter of
opinion to the effect that any First Mortgage Bond with respect to such a
Property is fair and at least as favorable to the Trust as a First Mortgage Bond
relating to an unaffiliated borrower in similar circumstances;
(ii) the Manager must obtain a similar letter of opinion from
the independent adviser in connection with any Disposition involving First
Mortgage Bonds with respect to Properties owned by Affiliates of the Manager;
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(iii) the adviser's compensation for any such services must be
paid by the Manager and not be reimbursable by the Trust;
(iv) the adviser must be a long established, nationally
recognized investment banking firm, accounting firm, mortgage banking firm, real
estate financial consulting firm or advisory firm;
(v) the adviser must have a staff of real estate professionals;
(vi) the compensation of the adviser must be predetermined;
(vii) the adviser, directly or indirectly, must have no interest
in, nor any material business or professional relationship with, the Trust, the
Manager, the borrower, or any Affiliates thereof (independence will be
considered to be impaired if, for example, during the period of the adviser's
engagement, or at the time of expressing his opinion, he or his firm: (a) had,
or was committed to acquire any direct or indirect ownership interest in the
Trust, the Manager, the borrower or Affiliates thereof, (b) had any joint
closely held business investment with the Trust, the Manager, or any Affiliates
thereof, which was material in relation to the adviser's net worth, (c) had any
loan to or from the Trust, the Manager, the borrower, or Affiliates thereof or
(d) had performed or had agreed to perform a real estate property appraisal with
respect to the Property underlying a First Mortgage Bond to be acquired by the
Trust);
(viii) if an adviser has been engaged to render a letter of
opinion who is not the adviser previously engaged to render this or the
preceding letter of opinion, the Manager shall inform the Shareholders (by no
later than the next annual report) of the date when such adviser was engaged,
and whether there were any disagreements with the former adviser on any matters
of valuation, assumptions, methodology, accounting principles and practice, or
disclosure, which disagreements, if not resolved to the satisfaction of the
former adviser would have caused him to make reference, in connection with the
fairness opinion, to the subject matter of the disagreement or decline to give
an opinion; and
(ix) the Manager will not make certain decisions in its capacity
as the assignee of such Mortgage Loan, including (a) whether to seek the
appointment of a receiver, negotiate a workout arrangement (and the terms of
such arrangement) or foreclose in the event of a default on a Mortgage Loan; (b)
whether to permit a prepayment of a Mortgage Loan if at the time the Mortgage
Loan documents prohibit a prepayment; (c) whether to waive or modify a
due-on-sale or nonassumability clause or other provision in the Mortgage Loan
documents; (d) the disposition of certain hazard insurance or condemnation
proceeds; (e) whether to require repayment of a First Mortgage Bond after the
twelfth year; (f) whether and under what conditions to permit certain capital
improvements to the Property; and (g) any other related material transaction;
unless the Manager first obtains a letter of opinion from an independent adviser
to the effect that the proposed transaction is fair to the Trust.
15.2.7 to place record title to or the right to use Trust assets in the
name or names of a nominee or nominees, trustee or trustees (other than the
Trustee) for any purpose convenient or beneficial to the Trust;
15.2.8 to acquire by purchase, lease, or otherwise, any real or personal
property to be used in connection with the business of the Trust;
15.2.9 to employ persons in the operation and management of the business
of the Trust including, but not limited to, agents, employees, managers,
accountants, attorneys, insurance brokers, consultants, and others, on such
terms and for such compensation, including the right to indemnification under
certain circumstances, payable by the Trust, as the Manager shall determine,
subject, however, to the limitations with respect thereto as set forth in
Paragraph 9 and provided that agreements with the Manager or its Affiliates for
the services set forth in Paragraph 9 shall contain the terms and limitations as
to fees and expenses as set forth in such Paragraph 9 and provided further that
any of such agreements shall be terminated immediately upon dissolution of the
Trust under Paragraph 19.1;
15.2.10 to sign a check or Trust Certificate on behalf of the Trust;
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15.2.11 to open accounts and deposit and maintain funds in the name of
the Trust in banks or savings and loan associations, provided, however, that the
Trust's funds shall not be commingled with the funds of any other person;
15.2.12 to change its accounting year from a calendar year to such
fiscal year as approved by the Internal Revenue Service;
15.2.13 to allow the Trust to borrow money from the Manager or its
Affiliates to meet working capital requirements of the Trust or to take over the
operation of a Property on a short-term basis (up to 24 months), at any time and
from time to time including, but not limited to, any time prior to the Final
Closing Date, and in connection therewith to pay interest and other financing
charges or fees which shall be the lesser of interest and other financing
charges or fees which would be charged by an unrelated lending institution for a
comparable loan, or the actual cost of such funds to the Affiliate, provided
that no prepayment charge or penalty shall be required by the Manager or its
Affiliates on a loan to the Trust secured by either a first or a junior or
all-inclusive trust deed, mortgage or encumbrance on a Property, except to the
extent that such prepayment charge or penalty is attributable to the underlying
encumbrance; provided further that the Manager shall be prohibited from
providing Financing except subject to the provisions of subparagraphs (i)-(ix)
of Paragraph 15.2.6, provided that in each case there will be independent
advisers for each publicly registered party to the transaction; and provided
further that the Trust may not borrow money for the purpose of making
Distributions;
15.2.14 to allow the Trust to borrow money from unaffiliated lenders on
a short-term or long-term basis to meet working capital requirements of the
Trust at any time and from time to time including, but not limited to, any time
prior to the Final Closing Date, and in connection therewith to pay interest and
other financing charges or fees; provided, however, that the Trust may not
borrow money for the purpose of making Distributions;
15.2.15 to require in all Trust obligations that the Manager shall not
have any personal liability thereon but that the person or entity contracting
with the Trust is to look solely to the Trust and its assets for satisfaction;
15.2.16 to prepare or cause to be prepared reports, statements and other
relevant information for distribution to Shareholders including annual and
quarterly reports;
15.2.17 to cause the Trust to make or revoke any of the elections
permitted by the Code;
15.2.18 to determine the appropriate accounting method or methods to be
used by the Trust in maintaining its books and records;
15.2.19 to reinvest in First Mortgage Bonds or Tax-Exempt Securities any
Sale or Repayment Proceeds during the period ending five years after the date on
which 95% of Net Proceeds shall have been invested in First Mortgage Bonds or
Tax-Exempt Securities, provided that the aggregate Distributions in any year
are sufficient to allow a Shareholder in a 28% federal income tax bracket to pay
the income taxes due with respect to Net Income derived by him from operations
of the Trust;
15.2.20 to assure any person dealing with the Trust or the Manager that
he may rely upon a certificate signed by the Manager as authority with respect
to: (i) the identity of the Trustee, the Manager or any Shareholder; (ii) the
existence or nonexistence of any fact or facts which constitute a condition
precedent to acts by the Manager or in any other manner germane to the affairs
of the Trust; (iii) the persons who are authorized to execute and deliver any
instrument or document of the Trust; or (iv) any act or failure to act by the
Trust or as to any other matter whatsoever involving the Trust, the Manager, or
any Shareholder;
15.2.21 to remove the Trustee at any time with or without cause in its
sole discretion and in the event of such removal or the resignation of the
Trustee, to appoint a successor Trustee in accordance with Paragraph 22.2;
15.2.22 to execute, acknowledge and deliver any and all instruments to
effectuate all of the foregoing, and to take all such action in connection
therewith as the Manager shall deem necessary or appropriate; and
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15.2.23. to establish Reserves or increase or decrease Reserves as it
deems necessary for the proper operation of the business of the Trust; provided,
however, that Reserves created from Net Proceeds may not be used to fund
Distributions from the Trust until the termination of the Trust or for
compensation payable by the Trust to the Manager and its Affiliates.
15.3 Amendments Without Consent. In addition to any amendments otherwise
authorized herein, this Trust Agreement may be amended from time to time by
the Manager without the consent of the Shareholders or the Trustee:
(i) to add to the representations, duties or obligations of the Manager
or the Trustee or their respective Affiliates or surrender any right or power
granted to the Manager or its Affiliates or the Trustee herein, for the benefit
of the Shareholders; provided, that no representations, duties or obligations of
the Trustee shall be added or right or power of the Trustee surrendered without
the Trustee's consent;
(ii) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with law applicable to the Trust as in effect
at the time the amendment is adopted, or judicial or administrative
interpretations thereof, or with any other provision herein, as long as any such
change will not adversely affect the rights of the Shareholders or be
inconsistent with the Guidelines of the North American Securities Administrators
Association, Inc. applicable to Real Estate Programs;
(iii) to delete or add any provision of this Trust Agreement required to
be so deleted or added by the staff of the Securities and Exchange Commission or
by a State "Blue Sky" Commissioner or similar such official, which addition or
deletion is deemed by such Commission or state official to be for the benefit or
protection of the Shareholders;
(iv) to reflect the addition or substitution of Shareholders or the
reduction of capital accounts upon the return of capital to Owners;
(v) upon notice to all Shareholders, to amend the provisions of Article
11 of this Trust Agreement (a) so as to revise the date upon which each Owner's
distributive share of Net Income, Net Loss and Distributions is determined and
the period of time over which such distributive share relates, provided that in
the opinion of the accountants or counsel to the Trust, such amended provisions
are not impermissible under applicable federal and/or state income tax
legislation, rules or regulations enacted or promulgated thereunder, or
administrative pronouncements or interpretations thereof; and (b) to the minimum
extent necessary to take account of any amendments to Section 704 of the Code or
the regulations thereunder or any judicial or administrative interpretations
thereof;
(vi) to change the name of the Trust to any lawful name which it may
select; and
(vii) to take such steps as the Manager determines are advisable or
necessary in order to preserve the tax status of the Trust as an entity which is
not taxable as a corporation for federal income tax purposes, including, without
limitation, the right to impose additional restrictions on transfers of Shares.
The Manager is empowered to amend such provisions to the minimum extent
necessary or desirable in accordance with the advice of the accountants and/or
counsel to comply with any applicable federal or state legislation, rules or
regulations enacted or promulgated, administrative pronouncements or
interpretations and/or judicial interpretations thereof after the date of this
Trust Agreement. Subject to Paragraph 21, the Manager shall be entitled to rely
upon the advice of the accountants or counsel as described above in making such
amendment or amendments.
15.4 Limitations. Neither the Manager nor any Affiliate shall have the
authority to:
15.4.1 enter into contracts with the Trust which would bind the Trust
after the removal, adjudication of bankruptcy or insolvency of the Manager or
which would purport to continue the Manager's right to conduct business on
behalf of the Trust after the occurrence of such event;
15.4.2 materially alter the nature of the business of the Trust as set
forth in Paragraph 2;
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15.4.3 receive a rebate or give-up or participate in any reciprocal
business arrangements which would enable it or an Affiliate to do so;
15.4.4 (a) cause the Trust to invest in any First Mortgage Bonds or
Tax-Exempt Securities through joint ventures with a publicly registered
Affiliate unless (i) both parties are organized with substantially identical
investment objectives and policies, (ii) there are no duplicative fees, (iii)
the Trust has a right of first refusal to buy if such Affiliate wishes to sell
the First Mortgage Bond or Tax-Exempt Securities in which they participate; (iv)
the investment of the Trust in the First Mortgage Bond or Tax-Exempt Securities
to be acquired with an Affiliate is made on substantially the same or better
terms and conditions as those received by the Affiliate, although the amounts
invested do not have to be comparable; and (v) the Trust will not pay the
Sponsor and Affiliates greater compensation than it would have paid had the
Trust invested in the First Mortgage Bond or Tax-Exempt Securities individually
and not jointly; (b) cause the Trust to invest in any First Mortgage Bond or
Tax-Exempt Securities with unaffiliated co-lenders unless the Trust either alone
or together with an Affiliate acquires a controlling interest in any joint
investment with unaffiliated co-lenders and there are no duplicative fees; or
(c) cause the Trust to invest in any First Mortgage Bonds or Tax-Exempt
Securities with Affiliates other than publicly registered Affiliates; provided
that, for purposes of this Paragraph 15.4.4 only, "controlling interest" shall
mean an equity interest possessing the power to direct or cause the direction of
the management and policies of the joint investment, including the authority to
(i) review all contracts entered into by the joint investment that will have a
material effect on its business or property, (ii) cause a sale or refinancing of
the First Mortgage Bonds or the investment therein of the joint investment
agreement to limits as to time, minimum amounts and/or a right of first refusal
or consent by the joint investment agreement to limits as to time, minimum
amounts and/or a right of first refusal or consent by the joint investment
partner, (iii) approve budgets and major capital expenditures, subject to a
stated minimum amount, (iv) veto any sale or refinancing of the property, or,
alternatively, to receive a specified preference on sale or refinancing proceeds
and (v) exercise a right of first refusal on any desired sale or refinancing by
the joint venture partner of its interest in the property except for transfer to
an affiliate of the joint venture partner;
15.4.5 cause the Trust to invest in a First Mortgage Bond secured by a
Mortgage Loan on any one Property if the principal of such First Mortgage Bond
would exceed, in the aggregate, an amount equal to 20% of the Gross Proceeds to
be raised by the Trust;
15.4.6 cause the Trust to invest in First Mortgage Bonds secured by
Mortgage Loans to any one borrower if the principal of such First Mortgage Bonds
would exceed, in the aggregate, an amount greater than 20% of the Gross Proceeds
to be raised by the Trust;
15.4.7 cause the Trust to invest in First Mortgage Bonds secured by
Mortgage Loans on unimproved real property or Tax-Exempt Securities relating to
unimproved real property in an amount in excess of 10% of the Gross Proceeds to
be raised by the Trust;
15.4.8 cause the Trust to invest in a First Mortgage Bond secured by a
Mortgage Loan on any one Property if the aggregate amount of all mortgage loans
outstanding on the Property, including the principal amount of the Mortgage
Loan, would exceed an amount equal to 85% of the appraised value of the
Property, as determined by an independent appraiser, unless the Manager
determines that substantial justification exists for investing in such a First
Mortgage Bond because of other criteria such as the net worth of the borrower,
the credit rating of the borrower based on historical financial performance,
additional collateral (such as a pledge or assignment of other real estate or
another real estate mortgage) or an assignment of rents under a lease or where
the Trust has purchased a First Mortgage Bond at a price that is no more than
85% of the value of the underlying Property (notwithstanding that the face
amount of the outstanding mortgage loans with respect to the Property exceeds
85% of the value of the underlying Property), provided that any loans relating
to the Property which are advanced by third parties (and which cause the
aggregate amount of all mortgage loans outstanding on the Property to exceed 85%
of the appraised value of the Property) are subordinated to the Trust's
investment and do not entitle such third party lender to any rights upon default
until after the Trust's First Mortgage Bond and related Mortgage Loan with
respect to such Property have been repaid.
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15.4.9 except as permitted in Paragraph 15.2.5 (which Paragraph is
hereby deemed applicable to Affiliates of the Manager) and by Paragraph 15.4.4,
purchase First Mortgage Bonds or Tax-Exempt Securities from the Trust or sell
First Mortgage Bonds or Tax-Exempt Securities to the Trust or purchase real
property from the Trust or lease real property securing First Mortgage Bonds
owned by the Trust;
15.4.10 cause the Trust to exchange Shares for First Mortgage Bonds or
Tax-Exempt Securities;
15.4.11 do any act in contravention of this Trust Agreement or which
would make it impossible to carry on the ordinary business of the Trust;
15.4.12 confess a judgment against the Trust in connection with any
threatened or pending legal action;
15.4.13 possess any Trust asset or assign the rights of the Trust in
specific Trust assets for other than a Trust purpose;
15.4.14 admit a person as a successor Manager except with the consent of
the Shareholders as provided for in this Trust Agreement;
15.4.15 perform any act (other than an act required by this Trust
Agreement or any act taken in good faith reliance upon counsel's opinion) which
would, at the time such act occurred, subject any Shareholders to liability in
any jurisdiction;
15.4.16 reinvest in First Mortgage Bonds or Tax- Exempt Securities (i)
any Adjusted Cash From Operations, or (ii) after five years from the date on
which 95% of Net Proceeds shall have been invested in First Mortgage Bonds or
Tax-Exempt Securities, any Sale or Repayment Proceeds;
15.4.17 commingle the Trust funds with those of any other person or
entity;
15.4.18 directly or indirectly pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such adviser to advise the purchaser
regarding the purchase of Shares; provided, however, that Affiliates of the
Manager shall not be prohibited from paying the normal sales commissions payable
to a registered broker-dealer or other properly licensed person for selling
Shares;
15.4.19 operate the Trust in such a manner as to have the Trust
classified as an "investment company" for purposes of the Investment Company Act
of 1940;
15.4.20 except as specifically provided for in this Trust Agreement,
cause the Trust to invest in or underwrite the securities of other issuers for
any purposes;
15.4.21 without the consent of the Shareholders as provided in Paragraph
16.2, implement a Disposition of Substantially All of the Assets of the Trust in
a single Disposition, or in multiple Dispositions in the same 12-month period,
except in the orderly liquidation and winding up of the business of the Trust
upon its termination and dissolution as contemplated by the Prospectus;
15.4.22 without the consent of the Shareholders as provided in Paragraph
16.2, pledge or encumber all or Substantially All of the Assets of the Trust at
one time, other than in connection with the acquisition or improvement of assets
or the refinancing of previous obligations;
15.4.23 grant the Manager or any of its Affiliates an exclusive right to
sell or exclusive employment to sell the Trust's investments for the Trust;
15.4.24 except as provided in Paragraphs 9, 10 and 11, pay directly or
indirectly, a commission or fee to the Manager or its Affiliates in connection
with the reinvestment or distribution of Sale or Repayment Proceeds;
15.4.25 except as provided in Paragraph 9.10, receive any Insurance
Brokerage Fee or write any insurance policy covering any of the Properties;
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15.4.26 invest in real estate contracts of sale, otherwise known as land
sale contracts, unless such contracts of sale are in recordable form and are
appropriately recorded in the chain of title;
15.4.27 except as provided in Paragraphs 15.2.13 and 15.2.14, cause the
Trust to borrow money;
15.4.28 except as otherwise permitted herein, cause the Trust (i) to
lend funds to any person or entity, including the Manager and its Affiliates, or
(ii) to acquire real property other than as a result of a default on a Mortgage
Loan;
15.4.29 invest more than 10% of Gross Proceeds in First Mortgage Bonds,
or the related Mortgage Loans or the related Properties, in which Affiliates of
the Manager have a controlling interest, equity interest or security interest;
15.4.30 cause an Affiliate of the Manager to hold the junior portion of
a First Mortgage Bond secured by a subordinated mortgage loan on a Property (if
the Trust owns the senior portion of such First Mortgage Bond secured by a
senior Mortgage Loan on the same Property), unless the Trust first obtains an
opinion of bond counsel to the effect that it is more likely than not that there
would be a substantial risk of adverse tax consequences to the Trust if the
Trust were to hold such First Mortgage Bond in its entirety;
15.4.31 arbitrarily classify costs as either tangible or intangible, or
arbitrarily place any costs or activities of the Trust in any classification
which might affect the interests of Shareholders, unless such classification is
made in accordance with generally accepted accounting principles and industry
practices; and
15.4.32 enter into contracts with the Trust which cannot be terminated
upon 60-days or less written notice, without penalty.
15.5 No Personal Liability. The Manager shall have no personal liability
for the repayment of the Original Contributions of any Shareholder or to
repay to the Trust any portion or all of any negative balance in its capital
account, except as otherwise provided in Paragraph 5.3.
15.6 Notice of Limitation of Liability. The Manager shall use its best
efforts, in the conduct of the Trust's business, to put all suppliers and
other persons with whom the Trust does business on notice that the
Shareholders, the Manager and the Trustee are not liable for Trust
obligations and that such suppliers and other persons shall look solely to
the assets of the Trust for payment, and all agreements to which the Trust is
a party shall include a statement to the effect that the Trust is a business
trust organized under the Delaware Act; but the Manager shall not be liable
to the Shareholders for any failure to give such notice to such suppliers or
other persons.
15.7 Accounting Matters. The Manager shall make all decisions as to
accounting matters in accordance with the accounting methods adopted by the
Trust in accordance with generally accepted accounting principles and
procedures applied on a consistent basis. The Manager may rely on the Trust's
independent certified public accountants to determine whether such decisions
are in accordance with generally accepted accounting principles.
15.8 Tax-Matters Partner. The Manager is hereby designated as the "Tax
Matters Partner" in accordance with Section 6231(a)(7) of the Code and, in
connection therewith and in addition to all other powers given thereunder,
shall have all other powers needed to fully perform hereunder including,
without limitation, the power to retain all attorneys and accountants of its
choice and the right to settle any audits without the consent of the
Shareholders. The designation made in this Paragraph is hereby expressly
consented to by each Owner as an express condition to becoming an Owner.
15.9 Funds and Assets. The Manager shall have a fiduciary responsibility
for the safekeeping and use of all funds and assets of the Trust, whether or
not in its immediate possession or control, and shall not employ, or permit
another to employ, such funds or assets in any manner except for the
exclusive benefit of the Trust.
15.10 Investment in First Mortgage Bonds and Tax-Exempt Securities. The
Manager shall commit to Investment in First Mortgage Bonds and Tax-Exempt
Securities at least 84.5% of the Gross Proceeds raised in the offering.
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16. RIGHTS AND POWERS OF SHAREHOLDERS
16.1 Control. Shareholders shall take no part in any manner in the control,
conduct or operation of the Trust and shall have no right or authority to act
for or bind the Trust. The exercise by the Shareholders of any of their
voting and other rights pursuant to and in accordance with this Trust
Agreement shall not constitute participation in or control over the Trust.
16.2 Voting Rights. The Shareholders (voting as set forth in Paragraph
16.3), considered together as a class, have the right by Majority Vote,
without necessity for concurrence by the Manager, to vote upon:
16.2.1 removal of the Manager;
16.2.2 the election of a successor Manager and the continuation of the
Trust's business pursuant to Paragraph 19.1.1;
16.2.3 merger, consolidation or termination and dissolution of the
Trust, except (i) as provided in Paragraph 4, (ii) as provided in Paragraph
26.10 or (iii) a termination and dissolution of the Trust upon the Disposition
of Substantially All of the Assets as contemplated by the Prospectus;
16.2.4 amendment of the Trust Agreement, provided such amendment is not
for any of the purposes set forth in Paragraph 15.3;
16.2.5 the Disposition of Substantially All of the Assets of the Trust
in a single Disposition, or in multiple Dispositions in the same 12-month
period, except in the orderly liquidation and winding up of the business of the
Trust upon its termination and dissolution as contemplated by the Prospectus;
16.2.6 the pledge or encumbrance of all or Substantially All of the
Assets of the Trust at one time, other than in connection with the acquisition
or improvement of assets or the refinancing of previous obligations;
16.2.7 the extension of the term of the Trust;
16.2.8 any change in the Trust's three primary investment objectives as
described in the Prospectus;
16.2.9 a material modification of a contract entered into with an
Affiliate pursuant to Paragraph 9.1 of the Trust Agreement; and
16.2.10 assignment of the Manager's interest in the Trust, except in
connection with any merger, consolidation or sale as provided in Paragraph 17.5.
16.3 Voting Procedures. A Shareholder shall be entitled to cast one vote
for each Share which he owns, (i) at a meeting, in person, by written proxy
or by a signed writing directing the manner in which he desires that his vote
be cast, which writing must be received by the Manager prior to such meeting,
or (ii) without a meeting, by a signed writing directing the manner in which
he desires that his vote be cast, which writing must be received by the
Manager prior to the date upon which the votes of Shareholders are to be
counted. Except as otherwise expressly provided herein, a Majority Vote shall
be required for the approval of any matter submitted for a vote of
Shareholders.
16.4 Proxies. Except as otherwise provided herein, the laws of the State
of Delaware pertaining to the validity and use of corporate proxies and
written consents shall govern the validity and use of proxies and written
consents given by Shareholders. In connection with each meeting or vote
without a meeting of the Shareholders, the Trust shall provide for proxies or
written consents which specify a choice among approval, disapproval or
abstention with respect to each separate matter referred to therein as
intended to be acted upon at the meeting or by vote without a meeting, other
than elections to office.
16.5 Calling Meetings; Written Consents. Meetings of the Shareholders for
any purpose may be called by the Manager at any time and shall be called by
the Manager after receipt of a written request (delivered in person or by
certified mail) for such a meeting, signed by 10% or more in interest of the
Shareholders as of the date of receipt of such written request ("notice
date"). Any such request shall state the purpose of the proposed meeting and
the matters proposed to be acted upon thereat. Within ten days of such notice
date, the Manager shall notify all Shareholders of record as of the record
date set by the Manager
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pursuant to Paragraph 16.8 of such meeting to be held on a date not less than
30 or more than 60 days after receipt of such request; provided, however,
that such a period for the giving of notice may be extended if such extension
is necessary for clearance by the Securities and Exchange Commission of the
solicitation materials to be forwarded to the Shareholders in connection with
such meeting. The Manager will use its best efforts to obtain such clearance.
Meetings shall be held at the principal office of the Trust or at such other
place as may be designated by the Manager, or if the meeting is called upon
the request of Shareholders, as designated by such Shareholders. In addition,
the Manager may, and upon receipt of a request in writing signed by 10% or
more in interest of the Shareholders the Manager shall, submit any matter
upon which the Shareholders are entitled to act for a vote by written consent
without a meeting. For purposes of obtaining a written vote under this Trust
Agreement, the Manager may require a written response within a specified
time, but not less than 30 days nor more than 60 days after the date of
notice, except as such period may be extended by the Manager in its sole
discretion.
16.6 Notice of Meetings. Notification of all meetings shall be given to
each Shareholder at his record address, or at such other address which he may
have furnished in writing to the Manager. Such notification shall be deemed
given when deposited in the U.S. mails, postage paid, shall state the place,
date and hour of the meeting, shall indicate that the notification is being
issued at or by the direction of the Manager or Shareholders, as the case may
be, calling the meeting and shall state the purpose or purposes of the
meeting. If a meeting is adjourned to another time or place, and if an
announcement of the adjournment of time or place is made at the meeting, it
shall not be necessary to give notification of the adjourned meeting. No
notification of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or is represented by
proxy, except for a Shareholder attending a meeting for the express purpose
of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened,
or to any Shareholder entitled to such notification who, in writing, executed
and filed with the records of the meeting, either before or after the time
thereof, waives such notification.
16.7 Quorum. The presence in person or by proxy of a majority in interest
of the Shares shall constitute a quorum at all meetings of the Shareholders;
provided, however, that if there be no such quorum, holders of a majority in
interest of the Shares so present or so represented may adjourn the meeting
from time to time without further notification, until a quorum shall have
been obtained.
16.8 Record Date. For the purpose of determining the Shareholders entitled
to vote at any meeting of Shareholders or any adjournment thereof, or to vote
by written consent without a meeting, the Manager or the Shareholders
requesting such meeting or vote may fix, in advance, a date as the record
date of any such determination of Shareholders. Such date shall not be more
than 60 days nor less than 10 days before any such meeting or submission of a
matter to the Shareholders for a vote by written consent.
16.9 Conduct of Meeting. At each meeting of Shareholders, the Manager
shall appoint such officers and adopt such rules for the conduct of such
meeting as they shall deem appropriate.
16.10 Limitations. No Shareholder shall have the right or power to: (i)
withdraw or reduce his contribution to the capital of the Trust except as a
result of the dissolution and termination of the Trust or as otherwise
provided by law, (ii) bring an action for partition against the Trust, (iii)
cause the dissolution and termination of the Trust by court decree or
otherwise, except as set forth in this Trust Agreement or as provided by law,
or (iv) demand or receive property other than cash in return for his
contribution. No Shareholder shall have priority over any other Shareholder
either as to the return of contributions or as to Net Income, Net Loss or
Distributions. Other than upon the dissolution and termination of the Trust
or as otherwise provided by this Trust Agreement, there has been no time
agreed upon when the contribution of each Shareholder may be returned.
16.11 List of Investors. Upon the written request and at the expense of a
Shareholder, the Manager will allow such person or his representative to
examine at the Trust's office an alphabetical list of the names, addresses,
business telephone numbers and holdings of Shares of each Shareholder of
record and, if further requested by such person or his representative, to
obtain such list by mail at his expense for any proper purpose (including
matters relating to the exercise of voting and proxy solicitation rights
under this Trust Agreement) within ten days after receipt of such request.
The copy of such list shall be printed in alpha-
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betical order, on white paper, and in a readily readable type size (in no
event smaller than 10-point type). Such list shall be updated at least
quarterly to reflect changes in the information contained therein.
If the Manager neglects or refuses to exhibit, produce or mail a copy of
the Shareholder list as requested, the Manager will be liable to any
Shareholder requesting the list for the costs, including attorneys' fees,
incurred by that Shareholder for compelling the production of the Shareholder
list, and for actual damages suffered by any Shareholder by reason of such
refusal or neglect. The Manager may require the Shareholder to represent that
the list is not requested for a commercial purpose unrelated to the
Shareholder's interest in the Trust. The remedies provided hereunder are in
addition to, and shall not in any way limit, other remedies available under
federal law, or the laws of any state.
17. REMOVAL, BANKRUPTCY OR DISSOLUTION OF THE MANAGER AND TRANSFER OF THE
MANAGER'S INTEREST
17.1 Removal. The Manager may be removed from the Trust upon a Majority Vote.
Written notice of a removal of the Manager shall be served upon the Manager
either by certified or by registered mail, return receipt requested, or by
personal service. Such notice shall set forth the date upon which the removal
is to become effective.
17.2 Sale of Interest. Upon the removal, adjudication of bankruptcy,
dissolution or other cessation to exist of the Manager (the "Terminated
Manager"), and assuming the business of the Trust is continued pursuant to
the Trust Agreement, the interest of such Terminated Manager in the Net
Income, Net Loss and Distributions of the Trust shall be purchased by the
Trust for a purchase price equal to the fair market value of the Terminated
Manager's interest in the Trust, determined by agreement between the
Terminated Manager and the Trust or, if they cannot agree, by arbitration in
accordance with the then current rules of the American Arbitration
Association in New York, New York with the expenses of such arbitration to be
borne equally by the Terminated Manager and the Trust. For this purpose, the
fair market value of the interest of the Terminated Manager shall be deemed
to be the amount the Terminated Manager would receive upon dissolution and
termination of the Trust under Paragraph 19.2 assuming such dissolution or
termination occurred on the date of such removal, adjudication of bankruptcy,
dissolution or other cessation to exist of the Terminated Manager and
assuming the assets of the Trust were sold for their then fair market value
without compulsion of the Trust to sell such assets. Payment shall be made by
a promissory note bearing interest on the unpaid principal amount of the
promissory note at the prime rate being charged by an unrelated lending
institution with principal and all unpaid accrued interest subject to
mandatory prepayment from all Sale or Repayment Proceeds and the remaining
unpaid principal balance and unpaid accrued interest on such promissory note
due and payable five years from the date of the occurrence of an event
specified in Paragraph 19.1, provided that the method of payment must protect
the solvency and liquidity of the Trust.
17.3 Purchase of Interest. Should a successor Manager be elected under
Paragraph 19.1, such successor Manager (the "Acquiring Manager") shall
purchase from the Trust, within 60 days of its election, the interest which
the Trust purchased from the Terminated Manager. For such interest the
Acquiring Manager shall pay the amount determined pursuant to Paragraph 17.2
to be the fair market value of such interest. Payment may be made in cash or
by a promissory note bearing interest on the unpaid principal amount of the
promissory note at the prime rate being charged by an unrelated lending
institution secured by assignment by the Acquiring Manager to the Trust of
the future Distributions by the Trust to the Acquiring Manager, which
principal amount together with accrued interest shall be payable at the times
and in the amounts equal to seventy-five percent (75%) of such Distributions
until such time as the principal amount together with accrued interest is
paid in full, but shall become due and payable in full by the Acquiring
Manager at such time as the Trust is finally wound up and liquidated.
17.4 No Voluntary Dissolution or Withdrawal. Until the dissolution of the
Trust, Related AMI shall not take any voluntary steps to dissolve itself nor
voluntarily withdraw from the Trust.
17.5 No Limitation on Merger or Reorganization. Nothing in this Trust
Agreement shall be deemed to prevent the merger, reorganization or
consolidation of Related AMI into or with any other corporation, or the sale
or transfer of all the capital stock or substantially all of the assets of
Related AMI and the assumption of the rights and duties of the Related AMI by
the successor or surviving corporation by operation of law.
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17.6 Assignment. Except with respect to its economic interest in the Trust,
the Manager's interest in the Trust shall not be assignable in whole or in part
without a Majority Vote, except in connection with any merger, reorganization,
consolidation, sale or transfer as provided in Paragraph 17.5. Any entity to
which the entire interest of the Manager is assigned in compliance with this
Paragraph shall be substituted by the filing of appropriate amendments to the
Trust Agreement and the certificate of trust.
18. FIDUCIARY DUTY; CERTAIN TRANSACTIONS
18.1 Fiduciary Duty. The Manager shall have a fiduciary duty to exercise good
faith and act with integrity in handling trust affairs in the best interests of
the Trust. The Trust shall not permit any Shareholder to contract away any
fiduciary duty owed to the Shareholder by the Manager under the common law.
18.2 Certain Transactions. The Manager, any Shareholder, any Affiliate,
shareholder, officer, director, partner or employee thereof, or any person
owning a legal or beneficial interest therein, may engage in or possess an
interest in any other business or venture of every nature and description,
independently or with or for the account of others including, but not limited
to, investments in revenue bonds or mortgages of any type or instruments
backed by or representing a participation or interest in revenue bonds or
mortgages, investments in tax exempt securities and the ownership, financing,
leasing, operation, management, brokerage and development of real property
provided, however, that the Manager shall be obligated to present to the
Trust any suitable investment opportunity in Mortgage Bonds before acquiring
it for its own account.
18.3 Investment Conflicts. In the event that there are two or more
partnerships, trusts or other entities with which the Manager or its
Affiliates are affiliated, which have the same investment objectives and
policies as the Trust and which have funds available at the same time for
investment, and investment opportunities become available, conflicts of
interest may arise as to which partnership, trust or other entity should
proceed to invest in the available First Mortgage Bonds or Tax-Exempt
Securities. With respect to such investment decisions, the Manager will
review the investment portfolio of each such entity and, in the event an
investment is equally appropriate for two or more of such entities, will
allocate the opportunity on the basis of various factors, such as the amount
of funds available and the length of time such funds have been available for
investment; the cash requirements of each such entity; and the effect of the
acquisition on each such entity's portfolio. If funds should be available to
two or more such entities to purchase a given investment and all factors have
been evaluated and deemed equally applicable to each entity, then the Manager
and its Affiliates will acquire such investments for the entity on a basis of
rotation with the initial order or priority determined by the dates of
formation of the entities (based on the commencement of the respective
offering periods of such entities, if applicable) or cause more than one
entity to participate jointly in such investments. To the extent that
affiliated entities with different investment objectives or policies have
funds available for investment and, despite such differences, an investment
would be suitable for both the Trust and such entities, similar factors will
be considered in connection with the allocation of such investment.
19. TERMINATION AND DISSOLUTION OF THE TRUST
19.1 Terminating Events. The Trust shall be terminated and dissolved upon the
earliest to occur of the following:
19.1.1 the removal, adjudication of bankruptcy, insolvency, dissolution
or other cessation of existence as a legal entity of the Manager, immediately
after the expiration of 90 days after the date of such event, unless
Shareholders by Majority Vote, within 90 days after the date of such event,
elect to continue the business of the Trust, in a reconstituted form if
necessary, and elect a successor Manager effective as of the date of such event
(expenses incurred in reformation, or attempted reformation, of the Trust shall
be deemed expenses of the Trust);
19.1.2 a Majority Vote (which may, but need not be solicited by the
Manager) in favor of dissolution and termination of the Trust;
19.1.3 the expiration of the term of the Trust; or
19.1.4 the disposition of all assets held by the Trust and the receipt
of the final payment with respect to all investments.
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19.2 Liquidation and Distribution of Assets. Upon a dissolution and
termination of the Trust for any reason, the Manager (or, in the event that
there is no Manager, a liquidator appointed by a Majority Vote) shall take full
account of the Trust's assets and liabilities, shall liquidate the assets as
promptly as is consistent with obtaining the fair value thereof, and shall apply
and distribute the proceeds therefrom in the following order:
19.2.1 first, to the payment of third party creditors of the Trust but
excluding secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Trust assets;
19.2.2 second, to the repayment of any outstanding loans made by the
Manager or its Affiliates to the Trust;
19.2.3 third, to the payment of expenses of liquidation and the
establishment of any reserves for contingencies; and
19.2.4 fourth, to (a) the Manager and (b) Shareholders as a class, in
accordance with, and to the extent of, the positive balances in their capital
accounts.
19.2.5 Notwithstanding anything to the contrary, the Manager will (a)
only distribute cash or cash equivalents in liquidation and (b) have the right
to defer liquidation if, in the opinion of the Manager, the sale of Trust assets
in liquidation would result in a material underrealization on the Trust's
assets.
20. SPECIAL POWER OF ATTORNEY
20.1 Grant of Power of Attorney. By subscribing and paying for Shares, each
Shareholder is hereby granting to the Manager a special power of attorney
irrevocably making, constituting and appointing the Manager as the
attorney-in-fact for such Shareholder, with power and authority to act in his
name and on his behalf to execute, acknowledge and swear to the execution,
acknowledgment and filing of documents, which shall include, by way of
illustration but not of limitation, the following:
20.1.1 the Trust Agreement, any separate certificates of trust, as well
as any amendments to or restatements of the foregoing which, under the laws of
the State of Delaware or the laws of any other state, are required to be filed
or which the Manager deems to be advisable to file;
20.1.2 any other instrument or document which may be required to be
filed by the Trust under the laws of any state or by any governmental agency, or
which the Manager deems advisable to file; and
20.1.3 any instrument or document which may be required to effect the
continuation of the Trust, the admission of an additional or substituted
Shareholder, or the dissolution and termination of the Trust (provided such
continuation, admission or dissolution and termination are in accordance with
the terms of this Trust Agreement), or to reflect any reductions in amount of
contributions of Owners.
20.2 Character of Power of Attorney. The special power of attorney being
hereby granted by each Shareholder:
20.2.1 is a special power of attorney coupled with an interest, is
irrevocable, shall survive the death or legal incapacity of the granting
Shareholder, and is limited to those matters herein set forth;
20.2.2 may be exercised by the Manager acting for each Shareholder by a
facsimile signature of the Manager or by one of its officers, or by listing all
of the Shareholders executing any instrument with a signature of the Manager or
one of its officers acting as its attorney-in-fact; and
20.2.3 shall survive a Transfer by a Shareholder of all or any portion
of his Shares for the sole purpose of enabling the Manager to execute,
acknowledge and file any instrument or document necessary to effect such
Transfer.
20.3 Reliance. Each Shareholder has executed this special power of
attorney, and each Shareholder will rely on the effectiveness of such powers
with a view to the orderly administration of the Trust's affairs.
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21. INDEMNIFICATION
21.1 Agreement to Indemnify. The Trust, its receiver or its trustee in
bankruptcy, shall indemnify, save harmless and pay all judgments and claims
arising against the Manager and its Affiliates from any liability, loss or
damage incurred by them by reason of any act performed or omitted to be
performed by such person for or on behalf of the Trust, including costs and
reasonable attorneys' fees and any amounts expended in the settlements of any
claims of liability, loss or damage; provided that (i) the Manager must have
determined in good faith, that such course of conduct was in the best interests
of the Trust and did not constitute negligence or misconduct by the Manager or
its Affiliates; (ii) such conduct was within the scope of authority of the
Manager; and (iii) any such indemnification shall be recoverable only from the
assets of the Trust and not from the assets of the Shareholders. All judgments
against the Manager or its Affiliates, wherein such person is entitled to
indemnification, must first be satisfied from Trust assets before the Manager is
responsible for these obligations.
The Manager shall not be required to expend or risk its personal funds or
otherwise incur any financial liability in the performance of its rights,
powers or obligations hereunder (except where otherwise required by this
Trust Agreement, including the obligation of the Manager to pay for all
Acquisition Expenses and Organization and Offering Expenses, provided it
receives the Acquisition Expense Allowance and the Expense Allowance,
respectively).
21.2 Limitations. Notwithstanding the foregoing Paragraph 21.1, the
Manager, or its Affiliates shall not be indemnified pursuant to the foregoing
Paragraph 21.1 from any liability, loss or damage incurred by the Manager or
its Affiliates in connection with any claim or settlement involving
allegations that federal or state securities laws were violated by the
Manager or its Affiliates unless: (a) the Manager or its Affiliates seeking
indemnification are successful in defending such action on the merits of each
count involving securities law violations; or (b) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction;
or (c) a court of competent jurisdiction approves a settlement of the claims
against the Manager or its Affiliates seeking indemnification involving
securities law violations and finds that indemnification of the settlement
and related costs should be made; or (d) indemnification is specifically
approved by a court of competent jurisdiction in each such case. Any person
seeking indemnification shall apprise the court as to the current position of
the Securities and Exchange Commission and applicable state securities
administrators regarding indemnification for violations of securities law.
Any amounts payable pursuant to the foregoing are recoverable only out of the
assets of the Trust and not from the Shareholders.
21.3 Indemnification Insurance. The Manager and its Affiliates, and not
the Trust, shall incur that portion of liability insurance which insures the
Manager or its Affiliates with respect to any liability which the Trust is
prohibited from indemnifying them for under this Trust Agreement.
21.4 Advances for Legal Expenses. The Manager and its Affiliates shall be
entitled to advances from Trust funds for legal expenses and other costs
incurred as a result of any legal action if: (a) the legal action relates to
acts or omissions with respect to the performance of duties or services on
behalf of the Trust; and (b) the legal action is initiated by a third party
who is not a Shareholder, or the legal action is initiated by a Shareholder
and a court of competent jurisdiction specifically approves such advancement;
and (c) the Manager or its Affiliates undertake to repay the advanced funds
to the Trust in cases in which the Manager or its Affiliate is not entitled
to indemnification hereunder.
21.5 Reliance on Agents, Attorneys, Etc. In the exercise of its rights and
obligations hereunder, the Manager (i) may act directly, or at the expense of
the Trust, through agents or attorneys pursuant to agreements entered into
with any of them and (ii) may, at the expense of the Trust, consult with
counsel to be selected in good faith, and employed by it.
22. CONCERNING THE TRUSTEE
22.1 Authority and Duties of the Trustee. (a) The Trustee shall have only
those rights, authority, powers, responsibilities and duties as set forth in
Paragraph 1.6.
(b) The Trustee shall have no duty or liability (i) as to any document
contemplated by this Trust Agreement, subject to Paragraph 1.6, (ii) to see to
any recording or filing of this Trust Agreement or any document contemplated
hereby or any security interest or lien or to see to the maintenance of any such
documentation, recording or filing, (iii) to see to any
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maintenance of or insurance on the Trust Property, (iv) to see to the payment
or discharge of any tax, assessment or other governmental charge or any lien
assessed or levied against the Trust or any part of the Trust Property or to
make or prepare any reports or returns related thereto, (v) to confirm,
verify or inquire into the failure of the Manager to exercise or perform any
of its rights or duties under this Trust Agreement, or (vi) to approve as
satisfactory to it or consent to any matter contemplated by this Trust
Agreement or any document contemplated hereby except as expressly required
hereby.
22.2 Resignation and Removal of the Trustee. (a) The Trustee may resign as
of the last business day of any month by giving 60 days' prior notice to the
Manager, and the Manager may remove the Trustee as of the last business day
of any month on 60 days' prior notice to the Trustee. In the case of the
resignation or removal of the Trustee, the Manager shall, without the consent
of any Shareholder, appoint a successor Trustee, provided, that such
successor Trustee shall in all respects satisfy the requirements of Section
3807 of the Delaware Act, or any successor provision. The appointment of the
successor Trustee shall take effect concurrently with the resignation or
removal of the former Trustee, and, thereupon, the Trustee so resigned or
removed shall be fully discharged of its duties and liabilities hereunder.
(b) If a successor Trustee shall not have been appointed within 60 days
after such notice of resignation or removal, the Trustee, the Manager, or any
Shareholder may apply to any court of competent jurisdiction to appoint a
successor Trustee to act until such time, if any, as a successor shall have been
appointed as above provided.
(c) Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation to which substantially all the corporate trust business of the
Trustee may be transferred, shall, subject to such corporation satisfying in all
respects the requirements of Section 3807 of the Delaware Act, be the Trustee
hereunder without further act.
(d) Upon the substitution of the successor Trustee, the Manager and the
successor Trustee shall file an amendment to the certificate of trust with the
Secretary of State of the State of Delaware in accordance with the provisions of
Section 3810 of the Delaware Act, indicating the change in the Trustee.
Except as expressly provided above, all persons having any claim against the
Trustee by reason of the transactions contemplated by this Trust Agreement
shall look only to the property and assets of the Trust for payment or
satisfaction thereof.
22.3 Indemnification. (a) The Trust shall indemnify and hold harmless each
of the Trustee, its officers, directors, employees, shareholders and agents
(collectively, the "Indemnified Persons" or individually an "Indemnified
Person"), against any and all losses, claims, damage, taxes, expenses and
liabilities (including any environmental liabilities) of any kind and nature
whatsoever, joint and several (including, but not limited to, any
investigation, reasonable legal and other reasonable expenses incurred in
connection with, and any amount paid in settlement of any action, suit,
proceeding or claim) which such Indemnified Person may become subject to or
liable for by reason of the Trustee's acting as trustee under this Trust
Agreement and related to, based upon or arising out of (i) this Trust
Agreement or the enforcement of any of the terms hereof, the acquisition,
ownership, disposition or administration of the property and assets of the
Trust or the action or inaction of the Trustee hereunder; (ii) any breach of
duty, statutory or otherwise, owed to the Trust or the Shareholders by a
party other than the Trustee, whether or not the Trustee may also be
considered liable under the provisions of applicable law; or (iii) any
violation or alleged violation of the Securities Act, the Securities Exchange
Act of 1934, as amended, the Investment Company Act of 1940, as amended, the
Investment Advisers Act of 1940, as amended, or any state securities or
so-called "Blue Sky" laws. Notwithstanding the foregoing, each Indemnified
Person shall be liable, responsible and accountable, and the Trust shall not
be liable to such Indemnified Person for any portion of such liabilities that
result from such Indemnified Person's own fraud, gross negligence or wilful
misconduct.
(b) The Trustee shall be entitled to payment from the Trust Property for
any compensation, reimbursement of expenses and indemnification owing to the
Trustee pursuant to this Trust Agreement to the extent not promptly paid by the
Trust, but without releasing it from its agreements of compensation,
reimbursement and indemnification; and to secure the same the Trustee shall have
a lien on the Trust Property which shall be prior to any interest therein of the
Manager or the Shareholders.
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22.4 Fees and Expenses. The Trust shall pay or reimburse the Trustee for all
reasonable out-of-pocket expenses, disbursements and advances incurred or made
by the Trustee. The Trustee shall receive as compensation for its services
hereunder such ordinary fees as are fair, reasonable and customary for the
performance of such services as may heretofore and from time to time hereafter
be agreed upon between the Trustee and the Manager. The Trustee shall be
compensated reasonably for any extraordinary services rendered by it hereunder.
23. ROLLUPS
23.1 Appraisals. An appraisal of all the Trust's assets shall be obtained
from a competent Independent Expert in connection with a proposed Rollup. If the
appraisal will be included in a prospectus used to offer the securities of a
Rollup Entity, the appraisal shall be filed with the Securities and Exchange
Commission and the appropriate states as an exhibit to the registration
statement for the offering of the Rollup Entity's securities. The issuer of the
Rollup Entity's securities shall be subject to liability for violation of
Section 11 of the Securities Act and comparable provisions under state laws for
any material misrepresentations or material omissions in the appraisal. The
Trust's assets shall be appraised on a consistent basis. The appraisal shall:
(a) be based on an evaluation of all relevant information;
(b) indicate the value of the Trust's assets as of a date immediately
prior to the announcement of the proposed Rollup; and
(c) assume an orderly liquidation of the Trust's assets over a 12-month
period.
The terms of the engagement of the Independent Expert shall clearly state
that the engagement is for the benefit of the Trust and its Shareholders. A
summary of the appraisal shall be included in a report to the Shareholders in
connection with the proposed Rollup.
23.2 Shareholder Options. Unless otherwise permitted by the Guidelines of
the North American Securities Administrators Association, Inc. then in
effect, the person sponsoring the Rollup shall offer to Shareholders who vote
"no" on the proposed Rollup the choice of:
(a) accepting the securities of the Rollup Entity offered in the
proposed Rollup; or
(b) one of the following choices:
(i) remaining as Shareholders of the Trust and preserving their
interests therein on the same terms and conditions as existed previously; or
(ii) receiving cash in an amount equal to the Shareholders' pro rata
share of the appraised value of the net assets of the Trust.
23.3 Restrictions. Unless otherwise permitted by the Guidelines of the
North American Securities Administrators Association, Inc. then in effect,
the Trust shall not participate in any proposed Rollup which would:
(a) result in the Shareholders having voting rights that are less than
those provided in this Trust Agreement;
(b) include provisions which would operate to materially impede or
frustrate the accumulation of securities by any purchaser of the securities of
the Rollup Entity (except to the minimum extent necessary to preserve the tax
status of the Rollup Entity);
(c) limit the ability of an investor to exercise the voting rights of
its securities in the Rollup Entity on the basis of the number of Shares held by
that investor;
(d) result in investors in the Rollup Entity having rights of access to
the records of the Rollup Entity or rights to receive reports that are less than
those provided in Paragraph 14; or
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(e) place the cost of the transaction on the Trust if the Rollup is not
approved by the Shareholders; provided, however, that nothing shall be construed
to prevent participation in any proposed Rollup which would result in
Shareholders having rights and restrictions comparable to those contained
herein.
24. DISTRIBUTION REINVESTMENT PLAN
The Manager may adopt a Distribution reinvestment plan (the "Reinvestment
Plan") on such terms and conditions as shall be set forth in the Prospectus,
which plan may be amended, modified or consolidated from time to time or
terminated by the Manager, provided, however, that such plan shall, at a
minimum, provide that (i) all material information regarding Distributions to
the Shareholder and the effect of reinvesting such Distributions, including the
tax consequences thereof, shall be provided to the Shareholder, and (ii) each
Shareholder participating in the Reinvestment Plan shall have a reasonable
opportunity to withdraw from the Reinvestment Plan at least annually.
25. REDEMPTION PLAN
25.1 Right of Redemption. After the Final Closing Date, any Shareholder who
acquired and owns Eligible Shares may present all or a portion of such Shares to
the Trust for redemption, provided, however, that (i) such Shareholder must
always present at least the lesser of all of his Eligible Shares or 125 Eligible
Shares for redemption, and (ii) if such Shareholder would retain any Eligible
Shares were the Shares presented to be redeemed, such Shareholder must retain at
least 125 Eligible Shares. Subject to the conditions described in this
Paragraph, the Trust shall redeem Eligible Shares for cash to the extent it has
sufficient Reinvestment Proceeds. The full amount of Reinvestment Proceeds for
any quarter will be used to redeem Eligible Shares presented for redemption for
such quarter. If the full amount of Reinvestment Proceeds available for
redemption for any given quarter exceeds the amount necessary to make all the
requested redemptions, such excess funds may be held for subsequent redemptions
or may be invested by the Trust in additional investments in First Mortgage
Bonds or Tax-Exempt Securities. If the full amount of Reinvestment Proceeds
available for redemption for any given quarter is insufficient to make all the
requested redemptions, the Trust will redeem Eligible Shares presented for
redemption on a pro rata, whole share basis, without redemption of fractional
Shares.
25.2 Procedure. A Shareholder who wishes to have his Eligible Shares
redeemed must mail or deliver a written request, executed by the Shareholder,
its trustee or authorized agent, to the Trust, at such address as the Manager
may designate, initially 625 Madison Avenue, New York, New York, 10022, Attn:
Related AMI Associates, Inc., Redemption Plan. Within 15 days following the
Trust's receipt of a request, the Trust will forward to such Shareholder the
documents necessary to effect the redemption, including any signature
guarantee the Trust may require. The effective date of any redemption will be
as soon as possible after the close of the calendar quarter in which the
Trust (a) receives the properly completed redemption documents relating to
Eligible Shares, (b) has sufficient Reinvestment Proceeds to redeem such
Shares and (c) mails a redemption check to such Shareholder. The Trust
expects that the effective date of redemptions will be no later than the day
prior to the record date for the next succeeding Distribution.
25.3 Redemption Price. The redemption price to be paid will equal $19 per
Eligible Share. The Manager, in its sole discretion, may determine that it is
appropriate to pay a higher price than described above. The $19 redemption
price shall be reduced by that portion of the Distributions received which
represents a principal payment or other return of capital.
25.4 Suspension or Termination of Redemption Plan. The Manager may suspend
or terminate the redemption of Eligible Shares upon notice to, but without
the consent of, the Shareholders.
26. MISCELLANEOUS
26.1 Counterparts. This Trust Agreement may be executed in several
counterparts and all so executed shall constitute one Trust Agreement, binding
on all of the parties hereto, notwithstanding that all of the parties are not
signatory to the original or the same counterpart.
26.2 Binding Provisions. The terms and provisions of this Trust Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective parties.
A-37
<PAGE>
26.3 Severability. In the event any sentence or paragraph of this Trust
Agreement is declared by a court of competent jurisdiction to be void, such
sentence or paragraph shall be deemed severed from the remainder of the Trust
Agreement and the balance of the Trust Agreement shall remain in effect.
26.4 Notices. All notices under this Trust Agreement shall be in writing
and shall be given to the party entitled thereto, by personal service or by
mail, posted to the address maintained by the Trust for such person or at
such other address as he may specify in writing.
26.5 Headings. Paragraph titles or captions contained in this Trust
Agreement are inserted only as a matter of convenience and for reference.
Such titles and captions in no way define, limit, extend or describe the
scope of this Trust Agreement or the intent of any provision hereof.
26.6 Meanings. Whenever required by the context hereof, the singular shall
include the plural, and vice-versa; the masculine gender shall include the
feminine and neuter genders, and vice-versa; and the word "person" shall
include a corporation, partnership, firm or other form of association.
26.7 List of Owners. The names, addresses and capital contributions of the
Owners are set forth on Exhibit I attached hereto, which exhibit shall be
maintained at the principal place of business of the Trust.
26.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware (including the
Delaware Act) applicable to agreements to be made and performed entirely in
said State, and the Shares shall be construed in accordance with the laws of
the State of Delaware, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws; provided,
however, that nothing herein shall affect the obligations of the Trust to
comply with federal or state securities laws; and provided further, however,
that there shall not be applicable to the Trust, the Trustees or this Trust
Agreement any provisions of the laws (statutory or common) of the State of
Delaware pertaining to trusts (other than the Delaware Act) that relate to or
regulate, in a manner inconsistent with the terms hereof (i) the filing with
any court or governmental body or agency of trustee accounts or schedules of
trustee fees and charges, (ii) affirmative requirements to post bonds for
trustees, officers, agents or employees of a trust, (iii) the necessity for
obtaining court or other governmental approval concerning the acquisition,
holding or disposition of real or personal property, (iv) fees or other sums
payable to trustees, officers, agents or employees of a trust, (v) the
allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or
concentration of trust investments or requirements relating to the titling,
storage or other manner of holding or investing trust assets, or (vii) the
establishment of fiduciary or other standards or responsibilities or
limitations on the acts or powers of trustees, which are inconsistent with
the limitations or liabilities or authorities and powers of trustees as set
forth or referenced in this Trust Agreement. Section 3540 of Title 12 of the
Delaware Code shall not apply to the Trust.
26.9 Other Jurisdictions. In the event the business of the Trust is
carried on or conducted in states in addition to the State of Delaware, then
the Manager and the Shareholders agree that this Trust shall be qualified
under the laws of each state in which business is actually conducted by the
Trust, and they severally agree to execute such other and further documents
as may be required or requested in order that the Manager legally may qualify
this Trust to do business in such states. The power of attorney granted to
the Manager by each Shareholder in Paragraph 20 shall constitute the
authority of the Manager to perform the ministerial duty of qualifying this
Trust under the laws of any state in which it is necessary to file documents
or instruments of qualification. A Trust office or principal place of
business in any state may be designated from time to time by the Manager.
A-38
<PAGE>
26.10 Power to Reconstitute. In the event that the State of Delaware amends
the Delaware Act in any manner which precludes the Trust, at any time, from
obtaining an opinion of tax counsel to the effect that the Trust will be treated
as a partnership for federal income tax purposes and not as an association
taxable as a corporation, then the Manager may, in its sole discretion,
reconstitute the Trust under the laws of another state.
GRANTOR:
RELATED AMI ASSOCIATES, INC.
By: /s/ Stuart J. Boesky
----------------------------
Stuart J. Boesky
Senior Vice President
MANAGER:
RELATED AMI ASSOCIATES, INC.
By: /s/ Stuart J. Boesky
-----------------------------
Stuart J. Boesky
Senior Vice President
TRUSTEE:
WILMINGTON TRUST COMPANY
By: /s/ Emmett R. Harmon
-----------------------------
Emmett R. Harmon
Vice President
A-39
<PAGE>
EXHIBIT I
AMERICAN TAX-EXEMPT BOND TRUST
MANAGER
Name and Address
- ----------------
Related AMI Associates, Inc.
625 Madison Avenue
New York, New York 10022
SHAREHOLDERS
Name and Address Capital Contribution
- ---------------- --------------------
A-40
<PAGE>
EXHIBIT B
_______________________________________________________________________________
REINVESTMENT PLAN
_______________________________________________________________________________
American Tax-Exempt Bond Trust (the "Trust"), pursuant to its Business
Trust Agreement dated as of December 23, 1993, as amended, restated and
supplemented to date (the "Trust Agreement"), has adopted a Reinvestment
Plan, the terms and conditions of which follow. Any term used herein which is
defined in the Trust Agreement shall have the same meaning herein as therein,
unless otherwise defined or unless the context otherwise indicates.
The Trust may retain an agent for the Reinvestment Plan (the "Agent") who
will act as independent agent for participants (the "Participants") in the
Reinvestment Plan. In the event the Trust retains an agent for the
Reinvestment Plan, such agent shall be independent (i.e., not an Affiliate)
of the Trust. The Agent will be paid competitive fees for its services.
1. Participants may invest either the entire amount or a portion of their
Distributions; provided, Participants reinvest the Distributions from at
least 125 Shares. Commencing on the effective date of the offering of Shares
pursuant to the Prospectus (the "Effective Date of the Plan"), the Trust, or
the Agent, as the case may be, will receive the amount of Distributions
designated by each Participant and paid after the Effective Date of the Plan
in respect of Shares of the Trust held by each Participant and in respect of
Shares acquired under the Plan. If the Trust retains an Agent, the Trust will
notify Participants of the identity of the Agent as soon as reasonably
practicable after such retention. The Trust, or the Agent, as the case may
be, will apply such funds, after deducting applicable service charges
specified in Paragraph 7 below, as follows.
Commencing with the first Distribution after the Effective Date of the
Plan, and continuing during the offering period, all Distributions designated
by the Participants will (i) be applied to purchase additional Shares of the
Trust, or (ii) if the Trust retains an Agent, be paid over to the Agent,
which will purchase additional Shares of the Trust, in either case for the
Participants' accounts. Shares will be acquired directly from the Trust at a
price of $20.00 per Share sold on or before the Final Closing Date. From the
Final Closing Date until the third anniversary thereof, the sale price shall
be $19.00 per Share. Thereafter, the sales price per Share shall be the
greater of the public offering price or 95% of the then fair market value of
the Share (as determined by the Manager).
2. Shareholders may become Participants in the Plan at any time by
completing, or authorizing their account executive to complete, the
appropriate authorization form available from the Trust, the Agent (if
applicable), the Manager and Related Equities Corporation. Participation in
the Plan will commence with the next Distribution payable after receipt of a
Participant's authorization of subscription; provided that the election is
made no later than 10 days before the record date for such Distribution.
3. In making purchases for the Participant's accounts, the Trust, or the
Agent, as the case may be, may commingle the funds of any Participant with
those of other Participants. The price at which Shares shall be deemed to
have been acquired for a Participant's account shall be the price at which
they were acquired from the Trust. Distributions shall be invested by the
Trust, or the Agent, as the case may be, promptly following the payment date
with respect thereto, and in no event later than 30 days from such receipt.
However, under certain circumstances, observance of the rules and regulations
of the Securities and Exchange Commission may require temporary suspension of
such purchases or may require that purchases be spread over a period of more
than 30 days, in which event such purchases will be made or resumed as or
when permitted by such rules and regulations. The Trust, or the Agent, as the
case may be, may rely and act upon an opinion of counsel in this respect, and
in such event will not be accountable for such inability to make all
purchases prior to the end of such 30-day period. The Trust, or the Agent, as
the case may be, will hold the Shares of all Participants together in the
name of its nominee. If a Participant's designated Distribution is not large
enough to buy a full Share, the Participant will be credited with fractional
Shares, computed to three decimal places.
Neither the Trust nor the Agent shall have any responsibility or liability
as to the value of the Trust's Shares or any change in value of the Shares
acquired for the Participant's account.
B-1
<PAGE>
4. Pending investment, funds shall be held in a non-interest bearing account
maintained by the Trust, or the Agent, as the case may be, in a bank having
capital and surplus of not less than $100,000,000. The bank account shall be
specifically designated as being for the benefit of the Plan and disbursements
shall be permitted from such account only for purchases of Shares.
5. In the event the Trust has not retained an Agent for the Plan, the
Trust will distribute to Participants proxy solicitation material
attributable to Shares held in the Plan. In the event the Trust has retained
an Agent for the Plan, the Agent will distribute to Participants proxy
solicitation material received by it from the Trust which is attributable to
Shares held in the Plan. The Trust, or the Agent, as the case may be, will
vote any Shares that it holds for the account of a Participant in accordance
with the Participant's written instructions. If a Participant gives a proxy
to person(s) representing the Trust covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Trust, or the Agent, as the case may be, to vote the full Shares in the
Participant's account in like manner. If a Participant does not direct the
Trust, or the Agent, as the case may be, as to how the Shares should be voted
and does not give a proxy to person(s) representing the Trust covering these
Shares, the Trust, or the Agent, as the case may be, will not vote said
Shares.
6. The Trust, or the Agent, as the case may be, will mail to each
Participant a statement of account describing the Distributions received, the
number of Shares purchased, the purchase price per Share, the total Shares
accumulated under the Plan for such Participant and the service charge as
soon as practicable after the designated Distributions have been invested
(and also as soon as practicable after the sale of Shares described in
Paragraph 10). Tax information for income earned on Shares under the Plan for
the calendar year will be sent to each Participant by the Trust, or the
Agent, as the case may be. No certificates representing Shares will be issued
for Shares credited to an account until the account is terminated unless the
Participant requests otherwise. Such requests must be made in writing. A
service charge of $2.50 will be charged by the Trust, or the Agent, as the
case may be, to the Participant in connection with each such issuance. No
certificates will be issued for fractional Shares.
7. The service charge payable by each Participant, at the time of
reinvestment, to the Trust, or to the Agent, as the case may be, for the
administrative services of the Trust, or of the Agent, as the case may be,
shall be five percent (5%) of the amount invested but not less than $.75 or
more than $2.50 per investment transaction for each Participant's account.
The Trust will pay to Related Equities Corporation, the Dealer Manager for
the public offering of the Trust's Shares, 5% of the Gross Proceeds
attributable to distributions reinvested pursuant to the Reinvestment Plan
prior to the termination of the initial public offering.
8. No Participant shall have any right to draw checks or drafts against
his account or to give instructions to the Trust or the Agent, as the case
may be, except as expressly provided herein.
9. It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax which may be payable on such Distributions.
10. A Participant may terminate an account at any time without penalty by
written notice to the Manager, Related AMI Associates, Inc., at 625 Madison
Avenue, New York, New York 10022, Attn: Reinvestment Plan/American Tax-Exempt
Bond Trust or such other address as may be specified in writing. To be
effective for any Distribution, such notice must be received on or before the
record date for such payment. A service charge of $2.50 will be charged by
the Trust, or the Agent, as the case may be, for a termination. The Trust
reserves the right to amend, modify or consolidate any aspect of the Plan
effective with respect to any Distribution paid subsequent to the notice,
provided that the notice is sent to Participants in the Plan at least 10 days
before the record date for a Distribution, mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on their
account or such more recent address as a Participant may furnish to the
Trust, or to the Agent, as the case may be, in writing. The Trust also
reserves the right to terminate the Plan or to retain or change any agent as
Agent for the Plan, for any reason at any time, by sending written notice of
termination or change to all Participants. Upon termination of the Plan, or
upon termination of an individual Participant's involvement in the Plan, the
Trust, or the Agent, as the case may be, may pay, in cash, the value of any
fractional Shares standing to the credit of a Participant's account based
B-2
<PAGE>
upon the market price of Shares, determined as set forth above and the record
books of the Trust will be revised to reflect the ownership of record of his
whole Shares. A Participant who terminates his participation in the Plan may
request that the Shares be submitted to the Trust for redemption pursuant to
the Redemption Plan.
11. Neither the Trust, nor the Agent, as the case may be, shall be liable
for any act done in good faith, or for any good faith omission to act,
including, without limitation, any claims of liability (a) arising out of
failure to terminate a Participant's account upon such Participant's death
prior to receipt of notice in writing of such death, and (b) with respect to
the time and the prices at which Shares are purchased or sold for a
Participant's account.
12. Each Participant agrees to notify the Trust, or the Agent, as the case
may be, promptly in writing of any change of address. Notices to the
Participant may be given by letter addressed to the Participant in his last
address of record with the Trust, or with the Agent, as the case may be.
13. These terms may be amended or supplemented by an agreement between the
Agent and the Trust at any time, including but not limited to an amendment to
the Plan to add a voluntary cash contribution feature or to substitute a new
Agent to act as agent for the Participants, by mailing an appropriate notice
at least 10 days prior to the effective date thereof to each Participant at
his last address of record. Such amendment or supplement shall be deemed
conclusively accepted by each Participant except those Participants from whom
the Trust, or the Agent, as the case may be, receives written notice of
termination prior to the effective date thereof.
14. This Plan and a Participant's election to participate in the Plan
shall be governed by the laws of the State of New York.
B-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in Supplements to this Prospectus, or in literature issued by
the Trust, the Manager or the Dealer Manager (which shall not be deemed to be
a part of this Prospectus), in connection with the offer contained herein and
if given or made such information or representation must not be relied upon.
The statements in this Prospectus or in any Supplement are made as of the
date hereof or thereof, unless another time is specified, and neither the
delivery of this Prospectus or any Supplement nor any sale made hereunder
shall, under any circum- stances, create an implication that there has been
no change in the facts set forth herein since the date hereof or thereof.
However, if any such material adverse changes occur during the period when a
Prospectus is required to be delivered, this Prospectus or any Supplement
will be amended or supplemented accordingly.
TABLE OF CONTENTS
Summary of the Offering ................................................ 1
Risk Factors ........................................................... 5
Terms of the Offering .................................................. 13
Estimated Use of Proceeds .............................................. 15
Management Compensation ................................................ 17
Conflicts of Interest .................................................. 21
Fiduciary Responsibility ............................................... 25
Prior Performance Summary .............................................. 26
Management ............................................................. 35
Investment Objectives and Policies ..................................... 37
Income and Losses and Cash Distributions ............................... 48
Material Federal Income Tax Consequences ............................... 49
Reinvestment Plan Summary .............................................. 64
Redemption of Shares ................................................... 65
Description of the Shares .............................................. 66
Summary of Trust Agreement ............................................. 66
Plan of Distribution ................................................... 70
Sales Material ......................................................... 72
Legal Matters .......................................................... 73
Reports ................................................................ 73
Experts ................................................................ 73
Further Information .................................................... 74
Glossary ............................................................... 74
Management's Discussion and Analysis of Financial
Condition of the Trust ............................................... 78
Financial Information and Balance Sheets ............................. F-1
Prior Performance Tables .............................................. I-1
Trust Agreement....................................................... A-1
Reinvestment Plan ..................................................... B-1
Until January 30, 1995 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions. This Prospectus does not constitute an offer or solicitation
by anyone in any state or other jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation.
______________________________________________________________________________
AMERICAN TAX-EXEMPT
BOND TRUST
$2,500,000 MINIMUM
OFFERING AMOUNT
125,000 SHARES OF
BENEFICIAL INTEREST
(Minimum Offering)
$200,000,000
MAXIMUM OFFERING AMOUNT
10,000,000 SHARES
OF BENEFICIAL INTEREST
(Maximum Offering)
______________________________________
PROSPECTUS
_______________________________________
Dated November 1, 1994
_______________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 30 Other Expenses of Issuance and Distribution
- ------- -------------------------------------------
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission
Registration Fee ......................... $ 86,207
NASD Filing Fee ............................ $ 25,500
*Accounting Fees and Expenses ............... $ 75,000
Blue Sky Filing Fees and Expenses .......... $ 71,610
*Legal Fees and Expenses .................... $ 550,000
*Investor/Dealer Printed Materials .......... $ 125,000
*Prospectus Printing ........................ $ 275,000
*Mailgrams, Western Union and Postage ....... $ 50,000
*Miscellaneous .............................. $ 100,000
----------
*Total ................................. $1,358,317
*These figures are estimates based on a maximum offering.
The Manager has agreed to pay all of the above described offering
expenses as well as certain others. The Manager will receive from the Trust 2.5%
of the Gross Proceeds as a non-accountable expense allowance.
Item 31 Sales to Special Parties
- ------- ------------------------
None
Item 32 Recent Sales of Unregistered Securities
- ------- ---------------------------------------
None
Item 33 Indemnification of Directors & Officers
- ------- ---------------------------------------
Indemnification of the Manager and its Affiliates is provided for
in Paragraph 21 of the Trust Agreement (Exhibit 3.2, 4(A) to this Registration
Statement) and indemnification of the Trustee is provided for in Paragraph 22,
subparagraph 3 of the Trust Agreement. See also the discussion under "Fiduciary
Responsibility" in the Prospectus.
Item 34 Treatment of Proceeds from Stock Being Registered
- ------- -------------------------------------------------
None
II-1
<PAGE>
Item 35 Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements:
----------------------
Included in Prospectus as supplemented:
As to the Registrant
- --------------------
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995.
Statement of Operations for the quarter ended March 31, 1996
(unaudited).
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1995 and the quarter ended March 31, 1996 (unaudited).
Statement of Cash Flows for the three months ended March 31, 1996
(unaudited).
Notes to Financial Statements for the quarter ended March 31, 1996 and
for the years ended December 31, 1995 and 1994.
As to the Manager, Related AMI Associates, Inc.
- -----------------------------------------------
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995
and 1994 and related Notes thereto.
As to Reflections Apartments
- ----------------------------
Casselberry-Oxford Associates Limited Partnership d/b/a Reflections
Apartments
Balance Sheet as of December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Partners' Deficit for the year ended December 31, 1995.
Statement of Cash Flows for the year ended December 31, 1995.
Notes to Financial Statements for the year ended December 31, 1995.
Balance Sheet as of December 31, 1994 (unaudited).
Statement of Operations for the year ended December 31, 1994
(unaudited).
Statement of Partners' Deficit for the year ended December 31, 1994
(unaudited).
Statement of Cash Flows for the year ended December 31, 1994
(unaudited).
Notes to Financial Statements for the year ended December 31, 1994
(unaudited).
Balance Sheet as of December 31, 1993 (unaudited).
Statement of Operations for the year ended December 31, 1993
(unaudited).
Statement of Partners' Deficit for the year ended December 31, 1993
(unaudited).
Statement of Cash Flows for the year ended December 31, 1993
(unaudited).
Notes to Financial Statements for the year ended December 31, 1993
(unaudited).
As to Rolling Ridge
- -------------------
II-2
<PAGE>
Historical Summary of Gross Income and Direct Operations Expenses.
Notes to Historical Summary of Gross Income and Direct Operations
Expenses.
All other statements and schedules are omitted as inapplicable.
(b) Exhibits:
---------
1.1 Form of Dealer Manager Agreement(1)
1.1(A) Form of Dealer Manager Agreement(4)
1.1(B) Dealer Manager Agreement dated as of April 18, 1995(5)
1.2 Form of Soliciting Dealer Agreement(1)
1.2(A) Form of Soliciting Dealer Agreement(4)
3.1 Certificate of Trust(1)
3.1(A) Certificate of Amendment of Certificate of Trust(4)
3.1(B) Certificate of Trust and Certificate of Amendment of Certificate of
Trust(5)
3.2,4 Form of Amended and Restated Business Trust Agreement (included in
the Prospectus)
3.2,4(A) Second Amended and Restated Business Trust Agreement (included in
the Prospectus and Supplement No. 3 to the Prospectus)
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler as to the
legality of the securities being registered, including consent(2)
5.2 Opinion of Prickett, Jones, Elliott, Kristol & Schnee as to certain
matters of Delaware law, including consent(2)
8.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler as to tax
matters, including consent(1)
8.1(A) Opinion of Kaye, Scholer, Fierman, Hays & Handler as to tax
matters, including consent(4)
10.1 Escrow Agreement(2)
10.2 Fee Agreement(2)
23.1 Consent of KPMG Peat Marwick LLP(1)
23.1(A) Consent of KPMG Peat Marwick LLP (2)
II-3
<PAGE>
23.1(B) Consent of KPMG Peat Marwick LLP(3)
23.1(C) Consent of KPMG Peat Marwick LLP(4)
23.1(D) Consent of KPMG Peat Marwick LLP(5)
23.1(E) Consent of KPMG Peat Marwick LLP(6)
(re: Trust financials)
23.1(F) Consent of KPMG Peat Marwick LLP(6)
(re: Manager financials)
23.1(G) Consent of KPMG Peat Marwick LLP(7)
(re: Trust financials)
23.1(H) Consent of KPMG Peat Marwick LLP(7)
(re: Manager financials)
23.1(I) Consent of KPMG Peat Marwick LLP*
(re: Trust financials)
23.1(J) Cosent of KPMG Peat Marwick LLP*
(re: Manager financials)
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler (included in
Exhibits 5.1 and 8.1) (1,2,4)
23.3 Consent of Prickett, Jones, Elliott, Kristol & Schnee (included in
Exhibit 5.2)(4)
23.4 Consent of Reznick Fedder & Silverman(6)
23.4(A) Consent of Reznick Fedder & Silverman(7)
23.4(B) Consent of Reznick Fedder & Silvermann*
23.5 Consent of Grant Thornton LLP*
24.1 Power of Attorney (included on signature page)(2)
99.1 Table VI (Acquisition of Properties by Program) to Prior
Performance Tables included as Appendix I to the Prospectus, as
supplemented(7)
- ----------
1 Previously filed as an Exhibit to Registrant's Registration Statement No.
33-73688 on Form S-11 as filed on December 30, 1993 (the "Registration
Statement").
2 Previously filed as an Exhibit to Pre-Effective Amendment No. 1 dated August
23, 1994 to the Registration Statement.
II-4
<PAGE>
3 Previously filed as an Exhibit to Pre-Effective Amendment No. 2 dated
September 28, 1994 to the Registration Statement.
4 Previously filed as an Exhibit to Pre-Effective Amendment No. 3 dated
October 14, 1994 to the Registration Statement.
5 Previously filed as an Exhibit to Post-Effective Amendment No. 1 dated July
18, 1995 to the Registration Statement.
6 Previously filed as an Exhibit to Post-Effective Amendment No. 2 dated
October 18, 1995 to the Registration Statement.
7 Previously filed as an Exhibit to Post-Effective Amendment No. 3 dated April
30, 1996 to the Registration Statement.
* Filed herewith.
Item 36 Undertakings
- ------- ------------
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendments are filed;
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
II-5
<PAGE>
(5) To send to each Shareholder at least on an annual basis a detailed
statement of any transactions with the Manager or its Affiliates, and of fees,
commissions, compensation and other benefits paid or accrued to the Manager
or its Affiliates for the fiscal year completed, showing the amount paid
or accrued to each recipient and the services performed;
(6) To provide to the Shareholders the financial statements required by
Form 10-K for the first full year of operations of the Company;
(7) To file a sticker supplement pursuant to Rule 424(c) under the
Securities Act of 1933 during the distribution period describing each First
Mortgage Bond not identified in the prospectus at such time as there arises a
reasonable probability that such First Mortgage Bond will be acquired and to
consolidate all such stickers into a post-effective amendment filed at least
once every three months, with the information contained in such amendment
provided simultaneously to the existing Shareholders. Each sticker supplement
should disclose all compensation and fees received by the Manager and its
Affiliates in connection with any such acquisition. The post-effective
amendment shall include, where appropriate, audited financial statements
meeting the requirements of Rule 3-14 of Regulation S-X only for First Mortgage
Bonds acquired during the distribution period; and
(8) To file, after the end of the distribution period, a current report on
Form 8-K containing the financial statements and any additional information
required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the
signing of a binding purchase agreement) made after the end of the distribution
period involving the use of 10 percent or more (on a cumulative basis) of the
net proceeds of the offering and to provide the information contained in such
report to the Shareholders at least once each quarter after the distribution
period of the offering has ended.
(9) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Manager, the Trustee and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by the Manager, the Trustee or a controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 4 to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of New York, state
of New York on the __ day of August, 1996.
AMERICAN TAX-EXEMPT BOND TRUST
By: RELATED AMI ASSOCIATES, INC.,
Manager
By: /s/ Stuart J. Boesky
-----------------------------
Stuart J. Boesky,
Director and Senior
Vice President
S-1
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ J. Michael Fried Director and President (Principal August __, 1996
- ----------------------- Executive Officer) of the
J. Michael Fried Manager
/s/ Stuart J. Boesky Director and Senior Vice August __, 1996
- ----------------------- President of the Manager
Stuart J. Boesky
/s/ Alan P. Hirmes Senior Vice President (Principal August __, 1996
- ----------------------- Financial Officer) of the
Alan P. Hirmes Manager
* Treasurer (Principal Accounting August __, 1996
- ----------------------- Officer) of the Manager
Lawrence J. Lipton
*By: /s/Stuart J. Boesky
---------------------------------
Stuart J. Boesky, Attorney-in-Fact
S-2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Sequential Page No.
- ----------- ----------- -------------------
23.1(I) Consent of KPMG Peat Marwick LLP
(re: Trust financials)
23.1(J) Consent of KPMG Peat Marwick LLP
(re: Manager financials)
23.4(B) Consent of Reznick Fedder & Silverman
23.5 Consent of Grant Thornton LLP
Exhibit 23.1(I)
The Manager of
American Tax-Exempt Bond Trust:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
New York, New York
August 8, 1996
Exhibit 23.1(J)
The Board of Directors
Related AMI Associates, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
New York, New York
August 8, 1996
Exhibit 23.4(B)
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
The Manager
American Tax-Exempt Bond Trust
We consent to the use of our reports dated January 26, 1996 accompanying the
Financial Statements for the year ended December 31, 1995 of Casselberry-Oxford
Associates Limited Partnership, contained in Supplement No. 5, as part of the
Post-Effective Amendment No. 4 to the Registration Statement of Form S-11 of
American Tax-Exempt Bond Trust.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
August 7, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated July 16, 1996, accompanying the historical
summary of gross income and direct operating expenses of Rolling Ridge
Apartments contained in the prospectus supplement of American Tax Exempt Bond
Trust. We consent to the use of the aforementioned report in the prospectus
supplement.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
Irvine, California
August 8, 1996
