As
filed with the Securities and Exchange Commission on January 29,
2010
Commission
File No.:
333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
AMERICA FIRST TAX EXEMPT
INVESTORS, L.P.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
or other jurisdiction of incorporation or organization)
|
1004
Farnam Street
Suite
400
Omaha,
Nebraska 68102
(402)
444-1630
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
|
47-0810385
(IRS
Employer Identification Number)
|
Lisa
Y. Roskens
President
and Chief Executive Officer
The
Burlington Capital Group L.L.C.
1004
Farnam Street
Suite
400
Omaha,
Nebraska 68102
(402)
444-1630
(Name,
address and telephone number of Agent for Service)
Copies
to:
|
Steven
P. Amen
Kutak
Rock LLP
1650
Farnam Street
Omaha,
Nebraska 68102
Tel:
(402) 346-6000
Fax:
(402) 346-1148
|
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time or at one time after the effective date of this registration statement as
the registrant shall determine.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. [ ]
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this
Form is filed to register additional securities of an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same
offering. [ ]
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. [ ]
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer”, “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-
accelerated filer o
|
Smaller
reporting company o
|
|
|
|
(do
not check if a smaller reporting company)
|
|
Calculation
of Registration Fee
|
Title
of each class of
securities
to
be
registered
|
Proposed
maximum
aggregate
offering
price(1)
|
Amount
of
registration
fee
|
|
Shares
representing assigned limited partnership interests(2)
|
$200,000,000
|
$11,212(3)
|
|
(1)
|
In
no event will the maximum aggregate offering price of all securities
issued pursuant to this registration statement exceed
$200,000,000. The securities registered by this registration
statement include $28,488,000 of unissued shares registered by the
registrant on Form S-3 (Registration No. 333-139864) filed on January 9,
2007.
|
|
(2)
|
Subject
to footnote 1, there is being registered hereunder an indeterminate number
of shares as may be sold from time to time by the
registrant.
|
|
(3)
|
Calculated
pursuant to Rule 457(o) under the Securities Act of
1933. Pursuant to Rule 457(p) under the Securities Act of 1933,
the registration fee has been offset by registration fees of $3,048 paid
by the registrant with respect to the $28,488,000 of unsold shares
previously registered by the registrant as described in footnote 1
above.
|
Pursuant
to Rule 429 under the Securities Act of 1933, as amended, the prospectus
constituting a part of this registration statement is a combined prospectus and
relates to shares of America First Tax Exempt Investors, L.P. registered
hereunder and unsold shares that have been registered pursuant to a
previously-filed registration statement filed by the registrant on Form S-3
(Registration No. 333-139864).
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT
TO COMPLETION, DATED JANUARY 29, 2010
|
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these
securities and is not seeking an offer to buy these securities in any
state where the offer or sale is not
permitted.
|
PRELIMINARY
PROSPECTUS
$200,000,000
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
Shares
representing assigned limited partnership interests
We may
use this prospectus to offer shares representing assigned limited partnership
interests in America First Tax Exempt Investors, L.P. We may offer
these shares from time to time. We will provide specific terms of
each issuance of these securities in supplements to this
prospectus. You should read this prospectus and any supplement
carefully before you decide to invest in our shares.
This
prospectus may not be used to consummate sales of these securities unless it is
accompanied by a prospectus supplement.
Our
shares are quoted on the Nasdaq Global Market under the
symbol “ATAX.”
Investing
in our shares involves a high degree of risk. You should carefully
consider the information under the heading “RISK FACTORS” beginning on
page 7 of this prospectus before buying our shares.
We may
offer our shares in amounts, at prices and on terms determined by market
conditions at the time of the offerings. We may sell shares to or
through underwriters, dealers or agents, or we may sell shares directly to
investors on our own behalf.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
,
2010
You
should rely only on the information contained or incorporated by reference in
this prospectus and any related prospectus supplement. We have not
authorized anyone to provide you with information or to make any representation
that differs from the information in this prospectus and any related prospectus
supplement. If anyone provides you with different or inconsistent
information, you should not rely on it. You should not assume that
the information contained in this prospectus, any related prospectus supplement
and the documents incorporated by reference herein is correct on any date after
their respective dates even though this prospectus and any related prospectus
supplement are delivered or shares are sold pursuant to this prospectus and a
related prospectus supplement at a later date. Our business,
financial condition, results of operations or prospects may have changed since
those dates. To the extent the information contained in this
prospectus or the documents incorporated by reference herein differs or varies
from the information contained in any prospectus supplement delivered to you,
the information in such prospectus supplement will supersede such
information.
TABLE
OF CONTENTS
|
|
|
|
1 |
|
|
|
|
1 |
|
|
|
|
7 |
|
|
|
|
7 |
|
|
|
|
14 |
|
|
|
|
19 |
|
|
|
|
19 |
|
|
|
|
26 |
|
|
|
|
27 |
|
|
|
|
28 |
|
|
|
|
28 |
|
|
|
|
28 |
|
|
|
|
29 |
|
FORWARD-LOOKING
STATEMENTS
This
prospectus contains or incorporates by reference certain forward-looking
statements. All statements other than statements of historical facts
contained in this prospectus, including statements regarding our future results
of operations and financial position, business strategy and plans and objectives
of management for future operations, are forward-looking
statements. When used, statements which are not historical in nature,
including those containing words such as “anticipate,” “estimate,” “should,”
“expect,” “believe,” “intend,” and similar expressions, are intended to identify
forward-looking statements. We have based forward-looking statements
largely on our current expectations and projections about future events and
financial trends that we believe may affect our business, financial condition
and results of operations. This prospectus also contains estimates
and other statistical data made by independent parties and by us relating to
market size and growth and other industry data. This data involves a
number of assumptions and limitations, and you are cautioned not to give undue
weight to such estimates. We have not independently verified the
statistical and other industry data generated by independent parties and
contained in this prospectus and, accordingly, we cannot guarantee their
accuracy or completeness. In addition, projections, assumptions and
estimates of our future performance and the future performance of the industries
in which we operate are necessarily subject to a high degree of uncertainty and
risk due to a variety of factors, including those described under the headings
“Risk Factors” beginning on page 8 in the accompanying prospectus and
page 8 of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, and page 36 of our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. These
forward-looking statements are subject to various risks and uncertainties,
including those relating to:
|
·
|
current
maturities of our financing arrangements and our ability to renew or
refinance such financing
arrangements;
|
|
·
|
defaults
on the mortgage loans securing our tax-exempt mortgage revenue
bonds;
|
|
·
|
risks
associated with investing in multifamily apartments, including changes in
business conditions and the general
economy;
|
|
·
|
changes
in short-term interest rates;
|
|
·
|
our
ability to use borrowings to finance our
assets;
|
|
·
|
current
negative economic and credit market conditions;
and
|
|
·
|
changes
in government regulations affecting our
business.
|
Other risks,
uncertainties and factors, including those discussed in any supplement to this
prospectus or in reports that we file from time to time with the Securities and
Exchange Commission (such as our Forms 10-K and 10-Q) could cause our
actual results to differ materially from those projected in any forward-looking
statements we make. We are not obligated to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (or SEC) using a “shelf” registration
process. Under this process, we may offer and sell shares
representing assigned limited partnership interests in our company in one or
more offerings for total proceeds of up to $200,000,000. This
prospectus provides a general description of our business and the shares that we
may offer. Each time we offer to sell any shares, we will provide a
supplement to this prospectus that will contain specific information about the
terms of that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. It is
important for you to consider the information contained in this prospectus and
any prospectus supplement together with additional information described under
the heading “WHERE YOU CAN FIND MORE INFORMATION.”
We
urge you to carefully read this entire prospectus and the related prospectus
supplement, including the financial statements and the information that is
incorporated by reference into this prospectus and the related prospectus
supplement. You should carefully consider the information discussed
under “Risk Factors” before you decide to purchase any of our
shares.
All
references to “we,” “us” or “the Partnership” mean America First Tax Exempt
Investors, L.P.
Our
Business
America
First Tax Exempt Investors, L.P. was formed for the primary purpose of acquiring
a portfolio of federally tax-exempt mortgage revenue bonds that are issued to
provide construction and/or permanent financing of multifamily residential
properties. Interest paid on these bonds is excludable from gross
income for federal income tax purposes. As a result, most of the
income earned by the Partnership is exempt from federal income
taxes.
The
Partnership has been in operation since 1998 and currently owns 17 federally
tax-exempt mortgage revenue bonds with an aggregate outstanding principal amount
of $145.1 million. These bonds were issued by various state and local
housing authorities in order to provide construction and/or permanent financing
of 14 multifamily residential apartments containing a total of 2,399 rental
units located in the states of Florida, Iowa, South Carolina, Texas, Nebraska,
Kansas, Kentucky, and Minnesota, one multifamily residential apartment complex
under construction in Texas that will contain a total of 76 rental units,
and a 142-bed student housing facility in Nebraska. In each case, the
Partnership holds 100% of the bonds issued for these properties. Each
of these mortgage revenue bonds provides for the payment of fixed-rate base
interest to the Partnership. Additionally, six of the bonds also
provide for the payment of contingent interest determined by the net cash flow
and net capital appreciation of the underlying real estate
properties. As a result, these mortgage revenue bonds provide the
Partnership with the potential to participate in future increases in the cash
flow generated by the financed properties, either through operations or from
their ultimate sale. Each bond is secured by a first mortgage or deed
of trust on the financed apartment property.
The
ability of the properties collateralizing our tax-exempt mortgage revenue bonds
to make payments of base and contingent interest is a function of the net
operating income generated by these properties. Net operating income
from a multifamily residential property depends on the rental and occupancy
rates of the property and the level of operating expenses. Occupancy
rates and rents are directly affected by the supply of, and demand for,
apartments in the market areas in which a property is located. This,
in turn, is affected by several factors such as local or national economic
conditions, the amount of new apartment construction and interest rates on
single-family mortgage loans. In addition, factors such as government
regulation, inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property. Because
the return to the Partnership from its investments in tax-exempt mortgage
revenue bonds depends upon the economic performance of the multifamily
residential properties which collateralize these bonds, the Partnership may be
considered to be in competition with other multifamily rental properties located
in the same geographic areas as the properties financed with its tax-exempt
bonds.
The
Partnership may also invest in other types of tax-exempt securities that may or
may not be secured by real estate. These tax-exempt securities must
be rated in one of the four highest rating categories by at least one nationally
recognized securities rating agency and may not represent more than 25% of the
Partnership’s assets at the time of acquisition. To date, the
Partnership has not made any investments of this type.
The
Partnership may also make taxable mortgage loans secured by multifamily
properties which are financed by tax-exempt mortgage revenue bonds held by the
Partnership. We do this in order to provide financing for capital
improvements at these properties or to otherwise support property operations
when we determine it is in the best long-term interest of the
Partnership.
The
Partnership generally does not seek to acquire direct interests in real property
as long term or permanent investments. The Partnership may, however,
acquire real estate securing its tax-exempt mortgage revenue bonds or taxable
mortgage loans through foreclosure in the event of a default. In
addition, the Partnership may acquire interests in multifamily apartment
properties (“MF Properties”) in order to position itself for future investments
in tax-exempt bonds issued to finance these properties. The
Partnership currently holds interests in nine MF Properties containing
964 rental units, of which four are located in Ohio, two are located in
Kentucky, one is located in Virginia, one is located in North Carolina and one
is located in Georgia. The Partnership expects each of these MF
Properties to eventually be sold to a not-for-profit entity or in connection
with a syndication of Low Income Housing Tax Credits (“LIHTCs”) under
Section 42 of the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”). The Partnership expects to acquire tax-exempt
mortgage revenue bonds issued to provide debt financing for these properties at
the time the property ownership is restructured. Such restructurings
will generally be expected to occur within 36 months of the Partnership’s
initial investment in an MF Property and will often coincide with the expiration
of the compliance period relating to LIHTCs previously issued with respect to
the MF Property. The Partnership will not acquire LIHTCs in
connection with these transactions. Current credit markets and
general economic conditions have resulted in very few LIHTC syndication and
tax-exempt bond financing transactions being completed in the past twelve to
eighteen months. These types of transactions represent a long-term
market opportunity for the Partnership and should provide us with a pipeline of
future bond investment opportunities when the market for LIHTC syndications
strengthens. Until the market for LIHTC syndication transactions
strengthens, the Partnership will explore other transactions for the sale of the
MF Properties and is in the preliminary stages of evaluating potential
transactions related to three MF Properties which would be partially financed by
the acquisition of tax-exempt bonds secured by the properties.
Business
Objectives and Strategy
Our
business objectives are to (i) preserve and protect our capital and (ii) provide
regular and increasing cash distributions to our shareholders which are
substantially exempt from federal income tax. We have sought to meet
these objectives by primarily investing in a portfolio of tax-exempt mortgage
revenue bonds that were issued to finance, and are secured by first mortgages
on, multifamily apartment properties, including student
housing. Certain of these bonds may be structured to provide a
potential for an enhanced federally tax-exempt yield through the payment of
contingent interest which is payable out of net cash flow from operations and
net capital appreciation of the financed apartment properties.
We are
pursuing a business strategy of acquiring additional tax-exempt mortgage revenue
bonds on a leveraged basis in order to (i) increase the amount of
tax-exempt interest available for distribution to our shareholders;
(ii) reduce risk through asset diversification and interest rate hedging;
and (iii) achieve economies of scale. We are pursuing this
growth strategy by investing in additional tax-exempt mortgage revenue bonds and
related investments, taking advantage of attractive financing structures
available in the tax-exempt securities market and entering into interest rate
risk management instruments. We may finance the acquisition of
additional tax-exempt mortgage revenue bonds through the reinvestment of cash
flow, the issuance of additional shares, or securitization financing using our
existing portfolio of tax-exempt mortgage revenue bonds. Our
operating policy is to use securitizations or other forms of leverage to
maintain a level of debt financing between 40% and 60% of the total par value of
our mortgage bond portfolio.
In
connection with our growth strategy, we are also assessing opportunities to
reposition our existing portfolio of tax-exempt mortgage revenue
bonds. The principal objective of this repositioning initiative is to
improve the quality and performance of our revenue bond portfolio and,
ultimately, increase the amount of cash available for distribution to our
shareholders. In some cases, we may elect to redeem selected
tax-exempt bonds that are secured by multifamily properties that have
experienced significant appreciation. Through the selective
redemption of the bonds, a sale or refinancing of the underlying property will
be required which, if sufficient sale or refinancing proceeds exist, may entitle
the Partnership to receive payment of contingent interest on its bond
investment. In other cases, we may elect to sell bonds on properties
that are in stagnant or declining markets. The proceeds received from
these transactions would be redeployed into other tax-exempt investments
consistent with our investment objectives. We may also be able to use
a higher-quality investment portfolio to obtain higher leverage to be used to
acquire additional investments.
In
executing our growth strategy, we expect to invest primarily in bonds issued to
provide affordable rental housing, but may also consider bonds issued to finance
student housing projects and housing for senior citizens. The four
basic types of multifamily housing revenue bonds which we may acquire as
investments are as follows:
|
|
1.
|
Private
activity bonds issued under Section 142(d) of the Internal Revenue
Code;
|
|
|
2.
|
Bonds
issued under Section 145 of the Internal Revenue Code by
not-for-profit entities qualified under Section 501(c)3 of the
Internal Revenue Code;
|
|
|
3.
|
Essential
function bonds issued by a public instrumentality to finance an apartment
property owned by such instrumentality;
and
|
|
|
4.
|
Existing
“80/20 bonds” that were issued under Section 103(b)(4)(A) of the
Internal Revenue Code of 1954.
|
Each of
these bond structures permits the issuance of tax-exempt bonds to finance the
construction or acquisition and rehabilitation of affordable rental
housing. Under applicable Treasury Regulations, any affordable
apartment project financed with tax-exempt bonds must set aside a percentage of
its total rental units for occupancy by tenants whose incomes do not exceed
stated percentages of the median income in the local area. In each
case, the balance of the rental units in the apartment project may be rented at
market rates. With respect to private activity bonds issued under
Section 142(d) of the Internal Revenue Code, the owner of the apartment
project may elect, at the time the bonds are issued, whether to set aside a
minimum of 20% of the units for tenants making less than 50% of area median
income (as adjusted for household size) or 40% of the units for tenants making
less than 60% of the area median income (as adjusted for household
size). Multifamily housing bonds that were issued prior to the Tax
Reform Act of 1986 (so called “80/20” bonds) require that 20% of the rental
units be set aside for tenants whose income does not exceed 80% of the area
median income, without adjustment for household size.
We expect
that many of the private activity housing bonds that we evaluate for acquisition
will be issued in conjunction with the syndication of LIHTCs by the owner of the
financed apartment project. Additionally, to facilitate our
investment strategy of acquiring additional tax-exempt mortgage bonds secured by
MF Properties, we may acquire ownership positions in the MF
Properties. We expect to acquire tax-exempt mortgage revenue bonds on
these MF Properties in many cases at the time of a restructuring of the MF
Property ownership. Such restructuring may involve the syndication of
LIHTCs in conjunction with a property rehabilitation.
Investment
Types
Tax-Exempt Mortgage Revenue
Bonds. The
Partnership invests in tax-exempt mortgage revenue bonds that are secured by a
first mortgage or deed of trust on multifamily apartment
projects. Each of these bonds bears interest at a fixed annual base
rate. Six of the 17 bonds currently owned by the Partnership also
provide for the payment of contingent interest, which is payable out of the net
cash flow and net capital appreciation of the underlying apartment
properties. As a result, the amount of interest earned by the
Partnership from its investment in tax-exempt mortgage revenue bonds is a
function of the net operating income generated by the properties collateralizing
the tax-exempt mortgage revenue bonds. Net operating income from a
multifamily residential property depends on the rental and occupancy rates of
the property and the level of operating expenses.
Other Tax-Exempt
Securities. The Partnership may invest in other types of
tax-exempt securities that may or may not be secured by real
estate. These tax-exempt securities must be rated in one of the four
highest rating categories by at least one nationally recognized securities
rating agency and may not represent more than 25% of the Partnership’s assets at
the time of acquisition.
Taxable Mortgage
Loans. The Partnership may also make taxable mortgage loans
secured by multifamily properties which are financed by tax-exempt mortgage
revenue bonds that are held by the Partnership.
Other
Investments. While the Partnership generally does not seek to
acquire equity interests in real property as long-term or permanent investments,
it may acquire real estate securing its revenue bonds or taxable mortgage loans
through foreclosure in the event of a default. In addition, as part
of its growth strategy, the Partnership may acquire direct or indirect interests
in MF Properties on a temporary basis in order to position itself for a future
investment in tax-exempt mortgage revenue bonds issued to finance the
acquisition or substantial rehabilitation of such apartment complexes by a new
owner. A new owner would typically seek to obtain LIHTCs in
connection with the issuance of the new tax-exempt bonds, but if LIHTCs had
previously been issued for the property, such a restructuring could not occur
until the expiration of a 15-year compliance period for the initial
LIHTCs. The Partnership may acquire an interest in MF Properties
prior to the end of the LIHTC compliance period. After the LIHTC
compliance period, the Partnership would expect to sell its interest such
MF Property to a new owner which could syndicate new LIHTCs and seek
tax-exempt bond financing on the MF Property which the Partnership could
acquire. Such restructurings will generally be expected to occur
within 36 months of the acquisition by the Partnership of an interest in an
MF Property. The Partnership will not acquire LIHTCs in connection
with these transactions.
Investment
Opportunities
There is
a significant unmet demand for affordable multifamily housing in the
United States. The United States Department of Housing and Urban
Development (“HUD”) reports that there are approximately 5.5 million
American households in need of quality affordable housing. The types
of tax-exempt mortgage revenue bonds in which we invest offer developers of
affordable housing a low-cost source of construction and permanent debt
financing for these types of properties. Investors purchase these
bonds because the income paid on these bonds is exempt from federal income
taxation. The National Council of State Housing Agencies Fact Sheet
and HUD have captured some key scale metrics and opportunities of this
market:
|
|
•
|
HUD
has provided over 1.0 million lower-income Americans with affordable
rental housing opportunities;
|
|
|
•
|
Housing
Finance Agencies, or HFAs, use multifamily tax-exempt housing bonds to
finance an additional 130,000 apartments each year;
and
|
|
|
•
|
The
availability of tax-exempt bond financing for affordable multifamily
housing to be owned by private, for-profit developers in each state in
each calendar year is limited by the statewide volume cap distributed as
described in Section 146 of the Internal Revenue Code; this private
activity bond financing is based on state population and indexed to
inflation.
|
In
addition to tax-exempt revenue bonds, the federal government promotes affordable
housing through the use of LIHTCs for affordable multifamily rental
housing. The syndication and sale of LIHTCs along with tax-exempt
bond financing is attractive to developers of affordable housing because it
helps them raise equity and debt financing for their projects. Under
this program, developers that receive an allocation of private activity bonds
will also receive an allocation of federal LIHTCs as a method to encourage the
development of affordable multifamily housing. The Partnership does
not invest in LIHTCs, but is attracted to tax-exempt mortgage revenue bonds that
are issued in association with federal LIHTC syndications because in order to be
eligible for federal LIHTCs a property must either be newly constructed or
substantially rehabilitated and, therefore, may be less likely to become
functionally obsolete in the near term than an older property. There
are various requirements in order to be eligible for federal LIHTCs, including
rent and tenant income restrictions. In general, the property owner
must elect to set aside either 40% or more of the property’s residential units
for occupancy by individuals whose income is 60% or less of the area median
gross income or 20% or more of the property’s residential units for occupancy by
individuals whose income is 50% or less of the area median gross
income. These units remain subject to these set aside requirements
for a minimum of 30 years.
The
National Council of State Housing Agencies Fact Sheet and HUD have captured some
key scale metrics and opportunities of the market for LIHTCs:
|
|
•
|
LIHTCs
have helped finance approximately 2.0 million apartments for
low-income families since Congress created it in 1986 and help finance
130,000 more apartments each year representing nearly 90% of the country’s
new affordable rental housing
construction;
|
|
|
•
|
HUD
has a stated goal to expand affordable rental housing by 1.4 million
units through the LIHTC and other program funds by FY 2011;
and
|
|
|
•
|
Each
state’s annual LIHTC allocation is indexed to its population and adjusted
annually for inflation. The state LIHTC allocation for 2010 at
$2.10 times state population, with a state minimum of
$2,430,000.
|
The 2008
Housing Act simplified and expanded the use of LIHTCs and tax-exempt bond
financing for low-income multifamily housing industry. Additionally,
it exempted newly issued tax-exempt private activity bonds from Alternative
Minimum Tax. Previously, these tax-exempt private activity bonds were
Alternative Minimum Tax preference items for individual tax
payers. We believe these changes should enhance the Partnership’s
opportunities for making investments in accordance with its investment
criteria.
Current
credit markets and general economic issues have had a significant negative
impact on these types of transactions. At this time very few LIHTC
syndication and tax-exempt bond financing transactions are being
completed. While these types of transactions represent a long-term
market opportunity for the Partnership, they are not the current investment
focus.
Effects
of Recent Credit Markets and Economic Conditions
The
disruptions in domestic and international financial markets, and the resulting
restrictions on the availability of debt financing that has prevailed since
2008, has, in our view, created potential investment opportunities for the
Partnership. Many participants in the multifamily housing debt sector
have either reduced their participation in the market or are being forced to
liquidate some or all of their existing portfolio investments in order to meet
their liquidity needs. We believe this is creating opportunities to
acquire existing tax-exempt bonds from distressed holders at attractive
yields. The Partnership continues to evaluate potential investments
in bonds which are available on the secondary market. We believe many
of these bonds will meet our investment criteria and that we have a unique
ability to analyze and close on these opportunities while maintaining our
ability and willingness to also participate in primary market
transactions.
Current
credit and real estate market conditions also create opportunities to acquire
quality MF Properties from distressed owners and lenders. Our ability
to restructure existing debt together with the ability to improve the operations
of the apartment properties through our affiliated property management company
can position these MF Properties for an eventual financing with tax-exempt
mortgage revenue bonds meeting our investment criteria and that will be
supported by a valuable and well-run apartment property. We believe
we can selectively acquire MF Properties, restructure debt and improve
operations in order to create value to our shareholders in the form of a strong
tax-exempt bond investment.
On the
other hand, market and economic conditions may limit our ability to access
additional, or renew existing, debt financing that the Partnership uses to
partially finance its investment portfolio or otherwise meet its liquidity
requirements. The inability to access or renew existing debt
financing may result in adverse effects on our financial condition and results
of operations. There can be no assurance that we will be able to
finance additional acquisitions of tax-exempt bonds through either additional
equity or debt financing. Although the consequences of market and
economic conditions and their impact on our ability to pursue our plan to grow
through investments in additional tax-exempt housing bonds are not fully known,
we do not anticipate that our existing assets will be adversely affected in the
long-term. However, if uncertainties in these markets continue, the
markets deteriorate further or the Partnership experiences further deterioration
in the values of its investment portfolio, the Partnership may incur impairments
to its investment portfolio which could materially impact the Partnership’s
financial statements. In addition, the current negative economic
conditions, high levels of unemployment, lack of job growth, low home mortgage
interest rates and tax incentives provided to first time homebuyers have had a
negative effect on some of the apartment properties which collateralize our
tax-exempt bond investments and our MF Properties in the form of declining
occupancy. Overall economic occupancy (which is adjusted to reflect
rental concessions, delinquent rents and non-revenue units such as model units
and employee units) of the apartment properties that the Partnership has
financed with tax-exempt mortgage revenue bonds is expected to be approximately
84% for 2009 compared to 83% during 2008. Overall economic occupancy
of the MF Properties is expected to be approximately 83% for 2009 compared to
88% during 2008. Although these issues may continue to negatively
affect property operations and profitability in the short-term, we do not expect
that long-term property operations will be significantly affected.
Financing
Arrangements
The
Partnership may finance the acquisition of additional tax-exempt mortgage
revenue bonds through the reinvestment of cash flow, the issuance of additional
shares or with debt financing collateralized by our existing portfolio of
tax-exempt mortgage revenue bonds, including the securitization of these
bonds.
Debt
Financing. Our operating policy is to maintain a level of debt
financing between 40% and 60% of the total par value of our tax-exempt mortgage
revenue bond portfolio. The Partnership currently has outstanding
debt financing of $55.4 million secured by 14 tax-exempt mortgage revenue
bonds with a total par value of $120.7 million plus approximately
$3.8 million in restricted cash. The outstanding debt represents
approximately 37% of the par value of our total mortgage bond portfolio plus
cash collateral. This outstanding debt is made up of two credit
facilities. The first is with Bank of America and has an outstanding
balance of $49.9 million. This Bank of America facility has a
one-year term with a six-month renewal option held by the Partnership, an annual
floating interest rate of one-month LIBOR plus 390 basis
points. Financial covenants for the Bank of America facility include
the maintenance of a leverage ratio not to exceed 70% and a minimum liquidity of
$5.0 million by the Partnership. Additionally, the properties which
secure the bond portfolio which is collateral for the Bank of America facility
are to maintain, as a group, a minimum debt service coverage of 1.1 to 1 and a
loan to value ratio not to exceed 75%. The second credit facility is
with Omaha State Bank and has an outstanding balance of
$5.5 million. The Omaha State Bank facility matures on June 30,
2011, is collateralized by one tax-exempt mortgage revenue bond with a par value
of $8.9 million and bears interest at a fixed annual rate of
6.5%. Additionally, the MF Properties are encumbered by mortgage
loans with an aggregate principal balance of approximately $30.1
million.
The
Partnership continues to explore opportunities to improve its financing
arrangements. One option currently being pursued is a Tax-Exempt Bond
Securitization facility (“TEBS”) with Freddie Mac. The Partnership
believes this financing option offers several advantages its current credit
facilities including a longer term of up to 10 years. If the
current illiquidity in the financial markets continues or further deteriorates,
our ability to refinance our existing credit facilities may be negatively
effected. There can be no assurance that we will be able to enter
into a TEBS facility, or any other replacement debt financing, on terms
favorable to the Partnership or at all.
Equity
Financing. This prospectus is part of a Registration Statement
on Form S-3 that was filed by the Partnership with the Securities and
Exchange Commission (the “SEC”) in January 2010 in order to register the sale of
up to $200.0 million of its shares. We intend to issue shares
from time to time under this Registration Statement to raise additional equity
capital as needed to fund investment opportunities. Raising
additional equity capital for deployment into new investment opportunities is
part of our overall growth strategy described above.
The
Partnership had previously filed a $100.0 million shelf registration statement
with the SEC in January 2007 and has issued approximately $71.5million of shares
under this prior registration statement. Most recently, in October
2009, the Partnership issued a total of 4,830,000 shares through an underwritten
public offering at a public offering price of $5.05 per share. Net
proceeds realized by the Partnership from the issuance of these share was
approximately $22.9 million, after payment of an underwriter's discount and
other offering costs of approximately $1.5 million. The registration
statement filed in January 2010, of which this prospectus is a part, replaces
the previously-filed registration statement and all future shares (including
unsold shares registered under the prior registration statement) will be sold
pursuant to this prospectus.
Recent
Developments
As of
December 31, 2009, based on an accumulation of individual circumstances, the
Partnership has identified three tax-exempt mortgage revenue bonds for which
certain actions may be necessary to protect the Partnership’s position as a
secured bondholder and lender. These bonds are Woodland Park, The
Gardens of DeCordova and The Gardens of Weatherford. At this time
Woodland Park owes the Partnership approximately $15.7 million under tax-exempt
bonds and $700,000 under taxable loans, the Gardens of DeCordova owes the
Partnership approximately $4.9 million under tax-exempt bonds and $315,000 under
taxable loans and the Gardens of Weatherford owes the Partnership approximately
$4.7 million under tax-exempt bonds and $335,000 under taxable
loans. As of December 31, 2009, each of these properties was current
with its bond debt service to the Partnership. The Partnership is
currently evaluating these bond holdings and related taxable loans for potential
impairment as of December 31, 2009. The following is a discussion of
the circumstances related to each of these bonds.
Woodland Park. The
construction of Woodland Park was completed in November 2008 and lease-up
continues, however, the property has not yet reached stabilization which is defined in the
bond documents as the generation of a 1.15:1 debt service coverage ratio for six
straight months. As result of the failure to reach stabilization, the
bond is in technical default. As of December 31, 2009, the property
had 116 units leased out of total available units of 236, or 49% physical
occupancy. This affordable housing project has 100% of its units set
aside for tenants that make less than 60% of the area median
income. The Partnership believes that this 100% set aside of units
for affordable tenants is the most significant issue in the slow lease-up of the
property and that stabilization could be achieved more quickly if the set aside
of affordable units is lowered, thereby removing the income restriction from
prospective tenants for a portion of the available units. The
Partnership has requested that the property owner seek approval by the Kansas
Development Finance Authority to change the set aside of units for affordable
tenants to 75% thereby allowing 59 units to be rented to “market rate”
tenants. Additionally, the Partnership has verbally notified the
property owner of its expectation that any shortfalls in debt service resulting
from the slow lease-up of the property will be funded through additional capital
contributions, although they are not contractually required to do
so. The Partnership will continue to monitor this property closely
and work with the property owner to ensure bond debt service is
maintained. The property makes semi-annual debt service payments to
the Partnership. The next debt service payment is scheduled for May
1, 2010. Should the property be unable to make this payment the
Partnership expects to issue a Notice of Default through the bond trustee and to
begin foreclosure procedures.
The Gardens of
DeCordova. The construction of The Gardens of DeCordova was
completed in April 2009 and lease-up continues, however, the property has not
yet reached stabilization which is defined in the bond documents as the
generation of a 1.15:1 debt service coverage ratio for six straight
months. As result of the failure to reach stabilization, the bond is
in technical default. As of December 31, 2009, the property had 31
units leased out of total available units of 76, or 41% physical
occupancy. This property is a senior (55+) affordable housing project
located in Granbury, Texas in the Dallas-Fort Worth area. The
Partnership believes the most significant issue in the slow lease-up of the
property is the current single family housing market in the Dallas-Fort Worth
area. Many potential tenants must first sell their existing home
before they are able to move into a rental unit. In September 2009,
the Partnership was notified by the tax credit limited partner of the owner of
The Gardens of DeCordova of its intent to withdraw from the limited
partnership. In January 2010, the Partnership concluded its best
course of action for the removal of the current limited partner was to issue a
Notice of Default through the bond trustee and to begin foreclosure
procedures. The Partnership expects to issue such notice during the
first quarter of 2010. Through this process the Partnership can
remove the current limited partner which will allow for the “re-syndication” of
available LIHTCs generated by the property. The underwriting estimate
of LIHTCs to be generated by this property that would be available for
“re-syndication” is approximately $2.8 million. The syndication of
the LIHTCs, at an amount less than the gross credits generated, would provide
additional capital for the project in the form of new limited partner
equity. The Partnership believes that, if this can be accomplished,
such new equity would be sufficient to allow for the current bonds to remain in
place and operations be funded through an extended lease-up
period. Until such time as new ownership is in place and additional
capital is contributed, the full impact of these developments will not be
known.
The Gardens of
Weatherford. The Gardens of Weatherford Apartments is
currently under construction in Weatherford, Texas and will contain 76 units
upon completion. This property is a senior (55+) affordable housing
project located in Weatherford, Texas in the Dallas-Fort Worth
area. At this time infrastructure construction activities have been
substantially completed but no construction has begun on the actual apartment
buildings. As result of the failure to complete construction, the
bond is in technical default. Construction was significantly delayed
due to numerous zoning, planning and design issues encountered in the building
permit application process. In September 2009, the Partnership was
notified by the tax credit limited partner of the owner of The Gardens of
Weatherford of its intent to withdraw from the limited
partnership. While approximately $2.0 million remains on deposit with
the bond trustee for the Gardens of Weatherford, such funds are insufficient to
complete construction of the project or to pay the outstanding principal on the
bonds should the project not be constructed. In January 2010, the
Partnership concluded its best course of action for the removal of the current
limited partner was to issue a Notice of Default through the bond trustee and to
begin foreclosure procedures. The Partnership expects to issue such
notice during the first quarter of 2010. Through this process, the
Partnership expects to remove the current limited partner and to recapitalize
the property by pursuing an alternative plan of
financing. Specifically, the Partnership has identified available Tax
Credit Assistance Program (“TCAP”) funding available through application to the
Texas Department of Housing and Community Affairs (“TDHCA”). Through
TCAP funding TDHCA would purchase unused LIHTCs from the property owner thereby
infusing capital to the project. The underwriting estimate of LIHTCs
to be generated by this property that would be available is approximately $2.5
million. Based on current discussions with TDHCA, the Partnership
estimates that approximately $1.5 million in TCAP funding may be available to
the property owner. The Partnership believes that if this can be
accomplished, such new capital would be sufficient to allow for the current
bonds to remain in place, construction to be complete and operations to be
funded through an extended lease-up period. Until such time as new
ownership is in place and additional capital is contributed, the full impact of
these developments will not be known.
The
Partnership was formed on April 2, 1998 under the Delaware Revised Uniform
Limited Partnership Act. The operations of the Partnership are
conducted pursuant to the terms and conditions of its Agreement of Limited
Partnership, dated October 1, 1998 (the “Partnership Agreement”). See
“TERMS OF THE PARTNERSHIP AGREEMENT.”
Our
general partner is America First Capital Associates Limited Partnership 2
(the “General Partner”), which is a subsidiary of The Burlington Capital
Group L.L.C. (“Burlington”). Since 1984, Burlington (which was known
as America First Companies L.L.C. until 2005) has specialized in the management
of investment funds, many of which were formed to acquire real estate
investments such as tax-exempt mortgage revenue bonds, mortgage securities and
multifamily real estate properties. Our sole limited partner is
America First Fiduciary Corporation Number Five, a Nebraska
corporation. Our shares, which are referred to as “beneficial unit
certificates” or “BUCs” in the Partnership Agreement, represent assignments by
the sole limited partner of its rights and obligations as a limited
partner.
We are a
partnership for federal income tax purposes. This means that we do
not pay federal income taxes on our income. Instead, all of our
profits and losses are allocated to our partners, including the holders of
shares, under the terms of our Partnership Agreement. In addition, a
majority of our income consists of tax-exempt interest
income. See “ U.S. FEDERAL INCOME TAX
CONSIDERATIONS.”
Our
principal executive office is located at 1004 Farnam Street, Suite 400,
Omaha, Nebraska 68102, and our telephone number is
(402) 444-1630. We maintain a website at www.ataxfund.com,
where certain information about the Partnership is available. The
information found on, or accessible through, our website is not incorporated
into, and does not form a part of, this prospectus, any accompanying prospectus
supplement or any other report or document we file with or furnish to the
SEC.
Management
Structure and Compensation
Neither
the Partnership nor the General Partner has any employees, executive officers or
directors. Employees of Burlington, acting through the General
Partner, are responsible for the management of the Partnership’s operations and
the Partnership reimburses Burlington for the allocable salaries and benefits of
these employees and for other expenses it incurs in conducting the Partnership’s
business operations. However, under the terms of the Partnership
Agreement, neither Burlington nor the General Partner is allowed to be
reimbursed by the Partnership for any compensation paid by Burlington to its
executive officers. As a result, the Partnership does not pay
compensation of any nature to the persons who effectively act as its executive
officers. Accordingly, the Partnership does not provide tabular
disclosures regarding executive compensation, compensation discussion and
analysis, a compensation committee report or information regarding compensation
committee interlocks in the reports it files with the SEC.
The Board
of Managers of Burlington effectively acts as our board of
directors. Although Burlington is not a public company and its
securities are not listed on any stock market or otherwise publicly traded, its
Board of Managers is constituted in a manner that complies with rules of the
Securities and Exchange Commission and the Nasdaq Global Market related to
public companies with securities listed on that exchange in order for the
Partnership and its shares to comply with these rules. Among other
things, a majority of the Board of Managers of Burlington consists of managers
who meet the definitions of independence under the rules of the SEC and the
Nasdaq Global Market. These independent managers are Patrick J. Jung,
Mariann Byerwalter, Martin A. Massengale, Clayton Yeutter and William S.
Carter.
Under the
Partnership Agreement, the General Partner is entitled to an administrative fee
in an amount equal to 0.45% per annum of the principal amount of the revenue
bonds, other tax-exempt investments and taxable mortgage loans held by the
Partnership. Six of the tax-exempt revenue bonds held by the
Partnership provide for the payment of this administrative fee to the General
Partner by the owner of the financed property. When the
administrative fee is payable by a property owner, it is subordinated to the
payment of all base interest to the Partnership on the tax-exempt revenue bond
secured by that property. The Partnership Agreement provides that the
administrative fee will be paid directly by the Partnership with respect to any
investments for which the administrative fee is not payable by the property
owner or a third party. In addition, the Partnership Agreement
provides that the Partnership will pay the administrative fee to the General
Partner with respect to any foreclosed mortgage bonds.
The
General Partner or its affiliates may also earn mortgage placement fees in
connection with the identification and evaluation of additional investments that
we acquire. Any mortgage placement fees will be paid by the owners of
the properties financed by the acquired mortgage revenue bonds out of bond
proceeds. The amount of mortgage placement fees, if any, will be
subject to negotiation between the General Partner or its affiliates and such
property owners.
America
First Properties Management Company, L.L.C. (“Properties Management”) is an
affiliate of Burlington that is engaged in the management of apartment
complexes. Ten of the 16 properties which collateralize the
Partnership’s tax-exempt mortgage revenue bonds and all of the MF Properties are
managed by Properties Management. Properties Management may also seek
to become the manager of apartment complexes financed by additional mortgage
bonds acquired by the Partnership, subject to negotiation with the owners of
these properties. The entities that own these properties pay property
management fees to Properties Management at rates that reflect the local markets
in which the properties are located. If the Partnership acquires
ownership of any property through foreclosure of a revenue bond, Properties
Management may provide property management services for such property and, in
such case, the Partnership will pay Properties Management its fees for such
services. The General Partner believes that having Properties
Management provide management of the properties that are financed by the
Partnership’s tax exempt bonds and the MF Properties benefits the Partnership
because it provides the General Partner with greater insight and understanding
of the underlying properties’ operations, their ability to meet debt service
requirements to the Partnership and helps assure that these properties are being
operated in compliance with operating restrictions imposed by the terms of the
applicable tax-exempt bond financing and/or LIHTCs relating to these
properties.
We intend
to use the net proceeds of this offering primarily to acquire additional
tax-exempt mortgage revenue bonds secured by multifamily apartment properties
and other investments meeting our investment criteria. Any remaining
net proceeds will be used for general business purposes, including reduction in
our indebtedness.
An
investment in our shares involves a number of risks. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus and any accompanying prospectus supplement. If any of
the risks discussed in this prospectus or such prospectus supplement actually
occur, our business, financial condition and results of operations could be
materially adversely affected. If this were to occur, the amount of
cash distributions we pay on the shares may be reduced, the trading price of the
shares could decline and you may lose all or part of your
investment.
The Partnership recently changed its
distribution policy and may do so again in the future.
Cash
distributions made by the Partnership to shareholders may increase or decrease
at the determination of the General Partner based on its assessment of the
amount of cash available to the Partnership for this
purpose. Beginning with the distribution for the second quarter 2009,
the Partnership’s annual distribution was reduced from $0.54 per share to $0.50
per share due to General Partner’s determination that higher borrowing costs and
other factors would reduce the cash available to the Partnership to make
distributions. Although the General Partner believes that
distributions at this new level are sustainable, if the Partnership’s actual
results of operations vary from current projections and the actual cash
generated is less than the new regular distribution, the Partnership may need to
reduce the distribution rate further. Any change in our distribution
policy could have a material adverse effect on the market price of
shares.
The
receipt of interest and principal payments on our tax-exempt mortgage revenue
bonds will be affected by the economic results of the underlying multifamily
properties.
Although
our tax-exempt mortgage revenue bonds are issued by state or local housing
authorities, they are not obligations of these governmental entities and are not
backed by any taxing authority. Instead, each of these revenue bonds
is backed by a non-recourse loan made to the owner of the underlying apartment
complex and is secured by a first mortgage lien on the
property. Because of the non-recourse nature of the underlying
mortgage loans, the sole source of cash to pay base and contingent interest on
the revenue bond, and to ultimately pay the principal amount of the bond, is the
net cash flow generated by the operation of the financed property and the net
proceeds from the ultimate sale or refinancing of the property, except in
limited cases where a property owner has provided a limited guarantee of certain
payments. This makes our investments in these mortgage revenue bonds
subject to the kinds of risks usually associated with direct investments in
multifamily real estate. If a property is unable to sustain net cash
flow at a level necessary to pay its debt service obligations on our tax-exempt
mortgage revenue bond on the property, a default may occur. Net cash
flow and net sale proceeds from a particular property are applied only to debt
service payments of the particular mortgage revenue bond secured by that
property and are not available to satisfy debt service obligations on other
mortgage revenue bonds that we hold. In addition, the value of a
property at the time of its sale or refinancing will be a direct function of its
perceived future profitability. Therefore, the amount of base and
contingent interest that we earn on our mortgage revenue bonds, and whether or
not we will receive the entire principal balance of the bonds as and when due,
will depend to a large degree on the economic results of the underlying
apartment complexes.
The net
cash flow from the operation of a property may be affected by many things, such
as the number of tenants, the rental rates, operating expenses, the cost of
repairs and maintenance, taxes, government regulation, competition from other
apartment complexes, mortgage rates for single-family housing and general and
local economic conditions. In most of the markets in which the
properties financed by our bonds are located, there is significant competition
from other apartment complexes and from single-family housing that is either
owned or leased by potential tenants. Low mortgage interest rates and
federal tax credits make single-family housing more accessible to persons who
may otherwise rent apartments.
The
value of the properties is the only source of repayment of our tax-exempt
mortgage revenue bonds.
The
principal of most of our tax-exempt mortgage revenue bonds does not fully
amortize over their terms. This means that all or some of the balance
of the mortgage loans underlying these bonds will be repaid as a lump-sum
“balloon” payment at the end of the term. The ability of the property
owners to repay the mortgage loans with balloon payments is dependent upon their
ability to sell the properties securing our tax-exempt mortgage revenue bonds or
obtain adequate refinancing. The mortgage revenue bonds are not
personal obligations of the property owners, and we rely solely on the value of
the properties securing these bonds for security. Similarly, if a
tax-exempt mortgage revenue bond goes into default, our only recourse is to
foreclose on the underlying multifamily property. If the value of the
underlying property securing the bond is less than the outstanding principal
balance and accrued interest on the bond, we will suffer a loss.
In the
event a property securing a tax-exempt mortgage revenue bond is not sold prior
to the maturity or remarketing of the bond, any contingent interest payable from
the net sale or refinancing proceeds of the underlying property will be
determined on the basis of the appraised value of the underlying
property. Real estate appraisals represent only an estimate of the
value of the property being appraised and are based on subjective
determinations, such as the extent to which the properties used for comparison
purposes are comparable to the property being evaluated and the rate at which a
prospective purchaser would capitalize the cash flow of the property to
determine a purchase price. Accordingly, such appraisals may result
in us realizing less contingent interest from a tax-exempt mortgage revenue bond
than we would have realized had the underlying property been sold.
There
is additional credit risk when we make a taxable loan on a
property.
The
taxable mortgage loans that we make to owners of the apartment properties that
secure tax-exempt mortgage revenue bonds held by us are non-recourse obligations
of the property owner. As a result, the sole source of principal and
interest payments on these taxable loans is the net cash flow generated by these
properties or the net proceeds from the sale of these properties. The
net cash flow from the operation of a property may be affected by many things as
discussed above. In addition, any payment of principal and interest
on a taxable loan on a particular property will be subordinate to payment of all
principal and interest (including contingent interest) on the tax-exempt
mortgage revenue bond secured by the same property. As a result,
there may be a higher risk of default on the taxable loans than on the
associated tax-exempt mortgage revenue bonds. If a property is unable
to sustain net cash flow at a level necessary to pay current debt service
obligations on the taxable loan on such property, a default may
occur. While these taxable loans are secured by the underlying
properties, in general, the Partnership does not expect to pursue foreclosure or
other remedies against a property upon default of a taxable mortgage loan if the
property is not in default on the tax-exempt bonds financing the
property.
There
are risks associated with our strategy of acquiring ownership interests in MF
Properties in anticipation of future tax-exempt bond financings of these
projects.
To
facilitate our investment strategy of acquiring additional tax-exempt mortgage
bonds secured by multifamily apartment properties, we may acquire ownership
positions in MF Properties that we expect to ultimately sell in a syndication of
LIHTCs after the expiration of the compliance period relating to existing LIHTCs
issued with respect to the MF Properties. Our plan is to provide
tax-exempt mortgage financing to the new property owners at the time of a
syndication of new LIHTCs in connection with a rehabilitation of these MF
Properties. Current credit market and general economic conditions
have had a significant negative effect on the market for LIHTC syndications and,
as a result, few LIHTC syndications are being completed at this
time. For this and other reasons, there is no assurance that the
Partnership will be able to sell its interests in the MF Properties after the
applicable LIHTC compliance period. In addition, the value of the
Partnership’s interest in MF Properties will be affected by the economic
performance of the MF Properties and other factors generally affecting the value
of residential rental properties. As a result, there is no assurance
the Partnership will not incur a loss upon the sale of its interest in an MF
Property. In addition, there is no assurance that we will be able to
acquire tax-exempt bonds on the MF Properties even if we are able to sell
our interests in the MF Properties in connection with the syndication of new
LIHTCs. During the time the Partnership owns an interest in an
MF Property, any net income it receives from these MF Properties will
not be exempt from federal or state income taxation.
We
may suffer adverse consequences from changing interest rates.
We have
financed the acquisition of some of our assets using variable-rate debt
financing. The interest that we pay on this financing fluctuates with
a specific interest rate index. All of our tax-exempt mortgage
revenue bonds bear interest at fixed rates and, notwithstanding the contingent
interest feature on some of these bonds, the amount of interest we earn on these
bonds will not increase with a general rise in interest
rates. Accordingly, an increase in our interest expense due to an
increase in the interest rate index used for our variable rate debt financing
will reduce the amount of cash we have available for distribution to
shareholders and may affect the market value of our shares.
An
increase in interest rates could also decrease the value of our tax-exempt
mortgage bonds. A decrease in the value of our tax-exempt mortgage
revenue bonds could cause the lender providing our debt financing to demand
additional collateral to secure our debt financing. If additional
collateral is not available, the debt financing could be terminated and some or
all of the bonds collateralizing such financing may be sold to repay the
debt. In that case, we would lose the net interest income from these
bonds. A decrease in the value of our tax-exempt mortgage revenue
bonds could also decrease the amount we could realize on the sale of our
investments and would decrease the amount of funds available for distribution to
our shareholders.
During
periods of low prevailing interest rates, the interest rates we earn on new tax
exempt mortgage revenue bonds that we acquire may be lower than the interest
rates on our existing portfolio of tax-exempt bonds. To the extent we
finance the acquisition of additional tax-exempt bonds through the issuance of
additional shares or from the proceeds from the sale of existing tax-exempt
bonds and we earn a lower interest rate on these additional bonds, the amount of
cash available for distribution on a per share basis may be
reduced.
We
are subject to various risks associated with our derivative
agreements.
We use
various derivative instruments, such as interest rate swaps and interest rate
caps, to mitigate the risks we are exposed to as a result of changing interest
rates. However, there is no assurance that these instruments will
fully insulate the Partnership from the interest rate risks to which it is
exposed. In addition, there are costs associated with these
derivative instruments and there is no assurance these cost will not ultimately
turn out to exceed the losses we would have suffered, if any, had these
instruments not been in place. The counterparties to some of these
instruments may have right to convert them to fixed-rate agreements, and it is
possible that such a conversion could result in our paying more interest than we
would under our variable-rate financing. There is also a risk that a
counterparty to such an instrument will be unable to perform its obligations to
the Partnership. If a liquid secondary market does not exist for
these instruments, we may be required to maintain a position until exercise or
expiration, which could result in losses to the Partnership. In
addition, we are required to record the fair value of these derivative
instruments on our financial statements by recording changes in their values as
interest earnings or expense. This can result in significant period
to period volatility in the Partnership’s reported net income over the term of
these instruments.
There
are risks associated with debt financing programs that involve securitization of
our tax-exempt bonds.
From time
to time, we have obtained debt financing through the securitization of our
tax-exempt mortgage revenue bonds and may obtain this type of debt financing in
the future. The terms of these securitization programs differ, but in
general require that we deposit tax-exempt mortgage revenue bonds into a trust
or other special purpose entity that issues a senior security to unaffiliated
investors and a residual interest to the Partnership. The trust or
other entity receives all of the interest payments from its underlying
tax-exempt mortgage revenue bonds from which it pays interest on the senior
security at a variable rate. As the holder of residual interest, the
Partnership is entitled any remaining tax-exempt interest received by the trust
after it has paid the full amount of interest due on the senior security and all
of the expenses of the trust, including various fees to the trustee, remarketing
agents and liquidity providers. Specific risks generally associated
with these bond securitization programs include the following:
Changes in
short-term interest rates can adversely affect the cost of a bond securitization
financing and could result in a loss of assets pledged as collateral for this
financing.
The
interest rate payable on the senior securities resets periodically based on a
specified index usually tied to interest rates on short-term
instruments. In addition, because the senior securities may typically
be tendered back to the trust, causing the trust to remarket the senior
securities from time to time, an increase in interest rates may require an
increase the interest rate paid on the senior securities in order to
successfully remarket these securities. Any increase in interest rate
payable on the senior securities will result in more of the underlying
tax-exempt bond interest being used to pay interest on the senior securities
leaving less tax-exempt bond interest available to the
Partnership. As a result, higher short-term interest rates will
reduce, and could even eliminate, the Partnership’s return on a residual
interest in this type of financing.
In
addition, increases in interest rates generally may reduce the value of the
bonds held by a trust and the other collateral pledged to a trust under this
type of financing program. As a result, rising interest rates could
require the Partnership to pledge additional collateral to the trust’s liquidity
providers. If the Partnership was unable to provide sufficient
additional collateral, one or more trusts may be terminated and the underlying
tax-exempt bonds sold at unfavorable prices resulting in a loss to the
Partnership.
Payments
on the residual interests in these financing structures are subordinate to
payments on the senior securities and to payment of trust expenses and no party
guarantees the payment of any amounts under the residual interests.
The
residual interests in a trust or other special purpose entity used for these
types of financings are subordinate to the senior securities sold to
investors. As a result, none of the tax-exempt bond interest received
by such a trust will be paid to the Partnership as the holder of a residual
interest until all payments currently due on the senior securities have been
paid in full and other trust expenses satisfied. The holder of a
residual certificate in such a trust can look only to the assets of the trust
remaining after payment of these senior obligations for payment on the residual
certificates. No third party guarantees the payment of any amount on
the residual certificates.
Termination
of a bond securitization financing can occur for a number of reasons which could
cause the Partnership to lose the tax-exempt mortgage revenue bonds and other
collateral it pledged for such financing.
In
general, the trust or other special purpose entity formed for a bond
securitization financing can terminate for a number of different reasons
relating to problems with the bonds or problems with the trust
itself. Problems with the bonds that could cause the trust to
collapse include payment or other defaults or a determination that the interest
on the bonds is taxable. Problems with a trust include a downgrade in
the investment rating of the senior securities that it has issued, a ratings
downgrade of the liquidity provider for the trust, increases in short term
interest rates in excess of the interest paid on the underlying bonds, declines
in the value of the bonds and other collateral pledged to the trust, an
inability to remarket the senior securities or an inability to obtain liquidity
for the trust. In each of these cases, the trust will be collapsed
and the tax-exempt mortgage revenue bonds and other collateral held by the
trusts will be sold. If the proceeds from the sale of the trust
collateral are not sufficient to pay the principal amount of the senior
securities with accrued interest and the other expenses of the trusts, then the
collateral pledged to the liquidity provider will also be sold. As a
result, the holder of the residual interest in the trust may not only lose its
investment in the residual certificates, but could also lose all or part of the
collateral pledged to the trust.
An
insolvency or receivership of the program sponsor could impair the Partnership’s
ability to recover the tax-exempt bonds and other collateral pledged by it in
connection with a bond securitization financing.
In the
event the sponsor of a bond securitization financing program becomes insolvent,
it could be placed in receivership. In that situation, it is possible
that the Partnership would not be able to recover the tax-exempt mortgage
revenue bonds and other collateral it pledged in connection with the bond
securitization financing or that it would receive all or any of the payments due
from the trust or other special purpose entity on the residual interest held by
the Partnership in such trust or other entity.
Conditions
in the credit markets have increased our cost of borrowing and have made
financing difficult to obtain, each of which may have a material adverse effect
on our results of operations and business.
Economic
conditions in international and domestic credit markets have been, and remain,
challenging. Significantly tighter credit conditions and slower
economic growth was experienced in 2009 and continued concerns about the
systemic impact of high unemployment, restricted availability of credit,
declining residential and commercial real estate markets, volatile energy
prices, and declining business and consumer confidence have contributed to the
economic downturn and it is unclear when and how quickly conditions and markets
will improve, if at all. As a result of these economic conditions,
the cost and availability of credit has been, and may continue to be, adversely
affected in all markets in which we operate. Concern about the
stability of the markets generally and the strength of counterparties
specifically has led many lenders and institutional investors to reduce, and in
some cases, cease, to provide funding to borrowers. As a result, our
access to debt and equity financing may be adversely affected. If
these market and economic conditions continue, they may limit our ability to
replace or renew maturing debt financing on a timely basis and impair our access
to capital markets to meet our liquidity and growth requirements which may have
an adverse effect on our financial condition and results of
operations.
Our
tax-exempt mortgage revenue bonds are illiquid assets and their value may
decrease.
The
majority of our assets consist of our tax-exempt mortgage revenue
bonds. These mortgage revenue bonds are relatively illiquid, and
there is no existing trading market for these mortgage revenue
bonds. As a result, there are no market makers, price quotations or
other indications of a developed trading market for these mortgage revenue
bonds. In addition, no rating has been issued on any of the existing
mortgage revenue bonds and we do not expect to obtain ratings on mortgage
revenue bonds we may acquire in the future. Accordingly, any buyer of
these mortgage revenue bonds would need to perform its own due diligence prior
to a purchase. As a result, our ability to sell our tax-exempt
mortgage revenue bonds, and the price we may receive upon their sale, will be
affected by the number of potential buyers, the number of similar securities on
the market at the time and a number of other market conditions. As a
result, such a sale could result in a loss to us.
The
rent restrictions and occupant income limitations imposed on properties financed
by our tax-exempt mortgage revenue bonds and on our MF Properties may limit the
revenues of such properties.
All of
the apartment properties securing our tax-exempt mortgage revenue bonds and the
MF Properties in which our subsidiaries hold indirect interests are subject to
certain federal, state and/or local requirements with respect to the permissible
income of their tenants. Since federal rent subsidies are not
generally available on these properties, rents must be charged on a designated
portion of the units at a level to permit these units to be continuously
occupied by low or moderate income persons or families. As a result,
these rents may not be sufficient to cover all operating costs with respect to
these units and debt service on the applicable tax-exempt mortgage revenue
bond. This may force the property owner to charge rents on the
remaining units that are higher than they would be otherwise and may, therefore,
exceed competitive rents which may adversely affect the occupancy rate of a
property securing an investment and the property owner’s ability to service its
debt.
The
properties financed by certain of our tax-exempt mortgage revenue bonds are not
completely insured against damages from hurricanes and other major
storms.
Five of
the multifamily housing properties financed by tax-exempt bonds held by the
Partnership are located in areas that are prone to damage from hurricanes and
other major storms. The current insurable value of these five
properties is approximately $63.6 million. Due to the
significant losses incurred by insurance companies in recent years due to
damages from hurricanes, many property and casualty insurers now require
property owners to assume the risk of first loss on a larger percentage of their
property’s value. In general, the current insurance policies on the
five properties financed by the Partnership that are located in areas rated for
hurricane and storm exposure carry a 3% deductible on the insurable value of the
properties. As a result, if any of these properties were damaged in a
hurricane or other major storm, the amount of uninsured losses could be
significant and the property owner may not have the resources to fully rebuild
the property and could result in a default on the tax-exempt mortgage revenue
bonds secured by the property. In addition, the damages to a property
may result in all or a portion of the rental units not being rentable for a
period of time. Unless a property owner carries rental interruption
insurance, this loss of rental income would reduce the cash flow available to
pay base or contingent interest on the Partnership’s tax-exempt bonds
collateralized by these properties.
The
properties securing our revenue bonds or the MF Properties may be subject to
liability for environmental contamination which could increase the risk of
default on such bonds or loss of our investment.
The owner
or operator of real property may become liable for the costs of removal or
remediation of hazardous substances released on its property. Various
federal, state and local laws often impose such liability without regard to
whether the owner or operator of real property knew of, or was responsible for,
the release of such hazardous substances. We cannot assure you that
the properties that secure our tax-exempt mortgage revenue bonds or the MF
Properties in which our subsidiaries hold indirect interests, will not be
contaminated. The costs associated with the remediation of any such
contamination may be significant and may exceed the value of a property or
result in the property owner defaulting on the revenue bond secured by the
property or otherwise result in a loss of our investment in a
property.
If we acquire ownership of apartment
properties we will be subject to all of the risks normally associated with the
ownership of commercial real estate.
We may
acquire ownership of apartment complexes financed by tax-exempt bonds held by us
in the event of a default on such bonds. We may also acquire indirect
ownership of MF Properties on a temporary basis in order to facilitate the
eventual acquisition by us of tax-exempt mortgage revenue bonds on these
apartment properties. In either case, during the time we own an
apartment complex, we will generate taxable income or losses from the operations
of such property rather than tax exempt interest. In addition, we
will be subject to all of the risks normally associated with the operation of
commercial real estate including declines in property value, occupancy and
rental rates and increases in operating expenses. We may also be
subject to government regulations, natural disasters and environmental issues,
any of which could have an adverse affect on the Partnership’s financial results
and ability to make distributions to shareholders.
There are a number of risks related
to the construction of multifamily apartment properties that may affect the
tax-exempt bonds issued to finance these properties.
We may
invest in tax-exempt revenue bonds secured by a multifamily housing property
which are still under construction. Construction of such properties
generally takes approximately 12 to 18 months. The principal risk
associated with construction lending is the risk that construction of the
property will be substantially delayed or never completed. This may
occur for a number of reasons including (i) insufficient financing to complete
the project due to underestimated construction costs or cost overruns; (ii)
failure of contractors or subcontractors to perform under their agreements,
(iii) inability to obtain governmental approvals; (iv) labor disputes, and
(v) adverse weather and other unpredictable contingencies beyond the control of
the developer. While we may be able to protect ourselves from some of
these risks by obtaining construction completion guarantees from developers,
agreements of construction lenders to purchase our bonds if construction is not
completed on time, and/or payment and performance bonds from contractors, we may
not be able to do so in all cases or such guarantees or bonds may not fully
protect us in the event a property is not completed. In other cases,
we may decide to forego certain types of available security if we determine that
the security is not necessary or is too expensive to obtain in relation to the
risks covered. If a property is not completed, or costs more to
complete than anticipated, it may cause us to receive less than the full amount
of interest owed to us on the tax-exempt bond financing such property or
otherwise result in a default under the mortgage loan that secures our
tax-exempt bond on the property. In such case, we may be forced to
foreclose on the incomplete property and sell it in order to recover the
principal and accrued interest on our tax-exempt bond and we may suffer a loss
of capital as a result. Alternatively, we may decide to finance the
remaining construction of the property, in which event we will need to invest
additional funds into the property, either as equity or as a taxable
loan. Any return on this additional investment would not be
tax-exempt. Also, if we foreclose on a property, we will no longer
receive tax-exempt interest on the bond issued to finance the
property. In addition, the overall return to the Partnership from its
investment in such property is likely to be less than if the construction had
been completed on time or within budget.
There are a number of risks related
to the lease-up of newly constructed or renovated properties that may affect the
tax-exempt bonds issued to finance these properties.
We may
acquire tax-exempt revenue bonds issued to finance properties in various stages
of construction or renovation. As construction or renovation is
completed, these properties will move into the lease-up phase. The
lease-up of these properties may not be completed on schedule or at anticipated
rent levels, resulting in a greater risk that these investments may go into
default than investments secured by mortgages on properties that are stabilized
or fully leased-up. The underlying property may not achieve expected
occupancy or debt service coverage levels. While we may require
property developers to provide us with a guarantee covering operating deficits
of the property during the lease-up phase, we may not be able to do so in all
cases or such guarantees may not fully protect us in the event a property is not
leased up to an adequate level of economic occupancy as
anticipated.
We
have assumed certain potential liability relating to recapture of tax credits on
MF Properties.
The
Partnership had acquired indirect interests in several MF Properties that
generated LIHTCs for the previous partners in these
partnerships. When the Partnership acquires an interest in an MF
Property, it generally must agree to reimburse the prior partners for any
liabilities they incur due to a recapture of LIHTCs that result from the failure
to operate the MF Property in a manner inconsistent with the laws and
regulations relating to LIHTCs after the Partnership acquired its interest in
the MF Property. The amount of this recapture liability can be
substantial.
This offering and any future
issuances of additional shares could cause their market value to
decline.
The
issuance of shares in this offering and any future offerings may have a dilutive
impact on our existing shareholders. This prospectus is part of a
Registration Statement on Form S-3 that has been filed by the Partnership with
the SEC relating to the sale of up to $200 million of its shares which we
intend to issue from time to time to raise additional equity capital as needed
to fund investment opportunities. The issuance of additional shares
could cause dilution of the existing shares and a decrease in the market price
of the shares. In addition, if additional shares are issued but we
are unable to invest the additional equity capital in assets that generate
tax-exempt income at levels at least equivalent to our existing assets, the
amount of cash available for distribution on a per share basis may decline.
The
Partnership is not registered under the Investment Company Act.
The
Partnership is not required to register as an investment company under the
Investment Company Act of 1940, as amended (the “Investment Company Act”)
because it operates under an exemption therefrom. As a result, none
of the protections of the Investment Company Act (disinterested directors,
custody requirements for securities, and regulation of the relationship between
a fund and its advisor) will be applicable to the Partnership.
The
Partnership engages in transactions with related parties.
Each of
the executive officers of Burlington and four of the managers of Burlington hold
equity positions in Burlington. A subsidiary of Burlington acts as
the General Partner and manages our investments and performs administrative
services for us and earns certain fees that are either paid by the properties
financed by our tax-exempt mortgage revenue bonds or by us. Another
subsidiary of Burlington provides on-site management for many of the multifamily
apartment properties that underlie our tax-exempt bonds and each of our MF
Properties and earns fees from the property owners based on the gross revenues
of these properties. The shareholders of the limited-purpose
corporations which own four of the apartment properties financed with tax-exempt
bonds and taxable loans held by the Partnership are employees of Burlington who
are not involved in the operation or management of the Partnership and who are
not executive officers or managers of Burlington. Because of these
relationships, our agreements with Burlington and its subsidiaries are
related-party transactions. By their nature, related-party
transactions may not be considered to have been negotiated at
arm’s-length. These relationships may also cause a conflict of
interest in other situations where we are negotiating with
Burlington.
Shareholders
may incur tax liability if any of the interest on our tax-exempt mortgage
revenue bonds is determined to be taxable.
Certain
of our tax-exempt mortgage revenue bonds bear interest at rates which include
contingent interest. Payment of the contingent interest depends on
the amount of net cash flow generated by, and net proceeds realized from a sale
of, the property securing the bond. Due to this contingent interest
feature, an issue may arise as to whether the relationship between the property
owner and us is that of debtor and creditor or whether we are engaged in a
partnership or joint venture with the property owner. If the Internal
Revenue Service (the “IRS”) were to determine that tax-exempt mortgage revenue
bonds represented an equity investment in the underlying property, the interest
paid to us could be viewed as a taxable return on such investment and would not
qualify as tax-exempt interest for federal income tax purposes. We
have obtained legal opinions to the effect that the interest paid on our
tax-exempt mortgage revenue bonds is excludable from gross income for federal
income tax purposes provided the interest is not paid to a “substantial user” or
“related person” as defined in the Internal Revenue Code. However,
these legal opinions are not binding on the IRS or the courts, and no assurances
can be given that the conclusions reached will not be contested by the IRS or,
if contested, will be sustained by a court. In addition, the
tax-exempt status of the interest paid on our tax-exempt mortgage revenue bonds
is subject to compliance by the underlying properties, and the owners thereof,
with the bond documents and covenants required by the bond-issuing authority and
the Internal Revenue Code. Among these requirements are tenant income
restrictions, regulatory agreement compliance, reporting requirements, use of
proceeds restrictions and compliance with rules pertaining to interest
arbitrage. Each issuer of the revenue bonds, as well as each of the
underlying property owners/borrowers, has agreed to comply with procedures and
guidelines designed to ensure satisfaction with the continuing requirements of
the Internal Revenue Code. Failure to comply with these continuing
requirements of the Internal Revenue Code may cause the interest on our bonds to
be includable in gross income for federal income tax purposes retroactively to
the date of issuance, regardless of when such noncompliance
occurs. In addition, if we have, and may in the future, obtain debt
financing through bond securitization programs in which we place tax-exempt
mortgage revenue bonds into trusts and are entitled to a share of the tax-exempt
interest received by the trust on these bonds after the payment of interests on
senior securities issued by the trust. It is possible that the
characterization of our residual interest in such a securitization trust could
be challenged and the income that we receive through these instruments could be
treated as ordinary taxable income includable in our gross income for federal
tax purposes.
Not
all of the income received by the Partnership is exempt from
taxation.
We have
made, and may make in the future, taxable mortgage loans to the owners of
properties which are secured by tax-exempt mortgage revenue bonds that we
hold. The interest income earned by the Partnership on these mortgage
loans is subject to federal and state income taxes. In addition, if
we acquire direct or indirect interests in real estate, either through foreclose
of a property securing a tax-exempt mortgage revenue bond or a taxable loan or
through the acquisition of an MF Property, any income we receive from the
property will be taxable income from the operation of real estate. In
that case, the taxable income received by the Partnership will be allocated to
our shareholders and will represent taxable income to them regardless of whether
an amount of cash equal to such allocable share of this taxable income is
actually distributed to shareholders.
If
the Partnership was determined to be an association taxable as corporation, it
will have adverse economic consequences for the Partnership and its
shareholders.
The
Partnership has made an election to be treated as a partnership for federal
income tax purposes. The purpose of this election is to eliminate
federal and state income tax liability for the Partnership and allow us to pass
through our tax-exempt interest to our shareholders so that they are not subject
to federal tax on this income. If our treatment as a partnership for
tax purposes is challenged, we would be classified as an association taxable as
a corporation. This would result in the Partnership being taxed on
its taxable income, if any, and, in addition, would result in all cash
distributions made by the Partnership to shareholders being treated as taxable
ordinary dividend income to the extent of the Partnership’s earnings and
profits, which would include tax-exempt income. The payment of these dividends
would not be deductible by the Partnership. The listing of the
Partnership’s shares for trading on the Nasdaq Global Market causes the
Partnership to be treated as a “publicly traded partnership” under
Section 7704 of the Internal Revenue Code. A publicly traded
partnership is generally taxable as a corporation unless 90% or more of its
gross income is “qualifying” income. Qualifying income includes
interest, dividends, real property rents, gain from the sale or other
disposition of real property, gain from the sale or other disposition of capital
assets held for the production of interest or dividends and certain other
items. Substantially all of the Partnership’s gross income will
continue to be tax-exempt interest income on mortgage bonds. While we
believe that all of this interest income is qualifying income, it is possible
that some or all of our income could be determined not to be qualifying
income. In such a case, if more than 10% of our annual gross income
in any year is not qualifying income, the Partnership will be taxable as a
corporation rather than a partnership for federal income tax
purposes. We have not received, and do not intend to seek, a ruling
from the Internal Revenue Service regarding our status as a partnership for tax
purposes.
To
the extent the Partnership generates taxable income, shareholders will be
subject to income taxes on this income, whether or not they receive cash
distributions.
As a
partnership, our shareholders will be individually liable for income tax on
their proportionate share of any taxable income realized by the Partnership,
whether or not we make cash distributions.
There
are limits on the ability of our shareholders to deduct Partnership losses and
expenses allocated to them.
The
ability of shareholders to deduct their proportionate share of the losses and
expenses generated by the Partnership will be limited in certain cases, and
certain transactions may result in the triggering of the Alternative Minimum Tax
for shareholders who are individuals.
See “U.S.
FEDERAL INCOME TAX CONSIDERATIONS” for a more complete discussion of federal
income tax considerations affecting an investment in shares.
FEDERAL
INCOME TAX LAWS AND REGULATIONS ARE SUBJECT TO REVISION AND CHANGING
INTERPRETATION BY THE IRS, THE U.S. TREASURY DEPARTMENT AND THE
COURTS. CHANGES TO THE TAX LAW, WHICH MAY HAVE RETROACTIVE
APPLICATION, COULD ADVERSELY AFFECT THE PARTNERSHIP, ITS ASSETS AND ITS
SHAREHOLDERS. WE CANNOT PREDICT WHETHER, WHEN, IN WHAT FORMS OR WITH
WHAT EFFECTIVE DATES THE TAX LAW APPLICABLE TO US WILL BE CHANGED.
PROSPECTIVE
SUBSCRIBERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
POTENTIAL TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP PRIOR TO
PURCHASING SHARES.
General
The
rights and obligations of shareholders and the General Partner are set forth in
the Partnership Agreement. The following is a summary of the
Partnership Agreement. This summary does not purport to be complete
and is subject to, and qualified in its entirety by, the terms of the
Partnership Agreement, which is incorporated by reference into this
prospectus.
Management
Under the
terms of the Partnership Agreement, the General Partner has full, complete and
exclusive authority to manage and control the business affairs of the
Partnership. Such authority specifically includes, but is not limited
to, the power to (i) acquire, hold, refund, reissue, remarket, securitize,
transfer, foreclose upon, sell or otherwise deal with the investments of the
Partnership, (ii) issue additional shares, borrow money and issue evidences
of indebtedness, and (iii) apply the proceeds from the sale or the issuance
of additional shares to the acquisition of additional revenue bonds (and
associated taxable mortgages) and other types of investments meeting the
Partnership’s investment criteria. The Partnership Agreement provides
that the General Partner and its affiliates may and shall have the right to
provide goods and services to the Partnership subject to certain
conditions. The Partnership Agreement also imposes certain
limitations on the authority of the General Partner, including restrictions on
the ability of the General Partner to dissolve the Partnership without the
consent of a majority in interest of the shareholders.
Other
than certain limited voting rights discussed under “Voting Rights,” the
shareholders do not have any authority to transact business for, or participate
in the management of, the Partnership. The only recourse available to
shareholders in the event that the General Partner takes actions with respect to
the business of the Partnership with which shareholders do not agree is to vote
to remove the General Partner and admit a substitute general
partner. See “Removal or Withdrawal of the General Partner”
below.
Allocations
and Distributions
Net Interest
Income.
The
Partnership Agreement provides that all Net Interest Income generated by the
Partnership that is not contingent interest will be distributed 99% to
shareholders and 1% to the General Partner. During the years ended
December 31, 2008 and 2009, the General Partner received total distributions of
Net Interest Income of approximately $18,000 and $52,000,
respectively. In addition, the Partnership Agreement provides that
the General Partner is entitled to 25% of Net Interest Income representing
contingent interest up to a maximum amount equal to 0.9% per annum of the
principal amount of all mortgage bonds held by the Partnership, as the case may
be. During the years ended December 31, 2008 and 2009, the
General Partner received total distributions of Net Interest Income representing
contingent interest of approximately $1.8 million and $1.2 million,
respectively.
Interest
Income of the Partnership includes all cash receipts except for (i) capital
contributions, (ii) Residual Proceeds or (iii) the proceeds of any
loan or the refinancing of any loan. “Net Interest Income” of the
Partnership means all Interest Income plus any amount released from the
Partnership reserves for distribution, less expenses and debt service payments
and any amount deposited in reserve or used or held for the acquisition of
additional investments.
Net Residual
Proceeds.
The
Partnership Agreement provides that Net Residual Proceeds (whether representing
a return of principal or contingent interest) will be distributed 100% to the
shareholders, except that 25% of Net Residual Proceeds representing contingent
interest will be distributed to the General Partner until it receives a maximum
amount per annum (when combined with all distributions to it of Net Interest
Income representing contingent interest during the year) equal to 0.9% of the
principal amount of the Partnership’s mortgage bonds. Under the terms
of the Partnership Agreement, “Residual Proceeds” means all amounts received by
the Partnership upon the sale of any asset or from the repayment of principal of
any bond. “Net Residual Proceeds” means, with respect to any
distribution period, all Residual Proceeds received by the Partnership during
such distribution period, plus any amounts released from reserves for
distribution, less all expenses that are directly attributable to the sale of an
asset, amounts used to discharge indebtedness and any amount deposited in
reserve or used or held for the acquisition of
investments. Notwithstanding its authority to invest Residual
Proceeds in additional investments, the General Partner does not intend to use
this authority to acquire additional investments indefinitely without
distributing Net Residual Proceeds to the shareholders. Rather, it is
designed to afford the General Partner the ability to increase the
income-generating investments of the Partnership in order to potentially
increase the Net Interest Income from, and value of, the
Partnership. No distributions of Net Residual Proceeds were made by
the Partnership during the year ended December 31, 2008. During
the year ended December 31, 2009, a distribution of Net Residual Proceeds was
made by the Partnership to the General Partner totaling approximately
$215,000.
Distributions upon
Liquidation.
The term
of the Partnership expires on December 31, 2050 unless terminated earlier
as provided in the Partnership Agreement. Upon the dissolution of the
Partnership, the proceeds from the liquidation of its assets will be first
applied to the payment of the obligations and liabilities of the Partnership and
the establishment of any reserve therefor as the General Partner determines to
be necessary and then distributed to the General Partner and the shareholders in
proportion to, and to the extent of, their respective capital account balances
and then in the same manner as Net Residual Proceeds.
Timing of Cash
Distributions.
The
Partnership currently makes quarterly cash distributions to
shareholders. However, the Partnership Agreement allows the General
Partner to elect to make cash distributions on a more or less frequent basis
provided that distributions are made at least
semiannually. Regardless of the distribution period selected by the
General Partner, cash distributions must be made within 60 days of the end
of each such period.
Allocation of Income and
Losses.
Income
and losses from operations will be allocated 99% to the shareholders and 1% to
the General Partner. Income arising from a sale of or liquidation of
the Partnership’s assets will be first allocated to the General Partner in an
amount equal to the Net Residual Proceeds or liquidation proceeds distributed to
the General Partner from such transaction, and the balance will be distributed
to the shareholders. Losses from a sale of a property or from a
liquidation of the Partnership will be allocated among the General Partner and
the shareholders in the same manner as the Net Residual Proceeds or liquidation
proceeds from such transaction are distributed.
Allocation Among
Shareholders.
Income
and losses will be allocated on a monthly basis to the shareholders of record as
of the last day of a month. If a shareholder is recognized as the
record holder of shares on such date, such shareholder will be allocated all
income and losses for such month. Cash distributions will be made to
the shareholders of record as of the last day of each distribution
period. If the Partnership recognizes a transfer prior to the end of
a distribution period, the transferee will be deemed to be the holder for the
entire distribution period and will receive the entire cash distribution for
such period. Accordingly, if the General Partner selects a quarterly
or semiannual distribution period, the transferor of shares during such a
distribution period may be recognized as the record holder of the shares at the
end of one or more months during such period and be allocated income or losses
for such months but not be recognized as the record holder of the shares at the
end of the period and, therefore, not be entitled to a cash distribution for
such period. The General Partner retains the right to change the
method by which income and losses of the Partnership will be allocated between
buyers and sellers of shares during a distribution period based on consultation
with tax counsel and accountants. However, no change may be made in
the method of allocation of income or losses without written notice to the
shareholders at least 10 days prior to the proposed effectiveness of such change
unless otherwise required by law.
Payments
to the General Partner
Fees.
In
addition to its share of Net Interest Income and Net Residual Proceeds and
reimbursement for expenses, the General Partner will be entitled to an
administrative fee in an amount equal to 0.45% per annum of principal amount of
the revenue bonds, other tax-exempt investments and taxable mortgage loans held
by the Partnership. In general, the administrative fee will be
payable by the owners of the properties financed by the revenue bonds held by
the Partnership but will be subordinate to the payment of all base interest to
the Partnership on the bonds. Six of the tax-exempt mortgage revenue
bonds held by the Partnership provide for the payment of this administrative fee
to the General Partner by the owner of the financed property. The
General Partner may seek to negotiate the payment of the administrative fee in
connection with the acquisition of additional revenue bonds by the Partnership
by the owner of the financed property or by another third
party. However, the Partnership Agreement provides that the
administrative fee will be paid directly by the Partnership with respect to any
investments for which the administrative fee is not payable by a third
party. In addition, the Partnership Agreement provides that the
Partnership will pay the administrative fee to the General Partner with respect
to any foreclosed mortgage bonds.
Reimbursement of
Expenses.
In
addition to the allocation of profits, losses and cash distributions to the
General Partner, the Partnership will reimburse the General Partner or its
affiliates on a monthly basis for the actual out-of-pocket costs of direct
telephone and travel expenses incurred in connection with the business of the
Partnership, direct out-of-pocket fees, expenses and charges paid to third
parties for rendering legal, auditing, accounting, bookkeeping, computer,
printing and public relations services, expenses of preparing and distributing
reports to shareholders, an allocable portion of the salaries and fringe
benefits of non-officer employees of Burlington, insurance premiums (including
premiums for liability insurance that will cover the Partnership, the General
Partner and Burlington), the cost of compliance with all state and federal
regulatory requirements and Nasdaq listing fees and charges and other payments
to third parties for services rendered to the Partnership. The
General Partner will also be reimbursed for any expenses it incurs acting as tax
matters partner for the Partnership. The Partnership will not
reimburse the General Partner or its affiliates for the travel expenses of the
president of Burlington or for any items of general overhead. The
Partnership will not reimburse the General Partner or Burlington for any
salaries or fringe benefits of any of the executive officers of
Burlington. The Partnership’s independent accountants are required to
verify that any reimbursements received by the General Partner from the
Partnership were for expenses incurred by the General Partner or its affiliates
in connection with the conduct of the business and affairs of the Partnership or
the acquisition and management of its assets and were otherwise permissible
reimbursements under the terms of the Partnership Agreement. The
annual report to shareholders is required to itemize the amounts reimbursed to
the General Partner and its affiliates.
Payments for Goods and
Services.
The
Partnership Agreement provides that the General Partner and its affiliates may
provide goods and services to the Partnership. The provision of any
goods and services by the General Partner or its affiliates to the Partnership
must be part of their ordinary and ongoing business in which it or they have
previously engaged, independent of the activities of the Partnership, and such
goods and services shall be reasonable for and necessary to the Partnership,
shall actually be furnished to the Partnership and shall be provided at the
lower of the actual cost of such goods or services or the competitive price
charged for such goods or services for comparable goods and services by
independent parties in the same geographic location. All goods and
services provided by the General Partner or any affiliates must be rendered
pursuant to a written contract containing a clause allowing termination without
penalty on 60 days’ notice to the General Partner by the vote of the
majority in interest of the shareholders. Payment made to the General
Partner or any affiliate for goods and services must be fully disclosed to
shareholders. The General Partner does not currently provide goods
and services to the Partnership other than its services as General
Partner. If the Partnership acquires ownership of any property
through foreclosure of a revenue bond, an affiliate of the General Partner may
provide property management services for such property and, in such case, the
Partnership will pay such its fees for such services. Under the
Partnership Agreement, such property management fees may not exceed the lesser
of (i) the fees charged by unaffiliated property managers in the same
geographic area or (ii) 5% of the gross revenues of the managed
property.
Issuance
of Additional Shares
The
Partnership Agreement provides that the General Partner may cause the
Partnership to issue additional shares from time to time on such terms and
conditions as it shall determine.
Liability
of Partners and Shareholders
Under the
Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”)and the
terms of the Partnership Agreement, the General Partner will be liable to third
parties for all general obligations of the Partnership to the extent not paid by
the Partnership. However, the Partnership Agreement provides that the
General Partner has no liability to the Partnership for any act or omission
reasonably believed to be within the scope of authority conferred by the
Partnership Agreement and in the best interest of the Partnership, provided that
the course of conduct giving rise to the threatened, pending or completed claim,
action or suit did not constitute fraud, bad faith, negligence, misconduct or a
breach of its fiduciary obligations to the shareholders. Therefore,
shareholders may have a more limited right of action against the General Partner
than they would have absent those limitations in the Partnership
Agreement. The Partnership Agreement also provides for
indemnification of the General Partner and its affiliates by the Partnership for
certain liabilities that the General Partner and its affiliates may incur under
the Securities Act of 1933, as amended, and in dealings with the Partnership and
third parties on behalf of the Partnership. To the extent that the
provisions of the Partnership Agreement include indemnification for liabilities
arising under the Securities Act of 1933, as amended, such provisions are, in
the opinion of the Securities and Exchange Commission, against public policy
and, therefore, unenforceable.
No
shareholder will be personally liable for the debts, liabilities, contracts or
any other obligations of the Partnership unless, in addition to the exercise of
his rights and powers as a shareholder, he takes part in the control of the
business of the Partnership. It should be noted, however, that the
Delaware LP Act prohibits a limited partnership from making a distribution that
causes the liabilities of the limited partnership to exceed the fair value of
its assets. Any limited partner who receives a distribution knowing
that the distribution was made in violation of this provision of the Delaware LP
Act is liable to the limited partnership for the amount of the
distribution. This provision of the Delaware LP Act probably applies
to shareholders as well as to the sole limited partner of the
Partnership. In any event, the Partnership Agreement provides that to
the extent our sole limited partner is required to return any distributions or
repay any amount by law or pursuant to the Partnership Agreement, each
shareholder who has received any portion of such distributions is required to
repay his proportionate share of such distribution to our sole limited partner
immediately upon notice by the sole limited partner to such
shareholder. Furthermore, the Partnership Agreement allows the
General Partner to withhold future distributions to shareholders until the
amount so withheld equals the amount required to be returned by the sole limited
partner. Because shares are transferable, it is possible that
distributions may be withheld from a shareholder who did not receive the
distribution required to be returned.
Voting
Rights
The
Partnership Agreement provides that the sole limited partner will vote its
limited partnership interests as directed by the
shareholders. Accordingly, the shareholders, by vote of a majority in
interest thereof, may:
|
|
(i)
|
amend
the Partnership Agreement (provided that the concurrence of the General
Partner is required for any amendment that modifies the compensation or
distributions to which the General Partner is entitled or that affects the
duties of the General Partner);
|
|
|
(ii)
|
dissolve
the Partnership;
|
|
|
(iii)
|
remove
the General Partner and consent to the admission of a successor general
partner; or
|
|
|
(iv)
|
terminate
an agreement under which the General Partner provides goods and services
to the Partnership.
|
In
addition, without the consent of a majority in interest of the shareholders, the
General Partner may not, among other things:
|
|
(i)
|
sell
or otherwise dispose of all or substantially all of the assets of the
Partnership in a single transaction (provided that the General Partner may
sell the last property owned by the Partnership without such
consent);
|
|
|
(ii)
|
elect
to dissolve the Partnership; or
|
|
|
(iii)
|
admit
an additional general partner.
|
The
General Partner may at any time call a meeting of the shareholders, call for a
vote without a meeting of the shareholders or otherwise solicit the consent of
the shareholders and is required to call such a meeting or vote or solicit
consents following receipt of a written request therefor signed by 10% or more
in interest of the shareholders. The Partnership does not intend to
hold annual or other periodic meetings of shareholders. Although the
Partnership Agreement permits the consent of the shareholders to be given after
the act is done with respect to which the consent is solicited, the General
Partner does not intend to act without the prior consent of the shareholders, in
such cases where consent of the shareholders is required, except in
extraordinary circumstances where inaction may have a material adverse effect on
the interest of the shareholders.
Reports
Within
120 days after the end of the fiscal year, the General Partner will
distribute a report to shareholders that shall include (i) financial
statements of the Partnership for such year that have been audited by the
Partnership’s independent public accountant, (ii) a report of the
activities of the Partnership during such year and (iii) a statement (which
need not be audited) showing distributions of Net Interest Income and Net
Residual Proceeds. The annual report will also include a detailed
statement of the amounts of fees and expense reimbursements paid to the General
Partner and its affiliates by the Partnership during the fiscal
year.
Within
60 days after the end of the first three quarters of each fiscal year, the
General Partner will distribute a report that shall include (i) unaudited
financial statements of the Partnership for such quarter, (ii) a report of
the activities of the Partnership during such quarter and (iii) a statement
showing distributions of Net Interest Income and Net Residual Proceeds during
such quarter.
The
Partnership will also provide shareholders with a report on Form K-1 or
other information required for federal and state income tax purposes within
75 days of the end of each year.
Removal
or Withdrawal of the General Partner
The
shareholders may, by vote of a majority in interest, remove the General Partner
from the Partnership with or without cause and appoint a successor general
partner. The General Partner may not withdraw voluntarily from the
Partnership or sell, transfer or assign all or any portion of its interest in
the Partnership unless a substitute general partner has been admitted in
accordance with the terms of the Partnership Agreement. With the
consent of a majority in interest of the shareholders, the General Partner may
at any time designate one or more persons as additional general partners,
provided that the interests of the shareholders in the Partnership are not
reduced thereby. The designation must meet the conditions set out in
the Partnership Agreement and comply with the provisions of the Delaware LP Act
with respect to admission of an additional general partner. In
addition to the requirement that the admission of a person as successor or
additional general partner have the consent of the majority in interest of the
shareholders, the Partnership Agreement requires, among other things, that
(i) such person agree to and execute the Partnership Agreement and
(ii) counsel for the Partnership or shareholders render an opinion that
such person’s admission is in accordance with the Delaware LP Act.
Effect
of Removal, Bankruptcy, Dissolution or Withdrawal of the General
Partner
In the
event of a removal, bankruptcy, dissolution or withdrawal of the General
Partner, it will cease to be the General Partner but will remain liable for
obligations arising prior to the time it ceases to act in that
role. The former General Partner’s interest in the Partnership will
be converted into a limited partner interest having the same rights to share in
the allocations of income and losses of the Partnership and distributions of Net
Interest Income, Net Residual Proceeds and cash distributions upon liquidation
of the Partnership as it did as General Partner. Any successor
general partner shall have the option, but not the obligation, to acquire all or
a portion of the interest of the removed General Partner at its then fair market
value. The Partnership Agreement bases the fair market value of the
General Partner’s interest on the present value of its future administrative
fees and distributions of Net Interest Income plus any amount that would be paid
to the removed General Partner upon an immediate liquidation of the
Partnership. Any disputes over valuation would be settled by the
successor general partner and removed General Partner through
arbitration.
Amendments
In
addition to amendments to the Partnership Agreement adopted by a majority in
interest of the shareholders, the Partnership Agreement may be amended by the
General Partner, without the consent of the shareholders, in certain limited
respects if such amendments are not materially adverse to the interest of the
shareholders. In addition, the General Partner is authorized to amend
the Partnership Agreement to admit additional, substitute or successor partners
into the Partnership if such admission is effected in accordance with the terms
of the Partnership Agreement.
Dissolution
and Liquidation
The
Partnership will continue in full force and effect until December 31, 2050,
unless terminated earlier as a result of:
|
|
(i)
|
the
passage of 90 days following the bankruptcy, dissolution, withdrawal
or removal of a general partner who is at that time the sole general
partner, unless all of the remaining partners (it being understood that
for purposes of this provision the sole limited partner shall vote as
directed by a majority in interest of the shareholders) agree in writing
to continue the business of the Partnership and a successor general
partner is designated within such 90-day
period;
|
|
|
(ii)
|
the
passage of 180 days after the repayment, sale or other disposition of
all of the Partnership’s investments and substantially all its other
assets;
|
|
|
(iii)
|
the
election by a majority in interest of shareholders or by the General
Partner (subject to the consent of a majority in interest of the
shareholders) to dissolve the Partnership;
or
|
|
|
(iv)
|
any
other event causing the dissolution of the Partnership under the laws of
the State of Delaware.
|
Upon
dissolution of the Partnership, its assets will be liquidated and after the
payment of its obligations and the setting up of any reserves for contingencies
that the General Partner considers necessary, any proceeds from the liquidation
will be distributed as set forth under “Allocations and
Distributions—Distributions upon Liquidation” above.
Designation
of Tax Matters Partner
The
General Partner has been designated as the Partnership’s “tax matters partner”
for purposes of federal income tax audits pursuant to Section 6231 of the
Internal Revenue Code and the regulations thereunder. Each
shareholder agrees to execute any documents that may be necessary or appropriate
to maintain such designation.
Tax
Elections
Under the
Partnership Agreement, the General Partner has the exclusive authority to make
or revoke any tax elections on behalf of the Partnership.
Books
and Records
The books
and records of the Partnership shall be maintained at the office of the
Partnership located at Suite 400, 1004 Farnam Street, Omaha, Nebraska
68102, and shall be available there during ordinary business hours for
examination and copying by any shareholder or his duly authorized
representative. The records of the Partnership will include a list of
the names and addresses of all shareholders, and shareholders will have the
right to secure, upon written request to the General Partner and payment of
reasonable expenses in connection therewith, a list of the names and addresses
of, and the number of shares held by, all shareholders.
Accounting
Matters
The
fiscal year of the Partnership will be the calendar year. The books
and records of the Partnership shall be maintained on an accrual basis in
accordance with generally accepted accounting principles.
Other
Activities
The
Partnership Agreement allows the General Partner and its affiliates to engage
generally in other business ventures and provides that shareholders will have no
rights with respect thereto by virtue of the Partnership
Agreement. In addition, the Partnership Agreement provides that an
affiliate of the General Partner may acquire and hold debt securities or other
interests secured by a property that also secures a mortgage bond held by the
Partnership, provided that such mortgage bond is not junior or subordinate to
the interest held by such affiliate.
Derivative
Actions
The
Partnership Agreement provides that a shareholder may bring a derivative action
on behalf of the Partnership to recover a judgment to the same extent as a
limited partner has such rights under the Delaware LP Act. The
Delaware LP Act provides for the right to bring a derivative action, although it
authorizes only a partner of a partnership to bring such an
action. There is no specific judicial or statutory authority
governing the question of whether an assignee of a partner (such as a
shareholder) has the right to bring a derivative action where a specific
provision exists in the Partnership Agreement granting such
rights. Furthermore, there is no express statutory authority for a
limited partner’s class action in Delaware, and whether a class action may be
brought by shareholders to recover damages for breach of the General Partner’s
fiduciary duties in Delaware state courts is unclear.
Beneficial
Unit Certificates
Our
shares are beneficial unit certificates that represent assignments by the sole
limited partner of its entire limited partner interest in the
Partnership. Although shareholders will not be limited partners of
the Partnership and have no right to be admitted as limited partners, they will
be bound by the terms of the Partnership Agreement and will be entitled to the
same economic benefits, including the same share of income, gains, losses,
deductions, credits and cash distributions, as if they were limited partners of
the Partnership.
A
majority in interest of the shareholders (voting through the sole limited
partner), without the concurrence of the General Partner, may, among other
things, (i) amend the Partnership Agreement (with certain restrictions),
(ii) approve or disapprove the sale of all or substantially all of the
Partnership’s assets in a single transaction (other than a transfer necessary to
for a securitization of the Partnership’s tax-exempt bonds or a sale of assets
following dissolution of the Partnership), (iii) dissolve the Partnership
or (iv) remove the General Partner and elect a replacement
therefor. The General Partner may not dissolve the Partnership
without the consent of a majority in interest of the shareholders.
Transfers
The
shares will be issued in registered form only and, except as noted below, are
freely transferable. The shares are listed on the Nasdaq Global
Market under the symbol “ATAX.”
A
purchaser of shares will be recognized as a shareholder for all purposes on the
books and records of the Partnership on the day on which the General Partner (or
other transfer agent appointed by the General Partner) receives satisfactory
evidence of the transfer of shares. All shareholder rights, including
voting rights, rights to receive distributions and rights to receive reports,
and all allocations in respect of shareholders, including allocations of income
and expenses, will vest in, and be allocable to, shareholders as of the close of
business on such day. America Stock Transfer of New York, New
York has been appointed by the General Partner to act as the registrar and
transfer agent for the shares.
A
transfer or assignment of 50% or more of the outstanding shares within a
12-month period may terminate the Partnership for federal income tax purposes,
which may result in adverse tax consequences to shareholders. In
order to protect against such a termination, the Partnership Agreement permits
the General Partner to suspend or defer any transfers or assignments of shares
at any time after it determines that 45% or more of all shares may have been
transferred (as defined by the federal income tax laws) within a 12-month period
and that the resulting termination of the Partnership for tax purposes would
adversely affect the economic interests of the shareholders. Any
deferred transfers will be effected (in chronological order to the extent
practicable) on the first day of the next succeeding period in which transfers
can be effected without causing a termination of the Partnership for tax
purposes or any adverse effects from such termination, as the case may
be.
In
addition, the Partnership Agreement grants the General Partner the authority to
take such action as it deems necessary or appropriate, including action with
respect to the manner in which shares are being or may be transferred or traded,
in order to preserve the status of the Partnership as a partnership for federal
income tax purposes or to ensure that shareholders will be treated as limited
partners for federal income tax purposes.
The
following summarizes U.S. federal income tax considerations with respect to the
purchase, ownership and disposition of the shares. This summary is
based on existing U.S. federal income tax law, consisting of the Internal
Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations
thereunder, and judicial and administrative interpretations thereof, all of
which is subject to change, possibly with retroactive effect. This
discussion does not address all aspects of U.S. federal income taxation that may
be relevant to you in light of your personal circumstances or to certain types
of investors subject to special treatment under the U.S. federal income tax laws
(including financial institutions, insurance companies, broker-dealers and,
except to the extent discussed below, tax-exempt entities, partnerships or other
pass-through entities and foreign taxpayers) and it does not discuss any aspects
of state, local or foreign tax law. This discussion assumes that you
will hold your shares as a “capital asset” (generally, property held for
investment) under the Internal Revenue Code.
No ruling
on the federal, state or local tax considerations relevant to the purchase,
ownership and disposition of the Partnership’s shares, or the statements or
conclusions in this summary, has been or will be requested from the IRS or from
any other tax authority, and a taxing authority, including the IRS, may not
agree with the statements and conclusions expressed herein. The
Partnership will receive an opinion from Kutak Rock LLP, counsel to the
Partnership, to the effect that, for U.S. federal income tax purposes, the
Partnership should be treated as a partnership and the holders of shares should
be subject to tax as partners of the Partnership. However, no
assurance can be given that any opinion of counsel would be accepted by the IRS
or, if challenged by the IRS, sustained in court. We urge you to consult your own tax
advisors about the specific tax consequences to you of purchasing, holding and
disposing of our shares, including the application and effect of federal, state,
local and foreign income and other tax laws.
Income
tax considerations relating to the Partnership and its
shareholders.
Partnership
Status. Under the “check-the-box” regulations promulgated by
the IRS, absent an election to be treated as an association taxable as a
corporation, an entity formed as a partnership such as the Partnership generally
will be treated as a partnership for income tax purposes. The
Partnership is a limited partnership under Delaware law and it will not file any
election with the IRS to be treated as an association taxable as a
corporation. Subject to the discussion below concerning Publicly
Traded Partnerships under the heading “—Treatment of the Partnership as a
Publicly traded Partnership”, the Partnership should be treated as a
partnership for federal income tax purposes and the holders of shares should be
subject to tax as partners.
Because the
Partnership will be treated as a partnership for income tax purposes, it will
not be liable for any income tax. Rather, all items of the
Partnership’s income, gain, loss, deduction or tax credit will be allocated to
its partners (including the shareholders), who will be subject to taxation on
their distributive share thereof. Taxable income allocated by the
Partnership to shareholders with respect to a taxable year may exceed the amount
of cash distributed by the Partnership to shareholders for such
year.
The
Partnership is not intended to act as a “tax shelter” and will not register as
such with the IRS.
Treatment of the
Partnership as a Publicly Traded Partnership. The listing of
our common shares on the Nasdaq Global Market causes us to be treated as a
“publicly traded partnership” for U.S. federal income tax purposes. A
publicly traded partnership is generally taxable as a corporation unless 90% or
more of its annual gross income in each year is “qualifying” income which is
defined as interest, dividends, real property rents, gains from the sale or
other disposition of real property, gain from the sale or other disposition of
capital assets held for the production of interest or dividends, and certain
other items. In determining whether interest is treated as
“qualifying income” under these rules, interest income derived from a “financial
business” and income and gains derived by a “dealer” in securities is not
treated as qualifying income. We believe at least 90% of our annual
gross income in each prior year of our operations was qualifying income, and we
intend to conduct our operations in a manner such that at least 90% of our gross
income will constitute qualifying income. Furthermore, we do not
believe that we are engaged in a financial business or are acting as a dealer,
because we are acting strictly as a long-term investor with respect to our
investments and we do not conduct bond origination
activities. However, there is no clear guidance as to what
constitutes a financial business for purposes of the publicly traded partnership
regulations and it is possible that the IRS could assert that our activities
constitute a financial business. If the IRS successfully asserted
that we were involved in a financial business or were acting as a dealer, less
than 90% of our income could be found to be qualifying income. In
addition, in determining whether interest is treated as qualifying income,
interest income that is determined based upon the income or profits of any
person is not treated as qualifying income. It is possible that the
IRS could take the position that the contingent interest payable on some of our
tax exempt bonds is determined based upon the income or profits (rather than the
net cash flow) of the properties financed by these bonds and, accordingly, would
not be qualifying interest. Since, in certain years, more than 10% of
our interest income was in the form of such contingent interest, the IRS could
take the position that we fail to qualify for the qualifying income exception to
the publicly traded partnership rules and that we should be taxed as a
corporation.
If for
any reason less than 90% of our gross income constitutes qualifying income,
items of income and deduction would not pass through to our shareholders and our
shareholders would be treated for federal income tax purposes as shareholders in
a corporation. We would be required to pay income tax at regular
corporate rates on any portion of our net income that did not constitute
tax-exempt income. In addition, a portion of our tax-exempt income
may be included in determining our Alternative Minimum Tax
liability. To the extent we are required to pay income taxes, it will
reduce the cash that we would otherwise have available for
distributions. In addition, all distributions made by us to our
shareholders would constitute ordinary dividend income taxable to such
shareholders to the extent of our earnings and profits, which would include
tax-exempt income, as well as any taxable income we might have. In
that case, shareholders could not treat any of these distributions as tax-exempt
income and the Partnership could not deduct amounts paid as dividends from its
gross income.
Taxation of the
Partnership and Shareholders. A partnership is not subject to
federal income tax. Assuming the Partnership is classified as a
partnership for tax purposes and not a publicly traded partnership taxable as a
corporation, the Partnership will not be subject to federal income tax and each
shareholder will be required to report on its income tax return its distributive
share of the Partnership’s income, gain, loss, deduction and items of tax
preference and will be subject to tax on its distributive share of the
Partnership’s taxable income, regardless of whether any portion of that income
is, in fact, distributed to such shareholder in the shareholder’s taxable year
within which or with which the Partnership’s taxable year ends. Thus,
shareholders may be required to accrue income, without the current receipt of
cash, if the Partnership does not make cash distributions while generating
taxable income. Consequently, although it is not anticipated, a
shareholder’s tax liability with respect to its share of the Partnership’s
taxable income may exceed the cash actually distributed in a given taxable
year. The Partnership currently uses the calendar year as its taxable
year.
The
Partnership will file a federal tax return on Form 1065 and will provide
information as to each shareholder’s distributive share of the Partnership’s
income, gain, loss, deduction and items of tax preference on a Schedule K-1
supplied to such shareholder after the close of the fiscal year. In
preparing such information, the Partnership will utilize various accounting and
reporting conventions, some of which are discussed herein, to determine each
shareholder’s allocable share of income, gain, loss and
deduction. There is no assurance that the use of such conventions
will produce a result that conforms to the requirements of the Internal Revenue
Code, temporary and proposed treasury regulations or IRS administrative
pronouncements and there is no assurance that the IRS will not successfully
contend that such conventions are impermissible. Any such contentions
could result in substantial expenses to the Partnership and its shareholders as
a result of contesting such contentions, as well as an increase in tax liability
to shareholders as a result of adjustments to their allocable share of our
income, gain, loss and deduction. See “—Tax returns, audits, interest
and penalties.”
Capital Gain Upon
Sale of Assets. The Partnership may, from time to time, sell,
dispose of or otherwise be treated as disposing of, certain of its
assets. Such sale or disposition may result in taxable capital
gain.
Shareholder’s
Basis in Shares. Your adjusted basis in the Partnership’s
shares is relevant in determining the gain or loss on the sale or other
disposition of shares and the tax consequences of a distribution from the
Partnership. See “—Treatment of cash distributions to shareholders
from the Partnership.” In addition, you are entitled to deduct on
your income tax return, subject to the limitations discussed below, your
distributive share of the Partnership’s net loss, if any, to the extent of your
adjusted basis in your shares.
Your
initial basis in your shares will be the purchase price for the shares,
increased by your share of items of our income (including tax-exempt interest)
and gain, and reduced, but not below zero, by (a) your share of items of
Company loss and deduction (including any nondeductible expenses), and
(b) any cash distributions you receive from the Partnership.
Treatment of Cash
Distributions to Shareholders from the Partnership. Cash
distributions made to shareholders will generally be treated as a non-taxable
return of capital and will not generally increase or decrease your share of
taxable income or loss from the Partnership. A return of capital
generally does not result in any recognition of gain or loss for federal income
tax purposes but would reduce your adjusted basis in your
shares. Distributions of cash in excess of your adjusted basis in
your shares will result in the recognition of gain to the extent of such
excess.
Limitations on
Deductibility of Losses. In the event you are allocated
losses, you generally will be entitled to deduct your distributive share of any
losses of the Partnership to the extent of your tax basis of your shares at the
end of the year in which such losses occur. However, shareholders who
are individuals, trusts, estates, personal service companies and certain closely
held C corporations may be subject to additional limitations on deducting losses
of the Partnership.
Limitation on the
Deductibility of Interest Expense. The Internal Revenue Code
disallows any deduction for interest paid by any taxpayer on indebtedness
incurred or continued for the purpose of purchasing or carrying a tax-exempt
obligation. A purpose to carry tax-exempt obligations will be
inferred whenever a taxpayer owns tax-exempt obligations and has outstanding
indebtedness which is neither directly connected with personal expenditures nor
incurred in connection with the active conduct of a trade or
business. The IRS may take the position that a shareholder’s
allocable portion of any interest paid by the Partnership on its borrowings, and
any interest paid by a shareholder on indebtedness incurred to purchase shares,
should be viewed in whole or in part as incurred to enable such shareholder to
continue carrying such tax-exempt obligations and, therefore, that the deduction
of any such interest by such shareholder should be disallowed in whole or in
part. To the extent the Partnership’s borrowings describe above under
“AMERICA FIRST TAX EXEMPT INVESTORS, L.P.—Financing Arrangements” are deemed to
be incurred by it for the purpose of financing its portfolio of tax-exempt
mortgage revenue bonds, a shareholder’s allocable portion of any interest paid
by the Partnership on these borrowings will be disallowed.
In the
absence of direct evidence linking debt with purchasing or carrying tax-exempt
obligations (for example, the tax-exempt obligations secure the debt), there is
an exception to the interest disallowance rule if the taxpayer holds only an
insubstantial amount of tax-exempt obligations. This exception does
not apply to banks, certain other financial institutions, or dealers in
tax-exempt securities. However, to the extent that an investor’s debt
would be allocated to purchasing or carrying its shares, such shares should only
be treated as tax-exempt obligations for purposes of the interest disallowance
rule in the same proportion as the assets of the Partnership comprise tax-exempt
obligations (based on their adjusted tax basis or perhaps capital account
value). The Partnership will report to shareholders at the end of
each year the average percentage of its assets (based on adjusted tax basis and
capital account value) that were invested in obligations believed to be
tax-exempt each year. It is uncertain whether an annual average or
more frequent adjustments should be used.
Assuming
interest on indebtedness is otherwise deductible, the deductibility of a
non-corporate taxpayer’s “investment interest” expense is further limited to the
amount of such taxpayer’s “net investment income.”
Allocation of
Income, Gain, Loss and Deduction. In preparing the
Partnership’s tax returns, and in determining the shareholders’ allocable share
of the Partnership’s items of income, gain, loss and deduction, the Partnership
will utilize various accounting and reporting conventions, some of which are
discussed herein. There is no assurance that the use of such
conventions will produce a result that conforms to the requirements of the
Internal Revenue Code, temporary and proposed treasury regulations or IRS
administrative pronouncements and there is no assurance that the IRS will not
successfully challenge the Partnership’s use of such conventions.
The
Partnership generally allocates each item of its income, gain, loss or deduction
among the General Partner and shareholders in accordance with their respective
percentage interests in the Partnership. However, the Partnership
will make certain special allocations in connection with the issuance of new
Partnership shares in accordance with the principals of Section 704(c) of
the Internal Revenue Code. Upon the issuance of additional shares,
including shares issued in this offering, the Partnership expects that it will
restate the “book” capital accounts of the existing shareholders under
applicable Treasury Regulations in order to reflect the fair market value of the
Partnership’s assets at the time additional shares are issued. This
restatement of the existing shareholders’ book capital accounts measures any
gain or loss inherent in Partnership assets at the time new shareholders are
admitted to the Partnership. Section 704(c) requires the
Partnership to specially allocate certain items of gain or loss among the
shareholders in order to eliminate differences between their book capital
accounts (which now reflect the fair market value of Partnership property on the
date the new shares are issued) and their tax capital accounts (which reflect
the Partnership’s tax basis in these assets). The effect of the
allocations under Section 704(c) to a shareholder purchasing shares in the
offering will be essentially the same as if the tax basis of our assets were
equal to the fair market value of our assets at the time of the
offering.
Effects of a
Section 754 Election. The Partnership expects to make the
election permitted by Section 754 of the Internal Revenue Code in its 2009
tax return. This election is irrevocable without the consent of the
IRS. As discussed below, the election generally permits the
Partnership to adjust the tax basis of certain of its assets to reflect the
purchase prices paid by purchasers of shares from existing
shareholders. Generally, when shares are purchased from an existing
shareholder (rather than being acquired directly from the Partnership, such as
in an offering), the purchaser’s tax basis in those shares (referred to as the
purchaser’s “outside basis”) initially will equal the purchase price he or she
paid for the shares. However, the purchaser’s outside basis does not
necessarily reflect his or her proportionate share of the Partnership’s tax
basis in its assets (referred to as the purchaser’s “inside basis”) at the time
of purchase, and this difference may have tax consequences to the
purchaser. By making a Section 754 election, the Partnership
will make an adjustment under Section 743(b) of the Internal Revenue Code
to a share purchaser’s “inside basis” in the Partnership’s assets so that those
assets reflect the price such purchaser paid for his or her
shares. As a result, a purchaser of shares will have an inside basis
in our assets consisting of (1) such shareholder’s share of our tax basis
in our assets at the time of the purchase of shares (“common basis”) and
(2) such shareholder’s Section 743(b) adjustment to that
basis. The Section 743(b) adjustment affects only the inside
basis of the share purchaser’s portion of Partnership assets and does not affect
other shareholders.
A basis
adjustment is required under Section 743(b) regardless of whether a
Section 754 election is made if shares are transferred at a time when the
Partnership has a substantial built-in loss in its assets immediately after the
transfer, or if the Partnership distributes property and has a substantial basis
reduction. Generally a built-in loss or a basis reduction is
substantial if it exceeds $250,000.
A
Section 743(b) basis adjustment is advantageous to a purchaser of shares if
the purchaser’s outside basis in his or her shares is higher than such
purchaser’s inside basis. In that case, as a result of the election,
the purchaser would, among other things, be allocated a greater amount of
depreciation and amortization deductions (assuming the Partnership has
depreciable or amortizable assets) and his or her allocable share of any gain on
a sale of Partnership assets would be less than it would be absent such
adjustment. Conversely, a Section 743(b) basis adjustment is
disadvantageous to a purchaser of shares if the purchaser’s outside basis in his
or her shares is lower than such purchaser’s inside basis because it would cause
such purchaser to be allocated a lesser amount of the Partnership’s depreciation
and amortization deductions and his or her allocable share of any gain on a sale
of Partnership assets would be greater than it would be absent such
adjustment.
The
allocation of any Section 743(b) adjustment among the Partnership’s assets
must be made in accordance with the Internal Revenue Code, but will involve a
number of assumptions and the application of judgment by the General
Partner. Accordingly, the IRS could challenge some of these
allocations and, for example, seek to allocate some or all of any
Section 743(b) adjustment from tangible assets that may be amortized or
depreciated to goodwill or other asset classes that are either nonamortizable or
amortizable over a longer period of time. We cannot assure you that
the determinations the Partnership makes will not be successfully challenged by
the IRS and that the deductions resulting from them will not be reduced or
disallowed altogether. Should the IRS require a different basis
adjustment to be made, and should, in the opinion of the General Partner, the
expense of compliance exceed the benefit of the election, the General Partner
may seek permission from the IRS to revoke the Partnership’s Section 754
election. If permission is granted, a subsequent purchaser of shares
may be allocated more income than he or she would have been allocated had the
election not been revoked.
Furthermore,
strict adherence to Treasury Regulations in making certain Section 743(b)
adjustments could result in tax differences among shareholders that adversely
affect the continued uniformity of the tax characteristics of
shares. As a result, the General Partner may adopt certain 743(b)
adjustment methods or conventions that are designed to preserve the uniformity
of shares, but that may be inconsistent with certain Treasury
Regulations. Please see “—Uniformity of Shares,”
below. Kutak Rock LLP is unable to opine as to the validity of these
methods and conventions because there is no clear authority on these
issues. If the IRS successfully challenged any method used by the
General Partner for making the Section 743(b) adjustments, the uniformity
of shares might be affected, and the gain or loss realized by a shareholder from
the sale of shares might be affected.
Uniformity of
Shares. Because shares trade in the public market and many
shares are held in street name by banks, brokers and other nominees, the
Partnership cannot match transferors and transferees of shares. As a
result, we must maintain uniformity of the economic and tax characteristics of
the shares to a purchaser of shares. In the absence of uniformity,
the Partnership may be unable to completely comply with a number of federal
income tax requirements under the Internal Revenue Code and the Treasury
Regulations. A lack of uniformity can result from a literal
application of Treasury Regulations pertaining to the Partnership’s method of
depreciating or amortizing its Section 743(b) adjustments or from a
determination that certain curative allocations designed to prevent the
application of Treasury Regulation “ceiling limitations” as it attempts to
eliminate book and tax disparities are unreasonable.
The
Partnership intends to adopt reasonable Section 743(b) adjustment methods
and other conventions to preserve the uniformity of the intrinsic tax
characteristics of shares, none of which should have a material adverse effect
on the shareholders. Kutak Rock LLP has not opined on the validity of
any of these positions. The IRS may challenge any method of
accounting for the Section 743(b) adjustment or other methods or
conventions adopted by the Partnership. If any such challenge were
sustained, the uniformity of shares, and the resulting gain or loss from the
sale of those shares, might be affected
Disposition of
Shares. There are a number of federal income tax
considerations arising from the sale of shares including:
Recognition of Gain or
Loss. Taxable gain or loss will be recognized on a sale or
other disposition of shares equal to the difference between the amount realized
by the selling shareholder and his or her tax basis in the shares
sold. The amount realized by a shareholder from the sale of shares
will be measured by the sum of the cash or the fair market value of other
property received by such selling shareholder plus his or her share of the
Partnership’s nonrecourse liabilities, if any, attributable to the shares
sold. Gain or loss recognized by a shareholder, other than a “dealer”
in shares, on the sale or exchange of shares held for one year or less will
generally be taxable as a short-term capital gain or loss.
Gain or
loss recognized by a shareholder, other than a “dealer” in shares, on the sale
or exchange of shares held for more than one year will generally be taxable as a
long-term capital gain or loss.
Allocations Between Transferors and
Transferees. In general, taxable income or loss will be
determined annually, will be prorated on a monthly basis and will be
subsequently apportioned among the shareholders, in proportion to the number of
shares beneficially owned by each of them as of the closing of trading on the
last business day of a month. However, gain or loss realized on a
sale or other disposition of Partnership assets other than in the ordinary
course of business will be allocated among the shareholders beneficially owning
shares as of the closing of trading on the last business day of a month in which
that gain or loss is recognized. As a result, a shareholder acquiring
shares may be allocated income, gain, loss and deduction realized prior to the
date of transfer. The use of this method may not be permitted under
existing Treasury Regulations. Accordingly, Kutak Rock LLP is unable
to opine on the validity of this method of allocating income and deductions
between transferor and transferee shareholders. The General Partner
uses this method because it is not administratively feasible to make these
allocations on a more frequent basis. If this method is not allowed
under the Treasury Regulations or only applies to transfers of less than all of
the shareholder’s interest, the Partnership’s taxable income or losses might be
reallocated among the shareholders. The General Partner is authorized
to revise the method of allocation between transferor and transferee
shareholders, as well as shareholders whose interests vary during a taxable
year, to conform to a method permitted under future Treasury
Regulations.
A
shareholder who owns shares at any time during a quarter and who disposes of
them prior to the record date set for a cash distribution for that quarter will
be allocated items of our income, gain, loss and deductions attributable to that
quarter but will not be entitled to receive that cash distribution.
Constructive Termination. The Partnership
will be considered to have been terminated for tax purposes if there is a sale
or exchange of 50% or more of the total interests in its capital and profits
within a twelve-month period. A constructive termination results in
the closing of the Partnership’s taxable year for all
shareholders. In the case of a shareholder reporting on a taxable
year other than a taxable year ending December 31, the closing of the
Partnership’s taxable year may result in more than twelve months of taxable
income or loss being includable in such shareholder’s taxable income for the
year of termination. The Partnership would be required to make new
tax elections after a termination, including a new election under
Section 754 of the Internal Revenue Code. A termination could
also result in penalties if the Partnership was unable to determine that the
termination had occurred. The Partnership Agreement contains a
provision that is designed to prevent transfers of shares that would result in a
tax termination of the Partnership, but there is no assurance that it would
actually prevent a tax termination from occurring.
Company
Expenses. The Partnership has incurred or will incur various
expenses in connection with its ongoing administration and
operation. Payment for services generally is deductible if the
payments are ordinary and necessary expenses, are reasonable in amount and are
for services performed during the taxable year in which paid or
accrued. The Partnership anticipates that a substantial portion of
its ordinary expenses will be allocable to tax-exempt interest
income. The Internal Revenue Code prohibits the deduction of any
expense otherwise allowable under Code Section 212 which is allocable to
tax-exempt interest income. The Partnership allocates its expenses in
proportion to the amount of tax-exempt income and taxable income that it
receives. Shareholders generally will not be permitted to deduct the
portion of the Partnership’s expenses related to tax-exempt income in
calculating their federal income tax liability. Borrowers pay certain
fees they incur in connection with obtaining financing from the Partnership
directly to the General Partner. The Partnership treats these fees as
earned directly by the General Partner for services it renders to the
borrowers. It is possible that the IRS could contend such fees should
be treated as additional taxable income to the Partnership and additional
expense. If such position were asserted and upheld, it would result
in the Partnership recognizing additional taxable income, but all or a
substantial portion of the additional expense would be disallowed. In
addition, depending on the amount of such income relative to the Partnership’s
other income, it could result in the Partnership being treated as a publicly
traded partnership taxable as a corporation.
The IRS
may not agree with the Partnership’s determinations as to the deductibility of
fees and expenses and might require that certain expenses be capitalized and
amortized or depreciated over a period of years. If all or a portion
of such deductions were to be disallowed, on the basis that some of the
foregoing expenses are non-deductible syndication fees or otherwise, the
Partnership’s taxable income would be increased or its losses would be
reduced.
Treatment of
Syndication Expenses. Except as discussed below, neither the
Partnership nor any shareholder is permitted to deduct, for federal income tax
purposes, amounts paid or incurred to sell or market shares in the Partnership
(“syndication expenses”). The determination as to whether or not
expenses are syndication expenses is a factual determination which will
initially be made by the Partnership. The IRS could challenge the
Partnership’s determination expenses are not syndication expenses.
Backup
Withholding. Distributions to shareholders whose shares are
held on their behalf by a “broker” may constitute “reportable payments” under
the federal income tax rules regarding “backup withholding.” Backup
withholding, however, would apply only if the shareholder (i) failed to
furnish its Social Security number or other taxpayer identification number of
the person subject to the backup withholding requirement (e.g., the broker) or
(ii) furnished an incorrect Social Security number or taxpayer
identification number. If “backup withholding” were applicable to a
shareholder, the Partnership would be required to withhold 28% of each
distribution to such shareholder and to pay such amount to the IRS on behalf of
such shareholder.
Issuance of
Additional Shares. The Partnership may issue new shares to
additional investors to finance the acquisition of additional
investments. On any issuance of additional shares, the Partnership
expects that it will adjust the capital accounts of the existing shareholders
for capital account maintenance purposes under applicable Treasury Regulations
in order to reflect a revaluation of the Partnership’s assets (based on their
then fair market value, net of liabilities to which they are then
subject).
Tax Returns,
Audits, Interest and Penalties. After the end of the calendar
year, the Partnership will supply Schedule K-1 to IRS Form 1065 to
each shareholder of record as of the last day of each month during the
year. The Partnership is not obligated to provide tax information to
persons who are not shareholders of record.
State, Local and
Foreign Income Taxes. In addition to the U.S. federal income
tax consequences described above, shareholders should consider potential state,
local and foreign tax consequences of an investment in the Partnership and are
urged to consult their individual tax advisors in this regard. The
rules of some states, localities and foreign jurisdictions for computing and/or
reporting taxable income may differ from the federal rules. Interest
income that is tax-exempt for federal purposes is generally subject to state
taxes, except in the state in which the property securing the Partnership’s
investment and the bond issuer are located. All the bonds and
interest income thereon may be subject to taxation by localities and foreign
jurisdictions. An investment in the Partnership’s shares could also
require shareholders to file tax returns in various jurisdictions, although the
Partnership is not aware of any current filing obligations.
Under the
tax laws of certain states, the Partnership may be subject to state income or
franchise tax or other taxes applicable to the Partnership. Such
taxes may decrease the amount of distributions available to
shareholders. Shareholders are advised to consult with their tax
advisors concerning the tax treatment of the Partnership, and the effects under
the tax laws of the states applicable to the Partnership and its
shareholders.
Income
tax considerations relating to the Partnership’s tax-exempt mortgage revenue
bonds.
Tax Exemption of
our Revenue Bonds. The Partnership invests primarily in
tax-exempt mortgage revenue bonds issued for the purpose of providing
construction and/or permanent financing for multifamily housing projects in
which a portion of the rental units are made available to persons of low or
moderate income. On the date of original issuance or reissuance of
each tax-exempt mortgage revenue bond, nationally recognized bond counsel or
special tax counsel rendered its opinion to the effect that based on the law in
effect on the date of original issuance or reissuance, interest on such revenue
bonds is excludable from gross income of the bondholder for federal income tax
purposes, except with respect to any revenue bond (other than a revenue bond the
proceeds of which are loaned to a charitable organization described in Section
501(c)(3) of the Internal Revenue Code) during any period in which it is held by
a “substantial user” of the property financed with the proceeds of such revenue
bonds or a “related person” of such a “substantial user” each as defined in the
Internal Revenue Code. In the case of contingent interest bonds, such
opinion assumes, in certain cases in reliance on another unqualified opinion,
that such contingent interest bond constitutes debt for federal income tax
purposes. See “Treatment of Revenue Bonds as Equity,”
below. However, an opinion of or advice from counsel has no binding
effect, and no assurances can be given that the conclusions reached will not be
contested by the IRS or, if contested, will be sustained by a
court. We will contest any adverse determination by the IRS on these
issues.
In the
case of revenue bonds which, subsequent to their original issuance, have been
reissued for federal tax purposes, nationally recognized bond counsel or special
tax counsel has delivered opinions to the effect that interest on the reissued
revenue bond is excludable from gross income of the bond holder for federal
income tax purposes from the date of reissuance or, in some cases, to the effect
that the reissuance did not adversely affect the excludability of interest on
the revenue bonds from the gross income of the holders thereof. The
reissuance of a revenue bond generally does not, in and of itself, cause the
interest on such revenue bond to be includable in the gross income of the holder
thereof for federal income tax purposes. However, if a revenue bond
is treated as reissued and the appropriate federal tax information return, a
Form 8038, has not been timely filed or a late filing has not been accepted by
the IRS, interest on such revenue bond could be includable in the gross income
of the holder thereof for federal income tax purposes from and after the
reissuance date. In addition, if a contingent interest revenue bond
is treated as reissued, there can be no assurance that such revenue bond would
continue to be characterized as debt, as described below, insofar as the facts
and circumstances underlying such characterization may have
changed. Furthermore, pursuant to regulations generally effective as
of June 30, 1993, if an issue of revenue bonds is treated as reissued within six
months of the transfer of the project financed by such issue of revenue bonds by
the owner of such project to an unrelated party, the interest on such revenue
bonds could become includable in gross income for purposes of federal income
taxation. In addition, if a contingent interest revenue bond is
reissued after August 13, 1996, the reissued revenue bond is or would become
subject to certain regulations concerning contingent payments, which could cause
some or all of the interest payable on such contingent interest revenue bond to
become includable in gross income of the holder thereof for federal income tax
purposes, unless such contingent interest revenue bond is modified at the time
of reissuance to comply with the contingent payment
regulations. Furthermore, there can be no assurance that the IRS will
not treat certain of the modifications of the contingent interest bonds as
resulting in a reissuance on a date other than the date on which counsel
determined that a reissuance had occurred in its unqualified opinions, in which
case such revenue bonds may suffer adverse tax consequences, as more fully
described above, and such bond would not have the benefit of an opinion that
interest on such bond is excludable from gross income for federal income tax
purposes.
The
Internal Revenue Code establishes certain requirements which must be met
subsequent to the issuance and delivery of tax-exempt revenue bonds for interest
on such revenue bonds to remain excludable from gross income for federal income
tax purposes. Among these continuing requirements are restrictions on
the investment and use of the revenue bond proceeds and, for revenue bonds the
proceeds of which are loaned to a charitable organization described in Section
501(c)(3) of the Internal Revenue Code, the continued tax exempt status of such
borrower. In addition, the continuing requirements include tenant
income restrictions, regulatory agreement compliance reporting requirements, use
of proceeds restrictions and compliance with rules pertaining to
arbitrage. Each issuer of the revenue bonds, as well as each of the
underlying borrowers, has covenanted to comply with certain procedures and
guidelines designed to ensure satisfaction with the continuing requirements of
the Internal Revenue Code. Failure to comply with these continuing
requirements of the Internal Revenue Code may cause the interest on such bonds
to be includable in gross income for federal income tax purposes retroactively
to the date of issuance, regardless of when such noncompliance
occurs.
Treatment of
Revenue Bonds as Equity. Payment of a portion of the interest
accruing on our contingent interest bonds depends in part upon the net cash flow
from, or net proceeds upon sale of, the property securing our investment
financed by such revenue bond. We received opinions of counsel with
respect to each of our interest bonds to the effect that based upon assumptions
described in such opinions, which assumptions included the fair market value of
the respective properties upon completion and economic projections and
guarantees, the contingent interest bonds should be treated for federal tax
purposes as representing debt. In certain instances, opinions
rendered by bond counsel provided that the characterization of the bonds as debt
was not free from doubt and that all or a portion of the interest on such bonds,
including contingent interest and deferred interest, may not be treated as
interest for state and federal law but that it is more likely than not that such
interest is interest for state and federal law purpose or otherwise similarly
limited. The implicit corollary of all of these opinions is that the
contingent interest bonds do not constitute the following: (i) an equity
interest in the underlying borrower; (ii) an equity interest in a venture
between the underlying borrower and us; or (iii) an ownership interest in
the properties securing our investments. Although we assume the
continuing correctness of these opinions, and will treat all interest received
with respect to these bonds as tax-exempt income, there can be no assurance that
such assumptions are correct, such treatment would not be challenged by the IRS,
or intervening facts and circumstances have changed the assumptions and basis
for providing such opinions. An issue may arise as to whether the
relationship between us and the respective obligors is that of debtor and
creditor or whether we are engaged in a partnership or joint venture with the
respective obligors. If the IRS were to determine that one or more of
the contingent interest bonds represented or contained an equity investment in
the respective property securing our investment because of this feature, all or
part of the interest on such contingent interest bond could be viewed as a
taxable return on such investment and would not qualify as tax-exempt interest
for federal income tax purposes. To our knowledge, neither the
characterization of the contingent interest bonds as debt nor the
characterization of the interest thereon as interest excludable from gross
income of the holders thereof has been challenged by the IRS in any judicial or
regulatory proceeding.
“Substantial
User” Limitation. Interest
on a revenue bond owned by us will not be excluded from gross income during any
period in which we are a “substantial user” of the facilities financed with the
proceeds of such revenue bond or a “related person” to a “substantial
user.” We have received advice from our counsel with respect to our
revenue bonds to the effect that we are not a “substantial user” of any
facilities financed with the proceeds of such bonds or a “related person”
thereto. A “substantial user” generally includes any underlying
borrower and any person or entity that uses the financed facilities on other
than a de minimis basis. We would be a “related person” to a
“substantial user” for this purpose if, among other things, (i) the same
person or entity owned more than a 50% interest in both us and in the ownership
of the facilities financed with the proceeds of a bond owned by us, or
(ii) if we owned a partnership or similar equity interest in the owner of a
property financed with the proceeds of a bond. Additionally, a
determination that we are a partner or a joint venturer with a mortgagor
involving an equity interest, as described above under “Treatment of Revenue
Bonds as Equity,” could cause us to be treated as a “substantial user” of the
properties securing our investments. In the event that the ownership
entity which owns a property securing our investment financed with the proceeds
of a revenue bond owned by us were to acquire shares of us, the IRS, if it
became aware of such ownership, could take the position that the substantial
user and related person rules require that the interest income on such revenue
bond allocable to all of our investors, including the holders of the shares, be
included in gross income for federal income tax purposes. Kutak Rock
LLP has advised us that in its opinion such a result is not supported by the
Internal Revenue Code and treasury regulations; however, there can be no
assurance that the IRS would not take such a position.
Alternative
Minimum Tax. Interest on many of the tax-exempt mortgage
revenue bonds held by the Partnership will be treated as an item of tax
preference for purposes of the Alternative Minimum Tax. To the extent
interest on any of the Partnership’s tax-exempt mortgage revenue bonds is an
item of tax preference, a portion of the income allocable to a shareholder also
will be a tax preference item. This preference item may be reduced,
but not below zero, by interest expense and other expenses that could not be
deducted for regular tax purposes because the expenses were related to
tax-exempt income generated by such preference bonds. To the extent
interest on any of the revenue bonds owned by the Partnership is not a tax
preference item, any corporation subject to the Alternative Minimum Tax must
nevertheless take such tax-exempt interest into account in determining its
adjusted current earnings for purposes of computing its Alternative Minimum Tax
liability. The 2008 Housing Act exempted newly issued tax-exempt
private activity bonds from Alternative Minimum Tax.
Other U.S.
Federal Income Tax Considerations. The Internal Revenue Code
contains certain provisions that could result in other tax consequences as a
result of the ownership of tax-exempt mortgage revenue bonds by the Partnership
or the inclusion in certain computations including, without limitation, those
related to the corporate Alternative Minimum Tax, of interest that is excluded
from gross income.
Ownership
of tax-exempt obligations by the Partnership may result in collateral tax
consequences to certain taxpayers, including, without limitation, financial
institutions, property and casualty insurance companies, certain foreign
corporations doing business in the United States, certain S corporations with
excess passive income, individual recipients of social security or railroad
retirement benefits and individuals otherwise eligible for the earned income
credit. Prospective purchasers of the Partnership’s shares should
consult their own tax advisors as to the applicability of any such collateral
consequences.
THE
FOREGOING SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL
INFORMATION ONLY AND DOES NOT ADDRESS THE CIRCUMSTANCES OF ANY PARTICULAR
SHAREHOLDER. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PARTNERSHIP’S SHARES, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX
LAWS.
The
Employee Retirement Income Security Act of 1974, as amended, or ERISA, and the
Internal Revenue Code impose restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA); (b) plans described in
Section 4975(e)(1) of the Internal Revenue Code, including individual
retirement accounts or Keogh plans; (c) any entities whose underlying
assets include plan assets by reason of a plan’s investment in such entities
(each item described in (a), (b) or (c) being a “plan”; and (d) persons who
have specified relationships to those plans, i.e., “parties-in-interest” under
ERISA, and “disqualified persons” under the Internal Revenue
Code. ERISA also imposes certain duties on persons who are
fiduciaries of plans subject to ERISA and prohibits certain transactions between
a plan and parties-in-interest or disqualified persons with respect to such
plans.
The
Acquisition and Holding of Our Shares
An
investment in our shares by a plan that has a relationship as
“parties-in-interest” or “disqualified persons” could be deemed to constitute a
transaction prohibited under Title I of ERISA or Section 4975 of the
Internal Revenue Code (e.g., the indirect transfer to or use by
party-in-interest or disqualified person of assets of a plan). Such
transactions may, however, be subject to one or more statutory or administrative
exemptions such as a prohibited transaction class exemption (a ‘PTCE”)
including, for example, PTCE 90-1, which exempts certain transactions involving
insurance company pooled separate accounts, PTCE 91-38, which exempts certain
transactions involving bank collective investment funds, PTCE 84-14, which
exempts certain transactions effected on behalf of a plan by a “qualified
professional asset manager,” PTCE 95-60, which exempts certain transactions
involving insurance company general accounts and PTCE 96-23, which exempts
certain transactions effected on behalf of a plan by an “in-house asset manager”
or another available exemption. Such exemptions may not, however,
apply to all of the transactions that could be deemed prohibited transactions in
connection with a plan’s investment.
The
Treatment of Our Underlying Assets Under ERISA
The
regulations issued by the U.S. Department of Labor concerning the definition of
what constitutes the assets of an employee benefit plan (the “plan asset
regulations”) provide, as a general rule, that the underlying assets and
properties of corporations, partnerships, trusts and certain other entities in
which a plan purchases an “equity interest” will be deemed, for purposes of
ERISA, to be assets of the investing plan unless any applicable exceptions
applies. The plan asset regulations define an “equity interest”
as any interest in an entity other than an instrument that is treated as
indebtedness under applicable local law and which has no substantial equity
features. Our shares should be treated as “equity interests” for
purposes of the plan asset regulations. As a result, the investment
by a plan in our shares will subject our assets and operations to the regulatory
restrictions of ERISA and the Code, including their prohibited transaction
restrictions, unless an exception applies. The General Partner
believes the Partnership qualifies for an exception under the plan asset
regulations that is available to an entity with a class of equity interests that
are (a) widely held (i.e., held by 100 or more investors who are
independent of the issuer and each other); (b) freely transferable; and
(c) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act. The
General Partner intends to take such steps as may be necessary to maintain the
availability of this “publicly offered securities exception” to the plan asset
regulations and thereby prevent the Partnership’s assets from being treated as
assets of any investing plan. If, however, this or any other
exception under the plan asset regulations were not available and the
Partnership is deemed to hold plan assets by reason of a plan's investment in
our shares, such plan's assets would include an undivided interest in the assets
held by us. In such event, such assets, transactions involving such
assets and the persons with authority or control over and otherwise providing
services with respect to such assets would be subject to the fiduciary
responsibility provisions of Title I of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Internal Revenue
Code, and any statutory or administrative exemption from the application of such
rules may not be available.
Fiduciary
Considerations
Any plan
fiduciary that proposes to cause a plan to purchase our shares should consult
with its counsel with respect to the potential applicability of ERISA and the
Internal Revenue Code to such investment and determine on its own whether any
exceptions or exemptions are applicable and whether all conditions of any such
exceptions or exemptions have been satisfied. Moreover, each plan
fiduciary should determine whether, under the general fiduciary standards of
investment prudence and diversification, an investment in our securities is
appropriate for the plan, taking into account the overall investment policy of
the plan and the composition of the plan’s investment portfolio. Each
plan fiduciary should determine whether an investment in our shares is
authorized by the appropriate governing instruments of the plan. The
sale of our securities is in no respect a representation by us or any other
person that such an investment meets all relevant legal requirements with
respect to investments by plans generally or that such an investment is
appropriate for any particular plan.
We may
sell the shares offered pursuant to this prospectus and any accompanying
prospectus supplements to or through one or more underwriters or dealers, or we
may sell these shares to investors directly or through agents. Any
underwriter or agent involved in the offer and sale of our shares will be named
in the applicable prospectus supplement. We may sell shares directly
to investors on our own behalf in those jurisdictions where we are authorized to
do so.
Underwriters
may offer and sell our shares at a fixed price or prices, which may be changed,
at market prices prevailing at the time of sale, at prices related to the
prevailing market prices or at negotiated prices. We also may, from
time to time, authorize dealers or agents to offer and sell shares on the terms
and conditions described in the applicable prospectus supplement. In
connection with the sale of our shares, underwriters may receive compensation
from us in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the shares for whom they may act as
agent. Underwriters may sell these securities to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters or commissions from the purchasers for
which they may act as agents.
Shares
may also be sold in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell all
or a portion of the shares as agent but may position and resell all or a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by the broker-dealer for its own account
pursuant to a prospectus supplement; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable Nasdaq or
stock exchange rules; (d) ordinary brokerage transactions and transactions
in which a broker-dealer solicits purchasers; (e) sales “at the market” to
or through a market maker or into an existing trading market, on an exchange or
otherwise, for shares; and (f) sales in other ways not involving market
makers or established trading markets, including direct sales to
purchasers. Broker-dealers may also receive compensation from
purchasers of shares which is not expected to exceed that customary in the types
of transactions involved.
Any
underwriting compensation paid by us to underwriters or agents in connection
with the offering of shares, and any discounts or concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable prospectus supplement. Dealers and agents participating in
the distribution of shares may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the shares may be deemed to be underwriting discounts and
commissions.
Underwriters,
dealers and agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act. Unless otherwise set
forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any shares will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all of the shares
then being sold, if any is purchased.
Underwriters,
dealers and agents may engage in transactions with, or perform services for, us
and our affiliates in the ordinary course of business.
In
connection with the offering of shares described in this prospectus and an
accompanying prospectus supplement, certain underwriters, and selling group
members and their respective affiliates, may engage in transactions that
stabilize, maintain or otherwise affect the market price of the security being
offered. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M promulgated by
the SEC pursuant to which these persons may bid for or purchase securities for
the purpose of stabilizing their market price.
The
underwriters in an offering of shares may also create a “short position” for
their account by selling more shares in connection with the offering than they
are committed to purchase from us. In that case, the underwriters
could cover all or a portion of the short position by either purchasing the
shares in the open market following completion of the offering or by exercising
any over-allotment option granted to them by us. In addition, the
managing underwriter may impose “penalty bids” under contractual arrangements
with other underwriters, which means that they can reclaim from an underwriter
(or any selling group member participating in the offering) for the account of
the other underwriters, the selling concession for the shares that are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in
this paragraph or comparable transactions that are described in any accompanying
prospectus supplement may result in the maintenance of the price of our shares
at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
Our
shares are listed on the Nasdaq Global Market under the symbol
“ATAX.” Any underwriters or agents to or through which shares are
sold by us may make a market in our shares, but these underwriters or agents
will not be obligated to do so and any of them may discontinue any market making
at any time without notice. No assurance can be given as to the
liquidity of or trading market for our shares.
The
consolidated financial statements as of December 31, 2008 and 2007 and for
each of the three years in the period ended December 31, 2008 of the
Partnership and its consolidated subsidiaries (except the financial statements
of Woodbridge Apartments of Louisville II, L.P. and Woodbridge Apartments of
Bloomington III, L.P., for the year ended December 31,
2006) incorporated in this prospectus by reference from the Partnership’s
Annual Report on Form 10-K for the year ended December 31, 2008, and
the effectiveness of the Partnership’s internal control over financial reporting
as of December 31, 2008, have been audited by Deloitte & Touche
LLP as stated in their reports which are incorporated by reference herein (which
report relating to the consolidated financial statements of the Partnership
expresses an unqualified opinion and includes an explanatory paragraph regarding
management’s estimates for investments without readily determinable fair
values). The financial statements of Woodbridge Apartments of
Louisville II, L.P. and Woodbridge Apartments of Bloomington III, L.P.
(consolidated with those of the Partnership) not presented separately herein
have been audited by Katz, Sapper & Miller, LLP as stated in their
reports which are incorporated by reference herein. Such financial
statements of the Partnership and its consolidated subsidiaries are incorporated
by reference herein in reliance upon the respective reports of such firms given
upon their authority as experts in accounting and auditing. All of
the foregoing firms are independent registered public accounting
firms.
The
validity of the shares offered by this prospectus has been passed upon for us by
Kutak Rock LLP, Omaha, Nebraska. In addition, the
description of federal income tax consequences in “U.S. Federal Income Tax
Considerations” is based on the opinion of
Kutak Rock LLP.
We file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission (the “SEC”). You can
obtain any of our filings incorporated by reference into this prospectus from
the SEC at www.sec.gov or by
visiting the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information about the SEC’s Public
Reference Room by calling 1-800-SEC-0330.
We have
filed a registration statement, of which this prospectus is a part, covering the
securities offered hereby. As allowed by Commission rules, this
prospectus does not contain all the information set forth in the registration
statement and the exhibits, financial statements and schedules
thereto. We refer you to the registration statement, the exhibits,
financial statements and schedules thereto for further
information. This prospectus is qualified in its entirety by such
other information.
We
maintain a site on the World Wide Web at www.ataxfund.com. The
information contained on this Web site is not part of this prospectus and you
should not rely on it in deciding whether to invest in our shares.
The SEC
allows us to “incorporate by reference” the information we file with it, which
means:
|
|
•
|
incorporated
documents are considered part of this
prospectus;
|
|
|
•
|
we
can disclose important information to you by referring you to those
documents; and
|
|
|
•
|
information
that we file with the SEC will automatically update and supersede the
information in this prospectus and any information that was previously
incorporated in this prospectus.
|
We filed
the following documents with the SEC (File No. 000-49986) under the
Exchange Act and incorporate them by reference into this
prospectus:
|
|
•
|
Our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2008;
|
|
|
•
|
Our
Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, June 30 and September 30,
2009;
|
|
|
•
|
Our
Current Reports on Form 8-K filed with the SEC on May 22, 2009, June
19, 2009 and October 7, 2009;
and
|
|
|
•
|
The
description of the shares representing assigned limited partnership
interests contained in or Registration Statement on Form 8-A, filed with
the SEC on August 27, 1998.
|
All
documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act after the date of this prospectus and prior to the termination of the
offering of the securities to which this prospectus relates will automatically
be deemed to be incorporated by reference into this prospectus and to be part
hereof from the date of filing those documents. Any documents we file
pursuant to these sections of the Exchange Act after the date of the initial
registration statement that contains this prospectus and prior to the
effectiveness of the registration statement will automatically be deemed to be
incorporated by reference into this prospectus and to be part hereof from the
date of filing those documents.
Any
statement contained in this prospectus or in any document incorporated, or
deemed to be incorporated, by reference into this prospectus shall be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference into this prospectus
modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus and the related registration
statement. Nothing in this prospectus shall be deemed to incorporate
information furnished by us but not filed with the SEC pursuant to Items 2.02
and 7.01 of Form 8-K.
You can
obtain any of our filings incorporated by reference into this prospectus
supplement from the SEC at www.sec.gov or by
visiting the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information about the
SEC’s Public Reference Room by calling 1-800-SEC-0330. If you
request, either orally or in writing, we will provide you with a copy of any or
all documents that are incorporated by reference. Such documents will
be provided to you free of charge, but will not contain any exhibits, unless
those exhibits are incorporated by reference into the document. Requests should
be addressed to:
Mr. Michael
Draper
The
Burlington Capital Group LLC
1004
Farnam Street, Suite 400
Omaha,
Nebraska 68102
(402) 444-1630
$200,000,000
Shares
Representing Assigned
Limited
Partnership Interests
in
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
PROSPECTUS
,
2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The
following table shows the estimated expenses in connection with the issuance and
distribution of the shares being registered:
|
SEC
registration fees
|
|
$11,241
|
|
Legal
fees and expenses
|
|
$15,000
|
|
Accounting
fees and expenses
|
|
$15,000
|
|
Printing
|
|
$20,000
|
|
Miscellaneous
|
|
$ 5,000
|
|
TOTAL
|
|
$66,241
|
Item
15. Indemnification of Directors and Officers.
The
Registrant has no directors or officers. Indemnification of the
Registrant’s general partner and its affiliates (including the officers and
managers of The Burlington Capital Group L.L.C., the general partner of the
general partner of the Registrant) is provided in Section 5.09 of the
Registrant’s Agreement of Limited Partnership, which is listed as Exhibit 4.2 of
Item 16 of this Registration Statement and such section is incorporated by
reference herein.
Item
16. Exhibits.
|
Exhibit
|
Description
|
|
2.1
|
Agreement
and Plan of Merger by and among the Registrant and America First Tax
Exempt Mortgage Fund Limited Partnership, dated as of June 12, 1998
(incorporated herein by reference to Exhibit 4.3 of the Registration
Statement on Form S-4, filed by the Registrant pursuant to the
Securities Act of 1933 on September 14, 1998 (Commission
File No. 333-50513)).
|
|
3.1
|
Articles
of Incorporation and Bylaws of America First Fiduciary Corporation Number
Five (incorporated herein by reference to Form S-11 Registration
Statement filed August 30, 1985, with the Securities and Exchange
Commission by America First Tax Exempt Mortgage Fund Limited Partnership
(Commission File No. 2-99997)).
|
|
4.1
|
Form of
Certificate of Beneficial Unit Certificate (incorporated herein by
reference to Exhibit 4.1 to Registration Statement on Form S-4
(No. 333-50513) filed by the Registrant on April 17,
1998).
|
|
4.2
|
Agreement
of Limited Partnership of the Partnership (incorporated herein by
reference to Exhibit 4(b) to Form 10-K, dated October 1, 1998,
filed by Registrant pursuant to Section 13 of the Securities Act of
1934 (Commission File No. 000-24843)).
|
|
5.1
|
Opinion
of Kutak Rock LLP
|
|
8.1
|
Opinion
of Kutak Rock LLP as to Certain Tax Matters
|
|
23.1
|
Consent
of Deloitte & Touche LLP.
|
|
23.2
|
Consent
of Katz, Sapper & Miller, LLP
|
|
23.3
|
Consent
of Katz, Sapper & Miller, LLP
|
|
23.4
|
Consent
of Kutak Rock LLP (included in Exhibits 5.1 and
8.1).
|
|
24.1
|
Powers
of Attorney (included on page II-3 of this Registration
Statement).
|
Item
17. Undertakings.
(a) The
undersigned Registrant here undertakes:
|
|
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
|
(i)
|
to
included any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
|
|
|
(ii)
|
to
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
|
|
|
(iii)
|
to
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in period reports filed with or furnished to the SEC by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
|
|
(2)
|
That,
for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
(b) The
undersigned Registrant hereby undertakes that for purposes of determining any
liability under the Securities Act, each filing of the Registrant’s annual
report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The
undersigned Registrant hereby undertakes that:
|
|
(1)
|
For
purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective;
and
|
|
|
(2)
|
For
the purpose of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Omaha, Nebraska,
on the 29th day of January, 2010.
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
By
America First Capital Associates Limited Partnership Two, General Partner of the
Partnership
By The
Burlington Capital Group L.L.C., General Partner of America First Capital
Associates Limited Partnership Two
By: /s/ Lisa Y.
Roskens
Lisa
Y. Roskens, President and Chief Executive Officer
POWER OF
ATTORNEY
Each
person whose signature appears below hereby authorizes Lisa Y. Roskens and
Michael Draper, or either of them, as attorney-in-fact, to sign on his or her
behalf, individually and in each capacity stated below, any amendment, including
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
Date: January
29,
2010 By: /s/ Lisa Y.
Roskens
Lisa Y.
Roskens, President,
Chief
Executive Officer and Chairman of the Board
(principal
executive officer)
Date: January
29,
2010 By: /s/ Michael
Draper
Michael
Draper, Chief Financial Officer
(principal
financial officer)
Date: January
29,
2010 By:
/s/ Michael B.
Yanney
Michael
B. Yanney, Manager
Date: January
29,
2010 By: /s/ Patrick J.
Jung
Patrick
J. Jung, Manager
Date: January
29,
2010 By: /s/ George H.
Krauss
George H.
Krauss, Manager
Date: January
29,
2010 By: /s/ Gail Walling
Yanney
Gail
Walling Yanney, Manager
Date: January
29,
2010 By: /s/ Mariann
Byerwalter
Mariann
Byerwalter, Manager
Date: January
29,
2010 By: /s/ Martin A.
Massengale
Martin A.
Massengale, Manager
Date: January
29,
2010 By: /s/ Clayton
Yeutter
Clayton
Yeutter, Manager
Date: January
29,
2010 By: /s/ William S.
Carter
William
S. Carter, Manager