UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended June 30, 2009
 
 OR
 
 o           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
ACT OF 1934
 
 For the
transition period
from            to
 
 Commission
File Number:  000-24843
 
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                47-0810385(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)1004
      Farnam Street, Suite 400
                Omaha,
      Nebraska 68102(Address
      of principal executive offices)
                (Zip
      Code)(402)
      444-1630(Registrant's
      telephone number, including area
code)
 
 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  o
 
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
 YES  o  NO  o
 
 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 filero
                Accelerated
      filer  x
                Non-
      accelerated filer  o
                Smaller
      reporting company  o(do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 YES  o  NO  x
  
  
  INDEX
 
 
 PART I –
FINANCIAL INFORMATION
 
 Item 1
                Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of June 30, 2009 and December 31,
      2008
                1Condensed
      Consolidated Statements of Operations for the three and six months ended
      June 30, 2009 and 2008
                2Condensed
      Consolidated Statements of Partners’ Capital and Comprehensive Income
      (Loss) for the six months ended June 30, 2009 and 2008
                3Condensed
      Statement of Cash Flows for the six months ended June 30, 2009 and
      2008
                4Notes
      to Condensed Consolidated Financial Statements
                5Item 2
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                21Item 3
                Quantitative
      and Qualitative Disclosures About Market Risk
                35Item 4
                Controls
      and Procedures
                35
 
 PART II –
OTHER INFORMATION
 
 Item 1A
                Risk
      Factors
                36Item 6
                Exhibits
                36
 
 
 SIGNATURES
                
                37


Forward-Looking
Statements





This
report (including, but not limited to, the information contained in
“Management's Discussion and Analysis of Financial Condition and Results of
Operations") contains forward-looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Company's performance and financial results. All statements,
trend analysis and other information concerning possible or assumed future
results of operations of the Company and the investments it has made constitute
forward-looking statements. Beneficial Unit Certificate (“BUC”) holders and
others should understand that these forward-looking statements are subject to
numerous risks and uncertainties and a number of factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements contained herein. These
factors include general economic and business conditions such as the
availability and credit worthiness of prospective tenants, lease rents,
operating expenses, the terms and availability of financing for properties
financed by the tax-exempt mortgage revenue bonds owned by the Partnership,
adverse changes in the real estate markets from governmental or legislative
forces, lack of availability and credit worthiness of counterparties to finance
future acquisitions and interest rate fluctuations and other items discussed
under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008 and in Item 1A of Part II of this
report.











PART
I - FINANCIAL INFORMATION





Item 1.  Financial Statements.





AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(UNAUDITED)








June
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008AssetsCash
      and cash equivalents
                            
                            $
                            20,303,622
                            
                            
                            $
                            7,196,274Restricted
      cash
                            
                            
                            5,821,370
                            
                            
                            
                            12,848,614Interest
      receivable
                            
                            
                            878,542
                            
                            
                            
                            769,201Tax-exempt
      mortgage revenue bonds, at fair value
                            
                            
                            48,490,189
                            
                            
                            
                            44,492,526Real
      estate assets:Land
                            
                            
                            13,403,655
                            
                            
                            
                            10,774,790Buildings
      and improvements
                            
                            
                            98,732,938
                            
                            
                            
                            86,903,743Real
      estate assets before accumulated depreciation
                            
                            
                            112,136,593
                            
                            
                            
                            97,678,533Accumulated
      depreciation
                            
                            
                            (19,553,037
                            )
                            
                            
                            (17,499,670
                            )Net
      real estate assets
                            
                            
                            92,583,556
                            
                            
                            
                            80,178,863Other
      assets
                            
                            
                            3,564,516
                            
                            
                            
                            4,263,937Assets
      held for sale
                            
                            
                            3,024,991
                            
                            
                            
                            -Assets
      of discontinued operations
                            
                            
                            -
                            
                            
                            
                            8,113,861Total
      Assets
                            
                            $
                            174,666,786
                            
                            
                            $
                            157,863,276LiabilitiesAccounts
      payable, accrued expenses and other liabilities
                            
                            $
                            3,412,056
                            
                            
                            $
                            3,380,666Distribution
      payable
                            
                            
                            2,714,924
                            
                            
                            
                            2,432,327Debt
      financing
                            
                            
                            50,000,000
                            
                            
                            
                            56,981,577Mortgages
      payable
                            
                            
                            37,330,255
                            
                            
                            
                            30,908,790Liabilities
      of discontinued operations
                            
                            
                            -
                            
                            
                            
                            23,264,589Total
      Liabilities
                            
                            
                            93,457,235
                            
                            
                            
                            116,967,949Commitments
      and Contingencies (Note 12)Partners'
      CapitalGeneral
      partner
                            
                            
                            301,610
                            
                            
                            
                            261,785Beneficial
      Unit Certificate holders
                            
                            
                            110,944,866
                            
                            
                            
                            93,277,480Unallocated
      deficit of variable interest entities
                            
                            
                            (30,104,183
                            )
                            
                            
                            (52,711,654
                            )Total
      Partners' Capital
                            
                            
                            81,142,293
                            
                            
                            
                            40,827,611Noncontrolling
      interest (Note 13)
                            
                            
                            67,258
                            
                            
                            
                            67,716Total
      Capital
                            
                            
                            81,209,551
                            
                            
                            
                            40,895,327Total
      Liabilities and Capital
                            
                            $
                            174,666,786
                            
                            
                            $
                            157,863,276The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.


1


AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)








For
      the Three Months Ended,
                                                                                          
                                                                                          
                                                                                          For
      the Six Months Ended,June
      30, 2009
                                                                                          
                                                                                          
                                                                                          June
      30, 2008
                                                                                          
                                                                                          
                                                                                          June
      30, 2009
                                                                                          
                                                                                          
                                                                                          June
      30, 2008Revenues:Property
      revenues
                                                                                          
                                                                                          $
                                                                                          3,903,272
                                                                                          
                                                                                          
                                                                                          $
                                                                                          3,386,038
                                                                                          
                                                                                          
                                                                                          $
                                                                                          7,654,515
                                                                                          
                                                                                          
                                                                                          $
                                                                                          6,699,433Mortgage
      revenue bond investment income
                                                                                          
                                                                                          
                                                                                          1,054,551
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,056,825
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,002,895
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,265,389Other
      income (loss)
                                                                                          
                                                                                          
                                                                                          17,879
                                                                                          
                                                                                          
                                                                                          
                                                                                          (83,028
                                                                                          )
                                                                                          
                                                                                          
                                                                                          51,894
                                                                                          
                                                                                          
                                                                                          
                                                                                          (54,894
                                                                                          )Total
      Revenues
                                                                                          
                                                                                          
                                                                                          4,975,702
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,359,835
                                                                                          
                                                                                          
                                                                                          
                                                                                          9,709,304
                                                                                          
                                                                                          
                                                                                          
                                                                                          8,909,928Expenses:Real
      estate operating (exclusive of items shown below)
                                                                                          
                                                                                          
                                                                                          2,580,266
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,109,825
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,940,909
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,068,987Depreciation
      and amortization
                                                                                          
                                                                                          
                                                                                          1,679,036
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,035,598
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,259,908
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,220,122Interest
                                                                                          
                                                                                          
                                                                                          965,329
                                                                                          
                                                                                          
                                                                                          
                                                                                          633,523
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,156,198
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,791,964General
      and administrative
                                                                                          
                                                                                          
                                                                                          324,401
                                                                                          
                                                                                          
                                                                                          
                                                                                          489,399
                                                                                          
                                                                                          
                                                                                          
                                                                                          901,163
                                                                                          
                                                                                          
                                                                                          
                                                                                          920,465Total
      Expenses
                                                                                          
                                                                                          
                                                                                          5,549,032
                                                                                          
                                                                                          
                                                                                          
                                                                                          4,268,345
                                                                                          
                                                                                          
                                                                                          
                                                                                          11,258,178
                                                                                          
                                                                                          
                                                                                          
                                                                                          9,001,538Income
      (loss) from continuing operations
                                                                                          
                                                                                          
                                                                                          (573,330
                                                                                          )
                                                                                          
                                                                                          
                                                                                          91,490
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,548,874
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (91,610
                                                                                          )Income
      from discontinued operations (including gain on bond redemption of
      $26,514,809 in 2009)
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          179,946
                                                                                          
                                                                                          
                                                                                          
                                                                                          26,734,754
                                                                                          
                                                                                          
                                                                                          
                                                                                          373,703Net
      income (loss)
                                                                                          
                                                                                          
                                                                                          (573,330
                                                                                          )
                                                                                          
                                                                                          
                                                                                          271,436
                                                                                          
                                                                                          
                                                                                          
                                                                                          25,185,880
                                                                                          
                                                                                          
                                                                                          
                                                                                          282,093Less:
      net loss attributable to noncontrolling interest
                                                                                          
                                                                                          
                                                                                          2,964
                                                                                          
                                                                                          
                                                                                          
                                                                                          781
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,824
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,526Net
      income (loss) - America First Tax Exempt Investors, L. P.
                                                                                          
                                                                                          $
                                                                                          (570,366
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          272,217
                                                                                          
                                                                                          
                                                                                          $
                                                                                          25,192,704
                                                                                          
                                                                                          
                                                                                          $
                                                                                          285,619Net
      income (loss) allocated to:General
      Partner
                                                                                          
                                                                                          $
                                                                                          13,766
                                                                                          
                                                                                          
                                                                                          $
                                                                                          24,583
                                                                                          
                                                                                          
                                                                                          $
                                                                                          587,856
                                                                                          
                                                                                          
                                                                                          $
                                                                                          31,245Limited
      Partners - BUC holders
                                                                                          
                                                                                          
                                                                                          351,927
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,109,288
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,997,377
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,768,811Unallocated
      gain (loss) of variable interest entities
                                                                                          
                                                                                          
                                                                                          (936,059
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (861,654
                                                                                          )
                                                                                          
                                                                                          
                                                                                          22,607,471
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,514,437
                                                                                          )Noncontrolling
      interest
                                                                                          
                                                                                          
                                                                                          (2,964
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (781
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (6,824
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (3,526
                                                                                          )$
                                                                                          (573,330
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          271,436
                                                                                          
                                                                                          
                                                                                          $
                                                                                          25,185,880
                                                                                          
                                                                                          
                                                                                          $
                                                                                          282,093Limited
      partners' interest in net income per unit (basic and
    diluted):Income
      from continuing operations
                                                                                          
                                                                                          $
                                                                                          0.02
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.08
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.14
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.13Income
      from discontinued operations
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          
                                                                                          
                                                                                          -Net
      income, basic and diluted, per unit
                                                                                          
                                                                                          $
                                                                                          0.02
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.08
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.14
                                                                                          
                                                                                          
                                                                                          $
                                                                                          0.13Weighted
      average number of units outstanding,basic
      and diluted
                                                                                          
                                                                                          
                                                                                          14,820,620
                                                                                          
                                                                                          
                                                                                          
                                                                                          13,512,928
                                                                                          
                                                                                          
                                                                                          
                                                                                          14,170,387
                                                                                          
                                                                                          
                                                                                          
                                                                                          13,512,928The
      accompanying notes are an integral part of the consolidated financial
      statements.





2


AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.


CONDENSED
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME
(LOSS)


FOR THE
SIX MONTHS ENDED JUNE 30, 2009 AND 2008


(UNAUDITED)


Beneficial
      UnitCertificate
      holders
                                      
                                      
                                      Unallocateddeficit
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      AccumulatedOtherGeneral
                                        Partner
                                      
                                      
                                      #
      of Units
                                      
                                      
                                      Amount
                                      
                                      
                                      of variable
                                        interest
      entities
                                      
                                      
                                      Noncontrolling
                                        Interest
                                      
                                      
                                      Total
                                      
                                      
                                      Comprehensive
                                        Income
      (Loss)Balance
      at January 1, 2009
                                      
                                      $
                                      261,785
                                      
                                      
                                      
                                      13,512,928
                                      
                                      
                                      $
                                      93,277,480
                                      
                                      
                                      $
                                      (52,711,654
                                      )
                                      
                                      $
                                      67,716
                                      
                                      
                                      $
                                      40,895,327
                                      
                                      
                                      $
                                      (16,857,807
                                      )Sale
      of Beneficial Unit Certificates
                                      
                                      
                                      
                                      
                                      
                                      
                                      3,500,000
                                      
                                      
                                      
                                      16,153,565
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      16,153,565Noncontrolling
      interest contribution
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,366
                                      
                                      
                                      
                                      6,366
                                      
                                      
                                      
                                      -Comprehensive
      income (loss):Net
      income (loss)
                                      
                                      
                                      587,856
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,997,377
                                      
                                      
                                      
                                      22,607,471
                                      
                                      
                                      
                                      (6,824
                                      )
                                      
                                      
                                      25,185,880
                                      
                                      
                                      
                                      -Unrealized
      gain on securities
                                      
                                      
                                      41,157
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,074,506
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,115,663
                                      
                                      
                                      
                                      4,115,663Total
      comprehensive income (loss)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      29,301,543Distributions
      paid or accrued
                                      
                                      
                                      (1,196,389
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,950,861
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (5,147,250
                                      )
                                      
                                      
                                      -Reclassification
      of Tier II income
                                      
                                      
                                      607,201
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (607,201
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Balance
      at June 30, 2009
                                      
                                      $
                                      301,610
                                      
                                      
                                      
                                      17,012,928
                                      
                                      
                                      $
                                      110,944,866
                                      
                                      
                                      $
                                      (30,104,183
                                      )
                                      
                                      $
                                      67,258
                                      
                                      
                                      $
                                      81,209,551
                                      
                                      
                                      $
                                      (12,742,144
                                      )
  
 Beneficial
      UnitCertificate
      holders
                                                                                                
                                                                                                
                                                                                                Unallocateddeficit
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                AccumulatedOtherGeneral
                                                                                                  Partner
                                                                                                
                                                                                                
                                                                                                #
      of Units
                                                                                                
                                                                                                
                                                                                                Amount
                                                                                                
                                                                                                
                                                                                                of
      variable
                                                                                                  interest
      entities
                                                                                                
                                                                                                
                                                                                                Noncontrolling
                                                                                                  Interest
                                                                                                
                                                                                                
                                                                                                Total
                                                                                                
                                                                                                
                                                                                                Comprehensive
                                                                                                  Income
      (Loss)Balance
      at January 1, 2008
                                                                                                
                                                                                                $
                                                                                                348,913
                                                                                                
                                                                                                
                                                                                                
                                                                                                13,512,928
                                                                                                
                                                                                                
                                                                                                $
                                                                                                112,880,314
                                                                                                
                                                                                                
                                                                                                $
                                                                                                (48,954,760
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                48,756
                                                                                                
                                                                                                
                                                                                                $
                                                                                                64,323,223
                                                                                                
                                                                                                
                                                                                                $
                                                                                                (3,581,844
                                                                                                )Comprehensive
      income (loss):Net
      income (loss)
                                                                                                
                                                                                                
                                                                                                31,245
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,768,811
                                                                                                
                                                                                                
                                                                                                
                                                                                                (1,514,437
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (3,526
                                                                                                )
                                                                                                
                                                                                                
                                                                                                282,093
                                                                                                
                                                                                                
                                                                                                
                                                                                                -Unrealized
      loss on securities
                                                                                                
                                                                                                
                                                                                                (28,164
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                (2,788,207
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                (2,816,371
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (2,816,371
                                                                                                )Total
      comprehensive income (loss)
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                (2,534,278
                                                                                                )Distributions
      paid or accrued
                                                                                                
                                                                                                
                                                                                                (626,509
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                (3,648,491
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                (4,275,000
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -Reclassification
      of Tier II income
                                                                                                
                                                                                                
                                                                                                608,082
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                (608,082
                                                                                                )
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                -Balance
      at June 30, 2008
                                                                                                
                                                                                                $
                                                                                                333,567
                                                                                                
                                                                                                
                                                                                                
                                                                                                13,512,928
                                                                                                
                                                                                                
                                                                                                $
                                                                                                107,604,345
                                                                                                
                                                                                                
                                                                                                $
                                                                                                (50,469,197
                                                                                                )
                                                                                                
                                                                                                $
                                                                                                45,230
                                                                                                
                                                                                                
                                                                                                $
                                                                                                57,513,945
                                                                                                
                                                                                                
                                                                                                $
                                                                                                (6,398,215
                                                                                                )
  
  The
accompanying notes are an integral part of the condensed consolidated financial
statements.





3





AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)








For
      the six months endedJune
      30, 2009
                                                        
                                                        
                                                        June
      30, 2008Cash
      flows from operating activities:Net
      income
                                                        
                                                        $
                                                        25,185,880
                                                        
                                                        
                                                        $
                                                        282,093Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
                                                        
                                                        
                                                        3,259,908
                                                        
                                                        
                                                        
                                                        2,515,747Non-cash
      loss on derivatives
                                                        
                                                        
                                                        490,522
                                                        
                                                        
                                                        
                                                        38,328Loss
      on sale of securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (68,748
                                                        )Gain
      on sale of discontinued operations
                                                        
                                                        
                                                        (26,514,809
                                                        )
                                                        
                                                        
                                                        -Changes
      in operating assets and liabilities, net of effect of
      acquisitions(Increase)
      decrease in interest receivable
                                                        
                                                        
                                                        (109,341
                                                        )
                                                        
                                                        
                                                        41,885Increase
      in other assets
                                                        
                                                        
                                                        (833,864
                                                        )
                                                        
                                                        
                                                        (398,615
                                                        )Decrease
      in accounts payable, accrued expenses and other liabilities
                                                        
                                                        
                                                        (1,481,267
                                                        )
                                                        
                                                        
                                                        (1,123,589
                                                        )Net
      cash (used) provided by operating activities
                                                        
                                                        
                                                        (2,971
                                                        )
                                                        
                                                        
                                                        1,287,101Cash
      flows from investing activities:Proceeds
      from the sale of tax-exempt mortgage revenue bonds
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        14,933,635Proceeds
      from sale of discontinued operations
                                                        
                                                        
                                                        32,000,000
                                                        
                                                        
                                                        
                                                        -Acquisition
      of tax-exempt mortgage revenue bonds
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (12,435,000
                                                        )Increase
      in restricted cash
                                                        
                                                        
                                                        (1,501,917
                                                        )
                                                        
                                                        
                                                        (724,027
                                                        )Restricted
      cash - debt collateral  released
                                                        
                                                        
                                                        8,529,235
                                                        
                                                        
                                                        
                                                        -Capital
      expenditures
                                                        
                                                        
                                                        (466,187
                                                        )
                                                        
                                                        
                                                        (293,495
                                                        )Acquisition
      of asset held for sale
                                                        
                                                        
                                                        (2,649,991
                                                        )
                                                        
                                                        
                                                        -Acquisition
      of partnerships, net of cash acquired
                                                        
                                                        
                                                        (7,886,852
                                                        )
                                                        
                                                        
                                                        -Principal
      payments received on tax-exempt mortgage revenue bonds
                                                        
                                                        
                                                        118,000
                                                        
                                                        
                                                        
                                                        45,833Principal
      payments received on taxable loans
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        100,000Net
      cash provided by investing activities
                                                        
                                                        
                                                        28,142,288
                                                        
                                                        
                                                        
                                                        1,626,946Cash
      flows from financing activities:Distributions
      paid
                                                        
                                                        
                                                        (4,864,653
                                                        )
                                                        
                                                        
                                                        (4,275,000
                                                        )Derivative
      settlements
                                                        
                                                        
                                                        (238,980
                                                        )
                                                        
                                                        
                                                        (40,049
                                                        )Increase
      in liabilities related to restricted cash
                                                        
                                                        
                                                        1,501,917
                                                        
                                                        
                                                        
                                                        724,027Deferred
      financing costs
                                                        
                                                        
                                                        (550,912
                                                        )
                                                        
                                                        
                                                        -Proceeds
      from debt financing
                                                        
                                                        
                                                        50,000,000
                                                        
                                                        
                                                        
                                                        65,091,372Principal
      payments on debt financing and mortgage payable
                                                        
                                                        
                                                        (76,643,772
                                                        )
                                                        
                                                        
                                                        (71,395,000
                                                        )Acquisition
      of interest rate cap agreements
                                                        
                                                        
                                                        (554,000
                                                        )
                                                        
                                                        
                                                        -Sale
      of Beneficial Unit Certificates
                                                        
                                                        
                                                        
                                                        16,153,565
                                                        
                                                        
                                                        
                                                        -Net
      cash used by financing activities
                                                        
                                                        
                                                        (15,196,835
                                                        )
                                                        
                                                        
                                                        (9,894,650
                                                        )Net
      increase (decrease) in cash and cash equivalents
                                                        
                                                        
                                                        12,942,482
                                                        
                                                        
                                                        
                                                        (6,980,603
                                                        )Cash
      and cash equivalents at beginning of period, including cash and cash
      equivalents of discontinued operations of $164,866 and $145,278
      respectively
                                                        
                                                        $
                                                        7,361,140
                                                        
                                                        
                                                        $
                                                        14,821,946Cash
      and cash equivalents at end of period, including cash and cash equivalents
      of discontinued operations of $0 and $350,156 respectively
                                                        
                                                        $
                                                        20,303,622
                                                        
                                                        
                                                        $
                                                        7,841,343Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
                                                        
                                                        $
                                                        2,453,284
                                                        
                                                        
                                                        $
                                                        2,755,228Liabilites
      assumed in the acquisition of partnerships
                                                        
                                                        $
                                                        6,506,329
                                                        
                                                        
                                                        $
                                                        -Distributions
      declared but not paid
                                                        
                                                        $
                                                        2,714,924
                                                        
                                                        
                                                        $
                                                        2,432,327The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.


4


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30,
2009


(UNAUDITED)





1.  Basis
of Presentation





America
First Tax Exempt Investors, L.P. (the “Partnership”) was formed on April 2, 1998
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring, holding, selling and otherwise dealing with a portfolio of federally
tax-exempt mortgage revenue bonds which have been issued to provide construction
and/or permanent financing of multifamily residential
properties.  Interest 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.  Our
general partner is America First Capital Associates Limited Partnership Two
(“AFCA 2” or “General Partner”).  The Partnership will terminate on
December 31, 2050 unless terminated earlier under provisions of its Agreement of
Limited Partnership.




Recent
economic conditions have been unprecedented and challenging, with significantly
tighter credit conditions and slower growth.  As a result of these
conditions, the cost and availability of credit has been, and is expected to
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. If these market and economic
conditions continue, they may limit the Partnership’s ability to replace or
renew maturing liabilities on a timely basis, access the capital markets to meet
liquidity and capital expenditure requirements and may result in adverse effects
on the Partnership’s financial condition and results of operations.





Although
the consequences of these conditions and their impact on the Partnership’s
ability to pursue its plan to grow through investments in additional tax-exempt
bonds secured by first mortgages on affordable multifamily housing projects are
not fully known, the Partnership does not anticipate that its existing assets
will be adversely affected in the long-term.  The Partnership believes
the current tightening of credit may create opportunities for additional
investments consistent with its investment strategy because it may result in
fewer parties competing to acquire tax-exempt bonds issued to finance affordable
housing.  There can be no assurance that the Partnership will be able
to finance additional acquisitions of tax-exempt bonds through either additional
equity or debt financing.  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 negatively impact its
financial statements.





The
consolidated financial statements of the “Company” reported in this Form 10-Q
include the assets and results of operations of the Partnership, the multifamily
apartment properties (the “MF Properties”) owned by various limited partnerships
in which one of the Partnership’s wholly-owned subsidiaries (each a “Holding
Company”) holds a 99% limited partner interest and six other entities in which
the Partnership does not hold an ownership interest but which own multifamily
apartment properties financed with tax-exempt bonds held by the Partnership and
which are treated as variable interest entities of which the Partnership has
been determined to be the primary beneficiary (the “VIEs”). Stand alone
financial information of the Partnership reported in this Form 10-Q includes
only the assets and results of operation of the Partnership and the MF
Properties without the consolidation of the VIEs.  In the Company’s
consolidated financial statements, all transactions and accounts between the
Partnership, the MF Properties and the VIEs have been eliminated in
consolidation.  The Partnership does not presently believe that the
consolidation of VIEs for reporting under accounting principles generally
accepted in the United States of America (“GAAP”) will impact the Partnership’s
tax status, amounts reported to Beneficial Unit Certificate (“BUC”) holders on
IRS Form K-1, the Partnership’s ability to distribute tax-exempt income to BUC
holders, the current level of quarterly distributions or the tax-exempt status
of the underlying mortgage revenue bonds.





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.  The accompanying interim unaudited condensed consolidated
financial statements have been prepared according to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008. These condensed consolidated
financial statements and notes have been prepared consistently with the 2008
Form 10-K with the exception of the reclassification of certain prior-year
amounts on the Company’s Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Operations, Condensed Consolidated Statements of
Partners’ Capital and Comprehensive Income (Loss) and Condensed Consolidated
Statements of Cash Flows in accordance with the Company’s adoption of SFAS No.
160 (see Note 13) on January 1, 2009, which required retrospective
application.  In the opinion of management, all adjustments
(consisting of normal and recurring accruals) necessary to present fairly the
financial position as of June 30, 2009, and the results of operations for all
periods presented have been made. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year.





In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which
provides guidance on management’s assessment of subsequent events, effective for
all interim or annual reporting periods ending after June 15,
2009.  In accordance with SFAS No. 165, the Company has evaluated
transactions and events for disclosure as a subsequent event through August 7,
2009, the date on which these financial statements were issued.  Any
transactions or events which the Company has determined require disclosure as a
subsequent event have been disclosed in the footnotes.


5


2.  Partnership
Income, Expenses and Cash Distributions





The
Agreement of Limited Partnership of the Partnership contains provisions for the
distribution of Net Interest Income, Net Residual Proceeds and Liquidation
Proceeds, for the allocation of income or loss from operations and for the
allocation of income and loss arising from a repayment, sale or liquidation of
investments.  Income and losses will be allocated to each BUC holder
on a periodic basis, as determined by the General Partner, based on the number
of BUCs held by each BUC holder as of the last day of the period for which such
allocation is to be made. Distributions of Net Interest Income and Net Residual
Proceeds will be made to each BUC holder of record on the last day of each
distribution period based on the number of BUCs held by each BUC holder as of
such date. For purposes of the Agreement of Limited Partnership, cash
distributions, if any, received by the Partnership from the Investment in
Multifamily Apartment Properties (See Note 5) will be included in the
Partnership’s Interest Income and cash distributions received by the Partnership
from the sale of such properties will be included in the Partnership Residual
Proceeds.





Cash
distributions are currently made on a quarterly basis but may be made on a
monthly or semiannual basis at the election of AFCA 2.  On each
distribution date, Net Interest Income is distributed 99% to the BUC holders and
1% to AFCA 2 and Net Residual Proceeds are distributed 100% to BUC holders
except that Net Interest Income and Net Residual Proceeds representing
contingent interest in an amount equal to 0.9% per annum of the principal amount
of the mortgage bonds on a cumulative basis (defined as Net Interest Income
(Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed
75% to the BUC holders and 25% to AFCA 2.





The
Agreement of Limited Partnership also allows the General Partner to withhold,
from time to time, Interest Income and Residual Proceeds and to place these
amounts into a reserve to provide funding for working capital or additional
investments.  In 2005, the General Partner placed Net Residual
Proceeds representing contingent interest of approximately $10.9 million into
the reserve.  If and when the General Partner determines that this
contingent interest is no longer to be held in reserve and is to be distributed,
it is anticipated that it will be distributed as Net Residual Proceeds (Tier 2)
as defined in the Agreement of Limited Partnership.  As such, these
funds will be distributed 75% to the BUC holders and 25% to the General
Partner.  On June 30, 2009, the General Partner determined that
approximately $2.3 million of the Net Residual Proceeds, representing the
entirety of the remaining funds being held in reserve, were no longer to be held
in reserve and would be distributed as Net Residual Proceeds (Tier 2) in July
2009.  After the July 2009 distribution, no further Tier 2 income will
remain in reserve.





The
unallocated deficit of the VIEs is primarily comprised of the accumulated
historical net losses of the VIEs as of the implementation of Consolidation of Variable Interest
Entities, (“FIN 46R”).  The unallocated deficit of the VIEs and
the VIE’s net losses subsequent to that date are not allocated to the General
Partner and BUC holders as such activity is not contemplated by, or addressed
in, the Agreement of Limited Partnership.





3.  Variable
Interest Entities





The
Partnership operates for the purpose of acquiring, holding, selling and
otherwise dealing with a portfolio of federally tax-exempt mortgage revenue
bonds which have been issued to provide construction and/or permanent financing
of multifamily residential apartments. Each multifamily property financed with
tax-exempt mortgage bonds held by the Partnership is owned by a separate
entity.  The Partnership does not hold an equity ownership interest in
any of these entities; however, the bonds held by the Partnership create a
variable interest in the entities.  Under FIN 46R, the Partnership
must make an evaluation of these entities to determine if they meet the
definition of a VIE.  If the underlying entity is determined to be a
VIE, the Partnership must then determine if it is the primary beneficiary of the
VIE pursuant to the terms of each tax-exempt mortgage revenue bond and the
criteria within FIN 46R.  FIN 46R is a complex standard that
requires significant analysis and judgment.





The
Partnership has determined that six of the entities financed by tax-exempt bonds
owned by the Partnership at June 30, 2009 are held by VIEs and that the
Partnership is the primary beneficiary of these VIEs.  The Partnership
determined that eight of the entities financed by tax-exempt bonds owned by the
Partnership at December 31, 2008 were held by VIEs and that the Partnership was
the primary beneficiary of these VIEs.  As of December 31, 2008, five
of these consolidated VIEs are included in the results from continuing
operations while three are presented as discontinued operations.





In April
2009, the Company acquired the Cross Creek Apartments tax-exempt mortgage
revenue bond for $5.9 million which represented 100% of the bond
issuance.  The bond par value is $8.85 million and the bond earns
interest at an annual rate of 6.15%. The interest payments are monthly with
a stated maturity date of March 1, 2049.  The bond was issued for the
construction of the Cross Creek Apartments, a 144 unit multifamily apartment
complex located in Beaufort, South Carolina.  At the time of
acquisition the bonds were in technical default as the property construction was
not completed, the property had not reached stabilization and the property was
not current on debt service.  The Company also purchased a $4.125
million construction loan for approximately $920,000 from the property
developer. The Company then made a $1.5 million taxable loan to the property
owner to allow for the completion of construction, lease up and stabilization of
the property and the payment of bond debt service.  America First
Property Management Company, LLC (“Properties Management”), an affiliate of AFCA
2, has been retained to manage the property and began marketing and leasing
activities for the property in the second quarter of 2009.  The
Company has determined that the underlying entity that owns the Cross Creek
Apartments meets the definition of a VIE and that the Company is the primary
beneficiary.  Accordingly, its financial statements are consolidated
into the Company’s consolidated financial statements under FIN 46R.





In
February 2009, the three tax-exempt mortgage revenue bonds secured by assets of
the VIEs presented as discontinued operations as of December 31, 2008, were
redeemed.  In order to properly reflect the transaction under FIN 46R,
the Company recorded the redemption of the bonds as a sale of the properties as
though they were owned by the Company.  The transaction was completed
for a total purchase price of $32.0 million resulting in a gain on sale for GAAP
reporting of approximately $26.5 million.  The redemption of the bonds
did not result in a taxable gain to the Partnership.


6


On a
stand-alone basis, the Partnership received approximately $30.9 million of net
proceeds from the bond redemption.  These proceeds represent the
repayment of the bond par values plus accrued base interest and approximately
$2.3 million of contingent interest.  The contingent interest
represents additional earnings to the Partnership beyond the recurring base
interest earned on these bonds.  The contingent interest also
represents additional Cash Available for Distribution to the BUC holders of
approximately $1.7 million, or $0.13 per unit.





The
consolidated financial statements of the Company include the assets, liabilities
and results of operation of the Partnership and the VIEs.  Financial
information of the Partnership, on a stand-alone basis, includes only the
assets, liabilities and results of operations of the Partnership and the MF
Properties without the impact of the consolidation of the VIEs.  In
the Company’s consolidated financial statements, all transactions and accounts
between the Partnership, the MF Properties and the VIEs have been
eliminated.





The
following tables present the effects of the consolidation of the VIEs on the
Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Operations.





Condensed
Consolidating Balance Sheets as of June 30, 2009 and December 31,
2008:












Partnership
      as of June 30, 2009
                                
                                
                                VIEs
      as of June 30, 2009
                                
                                
                                Consolidation
      -Elimination as of June 30, 2009
                                
                                
                                Total
      as of June 30, 2009AssetsCash
      and cash equivalents
                                
                                $
                                20,200,019
                                
                                
                                $
                                103,603
                                
                                
                                $
                                -
                                
                                
                                $
                                20,303,622Restricted
      cash
                                
                                
                                2,497,118
                                
                                
                                
                                3,324,252
                                
                                
                                
                                -
                                
                                
                                
                                5,821,370Interest
      receivable
                                
                                
                                4,968,905
                                
                                
                                
                                -
                                
                                
                                
                                (4,090,363
                                )
                                
                                
                                878,542Tax-exempt
      mortgage revenue bonds
                                
                                
                                101,013,346
                                
                                
                                
                                -
                                
                                
                                
                                (52,523,157
                                )
                                
                                
                                48,490,189Real
      estate assets:Land
                                
                                
                                6,736,351
                                
                                
                                
                                6,667,304
                                
                                
                                
                                -
                                
                                
                                
                                13,403,655Buildings
      and improvements
                                
                                
                                37,168,702
                                
                                
                                
                                64,059,572
                                
                                
                                
                                (2,495,336
                                )
                                
                                
                                98,732,938Real
      estate assets before accumulated depreciation
                                
                                
                                43,905,053
                                
                                
                                
                                70,726,876
                                
                                
                                
                                (2,495,336
                                )
                                
                                
                                112,136,593Accumulated
      depreciation
                                
                                
                                (2,384,003
                                )
                                
                                
                                (17,169,034
                                )
                                
                                
                                -
                                
                                
                                
                                (19,553,037
                                )Net
      real estate assets
                                
                                
                                41,521,050
                                
                                
                                
                                53,557,842
                                
                                
                                
                                (2,495,336
                                )
                                
                                
                                92,583,556Other
      assets
                                
                                
                                17,324,434
                                
                                
                                
                                1,313,783
                                
                                
                                
                                (15,073,701
                                )
                                
                                
                                3,564,516Assets
      held for sale
                                
                                
                                3,024,991
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,024,991Assets
      of discontinued operations
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Total
      Assets
                                
                                $
                                190,549,863
                                
                                
                                $
                                58,299,480
                                
                                
                                $
                                (74,182,557
                                )
                                
                                $
                                174,666,786LiabilitiesAccounts
      payable, accrued expenses and other
                                
                                $
                                1,243,622
                                
                                
                                $
                                38,414,082
                                
                                
                                $
                                (36,245,648
                                )
                                
                                $
                                3,412,056Distribution
      payable
                                
                                
                                2,714,924
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,714,924Debt
      financing
                                
                                
                                50,000,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                50,000,000Mortgage
      payable
                                
                                
                                37,330,255
                                
                                
                                
                                57,809,068
                                
                                
                                
                                (57,809,068
                                )
                                
                                
                                37,330,255Liabilities
      of discontinued operations
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Total
      Liabilities
                                
                                
                                91,288,801
                                
                                
                                
                                96,223,150
                                
                                
                                
                                (94,054,716
                                )
                                
                                
                                93,457,235Partners'
      CapitalGeneral
      Partner
                                
                                
                                301,610
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                301,610Beneficial
      Unit Certificate holders
                                
                                
                                98,892,194
                                
                                
                                
                                -
                                
                                
                                
                                12,052,672
                                
                                
                                
                                110,944,866Unallocated
      deficit of variable interest entities
                                
                                
                                -
                                
                                
                                
                                (37,923,670
                                )
                                
                                
                                7,819,487
                                
                                
                                
                                (30,104,183
                                )Total
      Partners' Capital
                                
                                
                                99,193,804
                                
                                
                                
                                (37,923,670
                                )
                                
                                
                                19,872,159
                                
                                
                                
                                81,142,293Noncontrolling
      interest
                                
                                
                                67,258
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                67,258Total
      Capital
                                
                                
                                99,261,062
                                
                                
                                
                                (37,923,670
                                )
                                
                                
                                19,872,159
                                
                                
                                
                                81,209,551Total
      Liabilities and Partners' Capital
                                
                                $
                                190,549,863
                                
                                
                                $
                                58,299,480
                                
                                
                                $
                                (74,182,557
                                )
                                
                                $
                                174,666,786










7














Partnership
      as of December 31, 2008
                                
                                
                                VIEs
      as of December 31, 2008
                                
                                
                                Consolidation
      -Elimination as of December 31, 2008
                                
                                
                                Total
      as of December 31, 2008AssetsCash
      and cash equivalents
                                
                                $
                                7,068,297
                                
                                
                                $
                                127,977
                                
                                
                                $
                                -
                                
                                
                                $
                                7,196,274Restricted
      cash
                                
                                
                                10,836,084
                                
                                
                                
                                2,012,530
                                
                                
                                
                                -
                                
                                
                                
                                12,848,614Interest
      receivable
                                
                                
                                4,249,760
                                
                                
                                
                                -
                                
                                
                                
                                (3,480,559
                                )
                                
                                
                                769,201Tax-exempt
      mortgage revenue bonds
                                
                                
                                112,991,268
                                
                                
                                
                                -
                                
                                
                                
                                (68,498,742
                                )
                                
                                
                                44,492,526Real
      estate assets:Land
                                
                                
                                4,991,590
                                
                                
                                
                                5,783,200
                                
                                
                                
                                -
                                
                                
                                
                                10,774,790Buildings
      and improvements
                                
                                
                                31,877,661
                                
                                
                                
                                55,026,082
                                
                                
                                
                                -
                                
                                
                                
                                86,903,743Real
      estate assets before accumulated depreciation
                                
                                
                                36,869,251
                                
                                
                                
                                60,809,282
                                
                                
                                
                                -
                                
                                
                                
                                97,678,533Accumulated
      depreciation
                                
                                
                                (1,519,845
                                )
                                
                                
                                (15,979,825
                                )
                                
                                
                                -
                                
                                
                                
                                (17,499,670
                                )Net
      real estate assets
                                
                                
                                35,349,406
                                
                                
                                
                                44,829,457
                                
                                
                                
                                -
                                
                                
                                
                                80,178,863Other
      assets
                                
                                
                                16,332,459
                                
                                
                                
                                1,383,674
                                
                                
                                
                                (13,452,196
                                )
                                
                                
                                4,263,937Assets
      of discontinued operations
                                
                                
                                -
                                
                                
                                
                                8,113,861
                                
                                
                                
                                -
                                
                                
                                
                                8,113,861Total
      Assets
                                
                                $
                                186,827,274
                                
                                
                                $
                                56,467,499
                                
                                
                                $
                                (85,431,497
                                )
                                
                                $
                                157,863,276Liabilities
      and Owners' EquityAccounts
      payable, accrued expenses and other
                                
                                $
                                1,571,177
                                
                                
                                $
                                31,565,556
                                
                                
                                $
                                (29,756,067
                                )
                                
                                $
                                3,380,666Distribution
      Payable
                                
                                
                                2,432,327
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,432,327Debt
      financing
                                
                                
                                76,565,237
                                
                                
                                
                                -
                                
                                
                                
                                (19,583,660
                                )
                                
                                
                                56,981,577Mortgage
      payable
                                
                                
                                30,908,790
                                
                                
                                
                                51,670,000
                                
                                
                                
                                (51,670,000
                                )
                                
                                
                                30,908,790Liabilities
      of discontinued operations
                                
                                
                                -
                                
                                
                                
                                42,900,305
                                
                                
                                
                                (19,635,716
                                )
                                
                                
                                23,264,589Total
      Liabilities
                                
                                
                                111,477,531
                                
                                
                                
                                126,135,861
                                
                                
                                
                                (120,645,443
                                )
                                
                                
                                116,967,949Partners'
      CapitalGeneral
      Partner
                                
                                
                                261,785
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                261,785Beneficial
      Unit Certificate holders
                                
                                
                                75,020,242
                                
                                
                                
                                -
                                
                                
                                
                                18,257,238
                                
                                
                                
                                93,277,480Unallocated
      deficit of variable interest entities
                                
                                
                                -
                                
                                
                                
                                (69,668,362
                                )
                                
                                
                                16,956,708
                                
                                
                                
                                (52,711,654
                                )Total
      Partners' Capital
                                
                                
                                75,282,027
                                
                                
                                
                                (69,668,362
                                )
                                
                                
                                35,213,946
                                
                                
                                
                                40,827,611Noncontrolling
      interest
                                
                                
                                67,716
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                67,716Total
      Capital
                                
                                
                                75,349,743
                                
                                
                                
                                (69,668,362
                                )
                                
                                
                                35,213,946
                                
                                
                                
                                40,895,327Total
      Liabilities and Partners' Capital
                                
                                $
                                186,827,274
                                
                                
                                $
                                56,467,499
                                
                                
                                $
                                (85,431,497
                                )
                                
                                $
                                157,863,276

















8


Condensed
Consolidating Statements of Operations for the three months ended June 30, 2009
and 2008:








Partnership
      For
      the Three Months
      Ended June
      30, 2009
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      VIEs
      For
      the Three Months
      Ended June
      30, 2009
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Consolidation-Elimination
      For
      the Three Months
      Ended June
      30, 2009
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Total
      For
      the Three Months
      Ended June
      30, 2009Revenues:Property
      revenues
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1,839,243
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      2,064,029
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      3,903,272Mortgage
      revenue bond investment income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,127,071
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,072,520
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,054,551Other
      income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      17,879
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      17,879Total
      Revenues
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3,984,193
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,064,029
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,072,520
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      4,975,702Expenses:Real
      estate operating (exclusive of items shown below)
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,041,056
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,539,210
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,580,266Loan
      loss expense
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      220,000
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (220,000
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -Depreciation
      and amortization
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,070,677
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      622,094
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (13,735
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,679,036Interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      965,330
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,638,576
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,638,577
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      965,329General
      and administrative
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      324,401
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      324,401Total
      Expenses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3,621,464
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3,799,880
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,872,312
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5,549,032Income
      (loss) from continuing operations
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      362,729
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,735,851
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      799,792
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (573,330
                                                                                                                                                                      )Income
      (loss) from discontinued operations
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -Net
      income (loss)
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      362,729
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,735,851
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      799,792
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (573,330
                                                                                                                                                                      )Less:
      net loss attributable to noncontrolling interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,964
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,964Net
      income (loss) - America First Tax Exempt Investors, L. P.
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      365,693
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (1,735,851
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      799,792
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (570,366
                                                                                                                                                                      )Partnership
      For
      the Three Months
      Ended Jun.
      30, 2008
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      VIEs
      For
      the Three Months
      Ended Jun.
      30, 2008
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Consolidation-Elimination
      For
      the Three Months
      Ended Jun.
      30, 2008
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Total
      For
      the Three Months
      Ended Jun.
      30, 2008Revenues:Property
      revenues
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1,091,763
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      2,251,925
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      42,350
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      3,386,038Mortgage
      revenue bond investment income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,537,754
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,480,929
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,056,825Other
      loss
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (83,028
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (83,028
                                                                                                                                                                      )Total
      Revenues
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3,546,489
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,251,925
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,438,579
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      4,359,835Expenses:Real
      estate operating (exclusive of items shown below)
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      579,906
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,529,919
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,109,825Depreciation
      and amortization
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      468,202
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      580,266
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (12,870
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,035,598Interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      875,893
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,477,724
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,720,094
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      633,523General
      and administrative
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      489,399
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      489,399Total
      Expenses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2,413,400
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3,587,909
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,732,964
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      4,268,345Income
      (loss) from continuing operations
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,133,089
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,335,984
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      294,385
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      91,490Income
      (loss) from discontinued operations
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (359,929
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      539,875
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      179,946Net
      income (loss)
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1,133,089
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (1,695,913
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      834,260
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      271,436Less:
      net loss attributable to noncontrolling interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      781
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      781Net
      income (loss) - America First Tax Exempt Investors, L. P.
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1,133,870
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (1,695,913
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      834,260
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      272,217










9


Condensed
Consolidating Statements of Operations for the six months ended June 30, 2009
and 2008:








Partnership
      For
      the Six Months
      Ended June
      30, 2009
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    VIEs
      For
      the Six Months
      Ended June
      30, 2009
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Consolidation-Elimination
      For
      the Six Months
      Ended June
      30, 2009
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Total
      For
      the Six Months
      Ended June
      30, 2009Revenues:Property
      revenues
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    3,470,941
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    4,183,574
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    7,654,515Mortgage
      revenue bond investment income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    6,770,084
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (4,767,189
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,002,895Other
      income (loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (75,601
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    127,495
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    51,894Total
      Revenues
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    10,165,424
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,183,574
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (4,639,694
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9,709,304Expenses:Real
      estate operating (exclusive of items shown below)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,076,713
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,864,196
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,940,909Loan
      loss expense
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    294,999
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (294,999
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -Depreciation
      and amortization
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,076,388
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,211,709
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (28,189
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,259,908Interest
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,237,752
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,149,420
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,230,974
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,156,198General
      and administrative
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    901,163
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    901,163Total
      Expenses
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    7,587,015
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    7,225,325
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,554,162
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    11,258,178Income
      (loss) from continuing operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,578,409
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,041,751
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,085,532
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,548,874
                                                                                                                                                                    )Income
      (loss) from discontinued operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    34,786,445
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (8,051,691
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    26,734,754Net
      income (loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,578,409
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    31,744,694
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (9,137,223
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    25,185,880Less:
      net loss attributable to noncontrolling interest
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    6,824
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    6,824Net
      income (loss) - America First Tax Exempt Investors, L. P.
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    2,585,233
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    31,744,694
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (9,137,223
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    25,192,704Partnership
      For
      the Six Months
      Ended June
      30, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    VIEs
      For
      the Six Months
      Ended Jun.
      30, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Consolidation-Elimination
      For
      the Six Months
      Ended Jun.
      30, 2008
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Total
      For
      the Six Months
      Ended Jun.
      30, 2008Revenues:Property
      revenues
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    2,184,799
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    4,472,284
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    42,350
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    6,699,433Mortgage
      revenue bond investment income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5,173,892
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,908,503
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,265,389Other
      loss
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (54,894
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (54,894
                                                                                                                                                                    )Total
      Revenues
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    7,303,797
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,472,284
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,866,153
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    8,909,928Expenses:Real
      estate operating (exclusive of items shown below)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,088,955
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,980,032
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,068,987Depreciation
      and amortization
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,098,400
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,151,352
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (29,630
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,220,122Interest
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,399,448
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2,945,585
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,553,069
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,791,964General
      and administrative
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    920,465
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    920,465Total
      Expenses
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5,507,268
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    7,076,969
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,582,699
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    9,001,538Income
      (loss) from continuing operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,796,529
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,604,685
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    716,546
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (91,610
                                                                                                                                                                    )Income
      (loss) from discontinued operations
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (586,538
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    960,241
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    373,703Net
      income (loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,796,529
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (3,191,223
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    1,676,787
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    282,093Less:
      net loss attributable to noncontrolling interest
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,526
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,526Net
      income (loss) - America First Tax Exempt Investors, L. P.
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    1,800,055
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (3,191,223
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    1,676,787
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    285,619





10
 4.  Investments
in Tax-Exempt Bonds





The
tax-exempt mortgage revenue bonds owned by the Company have been issued to
provide construction and/or permanent financing of multifamily residential
properties. The Company had the following investments in tax-exempt mortgage
revenue bonds as of the dates shown:




June
      30, 2009Description
      of Tax-Exempt
                        
                        
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        EstimatedMortgage
      Revenue Bonds
                        
                        Cost
                        
                        
                        Gain
                        
                        
                        Loss
                        
                        
                        Fair
      ValueClarkson
      College
                        
                        $
                        5,978,333
                        
                        
                        $
                        -
                        
                        
                        $
                        (939,862
                        )
                        
                        $
                        5,038,471Bella
      Vista
                        
                        
                        6,740,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,341,125
                        )
                        
                        
                        5,398,875Woodland
      Park
                        
                        
                        15,715,000
                        
                        
                        
                        -
                        
                        
                        
                        (3,511,988
                        )
                        
                        
                        12,203,012Gardens
      of DeCordova
                        
                        
                        4,853,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,196,459
                        )
                        
                        
                        3,656,541Gardens
      of Weatherford
                        
                        
                        4,686,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,155,286
                        )
                        
                        
                        3,530,714Runnymede
      Apartments
                        
                        
                        10,825,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,979,351
                        )
                        
                        
                        8,845,649Bridle
      Ridge Apartments
                        
                        
                        7,885,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,563,201
                        )
                        
                        
                        6,321,799Woodlynn
      Village
                        
                        
                        4,550,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,054,872
                        )
                        
                        
                        3,495,128$
                        61,232,333
                        
                        
                        $
                        -
                        
                        
                        $
                        (12,742,144
                        )
                        
                        $
                        48,490,189December
      31, 2008Description
      of Tax-Exempt
                        
                        
                        
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        EstimatedMortgage
      Revenue Bonds
                        
                        Cost
                        
                        
                        Gain
                        
                        
                        Loss
                        
                        
                        Fair
      ValueClarkson
      College
                        
                        $
                        6,018,333
                        
                        
                        $
                        -
                        
                        
                        $
                        (1,241,441
                        )
                        
                        $
                        4,776,892Bella
      Vista
                        
                        
                        6,785,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,821,433
                        )
                        
                        
                        4,963,567Woodland
      Park
                        
                        
                        15,715,000
                        
                        
                        
                        -
                        
                        
                        
                        (4,507,533
                        )
                        
                        
                        11,207,467Gardens
      of DeCordova
                        
                        
                        4,870,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,493,142
                        )
                        
                        
                        3,376,858Gardens
      of Weatherford
                        
                        
                        4,702,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,566,989
                        )
                        
                        
                        3,135,011Runnymede
      Apartments
                        
                        
                        10,825,000
                        
                        
                        
                        -
                        
                        
                        
                        (2,902,074
                        )
                        
                        
                        7,922,926Bridle
      Ridge Apartments
                        
                        
                        7,885,000
                        
                        
                        
                        -
                        
                        
                        
                        (2,047,419
                        )
                        
                        
                        5,837,581Woodlynn
      Village
                        
                        
                        4,550,000
                        
                        
                        
                        -
                        
                        
                        
                        (1,277,776
                        )
                        
                        
                        3,272,224$
                        61,350,333
                        
                        
                        $
                        -
                        
                        
                        $
                        (16,857,807
                        )
                        
                        $
                        44,492,526





Valuation
- As all of the Company’s investments in tax-exempt mortgage revenue bonds are
classified as available-for-sale securities, they are carried on the balance
sheet at their estimated fair values.  Due to the limited market for
the tax-exempt bonds, these estimates of fair value do not necessarily represent
what the Company would actually receive in a sale of the bonds.  There
is no active trading market for the bonds and price quotes for the bonds are not
generally available.  As of June 30, 2009 and December 31, 2008, all
of the Company’s tax-exempt mortgage revenue bonds were valued using discounted
cash flow and yield to maturity analyses performed by
management.  Management’s valuation encompasses judgment in its
application.  The key assumption in management’s yield to maturity
analysis is the range of effective yields on the individual bonds.  At
June 30, 2009, the range of effective yields on the individual bonds was 7.8% to
8.5%.  Additionally, the Company calculated the sensitivity of the key
assumption used in calculating the fair values of these
bonds.  Assuming an immediate 10 percent adverse change in the key
assumption, the effective yields on the individual bonds would increase to a
range of 8.6% to 9.5% and would result in additional unrealized losses on the
bond portfolio of approximately $4.1 million.  This sensitivity
analysis is hypothetical and is as of a specific point in time.  The
results of the sensitivity analysis may not be indicative of actual changes in
fair value and should be used with caution.  If available, the general
partner may also consider price quotes on similar bonds or other information
from external sources, such as pricing services.  Pricing services,
broker quotes and management’s analyses provide indicative pricing
only.





Unrealized
gains or losses on these tax-exempt bonds are recorded in accumulated other
comprehensive income (loss) to reflect changes in their estimated fair values
resulting from market conditions and fluctuations in the present value of the
expected cash flows from the underlying properties. As of June 30, 2009, all of
the current bond investments have been in an unrealized loss position for
greater than twelve months.  The current unrealized losses on the
bonds are not considered to be other-than-temporary because the Company has the
intent and ability to hold these securities until their value recovers or until
maturity, if necessary.  Ultimately, the Company views the bond
collateral as the most likely source of bond principal
repayment.  Therefore, as long as the value of the real property
securing the bonds exceeds the outstanding bond principal, the Company believes
that no other-than-temporary impairment is indicated.  The unrealized
gain or loss will continue to fluctuate each reporting period based on the
market conditions and present value of the expected cash flow.




In
general, credit and capital markets have deteriorated over the past 12 to 18
months.  The deterioration has negatively impacted the fair value of
the bonds over that same time period.  Although valuations have
improved in the second quarter, if uncertainties in these markets continue, the
markets deteriorate further or the Company experiences further deterioration in
the values of its investment portfolio, or if the Company’s intent and ability
to hold certain bonds changes, the Company may recognize impairments to its
investment portfolio through earnings which would negatively impact the
Company’s results of operations.


11
 In July
2009, the Company made taxable loans to the property owners of Woodland Park and
The Gardens of Decordova to allow for the continued lease up and stabilization
of the properties and the payment of bond debt service.  Such taxable
loans were approximately $700,000 and $290,000, respectively.  The
construction of Woodland Park was completed in November 2008 and lease up
continues.  As of June 30, 2009, the property had 81 units leased out
of a total available units of 236, or 34% physical occupancy.  The
construction of The Gardens of Decordova was completed in April 2009 and lease
up continues.  As of June 30, 2009, the property had 18 units leased
out of a total available units of 76, or 24% physical
occupancy.
  During
the first quarter of 2009, the Company made a taxable loan to the owners of The
Gardens of Weatherford Apartments of approximately $141,000 to help fund
construction activities and current bond debt service reserves through
construction completion and property stabilization.  The Gardens of
Weatherford Apartments is currently under construction in Weatherford, Texas and
will contain 76 units upon completion.  The developer and principals
have guaranteed completion and stabilization of the project.  The
general contractor has a guaranteed maximum price contract and payment and
performance bonds are in place. Due to numerous zoning, planning and design
issues encountered in the building permit application process, construction on
this project is significantly behind schedule.  At this time
infrastructure construction activities have been substantially completed but no
construction has begun on the actual apartment buildings.  The
developer is currently evaluating the project funding and is investigating
potential sources of additional or alternative funding should such additional
funds be required to complete the project.  At this time the estimated
final completion date is March 2010 with some units available for rent in
December 2009.





In June
2007, the Company acquired bonds with a combined face value of $5.9 million, the
proceeds of which were to be used to finance the construction of a 72 unit
multifamily apartment complex in Gardner, Kansas known as Prairiebrook
Village.  The property owner defaulted on these bonds and the bond
trustee filed a petition of foreclosure on the mortgage securing the bonds in
May 2008.  In October 2008, the Company received approximately $4.5
million from the trustee representing unused bond proceeds.  The bond
trustee has received a summary judgment against the owner and developer for the
unpaid principal balance.  Currently the land which was owned by the
project is being held for sale by the bond trustee.  Upon the sale of
the land the Company intends to pursue its remedies against the project owner
and developer on its guarantees.  The Company has recorded a
receivable of $1.0 million which is included in Other Assets on the Condensed
Consolidated Balance Sheet and holds the related land as an asset held for sale
valued at $375,000.





5.  Real
Estate Assets





To
facilitate its investment strategy of acquiring additional tax-exempt mortgage
bonds secured by multifamily apartment properties (“MF Properties”), the
Partnership has caused its various Holding Companies to acquire 99% limited
partner positions in the nine limited partnerships that own the MF
Properties.  The general partners of these partnerships are
unaffiliated parties and their 1% ownership interest in these limited
partnerships is reflected in the Company’s consolidated financial statements as
non-controlling interests.  The Partnership expects to ultimately
restructure the property ownership through a sale of the MF Properties and a
syndication of the associated low income housing tax credits
(“LIHTCs”).  The Partnership expects to provide the tax-exempt
mortgage revenue bonds to the new property owners as part of the
restructuring.  Such restructurings will generally be expected to be
initiated within 36 months of the 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.  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.  Management believes that these types of transactions
represent a long-term market opportunity for the Company and provide a
significant future bond investment pipeline when the market for LIHTC
syndications strengthens.  Until such a restructuring occurs the
operations of the properties owned by the limited partnerships are consolidated
with the Partnership.  The Partnership will not acquire LIHTCs in
connection with these transactions.





At June
30, 2009, the Partnership held an interest 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 Georgia, and one in North
Carolina.





The ninth
MF Property, Greens of Pine Glen Limited Partnership (“Greens”), which is
located in North Carolina, was acquired in February 2009, for a $7.0 million
purchase price.  The Company incurred transaction expenses of
approximately $165,000 which were expensed based on the Company’s adoption of
SFAS No. 141R on January 1, 2009. As a result, the financial statements of this
property have been consolidated with those of the Partnership since that
time.  The Company has preliminarily allocated $6.8 million of the
purchase price to real estate assets.  The purchase price was funded
through an assumed mortgage loan of $6.5 million and cash on hand. The unpaid
balance of the note bears a 7% annual interest rate payable
monthly.  The initial maturity date of the loan is September 2010 at
which time the borrower has an option to extend the note for 18
months.




In
addition to the MF Properties, the Partnership consolidates the assets,
liabilities and results of operation of the VIEs in accordance with FIN
46R.  Although the assets of the VIEs are consolidated, the
Partnership has no ownership interest in the VIEs other than to the extent they
serve as collateral for the tax-exempt mortgage revenue bonds owned by the
Partnership.  The results of operations of those properties are recorded by
the Company in consolidation but any net income or loss from these properties
does not accrue to the BUC holders or the general partner, but is instead
included in "Unallocated deficit of variable interest entities.”


12


6.  Discontinued
Operations and Assets Held for Sale





In April
2009, the Company acquired the Series A and B Oak Grove Commons Apartments
tax-exempt mortgage revenue bonds for $2.6 million which represented 100% of the
bond issuance.  The Series A bond par value is $5.6 million and the
Series B bond par value is $1.4 million.  The bonds were issued for
the construction of the Oak Grove Commons Apartments, a 168 unit multifamily
apartment complex located in Conway, Arkansas.  At the time of
acquisition the bonds were in technical default as the property had not reached
stabilization and was not current on debt service.  The Company
purchased the bonds with the intent to evaluate the property and determine if
the bonds could be restructured and maintained as an investment.  The
Company determined that it would no longer maintain the bond as an investment
and, therefore, foreclosed on the bonds.  In June the Company took
ownership of the property with the intent to sell the apartment complex to a
third party.  At this time the property assets are presented as assets
held for sale.  The Company expects to complete a sale of the property
before year end at a price in excess of the $2.6 million paid to acquire the
bonds.




In
February 2009, the tax-exempt mortgage revenue bonds secured by Ashley Pointe at
Eagle Crest in Evansville, Indiana, Woodbridge Apartment of Bloomington III in
Bloomington, Indiana, and Woodbridge Apartments of Louisville II in Louisville,
Kentucky were redeemed.  The properties financed by these redeemed
mortgage revenue bonds were required to be consolidated into the Company’s
financial statements as VIEs under FIN 46R.  During the fourth
quarter of 2008, these VIEs met the criteria for discontinued operations under
SFAS No. 144, Accounting
for the Impairment or Disposal of Long-lived Assets(“SFAS No. 144”), and
they were classified as such in the consolidated financial statements for all
periods presented. In order to properly reflect the transaction under FIN 46R,
the Company recorded the redemption of the bonds as a sale of the properties as
though they were owned by the Company.  The transaction was completed
for a total purchase price of $32.0 million resulting in a gain on sale for GAAP
reporting to the Company of approximately $26.5 million.  The
redemption of the bonds did not result in a taxable gain to the
Partnership.  The redeemed bonds were collateral on the Company’s TOB
facility.  As of the closing date of the redemption, the Company
placed on deposit with Bank of America $23.6 million as replacement
collateral.  The restricted cash amount was released on June 18, 2009
when the TOB facility was collapsed and the Company entered into its’ new term
loan agreement with Bank of America (see Note 7).





As of
December 31, 2008, $19.6 million of the total outstanding debt related to the
Company’s bond portfolio was allocated to discontinued operations.
  Interest expense was allocated to discontinued operations based on
the historical effective rate of the Company’s debt financing applied to the
debt financing allocated to discontinued operations.  The Company allocated
to discontinued operations interest expense of $0 and $81,500 for the three and
six months ended June 30, 2009, respectively, and $242,300 and $607,400 for the
three and six months ended June 30, 2008, respectively.





The
following presents the components of the assets and liabilities of discontinued
operations as of June 30, 2009 and December 31, 2008 and the revenues, expenses
and income from discontinued operations, excluding the gain on sale of $26.5
million, for the three and six months ended June 30, 2009 and
2008.


June
      30, 2009
                                                
                                                
                                                Dec.
      31, 2008Cash
      and cash equivalents
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                164,861Restricted
      cash
                                                
                                                
                                                -
                                                
                                                
                                                
                                                322,560Land
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,497,355Buildings
      and improvements
                                                
                                                
                                                -
                                                
                                                
                                                
                                                23,696,355Real
      estate assets before accumulated depreciation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                25,193,710Accumulated
      depreciation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (17,927,345
                                                )Net
      real estate assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                7,266,365Other
      assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                360,075Total
      assets from discontinued operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                8,113,861Total
      liabilities of discontinued operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                23,264,589Net
      deficits of discontinued operations
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (15,150,728
                                                )Three
      Months Ended June 30,2009
                                                
                                                
                                                2008Rental
      Revenues
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                1,290,463Expenses
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,110,517Income
      from discontinued operations
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                179,946Six
      Months Ended June 30,2009
                                                
                                                
                                                2008Rental
      Revenues
                                                
                                                $
                                                849,366
                                                
                                                
                                                $
                                                2,612,408Expenses
                                                
                                                
                                                501,926
                                                
                                                
                                                
                                                2,238,705Income
      from discontinued operations
                                                
                                                $
                                                347,440
                                                
                                                
                                                $
                                                373,703




13


7.  Debt
Financing and Mortgage Payable





In June
2009, the Company entered into a new secured credit facility with Bank of
America which refinanced the maturing Tender Option Bond (“TOB”)
facility.  The new credit facility has a one-year term with a
six-month renewal option held by the Company, an annual floating interest rate
of daily LIBOR plus 390 basis points and a loan amount of $50.0
million.  The proceeds from the new credit facility plus the cash
collateral held by Bank of America for the TOB facility were used to retire the
outstanding balance on the TOB facility.  The new credit facility is
secured by 13 tax-exempt mortgage revenue bonds with a total par value of $112.1
million plus approximately $1.5 million in restricted cash.  Financial
covenants for the new credit facility include the maintenance of a leverage
ratio not to exceed 70% and a minimum liquidity of $5.0 million by the
Company.  Additionally, the properties which secure the bond portfolio
which is collateral for the new credit 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%.  At June 30, 2009, all of the Company’s debt financing was
attributable to continuing operations. As of December 31, 2008, the Company had
debt financing of $76.6 million secured by 17 tax-exempt mortgage revenue bonds
with a total par value of $141.3 million plus approximately $5.0 million in
restricted cash.  At December 31, 2008, three of the tax-exempt
mortgage revenue bonds securing the debt financing were those of the
consolidated VIEs presented as discontinued operations.  Accordingly,
$19.6 million of the debt financing was classified in liabilities of
discontinued operations.  The remaining $57.0 million of debt
financing at December 31, 2008, was classified as continuing
operations.




As of
June 30, 2009, Mortgages Payables related to the MF Properties totaled
approximately $37.3 million.  The acquisition of the Greens of Pine
Glen in February 2009 was financed with an assumed mortgage loan of $6.5
million. The unpaid balance of the note bears a 7% annual interest rate payable
monthly.  The initial maturity date of the loan is September 2010 at
which time the borrower has an option to extend the note for 18 months.
Approximately $19.9 million in outstanding mortgage financing related to the MF
Properties located in Ohio and Kentucky was due in July 2009.  This
mortgage loan contains three one-year renewal options held by the
borrower.  The borrower provided the appropriate notification to the
lender of its intent to renew the mortgage for an additional year from the date
of original maturity.  Subsequent to June 30, 2009, the borrower
entered into a Maturity Date Extension Agreement for the mortgage loan which
extended the maturity on the mortgage one year to July 2010.  In
connection with the extension, the Company paid down the mortgage balance
related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million in July 2009 resulting in a new outstanding mortgage balance of
approximately $12.8 million and the Eagle Ridge and Meadowview properties were
released as collateral for the loan.





The
Company’s aggregate borrowings as of June 30, 2009 contractually mature over the
next five years and thereafter as follows, after allowing for the subsequent
mortgage extension and pay down as discussed above:


2009
                            
                            $
                            7,341,6322010
                            
                            
                            62,851,6252011
                            
                            
                            4,622,8922012
                            
                            
                            6,406,4332013
                            
                            
                            6,107,673Thereafter
                            
                            
                            -Total
                            
                            $
                            87,330,255





The
Company continues to explore refinancing opportunities for its outstanding
debt.  While the Company expects to be able to renew or refinance its
debt as it maturities, if the current illiquidity in the financial markets
continues or further deteriorates, the counterparties on the Company’s credit
facilities may be unable or unwilling to meet their commitments and the
Company’s ability to renew or refinance its outstanding debt financing may be
negatively affected.





8.  Issuance
of Additional Beneficial Unit Certificates





In May
2009, the Partnership issued, through an underwritten public offering, a total
of 3,500,000 BUCs at a public offering price of $5.00 per BUC. Net proceeds
realized by the Partnership from the issuance of the additional BUCs were
approximately $16.2 million, after payment of an underwriter's discount and
other offering costs of approximately $1.3 million. The proceeds will be used to
acquire additional tax-exempt revenue bonds and other investments meeting the
Partnership's investment criteria as described in Notes 1 and 4, and for general
working capital needs. The offering was made pursuant to a shelf registration
statement filed with the Securities and Exchange Commission.




9.  Transactions
with Related Parties





The
general partner of the Partnership, AFCA 2, is entitled to receive an
administrative fee from the Partnership equal to 0.45% per annum of the
outstanding principal balance of any of its tax-exempt mortgage revenue bonds or
other tax-exempt investments for which the owner of the financed property or
other third party is not obligated to pay such administrative fee directly to
AFCA 2. For the three and six months ended June 30, 2009, the Partnership paid
administrative fees to AFCA 2 of approximately $67,500 and $138,000,
respectively.  For the three and six months ended June 30, 2008, the
Partnership paid administrative fees to AFCA 2 of approximately $83,400 and
$175,900, respectively. In addition to the administrative fees paid directly by
the Partnership, AFCA 2 receives administrative fees directly from the owners of
properties financed by certain of the tax-exempt mortgage revenue bonds held by
the Partnership.  These administrative fees also equal 0.45% per annum
of the outstanding principal balance of these tax-exempt mortgage revenue bonds
and totaled approximately $56,000 and $117,600 for the three and six months
ended June 30, 2009, respectively. For the three and six months ended June 30,
2008, these administrative fees totaled approximately $77,600 and $168,000,
respectively.


14


AFCA 2
earned mortgage placement fees in connection with the acquisition of certain
tax-exempt mortgage revenue bonds.  These mortgage placement fees were
paid by the owners of the respective properties and, accordingly, have not been
reflected in the accompanying condensed consolidated financial statements
because these properties are not considered VIEs. During the three and six
months ended June 30, 2009, AFCA 2 earned mortgage placement fees of
approximately $0 and $91,700, respectively. During the three and six months
ended June 30, 2008, AFCA 2 earned mortgage placement fees of approximately $0
and $61,250, respectively.




An
affiliate of AFCA 2, America First Property Management Company, LLC (“Properties
Management”), was retained to provide property management services for Ashley
Square, Ashley Pointe at Eagle Crest, Iona Lakes Apartments, Bent Tree
Apartments, Lake Forest Apartments, Fairmont Oaks Apartments, Cross Creek
Apartments, Eagle Ridge, Crescent Village, Meadowview, Willow Bend, Postwoods I,
Postwoods II, Churchland, Glynn Place and The Greens. The management fees paid
to Properties Management amounted to approximately $204,800 and $429,600 for the
three and six months ended June 30, 2009, respectively. The management fees paid
to Properties Management during the first three and six months ended June 30,
2008 totaled approximately $186,000 and $366,000, respectively. For the VIEs,
these management fees are not Partnership expenses but are recorded by each
applicable VIE entity and, accordingly, have been reflected in the accompanying
consolidated financial statements. Such fees are paid out of the revenues
generated by the properties owned by the VIEs prior to the payment of any
interest on the tax-exempt mortgage revenue bonds and taxable loans held by the
Partnership on these properties. For the MF Properties, these management fees
are considered real estate operating expenses.  Additionally,
Properties Management was retained to provide property management services for
Clarkson College and Chandler in 2008 and Clarkson College, Woodland Park,
Gardens of Decordova and Oak Grove in 2009.  The management fees paid
to Properties Management by these entities amounted to approximately $47,500 and
$68,200 during the three and six months ended June 30, 2009, respectively. The
management fees paid to Properties Management by these entities amounted to
approximately $16,000 and $39,000 during the three and six months ended June 30,
2008, respectively.




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 Company
are employees of The Burlington Capital Group LLC, the general partner of AFCA 2
(“Burlington”) who are not involved in the operation or management of the
Company and who are not executive officers or managers of Burlington.





10.  Interest
Rate Derivative Agreements





As of
June 30, 2009, the Company has three derivative agreements in order to mitigate
its exposure to increases in interest rates on its variable-rate debt financing
and mortgages payable. The terms of the derivative agreements are as
follows:




Effective
                
                Maturity
                
                PurchaseDate
      Purchased
                
                Notional
      Amount
                
                
                Capped
      Rate
                
                Date
                
                Price
                
                CounterpartyJune
      18, 2009
                
                $
                50,000,000
                
                
                
                0.75
                %
                December
      31, 2010
                
                $
                554,000
                
                Bank
      of AmericaJune
      29, 2007
                
                $
                19,920,000
                
                
                
                8.30
                %
                July
      1, 2009
                
                $
                17,500
                
                JP
      MorganOctober
      29, 2008
                
                $
                4,480,000
                
                
                
                6.00
                %
                November
      1, 2011
                
                $
                26,512
                
                Bank
      of America




Prior to
June 2009, the Company had four derivative agreements.  As part of the
refinancing of the TOB facility two of these agreements were cancelled and one
new derivative was purchased.  The cancelled derivatives were a $15.0
million interest rate swap and a $60.0 million interest rate cap.  The
cancellation of these derivatives resulted in a cash payment by the Company to
counterparties of approximately $62,300.  The derivative purchased is
a one-month LIBOR interest rate cap with a notional value of $50.0 million which
was purchased for approximately $554,000.  This new interest rate cap
effectively caps the interest rate to be paid on the Company’s new secured
credit facility at 0.75% plus 390 basis points, or 4.65%.  In
addition, in July 2009, the Company purchased a new interest rate cap related to
the mortgage extension discussed in Footnote 7.  This derivative is a
0.5% interest rate cap with a notional value of $12.8 million and a purchase
price of $51,500.





These
interest rate derivatives do not qualify for hedge accounting and, accordingly,
they are carried at fair value, with changes in fair value included in current
period earnings within interest expense. The change in the fair value of these
derivative contracts resulted in an increase in interest expense of
approximately $37,100 and $490,500 for the three and six months ended June 30,
2009, respectively. The change in fair value of these derivative contracts
resulted in an approximate $145,000 decrease in interest expense for the three
months ended June 30, 2008 and an increase in interest expense of approximately
$38,000 for the six months ended June 30, 2008.





15


11.  Segment
Reporting





The
Company consists of three reportable segments, Tax-Exempt Bond Investments, MF
Properties, and VIEs.  In addition to the three reportable segments,
the Company also separately reports its consolidation and elimination
information because it does not allocate certain items to the
segments.





Tax-Exempt
Bond Investments Segment





The
Tax-Exempt Bond Investments segment consists of the Company’s portfolio of
federally tax-exempt mortgage revenue bonds which have been issued to provide
construction and/or permanent financing of multifamily residential
apartments.  Such tax-exempt bonds are held as long-term
investments.  As of June 30, 2009, the Company held nine tax-exempt
bonds (secured by eight properties) not associated with VIEs and six tax-exempt
bonds associated with VIEs.  The multifamily apartment properties
financed by these tax-exempt bonds contain a total of 1,137 rental
units.




MF
Properties Segment





The MF
Properties segment consists of indirect equity interests in multifamily
apartment properties which are not currently financed by tax-exempt bonds held
by the Partnership but which the Partnership eventually intends to finance by
such bonds through a restructuring.  In connection with any such
restructuring, the Partnership will be required to dispose of any equity
interest held in such MF Properties.  The Partnership’s interests in
its current MF Properties are not currently classified as Assets Held for Sale
because the Partnership is not actively marketing them for sale, there is no
definitive purchase agreement in existence and, therefore, no sale is expected
in the next twelve months.  During the time the Partnership holds an
interest in a MF Property, any net rental income generated by the MF Properties
in excess of debt service will be available for distribution to the Partnership
in accordance with its interest in the MF Property.  Any such cash
distribution will contribute to the Partnership’s Cash Available for
Distribution (“CAD”).  As of June 30, 2009, the Company held limited
partner interests in the owners of nine MF Properties containing a total of 964
rental units.





The
VIE Segment





The VIE
segment consists of multifamily apartment properties which are financed with
tax-exempt bonds held by the Partnership, the assets, liabilities and operating
results of which are consolidated with those of the Partnership as a result of
FIN 46R.  The tax-exempt bonds on these VIE properties are eliminated
from the Company’s financial statements as a result of such consolidation,
however, such bonds are held as long-term investments by the Partnership which
continues to be entitled to receive principal and interest payments on such
bonds.  The Company does not actually own an equity position in the
VIEs or their underlying properties.  As of June 30, 2009, the Company
consolidated six VIE multifamily apartment properties containing a total of
1,288 rental units.




Management
closely monitors and evaluates the financial reporting associated with and the
operations of the VIEs and the MF Properties and performs such evaluation
separately from the other operations of the Partnership through interaction with
the affiliated property management company which manages the multifamily
apartment properties held by the VIEs and the MF Properties.




Management’s
goals with respect to the properties constituting each of the Company’s
reportable segments is to generate increasing amounts of net rental income from
these properties that will allow them to (i) make all payments of base
interest, and possibly pay contingent interest, on the properties included in
the Tax-Exempt Bond Investments segment and the VIE segment, and
(ii) distribute net rental income to the Partnership from the MF Properties
segment until such properties can be refinanced with additional tax-exempt
mortgage bonds meeting the Partnership’s investment criteria.  In
order to achieve these goals, management of these multifamily apartment
properties is focused on: (i) maintaining high economic occupancy and increasing
rental rates through effective leasing, reduced turnover rates and providing
quality maintenance and services to maximize resident satisfaction; (ii)
managing operating expenses and achieving cost reductions through operating
efficiencies and economies of scale generally inherent in the management of a
portfolio of multiple properties; and (iii) emphasizing regular programs of
repairs, maintenance and property improvements to enhance the competitive
advantage and value of its properties in their respective market
areas.





16


The
following table details certain key financial information for the Company’s
reportable segments for the three and six month periods ended June 30, 2009 and
2008:


For
      the Three Months Ended
                                                                                                                            
                                                                                                                            
                                                                                                                            For
      the Six Months EndedJune
      30, 2009
                                                                                                                            
                                                                                                                            
                                                                                                                            June
      30, 2008
                                                                                                                            
                                                                                                                            
                                                                                                                            June
      30, 2009
                                                                                                                            
                                                                                                                            
                                                                                                                            June
      30, 2008Total
      revenueTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,145,230
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,454,726
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            6,694,763
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            5,118,998MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            1,838,963
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,091,763
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            3,470,661
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,184,799VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            2,064,029
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,251,925
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            4,183,574
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            4,472,284Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,072,520
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,438,579
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (4,639,694
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (2,866,153
                                                                                                                            )Total
      revenue
                                                                                                                            
                                                                                                                            $
                                                                                                                            4,975,702
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            4,359,835
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            9,709,304
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            8,909,928Interest
      expenseTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            $
                                                                                                                            668,623
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            666,740
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,691,243
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,939,885MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            296,707
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            209,153
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            546,509
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            459,563VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            1,638,576
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,477,724
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            3,149,420
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,945,585Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,638,577
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,720,094
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (3,230,974
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (3,553,069
                                                                                                                            )Total
      interest expense
                                                                                                                            
                                                                                                                            $
                                                                                                                            965,329
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            633,523
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,156,198
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,791,964Depreciation
      expenseTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            $
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            -MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            463,730
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            229,598
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            864,158
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            459,196VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            610,843
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            571,811
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,189,209
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,128,852Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -Total
      depreciation expense
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,074,573
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            801,409
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,053,367
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,588,048Income
      (loss) from continuing operationsTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            $
                                                                                                                            659,297
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,211,252
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            3,260,819
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,149,143MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            (296,568
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (78,163
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (682,410
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (352,614
                                                                                                                            )VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,735,851
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,335,984
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (3,041,751
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (2,604,685
                                                                                                                            )Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            799,792
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            294,385
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,085,532
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            716,546Income
      (loss) from continuing operations
                                                                                                                            
                                                                                                                            $
                                                                                                                            (573,330
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            91,490
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (1,548,874
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (91,610
                                                                                                                            )Net
      income (loss)Tax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            $
                                                                                                                            659,297
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            1,211,252
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            3,260,819
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,149,143MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            (293,604
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (77,382
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (675,586
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (349,088
                                                                                                                            )VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,735,851
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,695,913
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            31,744,694
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (3,191,223
                                                                                                                            )Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            799,792
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            834,260
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (9,137,223
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            1,676,787Net
      income
                                                                                                                            
                                                                                                                            $
                                                                                                                            (570,366
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            272,217
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            25,192,704
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            285,619June
      30, 2009
                                                                                                                            
                                                                                                                            
                                                                                                                            December
      31, 2008Total
      assetsTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            135,915,539
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            158,156,573MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            54,634,324
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            47,571,345VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            58,299,480
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            56,467,499Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (74,182,557
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (104,322,141
                                                                                                                            )Total
      assets
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            174,666,786
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            157,873,276Total
      partners' capitalTax-Exempt
      Bond Financing
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            92,467,992
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            77,498,951MF
      Properties
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            6,725,812
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            6,771,635VIEs
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (37,923,670
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (69,668,362
                                                                                                                            )Consolidation/eliminations
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            19,872,159
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            26,225,387Total
      partners' capital
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            81,142,293
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            40,827,611




17




12.
Commitments and Contingencies





The
Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance.
If it has been determined that a loss is probable to occur, the estimated amount
of the loss is accrued in the consolidated financial statements. While the
resolution of these matters cannot be predicted with certainty, management
believes the final outcome of such matters will not have a material adverse
effect on the Company’s consolidated financial statements.





13.  Recently
Issued Accounting Pronouncements





In June
2009, the FASB   issued   Statement
No. 168,     The    
FASB     Accounting     Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162(SFAS No. 168). The Codification will become the source of authoritative
GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date of
SFAS No. 168, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. SFAS No. 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. SFAS No. 168 is
not expected to have a material impact on the financial statements.




In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R)(SFAS No. 167). SFAS No. 167 retains the scope of
Interpretation 46(R), Consolidation of Variable Interest
Entities, with the addition of entities previously considered qualifying
special-purpose entities, as the concept of these entities was eliminated in
FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140. SFAS No.
167 shall be effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is currently evaluating the impact of
SFAS No. 167 on the financial statements.




In June
2009, the FASB issued Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140(SFAS No.
166). On and after the effective date of SFAS No. 166 , the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities (as defined under
previous accounting standards) should be evaluated for consolidation by
reporting entities on and after the effective date in accordance with the
applicable consolidation guidance. SFAS No. 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. SFAS
No. 166 is not expected to have a material impact on the financial
statements.




In May
2009, the FASB issued Statement No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires
the disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date. SFAS No. 165 was effective for interim or
annual financial periods ending after June 15, 2009. The adoption of SFAS
No. 165 did not affect the consolidated balance sheet, statement of operations,
or cash flows.





On
January 1, 2009, the Company adopted SFAS No. 141R, Business Combinations, which
changes the way the Company accounts for business acquisitions (SFAS No.
141R).  SFAS No. 141R requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction and establishes the acquisition date fair value as
the measurement objective for all assets acquired and liabilities assumed in a
business combination.  Certain provisions of SFAS No. 141R will, among
other things, impact the determination of acquisition date fair value of
consideration paid in a business combination, exclude transaction costs from
acquisition accounting and change some accounting practices.





On
January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No.
160).  SFAS No. 160 requires that a noncontrolling interest in a
subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements.  It also calls for consistency in
the manner of reporting changes in the parent’s ownership interest and requires
fair value measurement of any noncontrolling equity investment retained in
deconsolidation.  The adoption of SFAS No. 160 recharacterized
minority interests as noncontrolling interests and reclassified minority
interests as a component of equity on the Company’s financial
statements.  Prior year amounts relating to noncontrolling interests
have been reclassified to conform to current year presentation as required by
SFAS No. 160.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following
FASB Staff Positions (“FSP”):





FSP FAS
157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.





FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales and reaffirms what SFAS
No. 157 states is the objective of fair value measurement—to reflect how much an
asset would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive.


18


FSP FAS
107-1 and APB 28-1 relate to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value. Prior to issuing this FSP, fair values for these assets and
liabilities were only disclosed once a year. The FSP now requires these
disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all financial instruments not
measured on the balance sheet at fair value.





FSP FAS
115-2 and FAS 124-2 on other-than-temporary impairments is intended to bring
greater consistency to the timing of impairment recognition, and provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. The measure of impairment in
comprehensive income remains fair value. The FSP also requires increased and
timelier disclosures sought by investors regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses.





The FSPs
were effective for the Company for interim and annual periods ending after June
15, 2009 and did not have a material impact on the Company’s financial
statements.




14.   Fair
Value Measurements




Effective
January 1, 2008, the Company adoptedSFAS No. 157,Fair Value Measurements
(“SFAS 157”) which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. The adoption
of SFAS 157 did not significantly change the method in which the Company
measures fair value, but it requires certain additional disclosures, as set
forth below.  The provisions of SFAS 157 apply to other accounting
pronouncements that require or permit fair value measurements.  SFAS
157:




·
            Defines
      fair value as the exchange price that would be received for an asset or
      paid to transfer a liability (an exit price) in the principal or most
      advantageous market for the asset or liability in an orderly transaction
      between market participants at the measurement date;
  and




·
            Establishes
      a three-level hierarchy for fair value measurements based upon the
      transparency of inputs to the valuation of an asset or liability as of the
      measurement date.




Inputs
refer broadly to the assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk.  To increase
consistency and comparability in fair value measurements and related
disclosures, the fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.  The
three-levels of the hierarchy are defined as follows:




·
            Level
      1 inputs are quoted prices (unadjusted) in active markets for identical
      assets or liabilities.




·
            Level
      2 inputs are inputs other than quoted prices included within Level 1 that
      are observable for the asset or liability, either directly or indirectly,
      for substantially the full term of the financial
    instrument.




·
            Level
      3 inputs are unobservable inputs for asset or
  liabilities.




The
categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.




Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value.





Investments in Tax-exempt Mortgage
Revenue Bonds.The fair values of the Company’s investments in
tax-exempt mortgage revenue bonds have each been based a discounted cash flow
and yield to maturity analyses performed by the general
partner.  There is no active trading market for the bonds and price
quotes for the bonds are not available.  If available, the general
partner may also consider price quotes on similar bonds or other information
from external sources, such as pricing services.  The estimates of the
fair values of these bonds, whether estimated by the Company or based on
external sources, are based largely on unobservable inputs the general partner
believes would be used by market
participants.  Additionally, the calculation methodology used by the
external sources and the Company encompasses the use of judgment in their
application. Given these facts the fair value measurement of the Company’s
investment in tax-exempt mortgage revenue bonds is categorized as a Level 3
input.





Interest rate
derivatives.The effect of the Company’s interest rate caps is
to set a cap, or upper limit, on the base rate of interest paid on the Company’s
variable rate debt equal to the notional amount of the derivative
agreement.  The effect of the Company’s interest rate swap is to
change a variable rate debt obligation to a fixed rate for that portion of the
debt equal to the notional amount of the derivative agreement.  The
interest rate derivatives are recorded at fair value with changes in fair value
included in current period earnings within interest expense.  The fair
value of the interest rate derivatives is based on a model whose inputs are not
observable and therefore are categorized as a Level 3 input.


19
 Assets
and liabilities measured at fair value on a recurring basis, in thousands, are
summarized below:


Fair
      Value Measurements at June 30, 2009Quoted
      Prices in
      Active Markets for
      Identical Assets (Level 1)
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  Significant
      Other
      Observable Inputs
      (Level 2)Significant
      Unobservable
      Inputs (Level 3)Assets/Liabilities
      at Fair ValueDescriptionAssetsTax-exempt
      Mortgage Revenue Bonds
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,490,189
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,490,189Interest
      Rate Derivatives
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  428,627
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  428,627Total
      Assets at Fair Value
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,918,816
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,918,816For
      six months ended June 30, 2009 Fair
      Value Measurements Using Significant Unobservable
      Inputs (Level 3)Tax-exempt
      Mortgage Revenue Bonds
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  Interest
      Rate DerivativesTotalBeginning
      Balance January 1, 2009
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,492,526
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  302,849
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,795,375Total
      gains or losses (realized/unrealized)Included
      in earnings
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (490,522
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (490,522
                                                                                                                                                                                                                                                                  )Included
      in other comprehensive income
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  4,115,663
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  4,115,663Purchases,
      issuances and settlements
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (118,000
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  616,300
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  498,300Ending
      Balance June 30, 2009
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,490,189
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  428,627
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  48,918,816Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of June 30, 2009
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  (490,522
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  (490,522
                                                                                                                                                                                                                                                                  )Fair
      Value Measurements at December 31, 2008Quoted
      Prices in
      Active Markets for
      Identical Assets (Level 1)
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  Significant
      Other
      Observable Inputs
      (Level 2)Significant
      Unobservable
      Inputs (Level 3)Assets/Liabilities
      at Fair ValueDescriptionAssetsTax-exempt
      Mortgage Revenue Bonds
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,492,526
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,492,526Interest
      Rate Derivatives
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  302,849
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  302,849Total
      Assets at Fair Value
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,795,375
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  44,795,375For
      six months ended June 30, 2008 Fair
      Value Measurements Using Significant Unobservable
      Inputs (Level 3)Tax-exempt
      Mortgage Revenue Bonds
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  Interest
      Rate DerivativesTotalBeginning
      Balance January 1, 2008
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  66,167,116
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  12,439
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  66,179,555Total
      gains or losses (realized/unrealized)Included
      in earnings
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (38,328
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (38,328
                                                                                                                                                                                                                                                                  )Included
      in other comprehensive income
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (2,816,371
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (2,816,371
                                                                                                                                                                                                                                                                  )Purchases,
      issuances and settlements
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (2,500,793
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  (2,500,793
                                                                                                                                                                                                                                                                  )Ending
      Balance June 30, 2008
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  60,849,952
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  (25,889
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  60,824,063Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of June 30, 2008
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  (38,328
                                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                                  (38,328
                                                                                                                                                                                                                                                                  )




Losses
included in earnings for the period shown above are included in interest
expense.


20




Item 2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations.





In this
Management’s Discussion and Analysis, the “Partnership” refers to America First
Tax Exempt Investors, L.P. and its subsidiaries (which own the MF Properties) on
a consolidated basis and the “Company” refers to the consolidated financial
information of the Partnership and certain entities that own multifamily
apartment projects financed with mortgage revenue bonds held by the Partnership
that are treated as “variable interest entities” (“VIEs”).  The
Partnership has been determined to be the primary beneficiary of these VIEs
although it does not hold an equity position in them and, therefore, must
consolidate these entities. The consolidated financial statements of the Company
include the accounts of the Partnership and the VIEs. All significant
transactions and accounts between the Partnership and the VIEs have been
eliminated in consolidation.





Critical
Accounting Policies





The
Company’s critical accounting policies are the same as those described in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





Executive
Summary





Challenging
economic conditions continued during the second quarter of 2009, with tight
credit conditions and slow growth.  As a result of these 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. If these market and economic conditions continue,
they may limit our ability to replace or renew maturing liabilities on a timely
basis, access the capital markets to meet liquidity and capital expenditure
requirements and may result in adverse effects on our financial condition and
results of operations.





Although
the consequences of these conditions and their impact on our ability to pursue
our plan to grow through investments in additional tax-exempt bonds secured by
first mortgages on affordable multifamily housing projects are not fully known,
we do not anticipate that our existing assets will be adversely affected in the
long-term.  We believe the current tightening of credit may create
opportunities for additional investments consistent with the Partnership's
investment strategy because it may result in fewer parties competing to acquire
tax-exempt bonds issued to finance affordable housing.  The Company is
currently evaluating a number of attractive potential investments and continues
to be presented with investment opportunities on a regular
basis.  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.  If uncertainties in these markets continue, the
markets deteriorate further or the Company experiences further deterioration in
the values of its investment portfolio, the Company may incur impairments to its
investment portfolio which could negatively impact the Company’s financial
statements.





Additionally,
the current negative economic conditions, unemployment, lack of jobs growth, low
home mortgage interest rates and tax incentives provided to first time
homebuyers have begun to have a negative impact on the properties which
collateralize our tax-exempt bond investments, the VIEs and our MF Properties in
the form of declining occupancy.  Economic occupancy at the MF
Properties was 85% during the first half of 2009 as compared to 89% in the first
half of 2008. Economic occupancy of the VIEs was 76% in 2009 and 84% in
2008.  These issues will have a negative impact on the overall
property operations and profitability in the short-term, however, we expect that
long-term property operations will not be impacted significantly.




In 2009
Company debt consisting of the entire balance of the TOB facility of
approximately $76.6 million plus approximately $19.9 million of mortgages
payables on MF Properties were to mature in July.  In June 2009, the
Company entered into a new secured credit facility with Bank of America which
refinanced the maturing TOB facility.  The new credit facility has a
one-year term with a six-month renewal option held by the Company, an annual
floating interest rate of daily LIBOR plus 390 basis points and a loan
amount of $50.0 million.  The proceeds from the new credit facility
plus the cash collateral held by Bank of America for the TOB facility were used
to retire the outstanding balance on the TOB facility.  The new credit
facility is secured by 13 tax-exempt mortgage revenue bonds with a total par
value of $112.1 million plus approximately $1.5 million in restricted
cash.  Financial covenants for the new credit facility include the
maintenance of a leverage ratio not to exceed 70% and a minimum liquidity of
$5.0 million by the Company.  Additionally, the properties which
secure the bond portfolio which is collateral for the new credit 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%.  In addition to the TOB
facility,  the approximately $19.9 million in outstanding mortgage
financing related to the MF Properties located in Ohio and Kentucky was due in
July 2009.  This mortgage loan contains three one-year renewal options
held by the borrower.  The borrower provided the appropriate
notification to the lender of its intent to renew the mortgage for an additional
year from the date of original maturity.  Subsequent to June 30, 2009,
the borrower entered into a Maturity Date Extension Agreement for the mortgage
loan which extended the maturity on the mortgage one year to July
2010.  In conjunction with the extension, the Company paid down the
mortgage balance related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million in July resulting in a new outstanding mortgage balance of
approximately $12.8 million and the Eagle Ridge and Meadowview properties were
released as collateral for the loan.


21


The
Partnership has an effective Registration Statement on Form S-3 with the SEC
relating to the sale of up to $100.0 million of its BUCs.  Pursuant to
this Registration Statement, in May 2009, the Partnership issued, through an
underwritten public offering, a total of 3,500,000 BUCs at a public offering
price of $5.00 per BUC. Net proceeds realized by the Partnership from the
issuance of the additional BUCs were approximately $16.2 million, after payment
of an underwriter's discount and other offering costs of approximately $1.3
million. The proceeds will be used to acquire additional tax-exempt revenue
bonds and other investments meeting the Partnership's investment criteria and
for general working capital needs.  To date, the Partnership has
issued approximately $47.1 million of BUCs under this Registration Statement and
intends to issue additional BUCs from time to time.





The
Company believes that current market conditions have created significant
investment opportunities and it will seek to aggressively pursue those
opportunities.  More specifically, the current credit crisis has
severely disrupted the financial markets and, in our view, has also created
potential investment opportunities for the Company.  Non-traditional
participants in the multifamily housing debt sector are either reducing their
participation in the market or are being forced to downsize their existing
portfolio of investments.  The Company believes this is creating
opportunities to acquire existing tax-exempt bonds from distressed entities at
attractive yields.  Additionally, the current credit crisis is
providing the potential for investments in quality real estate assets to be
acquired from distressed owners and lenders.  The Company’s ability to
restructure existing debt together with the ability to improve the operations of
the underlying apartment properties through our affiliated property management
company, America First Property Management Company, L.L.C., results in a
valuable tax-exempt bond investment which is supported by the valuable
collateral and operations of the underlying real property.  The
Company is currently evaluating a number of attractive potential investments and
continues to be presented with investment opportunities on a regular
basis.  While we believe the Company is well-positioned to
aggressively pursue new investment opportunities thereby creating value to
shareholders in the form of a strong tax-exempt bond investment, there is no
guarantee that we will be able to consummate any such transaction.





The
Company’s regular annual distributions were paid at a rate of $0.54 per BUC, or
$0.135 per quarter per BUC, through the first quarter of 2009.  Given
the changes to the Company’s credit facilities, the general partner has
completed financial models in order to estimate the impact of the change in
credit facilities on CAD.  In order to ensure that cash provided by
the Company’s tax-exempt mortgage revenue bonds and other investments will be
adequate to meet its projected liquidity requirements, including the payment of
expenses, interest and distributions to BUC holders, beginning with the second
quarter 2009 distribution, the general partner changed the Company’s regular
annual distribution to $0.50 per BUC, or $0.125 per quarter per
BUC.  The general partner believes that distributions at this level
are sustainable, however, if actual results vary from current projections and
the actual CAD generated is less than the new regular distribution, such
distribution amount may need to be reduced.





Discussion
of the Partnership Bond Holdings and the Related Apartment Properties as of June
30, 2009





The
Partnership’s purpose is to acquire and hold as long-term investments a
portfolio of federally tax-exempt mortgage revenue bonds which have been issued
to provide construction and/or permanent financing of multifamily residential
apartments.  At June 30, 2009, the Partnership held 15 tax-exempt
mortgage bonds (secured by 14 properties), six of which are secured by
properties held by VIEs and, therefore, eliminated in consolidation on the
Company’s financial statements.  The eight properties underlying the
nine non-consolidated tax-exempt mortgage bonds contain a total of 1,137 rental
units.  At June 30, 2008, the Partnership held 19 tax-exempt mortgage
bonds (secured by 17 properties), eight of which were secured by properties held
by VIEs and, therefore, eliminated in consolidation on the Company's financial
statements. At June 30, 2008, the nine properties underlying the eleven
non-consolidated tax-exempt mortgage bonds secured by apartment properties
contained a total of 1,209 rental units.





To
facilitate its investment strategy of acquiring additional tax-exempt mortgage
bonds secured by multifamily apartment properties, the Partnership may acquire
ownership positions in apartment properties (“MF Properties”). The Partnership
expects to ultimately restructure the property ownership through a sale of the
MF Properties and a syndication of low income housing tax credits
(“LIHTCs”).  The Partnership expects to provide the tax-exempt
mortgage revenue bonds to the new property owners as part of the
restructuring.   Such restructurings will generally be expected
to be initiated within 36 months of the 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. As of
June 30, 2009, the Partnership’s wholly-owned subsidiaries held limited
partnership interests in nine entities that own MF Properties containing a total
of 964 rental units.  As of June 30, 2008, a wholly-owned subsidiary
of the Partnership held limited partnership interests in six entities that own
MF Properties containing a total of 544 rental units.





The VIEs’
primary operating strategy focuses on multifamily apartment properties as
long-term investments.  Each VIE owns one multifamily apartment
property that has been financed by a tax-exempt mortgage revenue bond held by
the Partnership.  As of June 30, 2009, the Company consolidated six
VIE multifamily apartment properties containing a total of 1,288 rental
units.  As of June 30, 2008, the Company consolidated eight VIE
multifamily apartment properties containing a total of 1,764 rental
units.


22


The
following table outlines certain information regarding the apartment properties
on which the Partnership holds tax-exempt mortgage bonds (separately identifying
those treated as VIEs) and the MF Properties owned by the
Partnership.  The narrative discussion that follows provides a brief
operating analysis of each property during the first six months of
2009.





Number
      of
      Units Occupied
                                                                    
                                                                    
                                                                    Percentage
      of Occupied Units
      as of June 30,
                                                                    
                                                                    
                                                                    Economic
      Occupancy (1)
      for the
      period ended June 30,NumberProperty
      Name
                                                                    Location
                                                                    
                                                                    of
      Units
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2009
                                                                    
                                                                    
                                                                    2008
                                                                    
                                                                    
                                                                    2009
                                                                    
                                                                    
                                                                    2008Non-Consolidated PropertiesBella
      Vista Apartments
                                                                    Gainesville,
      TX
                                                                    
                                                                    
                                                                    144
                                                                    
                                                                    
                                                                    
                                                                    131
                                                                    
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    95
                                                                    %
                                                                    
                                                                    
                                                                    90
                                                                    %
                                                                    
                                                                    
                                                                    91
                                                                    %Bridle
      Ridge Apartments
                                                                    Greer,
      SC
                                                                    
                                                                    
                                                                    152
                                                                    
                                                                    
                                                                    
                                                                    129
                                                                    
                                                                    
                                                                    
                                                                    85
                                                                    %
                                                                    
                                                                    
                                                                    77
                                                                    %
                                                                    
                                                                    
                                                                    81
                                                                    %
                                                                    
                                                                    
                                                                    64
                                                                    %Clarkson
      College
                                                                    Omaha,
      NE
                                                                    
                                                                    
                                                                    142
                                                                    
                                                                    
                                                                    
                                                                    87
                                                                    
                                                                    
                                                                    
                                                                    61
                                                                    %
                                                                    
                                                                    
                                                                    58
                                                                    %
                                                                    
                                                                    
                                                                    71
                                                                    %
                                                                    
                                                                    
                                                                    79
                                                                    %Gardens
      of DeCordova (4)
                                                                    Granbury,
      TX
                                                                    
                                                                    
                                                                    76
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/aGardens
      of Weatherford (2)
                                                                    Weatherford,
      TX
                                                                    
                                                                    
                                                                    76
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/aRunnymede
      Apartments
                                                                    Austin,
      TX
                                                                    
                                                                    
                                                                    252
                                                                    
                                                                    
                                                                    
                                                                    227
                                                                    
                                                                    
                                                                    
                                                                    90
                                                                    %
                                                                    
                                                                    
                                                                    70
                                                                    %
                                                                    
                                                                    
                                                                    97
                                                                    %
                                                                    
                                                                    
                                                                    75
                                                                    %Woodland
      Park (4)
                                                                    Topeka,
      KS
                                                                    
                                                                    
                                                                    236
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/aWoodlynn
      Village
                                                                    Maplewood,
      MN
                                                                    
                                                                    
                                                                    59
                                                                    
                                                                    
                                                                    
                                                                    58
                                                                    
                                                                    
                                                                    
                                                                    98
                                                                    %
                                                                    
                                                                    
                                                                    88
                                                                    %
                                                                    
                                                                    
                                                                    99
                                                                    %
                                                                    
                                                                    
                                                                    99
                                                                    %1,137
                                                                    
                                                                    
                                                                    
                                                                    632
                                                                    
                                                                    
                                                                    
                                                                    84
                                                                    %
                                                                    
                                                                    
                                                                    75
                                                                    %
                                                                    
                                                                    
                                                                    89
                                                                    %
                                                                    
                                                                    
                                                                    79
                                                                    %VIEsAshley
      Square
                                                                    Des
      Moines, IA
                                                                    
                                                                    
                                                                    144
                                                                    
                                                                    
                                                                    
                                                                    141
                                                                    
                                                                    
                                                                    
                                                                    98
                                                                    %
                                                                    
                                                                    
                                                                    97
                                                                    %
                                                                    
                                                                    
                                                                    93
                                                                    %
                                                                    
                                                                    
                                                                    86
                                                                    %Bent
      Tree Apartments
                                                                    Columbia,
      SC
                                                                    
                                                                    
                                                                    232
                                                                    
                                                                    
                                                                    
                                                                    212
                                                                    
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    96
                                                                    %
                                                                    
                                                                    
                                                                    79
                                                                    %
                                                                    
                                                                    
                                                                    86
                                                                    %Cross
      Creek (4)
                                                                    Beaufort,
      SC
                                                                    
                                                                    
                                                                    144
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    n/aFairmont
      Oaks Apartments
                                                                    Gainsville,
      FL
                                                                    
                                                                    
                                                                    178
                                                                    
                                                                    
                                                                    
                                                                    154
                                                                    
                                                                    
                                                                    
                                                                    87
                                                                    %
                                                                    
                                                                    
                                                                    96
                                                                    %
                                                                    
                                                                    
                                                                    81
                                                                    %
                                                                    
                                                                    
                                                                    90
                                                                    %Iona
      Lakes Apartments
                                                                    Ft.
      Myers, FL
                                                                    
                                                                    
                                                                    350
                                                                    
                                                                    
                                                                    
                                                                    264
                                                                    
                                                                    
                                                                    
                                                                    75
                                                                    %
                                                                    
                                                                    
                                                                    80
                                                                    %
                                                                    
                                                                    
                                                                    63
                                                                    %
                                                                    
                                                                    
                                                                    66
                                                                    %Lake
      Forest Apartments
                                                                    Daytona
      Beach, FL
                                                                    
                                                                    
                                                                    240
                                                                    
                                                                    
                                                                    
                                                                    202
                                                                    
                                                                    
                                                                    
                                                                    84
                                                                    %
                                                                    
                                                                    
                                                                    95
                                                                    %
                                                                    
                                                                    
                                                                    78
                                                                    %
                                                                    
                                                                    
                                                                    92
                                                                    %1,288
                                                                    
                                                                    
                                                                    
                                                                    973
                                                                    
                                                                    
                                                                    
                                                                    85
                                                                    %
                                                                    
                                                                    
                                                                    93
                                                                    %
                                                                    
                                                                    
                                                                    76
                                                                    %
                                                                    
                                                                    
                                                                    84
                                                                    %MF PropertiesChurchland
      (3)
                                                                    Chesapeake,
      VA
                                                                    
                                                                    
                                                                    124
                                                                    
                                                                    
                                                                    
                                                                    119
                                                                    
                                                                    
                                                                    
                                                                    96
                                                                    %
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    88
                                                                    %
                                                                    
                                                                    
                                                                    n/aCrescent
      Village
                                                                    Cincinnati,
      OH
                                                                    
                                                                    
                                                                    90
                                                                    
                                                                    
                                                                    
                                                                    82
                                                                    
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    93
                                                                    %
                                                                    
                                                                    
                                                                    80
                                                                    %
                                                                    
                                                                    
                                                                    86
                                                                    %Eagle
      Ridge
                                                                    Erlanger,
      KY
                                                                    
                                                                    
                                                                    64
                                                                    
                                                                    
                                                                    
                                                                    57
                                                                    
                                                                    
                                                                    
                                                                    89
                                                                    %
                                                                    
                                                                    
                                                                    84
                                                                    %
                                                                    
                                                                    
                                                                    74
                                                                    %
                                                                    
                                                                    
                                                                    80
                                                                    %Glynn
      Place (3)
                                                                    Brunswick,
      GA
                                                                    
                                                                    
                                                                    128
                                                                    
                                                                    
                                                                    
                                                                    97
                                                                    
                                                                    
                                                                    
                                                                    76
                                                                    %
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    74
                                                                    %
                                                                    
                                                                    
                                                                    n/aGreens
      of Pine Glen (3)
                                                                    Durham,
      NC
                                                                    
                                                                    
                                                                    168
                                                                    
                                                                    
                                                                    
                                                                    158
                                                                    
                                                                    
                                                                    
                                                                    94
                                                                    %
                                                                    
                                                                    
                                                                    n/a
                                                                    
                                                                    
                                                                    
                                                                    90
                                                                    %
                                                                    
                                                                    
                                                                    n/aMeadowview
                                                                    Highland
      Heights, KY
                                                                    
                                                                    
                                                                    118
                                                                    
                                                                    
                                                                    
                                                                    107
                                                                    
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    98
                                                                    %
                                                                    
                                                                    
                                                                    86
                                                                    %
                                                                    
                                                                    
                                                                    98
                                                                    %Postwoods
      I
                                                                    Reynoldsburg,
      OH
                                                                    
                                                                    
                                                                    92
                                                                    
                                                                    
                                                                    
                                                                    81
                                                                    
                                                                    
                                                                    
                                                                    88
                                                                    %
                                                                    
                                                                    
                                                                    96
                                                                    %
                                                                    
                                                                    
                                                                    87
                                                                    %
                                                                    
                                                                    
                                                                    87
                                                                    %Postwoods
      II
                                                                    Reynoldsburg,
      OH
                                                                    
                                                                    
                                                                    88
                                                                    
                                                                    
                                                                    
                                                                    84
                                                                    
                                                                    
                                                                    
                                                                    95
                                                                    %
                                                                    
                                                                    
                                                                    100
                                                                    %
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    93
                                                                    %Willow
      Bend
                                                                    Columbus
      (Hilliard), OH
                                                                    
                                                                    
                                                                    92
                                                                    
                                                                    
                                                                    
                                                                    90
                                                                    
                                                                    
                                                                    
                                                                    98
                                                                    %
                                                                    
                                                                    
                                                                    92
                                                                    %
                                                                    
                                                                    
                                                                    95
                                                                    %
                                                                    
                                                                    
                                                                    88
                                                                    %964
                                                                    
                                                                    
                                                                    
                                                                    875
                                                                    
                                                                    
                                                                    
                                                                    91
                                                                    %
                                                                    
                                                                    
                                                                    95
                                                                    %
                                                                    
                                                                    
                                                                    85
                                                                    %
                                                                    
                                                                    
                                                                    89
                                                                    %(1)Economic occupancy is presented for the six months ended June 30,
      2009 and 2008, and is defined as the net rental income received divided by
      the maximum amount of rental income to be derived from each
      property. This statistic is reflective of rental concessions,
      delinquent rents and non-revenue units such as model units and employee
      units. Actual occupancy is a point in time measure while economic
      occupancy is a measurement over the period presented, therefore, economic
      occupancy for a period may exceed the actual occupancy at any point in
      time.(2) This
      property is still under construction as of June 30, 2009, and therefore
      has no occupancy data.(3)Previous period occupancy numbers are not available, as this is a
      new investment.(4)Construction on these properties has been completed and the
      properties are in a lease up and stabilization period. As of June 30,
      2009, Cross Creek has leased 6 of a total of 144 units, Gardens of
      Decordova has leased 18 of a total of 76 units and Woodland Park has
      leased 81 of a total of 236 units.




23
 Non-Consolidated
Properties





Bella
Vista – Bella Vista Apartments is located in Gainesville, Texas.  In
the first half of 2009, Bella Vista’s operations resulted in Net Operating
Income (calculated as property revenue less salaries, advertising,
administration, utilities, repair and maintenance, insurance, taxes, and
management fee expenses) of $281,000 as compared to $270,000 in
2008.  The increase was a result of a decrease in salary expense and
property insurance expense.





Bridle
Ridge Apartments -–  Bridle Ridge Apartments is located in Greer,
South Carolina.  In the first half of 2009, Bridle Ridge Apartments’
operations resulted in Net Operating Income of $334,000 as compared to $225,000
in 2008.  This increase is a direct result of increased occupancy
which led to increased revenues.





Clarkson
College – Clarkson College is a 142 bed student housing facility located in
Omaha, Nebraska.  In the first half of 2009, Net Operating Income was
$205,000 as compared to $226,000 in 2008.  The decrease is
attributable to a decline in revenue resulting from decreased economic
occupancy.





Gardens
of DeCordova – The Gardens of DeCordova Apartments is located in Granbury, Texas
and began leasing its 76 units in November 2008.  As of June 30, 2009,
76 units have been completed and are available for rent and 18 units are
currently occupied.  The developer and principals have guaranteed
completion and stabilization of the project.  During the first half of
2009, the property owners made additional capital contributions and in July 2009
the Company made a taxable loan of approximately $290,000 to the project to fund
debt service on the bonds through property
stabilization.  Additionally, Properties Management was engaged to
replace the prior property manager and is currently managing the
property.





Gardens
of Weatherford – The Gardens of Weatherford Apartments is currently under
construction in Weatherford, Texas and will contain 76 units upon
completion.  The developer and principals have guaranteed completion
and stabilization of the project.  The general contractor has a
guaranteed maximum price contract and payment and performance bonds are in
place.  During the first half of 2009 the Company made a taxable loan
to the owners of the property of approximately $141,000 to help fund the
construction activities and current bond debt service reserves through
construction completion and property stabilization. Additionally, Properties
Management was engaged to replace the prior property manager and is currently
managing the property and monitoring the construction progress.  Due
to numerous zoning, planning and design issues encountered in the building
permit application process, construction on this project is significantly behind
schedule.  At this time infrastructure construction activities have
been substantially completed but no construction has begun on the actual
apartment buildings.  The developer is currently evaluating the
project funding and is investigating potential sources of additional or
alternative funding should such additional funds be required to complete the
project.  At this time the estimated final completion date is March
2010 with some units available for rent in December 2009.





Runnymede
Apartments – Runnymede Apartments is located in Austin, Texas.  In the
first half of 2009, Runnymede Apartment’s operations resulted in Net Operating
Income of $464,000 as compared to $179,000 in 2008.  This increase is
a direct result of increased occupancy which led to increased
revenues.





Woodland
Park – Woodland Park Apartments began leasing its 236 units in Topeka, Kansas in
November 2008. As of June 30, 2009, 236 units have been completed and are
available for rent and 81 units are currently occupied.  The developer
has guaranteed completion and stabilization of the project.





Woodlynn
Village – Woodlynn Village is located in Maplewood, Minnesota.  In the
first half of 2009, Net Operating Income was $147,000 as compared to $166,000 in
2008.  This decrease was the result of increased real estate taxes and
property insurance expense.





VIEs





Ashley
Square – Ashley Square Apartments is located in Des Moines, Iowa.  In
the first half of 2009, Net Operating Income was $187,000 as compared to
$141,000 in 2008.  This increase was the result of slightly higher
property revenue from improved occupancy and lower repairs and maintenance
expense.





Bent Tree
– Bent Tree Apartments is located in Columbia, South
Carolina.   In the first half of 2009, Net Operating Income was
$268,000 as compared to $379,000 in 2008.  This decrease was the
result of lower property revenue based on decreased occupancy.





Cross
Creek – Cross Creek Apartments is located in Beaufort, South
Carolina.  The Cross Creek bonds were acquired in April
2009.  At that time the project was not completed and was
vacant.  The Company then made a $1.5 million taxable loan to the
property owner to allow for the completion of construction, lease up and
stabilization of the property and the payment of bond debt
service.  Cross Creek Apartments began leasing its 144 units in June
2009.  As of June 30, 2009, 68 units have been completed and are
available for rent and 6 units are currently occupied.





Fairmont
Oaks – Fairmont Oaks Apartments is located in Gainesville,
Florida.  In the first half of 2009, Net Operating Income was $339,000
as compared to $408,000 in 2008.  This decrease was a direct result of
lower property revenue from decreased occupancy.





Iona
Lakes – Iona Lakes Apartments is located in Fort Myers, Florida.  In
the first half of 2009, Net Operating Income was $463,000 as compared to
$492,000 in 2008.  This decrease was related to a decrease in property
revenues from decreased occupancy and an increase in salaries
expense.





Lake
Forest – Lake Forest Apartments is located in Daytona Beach,
Florida.  In the first half of 2009, Net Operating Income was $391,000
as compared to $568,000 in 2008.  This decrease was a direct result of
lower property revenues due to decreased occupancy along with an increase in
salary and utility expenses.


24




MF
Properties





Commons
at Churchland – Commons at Churchland is located in Chesapeake,
Virginia.  Commons at Churchland was acquired in August
2008.  During the first half of 2009 the property recognized
approximately $265,000 in Net Operating Income on revenue of
$494,000.





Crescent
Village – Crescent Village Townhomes is located in Cincinnati,
Ohio.  In the first half of 2009, Crescent Village’s operations
resulted in Net Operating Income of $151,000 as compared to $200,000 in
2008.   This decrease was the result of lower property revenue
from decreased occupancy.





Eagle
Ridge – Eagle Ridge Townhomes is located in Erlanger, Kentucky.  In
the first half of 2009, Eagle Ridge’s operations resulted in Net Operating
Income of $57,000 as compared to $99,000 in 2008.  This decrease was
the result of lower property revenue from decreased occupancy and an increase in
salary expense.





Glynn
Place – Glynn Place Apartments is located in Brunswick,
Georgia.  Glynn Place Apartments was acquired in October
2008.  During the first half of 2009 the property recognized
approximately $153,000 in Net Operating Income on Revenue of
$400,000.





Greens of
Pine Glen – Greens of Pine Glen Apartments is located in Durham, North Carolina
and contains 168 units.  A wholly-owned subsidiary of the Partnership
acquired a 99% limited partner in the partnership that owns this property in
February 2009.  As a result, the financial statements of this property
have been consolidated with those of the Partnership since that
time.  During this period the property recognized approximately
$42,000 of net operating income on revenue of $463,000.





Meadowview
– Meadowview Apartments is located in Highland Heights, Kentucky.  In
the first half of 2009, Meadowview’s operations resulted in Net Operating Income
of $206,000 as compared to $283,000 in 2008.  This decrease was a
result of lower property revenue due to a decrease in occupancy.





Postwoods
I – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first half of 2009, Postwoods I’s operations resulted in Net Operating Income of
$178,000 as compared to $207,000 in 2008. This decrease was a result of lower
property revenue due to a decrease in occupancy along with an increase in salary
expense.





Postwoods
II – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first half of 2009, Postwoods II’s operations resulted in Net Operating Income
of $171,000 as compared to $208,000 in 2008.  This decrease was a
result of lower property revenue due to a decrease in occupancy and an increase
in salary and utility expenses.





Willow
Bend – Willow Bend Townhomes is located in Columbus (Hilliard),
Ohio.  In the first half of 2009, Willow Bend’s operations resulted in
Net Operating Income of $183,000 as compared to $247,000 in
2008.  This decrease was a result of increased real estate taxes,
salaries expense, and utilities expense offset by increased revenues resulting
from increased occupancy.


25


Results
of Operations





Consolidated Results of
Operations





The
following discussion of the Company’s results of operations for the three months
and six months ended June 30, 2009 and 2008 should be read in conjunction with
the consolidated financial statements and notes thereto included in Item 1 of
this report as well as the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.





Three Months Ended June 30,
2009 compared to Three  Months Ended June 30, 2008
(Consolidated)





Change in Results of
Operations








For
      the Three
                                                        
                                                        
                                                        For
      the ThreeMonths
      Ended
                                                        
                                                        
                                                        Months
      EndedJune
      30, 2009
                                                        
                                                        
                                                        June
      30, 2008
                                                        
                                                        
                                                        Dollar
      ChangeRevenues:Property
      revenues
                                                        
                                                        $
                                                        3,903,272
                                                        
                                                        
                                                        $
                                                        3,386,038
                                                        
                                                        
                                                        $
                                                        517,234Mortgage
      revenue bond investment income
                                                        
                                                        
                                                        1,054,551
                                                        
                                                        
                                                        
                                                        1,056,825
                                                        
                                                        
                                                        
                                                        (2,274
                                                        )Other
      income (loss)
                                                        
                                                        
                                                        17,879
                                                        
                                                        
                                                        
                                                        (83,028
                                                        )
                                                        
                                                        
                                                        100,907Total
      Revenues
                                                        
                                                        
                                                        4,975,702
                                                        
                                                        
                                                        
                                                        4,359,835
                                                        
                                                        
                                                        
                                                        615,867Expenses:Real
      estate operating (exclusive of items shown below)
                                                        
                                                        
                                                        2,580,266
                                                        
                                                        
                                                        
                                                        2,109,825
                                                        
                                                        
                                                        
                                                        470,441Depreciation
      and amortization
                                                        
                                                        
                                                        1,679,036
                                                        
                                                        
                                                        
                                                        1,035,598
                                                        
                                                        
                                                        
                                                        643,438Interest
                                                        
                                                        
                                                        965,329
                                                        
                                                        
                                                        
                                                        633,523
                                                        
                                                        
                                                        
                                                        331,806General
      and administrative
                                                        
                                                        
                                                        324,401
                                                        
                                                        
                                                        
                                                        489,399
                                                        
                                                        
                                                        
                                                        (164,998
                                                        )Total
      Expenses
                                                        
                                                        
                                                        5,549,032
                                                        
                                                        
                                                        
                                                        4,268,345
                                                        
                                                        
                                                        
                                                        1,280,687Income
      from continuing operations
                                                        
                                                        
                                                        (573,330
                                                        )
                                                        
                                                        
                                                        91,490
                                                        
                                                        
                                                        
                                                        (664,820
                                                        )Income
      from discontinued operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        179,946
                                                        
                                                        
                                                        
                                                        (179,946
                                                        )Net
      income
                                                        
                                                        
                                                        (573,330
                                                        )
                                                        
                                                        
                                                        271,436
                                                        
                                                        
                                                        
                                                        (844,766
                                                        )Less:
      net loss attributable to noncontrolling interest
                                                        
                                                        
                                                        2,964
                                                        
                                                        
                                                        
                                                        781
                                                        
                                                        
                                                        
                                                        2,183Net
      income - America First Tax Exempt Investors, L. P.
                                                        
                                                        $
                                                        (570,366
                                                        )
                                                        
                                                        $
                                                        272,217
                                                        
                                                        
                                                        $
                                                        (842,583
                                                        )




Property
revenues.Property revenues increased as a result of revenue
generated by the MF Properties acquired in the second half of 2008 and the first
quarter of 2009.  These new properties added approximately $761,000 in
revenue in the second quarter of 2009.  This increase was offset by a
decrease in revenue at the existing VIE and MF Properties of approximately
$244,000 due to lower occupancy levels.  The MF Properties averaged
$620 per unit in monthly rent in 2009 as compared with $669 per unit in
2008.  Economic occupancy at the MF Properties was 85% during the
second quarter of 2009 as compared to 92% in the second quarter of 2008. The
VIEs averaged $576 per unit in monthly rent in 2009 as compared to $669 per unit
in 2008.  Economic occupancy of the VIEs was 74% in 2009 and 89% in
2008.





Mortgage revenue bond investment
income.  Mortgage revenue bond investment income during the
second quarter of 2009 was flat compared to the second quarter of 2008 due to
several items which offset each other.  The disposition of the
Chandler Creek bond during the second quarter of 2008 and foreclosure of the
Prairiebrook Village bond during the first half of 2008 decreased interest
income by approximately $105,000. This decrease was offset by the Oak Grove bond
investment acquired at the beginning of the second quarter of 2009, which
generated approximately $107,000 interest income in the quarter.





Other income
(loss).  The increase in other income is attributable to higher
levels of temporary investments in liquid securities representing amounts
presented as cash and cash equivalents and restricted cash.  Temporary
investment levels were higher in 2009 due mainly to the cash received on the
bond redemptions completed in February 2009.  Additionally, in 2008
there was a loss of  approximately $72,000 realized on the sale
of  the Chandler bond.





Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties and the consolidated VIEs are comprised principally of real estate
taxes, property insurance, utilities, property management fees, repairs and
maintenance, and salaries and related employee expenses of on-site employees. A
portion of real estate operating expenses are fixed in nature, thus a decrease
in physical and economic occupancy would result in a reduction in operating
margins. Conversely, as physical and economic occupancy increase, the fixed
nature of these expenses will increase operating margins as these real estate
operating expenses would not increase at the same rate as rental
revenues.  Real estate operating expenses increased as a direct result
of the expenses incurred by the newly acquired MF Properties, which were
approximately $420,000 in the second quarter of 2009.


26


Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the consolidated VIEs
and the MF Properties and amortization associated with in-place lease intangible
assets recorded as part of the purchase accounting for the acquisition of MF
Properties and deferred finance cost amortization related to the TOB credit
facility that was entered into in the second quarter of
2008.  Approximately $255,500 of the increase is attributable to
deferred financing cost amortization, and net increase of approximately $111,900
of in-place lease amortization.  Depreciation expense increased
approximately $229,000 due to the acquisition of new MF Properties and by
approximately $46,600 due to depreciation of capital assets placed in service at
the existing properties.





Interest
expense.Interest expense increased approximately $332,000
during the second quarter 2009 compared to the second quarter
2008.  The increase was due to a number of offsetting
factors.  The Company’s quarterly borrowing cost decreased from 4.5%
per annum in 2008 to 2.3% per annum in 2009 resulting in an approximate decrease
of $466,000 compared to second quarter 2008.  Offsetting the interest
rate decrease was interest expense attributable to marking interest rate
derivatives to fair value.  The fair value adjustment increased
interest expense by approximately $247,000 for 2009 as compared to the second
quarter 2008.  Three new MF Properties were added to the portfolio
which increased interest expense by approximately $204,000 due to the mortgage
loans secured by these properties. The remaining increase in interest expense is
due to the allocation of interest expense to discontinued operations in
2008.





General and administrative
expenses.General and administrative expenses decreased due to
a reduction in professional fees, salaries, and adminstrative
fees.





Six Months Ended June 30,
2009 compared to Six  Months Ended June 30, 2008
(Consolidated)





Change in Results of
Operations





For
      the Six
                                                    
                                                    
                                                    For
      the SixMonths
      Ended
                                                    
                                                    
                                                    Months
      EndedJune
      30, 2009
                                                    
                                                    
                                                    June
      30, 2008
                                                    
                                                    
                                                    Dollar
      ChangeRevenues:Property
      revenues
                                                    
                                                    $
                                                    7,654,515
                                                    
                                                    
                                                    $
                                                    6,699,433
                                                    
                                                    
                                                    $
                                                    955,082Mortgage
      revenue bond investment income
                                                    
                                                    
                                                    2,002,895
                                                    
                                                    
                                                    
                                                    2,265,389
                                                    
                                                    
                                                    
                                                    (262,494
                                                    )Other
      income (loss)
                                                    
                                                    
                                                    51,894
                                                    
                                                    
                                                    
                                                    (54,894
                                                    )
                                                    
                                                    
                                                    106,788Total
      Revenues
                                                    
                                                    
                                                    9,709,304
                                                    
                                                    
                                                    
                                                    8,909,928
                                                    
                                                    
                                                    
                                                    799,376Expenses:Real
      estate operating (exclusive of items shown below)
                                                    
                                                    
                                                    4,940,909
                                                    
                                                    
                                                    
                                                    4,068,987
                                                    
                                                    
                                                    
                                                    871,922Depreciation
      and amortization
                                                    
                                                    
                                                    3,259,908
                                                    
                                                    
                                                    
                                                    2,220,122
                                                    
                                                    
                                                    
                                                    1,039,786Interest
                                                    
                                                    
                                                    2,156,198
                                                    
                                                    
                                                    
                                                    1,791,964
                                                    
                                                    
                                                    
                                                    364,234General
      and administrative
                                                    
                                                    
                                                    901,163
                                                    
                                                    
                                                    
                                                    920,465
                                                    
                                                    
                                                    
                                                    (19,302
                                                    )Total
      Expenses
                                                    
                                                    
                                                    11,258,178
                                                    
                                                    
                                                    
                                                    9,001,538
                                                    
                                                    
                                                    
                                                    2,256,640Income
      from continuing operations
                                                    
                                                    
                                                    (1,548,874
                                                    )
                                                    
                                                    
                                                    (91,610
                                                    )
                                                    
                                                    
                                                    (1,457,264
                                                    )Income
      from discontinued operations (including gain on bond redemption of
      $26,514,809 in 2009)
                                                    
                                                    
                                                    26,734,754
                                                    
                                                    
                                                    
                                                    373,703
                                                    
                                                    
                                                    
                                                    26,361,051Net
      income
                                                    
                                                    
                                                    25,185,880
                                                    
                                                    
                                                    
                                                    282,093
                                                    
                                                    
                                                    
                                                    24,903,787Less:
      net loss attributable to noncontrolling interest
                                                    
                                                    
                                                    6,824
                                                    
                                                    
                                                    
                                                    3,526
                                                    
                                                    
                                                    
                                                    3,298Net
      income - America First Tax Exempt Investors, L. P.
                                                    
                                                    $
                                                    25,192,704
                                                    
                                                    
                                                    $
                                                    285,619
                                                    
                                                    
                                                    $
                                                    24,907,085




Property
revenues.Property revenues increased as a result of revenue
generated by the MF Properties acquired in the second half of 2008 and the first
quarter of 2009.  These new properties added approximately $1.4
million in net revenue in the first half of 2009.  This increase was
offset by a decrease in revenue at the existing VIE and MF Properties of
approximately $445,000 due to lower occupancy levels.  The MF
Properties averaged $586 per unit in monthly rent in 2009 as compared with $651
per unit in 2008.  Economic occupancy at the MF Properties was 85%
during the first half of 2009 as compared to 89% in the first half of 2008. The
VIEs averaged $585 per unit in monthly rent in 2009 as compared to $641 per unit
in 2008.  Economic occupancy of the VIEs was 76% in 2009 and 85% in
2008.





Mortgage revenue bond investment
income.  The decrease in mortgage revenue bond investment
income is the result of a number of items which offset each other.  A
decrease of approximately $400,000 during the first half of 2009 compared to the
first half of 2008 is related to the disposition of the Chandler Creek and
Deerfield bonds and the foreclosure of the Prairiebrook Village
bonds.  This decrease was offset by the Oak Grove bond investment
acquired at the beginning of the second quarter of 2009, which generated
approximately $107,000 interest income in the period.  An additional
offsetting increase is related to owning the Bridle Ridge and Woodlynn Village
bonds for the entire first half of 2009, but only a portion of the first half of
2008.





Other income
(loss).  The increase in other income is attributable to higher
levels of temporary investments in liquid securities representing amounts
presented as cash and cash equivalents and restricted cash.  Temporary
investment levels were higher in 2009 due mainly to the cash received on the
bond redemptions completed in February 2009. Additionally, in 2008 there was a
loss of approximately $72,000 realized on the sale of  the Chandler
bond offset by a small gain realized from the sale of the Deerfield bond in
March 2008.


27


Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties and the consolidated VIEs are comprised principally of real estate
taxes, property insurance, utilities, property management fees, repairs and
maintenance, and salaries and related employee expenses of on-site employees. A
portion of real estate operating expenses are fixed in nature, thus a decrease
in physical and economic occupancy would result in a reduction in operating
margins. Conversely, as physical and economic occupancy increase, the fixed
nature of these expenses will increase operating margins as these real estate
operating expenses would not increase at the same rate as rental
revenues.  Real estate operating expenses increased as a direct result
of the expenses incurred by the newly acquired MF Properties.





Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the consolidated VIEs
and the MF Properties and amortization associated with in-place lease intangible
assets recorded as part of the purchase accounting for the acquisition of MF
Properties and deferred finance cost amortization related to the TOB credit
facility that was entered into in the second quarter of
2008.  Approximately $505,000 of the increase is attributable to
deferred financing cost amortization and a net increase of approximately $70,000
of in-place lease amortization.  Depreciation expense increased
approximately $465,000 due to the acquisition of new MF Properties and
additional capital assets placed in service at existing properties.





Interest
expense.Interest expense increased approximately $364,000
during the first half of 2009 compared to the first half 2008.  The
increase was due to a number of offsetting factors.  The Company’s
quarterly borrowing cost decreased from 5.3 % per annum in 2008 to 2.3% per
annum in 2009 resulting in an approximate decrease of $1.2 million compared to
the first six months of  2008.  Offsetting the interest rate
decrease was interest expense attributable to marking interest rate derivatives
to fair value.  The fair value adjustment increased interest expense
by approximately $589,000 for 2009 as compared to the first half of
2008.  Three new MF Properties were added to the portfolio which
increased interest expense by approximately $351,000 due to mortgage loans
secured by these properties. The remaining increase in interest expense is due
to the allocation of interest expense to discontinued operations in
2008.





General and administrative
expenses.General and administrative expenses decreased due to
a reduction in professional fees, salaries, and adminstrative fees.





Partnership Only Results of
Operations





The
following discussion of the Partnership’s results of operations for the three
and six months ended June 30, 2009 and 2008 reflects the operations of the
Partnership without the consolidation of the VIEs, which is required under FIN
46R. This information is used by management to analyze the Partnership’s
operations and is reflective of the segment data discussed in Note 10 to the
consolidated financial statements.




Three Months Ended June 30,
2009 compared to Three Months Ended June 30, 2008 (Partnership
Only)





Changes in Results of
Operations








For
      the Three
                                                                  
                                                                  
                                                                  For
      the ThreeMonths
      Ended
                                                                  
                                                                  
                                                                  Months
      EndedJune
      30, 2009
                                                                  
                                                                  
                                                                  June
      30, 2008
                                                                  
                                                                  
                                                                  Dollar
      ChangeRevenues:Mortgage
      revenue bond investment income
                                                                  
                                                                  $
                                                                  2,127,071
                                                                  
                                                                  
                                                                  $
                                                                  2,537,754
                                                                  
                                                                  
                                                                  $
                                                                  (410,683
                                                                  )Property
      revenues
                                                                  
                                                                  
                                                                  1,839,243
                                                                  
                                                                  
                                                                  
                                                                  1,091,763
                                                                  
                                                                  
                                                                  
                                                                  747,480Other
      income (loss)
                                                                  
                                                                  
                                                                  17,879
                                                                  
                                                                  
                                                                  
                                                                  (83,028
                                                                  )
                                                                  
                                                                  
                                                                  100,907Total
      Revenues
                                                                  
                                                                  
                                                                  3,984,193
                                                                  
                                                                  
                                                                  
                                                                  3,546,489
                                                                  
                                                                  
                                                                  
                                                                  437,704Expenses:Real
      estate operating (exclusive of items shown below)
                                                                  
                                                                  
                                                                  1,041,056
                                                                  
                                                                  
                                                                  
                                                                  579,906
                                                                  
                                                                  
                                                                  
                                                                  461,150Loan
      loss expense
                                                                  
                                                                  
                                                                  220,000
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  220,000Interest
      expense
                                                                  
                                                                  
                                                                  965,330
                                                                  
                                                                  
                                                                  
                                                                  875,893
                                                                  
                                                                  
                                                                  
                                                                  89,437Depreciation
      and amortization expense
                                                                  
                                                                  
                                                                  1,070,677
                                                                  
                                                                  
                                                                  
                                                                  468,202
                                                                  
                                                                  
                                                                  
                                                                  602,475General
      and administrative
                                                                  
                                                                  
                                                                  324,401
                                                                  
                                                                  
                                                                  
                                                                  489,399
                                                                  
                                                                  
                                                                  
                                                                  (164,998
                                                                  )Total
      Expenses
                                                                  
                                                                  
                                                                  3,621,464
                                                                  
                                                                  
                                                                  
                                                                  2,413,400
                                                                  
                                                                  
                                                                  
                                                                  1,208,064Net
      income
                                                                  
                                                                  
                                                                  362,729
                                                                  
                                                                  
                                                                  
                                                                  1,133,089
                                                                  
                                                                  
                                                                  
                                                                  (770,360
                                                                  )Less:
      net loss attributable to noncontrolling interest
                                                                  
                                                                  
                                                                  2,964
                                                                  
                                                                  
                                                                  
                                                                  781
                                                                  
                                                                  
                                                                  
                                                                  2,183Net
      Income - America First Tax Exempt Investors, L.P.
                                                                  
                                                                  $
                                                                  365,693
                                                                  
                                                                  
                                                                  $
                                                                  1,133,870
                                                                  
                                                                  
                                                                  $
                                                                  (768,177
                                                                  )




28


Mortgage revenue bond investment
income.  The decrease in mortgage revenue bond investment
income during the first half of 2009 compared to the first half of 2008 is
related to the disposition of the Chandler Creek bond during the second quarter
of 2008, the foreclosure of the Prairiebrook Village bond during the first half
of 2008, and the redemption of three bonds in the first quarter of
2009.  The disposition and redemption of the bonds accounted for
approximately $642,000 of the total decrease. This was offset by the Oak Grove
and Cross Creek bond investments acquired at the beginning of the second quarter
of 2009, which generated approximately $244,000 in interest income.





Property
revenues.Property revenues increased as a direct result of
revenue generated by the newly acquired MF Properties, two of which were
acquired in the second half of 2008 and one of which was acquired in first
quarter 2009.  These acquired properties added $761,000 of rental
income. Property revenues generated by the other MF Properties were consistent
in each period.  The MF Properties averaged $620 per unit in monthly
rent in 2009 as compared with $669 per unit in 2008.  Economic
occupancy at the MF Properties during the second quarter of 2009 was 85%
compared to 92% in 2008.





Other income
(loss).  The increase in other interest income is attributable
to higher levels of temporary investments in liquid securities representing
amounts presented as cash and cash equivalents and restricted
cash.  Temporary investment levels were higher in 2009 due mainly to
the cash received on the bond redemptions completed in February 2009.
Additionally, in 2008 there was a loss of approximately $72,000 realized on the
sale of the Chandler bond.





Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties are comprised principally of real estate taxes, property
insurance, utilities, property management fees, repairs and maintenance, and
salaries and related employee expenses of on-site employees. A portion of real
estate operating expenses are fixed in nature, thus a decrease in physical and
economic occupancy would result in a reduction in operating margins. Conversely,
as physical and economic occupancy increase, the fixed nature of these expenses
will increase operating margins as these real estate operating expenses would
not increase at the same rate as rental revenues.  Real estate
operating expenses increased as a direct result of the expenses incurred by the
newly acquired MF Properties, which were approximately $420,000 in the second
quarter of 2009.





Loan loss reserve
expense.  The Partnership periodically, or as changes in
circumstances or operations dictate, evaluates its investments for
impairment.  The value of the underlying property assets is ultimately
the largest measure of value to support the investment carrying
values.  Due to current economic pressures, declining property
occupancy and declines in net operating income at the property level, the
Partnership determined it was appropriate to evaluate its investments for
impairment as of June 30, 2009.  Investments tested for impairment
include all fixed assets, bond investments and taxable loans made to various
properties.  Such evaluation is based on cash flow and discounted cash
flow models.  The Partnership concluded that there was no impairment
of fixed assets or bond investments.  This evaluation did determine
that a portion of the Partnership taxable property loans were potentially
impaired and that additional loan loss reserves should be
recorded.  As a result, $220,000 of additional loan loss reserves
related to the taxable loans between various properties and the Partnership was
recorded.   The Partnership has net outstanding taxable loans to
various properties recorded on its balance sheet of approximately $17.6
million.





Interest
expense.Interest expense increased approximately
$89,000 during the second quarter 2009 compared to the second quarter
2008.  The Partnership’s borrowing cost decreased from 4.5% per annum
in 2008 to 2.3% per annum in 2009 resulting in an approximate decrease of
$157,000 compared to second quarter 2008.  Offsetting the interest
rate decrease was interest expense attributable to marking interest rate
derivatives to fair value.  The fair value adjustment increased
interest expense by approximately $246,000 for 2009 as compared to the second
quarter 2008.





Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the MF Properties and
amortization associated with in-place lease intangible assets recorded as part
of the purchase accounting for the acquisition of MF Properties and deferred
finance cost amortization related to the TOB credit facility that was entered
into in the second quarter of 2008.  The increase is attributable to
approximately $186,000 of additional amortization for the TOB facility and
increased depreciation and amortization expense of approximately $406,000 due to
the acquisition of new MF Properties.





General and administrative
expenses.General and administrative expenses decreased due to
a reduction in professional fees, salaries, and administrative
fees.


29
 Six Months Ended June 30,
2009 compared to Six Months Ended June  30, 2008 (Partnership
Only)





Changes in Results of
Operations





For
      the Six
                                                                    
                                                                    
                                                                    For
      the SixMonths
      Ended
                                                                    
                                                                    
                                                                    Months
      EndedJune
      30, 2009
                                                                    
                                                                    
                                                                    June
      30, 2008
                                                                    
                                                                    
                                                                    Dollar
      ChangeRevenues:Mortgage
      revenue bond investment income
                                                                    
                                                                    $
                                                                    6,770,084
                                                                    
                                                                    
                                                                    $
                                                                    5,173,892
                                                                    
                                                                    
                                                                    $
                                                                    1,596,192Property
      revenues
                                                                    
                                                                    
                                                                    3,470,941
                                                                    
                                                                    
                                                                    
                                                                    2,184,799
                                                                    
                                                                    
                                                                    
                                                                    1,286,142Other
      loss
                                                                    
                                                                    
                                                                    (75,601
                                                                    )
                                                                    
                                                                    
                                                                    (54,894
                                                                    )
                                                                    
                                                                    
                                                                    (20,707
                                                                    )Total
      Revenues
                                                                    
                                                                    
                                                                    10,165,424
                                                                    
                                                                    
                                                                    
                                                                    7,303,797
                                                                    
                                                                    
                                                                    
                                                                    2,861,627Expenses:Real
      estate operating (exclusive of items shown below)
                                                                    
                                                                    
                                                                    2,076,713
                                                                    
                                                                    
                                                                    
                                                                    1,088,955
                                                                    
                                                                    
                                                                    
                                                                    987,758Loan
      loss expense
                                                                    
                                                                    
                                                                    294,999
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    294,999Interest
      expense
                                                                    
                                                                    
                                                                    2,237,752
                                                                    
                                                                    
                                                                    
                                                                    2,399,448
                                                                    
                                                                    
                                                                    
                                                                    (161,696
                                                                    )Depreciation
      and amortization expense
                                                                    
                                                                    
                                                                    2,076,388
                                                                    
                                                                    
                                                                    
                                                                    1,098,400
                                                                    
                                                                    
                                                                    
                                                                    977,988General
      and administrative
                                                                    
                                                                    
                                                                    901,163
                                                                    
                                                                    
                                                                    
                                                                    920,465
                                                                    
                                                                    
                                                                    
                                                                    (19,302
                                                                    )Total
      Expenses
                                                                    
                                                                    
                                                                    7,587,015
                                                                    
                                                                    
                                                                    
                                                                    5,507,268
                                                                    
                                                                    
                                                                    
                                                                    2,079,747Net
      income
                                                                    
                                                                    
                                                                    2,578,409
                                                                    
                                                                    
                                                                    
                                                                    1,796,529
                                                                    
                                                                    
                                                                    
                                                                    781,880Less:
      net loss attributable to noncontrolling interest
                                                                    
                                                                    
                                                                    6,824
                                                                    
                                                                    
                                                                    
                                                                    3,526
                                                                    
                                                                    
                                                                    
                                                                    3,298Net
      Income - America First Tax Exempt Investors, L.P.
                                                                    
                                                                    $
                                                                    2,585,233
                                                                    
                                                                    
                                                                    $
                                                                    1,800,055
                                                                    
                                                                    
                                                                    $
                                                                    785,178




Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first half of 2009 compared to the first half of 2008 is due
to a number of items which offset each other.  First, the Partnership
realized approximately $2.3 million of contingent interest related to the
redemption of three bonds in the first quarter of 2009. Second, increased income
from the Oak Grove and Cross Creek bond investments acquired at the beginning of
the second quarter of 2009, which generated approximately $244,000 interest
income.  These increases were offset by a decline in interest income
due to the disposition of the Chandler Creek and Deerfield bonds in 2008, the
foreclosure of the Prairiebrook Village bond.during the first half of 2008, and
the redemption of three bonds in the first quarter of 2009.  The
disposition and redemption of these bonds accounted for a decrease of
approximately $944,000 in regular interest income.





Property
revenues.Property revenues increased as a direct result of
revenue generated by the newly acquired MF Properties, two of which were
acquired in the second half of 2008 and one of which was acquired in first
quarter 2009.  These properties added $1.4 million of rental income.
Property revenues generated by the other MF Properties were down slightly in
2009 compared to the same period of 2008.  The MF Properties averaged
$586 per unit in monthly rent in 2009 as compared with $651 per unit in
2008.  Economic occupancy at the MF Properties was 85% during the
first half of 2009 as compared to 89% in the first half of 2008.





Other loss.  In
2009, the other loss represents the write-off of unamortized deferred finance
costs related to the three bonds redeemed during the first quarter of 2009. The
2008 loss was the net loss recorded for the Chandler Creek and Deerfield bond
sales. In both years these losses were offset by an increase in other interest
income attributable to temporary investments in liquid securities representing
amounts presented as cash and cash equivalents and restricted
cash.  Temporary investment levels were higher in 2009 due mainly to
the cash received on the bond redemptions completed in February
2009.





Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties are comprised principally of real estate taxes, property
insurance, utilities, property management fees, repairs and maintenance, and
salaries and related employee expenses of on-site employees. A portion of real
estate operating expenses are fixed in nature, thus a decrease in physical and
economic occupancy would result in a reduction in operating margins. Conversely,
as physical and economic occupancy increase, the fixed nature of these expenses
will increase operating margins as these real estate operating expenses would
not increase at the same rate as rental revenues.  Real estate
operating expenses increased by approximately $897,000 as a direct result of the
expenses incurred by the two MF Properties acquired in 2008 and the one acquired
in 2009.  Additionally, real estate operating expenses related to the
six existing MF Properties increased approximately $90,000 compared to 2008
mainly due to increase in salary expense.





Loan loss reserve
expense.  The Partnership periodically, or as changes in
circumstances or operations dictate, evaluates its investments for
impairment.  The value of the underlying property assets is ultimately
the largest measure of value to support the investment carrying
values.  Due to current economic pressures, declining property
occupancy and declines in net operating income at the property level, the
Partnership determined it was appropriate to evaluate its investments for
impairment as of June 30, 2009.  Investments tested for impairment
include all fixed assets, bond investments and taxable loans made to various
properties.  Such evaluation is based on cash flow and discounted cash
flow models.  The Partnership concluded that there was no impairment
of fixed assets or bond investments.  This evaluation did determine
that a portion of the Partnership taxable property loans were potentially
impaired and that additional loan loss reserves should be
recorded.  As a result, $220,000 of additional loan loss reserves
related to the taxable loans between various properties and the Partnership was
recorded.   The Partnership has net outstanding taxable loans to
various properties recorded on its’ balance sheet of approximately $17.6
million.


30


Interest
expense.Interest expense decreased approximately $162,000
during the first half of 2009 compared to the first half 2008.  The
decrease was due to a number of offsetting factors.  The Partnership’s
quarterly borrowing cost decreased from 5.3 % per annum in 2008 to 2.3% per
annum in 2009 resulting in an approximate decrease of $1.2 million compared to
the first six months of  2008.  Offsetting the interest rate
decrease was interest expense attributable to marking interest rate derivatives
to fair value.  The fair value adjustment increased interest expense
by approximately $589,000 for 2009 as compared to the first half of
2008.  Three new MF Properties were added to the portfolio which
increased interest expense by approximately $351,000. The remaining increase in
interest expense is due to the change in interest expense allocated to
discontinued operations.





Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the MF Properties and
amortization associated with in-place lease intangible assets recorded as part
of the purchase accounting for the acquisition of MF Properties and deferred
finance cost amortization related to the TOB credit facility that was entered
into in the first half of 2008. Approximately $437,000 of the increase is
attributable to deferred financing cost amortization and a net increase of
approximately $135,000 of in-place lease amortization. Depreciation expense
increased approximately $405,000 due mainly to the acquisition of new MF
Properties.





General and administrative
expenses.General and administrative expenses decreased due to
a reduction in professional fees, salaries, and administrative
fees.








Liquidity
and Capital Resources





Partnership
Liquidity





Tax-exempt
interest earned on the mortgage revenue bonds, including those financing
properties held by VIEs, represents the Partnership's principal source of cash
flow.  The Partnership may also receive cash distributions from equity
interests held in MF Properties.  Tax-exempt interest is primarily
comprised of base interest payments received on the Partnership’s tax-exempt
mortgage revenue bonds.  Certain of the tax-exempt mortgage revenue
bonds may also generate payments of contingent interest to the Partnership from
time to time when the underlying apartment properties generate excess cash
flow.  Because base interest on each of the Partnership’s mortgage
revenue bonds is fixed, the Partnership’s cash receipts tend to be fairly
constant period to period unless the Partnership acquires or disposes of its
investments in tax-exempt bonds.  Changes in the economic performance
of the properties financed by tax-exempt bonds with a contingent interest
provision will affect the amount of contingent interest, if any, paid to the
Partnership.  Similarly, the economic performance of MF Properties
will affect the amount of cash distributions, if any, received by the
Partnership from its ownership of these properties.  The economic
performance of a multifamily apartment property depends on the rental and
occupancy rates of the property and on the level of operating
expenses.  Occupancy rates and rents are directly affected by the
supply of, and demand for, apartments in the market area 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
the affordability of single-family homes.  In addition, factors such
as government regulation (such as zoning laws), inflation, real estate and other
taxes, labor problems and natural disasters can affect the economic operations
of an apartment property.  The primary uses of cash by apartment
properties are the payment of operating expenses and debt
service.  Other sources of cash include debt financing and the sale of
additional BUCs.





The
Company intends to issue BUCs from time to time to raise additional equity
capital as needed to fund investment opportunities.  In this regard,
the Company has an effective Registration Statement on Form S-3 with the SEC
relating to the sale of up to $100.0 million of its BUCs.  Pursuant to
this Registration Statement, in May 2009, the Company issued, through an
underwritten public offering, a total of 3,500,000 BUCs at a public offering
price of $5.00 per BUC. Net proceeds realized by the Company from the issuance
of the additional BUCs were approximately $16.2 million, after payment of an
underwriter's discount and other offering costs of approximately $1.3 million.
The proceeds will be used to acquire additional tax-exempt revenue bonds and
other investments meeting the Partnership's investment criteria and for general
working capital needs.  To date, the Company has issued approximately
$47.1 million of BUCs under this Registration Statement and intends to issue
additional BUCs from time to time.  In addition, in October 2008, the
Company filed a Registration Statement on Form S-3 with the SEC relating to a
Rights Offering.  Pursuant to this Registration Statement, the Company
may issue Rights Certificates to existing BUC holders.  The Company
has not yet determined when, or if, such a Rights Offering will be
conducted.  Raising additional equity capital for deployment into new
investment opportunities is part of the Company’s overall growth
strategy.





We
believe that current market conditions have created significant investment
opportunities and we will seek to aggressively pursue those
opportunities.  More specifically, the current credit crisis has
severely disrupted the financial markets and, in our view, has also created
potential investment opportunities for the Company.  Non-traditional
participants in the multifamily housing debt sector are either reducing their
participation in the market or are being forced to downsize their existing
portfolio of investments.  Additionally, the current credit crisis is
also providing the potential for investments in quality real estate assets to be
acquired from distressed owners and lenders.  Our ability to
restructure existing debt together with the ability to improve the operations of
the underlying apartment properties through our affiliated property management
company, America First Property Management Company, L.L.C., results in a
valuable tax-exempt bond investment which is supported by the valuable
collateral and operations of the underlying real property.  We believe
this is creating opportunities to acquire existing tax-exempt bonds from
distressed entities at attractive yields.  We believe that we are
well-positioned to acquire assets on the secondary market while maintaining the
ability and willingness to also participate in primary market
transactions.  The Company is currently evaluating a number of
attractive potential investments and continues to be presented with investment
opportunities on a regular basis, however, there is no guarantee that we will be
able to consummate any such transaction.


31


The
Partnership’s principal uses of cash are the payment of distributions to BUC
holders, interest and principal on debt financing and general and administrative
expenses. The Partnership also uses cash to acquire additional investments.
Distributions to BUC holders may increase or decrease at the determination of
the General Partner. Distributions to BUC holders depend upon the amount of base
and contingent interest received on the Company’s tax-exempt mortgage revenue
bonds and cash received from other investments, the amount of borrowings and the
effective interest rate of these borrowings, and the amount of the Partnership’s
undistributed cash.  The Company’s regular annual distributions have
recently equaled $0.54 per BUC, or $0.135 per quarter per
BUC.  Beginning with the second quarter 2009 distribution, the general
partner has changed the Company’s regular annual distribution to $0.50 per BUC,
or $0.125 per quarter per BUC. The general partner believes that distributions
at this level are sustainable, however, if actual results vary from current
projections and the actual CAD generated is less than the new regular
distribution, such distribution amount may need to be reduced.





VIE
Liquidity





The VIEs’
primary source of cash is net rental revenues generated by their real estate
investments. Net rental revenues from a multifamily apartment property depend on
the rental and occupancy rates of the property and on the level of operating
expenses. Occupancy rates and rents are directly affected by the supply of, and
demand for, apartments in the market area 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 the affordability of
single-family homes. In addition, factors such as government regulation (such as
zoning laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of an apartment
property.





The VIEs’
primary uses of cash are: (i) the payment of operating expenses; and (ii) the
payment of debt service on the VIEs’ bonds and mortgage notes payable which are
held by the Partnership.





Consolidated
Liquidity





On a
consolidated basis, cash provided by operating activities for the six months
ended June 30, 2009 decreased approximately $1.3 million compared to the same
period a year earlier mainly due to changes in working capital
components.  Cash from investing activities increased approximately
$26.5 million for the six months ended June 30, 2009 compared to the same period
in 2008 primarily due to cash inflows from the early redemption of the Ashley
Pointe, Woodbridge – Louisville and Woodbridge – Bloomington
bonds.  Proceeds from the early redemption were $32.0 million as
compared to bond sale proceeds in 2008 of $14.9
million.  Additionally, changes in restricted cash increased investing
cash flows year over year by approximately $7.8 million due mainly to the
release of restricted cash that was collateral on the Company’s TOB credit
facility.  Finally, in 2008, bond acquisitions totaling approximately
$12.4 million were made while cash outflows for the acquisition of new
investments in 2009 totaled approximately $10.6 million resulting in a positive
cash flow change of approximately $1.8 million.  Cash from financing
activities decreased approximately $5.3 million for the six months ended June
30, 2009 compared to the same period in 2008.  This decrease was the
net result of a $16.2 million increase in cash from the sale of additional BUCs
offset by a decrease in net amounts borrowed of approximately $20.4 million,
additional distributions paid of approximately $589,000 and cash paid for a new
interest rate derivative of $554,000.





Historically,
the Company’s primary leverage vehicle was the Merrill Lynch P-Float
program.  The P-Float program was replaced in June of 2008 by a TOB
facility with Bank of America.  The TOB facility was refinanced in
June 2009.  The new credit facility has a one-year term with a
six-month renewal option held by the Company, an annual floating interest rate
of daily LIBOR plus 390 basis points and a loan amount of $50.0
million.  The proceeds from the new credit facility plus the cash
collateral held by Bank of America for the TOB facility were used to retire the
outstanding balance on the TOB facility.  The new credit facility is
secured by 13 tax-exempt mortgage revenue bonds with a total par value of $112.1
million plus approximately $1.5 million in restricted
cash.  Additionally, approximately $19.9 million in outstanding
mortgage financing related to the MF Properties located in Ohio and Kentucky was
due in July 2009.  Subsequent to June 30, 2009, the borrower entered
into a Maturity Date Extension Agreement for the mortgage loan which extended
the maturity on the mortgage one year to July 2010.  In connection
with the extension, the Company paid down the mortgage balance related to two of
the financed properties, Eagle Ridge and Meadowview.  The outstanding
principal was reduced by approximately $7.1 million resulting in a new
outstanding mortgage balance of approximately $12.8 million and the Eagle Ridge
and Meadowview properties were released as collateral for the
loan.  While the Company expects to be able to renew or refinance
current debt maturities, if the current illiquidity in the financial markets
continues or further deteriorates the counterparties on the Company’s credit
facilities may be unable or unwilling to meet their commitments and the
Company’s ability to renew or refinance our outstanding debt financing may be
negatively affected.





The
general partner has completed financial models in order to estimate the impact
of the change in credit facilities on CAD.  The actual impact on CAD
may vary from current projections.  The new distribution rate was
determined based upon the current projections.  The general partner
will evaluate the new distribution rate against actual CAD generated by the
Company and may increase or decrease the distribution based on such actual
results.


32


Cash
Available for Distribution





Management
utilizes a calculation of Cash Available for Distribution (“CAD”) as a means to
determine the Partnership’s ability to make distributions to BUC
holders.  The general partner believes that CAD provides relevant
information about the Partnership’s operations and is necessary along with net
income for understanding the Partnership’s operating results.  To
calculate CAD, amortization expense related to debt financing costs and bond
reissuance costs, Tier 2 income due to the general partner as defined in the
Agreement of Limited Partnership, interest rate derivative expense or income,
provision for loan loss reserves, impairments on bonds and losses related to
VIEs including depreciation expense are added back to the Company’s net income
(loss) as computed in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). There is no generally accepted
methodology for computing CAD, and the Company’s computation of CAD may not be
comparable to CAD reported by other companies.  Although the Company
considers CAD to be a useful measure of its operating performance, CAD should
not be considered as an alternative to net income or net cash flows from
operating activities which are calculated in accordance with GAAP.





The
following tables show the calculation of CAD for the three and six months ended
June 30, 2009 and 2008:








For
      the Three
                                    
                                    
                                    For
      the Three
                                    
                                    
                                    For
      the Six
                                    
                                    
                                    For
      the SixMonths
      Ended
                                    
                                    
                                    Months
      Ended
                                    
                                    
                                    Months
      Ended
                                    
                                    
                                    Months
      EndedJune
      30, 2009
                                    
                                    
                                    June
      30, 2008
                                    
                                    
                                    June
      30, 2009
                                    
                                    
                                    June
      30, 2008Net
      income - America First Tax Exempt Investors, L.P.
                                    
                                    $
                                    (570,366
                                    )
                                    
                                    $
                                    272,217
                                    
                                    
                                    $
                                    25,192,704
                                    
                                    
                                    $
                                    285,619Net
      income related to VIEs and eliminations due to
    consolidation
                                    
                                    
                                    936,059
                                    
                                    
                                    
                                    861,654
                                    
                                    
                                    
                                    (22,607,471
                                    )
                                    
                                    
                                    1,514,437Net
      income before impact of VIE consolidation
                                    
                                    
                                    365,693
                                    
                                    
                                    
                                    1,133,871
                                    
                                    
                                    
                                    2,585,233
                                    
                                    
                                    
                                    1,800,056Change
      in fair value of derivatives and interest rate cap
      amortization
                                    
                                    
                                    37,156
                                    
                                    
                                    
                                    (144,863
                                    )
                                    
                                    
                                    490,522
                                    
                                    
                                    
                                    38,328Loss
      on taxable loans
                                    
                                    
                                    220,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    294,999
                                    
                                    
                                    
                                    -Loss
      on bond sale
                                    
                                    
                                    (0
                                    )
                                    
                                    
                                    (0
                                    )
                                    
                                    
                                    127,495
                                    
                                    
                                    
                                    -Tier
      2 Income distributable to the General Partner (1)
                                    
                                    
                                    (10,531
                                    )
                                    
                                    
                                    (13,796
                                    )
                                    
                                    
                                    (585,421
                                    )
                                    
                                    
                                    (13,796
                                    )Depreciation
      and amortization expense (Partnership only)
                                    
                                    
                                    1,070,677
                                    
                                    
                                    
                                    468,201
                                    
                                    
                                    
                                    2,076,388
                                    
                                    
                                    
                                    1,098,399CAD
                                    
                                    
                                    1,682,995
                                    
                                    
                                    
                                    1,443,413
                                    
                                    
                                    
                                    4,989,216
                                    
                                    
                                    
                                    2,922,987Net
      income, basic and diluted, per BUC
                                    
                                    
                                    0.02
                                    
                                    
                                    
                                    0.08
                                    
                                    
                                    
                                    0.14
                                    
                                    
                                    
                                    0.13Total
      CAD per BUC
                                    
                                    $
                                    0.11
                                    
                                    
                                    $
                                    0.11
                                    
                                    
                                    $
                                    0.35
                                    
                                    
                                    $
                                    0.22Weighted
      average number of units outstanding, basic and diluted
                                    
                                    
                                    14,820,620
                                    
                                    
                                    
                                    13,512,928
                                    
                                    
                                    
                                    14,170,387
                                    
                                    
                                    
                                    13,512,928





(1)
            As
      described in Note 2 to the consolidated financial statements, Net Interest
      Income representing contingent interest and Net Residual Proceeds
      representing contingent (Tier 2 income) will be distributed 75% to the BUC
      holders and 25% to the General Partner. This adjustment represents the 25%
      of Tier 2 income due to the General Partner. For 2009, the Tier 2 income
      distributable to the General Partner was generated by the early redemption
      of the Woodbridge – Louisville and Woodbridge - Bloomington bond
      investments and from Fairmont Oaks and Lake Forest
    Apartments.





Contractual
Obligations





There
were no significant changes to the Company’s contractual obligations as of June
30, 2009 from the December 31, 2008 information presented in the Company’s
Annual Report on Form 10-K, except as follows.  As discussed in the
Annual report on Form 10-K, the Company’s TOB facility was to mature in July
2009.  The TOB facility was refinanced in June
2009.   In addition to the TOB facility maturity, approximately
$19.9 million in outstanding mortgage financing related to the MF Properties
located in Ohio and Kentucky is due in July 2009.  Subsequent to June
30, 2009, the borrower entered into a Maturity Date Extension Agreement for the
mortgage loan which extended the maturity on the mortgage one year to July
2010.  In connection with the extension, the Company paid down the
mortgage balance related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million resulting in a new outstanding mortgage balance of approximately
$12.8 million.  The Eagle Ridge and Meadowview properties were
released from collateral for the loan.


33
 The
Partnership has the following contractual obligations as of June 30, 2009 after
allowing for the subsequent mortgage extension and pay down as discussed
above:


Payments
      due by periodLess
      than
                        
                        
                        1-2
                        
                        
                        More
      than 2Total
                        
                        
                        1 year
                        
                        
                        years
                        
                        
                        yearsDebt
      financing
                        
                        
                        $
                        50,000,000
                        
                        
                        $
                        136,667
                        
                        
                        $
                        49,863,333
                        
                        
                        $
                        -Mortgages
      payable
                        
                        
                        $
                        37,330,255
                        
                        
                        $
                        7,204,965
                        
                        
                        $
                        17,611,185
                        
                        
                        $
                        12,514,105Effective
      interest rate(s) (1)
                        
                        
                        
                        -
                        
                        
                        
                        2.42
                        %
                        
                        
                        4.52
                        %
                        
                        
                        4.68
                        %Interest
      (2)
                        
                        
                        $
                        2,059,688
                        
                        
                        $
                        174,461
                        
                        
                        $
                        1,532,974
                        
                        
                        $
                        352,253(1)
      Interest rates shown are the average effective rate as of June 30, 2009
      and include the impact of our interest rate derivatives.(2)
      Interest shown is estimated based upon current effective interest rates
      through maturity.





Recently
Issued Accounting Pronouncements





In June
2009, the FASB   issued   Statement
No. 168,     The    
FASB     Accounting     Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162(SFAS No. 168). The Codification will become the source of authoritative
GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date of
SFAS No. 168, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. SFAS No. 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. SFAS No. 168 is
not expected to have a material impact on the financial statements.




In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R)(SFAS No. 167). SFAS No. 167 retains the scope of
Interpretation 46(R), Consolidation of Variable Interest
Entities, with the addition of entities previously considered qualifying
special-purpose entities, as the concept of these entities was eliminated in
FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140. SFAS No.
167 shall be effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is currently evaluating the impact of
SFAS No. 167 on the financial statements.




In June
2009, the FASB issued Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140(SFAS No.
166). On and after the effective date of SFAS No. 166 , the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities (as defined under
previous accounting standards) should be evaluated for consolidation by
reporting entities on and after the effective date in accordance with the
applicable consolidation guidance. SFAS No. 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. SFAS
No. 166 is not expected to have a material impact on the financial
statements.




In May
2009, the FASB issued Statement No. 165, Subsequent Events (SFAS No.
165). SFAS No. 165 establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires
the disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date. SFAS No. 165 was effective for interim or
annual financial periods ending after June 15, 2009. The adoption of SFAS
No. 165 did not affect the consolidated balance sheet, statement of operations,
or cash flows.





On
January 1, 2009, the Company adopted SFAS No. 141R, Business Combinations, which
changes the way the Company accounts for business acquisitions (SFAS No.
141R).  SFAS No. 141R requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction and establishes the acquisition date fair value as
the measurement objective for all assets acquired and liabilities assumed in a
business combination.  Certain provisions of SFAS No. 141R will, among
other things, impact the determination of acquisition date fair value of
consideration paid in a business combination, exclude transaction costs from
acquisition accounting and change some accounting practices.





On
January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No.
160).  SFAS No. 160 requires that a noncontrolling interest in a
subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements.  It also calls for consistency in
the manner of reporting changes in the parent’s ownership interest and requires
fair value measurement of any noncontrolling equity investment retained in
deconsolidation.  The adoption of SFAS No. 160 recharacterized
minority interests as noncontrolling interests and reclassified minority
interests as a component of equity on the Company’s financial
statements.  Prior year amounts relating to noncontrolling interests
have been reclassified to conform to current year presentation as required by
SFAS No. 160.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following
FASB Staff Positions (“FSP”):





FSP FAS
157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.


34




FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales and reaffirms what SFAS
No. 157 states is the objective of fair value measurement—to reflect how much an
asset would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive.





FSP FAS
107-1 and APB 28-1 relate to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value. Prior to issuing this FSP, fair values for these assets and
liabilities were only disclosed once a year. The FSP now requires these
disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all those financial instruments not
measured on the balance sheet at fair value.





FSP FAS
115-2 and FAS 124-2 on other-than-temporary impairments is intended to bring
greater consistency to the timing of impairment recognition, and provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. The measure of impairment in
comprehensive income remains fair value. The FSP also requires increased and
timelier disclosures sought by investors regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses.





The FSPs
are effective for the Company for interim and annual periods ending after June
15, 2009.  The FSPs are not expected to have a material impact on the
Company’s financial statements.





Item 3.  Quantitative and Qualitative Disclosures About
Market Risk.





The
Partnership's primary market risk exposures are interest rate risk and credit
risk. The Partnership's exposure to market risks relates primarily to its
investments in tax-exempt mortgage revenue bonds and its debt financing. There
have been no material changes in market risk from the information provided under
“Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of the
Company’s 2008 Annual Report on Form 10-K except as discussed
below.





Interest
Rate Risk





Historically,
the interest rate on the Partnership’s floating rate debt facility has
fluctuated based on the SIFMA Index Rate, which resets
weekly.  Accordingly, the Partnership’s cost of borrowing fluctuated
with the SIFMA Index Rate.  In June 2009, the Partnership entered into
a new credit facility with a one-year term, a six-month renewal option held by
the Partnership, an annual floating interest rate of daily LIBOR plus 390
basis points and a loan amount of $50.0 million.  As a result, the
Partnership’s cost of borrowing now fluctuates with the daily LIBOR.The
weighted average effective interest rate for 2008 on debt indexed to the SIFMA
rate was approximately 4.4%, including all fees.  The weighted average
effective interest rate for first half of 2009 on the debt indexed to the SIFMA
rate was approximately 2.5%, including all fees.  The effective
interest rate for the new credit facility as of June 30, 2009 was
4.17%.  This rate is calculated as daily LIBOR, 0.27% as of June
30, 2009, plus 390 basis points.  In order to hedge the cost of
borrowing against a significant unfavorable fluctuation in the daily LIBOR,
the Partnership entered into an interest rate derivative.  The
derivative purchased is a one-month LIBOR interest rate cap with a notional
value of $50.0 million which was purchased for approximately
$554,000.  This new interest rate cap effectively caps the interest
rate to be paid on the Company’s new secured credit facility at 0.75% plus 390
basis points, or 4.65%.








Item 4.  Controls and Procedures.




Evaluation of disclosure controls
and procedures.The Partnership's Chief Executive Officer and
Chief Financial Officer have reviewed and evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Partnership's current disclosure
controls and procedures are effective, providing them with material information
relating to the Partnership as required to be disclosed in the reports the
Partnership files or submits under the Exchange Act on a timely
basis.




Changes in internal control over
financial reporting.  The Partnership’s Chief Executive Officer
and Chief Financial Officer have determined that there were no changes in the
Partnership's internal control over financial reporting during the Partnership’s
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Partnership’s internal control over financial
reporting.


35





PART
II - OTHER INFORMATION





Item 1A. Risk Factors.





The risk
factors affecting the Company are described in Item 1A “Risk Factors” of the
Company’s 2008 Annual Report on Form 10-K and the following:





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 AFCA 2 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 AFCA 2’s
determination that higher borrowing costs and other factors would reduce the
cash available to the Partnership to make distributions.  Although
AFCA 2 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.




Any
future issuances of additional shares could cause their market value to
decline.




The
issuance of shares in any future offerings may have a dilutive impact on our
existing shareholders.  In January 2007, the Partnership filed a
Registration Statement on Form S-3 with the SEC relating to the sale of up to
$100.0 million of its shares.  The Partnership intends to issue shares
from time to time under this Registration Statement to raise additional equity
capital as needed to fund investment opportunities.  This Registration
Statement remains active with the SEC and is available for the Partnership to
conduct further public offerings.  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 may decline.







Item 6.  Exhibits.





The
following exhibits are filed as required by Item 6 of this report. Exhibit
numbers refer to the paragraph numbers under Item 601 of Regulation
S-K:





3.  Articles
of Incorporation and Bylaws of America First Fiduciary Corporation Number Five
(incorporated herein by reference to Registration Statement on Form S-11 (No.
2-99997) filed by America First Tax Exempt Mortgage Fund Limited Partnership on
August 30, 1985).





4(a)  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 Company on April 17, 1998).





4(b)
Agreement of Limited Partnership of the Partnership (incorporated herein by
reference to the Amended Annual Report on Form 10-K (No. 000-24843) filed by the
Company on June 28, 1999).





4(c)  Amended
Agreement of Merger, dated June 12, 1998, between the Partnership and America
First Tax Exempt Mortgage Fund Limited Partnership (incorporated herein by
reference to Exhibit 4.3 to Amendment No. 3 to Registration Statement on Form
S-4 (No. 333-50513) filed by the Company on September 14, 1998).





10(a)           Loan
and Security Agreement, dated June 18, 2009, among Registrant, Deutsche Bank and
Bank of America (incorporated herein by reference to Exhibit 10.1 to Form 8-K
(No. 000-24843) filed by the Company on June 18, 2009).





10(b)           Promissory
Note, dated June 18, 2009, between Registrant and Bank of America (incorporated
herein by reference to Exhibit 10.2 to Form 8-K (No. 000-24843) filed by the
Company on June 18, 2009).





31.1  Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





31.2  Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





32.1  Certification
of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





32.2  Certification
of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.











36


SIGNATURES





Pursuant
to the requirements 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.





AMERICA FIRST TAX EXEMPT INVESTORS,
L.P.





By
America First Capital


Associates
Limited


Partnership
Two, General


Partner
of the Partnership





By  Burlington
Capital Group LLC,


General
Partner of


America
First Capital


Associates
Limited


Partnership
Two








Date:  August
      7, 2009
            /s/ Lisa Y.
      Roskens


Lisa Y.
Roskens


Chief
Executive Officer


Burlington
Capital Group LLC, acting in its capacity as general partner of the General
Partner of America First Tax Exempt Investors, L.P.


37