SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-73688
AMERICAN TAX-EXEMPT BOND TRUST
(Exact name of registrant as specified in its governing instrument)
Delaware 13-7033312
(State or other jurisdiction o (I.R.S. Employer
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated November 1, 1994, as filed with the
Commission pursuant to Rule 424(b) of the Securities Act of 1933, but only to
the extent expressly incorporated by reference in Parts I, II, III and IV.
Index to exhibits may be found on page 33
Page 1 of 61
<PAGE>
PART I
Item 1. Business.
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. The Manager to the Trust is Related AMI Associates, Inc., a
Delaware corporation ("Related AMI" or the "Manager"). The Manager manages the
day to day affairs of the Trust pursuant to the Second Amended and Restated
Business Trust Agreement (the "Trust Agreement"), dated as of September 27,
1994, among Related AMI, as grantor, Related AMI, as Manager, Wilmington Trust
Company, a Delaware banking corporation, as trustee, and the other persons
referred to herein to be holders of beneficial interests in the Trust. See Item
10, Directors and Executive Officers of the Registrant, below.
On November 1, 1994, the Trust commenced a public offering (the
"Offering") of its shares of beneficial interest, managed by Related Equities
Corporation (the "Dealer Manager"), pursuant to a prospectus dated November 1,
1994. The Offering terminated as of October 15, 1996. As of December 31, 1996, a
total of 1,453,386 shares have been sold through the Offering and 7,593 through
the reinvestment plan (the "Reinvestment Plan"), representing Gross Proceeds
(the "Gross Proceeds") of $29,219,586 (before volume discounts of $4,244). Net
proceeds from sales pursuant to the Reinvestment Plan are required to be used
first to redeem shares under the Trust's redemption plan (the "Redemption Plan")
and any remaining proceeds may be used for additional investments or working
capital reserves.
Pursuant to the Redemption Plan which became effective October 15,
1996, the Trust is required to redeem eligible shares presented for redemption
for cash to the extent it has sufficient net proceeds from the sale of shares
under the Reinvestment Plan. After October 15, 1996, 2,541 shares were sold
through the Reinvestment Plan, the proceeds of which are restricted for use in
connection with the Redemption Plan and are not included in gross proceeds.
The Trust's principal investment objectives are to: (i) preserve
and protect the Trust's invested capital; (ii) provide quarterly distributions
that are exempt from Federal income taxation; and (iii) provide additional
distributions in connection with First Mortgage Bond investments from contingent
interest payments exempt from Federal income taxation. There can be no assurance
that such objectives will be achieved.
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 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 securities, the income from
which is exempt from federal income taxation ("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.
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<PAGE>
As of December 31, 1996, of the total Net Proceeds available for
investment, 2.26% had been invested in Tax-Exempt Securities and 59.92% in First
Mortgage Bonds. As of December 31, 1996, 37.82% of the total net proceeds
available for investment had not yet been invested in First Mortgage Bonds or
Tax-Exempt Securities. 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
termination of the Offering 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 Mortage Bonds and Tax-Exempt Securities.
First Mortgage Bonds
As of December 31, 1996, the Trust has made the following
investment in First Mortgage Bonds:
Reflections Bonds
On December 21, 1995 American Tax-Exempt Bond Trust (the "Trust")
completed the amendment of the bond indenture for the $10,700,000 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 (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, which is not affiliated with
the Manager or Related Capital Company.
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.
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
4% 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 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").
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<PAGE>
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 will be payable out
of (i) 30% of net property cash flow after payment of current interest 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. 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.
Potential Aquisitions
Lexington Trails Apartments
On January 31, 1997, the Trust executed a letter of intent to
purchase tax-exempt First Mortgage Bonds (as hereinafter referred to as the
"Lexington Trails Bonds") in an approximate aggregate principal amount of
$5,000,000. The Lexington Trails Bonds are expected to be issued by The Harris
County Housing Finance Corporation and secured by a first mortgage and mortgage
loan on Lexington Trails Apartments (the "Project" or "Lexington Trails"), a
development consisting of 200 apartment units in Houston, Texas. Lexington
Trails will be owned and operated by Lexington Trails-American Housing
Foundation, Inc.
As of February 18, 1997, the letter of intent remains outstanding
and the Manager is still continuing its due diligence review of the Project.
There is no assurance, the Trust will ultimately consummate this proposed
investment or that the terms of the investment as described herein may not
change.
The Lexington Trails Bonds that will be used to acquire the
Project will be structured to meet the Trust's investment criteria and are
expected to bear a fixed current interest rate of 9.0%, payable monthly in
arrears.
The Trust expects that the principal of the Lexington Trails 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 Lexington Trails 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 Lexington Trails 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 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 hereof and the actual investment.
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<PAGE>
Anticipated Terms of Future First Mortgage Bonds
The First Mortgage Bonds to be acquired by the Trust are expected
to 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 4% 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 continue 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 was 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.
Tax-Exempt Securities
As of and for the year ended December 31, 1996, the Trust has made
the following investments in Tax-Exempt Securities, all of which have matured:
<TABLE>
<CAPTION>
Stated Final Purchase Price Principal Balance at
Date Interest Payment ----------------------- 12/31/96 Including
Seller Purchased Rate Date % Amount Premium/(Disc)
- - ------ --------- ---- ---- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Smith Barney 5/3/95 9.25% 8/1/95 101.124% $ 202,248 $ 0
Smith Barney 9/19/95 4.40% 11/15/95 100.123% 200,246 0
Wheat First 12/12/95 8.25% 2/15/96 102.796% 205,592 0
--------- ---
$ 608,086 $ 0
========= ===
</TABLE>
Competition
The Trust's business is affected by competition to the extent that
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. The
Registrant's business is also affected by competition to the extent that the
underlying Properties from which it derives interest and ultimately, principal
payments, may be subject to competition relating to rental rates and amenities
from comparable neighboring properties.
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<PAGE>
Employees
The Trust does not directly employ anyone. All services are
performed for the Trust by the Manager and its Affiliates. The Manager receives
compensation in connection with such activities as set forth in Items 11 and 13.
In addition, the Trust reimburses the Manager and certain of its Affiliates for
expenses incurred in connection with the performance by their employees of
services for the Trust in accordance with the Trust Agreement.
Item 2. Properties.
The Trust does not own or lease any property.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Shareholders.
None.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The Offering terminated as of October 15, 1996. As of December 31,
1996, a total of 1,460,979 shares have been sold to the public, either through
the Offering or the Trust's dividend reinvestment plan (the "Reinvestment
Plan"), representing Gross Proceeds of $29,219,586 (before volume discounts of
$4,244). Pursuant to the Redemption Plan which became effective October 15,
1996, the Trust is required to redeem eligible shares presented for redemption
for cash to the extent it has sufficient net proceeds from the sale of shares
under the Reinvestment Plan. After October 15, 1996, 2,541 shares were sold
through the Reinvestment Plan, the proceeds of which are restricted for use in
connection with the Redemption Plan and are not included in gross proceeds. As
of December 31, 1996, no eligible shares were redeemed.
The number of shareholders as of December 31, 1996 was 1,229.
Although the shares are freely transferable, shareholders may not be able to
liquidate their investment because 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. Consequently, the purchase of shares should be
considered only as a long-term investment.
Reinvestment Plan
A Reinvestment Plan is available which enables shareholders to
have their distributions from the Trust invested in shares of the Trust, or
fractions thereof. The Reinvestment Plan commenced on November 1, 1994, the date
the Trust commenced the Offering. 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.
During the offering period, the price per share purchased pursuant
to the Reinvestment Plan was $20. From October 15, 1996, (the termination of the
offering period) until October 15, 1999, (the third anniversary of the final
closing date), the price per share purchased pursuant to the Reinvestment Plan
will equal $19. Thereafter, the price per share purchased pursuant to the
Reinvestment Plan will be the greater of $20 (the public offering price) or 95%
of the then fair market value of such share (as determined by the Manager).
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.
Experience under the Reinvestment Plan may indicate that changes
are desirable. The Reinvestment Plan gives the Manager broad powers to modify,
consolidate or cancel the Trust's Reinvestment Plan upon notice but without
consent of shareholders.
Redemption Plan
The Trust's Redemption Plan became effective October 15, 1996.
Under the Redemption Plan any shareholder, including the Manager or any of its
Affiliates, who acquired or received shares directly from the Trust or the
Reinvestment Plan (such shares, for so long as owned by the original holder, are
called "Eligible Shares") may present such Eligible Shares to the Trust for
redemption (the "Redemption Plan"). 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 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.
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<PAGE>
Upon presentment of Eligible Shares to the Trust for redemption,
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.
Distribution Information
Cash distributions for the years ended December 31, 1996 and 1995
were as set forth in the following table:
Cash Distribution Total Amount
for Quarter Ended Date Paid Minimum Maximum Distributed
----------------- --------- ------- ------- -----------
March 31, 1996 5/15/96 $ .0667 $ .4000 $ 410,056
June 30, 1996 8/14/96 .3333 .4000 448,917
September 30, 1996 11/14/96 .0667 .4000 484,715
December 31, 1996 2/14/97 .2533 .4000 585,037
----- ----- -------
Total for 1996 $ .7200 $1.6000 $1,928,725
======= ======= ==========
June 30, 1995 8/14/95 $ .0667 $ .3333 $ 82,704
September 30, 1995 11/14/95 .0667 .4000 259,544
December 31, 1995 2/14/96 .0667 .4000 333,590
----- ----- -------
Total for 1995 $0.2001 $1.1333 $ 675,838
======= ======= ==========
Quarterly distributions were made 45 days following the close of
the calendar quarter and were funded from cash provided from earnings through
approximately the distribution dates and proceeds from the maturity of
investments. Amounts received by shareholders varied depending on the dates they
became shareholders.
The Trust's Offering commenced November 1, 1994, and its first
closing on the sales of shares occurred on April 27, 1995. Accordingly, there
were no distributions for the quarter ended March 31, 1995.
There are no material legal restrictions on the Trust's present or
future ability to make distributions in accordance with the provisions of the
Trust Agreement.
The Trust has adopted a policy of attempting to maintain stable
distributions to shareholders during the offering and acquisition stages of the
Trust. In order to accomplish this result, it 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 $1,753,876 and $346,455 made for the
years ended December 31, 1996 and 1995, $616,427 ($.42 per share or 35%) and
$118,569 ($.13 per share or 34%) represents a return of capital
-8-
<PAGE>
determined in accordance with generally accepted accounting principles. As of
December 31, 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 $734,996. The portion of
the distributions which constitutes a return of capital may be significant
during the acquisition stage in order to maintain level distributions to
shareholders.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data
of the Trust. Additional financial information is set forth in the audited
financial statements and notes thereto contained in Item 8 hereof.
OPERATIONS* Years Ended December 31,
----------- -----------------------------
1996 1995
-------------- --------------
Interest income:
First Mortgage Bonds $ 1,127,980 $ 226,972
Tax-Exempt Securities 2,054 2,160
Marketable Securities 262,381 147,647
-------------- --------------
Total revenues 1,392,415 376,779
Total expenses 254,966 148,893
-------------- --------------
Net income $ 1,137,449 $ 227,886
============== ==============
Net income per weighted average
share-Shareholders $ 0.95 $ 0.57
============== ==============
Distribution per share** $0.7200-1.6000 $0.2001-1.1333
============== ==============
December 31,
------------------------------------
1996 1995 1994
----------- ----------- --------
FINANCIAL POSITION
Total Assets $26,681,549 $17,385,740 $771,890
=========== =========== ========
Total Liabilities $ 320,858 $ 174,470 $770,890
=========== =========== ========
Total Shareholders' Equity $26,360,691 $17,211,270 $ 1,000
=========== =========== ========
- - ----------
* The Trust had no operations in 1994.
** Amounts received by shareholders varied depending on the dates they became
shareholders.
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<PAGE>
Item 7. 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. As of October 15, 1996, (the
termination date of the Offering), the Trust had received $29,219,586 (before
volume discounts of $4,244) in Gross Proceeds from the sale of 1,453,386 shares
pursuant to the Offering and 7,593 shares through the Reinvestment Plan
resulting in Net Proceeds available for investment of approximately $26,882,019
after volume discounts, payments of sales commissions and organization and
offering expenses. Pursuant to the Redemption Plan which became effective
October 15, 1996, the Trust is required to redeem eligible shares presented for
redemption for cash to the extent it has sufficient net proceeds from the sale
of shares under the Reinvestment Plan. After the effective date, 2,541 shares
were sold through the Reinvestment Plan, the proceeds of which are restricted
for use in connection with the Redemption Plan and are not included in gross
proceeds. As of December 31, 1996, no eligible shares were redeemed.
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 December 31, 1996, 37.82% 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, 1996, of the total net proceeds available for
investment, 2.26% had been invested in Tax-Exempt Securities and 59.92% 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 Bernadino 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.
For a description of each of the Trust's investments see Item 1.
Business.
During the year ended December 31, 1996, cash and cash equivalents
decreased approximately $2,478,000 primarily as a result of distributions to
shareholders ($1,754,000), an increase in offering costs ($831,000), an increase
in deferred costs ($315,000), an increase in marketable securities ($6,650,000)
and the purchase of a First Mortage Bond ($4,925,000) which exceeded proceeds
from the issuance of shares of beneficial interest ($10,487,000), the maturity
-10-
<PAGE>
of one Tax-Exempt Security ($200,000) and cash provided by operating activities
($1,376,000). Included in the adjustments to reconcile the net income to cash
flow from operations is amortization in the amount of approximately $50,000.
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 $292,196 at December 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
December 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 intends to continue to invest the Net Proceeds in First
Mortgage Bonds and Tax Exempt Securities. The Trust expects that cash generated
from the Trust's investments will be sufficient to pay all of the Trust's
expenses in the forseeable future. However, certain expected reimbursements and
the payment of a portion of the special distribution to the Manager for the
years ended December 31, 1996 and 1995, have been accrued but are unpaid.
The Trust anticipates that cash generated from the operations of
the properties underlying investment in First Mortgage Bonds (taking into
account its preferred position relative to 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.
Results of Operations
The results of operations for the year ended December 31, 1996
consisted primarily of interest income earned on the First Mortgage Bonds and
marketable securities, net of general and administrative, general and
administrative-related parties and loan servicing fees. The results of
operations for the year ended December 31, 1995 consisted primarily of interest
income earned on the First Mortgage Bonds and marketable securities, net of
general and administrative expenses, general and administrative-related parties.
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.
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 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.
Of the total distributions of $1,753,876 and $346,455 made for the
years ended December 31, 1996 and 1995, $616,427 ($.42 per share or 35%) and
$118,569 ($.13 per share or 34%) represents a return of capital determined in
accordance with generally accepted accounting principles. As of December 31,
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 $734,996. The portion of
-11-
<PAGE>
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.
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.
-12-
<PAGE>
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data.
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report 14
Balance Sheets -December 31, 1996 and 1995 15
Statements of Income - Years ended December 31, 1996 and 1995 16
Statements of Changes in Shareholders' Equity - Years ended
December 31, 1996 and 1995 17
Statements of Cash Flows - Years ended December 31, 1996 and 1995 18
Notes to Financial Statements 19
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or
because the required information is contained in the Financial
Statements or notes thereto.
</TABLE>
-13-
<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, 1996 and 1995, and the related statements of income,
changes in shareholders' equity, and cash flows for the years then ended. 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, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick, LLP
--------------------------
KPMG Peat Marwick LLP
New York, New York
February 18, 1997
-14-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 836,779 $ 3,314,564
Marketable securities available for sale 9,200,000 2,550,000
Investment in First Mortgage Bonds-at fair value (Note 3) 16,180,828 10,943,182
Investment in Tax-Exempt Securities (Note 4) 0 203,958
Deferred costs 300,306 224,056
Organization costs (net of accumulated amortization
of $17,500 and $7,500, respectively) 32,500 42,500
Other assets 0 72,220
Accrued interest receivable 131,136 35,260
------------ ------------
Total assets $ 26,681,549 $ 17,385,740
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 291,451 $ 131,917
Accounts payable 29,407 42,553
------------ ------------
Total liabilities 320,858 174,470
Commitments (Note 6)
Shareholders' equity:
Beneficial owner's equity-manager (6,350) (186)
Beneficial owners' equity-shareholders (1,460,979 and 938,946
shares issued and outstanding in 1996 and 1995, respectively) 26,256,842 17,211,456
Net unrealized gain on First Mortgage Bonds (Note 3) 110,199 0
------------ ------------
Total shareholders' equity 26,360,691 17,211,270
------------ ------------
Total liabilities and shareholders' equity $ 26,681,549 $ 17,385,740
============ ============
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Interest income:
First Mortgage Bonds (Note 3) $ 1,127,980 $ 226,972
Tax-Exempt Securities (Note 4) 2,054 2,160
Marketable Securities 262,381 147,647
------------ ------------
Total revenues 1,392,415 376,779
------------ ------------
Expenses:
General and administrative 68,013 66,535
General and administrative-
related parties (Note 5) 139,007 74,858
Loan serving fees 37,946 0
Amortization of organization costs 10,000 7,500
------------ ------------
Total expenses 254,966 148,893
------------ ------------
Net income $ 1,137,449 $ 227,886
============ ============
Allocation of Net Income:
Shareholders $ 1,067,015 $ 224,865
Manager 10,778 2,271
Special distributions to Manager (Note 5) 59,656 750
------------ ------------
Net income $ 1,137,449 $ 227,886
============ ============
Net income per weighted
average share - shareholders $ 0 .95 $ 0 .57
============ ============
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Beneficial Beneficial Net Unrealized
Owners' Equity- Owner's Equity- Gain on First
Total Shareholders Manager Mortgage Bonds
------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
Balance at
January 1, 1995 $ 1,000 $ 0 $ 1,000 $ 0
Issuance of shares of
beneficial ownership
interest 18,777,052 18,777,052 0 0
Offering costs (1,448,213) (1,448,213) 0 0
Net income 227,886 224,865 3,021 0
Distributions (346,455) (342,248) (4,207) 0
------------ ------------ -------- ---------
Balance at
December 31, 1995 $ 17,211,270 $ 17,211,456 $ (186) 0
Issuance of shares of beneficial
ownership interest 10,486,576 10,486,576 0 0
Offering costs (830,927) (830,927) 0 0
Net income 1,137,449 1,067,015 70,434 0
Distributions (1,753,876) (1,677,278) (76,598) 0
Net unrealized gain on
First Mortgage Bonds 110,199 0 0 110,199
------------ ------------ -------- --------
Balance at December 31, 1996 $ 26,360,691 $ 26,256,842 $ (6,350) $110,199
============ ============ ======== ========
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,137,449 $ 227,886
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization expense-organization costs 10,000 7,500
Amortization expense- loan origination costs 36,059 0
Amortization of REMIC premium 3,958 4,128
Changes in operating assets and liabilities:
Decrease (increase) in other assets 72,220 (72,220)
Increase in accrued interest receivable (95,876) (35,260)
Increase in due to affiliates 211,729 86,140
------------ -------------
Total adjustments 238,090 (9,712)
------------ ------------
Net cash provided by (used in) operating activities 1,375,539 218,174
------------ ------------
Cash flows from investing activities:
Purchase of First Mortgage Bonds (4,925,000) (10,700,000)
Purchase of Marketable Securities (6,650,000) (2,550,000)
Maturity of Tax-Exempt Securities 200,000 400,000
Purchase of Tax-Exempt Securities 0 (608,086)
Increase in deferred costs (314,756) (455,735)
------------ ------------
Net cash used in investing activities (11,689,756) (13,913,821)
------------ ------------
Cash flows from financing activities:
Decrease in accounts payable (13,146) (370,678)
Decrease in due to affiliates (52,195) (311,882)
Proceeds from issuance of shares of beneficial interest 10,486,576 18,777,052
Distribution to shareholders (1,753,876) (346,455)
Increase in offering costs (830,927) (738,826)
------------ ------------
Net cash provided by financing activities 7,836,432 17,009,211
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,477,785) 3,313,564
Cash and cash equivalents at beginning of year 3,314,564 1,000
------------ ------------
Cash and cash equivalents at end of year $ 836,779 $ 3,314,564
============ ============
Supplemental schedule of non cash financial activities:
Increase in offering costs $ 0 $ (709,387)
Decrease in deferred costs 238,506 952,569
Increase in investment in first mortgage bonds (238,506) (243,182)
------------ ------------
$ 0 $ 0
============ ============
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 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 (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 December 31, 1996 and 1995, a total of 1,460,979 and 938,946 shares have
been sold to the public through the Offering and the Trust's dividend (the
"Reinvestment Plan") representing Gross Proceeds of $29,219,586 and $18,778,912
(before volume discounts of $4,244 and $1,860). Pursuant to the Redemption Plan
which became effective October 15, 1996, the Trust is required to redeem
eligible shares presented for redemption for cash to the extent it has
sufficient net proceeds from the sale of shares under the Reinvestment Plan.
After October 15, 1996, 2,541 shares were sold through the Reinvestment Plan,
the proceeds of which are restricted for use in connection with the Redemption
Plan and are not included in gross proceeds.
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 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, 1996, of the total net proceeds for
investment, 2.26% had been invested in Tax-Exempt Securities and 59.92% had been
invested in First Mortgage Bonds. As of December 31, 1996, 37.82% of the total
net proceeds available for investment had not yet been invested in First
Mortgage Bonds or Tax-Exempt Securities. 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 termination of the Offering 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.
The First Mortgage Bonds 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.
-19-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - General (continued)
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
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.
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
Included in cash and cash equivalents at December 31, 1996 is
restricted cash of $292,196 for working capital reserves. 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 amortized 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.
-20-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - Accounting Policies (continued)
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, 1996 and 1995 were 1,193,488 and 399,265
shares.
h) Investments in Marketable, Equity and Other Securities
The Trust follows 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, 1996 and 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.
Unrealized gains and losses reported in Shareholders' equity related to First
Mortgage Bonds. All other investments 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 all of its liabilities.
-21-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - Accounting Policies (continued)
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
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 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, which is not affiliated with
the Manager or Related Capital Company.
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.
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-exmpt 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 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").
-22-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - Investment First mortgage Bonds (continued)
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 Rolling Ridge Bonds have a term of 30 years and are subject to
mandatory redemtpion, 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
premitted 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 by1% 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 one-half of 1% of the outstanding principal amount will be due at the time
of assumption.
The cost basis of the First Mortgage Bonds was $16,070,629 and
$10,943,182 at December 31, 1996 and 1995. The net unrealized gain on First
Mortgage Bonds consists of gross unrealized gains and losses of $269,849 and
$159,650, respectively, at December 31, 1996. There was no unrealized gain or
loss on the Investment in First Mortgage Bonds as of December 31, 1995.
-23-
<PAGE>
Information relating to investments in First Mortgage Bonds for
the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Investments in First Mortgage Bonds - at fair value - January 1, 1995 $ 0
Additions:
Reflections Bonds 10,700,000
Reflections Bonds - loan origination costs 243,182
-----------
Investment in First Mortgage Bonds - at fair value - December 31, 1995 10,943,182
Additions:
Rolling Ridge Bonds 4,925,000
Rolling Ridge Bonds - loan origination costs 207,600
Reflections Bonds - loan origination costs 30,906
Deductions:
Amortization of loan origination costs (36,059)
-----------
Amortized cost at December 31, 1996: 16,070,629
Net unrealized gain on First Mortgage Bonds 110,199
-----------
Investment in First Mortgage Bonds - at fair value - December 31, 1996 $16,180,828
===========
</TABLE>
-24-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Outstanding
Date of Loan Accumulated Unrealized Final Final
Investment/ Balance Loan Amortization Gain (Loss) Balance Balance
Final at December Origination at December at December at December at December
Property Description Maturity Date 31, 1996 Costs 31, 1996 31, 1996 31, 1996 31, 1995
- - -------- ----------- ------------- -------- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reflections
Bonds
Casselbury,
Florida (A) 336 Apartment Units 12/95 - 12/25 $10,700,000 $ 274,088 $ 27,409 $ 269,849 $11,216,528 $10,943,182
Rolling Ridge
Bonds
Chino Hills,
California (B) 110 Apartment Units 8/96-8/26 4,925,000 207,600 8,650 (159,650) 4,964,300 0
----------- --------- -------- --------- ----------- -----------
$15,625,000 $ 481,688 $ 36,059 $ 110,199 $16,180,828 $10,943,182
=========== ========= ======== ========= =========== ===========
<CAPTION>
Interest Earned Net Interest
by the Trust Less 1996 Earned
for 1996 Amortization for 1996
-------- ------------ --------
<S> <C> <C> <C>
Reflections
Bonds
Casselbury,
Florida (A) $ 979,453 $27,409 $952,044
Rolling Ridge
Bonds
Chino Hills,
California (B) 184,586 8,650 175,936
---------- ------- ----------
$1,164,039 $36,059 $1,127,980
========== ======= ==========
</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.
-25-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
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 and matured on
February 15, 1996.
Information relating to investments in Tax-Exempt Securities for
the years ended December 31, 1996 and 1995:
Investment in Tax-Exempt Securities - January 1, 1995 $ 0
Purchases:
Topeka Kansas General Obligation Tax-Exempt Bond 202,248
New York State Environment 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)
---------
Investment in Tax-Exempt Securities - December 31, 1995 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- December 31, 1996 $ 0
=========
-26-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Original
Purchase Final Final Interest
Stated Final Price Balance at Balance at Earned by Net
Date Interest Payment Including December December the Trust 1996 Interest
Seller Purchased Rate Date Premium 31, 1996 31, 1995 for 1996 Amortization Earned
- - ------ --------- ---- ---- ------- -------- -------- -------- ------------ ------
<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>
-27-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
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
$59,656 and $750 for the years ended December 31, 1996 and 1995; the total
amount accrued and unpaid as of December 31, 1996 and 1995 amounted to $39,594
and $750, respectively (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 $139,007 and $74,858 for the years ended December 31, 1996
and 1995; the total amount accrued and unpaid as of December 31, 1996 and 1995,
amounted to $211,141 and $74,858, 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 December 31, 1996 and
1995, $584,392 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 December 31, 1996 and 1995, offering
costs totaled $680,489 and $419,473, and along with selling commissions (see
below) are charged directly to Beneficial Owners' Equity- Shareholders.
The Trust paid 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, 1996 and 1995, the Trust paid
$1,598,651 and $1,028,740 of commissions and due diligence to unaffiliated
broker-dealers.
NOTE 6 - Commitments
Lexington Trails Apartments
On January 31, 1997, the Trust executed a letter of intent to
purchase tax-exempt First Motgage Bonds (as hereinafter referred to as the
"Lexington Trails Bonds") at an approximate aggregate principal amount of
$5,000,000. The Lexington Trails Bonds are expected to be issued by The Harris
County Housing Finance Corporation and secured by a first mortgage and mortgage
loan on Lexington Trails Apartments (the "Project" or "Lexington Trails"), a
development consisting of 200 apartment units in Houston, Texas. Lexington
Trails will be owned and operated by Lexington Trails-American Housing
Foundation, Inc.
As of February 18, 1997, the letter of intent remains outstanding
and the Manager is still continuing its due diligence review of the Project.
There is no assurance, the Trust will ultimately consummate this proposed
investment or that the terms of the investments as described herein may not
change.
The Lexington Trails Bonds that will be used to acquire the
Project will be structured to meet the Trust's investment criteria and are
expected to bear a fixed current interest rate of 9.0%, payable monthly in
arrears.
-28-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - Commitments (continued)
The Trust expects the principal of the Lexington Trails 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 Lexington Trails 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
4% of the principal amount of the Lexington Trails 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.
NOTE 7 - Subsequent Events
On January 6, 1997, the Trust used a portion of the net proceeds
of its offering to purchase a New York NY Tax Antic NTS-SER Tax-Exempt Bond from
Smith Barney. The bond, which has a principal face value of $400,000 and
interest rate of 4.5%, was purchased as a permanent investment at the premium
price of 100.119% or $400,476 and matured on February 12, 1997.
On February 14, 1997, a distribution of $585,037 and $5,909 was
paid to the shareholders and the Manager, respectively, representing the 1996
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, 1997, and proceeds from the maturity of
investments.
-29-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Manager of the Trust is Related AMI Associates, Inc., a
Delaware corporation. The Trustee of the Trust 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 Manger are owned 67.2% by Stephen M. Ross and 32.8% by three officers of
the Manager. 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.
The Registrant, the Registrant's Manager and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's shares are required to report their initial ownership of such
shares and any subsequent changes in that ownership to the Securities and
Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors are
required by Securities and Exchange Commission regulators to furnish the
Trust with copies of all Forms 3, 4 or 5 they file. All of these filing
requirements were satisfied on a timely basis for the current year. In making
these disclosures, the Registrant has relied solely on written representations
of the Manager's directors and executive officers and persons who own greater
than ten percent of the Registrant's shares of copies of the reports they have
filed with the Securities and Exchange Commission during and with respect to its
most recent fiscal year.
These officers of the Manager may also provide services to the
Trust on behalf of the Manager. The executive officers and directors of the
Manager and their positions with the Manager are set forth below.
<TABLE>
<CAPTION>
Year First Became
Name Age Positions Held Officer/Director of Manager
<S> <C> <C> <C>
J. Michael Fried 52 Director and President 1991
Stuart J. Boesky 40 Director and Senior Vice President 1991
Alan P. Hirmes 42 Senior Vice President 1991
Arthur G. Hatzopoulos 43 Vice President 1995
Richard A. Palermo 36 Treasurer 1996
Lynn A. McMahon 41 Secretary 1991
</TABLE>
-30-
<PAGE>
J. MICHAEL FRIED, age 52, is Director and President of the Manager
and 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, age 40, is Director and Senior Vice President of
the Manager. 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 (which subsequently merged with Strook and
Strook and Lavan) 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 Doctor degree. He then received a Master of Laws
degree in Taxation from Boston University School of Law.
ALAN P. HIRMES, age 42, is Senior Vice President of the Manager.
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 Weiner & Co.,
certified public accountants. Mr. Hirmes graduated from Hofstra University with
a Bachelor of Arts degree.
ARTHUR G. HATZOPOULOS, age 43, is Vice President of the Manager
and 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 in August 1992, Mr. Hatzopoulos was a
First Vice President and Portfolio Manager for First 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 for 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.
RICHARD A. PALERMO, age 36, is Treasurer of the Manager. Mr.
Palermo has been a Certified Public Accountant in New York since 1985. Prior to
joining Related in September 1993, Mr. Palermo was employed by Sterling Grace
Capital Management from October 1990 to September 1993, Integrated Resources,
Inc. from October 1988 to October 1990 and E.F. Hutton & Company, Inc. from June
1986 to October 1988. From October 1982 to June 1986, Mr. Palermo was employed
by Marks Shron & Company and Mann Judd Landau, certified public accountants. Mr.
Palermo graduated from Adelphi University with a Bachelor of Business
Administration degree.
LYNN A. McMAHON, age 41, is Secretary of the Manager. She 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.
-31-
<PAGE>
Item 11. Executive Compensation.
The Trust does not pay or accrue any fees, salaries or other forms
of compensation to directors and officers of the Manager for their services. The
Manager and its Affiliates 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. Certain directors and officers
of the Manager and certain officers of the Trust receive compensation from the
Manager and its Affiliates (and not from the Trust) for services performed for
various affiliated entities which may include services performed for the Trust.
Such compensation may be based in part on the performance of the Trust; however,
the Manager believes that any compensation attributable to services performed
for the Trust is immaterial. See also Note 5 to the Financial Statements in Item
8 above, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 1997, no person was known by the Trust to be the
beneficial owner of more than five percent of the outstanding shares of the
Trust. As of March 3, 1997, no directors and officers of the Manager own any
shares of the Trust.
Item 13. Certain Relationships and Related Transactions.
The Trust has and will continue to have certain relationships with
the Manager and its affiliates, as discussed in Item 11 and Item 8, Note 5.
However, there have been no direct financial transactions between the Trust and
the directors and officers of the Manager.
-32-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
(a) 1. Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors' Report 14
Balance Sheets at December 31, 1996 and 1995 15
Statements of Income - years ended December 31, 1996 and 1995 16
Statements of Changes in Shareholders' Equity - years ended
December 31, 1996 and 1995 17
Statements of Cash Flows - years ended December 31, 1996 and 1995 18
Notes to Financial Statements 19
(a) 2. Financial Statement Schedules
-----------------------------
All schedules have been omitted because they are not required or
because the required information is contained in the Financial
Statements or notes thereto.
(a) 3. Exhibits
--------
3(a) Certificate of Trust and Certificate of Amendment from
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 Agreement
(incorporated by reference from Exhibit 3(b), 4 to the
Registration Statement on Form S-11, File No. 33-73688).
10(a) Escrow Agreement (incorporated by reference from Exhibit 10(a)
to the Registration Statement on Form S-11, File No. 33-73688).
10(b) Fee Agreement (incorporated by reference from 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
Current Report on Form 8-K, as previously filed on
December 21, 1995)
27 Financial Data Schedule (filed herewith) 37
99. Additional Exhibits
-------------------
99(a) The financial statements of Casselberry-Oxford Associates
Limited Partnership which owns and operates a 336 unit
rental housing community known as Reflections Apartments
located in Casselberry, Florida, as required by Staff
Accounting Bulletin No. 71. 38
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
99(b) The financial statements of Rolling Ridge L.L.C. which owns and
operates a 110 unit rental housing community known as Rolling Ridge
Apartments located in Chino Hills, California, as required by Staff
Accounting Bulletin No. 71. 52
(b) No current reports on Form 8-K have been filed during the quarter
ended December 31, 1996.
</TABLE>
-34-
<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: March 27, 1997 By: /s/ J. Michael Fried
---------------------------------------
J. Michael Fried
Director and President
Date: March 27, 1997 By: /s/ Stuart J. Boesky
---------------------------------------
Stuart J. Boesky
Director and Senior Vice President
-35-
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - ------------------------ ------------------------------------------- --------------
<S> <C> <C>
/s/ J. Michael Fried Director and President (Principal Executive
- - ------------------------ Officer) of the Manager March 27, 1997
J. Michael Fried
/s/ Stuart J. Boesky Director and Senior Vice President
- - ------------------------ of the Manager March 27, 1997
Stuart J. Boesky
/s/ Alan P. Hirmes Senior Vice President (Principal Financial
- - ------------------------ Officer) of the Manager March 27, 1997
Alan P. Hirmes
/s/ Richard A. Palermo Treasurer (Principal Accounting Officer)
- - ------------------------ of the Manager March 27, 1997
Richard A. Palermo
</TABLE>
-36-
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
DBA REFLECTIONS APARTMENTS
(A MARYLAND LIMITED PARTNERSHIP)
DECEMBER 31, 1996
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF PARTNERS' DEFICIT 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
[LETTERHEAD] Reznick Fedder & Silverman
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, 1996, 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 perfomm 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, 1996, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Bethesda, Maryland
January 24, 1997
217 East Redwood St.
Baltimore MD 21202-3316
Telephone: (410) 727-4340
Fax (410) 727-0460
212 S. Tryon St.
Charlotte, NC 28281-8100
Telephone: (704) 332-9100
Fax (704) 332-6444
745 Atlantic Ave.
Boston, MA 02111-2735
Telephone: (617) 423-5855
Fax: (617)423-6651
P.O. Box 501298
Atlanta, GA 31150-1298
Telephone: (770) 844-0644
Fax: (770) 844-7363
-3-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
BALANCE SHEET
December 31,1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $ 6,829,167
OTHER ASSETS
Cash 8,230
Tenant receivables 2,413
Other accounts receivable 136
Due from Oxford 19,116
Tenant security deposits - funded 62,254
Prepaid expenses 10,000
Mortgage escrow deposits 85,233
Capital expenditure reserve 121,628
Reserve for replacements 17,331
Unamortized costs 413,315
----------------
$7,668,823
================
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage note payable $ 10,700,000
Accrued interest payable 82,925
----------------
10,782,925
OTHER LIABILITIES
Accounts payable 121,883
Tenant security deposits 59,547
Deferred rental revenue 10,050
Working capital advances 3,234
Accrued investor services fee 7,000
Working capital loan (includes accrued interest
of $98,358 ) 917,458
Operating expense 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
----------------
13,852,954
PARTNERS' DEFICIT
Capital contributions $ 5,835,310
Less: Nonamortizable costs 439,499
-----------------
5,395,811
Cumulative cash distributions (324,745)
Cumulative losses (11,255,197) (6,184,131)
----------------
$ 7,668,823
================
</TABLE>
The accompanying notes are an integral part of this statement
-4-
<PAGE>
Casselberry-Oxford Associates Limited Partnershi
STATEMENT OF REVENUE AND EXPENSES -
INCOME TAX BASIS
Year ended December 31,1996
<TABLE>
<CAPTION>
<S> <C>
Gross potential rental revenue $ 2,202,469
Less vacancies and allowances 147,703
-----------
Net rental revenue 2,054,766
Interest income 10,634
Other income 119,018
-----------
Total operating revenue 2,184,418
-----------
Operating expenses
Renting $ 32,920
Administrative 256,827
Maintenance and operating 449,649
Utilities 149,726
Taxes 206,549
Insurance 70,823 1,166,494
--------
Mortgage interest 979,050
Interest on advances and loans 81,500
Depreciation 229,652
Amortization 45,576
Financing fees 11,000
Investor services fees 8,111
Professional fees 4,918
Other partnership expenses 18,379 1,378,186
--------
-----------
Total expenses 2,544,680
-----------
Net loss $ (360,262)
===========
</TABLE>
The accompanying notes are an integral part of this statement
-5-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31,1996
<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 $5,835,310 $(439,499) $5,395,811 $(324,745) $(10,894,935) $(5,823,869)
1/1/96
Net loss -- -- -- -- (360,262) (360,262)
---------- --------- ---------- --------- ------------ -----------
Partners' deficit $5,835,310 $(439,499) $5,395,811 $(324,745) $(11,255,197) $(6,184,131)
12/31/96 ========== ========= ========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement
-6-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1996
Cash flows from operating activities
Net loss $(360,262)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 229,652
Amortization 45,576
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant receivables 16,924
Other accounts receivable (136)
Mortgage escrow deposits 1,863
Debt service escrow 78,372
Tenant security deposits - net (2,004)
Increase (decrease) in liabilities
Accounts payable (285,461)
Accrued interest payable 53,500
Accrued interest - working capital loan 81,500
Deferred rental revenue 1,068
---------
Net cash used in operating activities (139,408)
---------
Cash flows from investing activities
Net deposits to reserve for replacements (17,331)
Net disbursements from capital expenditure reserve 107,381
---------
Net cash provided by investing activities 90,050
---------
Cash flows from financing activities
Proceeds from working capital loan 4,100
Refund of unamortized costs 19,251
---------
Net cash provided by financing activities 23,351
---------
NET DECREASE IN CASH (26,007)
Cash, beginning 34,237
---------
Cash, end $ 8,230
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 925,550
=========
The accompanying notes are an integral part of this statement
-7-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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.
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.
-8-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 Vll,
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 $73,016 in 1996. The agreement expires December 31,
1997, at which time it can be automatically renewed for one year periods,
subject to certain limitations.
Deferral of Fees
In prior years, NHP Management Company was required to defer a portion of
the property management fees. At December 31, 1996 the cumulative amount
deferred was $45,287 and is included in deferred management fees.
Additionally, Oxford Management Company, Inc. (OMC), the former property
management agent, had also deferred management fees of $87,745 in prior
years.
These deferred fees are payable without interest from distributable net
cash flow (note 6) or from the proceeds of sale or refinancing, after
certain priorities.
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 S6,015 was paid in 1996.
-9-
<PAGE>
Casselberry Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
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 1996.
Capital lmprovement 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 1996 was
$5,997.
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 1996 was
$660 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, Oxford Management Company, Inc. (OMC), but are not
provided by NHP Management Company, including overseeing the property
manager. A portion of the fee earned for such services in 1996 was $29,496,
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.
In prior years, ORFG was required to defer a portion of this fee. As of
December 31, 1996, the cumulative amount deferred was $15,428 and is
included in deferred management fees.
Additionally under this agreement, ORFG earns a fee equal to 1% of the
gross receipts "Supplemental fee". The supplemental fee is deferred and is
payable from distributable net cash flow (note 6). Any unpaid supplemental
fee will bear interest at 2% per annum over the prime rate as charged by
Citibank (8.25% at December 31, 1996). No supplemental fee was expensed in
1996.
- 10 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
Management estimates that projected future cash flow will not be sufficient
to pay the supplemental fee. Consequently, the partnership has ceased
accrual of this fee. If, in the future, the partnership determines that
projected cash flow is sufficient to pay ths 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 $8,111 was expensed and
paid in 1996.
Prior to January 1, 1994, Oxford Equities Corporation (OEC) was the
servicer of this information. The balance due OEC at December 31, 1996 was
$7,000.
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, 1996, the balance due Oxford was $3,234.
Working Capital Loan
Oxford has provided working capital loans to the partnership. Repayment of
this loan is 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 $81,500 was expensed in 1996. As of December
31, 1996, the amount due Oxford was $917,458 which includes accrued
interest of $98,358.
- 11 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
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, 1996 which includes accrued interest
of S67,280. 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 protect, 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.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation,
and at December 31, 1996 consisted of the following:
Land $ 700,000
Buildings 9,173,606
Building equipment 1,598,578
-----------
11,472,184
-----------
Less accumulated depreciation 4,543,017
-----------
$ 6,929,167
===========
NOTE 5- MORTGAGE NOTE PAYABLE
The mortgage note payable in the amount of $10,700,000, was financed by the
1995 Series Tax Exempt Refunding Bonds issued by Orange County Housing
Finance Authority. Debt service payments on the mortgage loan are made
directly to the sole bond holder, American Tax-Exempt Bond Trust. The
mortgage loan provides for: (a) maturity on December 22, 2005; (b) an
interest rate equal to 9% per annum; (c) monthly payments of interest only
and quarterly interest payments equal to 25% of net cash flow after a
priority payment to the partnership equal to 3.7% of total operating income
for the period; and (d) establishment of a capital expenditure reserve with
an initial deposit at closing of $200,000 and, monthly deposits into a
replacement reserve equal to $8,400 per month for the first 24 months and
$7,000, per month, thereafter.
- 12 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE 5 - MORTGAGE NOTE PAYABLE (Continued)
The liability of the partnership is limited to the property and equipment
collateralizing the f mortgage note and certain other amounts deposited
with the mortgage lender.
NOTE 6 - LOAN PAYABLE
In 1989, the partnership received a loan from Merrill Lynch, Hubbard, Inc.,
to cover certain costs of refinancing a previous 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, 1996, the loan
balance was $347,177.
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
Partners' capital contributions are as follows:
<S> <C> <C>
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 (deficit) at December 31, 1996 is as follows:
Cash $ 8,230
Tenant security deposits - funded 62,254
----------
70,484
Less: Accounts payable $ 121,883
Tenant security deposits 59,547
Deferred rental revenue 10,050
Accrued interest payable 82,925
Working capital advances 3,234 277,639
--------- ----------
Distributable net cash flow (deficit) $ (207,155)
==========
</TABLE>
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;
- 13
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTION (CONTINUED)
(b) To payment of any unpaid investor services fees;
(c) To ORFG, payment of any unpaid supplemental 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 ($1,391,366 as of December 31, 1996 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 supplemental fees from up
to 50% I 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;
(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.
-14-
ROLLING RIDGE, LLC
(A Limited Liability Company)
Audited
Financial Statements
December 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
Independent Auditor's Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Members' Equity 4
Statement of Cash Flows 5
Notes of Financial Statement 6
<PAGE>
[James L. Zimmerman Letterhead]
INDEPENDENT AUDITOR'S REPORT
To The Members
Rolling Ridge, LLC
I have audited the accompanying balance sheet of Rolling Ridge, LLC (a
California limited liability company) as of December 31, 1996, and the related
statements of operations, members' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Rolling Ridge, LLC as of December
31, 1996, and the results of its operations, changes in members' equity and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ James L. Zimmerman
March 24, 1997
[Letterhead of James L. Zimmerman]
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Balance Sheet
December 31, 1996
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
Land and buildings (including land of $1,113,241)
at cost, less accumulated depreciation of $1,426,533 - Note 1 $5,160,692
Cash - Restricted for replacement reserve 7,377
Accounts receivable tenants 6,188
Debt financing costs, less accumulated amortization of $4,680 98,165
-----------
$5,272,422
===========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Liabilities
Mortgage payable - Note 2 $4,925,000
Bank overdraft 45,841
Accounts payable 17,019
Prepaid rents 1,073
Tenants security deposits payable 64,863
----------
Total liabilities 5,053,796
----------
Members' equity 218,626
----------
$5,272,422
==========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Operations
<TABLE>
<CAPTION>
Period Period
January 1 to August 3 to Year Ended
August 2, December 31, December 31,
1996 1996 1996
------------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Net rentals $ 516,583 $ 362,440 $ 879,023
Other income 25,562 12,789 38,351
--------- --------- ---------
Total revenues 542,145 375,229 917,374
--------- --------- ---------
Cost of operations:
Payroll and related 43,868 31,309 75,177
Management fees 21,639 15,007 36,646
Advertising and promotion 9,062 7,206 16,268
Other administrative expenses 5,724 5,356 11,080
Debt administration and closing costs 32,679 32,679
Repairs and maintenance 73,555 46,659 120,214
Utilities 35,225 23,563 58,788
Insurance 5,200 5,907 11,107
Property taxes 71,919 72,035 143,954
Interest expense 220,391 184,586 404,977
--------- --------- ---------
Total cost of operations 519,262 391,628 910,890
--------- --------- ---------
Income (loss) before depreciation and
amortization 22,883 (16,399) 6,484
Depreciation and amortization 116,064 87,580 203,644
--------- --------- ---------
Loss before extraordinary items (93,181) (103,979) (197,160)
Extraordinary item - Note 3 1,510,000 ------ 1,510,000
---------- ---------- ----------
Net income (loss) $1,416,819 ($103,979) $1,312,840
========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Members' Equity
For The Year Ended December 31, 1996
Balance (deficit) at beginning of year $(1,189,612)
Contributions 150,000
Withdrawals (54,604)
Net income 1,312,840
-----------
Balance at end of year $ 218,626
===========
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities: $1,312,840
Net income
Adjustments to reconcile net income to net cash provided by
(applied to) operating activities: $203,644
Depreciation and amortization
(Increase) decrease in:
Accounts receivable 332
Debt financing costs (102,845)
Increase (decrease) in:
Bank overdraft 45,841
Accounts payable (946)
Prepaid rents 592
Tenants security deposits (4,254)
---------
Net adjustments 142,364
----------
Total from operating activities 1,455,204
---------
Cash flows from investing activities:
Deposits to replacement reserves (7,332)
Cash flows from financing activities:
Proceeds from new mortgage payable 4,925,000
Retirement of old mortgage payable (6,500,000)
Member contributions 150,000
Member withdrawals (54,603)
-----------
Net cash flows from financing activities (1,479,603)
-----------
Net decrease in cash (31,731)
Beginning cash balance 31,731
-----------
Ending cash balance $ 0
===========
Supplemental disclosure:
Cash paid during year for interest $ 404,977
==========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statement
December 31, 1996
1. Organization and SummarY of Significant Accounting Policies
Organization
Rolling Ridge, LLC, a California limited liability company, was formed on
June 6, 1996 as the successor entity to Rolling Ridge Partners, (Duane R.
Raab, Ralph E. Haun, and Diane E. Haun) a California general partnership,
which developed and constructed the 110-unit multi-family residential
rental project located in Chino Hills, County of San Bernardino,
California, known as Rolling Ridge Apartment. The effective commencement
date of Rolling Ridge, LLC is August 2, 1996, the date the partners
refinanced the original loan on the property. Rolling Ridge, LLC has a
limited life and will be dissolved by January 1, 2036.
Basis of Accounting
The company's books are maintained on the modified cash basis of
accounting. These financial statements are prepared on the accrual basis of
accounting.
Rental Income
Rental income is recognized for apartment rentals as they accrue. Advance
receipts of rental income is deferred and classified as liabilities until
earned. All apartment leases are operating leases.
Land and Buildings
Land and buildings contributed to the LLC by the predecessor partners have
been recorded at their historical cost basis to the partners, which
approximates the fair market value of the apartment complex per an
appraisal as of August 2, 1996. Depreciation is computed using the
straight-line method over an estimated useful life of 27.5 years.
Income Taxes
The company is not a taxpaying entity for federal and state income tax
purposes, and thus no income tax expense has been recorded in the
statements. Income of the company is taxed to the members in their
individual returns.
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statements
December 31, 1996
2. Mortgage Payable
The mortgage payable to American Tax-Exempt Bond Trust in the amount
of $4,925,000 as provided through the issuance and sale of Multifamily
Housing Revenue Bonds 1996 Series A (Rolling Ridge Apartments) issued
by the County of San Bernardino, California. The note bears interest
at an annual rate of 9.0%, payable monthly. The terms of the note
provide for the payment of interest only until maturity, July 1, 2026,
at which time the entire principal balance is due.
The note also provides for contingent interest equal to 30% of net
property cash flow after payment of the base interest, and 25% of net
sales or repayment proceeds (which may in certain circumstances when
no sale proceeds are received, including but not limited to
refinancing, 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 note, after which no further
contingent interest payments will be required. Since there was a
negative cash flow for the periods from August 3 to December 31, 1996,
no contingent interest was paid or is payable.
The company is required to make monthly deposits in escrow in an
amount equal to one-twelfth of the estimated annual real property
taxes and insurance premiums for the property. In addition, the
company is required to establish and maintain a replacement reserve
escrow account and make monthly deposits of $1,833 into this account.
3. Extraordinarv Item
The company has recognized forgiveness of debt during the year of
$1,510,000 as a result of the refinancing of its original mortgage
payable. Under the terms of a settlement agreement with the Federal
Deposit Insurance Corporation (which succeeded the Resolution Trust
Corporation as successor to Mercury Federal Savings & Loan
Association) the prior mortgage (bonds) in the amount of $6,500,000
were mandatorily redeemed concurrently with the issuance of the County
of San Bernardino, California Multifamily Housing Revenue Refunding
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statements
December 31, 1996
Bonds, 1996 Series A (Rolling Ridge Apartments) in the amount of
$4,925,000. The gain on the forgiveness of indebtedness was determined
as follows:
Mortgage payable balance at August 2, 1996 $ 6,500,000
Net amount paid to FDIC 4,990,000
-----------
Amount forgiven $ 1,510,000
===========
While the company and its members will not pay income taxes on the
gain resulting from the forgiveness, there are tax attribute
adjustments to the individual members. The tax basis of the
depreciable property to the members will be reduced by the $1,510,000
gain.
<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>
<NAME> American Tax Exempt Bond Trust
<CIK> 0000916824
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 836,779
<SECURITIES> 25,380,828
<RECEIVABLES> 463,942
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,681,549
<CURRENT-LIABILITIES> 320,858
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,360,691
<TOTAL-LIABILITY-AND-EQUITY> 26,681,549
<SALES> 0
<TOTAL-REVENUES> 1,392,415
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 254,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,137,449
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,137,449
<EPS-PRIMARY> .95
<EPS-DILUTED> .00
</TABLE>
