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, 1999
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:
Shares of Beneficial Interest
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 reg-
istrant 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 con-
tained, to the best of registrant's knowledge, in definitive proxy or infor-
mation 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 Commis-
sion 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.
Page 1 of 105
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS
"BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE
INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO
THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
TRUST UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
<PAGE>
PART I
Item 1. Business.
General
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23, 1993
as a finite life, closed end Delaware business trust for the purpose of in-
vesting in tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by
various state or local governments or their agencies or authorities and se-
cured by first mortgage loans on multifamily residential apartment and re-
tirement community projects. The Manager to the Trust is Related AMI Associ-
ates, 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 Man-
ager, Wilmington Trust Company, a Delaware banking corporation, as trustee,
and the other persons referred to herein to be holders of beneficial inter-
ests in the Trust. See Item 10, Directors and Executive Officers of the
Trust, below.
On November 1, 1994, the Trust commenced a public offering (the "Offering")
of its shares of beneficial interest, managed by Related Equities Corpora-
tion, pursuant to a prospectus dated November 1, 1994. The Offering termi-
nated as of October 15, 1996. A total of 1,460,980 shares were sold through
the Offering and as of December 31, 1999, 40,501 shares were issued through
the dividend reinvestment plan (the "Reinvestment Plan") (2,541 of which were
not restricted for use in connection with the Redemption Plan and are
included in Gross Proceeds), representing Gross Proceeds (the "Gross
Proceeds") of $29,989,113 (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.
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 distribu-
tions in connection with First Mortgage Bond investments from contingent in-
terest payments exempt from Federal income taxation. There can be no assur-
ance that such objectives will be achieved.
The Trust has invested the Net Proceeds 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 ("Underlying Properties") 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, al-
though the Trust anticipates holding the First Mortgage Bonds for approxi-
mately 10 to 12 years and having the right to cause repayment of the bonds at
that time, unless the First Mortgage Bonds are repaid prior to maturity (in
which event the Trust may seek to reinvest the repayment proceeds through
September 2002). The Trust is also permitted to invest in other tax exempt
securities which have shorter maturities then First Mortgage Bonds ("Tax-
Exempt Securities"). However, all Tax-Exempt Securities owned by the Trust
have matured and the Trust does not anticipate making additional investments
in Tax-Exempt Securities.
Proposed Merger
On November 2, 1999, the Trust, CharterMac, and CM Holding Trust, a wholly
owned subsidiary of CharterMac ("CharterMac Sub"), entered into an Agreement
and Plan of Merger (the "Merger Agreement"), providing for the merger of the
Trust (the "Merger") with and into CharterMac Sub, with CharterMac Sub as the
surviving entity in the Merger. Pursuant to the Merger Agreement and upon the
terms and subject to the conditions and limitations therein, each issued and
outstanding share of beneficial interest in the Trust will be converted into
the right to receive 1.43112 shares of beneficial interest in CharterMac.
CharterMac and the Trust are both managed by affiliates of Related Capital
Company.
Consummation of the Merger, which is expected in the second quarter of 2000,
is subject to various conditions, including approval of the Merger by the
shareholders of the Trust. Prior to such shareholders' meeting, CharterMac
will file a registration statement with the Securities and Exchange Commission
registering under the Securities Act of 1933, as amended, the CharterMac
Shares to be issued in exchange for the outstanding Trust Shares. Such Char-
terMac Shares will be offered to the Trust shareholders only pursuant to a
prospectus that will also serve as a consent statement for the shareholders of
the Trust.
<TABLE>
First Mortgage Bonds
As of December 31, 1999, the Trust has made the following investments in
First Mortgage Bonds:
<CAPTION>
Original
Date of Bond
Invest- Amount and Par-
ment/ Outstanding ticipa-
Final Pre- Balance at Base tion in
Descrip Maturity pay- December Interest Cash
Property -tion Date ment 31, 1999 Rate Flow
<S> <C> <C> <C> <C> <C> <C>
Reflections 336 12/1995 - Permit- $10,700,000
Apartments Apt. 12/2025 ted 9% 25%
Casselbury, Units after
FL 12/1/99
Rolling Ridge 110 8/1996 - Permit- 4,925,000
Apartments Apt. 8/2026 ted 9% 30%
Chino Hills, Units after
CA 8/1/00
Lexington 200 5/1997 - Permit- 4,900,000
Trails Apt. 5/2022 ted 9% N/A
Apartments Units after
Houston, 5/1/02
TX
Highpointe 240 9/1997 - Not 3,250,000
Apartments Apt. 6/2006 permit- 9% N/A
Harrisburg, Units ted
PA
$23,775,000
</TABLE>
All leases for the Underlying Properties are generally for periods not greater
than one to two years and no tenant occupies more than 10% of the rentable
square footage. All tenants are residential.
<TABLE>
<CAPTION>
Property Occupancy (%) Monthly Rent Per Unit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Year) 95 96 97 98 99 95 96 97 98 99
Reflections
(336 Units) 94 96 93 95 93 $528 $546 $576 $604 $631
Rolling Ridge
(110 Units) N/A 96 94 100 98 N/A $665 $698 $743 $784
Lexington
Trails
(200 Units) N/A N/A 97 96 95 N/A N/A $515 $533 $556
Highpointe
(240 Units) N/A N/A 98 89 98 N/A N/A $605 $597 $602
</TABLE>
Reflections Apartments
On December 21, 1995, the Trust completed the amendment of the bond indenture
for the $10,700,000 in tax-exempt First Mortgage Bonds (the "Reflections
Bonds"). In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds. The Reflections Bonds were issued by
the Orange County Florida Housing Finance Authority and are secured by a
first mortgage and mortgage loan on Reflections Apartments (the "Project" or
"Reflections"), a development consisting of 336 apartment units in Cassel-
berry, Florida. Reflections is owned by Casselberry-Oxford Associates, L.P.
(the "Borrower"). The Reflections Bonds bear a fixed current interest rate
of 9.0%. In addition, the Trust is entitled to 25% of the cash flow, as de-
fined. The Reflections Bonds mature in 2025 and are subject to mandatory re-
demption, at the Trust's option, beginning in December 2005. The principal
of the Reflections Bonds is payable upon sale or refinancing of the Project
and prepayment, in whole or in part, was prohibited until December 1999.
Prepayment in whole is now permitted subject to the payment of a premium. If
prepaid during the sixth year, the premium is equal to 5% of the principal
amount of the Reflections Bonds outstanding at the time of prepayment.
Thereafter, the premium will be reduced by 1% per year through the tenth
year, when there will be no prepayment premium payable.
Rolling Ridge Apartments
On August 2, 1996, the Trust purchased tax-exempt First Mortgage Bonds (the
"Rolling Ridge Bonds") in an aggregate principal amount of $4,925,000. The
Rolling Ridge Bonds were issued by San Bernardino County and are secured by a
deed of trust on Rolling Ridge Apartments (the "Project" or "Rolling Ridge"),
a development consisting of 110 apartment units in Chino Hills, California.
Rolling Ridge is owned and operated by Rolling Ridge L.L.C. (the "Borrower").
The Rolling Ridge Bonds bear a fixed current interest rate of 9.0%. In addi-
tion, the Trust will be entitled to 30% of the cash flow, as defined. The
Rolling Ridge Bonds mature in 2026 and are subject to mandatory redemption,
at the Trust's option, beginning in August 2006. The Borrower will be per-
mitted two nine-month extensions. The principal of the Rolling Ridge Bonds
is payable upon sale or refinancing of the Project. Prepayment, in whole or
in part, is prohibited until August 2000. Prepayment in whole will be per-
mitted thereafter subject to the payment of a premium. If prepaid during the
sixth year, the premium is equal to 5% of the principal amount of the Rolling
Ridge Bonds outstanding at the time of prepayment. Thereafter, the premium
will be reduced by1% per year until the tenth year, when there will be no
prepayment premium payable.
Lexington Trails Apartments
On May 7, 1997, the Trust purchased tax-exempt First Mortgage Bonds (the "Lex-
ington Trails Bonds") in an aggregate principal amount of $4,900,000. The
Lexington Trail Bonds were issued by The Harris County Housing Finance Corpo-
ration and are secured by a first deed of trust and mortgage loan on Lexington
Trails Apartments (the "Project" or "Lexington Trails"), a development con-
sisting of 200 apartment units in Houston, Texas. Lexington Trails is owned
and operated by Lexington Trails-American Housing Foundation, Inc. The Lex-
ington Trails Bonds bear a fixed current rate of 9.0%. The Lexington Trails
Bonds mature in May 2022 and are subject to mandatory redemption, at the
Trust's option, beginning in May 2007. The principal of the Lexington Trails
Bonds is payable upon sale or refinancing of the Project. Prepayment, in whole
or in part, is prohibited until May 2002. Prepayment in whole will be permit-
ted 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
The Highpointe Apartments ("Highpointe") are secured by two series of bonds.
The Multifamily Housing Revenue Bonds Series 1989 (the "Multifamily Bonds")
are owned by the Trust. The Redevelopment Authority of the County of Daupin,
Multifamily Housing Revenue Bonds, Series 1986 (the "Redevelopment Bonds") in
the principal amount of $8,900,000 are owned by CharterMac. Highpointe is
owned and operated by RHA Inv., Inc. (the "Borrower") which is an affiliate of
the Manager by virtue of the fact that Stephen Ross is on the Board of Trus-
tees of both the Borrower and the Manager, also owns 40% and 67.2% of each en-
tity, respectively. The Multifamily Bonds bear interest at 9%, have a first
claim of cash flow for payment of interest and a pari passu first mortgage se-
curity interest with a $750,000 priority on the payment of principal upon sale
or refinancing. The Multifamily Bonds are current with respect to the payment
of the 9% interest. The Redevelopment Bonds currently pay interest based on
the net cash flow and are currently paying approximately 4.7% per annum. The
difference between the pay rate and the base rate (8.5% per annum) is accruing
and is payable from first available cash flow or sale/refinancing proceeds.
While the Borrower is in technical default under the terms of the loan agree-
ment as the loan documents do not call for cash flow mortgage payments on the
Redevelopment Bonds, CharterMac has indicated it will not exercise its rights
and remedies as defined under the terms of the Redevelopment Bonds and mort-
gage documents.
Competition
The Trust's business is affected by competition to the extent that the under-
lying properties from which it derives interest and ultimately, principal
payments, and participation in cash flow may be subject to competition relat-
ing to rental rates and amenities from comparable neighboring properties.
The Trust does not believe it competes with any other companies, due to the
fact that it is not permitted to borrow, nor does it have additional funds to
invest.
Competition for the Properties in there corresponding community is as follows:
Property Competition
Reflections 9 apartment complexes
Rolling Ridge 7 apartment complexes
Lexington Trails 263 apartment complexes
Highpointe 24 apartment complexes
Employees
The Trust does not directly employ anyone. All services are performed for
the Trust by the Manager and its Affiliates. The Manager receives compensa-
tion 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.
Consummation of the Merger, which is expected in the second quarter of 2000,
is subject to various conditions, including approval of the Merger by the
shareholders of the Trust. See Item 1-Business-Proposed Merger.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
As of December 31, 1999, a total of 1,501,481 shares have been sold to the
public, either through the Offering or the Trust's Reinvestment Plan, repre-
senting Gross Proceeds of $29,989,113 (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, 1999, 40,501 shares have been sold
through the Reinvestment Plan (2,541 of which were not restricted for use in
connection with the Redemption Plan and are included in Gross Proceeds), the
proceeds of which ("Reinvestment Proceeds") are restricted for use in connec-
tion with the Redemption Plan and are not included in Gross Proceeds. As of
December 31, 1999, 37,960 shares were redeemed.
The number of shareholders as of March 1, 2000 was 1,400. Although the
shares are freely transferable, shareholders may not be able to liquidate
their investment because the shares are not 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 there-
fore 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. Consequently, the pur-
chase of shares should be considered only as a long-term investment.
Due to the pending Merger, the Trust's Manager gave notice to Shareholders
and has suspended the Redemption Plan and the Reinvestment Plan with the
quarter ended September 30, 1999.
Reinvestment Plan
Shares received pursuant to the Reinvestment Plan entitled participants to
the same rights and treatment as those issued pursuant to the offering. Dur-
ing the offering period, the price per share offered pursuant to the Rein-
vestment Plan was $20. From October 15, 1996, (the termination of the offer-
ing period) until October 15, 1999, (the third anniversary of the final clos-
ing date), the price per share offered pursuant to the Reinvestment Plan was
$19.
Redemption Plan
The Trusts Redemption Plan 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 Reinvestment Proceeds from the sale of shares
under the Reinvestment Plan. There is no assurance that there will be Rein-
vestment Proceeds available for redemption and accordingly, no assurance that
the Trust will be able to redeem an investor's share. Upon presentation of
shares which are eligible for redemption ("Eligible Shares") to the Trust for
redemption, the redemption price was $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.
<TABLE>
Distribution Information
Cash distributions to shareholders for the years ended December 31, 1999 and
1998 were as set forth in the following table:
<CAPTION>
Total Amount
Cash Distribution Per Share Distributed to
for Quarter Ended Date Paid Distribution Shareholders
<S> <C> <C> <C>
March 31, 1999 5/15/1999 $ .4000 $ 585,408
June 30, 1999 8/14/1999 .4000 585,408
September 30, 1999 11/14/1999 .4000 586,275
December 31, 1999 2/14/2000 .4000 586,065
Total for 1999 $1.6000 $2,343,156
March 31, 1998 5/15/1998 $ .4000 $ 584,983
June 30, 1998 8/14/1998 .4000 584,993
September 30, 1998 11/14/1998 .4000 585,002
December 31, 1998 2/14/1999 .4000 584,999
Total for 1998 $1.6000 $2,339,977
</TABLE>
Quarterly distributions were made 45 days following the close of the calendar
quarter and were funded from cash provided from earnings through approxi-
mately the distribution dates and proceeds from the maturity of investments,
after taking into account the deferral by the Manager of amounts owed to it.
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. Distributions to the Trust shareholders are at the sole discre-
tion of the Manager based on numerous factors. Throughout its offering and
acquisition period, the Trust had established and maintained a distribution
rate that the Trust expected to be able to pay after it had fully invested
the proceeds of its initial offering, which required that distributions be
supplemented by a return of capital until earnings from bonds acquired by the
Trust stabilized.
When the Trust's acquisition stage was completed at the end of 1997, the Trust
realized that the actual performance of its investment portfolio would not
support the initial distribution rate that it had set based on its original
internal assumptions. The Trust's new distribution policy, adopted in the
first quarter of 1998, calls for quarterly distributions that more closely re-
flect the actual, rather than the originally expected, collections of interest
payments on its portfolio. However, rather than implement this new policy im-
mediately, the Trust determined to maintain the current distribution rate.
During this time, the Trust continued to pay distributions at the current rate
by supplementing its actual earnings with the amortization and repayment pro-
ceeds from its short-term investments.
In addition, although under no obligation to do so, over the last seven quar-
ters, including the quarter ended December 31, 1999, the Manager has deferred
payment of expenses, reimbursements and fees payable to it in order to further
supplement the cash available to maintain the current distribution rate. The
Trust will soon deplete the remaining amortization and repayment proceeds from
its short-term investments. In addition, the Manager has recently indicated
that it is no longer willing to continue to defer receipt of expenses, reim-
bursements and fees it is owed.
As a result, the Manager believes that the Trust's future annual distributions
to its shareholders will be between $0.96 and $0.80 per share, which is a de-
crease of between 40% and 50% from the current level of $1.60 per share and a
decrease in the annualized return from 8% to between 4% and 4.8%, based on the
original per share purchase price of the Trust's shares. It is anticipated
that if approved the proposed Merger would enable the Trust shareholders to
receive a distribution greater than what the shareholders would otherwise
receive.
Of the total distributions of $2,484,623 and $2,484,182 made during the years
ended December 31, 1999 and 1998, $590,139 ($.39 per share or 24%) and
$584,309 ($.39 per share or 24%), respectively, represents a return of capi-
tal determined in accordance with generally accepted accounting principles.
As of December 31, 1999, the aggregate amount of the distributions made since
the commencement of the Offering representing a return of capital, in accor-
dance with generally accepted accounting principles, totaled $2,684,172. The
portion of the distributions which constitutes a return of capital were sig-
nificant during the acquisition stage in order to maintain level distribu-
tions to shareholders.
<TABLE>
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 finan-
cial statements and notes thereto contained in Item 8 hereof.
<CAPTION>
Years Ended December 31,
OPERATIONS 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Interest
income:
First
Mortgage
Bonds $2,114,309 $2,076,401 $1,734,950 $1,127,980 $ 226,972
Tax-Exempt
Securities 0 0 3,277 2,054 2,160
Cash
equivalents
and
Marketable
Securities 19,766 36,489 173,234 262,381 147,647
Total
revenues 2,134,075 2,112,890 1,911,461 1,392,415 376,779
Merger-related
costs 388,249 0 0 0 0
Other expenses 220,091 213,017 224,280 254,966 148,893
Total
expenses 608,340 213,017 224,280 254,966 148,893
Net income $1,525,735 $1,899,873 $1,687,181 $1,137,449 $ 227,886
Net income
per weighted
average share-
Shareholders $ 0.95 $ 1.20 $ 1.07 $ 0.95 $ 0.56
Distributions
per share* $ 1.60 $ 1.60 $ 1.60 $ .72-1.60 $ .20-1.13
<CAPTION>
FINANCIAL POSITION December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Total
Assets $28,099,830 $27,691,637 $26,160,922 $26,681,549 $17,385,740
Total
Liabili-
ties $ 1,351,501 $ 661,178 $ 469,347 $ 320,858 $ 174,470
Total
Shareholders'
Equity $26,748,329 $27,030,459 $25,691,575 $26,360,691 $17,211,270
</TABLE>
*Amounts received by shareholders varied depending on the dates they became
shareholders.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations.
Liquidity and Capital Resources
The Trust has invested the Net Proceeds 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 developed by third-party developers and, to a lesser ex-
tent, 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, unless the First Mortgage
Bonds are repaid prior to maturity (in which event the Trust may seek to re-
invest the repayment proceeds through September 2002). The Trust is also
permitted to invest in Tax-Exempt Securities. However, all Tax-Exempt Secu-
rities owned by the Trust have matured and the Trust does not anticipate mak-
ing additional investments in Tax-Exempt Securities.
The fair value of the First Mortgage Bonds increased approximately $583,000
during the year ended December 31, 1999 due to an increase in value of
participation in anticipated residual cash flows and has been reported as a
separate component of other comprehensive income.
For a description of each of the Trust's current investments and the Proposed
Merger, see Item 1. Business.
During the twelve months ended December 31, 1999, cash and cash equivalents
decreased approximately $163,000 due to distributions to shareholders
($2,485,000) which exceeded cash provided by operating activities
($2,322,000). Included in the adjustments to reconcile the net income to cash
provided by operating activities is amortization in the amount of approxi-
mately $106,000.
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, 40,501 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 pro-
ceeds. Pursuant to the Redemption Plan as of December 31, 1999, 37,960
shares have been redeemed for an aggregate price of $721,238. The Redemption
Plan has been suspended pending the vote on the Merger
The Trust previously established a reserve for working capital and contingen-
cies in an amount equal to 1% of the Gross Proceeds of the Offering and may
add to such reserves from Cash Flow and Sale or Repayment Proceeds. As of
December 31, 1999, all of this reserve has been used to pay general and ad-
ministrative, general and administrative-related parties and loan servicing
fees. Liquidity will be adversely affected by unanticipated costs, including
operating costs in excess of cash flows. 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 an Underlying
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 no longer be
sufficient to pay all of the Trust's operating expenses, including the special
distribution, in both the short term and long term foreseeable future if the
Trust were to continue to pay distributions to its shareholders at the current
rate. Certain expense reimbursements totaling approximately $459,000 and
$374,000 at December 31, 1999 and 1998, respectively, and the payment of a
portion of the special distribution totaling approximately $315,000 and
$196,000 at December 31, 1999 and 1998, respectively, to the Manager have been
accrued but are unpaid. The Manager has continued allowing the accrual with-
out payment of these amounts but is under no obligation to continue to do so.
If the merger is completed, CharterMac and the Trust will pay their own fees
and expenses. The Trust has accrued but not paid all merger-related costs in-
curred as of December 31, 1999. If the Merger Agreement is terminated because
the Trust shareholders do not approve the Merger, CharterMac will pay its own
fees and expenses and the Manager, or one of its affiliates, will pay all fees
and expenses incurred by the Trust. If the Merger Agreement is terminated for
any reason other than the failure of the Trust shareholders to approve the
Merger, CharterMac and the Trust will pay their own fees and expenses. If the
Trust shareholders do not approve the Merger it is expected the Manager would
be paid all accrued and unpaid fees and special distributions thereby reducing
the cash available for distribution.
The Trust anticipates that cash generated from the operations of the underly-
ing properties (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 both the short term
and long term foreseeable future.
Results of Operations
1999 vs. 1998
The results of operations for the years ended December 31, 1999 and 1998 con-
sisted primarily of interest income earned on First Mortgage Bonds and cash
equivalents, net of general and administrative, general and administrative-
related parties, loan servicing fees and organization costs.
Interest income from First Mortgage Bonds increased approximately $38,000 for
the year ended December 31, 1999 as compared to the corresponding period in
1998 primarily due to an increase in contingent interest received at Rolling
Ridge in 1999.
Interest income from cash equivalents decreased approximately $17,000 for the
year ended December 31, 1999 as compared to the corresponding period in 1998
primarily due to a decrease in the cash and cash equivalent balances in 1999.
Merger-related costs of $388,000 for the year ended December 31, 1999 repre-
sent costs incurred, but not yet paid, relating to the proposed Merger.
1998 vs. 1997
The results of operations for the years ended December 31, 1998 and 1997 con-
sisted primarily of interest income earned on First Mortgage Bonds and market-
able securities, net of general and administrative, general and administra-
tive-related parties and loan servicing fees.
Interest income from First Mortgage Bonds increased approximately $341,000 for
the year ended December 31, 1998 as compared to the corresponding period in
1997 primarily due to the investment in 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 $137,000
for the year ended December 31, 1998 as compared to the corresponding period
in 1997 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 decreased approximately $15,000 for the
year ended December 31, 1998 as compared to the corresponding period in 1997
primarily due to a decrease in costs associated with SEC filings in 1998 and
decreased insurance costs in 1998.
Loan servicing fees increased approximately $10,000 for the year ended Decem-
ber 31, 1998 as compared to the corresponding period in 1997 primarily due to
the investment in the Lexington Trails First Mortgage Bond in May 1997 and the
Highpointe First Mortgage Bond in September 1997.
Distribution Policy
Quarterly distributions were made 45 days following the close of the calendar
quarter and were funded from cash provided from earnings through approxi-
mately the distribution dates and proceeds from the maturity of investments,
together with the deferral by the Manager of amounts owed to it.
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. Distributions to the Trust shareholders are at the sole discre-
tion of the Manager based on numerous factors. Throughout its offering and
acquisition period, the Trust had established and maintained a distribution
rate that the Trust expected to be able to pay after it had fully invested
the proceeds of its initial offering, which required that distributions be
supplemented by a return of capital until earnings from bonds acquired by the
Trust stabilized.
When the Trust's acquisition stage was completed at the end of 1997, the Trust
realized that the actual performance of its investment portfolio would not
support the initial distribution rate that it had set based on its original
internal assumptions. As a result, the Manager met and amended the distribu-
tion policy pursuant to the Trust Agreement. The Trust's new distribution
policy, adopted in the first quarter of 1998, calls for quarterly distribu-
tions that more closely reflect the actual, rather than the originally ex-
pected, collections of interest payments on its portfolio. However, rather
than implement this new policy immediately, the Trust sought alternative ways
to maintain the current distribution rate. During this time, the Trust con-
tinued to pay distributions at the current rate by supplementing its interest
receipts with the proceeds from repayment of its short-term investments in
1998 and 1997.
In addition, although under no obligation to do so, over the last seven quar-
ters, including the quarter ended December 31, 1999, the Manager has deferred
payment of expenses, reimbursements and fees payable to it in order to further
supplement the cash available to maintain the current distribution rate. The
Trust will soon deplete the remaining repayment proceeds from its short-term
investments. In addition, the Manager has recently indicated that it is no
longer willing to continue to defer receipt of expenses, reimbursements and
fees it is owed.
As a result, the Manager believes that the Trust's future annual distributions
to its shareholders will be between $0.96 and $0.80 per share, which is a de-
crease of between 40% and 50% from the current level of $1.60 per share and a
decrease in the annualized return from 8% to between 4% and 4.8%, based on the
original per share purchase price of the Trust's shares. It is anticipated
that if approved the proposed merger would enable the Trust shareholders to
receive a distribution greater than what the shareholders would otherwise
receive.
Of the total distributions of $2,484,623 and $2,484,182 made for the years
ended December 31, 1999 and 1998, $590,139 ($.39 per share or 24%) and
$584,309 ($.39 per share or 24%), respectively, represents a return of capi-
tal determined in accordance with generally accepted accounting principles.
As of December 31, 1999, the aggregate amount of the distributions made since
the commencement of the Offering representing a return of capital, in accor-
dance with generally accepted accounting principles, totaled $2,684,172. The
portion of the distributions which constitute a return of capital were sig-
nificant during the acquisition stage in order to maintain level distribu-
tions to shareholders.
Accounting Standards Issued but not yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Deriva-
tive Instruments and Hedging Activities". The Statement establishes account-
ing and reporting standards for derivative instruments and hedging activi-
ties. This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to
have any impact on the financial position or results of operations of the
Trust.
Year 2000 Compliance
The Trust has not experienced any Year 2000 problems to date, however, there
can be no assurance that no Y2K issues will arise at a future date.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
The Trust is exposed to interest rate risk as it relates to its investments
in First Mortgage Bonds. At December 31, 1999, 97% of the Trusts assets are
invested in four First Mortgage Bonds, all of which have a fixed interest
rate of 9% and maturities ranging from 10 to 30 years. The First Mortgage
Bonds are classified as available for sale and are carried at fair value with
a net unrealized gain of $2,815,760 reported as a separate component of other
comprehensive income. Two First Mortgage Bonds, representing 67% of the to-
tal investment in First Mortgage Bonds, are also entitled to participation in
the cash flow of the Underlying Property.
The fair value of the First Mortgage Bonds is estimated by the Manager based
on the current interest rate environment for similar securities, cash flow
projections for the Underlying Properties, a reversion estimate, prepayment
assumptions and an estimate of cash flow participation, when applicable. A
1% increase in the current interest rate environment assumption at December
31, 1999 could result in a decrease of approximately $470,000 in the net un-
realized gain on First Mortgage Bonds.
The Trust's ultimate realized gain or loss as it relates to interest rate
fluctuations is dependent on when, and if, the Trust disposes of the First
Mortgage Bonds prior to maturity. The Trust has the right to call the First
Mortgage Bonds after a period of 10 to 12 years from the date of acquisition
for face value. The First Mortgage Bonds are not allowed to be prepaid dur-
ing the first five years, and are subject to a prepayment premium in years
six through ten.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Page
(a) 1. Financial Statements
ATEBT
Independent Auditors' Report 16
Balance Sheets -December 31, 1999 and 1998 17
Statements of Income - Years ended December 31, 1999, 1998 and 1997 18
Statements of Changes in Shareholders' Equity - Years ended
December 31, 1999, 1998 and 1997 19
Statements of Cash Flows - Years ended December 31, 1999, 1998
and 1997 21
Notes to Financial Statements 22
<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, 1999 and 1998, 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, 1999. These financial statements are
the responsibility of the Trust's management. Our responsibility is to ex-
press an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial 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 esti-
mates made by management, as well as evaluating the overall financial state-
ment 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1999, in conformity with generally accepted accounting principles.
/S/ KPMG LLP
New York, New York
January 21, 2000
<PAGE>
<TABLE>
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
ASSETS
<CAPTION>
1999 1998
<S> <C> <C>
Investment in First Mortgage
Bonds-at fair value (Note 4) $27,191,567 $26,607,953
Cash and cash equivalents (Note 3) 726,567 889,126
Organization costs
(net of accumulated amortization
of $37,500 in 1998) 0 12,500
Accrued interest receivable 181,696 182,058
Total assets $28,099,830 $27,691,637
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates (Note 5) $ 893,420 $ 640,178
Accounts payable 458,081 21,000
Total liabilities 1,351,501 661,178
Shareholders' equity:
Beneficial owners' equity-manager (29,529) (19,941)
Beneficial owners' equity-shareholders
(10,000,000 shares authorized;
1,501,481 and 1,488,661 shares issued and
outstanding in 1999 and 1998, respectively) 24,683,336 25,389,056
Treasury shares of beneficial interest
(37,960 and 25,140 shares, respectively) (721,238) (477,660)
Accumulated other comprehensive income:
Net unrealized gain on
First Mortgage Bonds (Note 4) 2,815,760 2,139,004
Total shareholders' equity 26,748,329 27,030,459
Total liabilities and shareholders' equity $28,099,830 $27,691,637
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Interest income:
First Mortgage Bonds (Note 4) $2,114,309 $2,076,401 $1,734,950
Tax-Exempt Securities 0 0 3,277
Cash equivalents and
Marketable Securities 19,766 36,489 173,234
Total revenues 2,134,075 2,112,890 1,911,461
Expenses:
General and administrative 63,173 65,414 79,932
General and administrative-
related parties (Note 5) 85,469 78,165 84,593
Loan serving fees 58,949 59,438 49,755
Merger-related costs (Note 2) 388,249 0 0
Amortization of
organization costs 12,500 10,000 10,000
Total expenses 608,340 213,017 224,280
Net income $1,525,735 $1,899,873 $1,687,181
Allocation of Net Income:
Shareholders $1,392,791 $1,763,188 $1,576,321
Manager 14,069 17,810 15,922
Special distributions to
Manager (Note 5) 118,875 118,875 94,938
Net income $1,525,735 $1,899,873 $1,687,181
Basic net income
per weighted
average share -
shareholders $ 0.95 $ 1.20 $ 1.07
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
<CAPTION>
Accumu-
Beneficial Beneficial Treasury lated
Owners' - Owners' Shares of Other
Equity- Equity- Beneficial Comprehen- Comprehen-
Total Shareholders Manager Interest sive Income sive Income
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1997 $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
Comprehensive
Income:
Net income 1,687,181 1,576,321 110,860 0 0 $1,687,181
Other
Comprehensive
Income:
Net
unrealized
gain
on First
Mortgage
Bonds 25,506 0 0 0 25,506 25,506
Distri-
butions (2,461,909) (2,343,301) (118,608) 0 0
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 1,712,687
Issuance of
shares of
beneficial
ownership
interest 236,347 236,347 0 0 0
Comprehensive
Income:
Net income 1,899,873 1,763,188 136,685 0 0 1,899,873
Other
Comprehensive
Income:
Net
unrealized
gain on First
Mortgage
Bonds 2,003,299 0 0 0 2,003,299 2,003,299
Distri-
butions (2,484,182) (2,341,654) (142,528) 0 0
Purchase of
Treasury
shares of
beneficial
interest (316,453) 0 0 (316,453) 0
Balance at
December 31,
1998 27,030,459 25,389,056 (19,941) (477,660) 2,139,004 3,903,172
Balance at
December 31,
1998 27,030,459 25,389,056 (19,941) (477,660) 2,139,004 $3,903,172
Issuance of
shares of
beneficial
ownership
interest 243,580 243,580 0 0 0
Comprehensive
Income:
Net income 1,525,735 1,392,791 132,944 0 0 1,525,735
Other
Comprehensive
Income:
Net unrealized
gain on First
Mortgage
Bonds 676,756 0 0 0 676,756 676,756
Distri-
butions (2,484,623) (2,342,091) (142,532) 0 0
Purchase
of Treasury
shares of
beneficial
interest (243,578) 0 0 (243,578) 0
Balance at
December 31,
1999 $26,748,329 $24,683,336 $(29,529) $(721,238) $2,815,760 $2,202,491
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $1,525,735 $1,899,873 $1,687,181
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Amortization expense-
organization costs 12,500 10,000 10,000
Amortization expense-
loan origination costs 93,142 96,746 70,688
Amortization of REMIC premium 0 0 476
Changes in operating assets
and liabilities:
Decrease (increase) in
accrued interest receivable 362 (362) (50,560)
Increase in due to affiliates 253,242 203,981 144,746
Increase (decrease) in
accounts payable 437,081 (12,150) 3,743
Total adjustments 796,327 298,215 179,093
Net cash provided by
operating activities 2,322,062 2,198,088 1,866,274
Cash flows from investing activities:
Purchase of First Mortgage Bonds 0 0 (8,150,000)
Sale of Marketable Securities 0 200,000 9,000,000
Maturity of Tax-Exempt Securities 0 0 1,900,000
Purchase of Tax-Exempt Securities 0 0 (1,900,476)
Increase in deferred costs 0 (26,613) (88,835)
Net cash provided by
investing activities 0 173,387 760,689
Cash flows from financing activities:
Proceeds from issuance
of shares of beneficial
interest 243,580 236,347 241,313
Purchase of treasury shares of
beneficial interest (243,578) (316,453) (161,207)
Distribution to
shareholders (2,484,623) (2,484,182) (2,461,909)
Net cash used in financing
activities (2,484,621) (2,564,288) (2,381,803)
Net (decrease) increase in
cash and cash equivalents (162,559) (192,813) 245,160
Cash and cash equivalents at
beginning of year 889,126 1,081,939 836,779
Cash and cash equivalents at
end of year $ 726,567 $ 889,126 $1,081,939
Supplemental schedule of non cash financial
activities:
Decrease in deferred costs $ 0 $ 0 $ 389,141
Increase in investment in
First Mortgage Bonds 0 0 (389,141)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997
NOTE 1 - General
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23, 1993
as a finite life, closed end Delaware business trust for the purpose of in-
vesting in tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by
various state or local governments or their agencies or authorities and se-
cured by first mortgage loans on multifamily residential apartment and re-
tirement community projects. The Trust operates in one segment, Investment
in First Mortgage Bonds.
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 man-
ager (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, 1999 and 1998, a total of 1,501,481 and 1,488,661 shares have
been sold to the public through the Offering and the Trust's dividend rein-
vestment plan (the "Reinvestment Plan") representing Gross Proceeds (the
"Gross Proceeds") of $29,989,113 and $29,745,535 (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 redemp-
tion for cash to the extent it has sufficient Reinvestment Proceeds from the
sale of shares under the Reinvestment Plan. During 1999 and 1998, 12,820 and
12,439 shares were sold through the Reinvestment Plan, respectively, and
12,820 and 16,655 shares redeemed through the Redemption Plan, respectively.
After October 15, 1996, 40,501 shares were sold through the Reinvestment Plan
(2,541 of which were not restricted for use in connection with the redemption
plan and are included in Gross Proceeds), the proceeds of which are re-
stricted for use in connection with the Redemption Plan and are not included
in Gross Proceeds. Pursuant to the Redemption Plan as of December 31, 1999,
37,960 shares were redeemed for an aggregate price of $721,238. The Redemp-
tion Plan has been suspended pending the vote on the Merger.
The Trust has invested the net proceeds 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 maturi-
ties 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, unless the First Mortgage
Bonds are repaid prior to maturity (in which event the Trust may seek to re-
invest the repayment proceeds through September 2002). The Trust is also
permitted to invest in other tax exempt securities which have shorter maturi-
ties than First Mortgage Bonds ("Tax-Exempt Securities"). However, all Tax-
Exempt Securities owned by the Trust have matured and the Trust does not an-
ticipate making additional investments in Tax-Exempt Securities.
NOTE 2 - Proposed Merger
On November 2, 1999, the Trust, Charter Municipal Mortgage Acceptance Company,
a Delaware business trust ("CharterMac"), and CM Holding Trust, a Delaware
business trust, a wholly owned subsidiary of CharterMac ("CharterMac Sub"),
entered into an Agreement and Plan of Merger (the "Merger Agreement"), provid-
ing for the merger of the Trust (the "Merger") with and into CharterMac Sub,
with CharterMac Sub as the surviving entity in the Merger. Pursuant to the
Merger Agreement and upon the terms and subject to the conditions and limita-
tions therein, each issued and outstanding share of beneficial interest in the
Trust (the "Trust Shares") will be converted into the right to receive 1.43112
shares of beneficial interest in CharterMac (the "CharterMac Shares"). Char-
terMac and the Trust are both managed by affiliates of Related Capital Com-
pany.
Consummation of the Merger, which is expected in the second quarter of 2000,
is subject to various conditions, including approval of the Merger by the
shareholders of the Trust. Prior to such shareholders' meeting, CharterMac
will file a registration statement with the Securities and Exchange Commission
registering under the Securities Act of 1933, as amended, the CharterMac
Shares to be issued in exchange for the outstanding Trust Shares. Such Char-
terMac Shares will be offered to the Trust shareholders only pursuant to a
prospectus that will also serve as a consent statement for the shareholders of
the Trust.
If the Merger is completed, CharterMac and the Trust will pay their own fees
and expenses. The Trust has accrued but not paid all merger-related costs
incurred as of December 31, 1999. If the Merger Agreement is terminated be-
cause the Trust shareholders do not approve the Merger, CharterMac will pay
its own fees and expenses and the Manager, or one of its affiliates, will pay
all fees and expenses incurred by the Trust. If the Merger Agreement is ter-
minated for any reason other than the failure of the Trust shareholders to
approve the Merger, CharterMac and the Trust will pay their own fees and ex-
penses. If the Trust shareholders do not approve the Merger it is expected
the Manager would be paid all accrued and unpaid fees and special distribu-
tions thereby reducing the cash available for distribution.
NOTE 3 - Accounting Policies
a) Basis of Accounting
The books and records of the Trust are maintained on the accrual basis of ac-
counting in accordance with generally accepted accounting principles.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original matur-
ity dates equal to or less than three months and are carried at cost plus ac-
crued interest, which approximates market.
c) Loan Origination Costs
Bond selection fees and expenses incurred for the investment of mortgage
loans have been capitalized and are included in investment in First Mortgage
Bonds. Loan origination costs are being amortized on the effective yield
method over the lives of the respective mortgages.
d) Organization Costs
Costs incurred to organize the Trust including, but not limited to, legal and
accounting fees are considered organization costs. The Trust adopted the Ac-
counting Standards Committee of the American Institute of Certified Public
Accountants Statement of Position 98-5 Reporting on Costs of Start-Up Activ-
ity, effective January 1, 1999. The Trust took a charge for all unamortized
organization costs for the cumulative effect of the change in accounting
principles.
e) 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.
f) Net Income Per Weighted Average Share
Net income per weighted average share is computed based on the net income for
the period attributed to shareholders, 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, 1999, 1998 and 1997 were
1,465,220, 1,465,669 and 1,466,554 shares.
g) 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") SFAS No. 115 Ac-
counting for Certain Investments in Debt and Equity Securities. At December
31, 1999 and 1998, 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 other comprehensive income
until realized. A decline in the market value of any available for sale se-
curity 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 spe-
cific identification method for determining the cost of the securities sold.
Investments in marketable equity represent marketable securities (consisting
of tax-exempt municipal preferred stock) and investment in First Mortgage
Bonds. Unrealized gains and losses reported in other comprehensive income
relate to First Mortgage Bonds.
The fair value of the investment in First Mortgage Bonds is estimated based
on the current interest rate environment for similar securities, cash flow
projections for the underlying properties, a reversion estimate, prepayment
assumptions and an estimate of cash flow participations when applicable.
h) Use of Estimates
Management of the Trust has made a number of estimates and assumptions relat-
ing to the reporting of assets and liabilities, the disclosures of contingent
assets and liabilities and the reported amounts of revenues and expenses to
prepare these financial statements in conformity with generally accepted ac-
counting principles. Actual results could differ from those estimates.
i) Financial Instruments
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments, de-
fines fair value of a financial instrument as the amount at which the instru-
ment could be exchanged in a current transaction between willing parties.
Financial instruments held by the Trust include cash and cash equivalents,
marketable securities, investments in First Mortgage Bonds, interest receiv-
able 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.
j) Comprehensive Income
The Trust adopted SFAS No. 130, Reporting Comprehensive Income on January 1,
1998. SFAS No. 130 establishes standards for reporting and displaying com-
prehensive income and its components in a financial statement that is dis-
played with the same prominence as other financial statements. The financial
statements for earlier periods, provided for comparative purposes, have been
reclassified as required. The accumulated balance of other comprehensive in-
come is displayed separately from Beneficial Owners' Equity-Shareholders and
Beneficial Owners' Equity-Manager in the equity section of the balance sheet.
<TABLE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in First Mortgage Bonds
Information relating to investments in First Mortgage Bonds as of
December 31, 1999 and 1998 are as follows:
<CAPTION>
Date of
Invest-
ment/
Final
Descrip Maturity Pre-
Property -tion Date payment
<S> <C> <C> <C>
Reflections
Apartments 336 Permitted
Casselbury, Apt. 12/1995- after
FL (A) Units 12/2025 12/1/99
Rolling
Ridge
Apartments 110 Permitted
Chino Hills, Apt. 8/1996 - after
CA (B) Units 8/2026 8/1/00
Lexington
Trails
Apartments 200 Permitted
Houston, Apt. 5/1997 - after
TX (C) Units 5/2022 5/1/02
Highpointe
Apartments 240
Harrisburg, Apt. 9/1997 - Not
PA (D) Units 6/2006 permitted
<CAPTION>
Acumu-
Outstand- lated Unrealized
ing Loan Loan Amorti- Gain
Balance at Origina- zation at (loss)
December tion Dec. 31, at Dec. 31,
Property 31, 1999 Costs 1999 1999
<S> <C> <C> <C> <C>
Reflections
Apartments
Casselbury,
FL (A) $10,700,000 $293,914 $(117,565) $2,004,878
Rolling
Ridge
Apartments
Chino Hills,
CA (B) 4,925,000 241,725 (82,589) 655,175
Lexington
Trails
Apartments
Houston,
TX (C) 4,900,000 123,886 (33,036) 174,815
Highpointe
Apartments
Harrisburg,
PA (D) 3,250,000 237,917 (63,445) (19,108)
$23,775,000 $897,442 $(296,635) $2,815,760
<CAPTION>
Interest Less Net
Balance at Balance at Earned by 1999 Interest
December December the Trust Amorti- Earned
Property 31, 1999 31, 1998 for 1999 zation for 1999
<S> <C> <C> <C> <C> <C>
Reflections
Apartments
Casselbury,
FL (A) $12,881,227 $12,285,390 $ 989,394 $(29,391) $ 960,003
Rolling
Ridge
Apartments
Chino Hills,
CA (B) 5,739,311 5,553,058 484,558 (24,172) 460,386
Lexington
Trails
Apartments
Houston,
TX (C) 5,165,665 5,329,632 441,000 (12,389) 428,611
Highpointe
Apartments
Harrisburg,
PA (D) 3,405,364 3,439,873 292,499 (27,190) 265,309
$27,191,567 $26,607,953 $2,207,451 $(93,142) $2,114,309
</TABLE>
A. Reflections Apartments
On December 21, 1995, the Trust completed the amendment of the bond indenture
for the $10,700,000 in tax-exempt First Mortgage Bonds (the "Reflections
Bonds"). In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds. The Reflections Bonds were issued by
the Orange County Florida Housing Finance Authority and are secured by a
first mortgage and mortgage loan on Reflections Apartments (the "Project" or
"Reflections"), a development consisting of 336 apartment units in Cassel-
berry, Florida. Reflections is owned by Casselberry-Oxford Associates, L.P.
(the "Borrower"). The Reflections Bonds bear a fixed current interest rate
of 9.0%. In addition, the Trust is entitled to 25% of the cash flow, as de-
fined. The Reflections Bonds mature in 2025 and are subject to mandatory re-
demption, at the Trust's option, beginning in December 2005. The principal
of the Reflections Bonds is payable upon sale or refinancing of the Project
and prepayment, in whole or in part, was prohibited until December 1999.
Prepayment in whole is now permitted subject to the payment of a premium. If
prepaid during the sixth year, the premium is equal to 5% of the principal
amount of the Reflections Bonds outstanding at the time of prepayment.
Thereafter, the premium will be reduced by 1% per year through the tenth
year, when there will be no prepayment premium payable.
B. Rolling Ridge Apartments
On August 2, 1996, the Trust purchased tax-exempt First Mortgage Bonds (the
"Rolling Ridge Bonds") in an aggregate principal amount of $4,925,000. The
Rolling Ridge Bonds were issued by San Bernardino County and are secured by a
deed of trust on Rolling Ridge Apartments (the "Project" or "Rolling Ridge"),
a development consisting of 110 apartment units in Chino Hills, California.
Rolling Ridge is owned and operated by Rolling Ridge L.L.C. (the "Borrower").
The Rolling Ridge Bonds bear a fixed current interest rate of 9.0%. In addi-
tion, the Trust will be entitled to 30% of the cash flow, as defined. The
Rolling Ridge Bonds mature in 2026 and are subject to mandatory redemption,
at the Trust's option, beginning in August 2006. The Borrower will be per-
mitted two nine-month extensions. The principal of the Rolling Ridge Bonds
is payable upon sale or refinancing of the Project. Prepayment, in whole or
in part, is prohibited until August 2000. Prepayment in whole will be per-
mitted thereafter subject to the payment of a premium. If prepaid during the
sixth year, the premium is equal to 5% of the principal amount of the Rolling
Ridge Bonds outstanding at the time of prepayment. Thereafter, the premium
will be reduced by1% per year until the tenth year, when there will be no
prepayment premium payable.
C. Lexington Trails Apartments
On May 7, 1997, the Trust purchased tax-exempt First Mortgage Bonds (the "Lex-
ington Trails Bonds") in an aggregate principal amount of $4,900,000. The
Lexington Trail Bonds were issued by The Harris County Housing Finance Corpo-
ration and are secured by a first deed of trust and mortgage loan on Lexington
Trails Apartments (the "Project" or "Lexington Trails"), a development con-
sisting of 200 apartment units in Houston, Texas. Lexington Trails is owned
and operated by Lexington Trails-American Housing Foundation, Inc. The Lex-
ington Trails Bonds bear a fixed current rate of 9.0%. The Lexington Trails
Bonds mature in May 2022 and are subject to mandatory redemption, at the
Trust's option, beginning in May 2007. The principal of the Lexington Trails
Bonds is payable upon sale or refinancing of the Project. Prepayment, in whole
or in part, is prohibited until May 2002. Prepayment in whole will be permit-
ted 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.
D. Highpointe Apartments
The Highpointe Apartments ("Highpointe") are secured by two series of bonds.
The Multifamily Housing Revenue Bonds Series 1989 (the "Multifamily Bonds")
are owned by the Trust. The Redevelopment Authority of the County of Daupin,
Multifamily Housing Revenue Bonds, Series 1986 (the "Redevelopment Bonds") in
the principal amount of $8,900,000 are owned by CharterMac. Highpointe is
owned and operated by RHA Inv., Inc. (the "Borrower") which is an affiliate of
the Manager by virtue of the fact that Stephen Ross is on the Board of Trus-
tees of both the Borrower and the Manager, also owns 40% and 67.2% of each en-
tity, respectively. The Multifamily Bonds bear interest at 9%, have a first
claim of cash flow for payment of interest and a pari passu first mortgage se-
curity interest with a $750,000 priority on the payment of principal upon sale
or refinancing. The Multifamily Bonds are current with respect to the payment
of the 9% interest. The Redevelopment Bonds currently pay interest based on
the net cash flow and are currently paying approximately 4.7% per annum. The
difference between the pay rate and the base rate (8.5% per annum) is accruing
and is payable from first available cash flow or sale/refinancing proceeds.
While the Borrower is in technical default under the terms of the loan agree-
ment as the loan documents do not call for cash flow mortgage payments on the
Redevelopment Bonds, CharterMac has indicated it will not exercise its rights
and remedies as defined under the terms of the Redevelopment Bonds and mort-
gage documents.
The cost basis of the First Mortgage Bonds was $24,375,807 and $24,468,949 at
December 31, 1999 and 1998. The net unrealized gain of $2,815,760 and
$2,139,000 for 1999 and 1998, respectively, on First Mortgage Bonds consists
of gross unrealized gains and losses of $2,834,868 and $19,108, respectively,
at December 31, 1999 and $2,150,794 and $11,790, respectively, at December
31, 1998.
<TABLE>
NOTE 5 - Related Party Transactions
The costs incurred to related parties for the years ended December 31, 1999,
1998 and 1997 were as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Special distributions (i) $ 118,875 $ 118,875 $ 94,938
Expense reimbursements (ii) 85,469 78,165 84,593
Loan serving fees (iii) 58,949 59,438 49,755
$ 263,293 $ 256,478 $ 229,286
</TABLE>
In accordance with the Trust Agreement, the Manager received or is entitled to
receive (i) special distributions calculated as a percentage of total assets
invested by the Trust; the total amounts accrued and unpaid as of December 31,
1999 and 1998 amounted to $314,797 and $195,922, respectively; (ii) reimburse-
ment of certain administrative costs incurred by the Manager or an affiliate
on behalf of the Trust; the total amounts accrued and unpaid as of December
31, 1999 and 1998 amounted to $459,368 and $373,899, respectively; (iii) loan
servicing fees calculated as a percentage of total assets invested by the
Trust, the total amounts accrued and unpaid as of December 31, 1999 and 1998
amounted to $118,386 and $59,437, respectively; (iv) a subordinated incentive
fee based on the gain on the sale of the tax-exempt First Mortgage Bonds. The
Manager has continued allowing the accrual without payment of these amounts
but is under no obligation to continue to do so. In this regard, the Manager
has recently indicated that it is no longer willing to continue to defer re-
ceipt of expenses, reimbursements and fees it is owed.
If the merger is consummated, the Manager will waive the payment of all de-
ferred and unpaid fees, reimbursements and expenses due the Manager through
June 30, 1999. The deferred fees, reimbursements and expenses due to the Man-
ager totaled $755,747 at June 30, 1999.
The Highpointe Apartments, which are located in Harrisburg, Pennsylvania, and
which property secures the Highpointe bonds owned by the Trust, are owned by
RHA Inv., Inc., an affiliate of the Manager. RHA receives no compensation
directly or indirectly from the Trust. The Highpointe Apartments are the
only underlying properties securing the Trust's bonds which are owned by an
affiliate of the Trust.
NOTE 6 - Subsequent Event
On February 14, 2000, distributions of $586,065 and $5,920 was paid to the
shareholders and the Manager, respectively, representing the 1999 fourth
quarter distribution. The distribution has been funded from cash collections
of debt service payments and interest income through approximately the dis-
tribution date.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and Fi-
nancial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Trust.
The Trust does not have any officers or directors. 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 Man-
ager is affiliated with Related Capital Company ("Related"), a New York gen-
eral partnership, in which Stephen M. Ross, through his interests in other
entities, owns a significant interest. The shares of the Manager are owned
by Stephen M. Ross and by two officers of the Manager. The Manager will man-
age and control the affairs of the Trust directly and by engaging others, in-
cluding 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 Trust, the Manager and their directors and executive officers, and any
persons holding more than ten percent of the Trust'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 Trust has relied
solely on written representations of the Manager's directors and executive
officers and persons who own greater than ten percent of the Trust's shares
of copies or the reports they have filed with the Securities and Exchange
Commission during and with respect to its most recent fiscal year.
<TABLE>
Each director is elected to hold office until the 2000 annual meeting of
shareholders of Related AMI Associates, Inc. and until his successor is duly
elected and qualified. The 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.
<CAPTION>
Year First Became
Officer/Director
Name Age Positions Held or Manager
<S> <C> <C> <C>
Stuart J. Boesky 43 Director and President 1991
Michael J. Brenner 54 Director 1999
Alan P. Hirmes 45 Senior Vice President 1991
Richard A. Palermo 39 Treasurer 1999
Teresa Wicelinski 34 Secretary 1998
</TABLE>
STUART J. BOESKY, age 43, is Director and Senior Vice President of the Man-
ager. 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. Mr. Boesky also
serves on the Board of Directors of Aegis Realty, Inc., CharterMac and
American Mortgage Acceptance Company.
MICHAEL J. BRENNER, age 54, is a Director of the Manager. Prior to joining
Related in 1996, Mr. Brenner was a partner with Coopers & Lybrand, having
served as managing partner of its Industry Programs and Client Satisfaction
initiatives from 1993-1996, managing partner of the Detroit group of offices
from 1986-1993 and Chairman of its National Real Estate Industry Group from
1984-1986. Mr. Brenner graduated summa cum laude from The University of De-
troit with a Bachelors degree in Business Administration and from The Univer-
sity of Michigan with a Master of Business Administration, with distinction.
Mr. Brenner also serves on the Board of Directors of Aegis Realty, Inc.,
CharterMac and American Mortgage Acceptance Company.
ALAN P. HIRMES, age 45, 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 39, is the 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 em-
ployed by Marks Shron & Company and Mann Judd Landau, certified public ac-
countants. Mr. Palermo graduated from Adelphi University with a Bachelor of
Business Administration degree.
TERESA WICELINSKI, age 34, is the Secretary of the Manager. Ms. Wicelinski
joined Related in June 1992, and prior to that date was employed by Friedman,
Alpren & Green, certified public accountants. Ms. Wicelinski graduated from
Pace University with a Bachelor of Arts Degree in Accounting.
Item 11. Executive Compensation.
The Trust does not pay or accrue any fees, salaries or other forms of compen-
sation to directors and officers of the Manager for their services. The Man-
ager and its Affiliates receive substantial fees and compensation in connec-
tion with the management of the Trust's investments. Certain directors and
officers of the Manager receive compensation from the Manager and its Affili-
ates (and not from the Trust) for services performed for various affiliated
entities which may include services performed for the Trust. Such compensa-
tion may be based in part on the performance of the Trust; however, the Man-
ager believes that any compensation attributable to services performed for
the Trust is immaterial. See Item 13. below.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 9, 2000, 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, 2000, no directors and officers of the Manager own any shares of
the Trust.
Item 13. Certain Relationships and Related Transactions.
The Trust has and will continue to have certain relationships with the Man-
ager and its affiliates, as discussed in Item 11 and Item 8, Note 5 to the
financial statements. However, there have been no direct financial transac-
tions between the Trust and the directors and officers of the Manager.
The costs incurred to related parties for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Special distributions (i) $ 118,875 $ 118,875 $ 94,938
Expense reimbursements (ii) 85,469 78,165 84,593
Loan serving fees (iii) 58,949 59,438 49,755
$ 263,293 $ 256,478 $ 229,286
</TABLE>
In accordance with the Trust Agreement, the Manager received or is entitled to
receive (i) special distributions calculated as a percentage of total assets
invested by the Trust; the total amounts accrued and unpaid as of December 31,
1999 and 1998 amounted to $314,797 and $195,922, respectively; (ii) reimburse-
ment of certain administrative costs incurred by the Manager or an affiliate
on behalf of the Trust; the total amounts accrued and unpaid as of December
31, 1999 and 1998 amounted to $459,368 and $373,899, respectively; (iii) loan
servicing fees calculated as a percentage of total assets invested by the
Trust, the total amounts accrued and unpaid as of December 31, 1999 and 1998
amounted to $118,386 and $59,437, respectively; (iv) a subordinated incentive
fee based on the gain on the sale of the tax-exempt First Mortgage Bonds. The
Manager has continued allowing the accrual without payment of these amounts
but is under no obligation to continue to do so. In this regard, the Manager
has recently indicated that it is no longer willing to continue to defer re-
ceipt of expenses, reimbursements and fees it is owed.
If the merger is consummated, the Manager will waive the payment of all de-
ferred and unpaid fees, reimbursements and expenses due the Manager through
June 30, 1999. The deferred fees, reimbursements and expenses due to the Man-
ager totaled $755,747 at June 30, 1999.
The Highpointe Apartments, which are located in Harrisburg, Pennsylvania, and
which property secures the Highpointe bonds owned by the Trust, are owned by
RHA Inv., Inc., an affiliate of the Manager. RHA receives no compensation
directly or indirectly from the Trust. The Highpointe Apartments are the
only underlying properties securing the Trust's bonds which are owned by an
affiliate of the Trust.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
(a) 1. Financial Statements
ATEBT
Independent Auditors' Report 16
Balance Sheets -December 31, 1999 and 1998 17
Statements of Income - Years ended December 31, 1999, 1998 and
1997 18
Statements of Changes in Shareholders' Equity - Years ended
December 31, 1999, 1998 and 1997 19
Statements of Cash Flows - Years ended December 31, 1999, 1998
and 1997 21
Notes to Financial Statements 22
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required
or because the required information is contained in the Finan-
cial Statements or notes thereto.
(a) 3. Exhibits
3(a) Certificate of Trust and Certificate of Amendment from Certifi-
cate 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 (incorpo-
rated 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 Re-
funding Bonds 1995 Series (Casselberry-Oxford Associates Proj-
ect) 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) Purchase of tax-exempt First Mortgage Bonds in an aggregate
amount of $4,900,000 to fund the purchase of Lexington Trails
Apartments (incorporated by reference to current report on Form
8-K/A, as previously filed on May 21, 1997)
10(e) Purchase of Redevelopment Authority of the County of Dauphin,
Multifamily Housing Revenue Bonds (High Pointe Club Apartments
Project) Series 1989 in an aggregate principal amount of
$3,250,000 (incorporated by reference to current report on Form
8-K/A, as previously filed on November 10, 1997)
27 Financial Data Schedule (filed herewith) 105
(b) Current report on Form 8-K dated November 2, 1999 was filed on
November 4, 1999 relating to the Agreement and Plan of Merger
entered into with Charter Municipal Mortgage Acceptance Com-
pany.
(d) Casselberry-Oxford Associates Limited Partnership
Independent Auditors' Report 38
Balance Sheet -December 31, 1999 39
Statement of Operations - Year ended December 31, 1999 40
Statement of Partners' Equity (Deficit) - Year ended December
31, 1999 41
Statement of Cash Flows - Year ended December 31, 1999 42
Notes to Financial Statements 43
Independent Auditors' Report 52
Balance Sheet -December 31, 1998 53
Statement of Operations - Year ended December 31, 1998 54
Statement of Partners' Equity (Deficit) - Year ended December
31, 1998 55
Statement of Cash Flows - Year ended December 31, 1998 56
Notes to Financial Statements 57
Independent Auditors' Report 68
Balance Sheet -December 31, 1997 69
Statement of Operations - Year ended December 31, 1997 70
Statement of Partners' Deficit - Year ended December 31, 1997 71
Statement of Cash Flows - Year ended December 31, 1997 72
Notes to Financial Statements 73
Rolling Ridge L.L.C.
Independent Auditors' Report 84
Balance Sheets -December 31, 1999 and 1998 85
Statements of Members' Equity - Years ended December 31, 1999
and 1998 86
Statements of Operations - Years ended December 31, 1999 and 1998 87
Statements of Cash Flows - Years ended December 31, 1999 and 1998 88
Notes to Financial Statements 89
Independent Auditors' Report 94
Balance Sheets -December 31, 1998 and 1997 95
Statements of Operations - Years ended December 31, 1998 and 1997 96
Statements of Members' Equity - Years ended December 31, 1998 and 1997 97
Statements of Cash Flows - Years ended December 31, 1998 and 1997 98
Notes to Financial Statements 99
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CASSELBERRY - OXFORD ASSOCIATES
LIMITED PARTNERSHIP
DBA REFLECTIONS APARTMENTS
(A MARYLAND LIMITED PARTNERSHIP)
DECEMBER 31, 1999
<PAGE>
CASSELBERRY - OXFORD ASSOCIATES LIMITED PARTNERSHIP
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF PARTNERS' EQUITY (DEFICIT) 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Casselberry - Oxford Associates Limited Partnership
We have audited the accompanying balance sheet of Casselberry - Oxford
Associates Limited Partnership as of December 31, 1999, and the related
statements of operations, partners' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Casselberry -
Oxford Associates Limited Partnership as of December 31, 1999, and the
results of its operations, changes in partners' equity (deficit) and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 22, 2000
<PAGE>
Casselberry - Oxford Associates Limited Partnership
BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $6,253,139
OTHER ASSETS
Cash and cash equivalents 331,490
Tenant receivables 6,952
Due from Oxford 19,116
Tenant security deposits - funded 65,068
Prepaid expenses 94,690
Mortgage escrow deposits 25,996
Reserve for replacements 20,140
Unamortized costs 275,213
$7,091,804
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage notes payable $10,700,000
Accrued interest payable 82,925
10,782,925
OTHER LIABILITIES
Accounts payable 37,887
Tenant security deposits 65,015
Deferred rental revenue 10,521
Accrued investor services fee 7,000
Working capital loan
(includes accrued interest of $344,087) 1,163,187
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
14,017,392
PARTNERS' EQUITY (DEFICIT)
Capital contributions $ 5,835,310
Less: Nonamortizable costs 439,499
5,395,811
Cumulative cash distributions (479,788)
Cumulative income (losses) (11,841,611) (6,925,588)
$7,091,804
See notes to financial statements
</TABLE>
<PAGE>
Casselberry - Oxford Associates Limited Partnership
STATEMENT OF OPERATIONS
Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Gross potential rental revenue $2,545,235
Less vacancies and allowances 190,765
Net rental revenue 2,354,470
Interest income 10,747
Other income 107,617
Total operating revenue 2,472,834
Operating expenses
Renting $ 36,647
Administrative 272,891
Maintenance and operating 475,019
Utilities 164,070
Taxes 223,134
Insurance 80,352 1,252,113
Mortgage interest 989,394
Interest on advances and loans 81,909
Depreciation 234,388
Amortization 46,034
Financing fees 15,549
Investor service fees 9,511
Other partnership expenses 8,614 1,385,399
Total expenses 2,637,512
Net income (loss) $ (164,678)
See notes to financial statements
</TABLE>
<PAGE>
Casselberry - Oxford Associates Limited Partnership
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 1999
<TABLE>
<CAPTION>
Gross Less Net Cumulative
capital nonamor- capital cash Cumulative Partners'
contri- tizable contri- distri- income equity
butions costs butions butions (losses) (deficit)
<S> <C> <C> <C> <C> <C> <C>
Partners'
equity
(deficit)
1/1/99 $5,835,310 $(439,499) $5,395,811 $(334,692) $(11,676,933) $(6,615,814)
Cash
distri-
butions 0 0 0 (145,096) 0 (145,096)
Net
income
(loss) 0 0 0 0 (164,678) (164,678)
Partners'
equity
(deficit)
12/31/99$5,835,310 $(439,499) $5,395,811 $(479,788) $(11,841,611) $(6,925,588)
See notes to financial statements
</TABLE>
<PAGE>
Casselberry - Oxford Associates Limited Partnership
STATEMENT OF CASH FLOWS
Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net income (loss) $(164,678)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 234,388
Amortization 46,034
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant receivables (5,949)
Prepaid expenses (84,690)
Mortgage escrow deposits 65,211
Tenant security deposits - net 2,272
Increase (decrease) in liabilities
Accounts payable 34,323
Accrued interest - working capital loan 81,909
Deferred rental revenue 4,267
Net cash provided by (used in) operating activities 213,087
Cash flows from investing activities
Net disbursements from (deposits to) reserve for replacements 9,661
Net cash provided by (used in) investing activities 9,661
Cash flows from financing activities
Distributions to partners (145,096)
Net cash provided by (used in) financing activities (145,096)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 77,652
Cash and cash equivalents, beginning 253,838
Cash and cash equivalents, end $ 331,490
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 989,394
See notes to financial statements
</TABLE>
<PAGE>
Casselberry - Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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, 1999, $329,990 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.
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 $81,975 in 1999. The agreement expires December 31,
2000, 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, 1999 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.
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 1999.
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 1999.
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 1999 was
$4,495.
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 1999 was
$3,949 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 1999 was
$33,156, 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, 1999, the cumulative amount deferred was $15,428 and is
included in deferred management fees.
Additionally under this agreement, ORFG earns a fee equal to 1% of the
gross receipts ("supplemental fee"). The supplemental fee is deferred and
is payable from distributable net cash flow (note 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, 1999). No supplemental fee was
expensed in 1999.
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 $9,511 was expensed
and paid in 1999.
Prior to January 1, 1994, Oxford Equities Corporation (OEC) was the
servicer of this information. The balance due OEC at December 31, 1999 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 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 $81,909 was expensed in 1999. As of
December 31, 1999, the amount due Oxford was $1,163,187 which includes
accrued interest of $344,087.
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, 1999, 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,
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.
<TABLE>
<CAPTION>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation,
and at December 31, 1999 consisted of the following:
<S> <C>
Land $ 700,000
Buildings 9,173,606
Building equipment 1,616,897
11,490,503
Less accumulated depreciation (5,237,364)
$ 6,253,139
</TABLE>
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) monthly deposits into a replacement reserve equal
to $7,000 per month.
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.
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,
1999, the loan balance was $347,177.
<TABLE>
<CAPTION>
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
<S> <C> <C>
General and Special Limited Partners $ 260
Investor Limited Partners 4,750,050
Preferred Limited Partners 1,085,000
$5,835,310
Distributable net cash flow at December 31, 1999 is as follows:
Cash and cash equivalents $ 331,490
Tenant security deposits 65,068
396,558
Less: Accounts payable $37,887
Tenant security deposits 65,015
Deferred rental revenue 10,521
Accrued interest payable 82,925 196,348
Surplus cash 200,210
Less: Partnership's preferred return
(3.7% of total income) 94,174
Adjusted cash flow 106,036
Less: 25% of adjusted cash flow to lender
as participation interest 26,509
Remaining adjusted cash flow 79,527
Partnership's preferred return 94,174
Total distributable net cash flow to partnership $ 173,701
</TABLE>
The general partners have the right to reserve for contingencies and future
replacements in amounts determined adequate for such purposes at any time.
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, payment of an $87,000 cumulative,
annual preferred return beginning in 1996 (The balance due under this
priority is $261,000);
(b) To payment of any unpaid investor services fees;
(c) To ORFG, payment of any unpaid supplemental fee charged to the
partnership beginning in 1995 and any accrued interest thereon;
(d) To Oxford, all unpaid interest of 10%, simple interest, on Oxford
working capital loan in the original amount of $815,000 made in 1995;
(e) From 50% of remaining distributable net cash flow, repayment of
outstanding principal on the Oxford working capital loan in the
original amount of $815,000;
(f) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital
contributions ($2,501,228 as of December 31, 1999 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 - 1994 supplemental fees and
interest thereon 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.
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
DBA REFLECTIONS APARTMENTS
(A MARYLAND LIMITED PARTNERSHIP)
DECEMBER 31, 1998
<PAGE>
Casselberry-Oxford Associates Limited Partnership
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF PARTNERS' EQUITY (DEFICIT) 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Casselberry-Oxford Associates Limited Partnership
We have audited the accompanying balance sheet of Casselberry-Oxford
Associates Limited Partnership as of December 31, 1998, and the related
statements of operations, partners' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
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, 1998,
and the results of its operations, changes in partners' equity (deficit) and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/S/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 22, 1999
<PAGE>
Casselberry-Oxford Associates Limited Partnership
BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $ 6,487,527
OTHER ASSETS
Cash and cash equivalents 253,838
Tenant receivables 1,003
Due from Oxford 19,116
Tenant security deposits - funded 62,011
Prepaid expenses 10,000
Mortgage escrow deposits 91,207
Reserve for replacements 29,801
Unamortized costs 321,247
$ 7,275,750
LIABILITIES AND PARTNERS' EQUITY (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 3,564
Tenant security deposits 59,686
Deferred rental revenue 6,254
Accrued investor services fee 7,000
Working capital loan
(includes accrued interest of $262,178) 1,081,278
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
13,891,564
PARTNERS' EQUITY (DEFICIT)
Capital contributions $ 5,835,310
Less: Nonamortizable costs 439,499
5,395,811
Cumulative cash distributions (334,692)
Cumulative income (losses) (11,676,933) (6,615,814)
$ 7,275,750
See notes to financial statements
</TABLE>
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
Gross potential rental revenue $2,436,921
Less vacancies and allowances 120,507
Net rental revenue 2,316,414
Interest income 10,672
Other income 115,084
Total operating revenue 2,442,170
Operating expenses
Renting $ 33,772
Administrative 258,475
Maintenance and operating 522,898
Utilities 170,730
Taxes 224,628
Insurance 80,038 1,290,541
Mortgage interest 996,397
Interest on advances and loans 88,820
Depreciation 230,306
Amortization 46,034
Financing fees 15,500
Investor services fees 8,991
Other partnership expenses 8,665 1,394,713
Total expenses 2,685,254
Net income (loss) $ (243,084)
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 1998
Gross Less Net Cumulative
capital nonamor- capital cash Cumulative Partners'
contri- tizable contri- distri- income equity
butions costs butions butions (losses) (deficit)
<S> <C> <C> <C> <C> <C> <C>
Partners'
equity
(deficit)
l/l/98 $5,835,310 $(439,499) $5,395,811 $(324,745) $(11,433,849) $(6,362,783)
Cash
distributions 0 0 0 (9,947) 0 (9,947)
Net
income
(loss) 0 0 0 0 (243,084) (243,084)
Partners'
equity
(deficit)
12/31/98$5,835,310 $(439,499) $5,395,811 $(334,692) $(11,676,933) $(6,615,814)
</TABLE>
See notes to financial statements
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF CASH FLOWS
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net income (loss) $ (243,084)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 230,306
Amortization 46,034
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant receivables 3,292
Other accounts receivable 4,215
Mortgage escrow deposits (11,070)
Tenant security deposits - net 1,057
Increase (decrease) in liabilities
Accounts payable (42,504)
Accrued interest - working capital loan 88,820
Deferred rental revenue (19,748)
Net cash provided by (used in)
operating activities 57,318
Cash flows from investing activities
Net disbursements from (deposits to)
reserve for replacements (29,294)
Net disbursements from (deposits to)
debt service reserve 92,520
Investment in property and equipment (18,319)
Net cash provided by (used in)
investing activities 44,907
Cash flows from financing activities
Proceeds from (principal payments on)
working capital advances (3,234)
Distributions to partners (9,947)
Net cash provided by (used in)
financing activities (13,181)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 89,044
Cash and cash equivalents, beginning 164,794
Cash and cash equivalents, end $ 253,838
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 996,397
</TABLE>
See notes to financial statements
<PAGE>
Casselberry-Oxford Associates Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE I - 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 Suntust 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, 1998, $226,528 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.
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 nonarnortizable 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 $80,547 in 1998. The agreement expires December 31, 1999, 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, 1998 the cumulative amount deferred
was $45,287 and is included in deferred management fees. Additionally, Oxford
Management Company, Inc. (OM[C), 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.
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 1998.
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 1998.
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 1998 was
$14,129.
Cash Management Fee
NHP Management Company receives a cash management fee for managing an
investment portfolio (computed on an annualized basis) managed by NBP
Management Company. The fee earned by NHP Management Company in 1998 was
$3,217 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 1998 was $35,770, 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, 1998, the cumulative amount deferred was $15,428 and is included
in deferred management fees.
Additionally under this agreement, ORFG earns a fee equal to 1% of the gross
receipts ("supplemental fee"). The supplemental fee is deferred and is
payable from distributable net cash flow (note 7). Any unpaid supplemental
fee will bear interest at 2% per annum over the prime rate as charged by
Citibank (7.75% at December 31, 1998). No supplemental fee was expensed in
1998.
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 $8,991 was expensed and paid in
1998.
Prior to January 1, 1994, Oxford Equities Corporation (OEQ was the servicer
of this information. The balance due OEC at December 31, 1998 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 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 $88,820 was expensed in 1998. As of December 31,
1998, the amount due Oxford was $1,081,278 which includes accrued interest of
$262,178.
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, 1998 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, 1998 consisted of the following:
<TABLE>
<S> <C>
Land $ 700,000
Buildings 9,173,606
Building equipment 1,616,897
11,490,503
Less accumulated depreciation (5,002,976)
$ 6,487,527
</TABLE>
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. During 1998, the balance of the capital
expenditure reserve was released to the partnership.
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.
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 3 1, 1998, the loan
balance was $347,177.
NOTE 7 - PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
<TABLE>
<S> <C> <C>
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, 1998 is as follows:
Cash and cash equivalents $ 253,838
Tenant security deposits 62,011
315,849
Less: Accounts payable $ 3,564
Tenant security deposits 59,686
Deferred rental revenue 6,254
82,925 152,429
Surplus cash 163,420
Less: Partnership's preferred return
(3.7% of total income) 90,126
Adjusted cash flow 73,294
Less: 25% of adjusted cash flow to lender as
participation interest 18,324
Remaining adjusted cash flow 54,970
Partnership's preferred return 90,126
Total distributable net cash flow
to partnership $ 145,096
</TABLE>
The general partners have the right to reserve for contingencies and future
replacements in amounts determined adequate for such purposes at any time.
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, payment of an $87,000 cumulative,
annual preferred return beginning in 1996 (The balance due under this
priority is $261,000);
(b) To payment of any unpaid investor services fees;
(c) To ORFG, payment of any unpaid supplemental fee charged to the
partnership beginning in 1995 and any accrued interest thereon;
(d) To Oxford, all unpaid interest of 10%, simple interest, on Oxford
working capital loan in the original amount of $815,000 made in 1995;
(e) From 50% of remaining distributable net cash flow, repayment of
outstanding principal on the Oxford working capital loan in the
original amount of $815,000;
(f) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital
contributions ($2,178,555 as of December 31, 1998 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 - 1994 supplemental fees and
interest thereon 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;
(1) 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.
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
DBA REFLECTIONS APARTMENTS
(A MARYLAND LIMITED PARTNERSHIP)
December 31, 1997
<PAGE>
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF PARTNERS' DEFICIT 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
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
<PAGE>
Casselberry-Oxford Associates Limited Partnership
BALANCE SHEET
December 31, 1997
ASSETS
<TABLE>
<CAPTION>
<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
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF PARTNERS' DEFICIT
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gross Less Net
Capital Nonamor- Capital Cumulative
Contri- tizable Contri- Cash Cumulative Partners'
butions Costs butions Distributions Losses Deficit
Partners'
deficit
1/1/97 $5,835,310 $(439,499) $5,395,811 $(324,745) $(11,255,197) $(6,184,131)
Net loss 0 0 0 0 (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)
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
Casselberry-Oxford Associates Limited Partnership
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
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 5,096
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
</TABLE>
<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.
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.
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 sate 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
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.
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.
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:
<TABLE>
<S> <C>
Land $ 700,000
Buildings 9,173,606
Building equipment 1,598,578
11,472,184
Less accumulated depreciation 4,772,670
$ 6,699,514
</TABLE>
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.
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
<TABLE>
<S> <C> <C>
Partners' capital contributions are as follows:
General and Special Limited Partners $ 260
Investor Limited Partners 4,750,05
$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
</TABLE>
The general partners have the right to reserve for contingencies and future
replacements in amounts determined adequate for such purposes at any time.
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, payment of an $87,000 cumulative,
annual preferred return beginning in 1996 (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;
(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;
(1) 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
COMPLIANCE WITH LAND USE RESTRICTION AGREEMENT
CASSELBERRY-OXFORD ASSOCIATES
LIMITED PARTNERSHIP
December 31,1997
<PAGE>
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
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Audited Financial Statements
December 31, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Independent Auditor's Report 1
Balance Sheets 2
Statements of Members' Equity 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors
Rolling Ridge, LLC
I have audited the accompanying balance sheets of Rolling Ridge, LLC as of
December 31, 1999 and 1998 and the related statements of members' equity,
operations, and cash flows for the years 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, 1999 and 1998 and the results of its operations, changes in
members' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ James L. Zimmerman
February 7, 2000
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Balance Sheet
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
<S> <C> <C>
Land and buildings (including land of
$1,113,241) at cost $ 6,587,225 $ 6,587,225
Less accumulated depreciation - Note 1 (2,023,695) (1,824,641)
Net land and buildings 4,563,530 4,762,584
Cash - operating account 56,507 51,914
Cash - restricted for replacement reserve Note 2 5,434 6,384
Accounts receivable from tenants 1,905 2,476
Debt financing costs, less accumulated
amortization of ($26,534 and $20,291 in 1999
and 1998, respectively) 160,747 166,990
$4,788,123 $4,990,348
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage payable - Note 2 $4,925,000 $4,925,000
Accounts payable 27,757 27,608
Prepaid rents from tenants 642 590
Tenants security deposits payable 61,635 62,208
Accrued contingent interest
payable - Note 2 4,508 15,808
Total liabilities 5,019,542 5,031,214
Members' equity (deficit) (231,419) (40,866)
$4,788,123 $4,990,348
See accompanying Notes to Financial Statements
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statements of Members' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Duane R. Ralph & Diane
Raab Haun Total
Balances (deficit) at
December 31, 1997 $144,802 $(48,366) $ 96,436
Net loss - 1998 (68,651) (68,651) (137,302)
Balances (deficit) at
December 31 76,151 (117,017) (40,866)
Withdrawals (48,192) (48,193) (96,385)
Net loss - 1999 (47,084) (47,084) (94,168)
Balances (deficit) at
December 31, 1999 $ (19,125) $(212,294) $(231,419)
See accompanying Notes to Financial Statements
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Operations
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues:
Net rentals $1,035,009 $ 981,349
Other income 47,369 24,615
Total revenues 1,082,378 1,005,964
Cost of operations:
Payroll and related 92,630 90,101
Management fees 43,427 40,281
Advertising and promotion 17,369 15,352
Professional fees 4,958 4,199
Other administrative expenses 17,050 13,833
Landscaping 15,360 15,360
Tree trimming 7,190
Painting (net of $25,000 reimbursement in 1998) 10,570 6,130
Paving 9,750
Other repairs and maintenance 64,689 94,397
Refuse collection 13,643 11,420
Utilities 57,239 59,396
Insurance 12,273 7,495
County trustee fees 9,143 8,899
Property taxes 122,700 112,048
Interest expense - base 443,250 443,250
Interest expense - contingent - Note 2 30,008 15,808
Total cost of operations 971,249 937,969
Income before depreciation and amortization 111,129 67,995
Depreciation and amortization 205,297 205,297
Net loss $ (94,168) $ (137,302)
See accompanying Notes to Financial Statements
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
Statement of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (94,168) $(137,302)
Adjustments to reconcile net loss to net cash
provided by (applied to) operating activities:
Depreciation and amortization 205,297 205,297
(Increase) decrease in:
Accounts receivable 571 700
Increase (decrease) in:
Bank overdraft (37,235)
Accounts payable 149 10,760
Prepaid rents 52 (766)
Tenants security deposits (573) (4,569)
Accrued contingent interest payable (11,300) 15,808
Net adjustments 194,196 189,995
Total from operating activities 100,028 52,693
Cash flows from investing activities:
Deposits to replacement reserves (21,996) (21,996)
Expenditures from replacement reserves 22,946 21,217
Net cash flows from investing activities 950 (779)
Cash flows from financing activities:
Member withdrawals (96,385) 0
Net increase in cash 4,593 51,914
Beginning cash balances 51,914 0
Ending cash balances $ 56,507 $ 51,914
Supplemental disclosure - cash paid during
year for interest $484,558 $443,250
See accompanying Notes to Financial Statements
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
Notes to Financial Statements
December 31,1999
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 Bemardino, 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 of account are maintained on the modified cash basis of
accounting. These financial statements prepared on the accrual basis of
accounting. Under this method of accounting, revenue is recognized when
revenues are earned, or billed, and expenses are recognized when goods or
services are received, whether paid or not.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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.
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 Bemardino, 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 and contingent 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.
Contingent interest for the years ended December 31, 1999 and 1998 was
calculated as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flow from operating
activities as reported in
the statements of cash flows-
Page 5 $100,028 $ 52,693
Percentage rate x30% x30%
Contingent interest 30,008 15,808
1999 contingent interest paid (25,500)
Contingent interest payable $ 4,508 $ 15,808
</TABLE>
3. Replacement Reserves
The company is required to make monthly deposits in escrow in an amount 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 years ended December 31, 1999 and 1998 is shown below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Monthly contributions (12 x $1,833) $21,996 $21,996
Expenditures:
Floor coverings 14,394 12,347
Other furnishings 791 690
Roof repairs 579 1,450
Heating and air conditioning 3,766 1,355
Plumbing and water heaters 2,939 3,235
Painting 1,140
Landscape improvements 1,000
Other repairs 477 0
Total expenditures 22,946 21,217
Net increase (decrease) (950) 779
Balances at beginning of year 6,384 5,605
Balances at end of year $ 5,434 $ 6,384
</TABLE>
<PAGE>
ROLLING RIDGE, LLC
(A Limited Liability Company)
Audited
Financial Statements
December 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Members
Rolling Ridge, LLC
I have audited the accompanying balance sheets of Rolling Ridge, LLC a
California limited liability company) as of December 31, 1998 and 1997, and
the related statements of operations, members' equity, and cash flows for the
years 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, 1998 and 1997, and the results of its operations, changes in
members' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/S/ JAMES L. ZIMMERMAN
February 8, 1999
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
Land and buildings (including
land of $1,113,241) $ 6,587,225 $ 6,587,225
at cost, less accumulated
depreciation - Note 1 (1,824,641) (1,625,587)
Net land and buildings 4,762,584 4,961,638
Cash - operating account 51,914 0
Cash - restricted for replacement
reserve - Note 2 6,384 5,605
Accounts receivable from tenants 2,476 3,176
Debt financing costs,
less accumulated
amortization ($20,291 and
$14,048 in 1998
and 1997, respectively) 166,990 173,233
$ 4,990,348 $15,143,652
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage payable - Note 2 $4,925,000 $4,925,000
Bank overdraft 0 37,235
Accounts payable 27,608 16,848
Prepaid rents from tenants 590 1,356
Tenants security deposits payable 62,208 66,777
Accrued contingent interest
payable - Note 2 15,808 0
Total liabilities 5,031,214 5,047,216
Members' equity (deficit) (40,866) 96,436
$ 4,990,348 $ 5,143,652
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Operations
For the Year Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenue:
Net rentals $ 981,349 $ 920,968
Other income 24,615 22,516
Total revenues 1,005,964 943,484
Cost of operations:
Payroll and related 90,101 85,377
Management fees 40,281 37,743
Advertising and promotion 15,352 19,106
Professional fees 4,199 8,809
Other administrative expenses 13,833 14,806
Landscaping 15,360 12,830
Painting (net of $25,000 reimbursement
in 1998) 6,130 33,304
Other repairs and maintenance 94,397 70,646
Refuse collection 11,420 8,659
Utilities 59,396 61,298
Insurance 7,495 6,303
County and trustee fees 8,899 14,882
Property taxes 112,048 136,675
Interest expense - Note 2 459,058 443,250
Total cost of operations 937,969 953,688
Income (loss) before depreciation 67,995 (10,204)
Depreciation and amortization 205,297 205,297
Net loss $ (137,302) $ (215,501)
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statements of Members Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Duane R. Ralph & Diane
Raab Haun Total
<S> <C> <C> <C>
Balances at
December 31, 1996 $ 246,553 $ 53,384 $ 299,937
Contributions 6,000 6,000 12,000
Net income
(loss) - 1997 (107,751) (107,750) (215,501)
Balances (deficit) at
December 31, 1997 144,802 (48,366) 96,436
Net income (loss) - 1998 (68,651) (68,651) (137,302)
Balances (deficit) at
December 31, 1998 $ 76,151 $(117,017) $ (40,866)
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Statement of Cash Flows
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $(137,302) $(215,501)
Adjustments to reconcile net loss
to net cash provided by (applied to)
operating activities:
Depreciation and amortization 205,297 205,297
(Increase) decrease in:
Accounts receivable 700 3,012
Increase (decrease) in:
Bank overdraft (37,235) (8,606)
Accounts payable 10,760 (171)
Prepaid rents (766) 283
Tenants security deposits (4,569) 1,914
Accrued contingent interest payable 15,808 0
Net adjustments 189,995 201,729
Total from operating activities 52,693 (13,772)
Cash flows from investing activities:
Deposits to replacement reserves (21,996) (21,996)
Expenditures from replacement reserves 21,217 23,768
Net cash flows from investing
activities (779) 1,772
Cash flows from financing activities:
Member contributions 0 12,000
Net increase (decrease) in cash 51,914 0
Beginning cash balance 0 0
Ending cash balance $ 51,914 $ 0
Supplemental disclosure - cash paid
during year for interest $ 443,250 $ 443,250
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statement
December 31, 1998
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 I 10-unit multifamily 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.
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.
Contingent interest for the years ended December 31, 1998 and 1997 was
calculated as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flow from operating
activities as reported in
the statements of cash flows -
Page 5 $52,693 $(13,772)
Percentage rate x 30% x 30%
Contingent interest payable $15,808 $ 0
</TABLE>
3. Replacement Reserve
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 years ended December 31, 1998 and 1997 is shown below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance at beginning of year $ 5,605 $ 7,377
Monthly contributions (12 x $1,833) 21,996 21,996
Expenditures:
Floor covering 12,347 18,116
Other furnishings 690 3,632
Roof repairs 1,450 2,020
Heating and air conditioning 1,355
Plumbing and water heaters 3,235
Painting 1,140
Landscaping improvements 1,000 0
21,217 23,768
Balance at end of year $ 6,384 $ 5,605
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN TAX-EXEMPT BOND TRUST
(Registrant)
By:RELATED AMI ASSOCIATES, INC., as Manager
Date: March 28, 2000
By:/s/ Stuart J. Boesky
Stuart J. Boesky
Director and President
Date: March 28, 2000
By:/s/ Michael J. Brenner
Michael J. Brenner
Director (Principal Executive Officer)
<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/ Stuart J. Boesky Director and President
Stuart J. Boesky of the Manager March 28, 2000
Director
/s/ Michael J. Brenner (Principal Executive
Michael J. Brenner Officer) of the Manager March 28, 2000
Senior Vice President
/s/ Alan P. Hirmes (Principal Financial
Alan P. Hirmes Officer) of the Manager March 28, 2000
Treasurer
/s/ Richard A. Palermo (Principal Accounting
Richard A. Palermo Officer) of the Manager March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the finan-
cial statements for American Tax-Exempt Bond Trust and is qualified in its en-
tirety 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 726,567
<SECURITIES> 27,191,567
<RECEIVABLES> 181,696
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,099,830
<CURRENT-LIABILITIES> 1,351,501
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,748,329
<TOTAL-LIABILITY-AND-EQUITY> 28,099,830
<SALES> 0
<TOTAL-REVENUES> 2,134,075
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 608,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,525,735
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,525,735
<EPS-BASIC> 0.95
<EPS-DILUTED> 0
</TABLE>
