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, 1997
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28340
AMERICAN TAX-EXEMPT BOND TRUST
-------------------------------
(Exact name of registrant as specified in its governing instrument)
Delaware 13-7033312
- - ------------------------------- -------------------
(State or other jurisdiction of (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
Page 1 of
<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, 1997, a total of 1,452,495
shares have been sold through the Offering and 15,242 through the dividend
reinvestment plan (the "Reinvestment Plan"), representing Gross Proceeds (the
"Gross Proceeds") of $29,509,185 (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, 15,242 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. Pursuant to the
Redemption Plan, as of December 31, 1997, 8,485 shares were redeemed for an
aggregate price of $161,207
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 the Net Proceeds primarily in First Mortgage Bonds issued
by various state or local governments or their agencies or authorities which are
secured by first mortgages and related first mortgage loans financed by such
bonds (collectively, "Mortgage Loans") on multifamily residential apartment
projects owned or to be developed by third-party developers and, to a lesser
extent, by Affiliates of the Manager. The First Mortgage Bonds have maturities
ranging from June 2006 to August 2026, although the Trust anticipates holding
the First Mortgage Bonds for approximately 10 to 12 years and having the right
to cause repayment of the bonds at that time. The Trust also invests in
Tax-Exempt Securities. As of December 31, 1997, of the total net proceeds
available for investment, 9.33% had been invested in Tax-Exempt Securities and
90.67% had been invested in First Mortgage Bonds.
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First Mortgage Bonds
As of December 31, 1997, the Trust has made the following investments in First
Mortgage Bonds:
Original Bond
Date of Amount and
Investment Outstanding
/Final Balance at Occupancy
Descrip Maturity December at March
Property -tion Date 31, 1997 15, 1998
- - -------- -------- --------- ------------ --------
Reflections
Apartments
Casselbury, 336 Apt. 12/95 -
FL (A) Units 12/25 $10,700,000 96.1%
Rolling Ridge
Apartments
Chino Hills, 110 Apt. 8/96 -
CA (B) Units 8/26 4,925,000 98.1%
Lexington Trails
Apartments
Houston, 200 Apt. 5/97 -
TX (C) Units 5/22 4,900,000 96.5%
Highpointe
Apartments
Harrisburg, 240 Apt. 9/97 -
PA (D) Units 6/06 3,250,000 97.5%
-----------
$23,775,000
===========
(A) The interest rate for the Reflections is 9.00%. In addition to the interest
rate the Trust will be entitled to 25% of the cash flow, as defined.
(B) The interest rate of the Rolling Ridge is 9.00%. In addition to the interest
rate the Trust will be entitled to 30% of the cash flow, as defined.
(C) The interest rate for the Lexington Trails is 9.00%.
(D) The interest rate for the Highpointe is 9.00%.
Lexington Trails Apartments
On May 7, 1997, the Trust purchased tax-exempt First Mortgage Bonds (as
hereinafter referred to as the "Lexington Trails Bonds") in an aggregate
principal amount of $4,900,000. The Lexington Trail Bonds were issued by The
Harris County Housing Finance Corporation and secured by a first deed of trust
and mortgage loan on Lexington Trails Apartments (the "Project" or "Lexington
Trails"), a development consisting of 200 apartment units in Houston, Texas.
Lexington Trails is owned and operated by Lexington Trails-American Housing
Foundation, Inc.
The Lexington Trails Bonds bear a fixed current rate of 9.0%, payable monthly in
arrears.
The Lexington Trails Bonds have a term of 25 years and are subject to mandatory
redemption, at the Trust's option, after 10 years. The principal of the
Lexington Trails Bonds will be pay-
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able upon sale or refinancing of the Project. 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.
Highpointe Apartments
On September 2, 1997, the Trust purchased Redevelopment Authority of the County
of Dauphin, Multifamily Housing Revenue Bonds (Highpointe Club Apartments
Project) Series 1989 (as hereinafter referred to as the "Highpointe Bonds") in
an aggregate principal amount of $3,250,000. The Highpointe Bonds are secured by
a first Mortgage and mortgage loan on Highpointe Apartments (the "Project" or
"Highpointe ") a development consisting of 240 apartment units in Harrisburg,
Pennsylvania, with first claim of cash flow for payment of interest and pari
passu after a $750,000 priority at sale, refinance or maturity with $8,900,000
Redevelopment Authority of the County of Dauphin, Multifamily Housing Revenue
Bonds (Green Hill Project), Series 1986 (the "1986 Bonds"). The 1986 Bonds are
owned by Summit Tax Exempt Bond Fund, L.P. whose general partner is an affiliate
of the Manager. Highpointe is owned and operated by RHA INV., Inc. (the
"Borrower") an affiliate of the Manager.
The Highpointe Bonds bear a fixed current interest of 9.0%, payable monthly in
arrears. The Highpointe Bonds enjoy payment priority over the 1986 Bonds. The
Trust has been informed that, as of the date hereof, the Borrower is current
with respect to all payments of principal and interest on the Highpointe Bonds.
The Highpointe Bonds mature on June 1, 2006. The principal of the Highpointe
Bonds will be payable upon maturity, sale or refinancing of the Project. The
Highpointe Bonds will receive a $750,000 priority payment of principal prior to
any payment of principal on the 1986 Bonds. Remaining principal on the
Highpointe Bonds and principal and accrued interest on the 1986 Bonds will be
paid pari passu, that is by an equal progression of payments after the payment
of interest, other than interest accrued and unpaid on the 1986 Bonds on June 6,
1989 and the $750,000 priority amount.
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<PAGE>
Tax-Exempt Securities
As of December 31, 1997, the Trust has made the following investments in
Tax-Exempt Securities, all of which have matured:
Stated Final
Date Interest Payment Purchase Price
Seller Purchased Rate Date % Amount
- - ------ --------- -------- ------- ------- ---------
Smith
Barney 5/3/95 9.25% 8/1/95 101.124% $ 202,248
Smith
Barney 9/19/95 4.40% 11/15/95 100.123% 200,246
Wheat
First 12/12/95 8.25% 2/15/96 102.796% 205,592
Smith
Barney 1/6/97 4.50% 2/12/97 100.119% 400,476
Goldman
Sachs 5/1/97 3.75% 5/14/97 100.000% 1,500,000
---------
$2,508,562
=========
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.
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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PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
As of December 31, 1997, a total of 1,467,737 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. As of December 31, 1997,
15,242 shares have been 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, 1997, 8,485 shares were redeemed.
The number of shareholders as of March 4, 1998 was 1,185. 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
insuffi-
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cient 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.
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 or her Eligible Shares to the Trust
for redemption, provided, however that (i) he or she must always present at
least the lesser of all of his or her Eligible Shares or 125 Eligible Shares for
redemption, and (ii) if he or she would retain any Eligible Shares were the
Shares presented to be redeemed, he or she 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, 1997 and 1996 were as set
forth in the following table:
Cash Distribution Total Amount
for Quarter Ended Date Paid Minimum Maximum Distributed
- - ----------------- --------- ------- ------- -------------
March 31, 1997 5/15/97 $ .4000 $ .4000 $ 586,276
June 30, 1997 8/14/97 .4000 .4000 585,867
September 30, 1997 11/14/97 .4000 .4000 586,120
December 31, 1997 2/14/98 .4000 .4000 586,675
------- ------- ----------
Total for 1997 $1.6000 $1.6000 $2,344,938
======= ======= ==========
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
======= ======= ==========
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.
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 Tax-Exempt Securities which matured
quarterly during this period. The effect of this policy has been the following:
(a) a portion of the distributions have constituted a return of capital; (b)
earlier investors' returns from an investment in the Trust will be greater than
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later investors' returns; and (c) there will be a decrease in funds remaining to
be invested in Mortgage Investments.
Of the total distributions of $2,461,909 and $1,753,876 made during the years
ended December 31, 1997 and 1996, $774,728 ($.53 per share or 32%) and $616,427
($.42 per share or 35%) represents a return of capital determined in accordance
with generally accepted accounting principles. As of December 31, 1997, 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 $1,509,724. The portion of the distributions
which constitutes a return of capital were significant during the acquisition
stage in order to maintain level distributions to shareholders. Beginning in the
first quarter of 1998 the Trust's distribution policy will call for quarterly
distributions which more closely reflect collections of interest payments.
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.
Years ended December 31,
-----------------------------------
OPERATIONS* 1997 1996 1995
----------- ----------- ----------
Interest income:
First Mortgage Bonds $1,734,950 $1,127,980 $ 226,972
Tax-Exempt Securities 3,277 2,054 2,160
Marketable Securities 173,234 262,381 147,647
--------- --------- ---------
Total revenues 1,911,461 1,392,415 376,779
Total expenses 224,280 254,966 148,893
--------- --------- ---------
Net income $1,687,181 $1,137,449 $ 227,886
========= ========= =========
Net income per weighted $ 1.07 $ 0.89 $ 0.56
average share-Shareholders ========= ========= =========
Distributions per share** $ 1.60 $ .72-1.60 $ .20-1.13
========= ========= =========
December 31,
----------------------------------------------
FINANCIAL POSITION 1997 1996 1995 1994
----------- ----------- ----------- --------
Total Assets $26,160,922 $26,681,549 $17,385,740 $771,890
========== ========== ========== =======
Total Liabilities $ 469,347 $ 320,858 $ 174,470 $770,890
========== ========== ========== =======
Total Shareholders' Equity $25,691,575 $26,360,691 $17,211,270 $ 1,000
========== ========== ========== =======
*The Trust had no operations in 1994 and 1993
**Amounts received by shareholders varied depending on the dates they became
shareholders.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Trust has invested the Net Proceeds primarily in First Mortgage Bonds issued
by various state or local governments or their agencies or authorities which are
secured by first mortgages and related first mortgage loans financed by such
bonds (collectively, "Mortgage Loans") on multifamily residential apartment
projects owned or to be developed by third-party developers and, to a lesser
extent, by Affiliates of the Manager. The First Mortgage Bonds have maturities
ranging from June 2006 to August 2026, although the Trust anticipates holding
the First Mortgage Bonds for approximately 10 to 12 years and having the right
to cause repayment of the bonds at that time. The Trust also invests in
Tax-Exempt Securities. As of December 31, 1997, of the total net proceeds
available for investment, 9.33% had been invested in Tax-Exempt Securities and
90.67% had been invested in First Mortgage Bonds.
For a description of each of the Trust's investments in First Mortgage Bonds and
Tax-Exempt Securities see Item 1. Business.
During the twelve months ended December 31, 1997, cash and cash equivalents
increased approximately $245,000 primarily due to the sale of marketable
securities of ($9,000,000), an increase in due to affiliates of approximately
($145,000) and proceeds from the issuance of shares of beneficial interest in
excess of purchase of treasury shares of beneficial interest ($80,000) which
exceeded cash provided by operating activities ($1,866,000), distribution to
shareholders ($2,462,000), the purchase of first mortgage bonds ($8,150,000) and
an increase in deferred cost ($89,000). Included in the adjustments to reconcile
the net income to cash provided by operating activities is amortization in the
amount of approximately $81,000.
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, 15,242 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. Pursuant to the
Redemption Plan as of December 31, 1997, 8,485 shares have been redeemed for an
aggregate price of $161,207.
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, 1997), an amount which is anticipated to be sufficient to satisfy
liquidity requirements, and may add to such Reserves from Cash Flow and Sale or
Repayment Proceeds. As of December 31, 1997, 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 expects that cash generated from its investments will be sufficient to
pay all of the Trust's expenses in the foreseeable future. However, certain
expense reimbursements totaling $296,000 and $214,000 at December 31, 1997 and
1996, respectively, and the payment of a portion of the special distribution
totaling $92,000 and $40,000 at December 31, 1997 and 1996, respectively, to the
Manager 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.
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<PAGE>
Results of Operations
1997 vs. 1996
The results of operations for the years ended December 31, 1997 and 1996
consisted primarily of interest income earned on First Mortgage Bonds and
marketable securities, net of general and administrative, general and
administrative-related parties and loan servicing fees.
Interest income from First Mortgage Bonds increased approximately $607,000 for
the year ended December 31, 1997 as compared to 1996 primarily due to the
investment in the Rolling Ridge First Mortgage Bond in August 1996, the
Lexington Trails First Mortgage Bond in May 1997 and the Highpointe First
Mortgage Bond in September 1997.
Interest income from marketable securities decreased approximately $89,000 for
the year ended December 31, 1997 as compared to 1996 primarily due to the sale
of such securities to purchase the Lexington Trails First Mortgage Bond in May
1997 and the Highpointe First Mortgage Bond in September 1997.
General and administrative expenses increased approximately $12,000 for the year
ended December 31, 1997 as compared to 1996 primarily due to an increase in
costs associated with SEC filings.
General and administrative-related parties decreased approximately $54,000 for
the year ended December 31, 1997 as compared to 1996 primarily due to a decrease
in expense reimbursements to affiliates of the Manager in 1997.
Loan servicing fees increased approximately $12,000 for the year ended December
31, 1997 as compared to 1996 primarily due to the investment in the Rolling
Ridge First Mortgage Bond in August 1996, the Lexington Trails First Mortgage
Bond in May 1997 and the Highpointe First Mortgage Bond in September 1997.
1996 vs. 1995
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.
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 were invested in Tax-Exempt Securities
which matured during this period. A portion of the proceeds from such repayments
were distributed to the shareholders. The effect of this policy has been the
following: (a) a portion of the distributions have constituted a return of
capital; (b) earlier investors' returns from an investment in the Trust will be
greater than later investors' returns; and (c) there was a decrease in funds
available to be invested in Mortgage Investments.
Of the total distributions of $2,461,909 and $1,753,876 made for the year ended
December 31, 1997 and 1996, $774,728 ($.53 per share or 32%) and $616,427 ($.42
per share or 39%) represents a return of capital determined in accordance with
generally accepted accounting principles. As of December 31, 1997, 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 $1,509,724. The portion of the distributions
which
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constitute a return of capital were significant during the acquisition stage in
order to maintain level distributions to shareholders. Beginning in the first
quarter of 1998 the Trust's distribution policy will call for quarterly
distributions which more closely reflect collections of interest payments.
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.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share. Statement No. 129,
"Disclosure of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure. The adoption of
these standards in 1997 has not materially affected the Company's reported
operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no
impact on the Company's financial position or results of operations.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Advisor is in the process of working with the Company's
service providers to prepare for the year 2000. Based on information currently
available, the Company does not expect that it will incur significant operating
expenses or be required to incur material costs to be year 2000 compliant.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
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Item 8. Financial Statements and Supplementary Data.
Page
(a) 1. Financial Statements
Independent Auditors' Report 12
Balance Sheets-December 31, 1997 and 1996 13
Statements of Income - Years ended December 31, 1997, 1996
and 1995 14
Statements of Changes in Shareholders' Equity - Years ended
December 31, 1997, 1996 and 1995 15
Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995 17
Notes to Financial Statements 18
(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.
-12-
<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, 1997 and 1996, and the related statements of income,
changes in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 30, 1998, except as to Note 6,
which is as of February 14, 1998
-13-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
Investment in First Mortgage Bonds-at fair value (Note 3) $24,674,787 $16,180,828
Cash and cash equivalents (Note 2) 1,081,939 836,779
Marketable securities available for sale 200,000 9,200,000
Deferred costs 0 300,306
Organization costs (net of accumulated amortization
of $27,500 and $17,500, respectively) 22,500 32,500
Accrued interest receivable 181,696 131,136
----------- ------------
Total assets $26,160,922 $26,681,549
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates (Note 5) $ 436,197 $ 291,451
Accounts payable 33,150 29,407
------------- -------------
Total liabilities 469,347 320,858
------------ ------------
Shareholders' equity:
Beneficial owner's equity-manager (14,098) (6,350)
Beneficial owners' equity-shareholders
(10,000,000 shares authorized;
1,476,222 and 1,463,520 shares issued and
outstanding in 1997 and 1996, respectively) 25,731,175 26,256,842
Treasury shares of beneficial interest
(8,485 and 0 shares, respectively) (161,207) 0
Net unrealized gain on First Mortgage Bonds (Note 3) 135,705 110,199
------------ ------------
Total shareholders' equity 25,691,575 26,360,691
---------- ----------
Total liabilities and shareholders' equity $26,160,922 $26,681,549
========== ==========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Interest income:
First Mortgage Bonds (Note 3) $1,734,950 $1,127,980 $ 226,972
Tax-Exempt Securities (Note 4) 3,277 2,054 2,160
Marketable Securities 173,234 262,381 147,647
---------- ---------- ----------
Total revenues 1,911,461 1,392,415 376,779
--------- --------- ----------
Expenses:
General and administrative 79,932 68,013 66,535
General and administrative-
related parties (Note 5) 84,593 139,007 74,858
Loan serving fees 49,755 37,946 0
Amortization of organization costs 10,000 10,000 7,500
----------- ----------- ----------
Total expenses 224,280 254,966 148,893
---------- ---------- ----------
Net income $1,687,181 $1,137,449 $ 227,886
========= ========= ==========
Allocation of Net Income:
Shareholders $1,576,321 $1,067,015 $ 224,865
Manager 15,922 10,778 2,271
Special distributions to Manager (Note 5) 94,938 59,656 750
---------- ---------- ------------
Net income $1,687,181 $1,137,449 $ 227,886
========= ========= ==========
Basic net income per weighted
average share - shareholders $ 1.07 $ 0.95 $ 0.57
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Net Un-
realized
Beneficial Beneficial Treasury Gain on
Owner's - Owner's Shares of First
Equity- Equity- Beneficial Mortgage
Total Shareholders Manager Interest Bonds
----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 $ 1,000 $ 0 $ 1,000 $ 0 $ 0
Issuance of shares of
beneficial ownership
interest 18,777,052 18,777,052 0 0 0
Offering costs (1,448,213) (1,448,213) 0 0 0
Net income 227,886 224,865 3,021 0 0
Distributions (346,455) (342,248) (4,207) 0 0
---------- ---------- ------ ---- ---
Balance at
December 31, 1995 17,211,270 17,211,456 (186) 0 0
Issuance of shares
of beneficial
ownership interest 10,486,576 10,486,576 0 0 0
Offering costs (830,927) (830,927) 0 0 0
Net income 1,137,449 1,067,015 70,434 0 0
Distributions (1,753,876) (1,677,278) (76,598) 0 0
Net unrealized
gain on First
Mortgage Bonds 110,199 0 0 0 110,199
---------- ---------- ------ ---- -------
Balance at
December 31, 1996 26,360,691 26,256,842 (6,350) 0 110,199
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Net Un-
realized
Beneficial Beneficial Treasury Gain on
Owner's - Owner's Shares of First
Equity- Equity- Beneficial Mortgage
Total Shareholders Manager Interest Bonds
----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 26,360,691 26,256,842 (6,350) 0 110,199
Issuance of shares of
beneficial ownership
interest 241,313 241,313 0 0 0
Net income 1,687,181 1,576,321 110,860 0 0
Distributions (2,461,909) (2,343,301) (118,608) 0 0
Net unrealized gain on
First Mortgage Bonds 25,506 0 0 0 25,506
Purchase of Treasury
shares of beneficial
interest (161,207) 0 0 (161,207) 0
---------- ---------- ------- -------- -------
Balance at
December 31, 1997 $25,691,575 $25,731,175 $(14,098) $(161,207) $135,705
========== ========== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,687,181 $1,137,449 $ 227,886
--------- --------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization expense-organization costs 10,000 10,000 7,500
Amortization expense- loan origination costs 70,688 36,059 0
Amortization of REMIC premium 476 3,958 4,128
Changes in operating assets and liabilities:
Decrease (increase) in other assets 0 72,220 (72,220)
Increase in accrued interest receivable (50,560) (95,876) (35,260)
Increase in due to affiliates 144,746 211,729 86,140
Increase in accounts payable 3,743 0 0
--------- --------- ----------
Total adjustments 179,093 238,090 (9,712)
---------- ---------- -----------
Net cash provided by operating activities 1,866,274 1,375,539 218,174
--------- --------- ----------
Cash flows from investing activities:
Purchase of First Mortgage Bonds (8,150,000) (4,925,000) (10,700,000)
Sale (purchase) of Marketable Securities 9,000,000 (6,650,000) (2,550,000)
Maturity of Tax-Exempt Securities 1,900,000 200,000 400,000
Purchase of Tax-Exempt Securities (1,900,476) 0 (608,086)
Increase in deferred costs (88,835) (314,756) (455,735)
----------- ----------- -----------
Net cash provided by (used in) investing
activities 760,689 (11,689,756) (13,913,821)
---------- ----------- -----------
Cash flows from financing activities:
Decrease in accounts payable 0 (13,146) (370,678)
Decrease in due to affiliates 0 (52,195) (311,882)
Proceeds from issuance of shares of beneficial
interest 241,313 10,486,576 18,777,052
Purchase of treasury shares of beneficial interest (161,207) 0 0
Distribution to shareholders (2,461,909) (1,753,876) (346,455)
Increase in offering costs 0 (830,927) (738,826)
---------- --------- ----------
Net cash (used in) provided by financing
activities (2,381,803) 7,836,432 17,009,211
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents 245,160 (2,477,785) 3,313,564
Cash and cash equivalents at beginning of year 836,779 3,314,564 1,000
---------- --------- ----------
Cash and cash equivalents at end of year $1,081,939 $ 836,779 $ 3,314,564
========== ========= ==========
Supplemental schedule of non cash financial
activities:
Increase in offering costs $ 0 $ 0 $ (709,387)
Decrease in deferred costs 389,141 238,506 952,569
Increase in investment in First Mortgage Bonds (389,141) (238,506) (243,182)
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 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, 1997 and 1996, a total of 1,467,737 and 1,463,520 shares have been
sold to the public through the Offering and the Trust's dividend reinvestment
plan (the "Reinvestment Plan") representing Gross Proceeds (the"Gross Proceeds")
of $29,509,185 and $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 November 14, 1997, 15,242 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. Pursuant to the
Redemption Plan as of December 31, 1997, 8,485 shares were redeemed for an
aggregate price of $161,207.
The Trust has invested the Net Proceeds primarily in First Mortgage Bonds issued
by various state or local governments or their agencies or authorities which are
secured by first mortgages and related first mortgage loans financed by such
bonds (collectively, "Mortgage Loans") on multifamily residential apartment
projects owned or to be developed by third-party developers and, to a lesser
extent, by Affiliates of the Manager. The First Mortgage Bonds have maturities
of approximately 10 to 30 years, although the Trust anticipates holding the
First Mortgage Bonds for approximately 10 to 12 years and having the right to
cause repayment of the bonds at that time. The Trust also invests in Tax-Exempt
Securities. As of December 31, 1997, of the total net proceeds available for
investment, 9.33% had been invested in Tax-Exempt Securities and 90.67% had been
invested in First Mortgage Bonds.
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, 1997 is restricted cash of
$292,196 for working capital reserves and approximately $80,000 received from
the Reinvestment Plan, not yet used to redeem shares. 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.
-19-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
c) Loan Origination Costs
Bond Selection fees and expenses incurred for the investment of mortgage loans
have been capitalized and are included in investment in First Mortgage Bonds.
Loan origination costs are being amortized on the effective yield method over
the lives of the respective mortgages.
d) Organization Costs
Costs incurred to organize the Trust including, but not limited to, legal and
accounting fees are considered organization costs. These costs have been
capitalized and are being amortized on a straight-line basis over a 60-month
period.
e) Offering Costs
Costs incurred to sell shares including brokerage and nonaccountable expense
allowance are considered offering costs. These costs have been charged directly
to shareholders' equity with the sale of shares of beneficial interest to the
public.
f) Income Taxes
The Trust is not required to provide for, or pay, any Federal income taxes.
Income tax attributes that arise from its operation are passed directly to the
individual partners. The Trust may be subject to state and local taxes in
jurisdictions in which it operates.
g) Net Income Per Weighted Average Share
In February 1997, the Financial Accounting Standards Board (the 'FASB") issued
SFAS No. 128, "Earnings per Share" which is effective for periods ending after
December 15, 1997. This statement requires that the current calculations of
earnings per share be replaced by basic and diluted earnings per share
calculations. The Company has determined that the application of SFAS No. 128
would have no effect on its calculation of earnings per share.
Net income per weighted average share is computed based on 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, 1997, 1996 and 1995 were 1,466,554, 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, 1997 and
1996, 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) and investment
in First Mortgage Bonds.
-20-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Unrealized gains and losses reported in Shareholders' Equity relate to First
Mortgage Bonds. The 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, interest receivable
and all of its liabilities.
For cash and cash equivalents, marketable securities, interest receivable and
accounts payable and accrued expenses, the carrying amounts are a reasonable
estimate of fair value.
k) Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share. Statement No. 129,
"Disclosure of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure. The adoption of
these standards in 1997 has not materially affected the Company's reported
operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no
impact on the Company's financial position or results of operations.
-21-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 - Investment in First Mortgage Bonds
Information relating to investments in First Mortgage Bonds for the years ended
December 31, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Investment in First Mortgage Bonds
- at fair value - January 1 $16,180,828 $10,943,182 $ 0
Additions:
Reflections Bonds 0 0 10,700,000
Reflections Bonds - loan origination costs 19,826 30,906 243,182
Rolling Ridge Bonds 0 4,925,000 0
Rolling Ridge - loan origination costs 9,125 207,600 0
Lexington Trails Bonds 4,900,000 0 0
Lexington Trails Bonds - loan origination costs 123,886 0 0
Highpointe Bonds 3,250,000 0 0
Highpointe Bonds - loan origination costs 236,304 0 0
Deductions:
Amortization of loan origination costs (70,688) (36,059) 0
---------- ---------- ----------
Amortized cost at December 31, 24,649,281 16,070,629 10,943,182
Net unrealized gain on First Mortgage Bonds 25,506 110,199 0
---------- ---------- ----------
Investment in First Mortgage Bonds
- at fair value - December 31 $24,674,787 16,180,828 10,943,182
========== ========== ==========
</TABLE>
Lexington Trails Apartments
On May 7, 1997, the Trust purchased tax-exempt First Mortgage Bonds (as
hereinafter referred to as the "Lexington Trails Bonds") in an aggregate
principal amount of $4,900,000. The Lexington Trail Bonds were issued by The
Harris County Housing Finance Corporation and secured by a first deed of trust
and mortgage loan on Lexington Trails Apartments (the "Project" or "Lexington
Trails"), a development consisting of 200 apartment units in Houston, Texas.
Lexington Trails is owned and operated by Lexington Trails-American Housing
Foundation, Inc.
The Lexington Trails Bonds bear a fixed current rate of 9.0%, payable monthly in
arrears.
The Lexington Trails Bonds have a term of 25 years and are subject to mandatory
redemption, at the Trust's option, after 10 years. The principal of the
Lexington Trails Bonds will be payable upon sale or refinancing of the Project.
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.
Highpointe Apartments
On September 2, 1997, the Trust purchased Redevelopment Authority of the County
of Dauphin, Multifamily Housing Revenue Bonds (Highpointe Club Apartments
Project) Series 1989
-22-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(as hereinafter referred to as the "Highpointe Bonds") in an aggregate principal
amount of $3,250,000. The Highpointe Bonds are secured by a first Mortgage and
mortgage loan on Highpointe Apartments (the "Project" or "Highpointe ") a
development consisting of 240 apartment units in Harrisburg, Pennsylvania, with
first claim of cash flow for payment of interest and pari passu after a $750,000
priority at sale, refinance or maturity with $8,900,000 Redevelopment Authority
of the County of Dauphin, Multifamily Housing Revenue Bonds (Green Hill
Project), Series 1986 (the "1986 Bonds"). The 1986 Bonds are owned by Summit Tax
Exempt Bond Fund, L.P. whose general partner is an affiliate of the Manager.
Highpointe is owned and operated by RHA INV., Inc. (the "Borrower") an affiliate
of the Manager.
The Highpointe Bonds bear a fixed current interest of 9.0%, payable monthly in
arrears. The Highpointe Bonds enjoy payment priority over the 1986 Bonds. The
Trust has been informed that, as of the date hereof, the Borrower is current
with respect to all payments of principal and interest on the Highpointe Bonds.
The Highpointe Bonds mature on June 1, 2006. The principal of the Highpointe
Bonds will be payable upon maturity, sale or refinancing of the Project. The
Highpointe Bonds will receive a $750,000 priority payment of principal prior to
any payment of principal on the 1986 Bonds. Remaining principal on the
Highpointe Bonds and principal and accrued interest on the 1986 Bonds will be
paid pari passu, that is by an equal progression of payments after the payment
of interest, other than interest accrued and unpaid on the 1986 Bonds on June 6,
1989 and the $750,000 priority amount.
The cost basis of the First Mortgage Bonds was $24,539,082 and $16,070,629 at
December 31, 1997 and 1996. The net unrealized gain of $135,704 on First
Mortgage Bonds consists of gross unrealized gains and losses of $478,634 and
$342,929, respectively, at December 31, 1997 and 265,849 and 159,650,
respectively, as of December 31, 1996.
-23-
<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,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Date of Accumu
Invest- Outstand- -lated Unrea-
ment/ ing Loan Loan Amorti- lized Gain Interest Less Net
Final Balance at Origina- zation at (Loss) at Balance at Balance at Earned by 1997 Interest
Descrip Maturity December tion Dec. 31, Dec. 31, December December the Trust Amorti- Earned
Property -tion Date 31, 1997 Costs 1997 1997 31, 1997 31, 1996 for 1997 zation for 1997
- - -------- ------- ------- ---------- -------- --------- ---------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reflections
Apartments 336
Casselbury, Apt. 12/95 -
FL (A) Units 12/25 $10,700,000 $293,914 $(58,783) $ 465,529 $11,400,660 $11,216,528 $979,050 $(31,374) $ 947,676
Rolling
Ridge
Apartments 110
Chino Hills, Apt. 8/96 -
CA (B) Units 8/26 4,925,000 216,725 (30,703) 13,105 5,124,127 4,964,300 443,250 (22,053) 421,197
Lexington
Trails
Apartments 200
Houston, Apt. 5/97 -
TX (C) Units 5/22 4,900,000 123,886 (8,260) (115,626) 4,900,000 0 286,650 (8,260) 278,390
Highpointe
Apartments 240
Harrisburg, Apt. 9/97 -
PA (D) Units 6/06 3,250,000 236,304 (9,001) (227,303) 3,250,000 0 96,688 (9,001) 87,687
---------- ------- ------ -------- ---------- ---------- ------- ------ -------
$23,775,000 $870,829 $(106,747) $135,705 $24,674,787 $16,180,828 $1,805,638 $(70,688) $1,734,950
========== ======= ======== ======= ========== ========== ========= ======= =========
</TABLE>
(A) The interest rate for the Reflections is 9.00%. In addition to the interest
rate the Trust will be entitled to 25% of the cash flow, as defined.
(B) The interest rate of the Rolling Ridge is 9.00%. In addition to the interest
rate the Trust will be entitled to 30% of the cash flow, as defined.
(C) The interest rate for the Lexington Trails is 9.00%.
(D) The interest rate for the Highpointe is 9.00%.
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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.
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 May 1, 1997, the Trust used a portion of the net proceeds of its offering to
purchase Harris County Texas General Obligation Tax-Exempt Commercial Paper from
Goldman Sachs. The commercial paper, which has a principal face value of
$1,500,000 and interest rate of 3.75%, was purchased as a permanent investment
and matured on May 14, 1997.
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 received or 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
$94,938, $59,656 and $750 for the years ended December 1997, 1996 and 1995; the
total amount accrued and unpaid as of December 31, 1997, 1996 and 1995 amounted
to $91,906, $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 $84,593, $139,007 and $74,858 for
the years ended December 31, 1997, 1996 and 1995; the total amount accrued and
unpaid as of December 31, 1997, 1996 and 1995, amounted to $295,733, $211,141
and $74,858, respectively; (v) bond selection fees calculated on a percentage of
the Gross Proceeds applicable to the First Mortgage Bonds; as of both December
31, 1997 and 1996, were $584,392 and $584,392 of which $584,392 and $355,114
have been capitalized and are included in Investment in First Mortgage Bonds;
and (vi) certain other fees.
-25-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
The Trust paid 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, was 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. During 1995
and 1996, offering costs totaled $680,489 along with selling commissions (see
below) and were 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.
During 1995 and 1996, the Trust paid a total of $1,598,651 of commissions and
due diligence expenses to unaffiliated broker-dealers.
NOTE 6 - Subsequent Events
On February 14, 1998, a distribution of $580,749 and $5,926 was paid to the
shareholders and the Manager, respectively, representing the 1997 fourth quarter
distribution. The distribution has been funded from cash collections of debt
service payments and interest income through approximately the distribution
date.
-26-
<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
Officer/Director
Name Age Positions Held or Manager
- - ------------------ --- ---------------------------------- -----------------
<S> <C> <C> <C>
J. Michael Fried 53 Director and President 1991
Stuart J. Boesky 41 Director and Senior Vice President 1991
Alan P. Hirmes 43 Senior Vice President 1991
Richard A. Palermo 37 Treasurer 1996
Lynn A. McMahon 42 Secretary 1991
</TABLE>
J. MICHAEL FRIED, age 53, 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
-27-
<PAGE>
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 41, 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 & Strook &
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 43, 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.
RICHARD A. PALERMO, age 37, 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 42, 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.
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 9, 1998, 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 9,
1998, no directors and officers of the Manager own any shares of the Trust.
-28-
<PAGE>
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.
-29-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
----------
(a) 1. Financial Statements
Independent Auditors' Report 12
Balance Sheets at December 31, 1997 and 1996 13
Statements of Income - years ended December 31,
1997, 1996 and 1995 14
Statements of Changes in Shareholders' Equity - years ended
December 31, 1997, 1996 and 1995 15
Statements of Cash Flows - years ended December 31, 1997,
1996 and 1995 17
Notes to Financial Statements 18
(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)
10(d) Current report on Form 8-K dated May 21, 1997 was filed on May 21, 1997
relating to the purchase of the Lexington Trails Bond
10(e) Current report on Form 8-K/A dated May 21, 1997 was filed on July 18,
1997 relating to the purchase of the Lexington Trails Bonds
-30-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
10(f) Current report on Form 8-K/A dated September 2, 1997 was filed on
September 10, 1997 relating to the purchase of the Highpointe Bonds
10(g) Current report on Form 8-K/A dated September 2, 1997 was filed on
November 10, 1997 relating to the purchase of the Highpointe Bonds
27 Financial Data Schedule (filed herewith)
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.
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.
(b) Current report on Form 8-K/A dated September 2, 1997 was filed on
November 10, 1997 relating to the purchase of the Highpointe Bonds.
-31-
<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: By: ______________________________
J. Michael Fried
Director and President
(Principal Executive Officer)
Date: By: ______________________________
Stuart J. Boesky
Director and Senior Vice President
<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:
Signature Title Date
- - -------------------- ---------------------------------- -----------
____________________ Director and President (Principal
J. Michael Fried Executive Officer) of the Manager
____________________ Director and Senior Vice President
Stuart J. Boesky of the Manager
____________________ Senior Vice President (Principal
Alan P. Hirmes Financial Officer) of the Manager
____________________ Treasurer (Principal Accounting
Richard A. Palermo Officer) of the Manager
<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: By: /s/ J. Michael Fried
----------------------------------
J. Michael Fried
Director and President
(Principal Executive Officer)
Date: By: /s/ Stuart J. Boesky
----------------------------------
Stuart J. Boesky
Director and Senior Vice President
<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:
Signature Title Date
- - -------------------- ----------------------------------- ----------
/s/ J. Michael Fried Director and President (Principal
- - ---------------------- Executive Officer) of the Manager
J. Michael Fried
/s/ Stuart J. Boesky Director and Senior Vice President
- - ---------------------- of the Manager
Stuart J. Boesky
/s/ Alan P. Hirmes Senior Vice President (Principal
- - ---------------------- Financial Officer) of the Manager
Alan P. Hirmes
/s/ Richard A. Palermo Treasurer (Principal Accounting
- - ---------------------- Officer) of the Manager
Richard A. Palermo
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for American Tax-Exempt Bond Trust and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000916824
<NAME> American Tax Exempt Bond Trust
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,081,939
<SECURITIES> 24,674,787
<RECEIVABLES> 200,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,160,922
<CURRENT-LIABILITIES> 469,347
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,691,575
<TOTAL-LIABILITY-AND-EQUITY> 26,160,922
<SALES> 0
<TOTAL-REVENUES> 1,911,461
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 224,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,687,181
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,687,181
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 0
</TABLE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
DBA REFLECTIONS APARTMENTS
(A MARYLAND LIMITED PARTNERSHIP)
December 31, 1997
<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
- 2 -
<PAGE>
[REZNICK FEDDER & SILVERMAN -- LETTERHEAD]
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, 1997, and the related
statements of operations, partners' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Casselberry-Oxford
Associates Limited Partnership as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 23, 1998
- 3 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
BALANCE SHEET
December 31, 1997
ASSETS
<TABLE>
<S> <C> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $ 6,699,514
OTHER ASSETS
Cash and cash equivalents 164,794
Tenant receivables 4,295
Other accounts receivable 4,215
Due from Oxford 19,116
Tenant security deposits - funded 58,327
Prepaid expenses 10,000
Mortgage escrow deposits 80,137
Capital expenditure reserve 92,520
Reserve for replacements 507
Unamortized costs 367,281
-----------
$ 7,500,706
===========
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 46,068
Tenant security deposits 54,945
Deferred rental revenue 26,002
Working capital advances 3,234
Accrued investor services fee 7,000
Working capital loan (includes accrued interest
of $173,358 ) 992,458
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
-----------
13,863,489
PARTNERS DEFICIT
Capital contributions $ 5,835,310
Less: Nonamortizable costs 439,499
------------
5,395,811
Cumulative cash distributions (324,745)
Cumulative losses (11,433,849) (6,362,783)
------------ -----------
$ 7,500,706
===========
</TABLE>
The acccompanying notes are an integral part of this statement
-4-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF OPERATIONS
Year ended December 31, 1997
Gross potential rental revenue $2,323,217
Less vacancies and allowances 125,896
----------
Net rental revenue 2,197,321
Interest income 14,689
Other income 110,619
----------
Total operating revenue 2,322,629
Operating expenses
Renting $ 29,725
Administrative 250,010
Maintenance and operating 384,854
Utilities 175,099
Taxes 210,112
Insurance 78,613 1,128,413
--------
Mortgage interest 979,050
Interest on advances and loans 75,000
Depreciation 229,652
Amortization 46,034
Financing fees 25,009
Investor services fees 8,654
Other partnership expenses 9,469 1,372,868
-------- ----------
Total expenses 2,501,281
----------
Net loss $ (178.652)
==========
The accompanying notes are an integral part of this statement
- 5 -
<PAGE>
<TABLE>
<CAPTION>
Gross Less Net Cumulative
Capital Nonamortizable Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
---------- --------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit
1/1/97 $5,835,310 $(439,499) $5,395,811 (324,745) $(11,255,197) $(6,184,131)
Net loss -- -- -- -- (178,652) (178,652)
---------- --------- ---------- -------- ------------ -----------
Partners' deficit
12/31/97 $5,835,310 $(439,499) $5,395,811 (324,745) $(11,433,849) $(6,362,783)
========== ========= ========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement
- 6 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
Cash flows from operating activities
Net loss $(178,652)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 229,652
Amortization 46,034
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant receivables (1,882)
Other accounts receivable (4,079)
Mortgage escrow deposits
Debt service escrow 29,108
Tenant security deposits - net (675)
Increase (decrease) in liabilities
Accounts payable (75,815)
Accrued interest - working capital loan 75,000
Deferred rental revenue 15,952
---------
Net cash provided by operating activities 139,739
---------
Cash flows from investing activities
Net disbursements from reserve for replacements 16,825
---------
Net cash provided by investing activities 16,825
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 156,564
Cash and cash equivalents, beginning 8,230
---------
Cash and cash equivalents, end $ 164,794
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 979,050
=========
The accompanying notes are an integral part of this statement
-7-
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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.
Cash Equivalents
The partnership invests substantially all of its available cash in the
operating bank account in an overnight investment in commercial paper which
is considered to be a cash equivalent. At December 31, 1997, $163,780 was
invested.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
- 8 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to,
and is reportable by, the partners on their respective income tax returns.
NOTE 3 - RELATED PARTY TRANSACTIONS
The general partners of the partnership are OAMCO VII, L.L.C. and Leo E.
Zickler.
The general partners are officers and/or affiliates of Oxford Development
Corporation (Oxford), Oxford Holding Corporation (OHC), Oxford Realty
Financial Group, Inc. (ORFG), or Apartment Investment and Management
Company (AIMCO)
The following items were paid or are payable to Oxford, OHC, ORFG, AIMCO 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 AIMCO, to provide property management services to the
partnership. The fee for such services is equal to 3.36% of gross
collections which was $77,704 in 1997. The agreement expires December 31,
1998, 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, 1997 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 7) or from the proceeds of sale or refinancing, after
certain priorities.
- 9 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
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 7) or proceeds of sale or refinancing of the project, after
certain priorities.
Accounting and Data Processing Fee
NHP Management Company receives an accounting and data processing fee of
$1.49 per unit per month. A fee of $ 6,015 was paid in 1997.
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
The general partners and/or their affiliates receive an incentive
management fee payable from distributable net cash flow after certain
priorities (note 7). No fee was earned in 1997.
Capital Improvement Consulting, Oversight, and Administrative (CICOA) Fee
NHP Management Company earns a fee for its services in special planning and
oversight in connection with capital improvements made to the rental
property. The fee is 7.46% of the actual costs of certain capital
improvements, subject to certain limitations, and is payable to NHP
Management Company from operating revenue. The fee earned in 1997 was
$3,239.
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 1997 was
$976 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 1997 was $29,957,
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, 1997, the cumulative amount deferred was $15,428 and is
included in deferred management fees.
- 10 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
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 7). Any unpaid
supplemental fee will bear interest at 2% per annum over the prime rate as
charged by Citibank (8.5% at December 31, 1997). No supplemental fee was
expensed in 1997.
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 this fee, the partnership will
accrue any prior year's fees and interest thereon at that time.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to ORFG
for its services in preparing necessary reports for the investor limited
partners and in communicating with them concerning the partnership's
affairs. The fee may be increased by the same percentage as the average
percentage increase in the project's rent. A fee of $8,654 was expensed and
paid in 1997.
Prior to January 1, 1994, Oxford Equities Corporation (OEC) was the
servicer of this information. The balance due OEC at December 31, 1997 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, 1997, 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 7), with the unpaid balance accruing interest at a simple rate equal
to 10% per annum. Interest of $75,000 was expensed in 1997. As of December
31, 1997, the amount due Oxford was $992,458 which includes accrued
interest of $173,358.
- 11 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
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, 1997 which includes accrued interest
of $67,280. Pursuant to an earlier agreement no additional interest will be
charged. The loan is repayable from distributable net cash flow (note 7) or
proceeds of the sale or refinancing of the project, after certain
priorities. OMC is not required to make additional operating expense loans
as the term of this obligation has expired.
Subordinated Loan Payable
During 1988, a collateral security account funded by Oxford, in the amount
of $153,843 was drawn to pay mortgage interest of the partnership. This
amount is repayable to Oxford, without interest, upon sale or refinancing
of the project, after certain priorities.
Amounts outstanding on the above notes and loans at the time of sale or
refinancing of the project or the dissolution of the partnership are
payable from the proceeds of such sale, refinancing or partnership
liquidation.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation,
and at December 31, 1997 consisted of the following:
Land $ 700,000
Buildings 9,173,606
Building equipment 1,598,578
-----------
11,472,184
Less accumulated depreciation 4,772,670
-----------
$ 6,699,514
===========
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.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
- 12 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
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, 1997, the loan
balance was $347,177.
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited
Partners $ 260
Investor Limited Partners 4,750,050
Preferred Limited Partners 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at December 31, 1997 is as follows:
Cash and cash equivalents $ 164,794
Tenant security deposits - funded 58,327
----------
223,121
Less: Accounts payable $ 46,068
Tenant security deposits 54,945
Deferred rental revenue 26,002
Accrued interest payable 82,925
Working capital advances 3,234 213,174
-------- ----------
Distributable net cash flow $ 9,947
==========
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 (The balance due under this
priority is $174,000);
(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;
- 13 -
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (Continued)
(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 ($1,762,821 as of December 31, 1997 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% 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 the general partners
and/or their affiliates 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 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
COMPLIANCE WITH LAND USE RESTRICTION AGREEMENT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
December 31, 1997
<PAGE>
[REZNICK FEDDER & SILVERMAN -- LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Casselberry-Oxford Associates Limited Partnership
We have audited, in accordance with generally accepted auditing standards,
the balance sheet of Casselberry-Oxford Associates Limited Partnership as of
December 31, 1997, and the related statements of operations, partners' deficit
and cash flows for the year then ended, and have issued our report thereon dated
January 23, 1998.
In connection with our audit, nothing came to our attention that caused us
to believe that the partnership failed to comply with the terms, covenants,
provisions or conditions of the Regulatory Agreement with the Orange County
Housing Finance Authority of the State of Florida and Suntrust Bank, Central
Florida National Association regarding Section 103(b)(4)(A) of the 1954 Internal
Revenue Code insofar as they relate to accounting matters. However, our audit
was not directed primarily toward obtaining knowledge of such noncompliance.
This report is intended solely for the information and use of management of
the partnership, the Orange County Housing Finance Authority of the State of
Florida and Suntrust Bank, Central Florida National Association and should not
be used for any other purpose.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 23, 1998
ROLLING RIDGE, LLC
(A Limited Liability Company)
Audited
Financial Statements
December 31, 1997
<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 to Financial Statements 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, 1997, 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, 1997, and the results of its operations, changes in members' equity and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ JAMES L. ZIMMERMAN
February 9, 1998
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Balance Sheet
December 31, 1997
ASSETS
Land and buildings (including land of $1,113,241)
at cost, less accumulated depreciation of $1,625,587 - Note 1 $4,961,638
Cash - Restricted for replacement reserve - Note 2 5,605
Accounts receivable from tenants 3,176
Debt financing costs, less accumulated amortization of $14,048 173,233
----------
$5,143,652
==========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage payable - Note 2 $4,925,000
Bank overdraft 37,235
Accounts payable 16,848
Prepaid rents from tenants 1,356
Tenants security deposits payable 66,777
----------
Total liabilities 5,047,216
Members' equity 96,436
----------
$5,143,652
==========
See Accompanying Notes to Financial Statements
2
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Operations
For the Year Ended December 31, 1997
Revenue:
Net rentals $ 920,968
Other income 22,516
---------
Total revenues 943,484
---------
Cost of operations:
Payroll and related 85,377
Management fees 37,743
Advertising and promotion 19,106
Professional fees 8,809
Other administrative expenses 29,688
Landscaping 12,830
Painting 33,304
Other repairs and maintenance 70,646
Refuse collection 8,659
Utilities 61,298
Insurance 6,303
Property taxes 136,675
Interest expense 443,250
---------
Total cost of operations 953,688
---------
Income (loss) before depreciation
and amortization (10,204)
Depreciation and amortization 205,297
---------
Net loss $(215,501)
=========
See Accompanying Notes to Financial Statements
3
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Members' Equity
For the Year Ended December 31, 1997
Duane R. Ralph & Diane
Raab Haun Total
--------- --------- ---------
Balances at beginning of year $ 246,553 $ 53,384 $ 299,937
Contributions 6,000 6,000 12,000
Withdrawals -- -- --
Net income (loss) (107,751) (107,750) (215,501)
--------- --------- ---------
Balances (deficit) at end of year $ 144,802 $ (48,366) $ 96,436
========= ========= =========
See Accompanying Notes to Financial Statements
4
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Cash Flows
For The Year Ended December 31, 1997
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Net loss $(215,501)
Adjustments to reconcile net loss
to net cash provided by (applied to)
operating activities:
Depreciation and amortization $ 205,297
(Increase) decrease in:
Accounts receivable 3,012
Increase (decrease) in:
Bank overdraft (8,606)
Accounts payable (171)
Prepaid rents 283
Tenants security deposits 1,914
---------
Net adjustments 201,729
---------
Total from operating activities (13,772)
---------
Cash flows from investing activities:
Deposits to replacement reserves (21,996)
Expenditures from replacement reserves 23,768
---------
Net cash flows from investing activities 1,722
---------
Cash flows form financing activities:
Member contributions 12,000
---------
Net increase (decrease) in cash 0
Beginning cash balance 0
---------
Ending cash balance $ 0
=========
Supplemental disclosure - cash paid during year for interest $ 443,250
=========
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statement
For the Year Ended December 31, 1997
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.
Rabb, 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 Apartments. 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.
6
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statements
For the Year Ended December 31, 1997
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 year ended
December 31, 1997, 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. Activity in the replacement
reserve escrow account for the year ended December 31, 1997 is shown below:
Balance at beginning of year $ 7,377
Monthly contributions (12 x $1,833) 21,996
Expenditures made during year:
Floor covering $18,116
Other furnishings and fixtures 3,632
Roofing repairs 2,020 (23,768)
-------- -------
Balance at end of year $ 5,605
=======
7
