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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- - ----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-28340
AMERICAN TAX-EXEMPT BOND TRUST
(Exact name of registrant as specified in its charter)
Delaware 13-7033312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
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)
============ ============
June 30, December 31,
1997 1996
------------ ------------
ASSETS
Investment in First Mortgage Bonds -
at fair value (Note 2) $ 21,166,640 $ 16,180,828
Cash and cash equivalents 178,965 836,779
Marketable securities 4,600,000 9,200,000
Deferred costs 203,204 300,306
Organization costs (net of
accumulated amortization of
$22,500 and $17,500, respectively) 27,500 32,500
Accrued interest receivable 154,016 131,136
------------ ------------
Total assets $ 26,330,325 $ 26,681,549
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 384,854 $ 291,451
Accounts payable 16,652 29,407
------------ ------------
Total liabilities 401,506 320,858
------------ ------------
Shareholders' equity:
Beneficial owner's equity-manager (11,088) (6,350)
Beneficial owners' equity-
shareholders (1,469,956
and 1,463,520 shares
issued and outstanding,
respectively) 25,910,165 26,256,842
Treasury shares of beneficial
interest (4,235 and 0 shares,
respectively) (80,457) 0
Net unrealized gain on First
Mortgage Bonds 110,199 110,199
------------ ------------
Total shareholders' equity 25,928,819 26,360,691
------------ ------------
Total liabilities and shareholders'
equity $ 26,330,325 $ 26,681,549
============ ============
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,
--------------------- ---------------------
1997 1996 1997 1996
--------------------- ---------------------
Revenues:
Interest income:
First Mortgage
Bonds
(Note 2) $406,179 $237,345 $744,181 $475,094
Tax-Exempt
Securities
(Note 3) 2,003 0 3,277 2,054
Marketable
Securities 58,972 71,656 131,714 123,728
-------- -------- -------- --------
Total revenues 467,154 309,001 879,172 600,876
-------- -------- -------- --------
Expenses:
General and
administrative 7,397 14,240 37,141 26,477
General and
administrative-
related parties
(Note 4) 42,748 48,670 66,808 68,670
Loan servicing
fees 11,585 0 21,217 0
Amortization of
organization
costs 2,500 2,500 5,000 5,000
-------- -------- -------- --------
Total expenses 64,230 65,410 130,166 100,147
-------- -------- -------- --------
Net income $402,924 $243,591 $749,006 $500,729
======== ======== ======== ========
Allocation of net
income
Shareholders 379,559 227,914 702,349 469,239
Manager 3,833 2,302 7,094 4,740
Special distribu-
tions to Manager
(Note 4) 19,532 13,375 39,563 26,750
-------- -------- -------- --------
Net income $402,924 $243,591 $749,006 $500,729
======== ======== ======== ========
Net income
per weighted
average share-
shareholders $ .26 $ .22 $ .48 $ .47
======== ======== ======== ========
See Accompanying Notes to Financial Statements
3
AMERICAN TAX-EXEMPT BOND TRUST
Statements of Changes in Shareholder's Equity
(Unaudited)
Beneficial Beneficial Treasury Net
Owners' Owner's shares of Unrealized
Equity- Equity- beneficial Gain on First
Total Shareholders Manager interest Mortgage Bonds
------------ ------------ ------------ ------------ --------------
Balance at
January 1,
1997 $ 26,360,691 $ 26,256,842 $ (6,350) $ 0 $ 110,199
Issuance of
shares of
beneficial
ownership
interest 122,287 122,287 0 0 0
Net income 749,006 702,349 46,657 0 0
Distributions (1,222,708) (1,171,313) (51,395) 0 0
Purchase of
treasury shares
of beneficial
interest (80,457) 0 0 (80,457) 0
------------ ------------ ------------ ------------ ------------
Balance at
June 30,
1997 $ 25,928,819 $ 25,910,165 $ (11,088) $ (80,457) $ 110,199
============ ============ ============ ============ ============
4
AMERICAN TAX-EXEMPT BOND TRUST
Statements of Cash Flows
(Unaudited)
==========================
Six Months Ended
June 30,
--------------------------
1997 1996
--------------------------
Cash flows from operating activities:
Net income $ 749,006 $ 500,729
----------- -----------
Adjustments to reconcile net
income to net cash
provided by operating activities
Amortization expense-
organization costs 5,000 5,000
Amortization expense-loan
origination costs 25,947 12,159
Amortization of REMIC premium 476 3,958
Changes in operating assets and liabilities:
Decrease in other assets 0 25,320
Increase in accrued
interest receivable (22,880) (45,145)
Increase in due to affiliates 93,403 99,993
Decrease in accounts payable (12,755) 0
----------- -----------
Total adjustments 89,191 101,285
----------- -----------
Net cash provided by operating
activities 838,197 602,014
----------- -----------
Cash flows from investing activities:
Sale (purchase) of marketable
securities 4,600,000 (6,500,000)
Maturity of Tax-Exempt Securities 1,900,000 200,000
Purchase of Tax-Exempt Securities (1,900,476) 0
Purchase of First Mortgage Bond (4,900,000) 0
Increase in deferred costs (14,657) (75,793)
----------- -----------
Net cash used in investing activities (315,133) (6,375,793)
----------- -----------
Net cash from operating and
investing activities,
carried forward 523,064 (5,773,779)
----------- -----------
See Accompanying Notes to Financial Statements
5
AMERICAN TAX-EXEMPT BOND TRUST
Statements of Cash Flows
(continued)
(Unaudited)
============================
Six Months Ended
June 30,
----------------------------
1997 1996
----------------------------
Net cash from operating and
investing activities,
brought forward 523,064 (5,773,779)
----------- -----------
Cash flows from financing activities:
Decrease in accounts payable 0 (30,098)
Decrease in due to affiliates 0 (33,258)
Proceeds from issuance of shares
of beneficial interest 122,287 3,723,963
Distributions to shareholders (1,222,708) (777,909)
Purchase of treasury shares of
beneficial interest (80,457) 0
Increase in offering costs 0 (296,220)
----------- -----------
Net cash (used in) provided
by financing activities (1,180,878) 2,586,478
----------- -----------
Net decrease in cash and
cash equivalents (657,814) (3,187,301)
Cash and cash equivalents at
beginning of period 836,779 3,314,564
----------- -----------
Cash and cash equivalents at
end of period $ 178,965 $ 127,263
=========== ===========
Supplemental schedule of non cash
investing activities:
Decrease in deferred costs $ 111,759 $ 0
Increase in investment in
First Mortgage Bonds (111,759) 0
----------- -----------
$ 0 $ 0
=========== ===========
See Accompanying Notes to Financial Statements
6
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(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 (the "Offering")
through Related Equities Corporation (the "Dealer Manager"), an affiliate of the
Manager, and other broker-dealers on a "best efforts" basis, for up to
10,000,000 shares of its shares of beneficial interest at an initial offering
price of $20 per share. The Offering terminated as of October 15, 1996. As of
October 15, 1996, a total of 1,460,979 shares had been sold to the public
through the Offering and the Trust's dividend reinvestment plan (the
"Reinvestment Plan") representing Gross Proceeds (the "Gross Proceeds") of
$29,219,586 (before volume discounts of $4,244). Pursuant to the Redemption Plan
which became effective October 15, 1996, the Trust is required to redeem
eligible shares presented for redemption for cash to the extent it has
sufficient net proceeds from the sale of shares under the Reinvestment Plan.
After October 15, 1996, 8,977 shares were sold through the Reinvestment Plan,
the proceeds of which are restricted for use in connection with the Redemption
Plan and are not included in gross proceeds. Pursuant to the Redemption Plan as
of June 30, 1997, 4,235 shares were redeemed for an aggregate price of $80,457.
The Trust has invested and will continue to invest the Net Proceeds primarily in
First Mortgage Bonds issued by various state or local governments or their
agencies or authorities and secured by first mortgages and related first
mortgage loans financed by such bonds (collectively, "Mortgage Loans")
principally on multifamily residential apartment projects and, secondarily,
retirement community projects owned or to be developed by third-party developers
and, to a lesser extent, by Affiliates of the Manager. The principal amount of a
Mortgage Loan at the time the loan is made or after a First Mortgage Bond is
acquired and restructured, together with all mortgage loans on the subject
property, will generally not exceed 85% of the appraised fair market value of
the
7
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 1 - General (continued)
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, 1997, of the total net proceeds available for investment,
9.33% had been invested in Tax-Exempt Securities, 78.56% had been invested in
First Mortgage Bonds and 12.11% of the total net proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. Any of the Net Proceeds of this offering which have not been
invested or committed to investment in First Mortgage Bonds or Tax-Exempt
Securities within the later of 24 months from the effective date of the
Registration Statement of which this Prospectus is a part or one year from the
termination of the Offering will be distributed by the Trust to the shareholders
as a return of capital without reduction for fees payable to the Manager or
affiliates which would have been payable if such funds had been invested in
First Mortgage Bonds and Tax-Exempt Securities.
The First Mortgage Bonds bear a current interest rate which is fixed. In
addition, a majority of the First Mortgage Bonds are expected to provide for
participations in net property cash flow and the residual value of the
underlying Properties in an amount equal to 25% to 50% of Net Property Cash Flow
and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has paid
interest at a simple annual rate of 16% over the term of the First Mortgage
Bonds. The First Mortgage Bonds are expected to prohibit optional prepayments
during the first five years after acquisition by the Trust and require a
redemption premium of at least 5% of the principal amount if prepaid in the
sixth year, declining 1% per year thereafter until there is no longer a premium.
The Trust expects to invest in First Mortgage Bonds primarily by acquiring
outstanding First Mortgage Bonds which are simulta-
8
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 1 - General (continued)
neously restructured to change the principal, interest and other terms of those
bonds to conform to the Trust's investment objectives and policies. The
multi-family rental housing properties financed by the outstanding First
Mortgage Bonds will have been constructed and leased. The Trust may also acquire
First Mortgage Bonds that are, or prior to restructuring were, in default
because the cash flow from the property will be insufficient to pay the debt
service due on the bonds. The restructuring of the outstanding First Mortgage
Bonds will be sufficiently extensive so that generally a restructured First
Mortgage Bond held by the Trust will be considered to be a newly issued bond for
federal income tax purposes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i) the Trust
has reached a binding agreement with the owner of the underlying property to
amend the terms of the bonds in a manner that is acceptable to the Trust and
(ii) the governmental entity that is the issuer of the outstanding bonds has
agreed to ratify the change in terms and to file the necessary forms to continue
the tax-exemption of the restructured First Mortgage Bonds or the Manager
believes that there is a substantial likelihood that the issuer will agree
subsequently to take the action necessary to continue the First Mortgage Bond's
tax-exemption.
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, 1996. 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, 1997, the results of operations for the three and
six months ended June 30, 1997 and 1996 and its cash flows for the six months
ended June 30, 1997 and 1996. However, the operating results for the six months
ended June 30, 1997 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 for the year ended December 31, 1996.
9
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 1 - General (continued)
Certain prior year amounts have been reclassified to conform to current year's
presentation.
Note 2 - Investment in First Mortgage Bonds
Reflections Apartments
On December 21, 1995, the Trust completed the amendment of the bond indenture
for the $10,700,000 in tax-exempt First Mortgage Bonds (the "Reflections Bonds")
in which the Trust had previously acquired a 100% participation. In connection
with the amendment of the Reflections Bonds, the Trust redeemed the 100%
participation interest it previously acquired and now directly owns the
Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida Housing Finance
Authority and are secured by a first mortgage and mortgage loan on Reflections
Apartments (the "Project" or "Reflections"), a development consisting of 336
apartment units in Casselberry, Florida. Reflections is owned by
Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for $10,700,000
from BRI OP Limited Partnership, which is not affiliated with the Manager or
Related Capital Company.
The Reflections Bonds bear a fixed current interest rate of 9.0%, payable
monthly in arrears, together with contingent interest. After payment of the
fixed current interest, contingent interest will be payable as follows: (i) 25%
of net property cash flow after payment of current interest, third party issuer
and trustees fees, required reserves, and a preferred return to the Borrower
equal to 3.7% of gross revenues; and (ii) after repayment of outstanding
principal, (a) 10% of net sale or repayment proceeds (which may be in certain
circumstances when no sale proceeds are received be measured by fair market
value) up to $1,300,000, and (b) 25% thereafter until the Borrower has paid
interest at a simple annual rate of 16% over the term of the Reflections Bonds.
The Reflections Bonds have a term of thirty years and are subject to mandatory
redemption, at the Trust's option, after ten years.
10
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Investment in First Mortgage Bonds (continued)
The principal of the Reflections Bonds is payable upon sale or refinancing of
the Project and prepayment, in whole or in part, is prohibited during the first
five years.
Prepayment in whole will be permitted thereafter subject to the payment of a
premium. If prepaid during the sixth year, the premium is equal to 5% of the
principal amount of the Reflections Bonds outstanding at the time of prepayment.
Thereafter, the premium will be reduced by 1% per year through the tenth year,
when there will be no prepayment premium payable.
Rolling Ridge Apartments
On August 2, 1996, the Trust purchased tax-exempt First Mortgage Bonds (as
hereinafter referred to as, the "Rolling Ridge Bonds") in an aggregate principal
amount of $4,925,000. The Rolling Ridge Bonds were issued by San Bernardino
County and secured by a deed of trust on Rolling Ridge Apartments (the "Project"
or "Rolling Ridge"), a development consisting of 110 apartment units in Chino
Hills, California. Rolling Ridge is owned and operated by Rolling Ridge L.L.C.
(the "Borrower").
The Rolling Ridge Bonds bear a fixed current interest rate of 9.0%, payable
monthly in arrears, together with contingent interest. After payment of the
fixed current interest, contingent interest is payable out of (i) 30% of net
property cash flow and (ii) 25% of net sale or repayment proceeds (which may in
certain circumstances when no sale proceeds are received be measured by fair
market value) over repayment of outstanding principal, until the Borrower has
paid interest at a simple annual rate of 16% over the term of the Rolling Ridge
Bonds.
The Rolling Ridge Bonds have a term of 30 years and are subject to mandatory
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
11
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Investment in First Mortgage Bonds (continued)
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.
Lexington Trails Apartments
On May 7, 1997, the Trust purchased tax-exempt First Mortgage Bonds (as
hereinafter referred to as the "Lexington Trails Bonds") in an aggregate
principal amount of $4,900,000. The Lexington Trail Bonds were issued by The
Harris County Housing Finance Corporation and secured by a first deed of trust
and mortgage loan on Lexington Trails Apartments (the "Project" or "Lexington
Trails"), a development consisting of 200 apartment units in Houston, Texas.
Lexington Trails is owned and operated by Lexington Trails-American Housing
Foundation, Inc.
The Lexington Trails Bonds bear a fixed current rate of 9.0%, payable monthly in
arrears.
The Lexington Trails Bonds have a term of 25 years and are subject to mandatory
redemption, at the Trust's option, after 10 years. The principal of the
Lexington Trails Bonds will be payable upon sale or refinancing of the Project.
Prepayment, in whole or in part, will be prohibited during the first five years
following the acquisition of the Lexington Trails Bonds, except as described
below. Prepayment in whole will be permitted thereafter subject to the payment
of a premium. If prepaid during the sixth year, the premium is expected to equal
4% of the principal amount of the Lexington Trails Bonds outstanding at the time
of prepayment. Thereafter, the premium will be reduced by 1% per year until the
tenth year, when there will be no prepayment premium payable.
12
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds for the six months
ended June 30, 1997 and the year ended December 31, 1996 are as follows:
Investment in First Mortgage Bonds - at
fair value - January 1, 1996 $ 10,943,182
Additions:
Rolling Ridge Bonds 4,925,000
Rolling Ridge Bonds-loan origination costs 207,600
Reflections Bonds-loan origination costs 30,906
Deductions:
Amortization of loan origination costs (36,059)
------------
Amortized cost at December 31, 1996 16,070,629
Net unrealized gain on First
Mortgage Bonds 110,199
------------
Investment in First Mortgage Bonds-
at fair value - December 31, 1996 16,180,828
Additions:
Lexington Trails Bonds 4,900,000
Lexington Trails Bonds-loan origination costs 111,759
Deductions:
Amortization of loan origination costs (25,947)
------------
Investment in First Mortgage Bonds-
at fair value - June 30, 1997 $ 21,166,640
============
The cost basis of the First Mortgage Bonds was $21,056,441 and $16,070,629 at
June 30, 1997 and December 31, 1996. The net unrealized gain on First Mortgage
Bonds consists of gross unrealized gains and losses of $269,849 and $159,650,
respectively, at both June 30, 1997 and December 31, 1996.
13
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Investment in First Mortgage Bonds (continued)
Information relating to investments in First Mortgage Bonds as of June 30, 1997
and December 31, 1996 are as follows:
Outstanding
Date of Loan Accumulated Unrealized Final
Investment/ Balance Loan Amortization Gain (Loss) Balance
Final at June Origination at June at June at June
Property Description Maturity Date 30, 1997 Costs 30, 1997 30, 1997 30, 1997
- - -------- ----------- ------------- -------- ----- -------- -------- --------
Reflections
Apartments
Casselbury,
Florida (A) 336 Apartment Units 12/95 / $10,700,000 $ 274,088 $ 41,113 $ 269,849 $11,202,824
12/25
Rolling Ridge
Apartments
Chino Hills,
California (B) 110 Apartment Units 8/96 / 4,925,000 207,600 19,030 (159,650) 4,953,920
8/26
Lexington Trails
Apartments
Houston,
Texas (C) 200 Apartment Units 5/97 / 4,900,000 111,759 1,863 0 5,009,896
5/22 ----------- --------- -------- --------- -----------
$20,525,000 $ 593,447 $ 62,006 $ 110,199 $21,166,640
=========== ========= ======== ========= ===========
Final
Balance Interest Earned Net Interest
at December by the Trust Less 1997 Earned
Property Description 31, 1996 for 1997 Amortization for 1997
- - -------- ----------- -------- -------- ------------ --------
Reflections
Apartments
Casselbury,
Florida (A) 336 Apartment Units $11,216,528 $ 484,175 $ 13,704 $ 470,471
Rolling Ridge
Apartments
Chino Hills,
California (B) 110 Apartment Units 4,964,300 219,803 10,380 209,423
Lexington Trails
Apartments
Houston,
Texas (C) 200 Apartment Units 0 66,150 1,863 64,287
----------- --------- -------- ---------
$16,180,828 $ 770,128 $ 25,947 $ 744,181
=========== ========= ======== =========
(A) The interest rate for the Reflections is 9.00%. In addition to the interest
rate the Trust will be entitled to 25% of the cash flow, as defined.
(B) The interest rate for the Rolling Ridge is 9.00%. In addition to the
interest rate the Trust will be entitled to 30% of the cash flow, as
defined.
(C) The interest rate for the Lexington Trails is 9.00%.
14
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(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.
On January 6, 1997, the Trust used a portion of the net proceeds of its offering
to purchase a New York NY Tax Antic NTS-SER Tax-Exempt Bond from Smith Barney.
The bond, which has a principal face value of $400,000 and interest rate of
4.5%, was purchased as a permanent investment at the premium price of 100.119%
or $400,476 and matured on February 12, 1997.
On May 1, 1997, the Trust used a portion of the net proceeds of its offering to
purchase Harris County Texas General Obligation Tax-Exempt Commercial Paper from
Goldman Sachs. The commercial paper, which has a principal face value of
$1,500,000 and interest rate of 3.75%, was purchased as a permanent investment
and matured on May 14, 1997.
15
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 3 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities for the six months
ended June 30, 1997 and the year ended December 31, 1996:
Investment in Tax-Exempt Securities -
January 1, 1996 $ 203,958
Sales:
Maturity of Philadelphia Penn Refunding
General Obligation Tax-Exempt Bond (200,000)
Amortization of premium (3,958)
-----------
Investment in Tax-Exempt Securities -
December 31, 1996 0
Purchases:
New York NY Tax Antic NTS-SER
Tax-Exempt Bond 400,476
Harris Country Texas General Obligation
Tax-Exempt Commercial Paper 1,500,000
Sales:
Maturity of New York NY Tax Antic
NTS-SER Tax-Exempt Bond (400,000)
Maturity of Harris Country Texas General
Obligation Tax-Exempt Commercial Paper (1,500,000)
Amortization of Premium (476)
-----------
Investment in Tax-Exempt Securities -
June 30, 1997 $ 0
===========
16
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 3 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities as of June 30, 1997
and December 31, 1996 is as follows:
Date Original
Purchased/ Purchase Final Final Interest Net
Final Stated Price Balance at Balance at Earned by 1997 Interest
Payment Interest Including June December the Trust Amort- Earned
Seller Description Date Rate Premium 30, 1997 31, 1996 for 1997 ization for 1997
- - ------ ----------- ---- ---- ------- -------- -------- -------- ------- --------
Smith Barney Topeka KS General
Obligation Tax- 5/3/95
Exempt Bond 8/1/95 9.25% $ 202,248 $ 0 $ 0 $ 0 $ 0 $ 0
Smith Barney NYS Environmental
Facilities Corp. State
Water Pollution Control
Revolving Fund Series 9/19/95
D Tax-Exempt Bond 11/15/95 4.40% 200,246 0 0 0 0 0
Wheat First Philadelphia Penn
Refunding General
Obligation Tax-Exempt 12/12/95
Bond 2/15/96 8.25% 205,592 0 0 0 0 0
Smith Barney NY NY Tax Antic
NTS-SER Tax-Exempt 1/6/97
Bond 2/12/97 4.50% 400,476 0 0 1,750 476 1,274
Goldman Sachs Harris County TX
General Obligation
Tax-Exempt Com- 5/1/97
mercial Paper 5/14/97 3.75% 1,500,000 0 0 2,003 0 2,003
---------- ----------- ------ ------- -------- -------
$2,508,562 $ 0 $ 0 $ 3,753 $ 476 $ 3,277
========== =========== ====== ======= ======== =======
17
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Financial Statements
June 30, 1997
(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 tax-exempt First Mortgage Bonds; (ii) special distributions calculated as a
percentage of total assets invested by the Trust which totaled $19,532 and
$13,375 for the three months ended June 30, 1997 and 1996 and $39,563 and
$26,750 for the six months ended June 30, 1997 and 1996, respectively; the total
amount accrued and unpaid as of June 30, 1997 and December 31, 1996 amounted to
$59,375 and $39,594, respectively; (iii) a subordinated incentive fee based on
the gain on the sale of the tax-exempt First Mortgage Bonds; (iv) reimbursement
of certain administrative costs incurred by the Manager or an affiliate on
behalf of the Trust which totaled $42,748 and $48,670 for the three months ended
June 30, 1997 and 1996 and $66,808 and $68,670 for the six months ended June 30,
1997 and 1996, respectively; the total amount accrued and unpaid as of June 30,
1997 and December 31, 1996 amounted to $280,674 and $213,866, 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,
1997 and December 31, 1996 $584,392 of such costs have been incurred of which
$466,477 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, 1997 and December 31, 1996 offering costs
totaled $680,489, and along with selling commissions (see below) were charged
directly to Beneficial Owners' Equity-Shareholders.
The Trust paid commissions of up to 5% of the aggregate purchase price of shares
sold, subject to quantity discounts, as well as a non-accountable due diligence
expense reimbursement in an amount up to .5% of Gross Proceeds to certain
broker-dealers selected by the Dealer Manager and approved by the Manager. At
June 30, 1997 and December 31, 1996, the Company paid $1,598,651 of commissions
and due diligence to unaffiliated broker-dealers.
18
AMERICAN TAX-EXEMPT BOND TRUST
Notes to Finanacial Statements
June 30, 1997
(Unaudited)
Note 5 - Commitments
On June 30, 1997, the Trust executed a letter of intent to purchase
Redevelopment Authority of the County of Dauphin, Multifamily Housing Revenue
Bonds (Highpointe Club Apartments Project) Series 1989 (as hereinafter referred
to as the "Highpointe Bonds") in an aggregate principal amount of $3,250,000.
The Highpointe Bonds are secured by a first Mortgage and mortgage loan on
Highpointe Apartments (the "Project" or "Highpointe ") a development consisting
of 240 apartment units in Harrisburg, Pennsylvania, pari passu with $8,900,000
Redevelopment Authority of the County of Dauphin, Multifamily Housing Revenue
Bonds (Green Hill Project), Series 1986 (the "1986 Bonds"). The 1986 Bonds are
owned by Summit Tax Exempt Bond Fund, L.P. whose general partner is an affiliate
of the Manager. Highpointe is owned and operated by RHA INV., Inc. an affiliate
of the Manager (the "Borrower").
As of August 14, 1997, the letter of intent remains outstanding and the Manager
anticipates purchasing the Highpointe Bonds on or about September 2, 1997.
The Highpointe Bonds currently meet the Trust's investment criteria and are
expected to bear a fixed current interest of 9.0%, payable monthly in arrears.
The Highpointe Bonds enjoy payment priority over the 1986 Bonds. The Trust has
been informed that, as of the date hereof, the Borrower is current with respect
to all payments of principal and interest on the Highpointe Bonds.
The Trust expects that the principal of the Highpointe Bonds will be payable
upon maturity, sale or refinancing of the Project. The Highpointe Bonds will
receive a $750,000 priority payment of principal prior to any payment of
principal on the 1986 Bonds. Remaining principal on the Highpointe Bonds
principal and accrued interest on the 1986 Bonds will be paid pari passu, that
is by an equal progression of payments after the payment of interest, other than
accrued interest on the 1986 Bonds, and the $750,000 priority amount.
Note 6 - Subsequent Event
In August 1997, it is anticipated that distributions of approximately $586,000
and $16,000 will be paid to the Shareholders and the Manager, respectively,
representing the 1997 second quarter distribution.
19
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 October 15, 1996 (the termination date of
the Offering), the Trust had received $29,219,586 (before volume discounts of
$4,244) in Gross Proceeds from the sale of 1,453,386 shares pursuant to the
Offering and 7,593 shares through the Reinvestment Plan resulting in Net
Proceeds available for investment of approximately $26,882,019 after volume
discounts, payments of sales commissions and organization and offering expenses.
Pursuant to the Redemption Plan which became effective October 15, 1996, the
Trust is required to redeem eligible shares presented for redemption for cash to
the extent it has sufficient net proceeds from the sale of shares under the
Reinvestment Plan. After October 15, 1996, 8,977 shares were sold through the
Reinvestment Plan, the proceeds of which are restricted for use in connection
with the Redemption Plan and are not included in gross proceeds. Pursuant to the
Redemption Plan as of June 30, 1997, 4,235 shares were redeemed for an aggregate
price of $80,457.
The Trust has invested and will continue to invest the Net Proceeds primarily in
First Mortgage Bonds issued by various state or local governments or their
agencies or authorities and secured by first mortgages and related first
mortgage loans financed by such bonds (collectively, "Mortgage Loans")
principally on multifamily residential apartment projects and, secondarily,
retirement community projects owned or to be developed by third-party developers
and, to a lesser extent, by Affiliates of the Manager. The principal amount of a
Mortgage Loan at the time the loan is made or after a First Mortgage Bond is
acquired and restructured, together with all mortgage loans on the subject
property, will generally not exceed 85% of the appraised fair market value of
the related Property. The First Mortgage Bonds will have maturities of 10 to 35
years, although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the Offering period and from
time
20
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, 1997, of the total net proceeds available for investment,
9.33% had been invested in Tax-Exempt Securities, 78.56% had been invested in
First Mortgage Bonds and 12.11% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities.
For a description of the Trust's investments in First Mortgage Bonds and
Tax-Exempt Securities see Notes 2 and 3 of Notes to the Financial Statements.
During the six months ended June 30, 1997, cash and cash equivalents decreased
approximately $658,000 primarily as a result of the purchase of a first mortgage
bond ($4,900,000) and distributions to shareholders ($1,223,000) which exceeded
cash provided by operating activities ($838,000), proceeds from the issuance of
shares of beneficial interest in excess of purchase of treasury shares of
beneficial interest ($42,000) and the sale of marketable securities
($4,600,000). Included in the adjustments to reconcile the net income to cash
provided by operating activities is amortization in the amount of approximately
$31,000.
The Trust has established a reserve for working capital and contingencies in an
amount equal to 1% of the Gross Proceeds of the Offering (totaling $292,196 at
June 30, 1997), 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, 1997, none of
this reserve has been used. Liquidity will be adversely affected by
unanticipated costs, including operating costs in excess of such reserves. The
Trust may borrow funds from third parties or from the Manager or its Affiliates
to meet working capital requirements of the Trust or to take over the operation
of a Property on a short-term basis (up to 24 months) but not for the purpose of
making Distributions.
The Trust intends to continue to invest the Net Proceeds in First Mortgage Bonds
and Tax-Exempt Securities. The Trust expects that cash generated from the
Trust's investments will be sufficient to pay all of the Trust's expenses in the
foreseeable future. However, certain expected reimbursements totaling $281,000
and $214,000 at June 30, 1997 and December 31, 1996, respectively, and the
payment of a portion of the special distribution totaling $59,000 and $40,000 at
June 30, 1997 and December 31, 1996, respectively, to the Manager have been
accrued but are unpaid.
21
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 nine to eight years, a portion of
which will amortize or be paid during such period. Proceeds from such
amortization or repayment will be distributed to Shareholders. To date, the
Trust has purchased and may be required to continue to purchase Tax-Exempt
Securities which mature quarterly during this period. The effect of this policy
has been the following: (a) a portion of the distributions have constituted, and
will continue to constitute, a return of capital; (b) earlier investors' returns
from an investment in the Trust will be greater than later investors' returns;
and (c) there will be a decrease in funds remaining to be invested in Mortgage
Investments.
Of the total distributions of $1,222,708 and $777,909 made for the six months
ended June 30, 1997 and 1996, $473,702 ($.32 per share or 39%) and $277,180
($.25 per share or 36%) represents a return of capital determined in accordance
with generally accepted accounting principles. As of June 30, 1997, the
aggregate amount of the distributions made since the commencement of the
Offering representing a return of capital, in accordance with generally accepted
accounting principles, totaled $1,208,698. 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 the Trust's operating
expenses and to make distributions.
Results of Operations
The results of operations for the three and six months ended June 30, 1997
consisted primarily of interest income earned on First Mortgage Bonds and
marketable securities, net of general and administrative, and general and
administrative-related parties, and
22
loan servicing fees. The results of operations for the three and six months
ended June 30, 1996 consisted primarily of interest income earned on First
Mortgage Bonds and marketable securities, net of general and administrative and
general and administrative-related parties.
Interest income from First Mortgage Bonds increased approximately $169,000 and
$269,000 for the three and six months ended June 30, 1997 as compared to the
corresponding periods in 1996 primarily due to the investment in the Rolling
Ridge First Mortgage Bond in August 1996 and the Lexington Trails First Mortgage
Bond in May 1997.
Interest income from marketable securities decreased approximately $13,000 for
the three months ended June 30, 1997 as compared to the corresponding period in
1996 primarily due to the use of proceeds from the Offering to purchase of the
Lexington Trails First Mortgage Bond in May 1997. Interest income from
marketable securities will decrease in future periods since a substantial
portion of the proceeds from the Offering will be invested in First Mortgage
Bonds and Tax-Exempt Securities.
General and administrative expenses decreased approximately $7,000 and increased
approximately $11,000 for the three and six months ended June 30, 1997 as
compared to the corresponding periods in 1996. The decrease for the three months
is primarily due to a decrease in legal expenses. The decrease during the three
months was offset by an increase in the first quarter primarily due to an
increase in costs associated with SEC filing and an increase in accounting
expenses.
General and administrative-related parties decreased approximately $6,000 for
the three months ended June 30, 1997 compared to the corresponding period in
1996 primarily attributable to an underaccrual of reimbursements to affiliates
of the Manager for certain administrative costs and other costs incurred on
behalf of the Trust at March 31, 1996 which was adjusted in the second quarter
of 1996.
Loan servicing fees increased approximately $12,000 and $21,000 for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996 primarily due to the investment in the Rolling Ridge First Mortgage Bond in
August 1996 and the Lexington Trails First Mortgage Bond in May 1997 and an
underaccrual of such fees in 1996.
23
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).
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
Current report on Form 8-K dated May 21, 1997 was filed on May 21,
1997 relating to the purchase of the Lexington Trails Bonds.
Current report on Form 8-K/A dated May 21, 1997 was filed on July 18,
1997 relating to the purchase of the Lexington Trails Bonds.
24
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, 1997
By:/s/ Alan P. Hirmes
------------------------------
Alan P. Hirmes
Senior Vice President and
Principal Financial Officer
Date: August 13, 1997
By:/s/ Richard A. Palermo
------------------------------
Richard A. Palermo
Treasurer and
Principal Accounting Officer
25