SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28340
AMERICAN TAX-EXEMPT BOND TRUST
------------------------------
(Exact names of registrant as specified in its governing instrument)
Delaware 13-7033312
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
----------- -----------
Cash and cash equivalents $ 127,263 $ 3,314,564
Accrued interest receivable 80,405 35,260
Marketable securities 9,050,000 2,550,000
Investment in First Mortgage Bonds (Note 2) 10,931,023 10,943,182
Investment in Tax-Exempt Securities (Note 3) 0 203,958
Deferred costs 299,849 224,056
Organization costs (net of accumulated amortization
of $12,500 and $7,500, respectively) 37,500 42,500
Other assets 46,900 72,220
----------- -----------
Total assets $20,572,940 $17,385,740
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 198,652 $ 131,917
Accounts payable 12,455 42,553
----------- -----------
Total liabilities 211,107 174,470
----------- -----------
Shareholders' equity:
Beneficial owner's equity-manager (2,958) (186)
Beneficial owners' equity-shareholders 20,364,791 17,211,456
----------- -----------
Total shareholders' equity 20,361,833 17,211,270
----------- -----------
Total liabilities and shareholders' equity $20,572,940 $17,385,740
=========== ===========
See accompanying notes to financial statements.
-2-
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
-------- ------ ------- ------
Revenues:
Interest income:
First Mortgage Bonds (Note 2) $237,345 $ 0 $475,094 $ 0
Tax-Exempt Securities (Note 3 0 1,122 2,054 1,122
Marketable Securities 71,656 20,301 123,728 20,301
-------- -------- -------- --------
Total revenues 309,001 21,423 600,876 21,423
-------- -------- -------- --------
Expenses:
General and administrative 14,240 30,789 26,477 30,789
General and administrative-
related parties (Note 4) 48,670 14,544 68,670 14,544
Amortization 2,500 2,500 5,000 2,500
-------- -------- -------- --------
Total expenses 65,410 47,833 100,147 47,833
-------- -------- -------- --------
Net income (loss) $243,591 $(26,410) $500,729 $(26,410)
Allocation of net income (loss)
Shareholders 227,914 (26,146) 469,239 (26,146)
Manager 2,302 (264) 4,740 (264)
Special distributions to
Manager (Note 4) 13,375 0 26,750 0
-------- -------- -------- --------
Net income (loss) $243,591 $(26,410) $500,729 $(26,410)
======== ======== ======== ========
Net income (loss) per weighted
average share-shareholders $ .22 $ (.19) $ .47 $ (.38)
======== ======== ======== ========
See accompanying notes to financial statements.
-3-
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Beneficial Beneficial
Owners' Equity Owner's Equity-
Total Shareholders Manager
----------- -------------- --------------
Balance at
January 1, 1996 $17,211,270 $17,211,456 $ (186)
Issuance of shares of
beneficial ownership
interest 3,723,963 3,723,963 0
Offering costs (296,220) (296,220) 0
Net income 500,729 469,239 31,490
Distributions (777,909) (743,647) (34,262)
----------- ----------- ----------
Balance at
June 30, 1996 $20,361,833 $20,364,791 $ (2,958)
=========== =========== ==========
See accompanying notes to financial statements.
-4-
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------------
1996 1995
----------- ------------
Cash flows from operating activities:
Net income (loss) $ 500,729 $ (26,410)
----------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Amortization expense-organization costs 5,000 2,500
Amortization expense-origination costs 12,159 0
Amortization of REMIC premium 3,958 1,499
Changes in operating assets and liabilities:
Decrease in other assets 25,320 0
Increase in accrued interest receivable (45,145) (7,708)
Increase in due to affiliates 99,993 19,143
Increase in deferred costs (75,793) 0
----------- ------------
Total adjustments 25,492 15,434
----------- ------------
Net cash proved by (used in) operating activities 526,221 (10,976)
----------- ------------
Cash flows used in investing activities:
Purchase of marketable securities (6,500,000) 0
Purchase of Tax-Exempt Securities 0 (202,248)
Maturity of Tax-Exempt Securities 200,000 0
----------- ------------
Net cash used in investing activities (6,300,000) (202,248)
----------- ------------
Cash flows provided by financing activities:
Decrease in accounts payable related to financing activities (30,098) (356,164)
Increase in due to affiliates (33,258) 217,438
Increase in deferred costs 0 (223,674)
Proceeds from issuance of shares of beneficial interest 3,723,963 10,300,760
Distributions to shareholders (777,909) 0
Increase in offering costs (296,220) (60,676)
----------- ------------
Net cash provided by financing activities 2,586,478 9,877,684
----------- ------------
Net (decrease) increase in cash and cash equivalents (3,187,301) 9,664,460
Cash and cash equivalents at beginning of period 3,314,564 1,000
----------- ------------
Cash and cash equivalents at end of period $ 127,263 $ 9,665,460
=========== ============
See accompanying notes to financial statements
-5-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - General
American Tax-Exempt Bond Trust (the "Trust") was formed on December
23, 1993 as a Delaware business trust for the primary purpose of investing in
tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by various state
or local governments or their agencies or authorities and secured by first
mortgage loans on multifamily residential apartment and retirement community
projects.
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc. as
the manager (the "Manager") of the Trust.
On November 1, 1994, the Trust commenced a public offering through
Related Equities Corporation, an affiliate of the Manager, and other
broker-dealers on a "best efforts" basis, for up to 10,000,000 shares of its
shares of beneficial interest at an initial offering price of $20 per share. As
of June 30, 1996 and December 31, 1995, a total of 1,125,263 and 938,946 shares
have been sold to the public through the offering representing Gross Proceeds of
$22,505,259 and $18,778,912 (before volume discounts of $4,244 and $1,860).
The Trust has invested and will continue to invest the Net Proceeds
primarily in First Mortgage Bonds issued by various state or local governments
or their agencies or authorities and secured by Mortgage Loans principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a Mortgage
Loan at the time the loan is made or after a First Mortgage Bond is acquired and
restructured, together with all mortgage loans on the subject property, will
generally not exceed 85% of the appraised fair market value of the related
Property. The First Mortgage Bonds will have maturities of 10 to 35 years,
although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the offering period and from
time to time throughout the life of the Trust. The aggregate average life of the
Tax-Exempt Securities acquired by the Trust is expected to be six to eight
years. As of June 30, 1996, 44.21 % of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of June 30, 1996, of the total net proceeds available for
investment, 2.94% had been invested in Tax-Exempt Securities and 52.85% had been
invested in First Mortgage Bonds.
The First Mortgage Bonds will bear a Current Interest Rate which is
fixed. In addition, a majority of the First Mortgage Bonds are expected to
provide for participations in net property cash flow and the residual value of
the underlying Properties in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First Mortgage
Bonds. The First Mortgage Bonds are expected to prohibit optional prepayments
during the first five years after acquisition by the Trust and require a
redemption premium of at least 5% of the principal amount if prepaid in the
ninth year, declining 1% per year thereafter until there is no longer a premium.
The Trust expects to invest in First Mortgage Bonds primarily by
acquiring outstanding First Mortgage Bonds which are simultaneously restructured
to change the principal, interest and other terms of those bonds to conform to
the Trust's investment objectives and policies. The multi-family rental housing
properties financed by the outstanding First Mortgage Bonds will have been
constructed and leased. The Trust may also acquire First Mortgage Bonds that
are, or prior to restructuring were, in default because the cash flow from the
property has been insufficient to pay the debt service due on the bonds. The
restructuring of the outstanding First Mortgage Bonds
-6-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - General (continued)
will be sufficiently extensive so that generally a restructured
First Mortgage Bond held by the Trust will be considered to be a newly issued
bond for federal income tax purposes.
The Trust will only acquire an outstanding First Mortgage Bond if:
(i) the Trust has reached a binding agreement with the owner of the underlying
property to amend the terms of the bonds in a manner that is acceptable to the
Trust and (ii) the governmental entity that is the issuer of the outstanding
bonds has agreed to ratify the change in terms and to file the necessary forms
to continue the tax-exemption of the restructured First Mortgage Bonds or the
Manager believes that there is a substantial likelihood that the issuer will
agree subsequently to take the action necessary to continue the First Mortgage
Bond's tax-exemption.
The unaudited financial statements have been prepared on the same
basis as the audited financial statements included in the Trust's Form 10-K for
the year ended December 31, 1995. In the opinion of the Manager, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Trust as of June 30, 1996 and the results of operations and its
cash flows for the six months ended June 30, 1996 and 1995. However, the
operating results for the six months ended June 30, 1996 may not be indicative
of the results for the year.
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Trust's Annual Report on Form 10-K/A-1 for the year ended December 31, 1995.
NOTE 2 - Investment in First Mortgage Bonds
On December 21, 1995, the Trust completed the amendment of the bond
indenture for the $10,700,000 in tax-exempt First Mortgage Bonds (the
"Reflections Bonds") in which the Trust had previously acquired a 100%
participation. In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida
Housing Finance Authority (the "Issuer") and are secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida.
Reflections is owned by Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership (the "Seller"), which is not
affiliated with the Manager or Related Capital Company (the "Sponsor").
The Reflections Bonds bear a fixed Current Interest Rate of 9.0%,
payable monthly in arrears, together with Contingent Interest. After payment of
the fixed Current Interest, Contingent Interest will be payable as follows: (i)
25% of net property cash flow after payment of Current Interest, third party
issuer and trustees fees, required reserves, and a preferred return to the
Borrower equal to 3.7% of gross revenues; and (ii) after repayment of
outstanding principal, (a) 10% of net sale or repayment proceeds (which may be
in certain circumstances when no sale proceeds are received be measured by fair
market value) up to $1,300,000, and (b) 25% thereafter until the Borrower has
paid interest at a simple annual rate of 16% over the term of the Reflections
Bonds.
-7-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 2 - Investment in First Mortgage Bonds (continued)
The Reflections Bonds have a term of thirty years and are subject to
mandatory redemption, at the Trust's option, after ten years. The principal of
the Reflections Bonds is payable upon sale or refinancing of the Project and
prepayment, in whole or in part, is prohibited during the first five years,
except as described below.
Prepayment in whole will be permitted thereafter subject to the
payment of a premium. If prepaid during the sixth year, the premium is equal to
5% of the principal amount of the Reflections Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year through the
tenth year, when there will be no prepayment premium payable.
There was no unrealized gain or loss on the Investment in First
Mortgage Bonds at June 30, 1996 and December 31, 1995.
-8-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 2 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds as of
June 30 1996 is as follows:
Accumulated Final
Loan Amortization Balance Final Balance
Date of Investment/ Outstanding Origination at June 30, at June 30, At December 31,
Property Description Final Maturity Date Loan Balance Costs 1996 1996 1995
- - -------- ------------------- ------------------- ------------ ----------- ----------- ------------ ---------------
Reflection Bonds
Casselbury,
Florida (A) 336 Apartment Units 12/95 - 12/25 $10,700,000 $243,182 $ 12,159 $10,931,023 $10,943,182
=================== ============= =========== ======== ========= =========== ===========
Interest Earned Net
by the Trust Less 1996 Interest
Property for 1996 Amortization Earned
- - -------- ------------- --------------- ---------
Reflection Bonds
Casselbury,
Florida (A) $487,253 $12,159 $475,094
======== ======= ========
(re-stub table)
(A) The interest rates for the Reflections are 9.00%. In addition to the
interest rate the trust will be entitled to 25% of the cash flow,
as defined.
-9-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 3 - Investment in Tax-Exempt Securities
On May 3, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Topeka Kansas General Obligation Tax-Exempt Bond from
Smith Barney (the "Kansas Bond"). The Kansas Bond, which had a principal face
value of $200,000 and interest rate of 9.25%, was purchased as a Tax-Exempt
Security investment at the premium price of 101.124% or $202,248 and matured on
August 1, 1995.
On September 19, 1995, the Trust used a portion of the proceeds of
the Kansas Bond to purchase a New York State Environmental Facilities Corp.
State Water Pollution Control Revolving Fund Series D Tax-Exempt Bond from Smith
Barney. The bond, which had a principal face value of $200,000 and interest rate
of 4.4%, was purchased as a Tax-Exempt Security investment at the premium price
of 100.123% or $200,246 and matured on November 15, 1995.
On December 12, 1995, the Trust used a portion of the net proceeds
of its offering to purchase a Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond from Wheat First Butcher Singer. The bond, which had a principal
face value of $200,000 and interest rate of 8.25%, was purchased as a Tax-Exempt
Security investment at the premium price of 102.796% or $205,592 and matured on
February 15, 1996.
Information relating to investments in Tax-Exempt Securities for the
six months ended June 30, 1996:
Investment in Tax-Exempt Securities - January 1, 1996 $ 203,958
Sales:
Maturity of Philadelphia Penn General Obligation
Tax-Exempt Bond (200,000)
Amortization of premium (3,958)
---------
Investment in Tax-Exempt Securities - June 30, 1996 $ 0
=========
-10-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 3 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities as of
June 30, 1996 is as follows:
Original
Purchase Accumulated Final Final
Stated Final Price Principal at Premium at Amortization Balance at Balance at
Date Interest Payment Including June 30, June 30, at June 30, June 30, December
Seller Purchased Rate Date Premium 1996 1996 1996 1996 31, 1995
- - ------ --------- -------- ------- ---------- ------------ ---------- ------------ ---------- ----------
Smith Barney 5/3/95 9.25% 8/1/95 $202,248 $ 0 $ 0 $ 0 $ 0 $ 0
Smith Barney 9/19/95 4.40% 11/15/95 200,246 0 0 0 0 0
Wheat First 12/12/95 8.25% 2/15/96 205,592 0 0 0 0 203,958
-------- ----- ------ ----- ----- --------
$608,086 $ 0 $ 0 $ 0 $ 0 $203,958
======== ===== ====== ===== ===== ========
Interest
Earned by Net
the Trust Less 1996 Interest
Seller for 1996 Amortization Earned
- - ------ ---------- ------------ --------
Smith Barney $ 0 $ 0 $ 0
Smith Barney 0 0 0
Wheat First 6,012 3,958 2,054
------ ------ ------
$6,012 $3,958 $2,054
====== ====== ======
(re-stub table)
-11-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 4 - Related Party Transactions
The Trust Agreement provides for the Manager, an affiliate of
Related Capital Company, to act as the Manager of the Trust. In accordance with
the Trust Agreement, the Manager is entitled to receive (i) compensation in
connection with the organization and start-up of the Trust and the Trust's
investment in the First Mortgage Bonds; (ii) special distributions calculated as
a percentage of total assets invested by the Trust which totaled $13,375 and $0
for the three months ended June 30, 1996 and 1995 and $26,750 and $0 for the six
months ended June 30, 1996 and 1995, respectively; (iii) a subordinated
incentive fee based on the gain on the sale of the First Mortgage Bonds; (iv)
reimbursement of certain administrative costs incurred by the Manager or an
affiliate on behalf of the Trust which totaled approximately $49,000 and $15,000
for the three months ended June 30, 1996 and 1995 and approximately $69,000 and
$15,000 for the six months ended June 30, 1996 and 1995, respectively; (v)
acquisition expense allowance and bond selection fees calculated on a percentage
of the Gross Proceeds applicable to the First Mortgage Bonds as of June 30, 1996
and December 31, 1995 $450,105 and $375,578 of such costs have been incurred of
which $243,182 and $243,182 have been capitalized and included in Investment in
First Mortgage Bonds; and (vi) certain other fees.
The Trust has agreed to pay the Manager a nonaccountable allowance
("Expense Allowance") equal to 2.5% of the Gross Proceeds of the offering. The
Manager, to the extent not paid by an affiliate, has agreed to be responsible
for all expenses of the offering, except for the payment of the Expense
Allowance, and certain selling commissions (not to exceed 5.0% of gross
proceeds) and a due diligence expense allowance (not to exceed 0.5% of gross
proceeds) on certain sales of shares. As of June 30, 1996 and December 31, 1995
offering costs totaled $512,632 and $419,473, respectively, and along with
selling commissions (see below) are charged directly to Beneficial Owners'
Equity- Shareholders.
The Trust has agreed to pay commissions of up to 5% of the aggregate
purchase price of shares sold, subject to quantity discounts, as well as a
non-accountable due diligence expense reimbursement in an amount up to .5% of
Gross Proceeds to certain broker-dealers selected by the Dealer Manager and
approved by the Manager. At June 30, 1996 and December 31, 1995, the Company
paid $1,231,801 and $1,231,801 of commissions and due diligence to unaffiliated
broker-dealers.
NOTE 5 - Subsequent Events
Rolling Ridge Apartments
------------------------
On August 2, 1996, the Trust purchased tax-exempt First Mortgage
Bonds (as hereinafter referred to as, the "Rolling Ridge Bonds") in an aggregate
principal amount of $4,925,000. The Rolling Ridge Bonds were issued by San
Bernardino County (the "Issuer") and secured by a deed of trust on Rolling Ridge
Apartments (the "Project" or "Rolling Ridge"), a development consisting of 110
apartment units in Chino Hills, California. Rolling Ridge is owned and operated
by Rolling Ridge L.L.C. (the "Borrower").
The Rolling Ridge Bonds bear a fixed Current Interest Rate of 9.0%,
payable monthly in arrears, together with Contingent Interest. After payment of
the fixed Current Interest, Contingent Interest is payable out of (i) 30% of net
property cash flow and (ii) 25% of net sale or repayment proceeds (which may in
certain circumstances when no sale proceeds are received be measured by fair
market value) over repayment of outstanding principal, until the Borrower has
paid interest at a simple annual rate of 16% over the term of the Rolling Ridge
Bonds. The Trust has been informed that, as of the date hereof, the Borrower is
current with respect to all payments of principal and interest.
-12-
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 5 - Subsequent Events (continued)
The Rolling Ridge Bonds have a term of 30 years and are subject to
mandatory redemption, at the Trust's option, after ten years. The Borrower will
be permitted two nine-month extensions. The principal of the Rolling Ridge Bonds
will be payable upon sale or refinancing of the Project. Prepayment, in whole or
in part, is prohibited during the first five years following the acquisition of
the Rolling Ridge Bonds, except as described below. Prepayment in whole will be
permitted thereafter subject to the payment of a premium. If prepaid during the
sixth year, the premium is equal to 5% of the principal amount of the Rolling
Ridge Bonds outstanding at the time of prepayment. Thereafter, the premium will
be reduced by 1% per year until the tenth year, when there will be no prepayment
premium payable.
Notwithstanding the foregoing, a one-time assumption will be
permitted without prepayment penalty or Contingent Interest payment otherwise
due on sale or refinancing. Any such new assuming borrower may be rejected by
the Manager in its sole discretion and an assumption fee equal to actual costs
plus 1/2 of 1% of the outstanding principal amount will be due at the time of
assumption.
On August 15, 1996, distributions of $448,917 and $4,534 will be
paid to the Shareholders and the Manager, respectively, representing the 1996
second quarter distribution.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
- - -------------------------------
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc. as
the Manager (the "Manager") of the Trust. As of June 30, 1996, the Trust had
received $22,505,259 (before volume discounts of $4,244) in Gross Proceeds from
the sale of 1,121,994 shares pursuant to the Offering and 3,269 shares through
the Reinvestment Plan resulting in Net Proceeds available for investment of
approximately $20,704,838 after volume discounts, payments of sales commissions
and organization and offering expenses.
The Trust has invested and will continue to invest the Net Proceeds
primarily in First Mortgage Bonds issued by various state or local governments
or their agencies or authorities and secured by Mortgage Loans principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a Mortgage
Loan at the time the loan is made or after a First Mortgage Bond is acquired and
restructured, together with all mortgage loans on the subject property, will
generally not exceed 85% of the appraised fair market value of the related
Property. The First Mortgage Bonds will have maturities of 10 to 35 years,
although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the Offering period and from
time to time throughout the life of the Trust. The aggregate average life of the
Tax-Exempt Securities acquired by the Trust is expected to be six to eight
years. As of June 30, 1996, 44.21% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of June 30, 1996, of the total net proceeds available for
investment, 2.94% had been invested in Tax-Exempt Securities and 52.85% in First
Mortgage Bonds.
On December 21, 1995, the Trust completed the amendment of the bond
indenture of the $10,700,000 in Reflections Bonds in which the Trust had
previously acquired a 100% participation on October 10, 1995. In connection with
the amendment of the Reflection Bonds, the Trust redeemed the 100% participation
interest it previously acquired and now directly owns the Reflections Bonds. On
February 15, 1996 the Philadelphia Penn Refunding General Obligation Tax-Exempt
Bond matured. On August 2, 1996, the Trust purchased tax-exempt First Mortgage
Bonds (as hereinafter referred to as, the "Rolling Ridge Bonds") in an aggregate
principal amount of $4,925,000. The Rolling Ridge Bonds were issued by San
Bernardino County (the "Issuer") and secured by a deed of trust on Rolling Ridge
Apartments (the "Project" or "Rolling Ridge"), a development consisting of 110
apartment units in Chino Hills, California. Rolling Ridge is owned and operated
by Rolling Ridge L.L.C. (the "Borrower") (see note 5).
During the six months ended June 30, 1996, cash and cash equivalents
decreased $3,187,301 primarily as a result of proceeds from the issuance of
shares of beneficial interest ($3,723,963), the Maturity of one Tax-Exempt
Security ($200,000) and an increase in cash from operating activities of
($526,221) which was exceeded by distributions to shareholders ($777,909), an
increase in offering costs ($296,220), the purchase of marketable securities
($6,500,000) and a decrease in accounts payable and due to affiliates of
($63,356) from financing activities and. Included in the adjustments to
reconcile the net income to cash flow from operations is amortization in the
amount of $21,117.
The Trust has established a reserve for working capital and
contingencies in an amount equal to 1% of the Gross Proceeds of the Offering
(totaling $225,053 at June 30, 1996), an amount which is anticipated to be
sufficient to satisfy liquidity requirements, and may add to such reserves from
Cash Flow, Sale or Repayment Proceeds and uninvested Net Proceeds. As of June
30, 1996, none of this reserve has been used. Liquidity will be adversely
affected by unanticipated costs, including operating costs in excess of such
reserves. The Trust may
-14-
borrow funds from third parties or from the Manager or its Affiliates to meet
working capital requirements of the Trust or to take over the operation of a
Property on a short-term basis (up to 24 months) but not for the purpose of
making Distributions.
The Trust anticipates that cash generated from the operations of the
properties underlying its investment in First Mortgage Bonds (taking into
account its preferred position relative of other creditors) will be sufficient
to meet the required debt service payments to the Trust with respect to the
First Mortgage Bonds for the foreseeable future.
Distribution Policy
- - -------------------
The Trust has adopted a policy of attempting to maintain stable
distributions during the offering period and acquisition stage. In order to
accomplish this result, a portion of the Net Proceeds are expected to be
invested in Tax-Exempt Securities with an aggregate average life of six to eight
years, a portion of which will amortize or be paid during such period. Proceeds
from such amortization or repayment will be distributed to Shareholders. To
date, the Trust has purchased and may be required to continue to purchase
Tax-Exempt Securities which mature quarterly during this period. The effect of
this policy has been the following: (a) a portion of the distributions have
constituted, and will continue to constitute, a return of capital; (b) earlier
investors' returns from an investment in the Trust will be greater than later
investors' returns; and (c) there will be a decrease in funds remaining to be
invested in Mortgage Investments.
Of the total distributions of $777,909 made for the six months ended
June 30, 1996, $277,180 ($.25 per share or 36%) represents a return of capital
determined in accordance with generally accepted accounting principles. The
portion of the distributions which constitute a return of capital may be
significant during the acquisition stage in order to maintain level
distributions to shareholders.
Management expects that cash flow from operations, combined with the
maturity of investments described above, will be sufficient to fund
distributions at the current level in the future.
Results of Operations
- - ---------------------
The results of operations for the three and six months ended June
30, 1996 and 1995 consisted primarily of interest income earned on the First
Mortgage Bonds and marketable securities, net of general and administrative and
amortization expenses. Results of operations are not reflective of future
operations of the Trust due to the expected utilization of the net proceeds of
the offering to invest in First Mortgage Bonds and Tax-Exempt Securities and the
continued offering of shares of beneficial ownership interest for sale.
-15-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) 3. Exhibits
3(a) Certificate of Trust and Certificate of Amendment
of Certificate of Trust (incorporated by reference to
Exhibit 3(a) to the Registration Statement on Form S-11,
File No. 33-73688).
3(b),4 Second Amended and Restated Business Trust (incorporated by
reference to Exhibit 3(b), 4 to the Registration Statement
on Form S-11, File No. 33-73688)
10(a) Escrow Agreement (incorporated by reference to Exhibit 10(a)
to the Registration Statement on Form S-11, File No. 33-73688).
10(b) Fee Agreement (incorporated by reference to Exhibit 10 (b) to
the Registration Statement on Form S-11, File No. 33-73688).
10(c) Orange County Housing Finance Authority Multifamily Revenue
Refunding Bonds 1995 Series (Casselberry-Oxford Associates
Project) in the principal amount of $10,700,000 dated
December 1, 1995 (incorporated by reference to Report of
Form 8-K, as previously filed on December 21, 1995)
27 Financial Data Schedule (filed herewith)
(b) No current reports on Form 8-K have been filed during the quarter
ended June 30, 1996.
-16-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN TAX-EXEMPT BOND TRUST
(Registrant)
By: RELATED AMI ASSOCIATES, INC., as Manager
Date: August 13, 1996 By: /s/ Alan Hirmes
---------------
Alan Hirmes
Senior Vice President
Date: August 13, 1996 By: /s/ Lawrence J. Lipton
----------------------
Lawrence J. Lipton
Treasurer and
Principal Accounting Officer
-18-