SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number 0-28340
AMERICAN TAX-EXEMPT BOND TRUST
(Exact names of registrant as specified in its governing instrument)
Delaware 13-7033312
- - ---------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
---
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 971,082 $ 3,314,564
Accrued interest receivable 116,620 35,260
Marketable securities 6,700,000 2,550,000
Investment in First Mortgage Bonds (Note 2) 16,044,010 10,943,182
Investment in Tax-Exempt Securities (Note 3) 0 203,958
Deferred costs 249,723 224,056
Organization costs (net of accumulated amortization
of $15,000 and $7,500, respectively) 35,000 42,500
Other assets 0 72,220
------------ ------------
Total assets $24,116,435 $17,385,740
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 315,249 $ 131,917
Accounts payable 30,328 42,553
------------ ------------
Total liabilities 345,577 174,470
------------ ------------
Shareholders' equity:
Beneficial owner's equity-manager (5,000) (186)
Beneficial owners' equity-shareholders 23,775,858 17,211,456
------------ ------------
Total shareholders' equity 23,770,858 17,211,270
------------ ------------
Total liabilities and shareholders' equity $24,116,435 $17,385,740
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1996 1995 1996 1995
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Interest income:
First Mortgage Bonds (Note 2) $ 307,761 $ 0 $ 782,855 $ 0
Tax-Exempt Securities (Note 3) 0 968 2,054 2,090
Marketable securities 60,613 89,209 184,341 109,510
---------- ----------- --------- ---------
Total revenues 368,374 90,177 969,250 111,600
---------- ----------- --------- ---------
Expenses:
General and administrative 23,570 11,075 50,047 41,864
General and administrative-
related parties (Note 4) 51,612 37,685 120,282 52,229
Loan servicing fees 28,127 0 28,127 0
Amortization of organization costs 2,500 2,500 7,500 5,000
---------- ----------- --------- ---------
Total expenses 105,809 51,260 205,956 99,093
---------- ----------- --------- ---------
Net income $ 262,565 $ 38,917 $ 763,294 $ 12,507
========== =========== ========= =========
Allocation of net income
Shareholders 246,698 38,528 715,937 12,382
Manager 2,492 389 7,232 125
Special distributions to
Manager (Note 4) 13,375 0 40,125 0
---------- ----------- --------- ---------
Net income $ 262,565 $ 38,917 $ 763,294 $ 12,507
========== =========== ========= =========
Net income per weighted
average share-shareholders $ .21 $ .06 $ .65 $ .05
========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Beneficial Beneficial
Owners' Equity- Owner's Equity-
Total Shareholders Manager
----------- -------------- --------------
<S> <C> <C> <C>
Balance at
January 1, 1996 $17,211,270 $17,211,456 $ (186)
Issuance of shares of
beneficial ownership
interest 7,649,070 7,649,070 0
Offering costs (608,041) (608,041) 0
Net income 763,294 715,937 47,357
Distributions (1,244,735) (1,192,564) (52,171)
----------- ----------- ---------
Balance at
September 30, 1996 $23,770,858 $23,775,858 $ (5,000)
=========== =========== =========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995*
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 763,294 $ 12,507
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization expense-organization costs 7,500 5,000
Amortization expense-loan origination costs 23,361 0
Amortization of REMIC premium 3,958 2,295
Changes in operating assets and liabilities:
Decrease in other assets 72,220 0
Increase in accrued interest receivable (81,360) (10,454)
Increase in due to affiliates 193,678 60,905
----------- -----------
Total adjustments 219,357 57,746
----------- -----------
Net cash provided by operating activities 982,651 70,253
----------- -----------
Cash flows used in investing activities:
Purchase of First Mortgage Bonds (4,925,000) 0
Increase in marketable securities (4,150,000) 0
Purchase of Tax-Exempt Securities 0 (402,494)
Maturity of Tax-Exempt Securities 200,000 200,000
----------- -----------
Net cash used in investing activities (8,875,000) (202,494)
----------- -----------
Cash flows provided by financing activities:
Decrease in accounts payable (12,225) (413,119)
Decrease in due to affiliates (10,346) (310,381)
Increase in deferred costs (224,856) (296,797)
Proceeds from issuance of shares of beneficial interest 7,649,070 14,419,071
Distributions to shareholders (1,244,735) (83,540)
Increase in offering costs (608,041) (390,437)
----------- -----------
Net cash provided by financing activities 5,548,867 12,924,797
----------- -----------
Net (decrease) increase in cash and cash equivalents (2,343,482) 12,792,556
Cash and cash equivalents at beginning of period 3,314,564 1,000
----------- -----------
Cash and cash equivalents at end of period $ 971,082 $12,793,556
=========== ===========
Supplemental schedule of non cash financial activities:
Increase in offering costs $ 0 $ (709,387)
Decrease in deferred costs 199,189 709,387
Increase in investment in First Mortgage Bonds (199,189) 0
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
* Reclassified for comparative purposes
See accompanying notes to financial statements
-5-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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 ("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 (the
"Offering") through Related Equities Corporation (the "Dealer Manager"), 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. The Offering terminated as of October 15, 1996.
As of September 30, 1996 and December 31, 1995, a total of 1,321,518 and 938,946
shares have been sold to the public through the Offering or the Trust's dividend
reinvestment plan (the "Reinvestment Plan") representing Gross Proceeds (the
"Gross Proceeds") of $26,430,366 and $18,778,912 (before volume discounts of
$4,244 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 September 30, 1996, 31.78% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of September 30, 1996, of the total net proceeds available for
investment, 2.50% had been invested in Tax-Exempt Securities and 65.72% 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
-6-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General (continued)
Mortgage Bonds that are, or prior to restructuring 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 Form 10-K/A-1
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 September 30, 1996, the results of operations for
the three and nine months ended September 30, 1996 and 1995 and its cash flows
for the nine months ended September 30, 1996 and 1995. However, the operating
results for the nine months ended September 30, 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/A-1 for the year ended December 31, 1995.
NOTE 2 - Investment in First Mortgage Bonds
Reflections Apartments
----------------------
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
-7-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - Investment in First Mortgage bonds (continued)
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.
Rolling Ridge Apartments
- - ------------------------
On August 2, 1996, the Trust purchased tax-exempt First Mortgage
Bonds (as hereinafter referred to as, 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").
The Rolling Ridge 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 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 Trust has been informed that, as of the date
hereof, the Borrower is current with respect to all payments of principal and
interest.
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
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.
There was no unrealized gain or loss on the Investment in First
Mortgage Bonds at September 30, 1996 and December 31, 1995.
-8-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds for the
nine months ended September 30, 1996 is as follows:
Investment in First Mortgage Bonds-January 1, 1996 $10,943,182
Additions:
Rolling Ridge Bonds 4,925,000
Rolling Ridge Bonds-loan Origination costs 168,283
Reflections Bonds-loan origination costs 30,906
Deductions:
Amortization of loan origination costs (23,361)
-----------
Investment in First Mortgage Bonds-September 30, 1996 $16,044,010
===========
-9-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds as
of September 30 1996 is as follows:
<TABLE>
<CAPTION>
Outstanding
Loan Accumulated
Balance Loan Armortization
Date of Investment/ at September Origination at Septmember
Property Description Final Maturity Date 30, 1996 Costs 30, 1996
- - -------- ----------- ------------------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
Reflections Bonds
Casselbury,
Florida (A) 336 Apartment 12/95 - 12/25 $10,700,000 $274,088 $20,557
Units
Rolling Ridge
Bonds
Chino Hills,
California (B) 110 Apartment 8/96-8/26 4,925,000 168,283 2,804
Units ----------- -------- -------
$15,625,000 $442,371 $23,361
=========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Final Final
Balance Balance Interest Earned Less Net Interest
at September At December by the Trust 1996 Earned
Property 30, 1996 31, 1995 for 1996 Amortization for 1996
- - -------- -------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Reflections Bonds
Casselbury,
Florida (A) $10,953,531 $10,943,182 $733,353 $20,557 $712,796
Rolling Ridge
Bonds
Chino Hills,
California (B) 5,090,479 0 72,863 2,804 70,059
----------- ----------- -------- ------- ------
$16,044,010 $10,943,182 $806,216 $23,361 $782,855
=========== =========== ======== ======= -=======
</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.
(B) The interest rates for the Rolling Ridge are 9.00%. In addition to the
interest rate the Trust will be entitled to 30% of the cash flow, as
defined.
-10-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
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 nine months ended September 30, 1996 is as follows:
Investment in Tax-Exempt Securities - January 1, 1996 $ 203,958
Sales:
Maturity of Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond (200,000)
Amortization of premium (3,958)
----------
Investment in Tax-Exempt Securities - September 30, 1996 $ 0
==========
-11-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 3 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities as of
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Original
Purchase Final Final Interest Net
Stated Final Price Balance at Balance at Earned by Interest
Date Interest Payment Including September December the Trust 1996 Earned
Seller Purchased Rate Date Premium 30, 1996 31, 1995 for 1996 Amortization for 1996
- - ------ --------- -------- --------- ------- --------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Smith Barney 5/3/95 9.25% 8/1/95 $202,248 $ 0 $ 0 $ 0 $ 0 $ 0
Smith Barney 9/19/95 4.40% 11/15/95 200,246 0 0 0 0 0
Wheat First 12/12/95 8.25% 2/15/96 205,592 0 203,958 6,012 3,958 2,054
-------- -------- -------- ------ ------ ------
$608,086 $ 0 $203,958 $6,012 $3,958 $2,054
======== ======== ======== ====== ====== ======
</TABLE>
-12-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
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 September 30, 1996 and 1995 and $40,125 and $0 for
the nine months ended September 30, 1996 and 1995, respectively; (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 $51,612 and $37,685
for the three months ended September 30, 1996 and 1995 and $120,282 and $52,229
for the nine months ended September 30, 1996 and 1995, respectively; (v)
acquisition expense allowance and bond selection fees calculated on a percentage
of the Gross Proceeds applicable to the First Mortgage Bonds. As of September
30, 1996 and December 31, 1995 $528,607 and $375,578 of such costs have been
incurred of which $355,114 and $243,182 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 September 30, 1996 and December 31,
1995 offering costs totaled $610,760 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 September 30, 1996 and December 31, 1995, the
Company paid $1,445,494 and $1,028,740 of commissions and due diligence to
unaffiliated broker-dealers.
NOTE 5 - Subsequent Events
The Trust has received an additional $2,789,220 of Gross Proceeds
representing 139,461 shares for the period October 1, 1996 to October 15 , 1996.
On November 14, 1996, distributions of $484,715 and $4,896 will be
paid to the Shareholders and the Manager, respectively, representing the 1996
third quarter distribution.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
- - -------------------------------
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. The Offering terminated as of October
15, 1996. As of September 30, 1996, the Trust had received $26,430,366 (before
volume discounts of $4,244) in Gross Proceeds from the sale of 1,313,925 shares
pursuant to the Offering and 7,593 shares through the Reinvestment Plan
resulting in Net Proceeds available for investment of approximately $24,315,937
after volume discounts, payments of sales commissions and organization and
offering expenses. For the period October 1, 1996 to October 15, 1996, a total
of approximately 139,461 additional shares were sold through the Offering
representing Gross Proceeds of $2,789,220.
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 nine to eight
years. As of September 30, 1996, 31.78% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of September 30, 1996, of the total net proceeds available for
investment, 2.50% had been invested in Tax-Exempt Securities and 65.72% 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 and are secured by a first
mortgage and mortgage loan on Reflections Apartments ("Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida. On
February 15, 1996 the Philadelphia Penn Refunding General Obligation Tax-Exempt
Bond matured. On August 2, 1996, the Trust purchased tax-exempt First Mortgage
Bonds (the "Rolling Ridge Bonds") in an aggregate principal amount of
$4,925,000. The Rolling Ridge Bonds were issued by San Bernardino County and
secured by a deed of trust on Rolling Ridge Apartments ("Rolling Ridge"), a
development consisting of 110 apartment units in Chino Hills, California.
During the nine months ended September 30, 1996, cash and cash
equivalents decreased approximately $2,343,000 primarily as a result of proceeds
from the issuance of shares of beneficial interest ($7,649,000), the maturity of
one Tax-Exempt Security ($200,000) and cash provided by operating activities
($983,000) which exceeded distributions to shareholders ($1,245,000), an
increase in offering costs ($608,000), an increase in deferred cost ($225,000),
an increase in marketable securities ($4,150,000), and the purchase of a First
Mortgage Bond ($4,925,000). Included in the adjustments to reconcile the net
income to cash flow from operations is amortization in the amount of
approximately $35,000.
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 $264,304 at September 30, 1996), an amount which is anticipated to be
-14-
<PAGE>
sufficient to satisfy liquidity requirements, and may add to such reserves from
Cash Flow, Sale or Repayment Proceeds and uninvested Net Proceeds. As of
September 30, 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 of other creditors) will be sufficient
to meet the required debt service payments to the Trust with respect to the
First Mortgage Bonds for the foreseeable future.
Distribution Policy
- - -------------------
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 nine 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.
Of the total distributions of $1,244,735 and $83,540 made for the
nine months ended September 30, 1996 and 1995, $481,441 ($.36 per share or 39%)
and $71,033 ($.11 per share or 85%) represents a return of capital determined in
accordance with generally accepted accounting principles. As of September 30,
1996, the aggregate amount of the distributions made since the commencement of
the Offering representing a return of capital, in accordance with generally
accepted accounting principles, totaled $600,010 ($.45 per share or 39%). 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.
Results of Operations
- - ---------------------
The results of operations for the three and nine months ended
September 30, 1996 consisted primarily of interest income earned on First
Mortgage Bonds and marketable securities, net of general and administrative and
loan servicing fees. The results of operations for the three and nine months
ended September 30, 1995 consisted primarily of interest income earned on
marketable securities, net of general and administrative expenses. Results of
operations are not comparable and are not reflective of future operations of the
Trust due to the continued utilization of the net proceeds of the Offering to
invest in First Mortgage Bonds and Tax-Exempt Securities. In addition interest
income from marketable securities will decrease in future periods since a
substantial portion of the proceeds from the Offering will be invested in First
Mortgage Bonds and Tax Exempt Securities.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) 3. Exhibits
3(a) Certificate of Trust and Certificate of Amendment of
Certificate of Trust (incorporated by reference to Exhibit
3(a) to the Registration Statement on Form S-11, File
No. 33-73688).
3(b),4 Second Amended and Restated Business Trust (incorporated by
reference to Exhibit 3(b), 4 to the Registration Statement on
Form S-11, File No. 33-73688)
10(a) Escrow Agreement (incorporated by reference to Exhibit 10(a)
to the Registration Statement on Form S-11, File No. 33-73688).
10(b) Fee Agreement (incorporated by reference to Exhibit 10 (b) to
the Registration Statement on Form S-11, File No. 33-73688).
10(c) Orange County Housing Finance Authority Multifamily
Revenue Refunding Bonds 1995 Series (Casselberry-Oxford
Associates Project) in the principal amount of $10,700,000
dated December 1, 1995 (incorporated by reference to
Report of Form 8-K, as previously filed on December 21,
1995)
27 Financial Data Schedule (filed herewith)
(b) No current reports on Form 8-K have been filed during the quarter
ended September 30, 1996.
-16-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN TAX-EXEMPT BOND TRUST
(Registrant)
By: RELATED AMI ASSOCIATES, INC., as Manager
Date: November 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Senior Vice President and
Principal Financial Officer
Date: November 13, 1996 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer and
Principal Accounting Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information
extracted from the financial statements for American
Tax-Exempt Bond Trust and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<CIK> 0000916824
<NAME> American Tax-Exempt Bond Trust
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 971,082
<SECURITIES> 22,744,010
<RECEIVABLES> 401,343
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,116,435
<CURRENT-LIABILITIES> 345,577
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,770,858
<TOTAL-LIABILITY-AND-EQUITY> 24,116,435
<SALES> 0
<TOTAL-REVENUES> 969,250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 205,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 763,294
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763,294
<EPS-PRIMARY> .65
<EPS-DILUTED> 0
</TABLE>
