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 September 30, 2008





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  xNO  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 September 30,
      2008 and December 31, 2007
            1Condensed Consolidated Statements of Operations for
      the three and nine months ended September 30,  2008 and
      2007
            2Condensed Consolidated Statements of Partners' Capital
      and Comprehensive Income (Loss) for the nine months ended September 30,
      2008 and 2007
            3Condensed Consolidated Statements of Cash Flows for the
      nine months ended September 30, 2008 and 2007
            4Notes to Condensed Consolidated Financial
      Statements
            5Item
      2
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            14Item
      3
            Quantitative and Qualitative Disclosures About Market
      Risk
            28Item
      4
            Controls and Procedures
            29





PART II -
OTHER INFORMATION





Item
      1A
            Risk Factors
            30Item
      6
            Exhibits
            30SIGNATURES
            31


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, 2007 and in Item 1A of Part II of this
report.
 
 
  Table of Contents
  PART
I - FINANCIAL INFORMATION
 
 Item 1.  Financial Statements.
 
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 
 September
      30,
              
              
              December
      31,2008
              
              
              2007AssetsCash
      and cash equivalents
              
              $
              9,981,764
              
              
              $
              14,821,946Restricted
      cash
              
              
              9,772,078
              
              
              
              2,865,890Interest
      receivable
              
              
              889,723
              
              
              
              534,699Tax-exempt
      mortgage revenue bonds
              
              
              58,757,179
              
              
              
              66,167,116Real
      estate assets:Land
              
              
              11,528,149
              
              
              
              10,357,004Buildings
      and improvements
              
              
              105,946,131
              
              
              
              99,218,397Real
      estate assets before accumulated depreciation
              
              
              117,474,280
              
              
              
              109,575,401Accumulated
      depreciation
              
              
              (34,358,035
              )
              
              
              (31,543,780
              )Net
      real estate assets
              
              
              83,116,245
              
              
              
              78,031,621Other
      assets
              
              
              3,941,696
              
              
              
              2,457,736Total
      Assets
              
              $
              166,458,685
              
              
              $
              164,879,008LiabilitiesAccounts
      payable, accrued expenses and other liabilities
              
              $
              7,649,152
              
              
              $
              6,808,458Distribution
      payable
              
              
              2,432,327
              
              
              
              2,432,327Debt
      financing
              
              
              76,745,237
              
              
              
              71,395,000Mortgages
      payable
              
              
              26,450,800
              
              
              
              19,920,000Total
      Liabilities
              
              
              113,277,516
              
              
              
              100,555,785Commitments
      and Contingencies (Note 9)Minority
      interest
              
              
              58,123
              
              
              
              48,756Partners'
      CapitalGeneral
      partner
              
              
              324,491
              
              
              
              348,913Beneficial
      Unit Certificate holders
              
              
              104,273,403
              
              
              
              112,880,314Unallocated
      deficit of variable interest entities
              
              
              (51,474,848
              )
              
              
              (48,954,760
              )Total
      Partners' Capital
              
              
              53,123,046
              
              
              
              64,274,467Total
      Liabilities and Partners' Capital
              
              $
              166,458,685
              
              
              $
              164,879,008The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
  1
 Table of Contents
  AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
 (UNAUDITED)
 
 
 For
      Three
              
              
              For
      Three
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007Income:Total
      property revenue
              
              $
              4,664,068
              
              
              $
              4,438,001
              
              
              $
              13,975,909
              
              
              $
              11,522,407Mortgage
      revenue bond investment income
              
              
              1,016,176
              
              
              
              1,143,354
              
              
              
              3,281,565
              
              
              
              2,197,647Other
      income
              
              
              81,612
              
              
              
              128,957
              
              
              
              26,718
              
              
              
              646,8325,761,856
              
              
              
              5,710,312
              
              
              
              17,284,192
              
              
              
              14,366,886Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,941,474
              
              
              
              2,828,252
              
              
              
              8,346,057
              
              
              
              6,979,224Depreciation
      and amortization
              
              
              1,429,172
              
              
              
              1,279,426
              
              
              
              3,944,919
              
              
              
              2,336,309Interest
              
              
              835,382
              
              
              
              1,119,930
              
              
              
              3,234,830
              
              
              
              2,174,827General
      and administrative
              
              
              394,810
              
              
              
              374,623
              
              
              
              1,315,275
              
              
              
              1,067,7305,600,838
              
              
              
              5,602,231
              
              
              
              16,841,081
              
              
              
              12,558,090Minority
      interest in net loss of consolidated subsidiary
              
              
              911
              
              
              
              5,232
              
              
              
              4,437
              
              
              
              5,232Net
      income
              
              $
              161,929
              
              
              $
              113,313
              
              
              $
              447,548
              
              
              $
              1,814,028Net
      income allocated to:General
      Partner
              
              $
              11,676
              
              
              $
              9,817
              
              
              $
              42,921
              
              
              $
              94,252BUC
      holders
              
              
              1,155,904
              
              
              
              971,954
              
              
              
              2,924,715
              
              
              
              3,779,318Unallocated
      deficit of variable interest entities
              
              
              (1,005,651
              )
              
              
              (868,458
              )
              
              
              (2,520,088
              )
              
              
              (2,059,542
              )$
              161,929
              
              
              $
              113,313
              
              
              $
              447,548
              
              
              $
              1,814,028BUC
      holders' interest in net income per unit(basic
      and diluted):Net
      income, basic and diluted, per unit
              
              $
              0.09
              
              
              $
              0.07
              
              
              $
              0.22
              
              
              $
              0.31Weighted
      average number of unitsoutstanding,
      basic and diluted
              
              
              13,512,928
              
              
              
              13,512,928
              
              
              
              13,512,928
              
              
              
              12,147,269The
      accompanying notes are an integral part of the financial
      statements.
 
  2
 Table of Contents
  AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND
COMPREHENSIVE INCOME (LOSS)
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
 (UNAUDITED)
 
 
 Beneficial
      Unit Certificate holders
              
              
              Unallocated
      deficit
      of variable
      interest entities
              
              
              
              
              
              Accumulated
      Other
      Comprehensive
      Income
      (Loss)General
      Partner#
      of Units
              
              
              Amount
              
              
              
              
              TotalBalance
      at January 1, 2008
              
              $
              348,913
              
              
              
              13,512,928
              
              
              $
              112,880,314
              
              
              $
              (48,954,760
              )
              
              $
              64,274,467
              
              
              $
              (3,581,844
              )Comprehensive
      income:Net
      income
              
              
              42,921
              
              
              
              -
              
              
              
              2,924,715
              
              
              
              (2,520,088
              )
              
              
              447,548
              
              
              
              -Unrealized
      loss on securities
              
              
              (48,916
              )
              
              
              -
              
              
              
              (4,842,726
              )
              
              
              -
              
              
              
              (4,891,642
              )
              
              
              (4,891,642
              )Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,444,094
              )Distributions
      paid or accrued
              
              
              (1,234,591
              )
              
              
              -
              
              
              
              (5,472,736
              )
              
              
              -
              
              
              
              (6,707,327
              )
              
              
              -Reclassification
      of Tier II income
              
              
              1,216,164
              
              
              
              -
              
              
              
              (1,216,164
              )
              
              
              -
              
              
              
              -
              
              
              
              -Balance
      at September 30, 2008
              
              $
              324,491
              
              
              
              13,512,928
              
              
              $
              104,273,403
              
              
              $
              (51,474,848
              )
              
              $
              53,123,046
              
              
              $
              (8,473,486
              )Beneficial
      Unit Certificate holders
              
              
              Unallocated
      deficit
      of variable
      interest entities
              
              
              
              
              
              
              AccumulatedOther
      Comprehensive
      LossGeneral
      Partner#
      of Units
              
              
              Amount
              
              
              
              
              TotalBalance
      at January 1, 2007
              
              $
              1,526,062
              
              
              
              9,837,928
              
              
              $
              90,722,467
              
              
              $
              (45,502,169
              )
              
              $
              46,746,360
              
              
              $
              (722,435
              )Sale
      of Beneficial Unit Certificates
              
              
              
              
              
              
              3,675,000
              
              
              
              27,518,131
              
              
              
              
              
              
              
              27,518,131Comprehensive
      income:Net
      income
              
              
              94,252
              
              
              
              -
              
              
              
              3,779,318
              
              
              
              (2,059,542
              )
              
              
              1,814,028
              
              
              
              -Unrealized
      loss on securities
              
              
              (4,886
              )
              
              
              -
              
              
              
              (483,617
              )
              
              
              -
              
              
              
              (488,503
              )
              
              
              (488,503
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,325,525Distributions
      paid or accrued
              
              
              (639,924
              )
              
              
              -
              
              
              
              (4,976,611
              )
              
              
              -
              
              
              
              (5,616,535
              )
              
              
              -Balance
      at September 30, 2007
              
              $
              975,504
              
              
              
              13,512,928
              
              
              $
              116,559,688
              
              
              $
              (47,561,711
              )
              
              $
              69,973,481
              
              
              $
              (1,210,938
              )The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
  3
 Table of Contents
  AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 
 For
      the nine months endedSeptember
      30, 2008
              
              September
      30, 2007Cash
      flows from operating activities:Net
      income
              $
              447,548
              $
              1,814,028Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
              
              3,944,919
              
              2,336,309Interest
      rate cap income
              
              (144,888)
              
              (63,282)Loss
      on sale of securities
              
              18,524
              
              -Minority
      interest in net loss of consolidated subsidiary
              
              (4,437)
              
              (5,232)Changes
      in operating assets and liabilities, net of effect of
      acquisitionsIncrease
      in interest receivable
              
              (355,024)
              
              (762,652)(Increase) decrease in other assets
              
              (67,709)
              
              272,551Decrease
      in accounts payable, accrued expenses and other
    liabilities
              
              (1,015,573)
              
              (1,006,344)Net
      cash provided by operating activities
              
              2,823,360
              
              2,585,378Cash
      flows from investing activities:Proceeds
      from the sale of tax-exempt bonds
              
              14,846,363
              
              28,800,000Acquisition
      of tax-exempt mortgage revenue bonds
              
              (12,435,000)
              
              (55,148,998)Increase
      in restricted cash
              
              (6,906,188)
              
              (1,973,526)Capital
      expenditures
              
              (502,350)
              
              (452,248)Acquisition
      of partnerships
              
              (7,466,097)
              
              (9,220,390)Principal
      payments received on tax-exempt mortgage revenue bonds
              
              63,334
              
              37,500Proceeds
      from termination of derivatives
              
              54,000
              
              -Principal
      payments received on taxable loans
              
              100,000
              
              -Net
      cash used in investing activities
              
              (12,245,938)
              
              (37,957,662)Cash
      flows from financing activities:Distributions
      paid
              
              (6,707,327)
              
              (4,750,403)Swap
      payments
              
              (25,341)
              
              -Proceeds
      from mortgages payable
              
              6,530,800
              
              19,920,000Increase
      in liabilities related to restricted cash
              
              1,906,188
              
              1,973,526Debt
      financing costs paid
              
              (1,487,161)
              
              (1,271,266)Repayment
      of liabilities assumed
              
              -
              
              (15,112,771)Proceeds
      from debt financing
              
              76,745,237
              
              13,300,000Principal
      payments on debt financing and note payable
              
              (71,395,000)
              
              (130,000)Acquisition
      of interest rate cap agreements
              
              (985,000)
              
              (83,000)Sale
      of Beneficial Unit Certificates
              
              -
              
              27,518,131Net
      cash provided by financing activities
              
              4,582,396
              
              41,364,217Net
      increase in cash and cash equivalents
              
              (4,840,182)
              
              5,991,933Cash
      and cash equivalents at beginning of period
              
              14,821,946
              
              8,476,928Cash
      and cash equivalents at end of period
              $
              9,981,764
              $
              14,468,861Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
              $
              3,061,100
              $
              1,513,304Supplemental
      disclosure of non-cash financing and investing activities:Liabilites
      assumed in the acquisition of partnerships
              $
              49,921
              $
              15,742,740Distributions
      declared but not paid
              $
              2,432,327
              $
              2,432,510The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
 
  4
 Table of Contents
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
 SEPTEMBER 30, 2008
 (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.
  The
consolidated financial statements of the “Company” reported in this Form 10-Q
include the assets and results of operation 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 eight other entities that own
and operate multifamily apartment properties in which the Partnership does not
hold an ownership interest but 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 include 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 General Partner does
not believe that the consolidation of the VIEs impacts 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 accounting principles
generally accepted in the United States (“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, 2007. In the opinion of management,
all normal and recurring adjustments necessary to present fairly the financial
position as of September 30, 2008, 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.
  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 MF
Properties (see Note 4) 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 both June 30 and September 30, 2008, the General Partner
determined that approximately $2.4 million of the Net Residual Proceeds
previously placed in reserve were no longer to be held in reserve and would be
distributed as Net Residual Proceeds (Tier 2).  Accordingly, an entry
has been recorded in the Company’s consolidated financial statements to allocate
such Net Residual Proceeds 75% to the BUC holders and 25% to the General Partner
in preparation for such distribution.  As of September 30, 2008,
approximately $4.8 million representing Tier 2 income has not been distributed
and remains in the reserve.
  5
 Table of Contents
 The
unallocated deficit of the VIEs is primarily comprised of the accumulated
historical net losses of the VIEs as of the date of the implementation of FASB
Interpretation No. 46(R), Consolidation of Variable Interest
Entities, (“FIN 46R”).  The unallocated deficit of the VIEs and
the VIEs 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.  Investments
in Tax-Exempt Mortgage Revenue 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 dates shown:
 
 
 September
      30, 2008Description
      of Tax-Exempt
              
              
              
              
              Unrealized
              
              
              Unrealized
              
              
              EstimatedMortgage
      Revenue Bonds
              
              Cost
              
              
              Gain
              
              
              Loss
              
              
              Fair
      ValueClarkson
      College
              
              $
              6,036,665
              
              
              $
              -
              
              
              $
              (375,458
              )
              
              $
              5,661,207Bella
      Vista
              
              
              6,785,000
              
              
              
              -
              
              
              
              (841,544
              )
              
              
              5,943,456Woodland
      Park
              
              
              15,715,000
              
              
              
              -
              
              
              
              (2,095,240
              )
              
              
              13,619,760Prairiebrook
      Village
              
              
              5,862,000
              
              
              
              -
              
              
              
              (849,881
              )
              
              
              5,012,119Gardens
      of DeCordova
              
              
              4,870,000
              
              
              
              -
              
              
              
              (813,095
              )
              
              
              4,056,905Gardens
      of Weatherford
              
              
              4,702,000
              
              
              
              -
              
              
              
              (785,046
              )
              
              
              3,916,954Runnymede
      Apartments
              
              
              10,825,000
              
              
              
              -
              
              
              
              (1,334,722
              )
              
              
              9,490,278Bridle
      Ridge Apartments
              
              
              7,885,000
              
              
              
              -
              
              
              
              (738,588
              )
              
              
              7,146,412Woodlynn
      Village
              
              
              4,550,000
              
              
              
              -
              
              
              
              (639,912
              )
              
              
              3,910,088$
              67,230,665
              
              
              $
              -
              
              
              $
              (8,473,486
              )
              
              $
              58,757,179December
      31, 2007Description
      of Tax-Exempt
              
              
              
              
              
              Unrealized
              
              
              Unrealized
              
              
              EstimatedMortgage
      Revenue Bonds
              
              Cost
              
              
              Gain
              
              
              Loss
              
              
              Fair
      ValueChandler
      Creek Apartments
              
              $
              11,500,000
              
              
              $
              -
              
              
              $
              (792,350
              )
              
              $
              10,707,650Clarkson
      College
              
              
              6,084,960
              
              
              
              -
              
              
              
              (396,644
              )
              
              
              5,688,316Bella
      Vista
              
              
              6,800,000
              
              
              
              -
              
              
              
              (380,800
              )
              
              
              6,419,200Deerfield
      Apartments
              
              
              3,390,000
              
              
              
              -
              
              
              
              (77,614
              )
              
              
              3,312,386Woodland
      Park
              
              
              15,715,000
              
              
              
              -
              
              
              
              (658,340
              )
              
              
              15,056,660Prairiebrook
      Village
              
              
              5,862,000
              
              
              
              -
              
              
              
              (313,317
              )
              
              
              5,548,683Gardens
      of DeCordova
              
              
              4,870,000
              
              
              
              -
              
              
              
              (408,108
              )
              
              
              4,461,892Gardens
      of Weatherford
              
              
              4,702,000
              
              
              
              -
              
              
              
              (394,028
              )
              
              
              4,307,972Runnymede
      Apartments
              
              
              10,825,000
              
              
              
              -
              
              
              
              (160,643
              )
              
              
              10,664,357$
              69,748,960
              
              
              $
              -
              
              
              $
              (3,581,844
              )
              
              $
              66,167,116
 
 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.  Because the Company owns 100% of each of these
bonds, there is no active trading market for the bonds and price quotes for the
bonds are not available.  As a result, the Company bases its estimate
of fair value of the tax-exempt bonds using a discounted cash flow or yield to
maturity analysis performed by the General Partner. This calculation methodology
encompasses judgment in its application.  If available, the General
Partner may also consider price quotes on similar bonds or other information
from external sources, such pricing services.
 
 As of
September 30, 2008, all of the Company’s tax-exempt mortgage revenue bonds were
valued using management’s discounted cash flow and yield to maturity
analyses.  Pricing services, broker quotes and management’s analyses
provide indicative pricing only.  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.
   6
 Table of Contents
  
 Unrealized
gains or losses on these tax-exempt bonds are recorded in accumulated other
comprehensive income (loss) to reflect quarterly 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 September 30,
2008, the Clarkson College and Bella Vista investments have been in an
unrealized loss position for greater than twelve months.  The
remaining bonds in an unrealized loss position have been so for less 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. 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 last four
quarters.  The deterioration has negatively impacted the fair value of
the bonds as shown in the tables above.  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
recognize impairments to its investment portfolio through earnings which would
negatively impact the Company’s results of operations.
 
 In May
2008, the bond trustee for the Prairiebrook Village bonds, acting on behalf of
the Company, filed a petition of foreclosure on the mortgage securing the bonds.
In October 2008, the Company received approximately $4.5 million from the
trustee representing unused bond proceeds.  The Company intends to
sell the land owned by the project as part of the foreclosure.  After
the sale of the land, the Company will pursue the project owner and project
developer for any remaining unpaid bond principal based upon guarantees by these
entities.  Based upon the expected land sale proceeds of $350,000 to
$450,000, the Company expects to receive between $900,000 and $1.0 million from
the owner and developer from such guarantees.  Such guarantees are set
out in a Guarantee of Completion, Stabilization, Debt Service Reserve and
Recourse Obligations agreement executed by the owner and
developer.
  In April
2008, the Chandler Creek bonds were sold for $11.5 million plus accrued
interest.  In March 2008, the Deerfield bonds were sold for $3.4
million plus accrued interest and the repayment of a $100,000 taxable loan which
had been made by the Partnership to the owner of Deerfield Apartments. The
proceeds from these sales were used for the repayment of debt and for general
working capital needs.
  In
February 2008, the Company acquired the Woodlynn Village bonds at par value of
$4.6 million which represented 100% of the bond issuance.  The bonds earn
interest at an annual rate of 6.0% with semi-annual interest payments and a
stated maturity date of November 1, 2042.  The bonds were issued for the
acquisition and rehabilitation of the Woodlynn Village, a 59 unit multifamily
senior independent living apartment complex located in Maplewood,
Minnesota.
 
 In
January 2008, the Company acquired the Bridle Ridge Apartments bonds at par
value of $7.9 million which represented 100% of the bond issuance.  The
bonds earn interest at an annual rate of 6.0% with semi-annual interest payments
and a stated maturity date of January 1, 2043.  The bonds were issued for
the acquisition and rehabilitation of the Bridle Ridge Apartments, a 152 unit
multifamily apartment complex located in Greer, South Carolina.
 
 The
Company has determined that the underlying entities that own the Woodlynn
Village and Bridle Ridge Apartments which are financed by bonds owned by the
Partnership do not meet the definition of a VIE and, accordingly, their
financial statements are not required to be consolidated into the Company’s
consolidated financial statements under FIN 46R.
 
  7
 Table of Contents
  4.  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 Holding Companies to acquire 99% limited partner
positions in the seven 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
minority interests.  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 MF Properties 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.
 
 At
September 30, 2008, the Partnership held an interest in seven MF Properties
containing 668 rental units, of which four are located in Ohio, two are located
in Kentucky and one is located in Virginia.  The MF Property located
in Virginia is known as The Commons at Churchland (“Churchland”) and was
acquired on August 29, 2008 for a $7.5 million purchase price plus transaction
expenses of approximately $400,000.  The purchase price was funded
through a first mortgage loan of $5.5 million, a second mortgage loan of $1.0
million and cash of approximately $1.4 million.  The cash portion of
the purchase price was funded by cash on hand.
 
 After the
close of the quarter the Partnership purchased an interest in an eighth MF
Property containing 128 rental units, located in Georgia. The MF Property is
known as Glynn Place and was acquired on October 30, 2008 for a $5.4 million
purchase price plus transaction expenses of approximately
$500,000.  The purchase price was funded through a mortgage loan of
$4.5 million and cash of approximately $1.4 million.  The cash portion
of the purchase price was funded by cash on hand.
 
 In
addition to the MF Properties, the Partnership consolidates the assets 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.”
 
 
 5.  Debt
Financing and Mortgages Payable
 
 Historically,
the Company’s long-term debt has been provided by securitization of existing
tax-exempt mortgage revenue bonds through the Merrill Lynch P-Float program
which was accounted for as secured borrowings.  On June 26, 2008, the
Company effectively replaced the Merrill Lynch P-Float program by entering into
an agreement for a new tender option bond credit facility (“TOB facility”)
agreement with Bank of America.  The new TOB facility functions in
much the same fashion as the P-Float program.  In connection with the
TOB facility, tax-exempt mortgage revenue bonds are placed into trusts which
issue senior securities (known as “Floater Certificates”) to unaffiliated
institutional investors and subordinated residual interest securities (known as
“Inverse Certificates”) to the Company.  Net proceeds generated by the
sale of the Floater Certificates are then remitted to the Company and accounted
for as secured borrowings and, in effect, provided variable-rate financing for
the acquisition of additional tax-exempt mortgage revenue bonds and other
investments meeting the Company’s investment criteria and for other purposes.
The new TOB facility is a one-year agreement with a one-year renewal option held
by Bank of America and bears a variable interest rate at a weekly floating bond
rate, the Securities Industry and Financial Markets Association (“SIFMA”)
floating index, plus associated remarketing, credit enhancement, liquidity and
trustee fees.
 
 On June
26, 2008, as part of the new TOB facility, Bank of America funded a $65.1
million bridge loan which was used to retire the Merrill Lynch P-float program
debt.  On July 3, 2008, the new TOB facility was closed and the
resulting Floater Certificates were sold.  The closing of the TOB
facility resulted in debt proceeds of approximately $76.7
million.  After repayment of the bridge loan and related fees and
expenses, net proceeds of approximately $10.8 million were remitted to the
Company for investment in additional tax-exempt mortgage bonds and other
investments consistent with its investment policies and for other
purposes.
 
 Prior to
June 26, 2008, the Company’s financing was concentrated with Merrill Lynch
through the P-Float program.   Credit rating downgrades at
Merrill Lynch resulted in an increase in the Company’s cost of borrowing under
the P-Float program.  During the three months ended September 30,
2008, the Company’s average effective interest rate on the TOB facility was
approximately 4.5%.  During the nine months ended September 30, 2008
and 2007, the Company’s average effective interest rate on the P-Float and TOB
facility was approximately 4.2% and 4.4%, respectively.
 
 Churchland
was financed with first and second mortgage loans totaling approximately $6.5
million, a $5.5 million first mortgage and a $1.0 million second mortgage. The
interest rate on the first mortgage is variable and is calculated as one month
LIBOR plus 2.55%.  As of the transaction date, LIBOR was 2.471% and
the interest on the mortgage was 5.021% per annum.  The first mortgage
matures in September 2013.  The interest rate on the second mortgage
loan is fixed for the first 36 months at 6.0% and then switches to LIBOR plus
3.0% for the remaining term.  The second mortgage matures in November
2013.  The Company has guaranteed the payment of certain exceptions
from the non-recourse provisions, should they arise, in connection with these
mortgage loans.
 
 8
 Table of Contents
 In
connection with the 2007 acquisition of the six MF Properties located in Ohio
and Kentucky, a mortgage loan of approximately $19.9 million was
obtained.  The interest rate on this mortgage is variable and is
calculated as one month LIBOR plus 1.55%.  As of September 30, 2008,
one month LIBOR was 2.5% and the interest on the mortgage was 4.0%. The mortgage
matures in July 2009.  The Company has guaranteed the payment of
certain exceptions from the non-recourse provisions and certain environmental
obligations, should they arise, in connection with the loan.
 
 
 6.  Transactions
with Related Parties
 
 The
General Partner 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
nine months ended September 30, 2008, the Partnership paid administrative fees
to AFCA 2 of approximately $76,000 and $252,000, respectively. For the three and
nine months ended September 30, 2007, the Partnership paid administrative fees
to AFCA 2 of approximately $76,000 and $165,000, 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 $78,000 and $246,000 for the three and nine months ended
September 30, 2008 respectively. For the three and nine months ended September
30, 2007, these administrative fees totaled approximately $78,000 and $211,000,
respectively.
 
 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 property and, accordingly, have not been
reflected in the accompanying condensed consolidated financial statements
because these properties are not considered VIEs. During the three and nine
months ended September 30, 2008, AFCA 2 earned mortgage placement fees of
approximately $0 and $61,250, respectively. There were no such fees earned
during the first nine months of 2007.
 
 An
affiliate of AFCA 2, America First Property Management Company, LLC (“Properties
Management”), was retained to provide property management services for some of
the properties financed with tax-exempt bonds held by the Partnership (including
certain VIEs) and each MF Property. The management fees paid to Properties
Management amounted to approximately $207,000 for the three months ended
September 30, 2008, and $165,000 for the three months ended September 30, 2007.
The management fees paid to Properties Management amounted to approximately
$541,000 during the first nine months of 2008, and $415,000 during the first
nine months of 2007. These management fees are not Partnership expenses but are
recorded on the Company’s financial statements for each VIE and MF Property.
Such fees are paid out of the revenues generated by the properties 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.
 
 The
shareholders of the five VIEs 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.
 
 
 7.  Interest
Rate Derivative Agreements
 
 As of
September 30, 2008, the Company had 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 were as
follows:
 
 
 Principal
      Notional
      Amount
              
              Effective
      Capped
      Rate
              
              Maturity
      Date
              
              Purchase
      PriceDate
      Purchased
              
              
              
              
              
              CounterpartyFebruary
      1, 2003
              
              $15,000,000
              
              2.95%
              (1)
              January
      1, 2010
              
              $608,000
              
              Bank
      of AmericaJune
      29, 2007
              
              $19,920,000
              
              8.30%
              
              July
      1, 2009
              
              $17,500
              
              JP
      MorganJuly
      7, 2008
              
              $60,000,000
              
              2.50%
              
              August
      1, 2011
              
              $985,000
              
              US
      Bank(1)  The
      counterparty has exercised the right to convert the cap into a fixed rate
      swap effectiveFebruary
      1, 2008. Under the terms of the swap arrangement, the Partnership pays a
      fixed rate of 2.95%.
 
 On July
7, 2008, the Company entered into agreements with US Bank to terminate two
interest rate cap derivatives and to acquire a new interest rate cap
derivative.  The two terminated interest rate cap derivatives had a
total notional amount of $20.0 million and an effective cap rate before
remarketing, credit enhancement, liquidity and trustee fees of
4.0%.  The newly acquired interest rate cap derivative has a notional
amount of $60.0 million and an effective cap rate before remarketing, credit
enhancement, liquidity and trustee fees of 2.5%.  After considering
the current TOB facility fees, the new interest rate cap derivative caps $60.0
million of the Company’s variable rate debt at an effective rate of 4.15% thus
reducing the Company’s exposure to significant increases in the SIFMA
index.  The Company received payment from US Bank for termination of
the two interest rate cap derivatives totaling $54,000 and paid US Bank $985,000
for the new interest rate cap derivative.
 
 9
 Table of Contents
 On
February 1, 2008, Bank of America elected to exercise its option to convert the
$15.0 million interest rate cap to a fixed rate swap at a rate of 2.95%. Under
the terms of the swap, the Company will pay the fixed rate of interest to Bank
of America and will receive a variable rate of interest from same based on the
SIFMA Municipal Swap Index rate.  This rate is set weekly and
settlements under the swap agreement will be made monthly based on the original
notional amount.  The Company is required to maintain a restricted
compensating balance with the Bank of America based on the present value of the
projected future payments for the duration of the swap
agreement.  After considering the current TOB facility fees, this swap
effectively fixes the interest rate on $15.0 million of the Company’s variable
rate debt at 4.6%.
 
 These
interest rate derivatives do not qualify for hedge accounting and, accordingly,
they are carried at fair value. The interest rate derivatives at September 30,
2008 are included in other assets on the consolidated balance sheet and totaled
approximately $1.1 million. Changes in fair value are included in current period
earnings within interest expense. The change in the fair value of these
derivative contracts resulted in an approximate $183,000 and $145,000 decrease
in interest expense for the three and nine months ended September 30, 2008,
respectively. The change in the fair value of these derivative contracts
resulted in an increase in interest expense of approximately $116,000 and
reduction of interest expense of approximately $2,000 for the three and nine
months ended September 30, 2007, respectively.
 
 8.  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 September 30, 2008, the Company held eleven
tax-exempt bonds (secured by nine properties) not associated with VIEs and eight
tax-exempt bonds associated with VIEs.  The multifamily apartment
properties financed by these tax-exempt bonds contain a total of 2,901 rental
units.
 
 MF
Properties Segment
 
 The MF
Properties segment consists of indirect equity interests in multifamily
apartment properties which are not financed by tax-exempt bonds held by the
Company but which the Company eventually intends to finance by such bonds
through a restructuring.  In connection with any such restructuring,
the Company will be required to dispose of any equity interest held in such MF
Properties.  The Company’s interests in its current MF Properties were
not classified as Assets Held for Sale at September 30, 2008 because the Company
is not actively marketing them for sale, there was no definitive purchase
agreement in existence and, therefore, no sale was expected in the next twelve
months.  During the time the Company holds an interest in an MF
Property, any net rental income generated by the MF Properties in excess of debt
service will be available for distribution to the Company in accordance with its
interest in the MF Property.  Any such cash distribution will
contribute to the Company’s Cash Available for Distribution
(“CAD”).  As of September 30, 2008, the Company held interests in
seven MF Properties containing a total of 668 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 Company 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 September 30, 2008, the
Company consolidated eight VIE multifamily apartment properties containing a
total of 1,764 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 Company through interaction with the
respective property management companies that manage 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 Company 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.
 
 10
 Table of Contents
 The
following table details certain key financial information for the Company’s
reportable segments for the periods ended September 30, 2008 and
2007:
 Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007Total
      revenueTax-Exempt
      Bond Financing
              
              $
              2,531,665
              
              
              $
              2,710,978
              
              
              $
              7,650,592
              
              
              $
              7,364,096MF
      Properties
              
              
              1,170,145
              
              
              
              1,038,815
              
              
              
              3,355,015
              
              
              
              1,038,815VIEs
              
              
              3,494,454
              
              
              
              3,399,186
              
              
              
              10,579,145
              
              
              
              10,483,592Consolidation/eliminations
              
              
              (1,434,408
              )
              
              
              (1,438,667
              )
              
              
              (4,300,560
              )
              
              
              (4,519,617
              )Total
      revenue
              
              $
              5,761,856
              
              
              $
              5,710,312
              
              
              $
              17,284,192
              
              
              $
              14,366,886Interest
      expenseTax-Exempt
      Bond Financing
              
              $
              597,920
              
              
              $
              755,936
              
              
              $
              2,537,805
              
              
              $
              1,810,833MF
      Properties
              
              
              237,462
              
              
              
              363,994
              
              
              
              697,025
              
              
              
              363,994VIEs
              
              
              2,287,971
              
              
              
              2,666,547
              
              
              
              6,801,281
              
              
              
              6,600,995Consolidation/eliminations
              
              
              (2,287,971
              )
              
              
              (2,666,547
              )
              
              
              (6,801,281
              )
              
              
              (6,600,995
              )Total
      interest expense
              
              $
              835,382
              
              
              $
              1,119,930
              
              
              $
              3,234,830
              
              
              $
              2,174,827Depreciation
      expenseTax-Exempt
      Bond Financing
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -MF
      Properties
              
              
              254,391
              
              
              
              227,860
              
              
              
              713,587
              
              
              
              227,860VIEs
              
              
              715,231
              
              
              
              551,471
              
              
              
              2,134,119
              
              
              
              1,602,166Consolidation/eliminations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      depreciation expense
              
              $
              969,622
              
              
              $
              779,331
              
              
              $
              2,847,706
              
              
              $
              1,830,026Net
      incomeTax-Exempt
      Bond Financing
              
              $
              1,257,763
              
              
              $
              1,573,566
              
              
              $
              3,406,906
              
              
              $
              4,465,365MF
      Properties
              
              
              (90,183
              )
              
              
              (591,794
              )
              
              
              (439,270
              )
              
              
              (591,794
              )VIEs
              
              
              (1,874,030
              )
              
              
              (1,686,503
              )
              
              
              (5,065,253
              )
              
              
              (4,190,076
              )Consolidation/eliminations
              
              
              868,379
              
              
              
              818,044
              
              
              
              2,545,165
              
              
              
              2,130,533Net
      income
              
              $
              161,929
              
              
              $
              113,313
              
              
              $
              447,548
              
              
              $
              1,814,028September
      30, 2008
              
              
              December
      31, 2007Total
      assetsTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              180,066,107
              
              
              $
              182,498,714MF
      Properties
              
              
              
              
              
              
              
              
              
              
              40,583,546
              
              
              
              25,774,045VIEs
              
              
              
              
              
              
              
              
              
              
              58,197,501
              
              
              
              58,313,099Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              (112,388,469
              )
              
              
              (101,706,850
              )Total
      assets
              
              
              
              
              
              
              
              
              
              $
              166,458,685
              
              
              $
              164,879,008Total
      partners' capitalTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              99,216,879
              
              
              $
              107,735,743MF
      Properties
              
              
              
              
              
              
              
              
              
              
              5,812,347
              
              
              
              4,875,632VIEs
              
              
              
              
              
              
              
              
              
              
              (67,653,024
              )
              
              
              (62,587,772
              )Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              15,746,844
              
              
              
              14,250,864Total
      partners' capital
              
              
              
              
              
              
              
              
              
              $
              53,123,046
              
              
              $
              64,274,467
  9.
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.
 11
 Table of Contents
 10.  Recently
Issued Accounting Pronouncements
 
 In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements that are presented in
conformity with GAAP.  SFAS No. 162 is effective November 15,
2008.  SFAS No. 162 is not expected to have a material impact on the
Company’s financial statements.
 
 In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS No. 161”).This statement
changesthe
existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.SFAS
No. 161 requires enhanced disclosures about an entity’s derivative and hedging
activities.  This statement is effective for the Company on January 1,
2009. Because the provisions of this statement are disclosure related, the
Company does not believe that the adoption of this statement will have a
material effect on its financial position or results of operations.
 
 In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities­­­–Including an amendment
of FASB No. 115 (“SFAS No. 159”).  This statement permits, but
does not require, entities to choose to measure many financial instruments and
certain other items at fair value.  SFAS No. 159 was effective for the
Company beginning on January 1, 2008.  The Company elected not to
adopt the provisions of SFAS No. 159 with respect to any financial instruments
held by the Company as of January 1, 2008.
 
 In
October 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP FAS
No. 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements, in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP is effective upon
issuance, including prior periods for which financial statements have not been
issued. Therefore, FSP FAS No. 157-3 is effective for the consolidated
financial statements included in the Company’s quarterly report for the period
ended September 30, 2008. The adoption of FSP FAS No. 157-3 did not
have a material impact on the Company’s consolidated financial
statements.
  11.  Fair
Value Measurements
 
 Effective
January 1, 2008, the Company adoptedSFAS No. 157,Fair Value Measurements
(“SFAS No. 157”) which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. The adoption
of SFAS No. 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 No. 157 apply to other accounting
pronouncements that require or permit fair value measurements.  SFAS
No. 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.  In
February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement
No. 157, which delayed for one year the applicability of SFAS
No. 157 fair value measurements to certain nonfinancial assets and
liabilities. The impact of SFAS No. 157 on the Company’s nonfinancial assets and
liabilities is not expected to be significant upon adoption.
 
 Following
is a description of the valuation methodologies used for the Company’s financial
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 or
yield to maturity analysis performed by the General Partner.  Because
the Company owns 100% of each of these bonds, 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 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.
 12
 Table of Contents
 Interest rate
derivatives.The fair value of the interest rate derivatives
is based on a model whose significant inputs are not observable and therefore
are categorized as a Level 3 input.
  Assets and liabilities measured at fair
value on a recurring basis are summarized below:
  Fair
      Value Measurements at September 30, 2008 Using,Quoted
      Prices
              
              
              Significant
      Other
      Observable Inputs
      (Level 2)in
      Active Markets
              
              
              
              
              SignificantAssets/Liabilities
              
              
              for
      Identical Assets
              
              
              
              
              Unobservable
      InputsDescription
              
              at Fair Value
              
              
              (Level 1)
              
              
              
              
              (Level 3)AssetsTax-exempt
      Mortgage Revenue Bonds
              
              $
              58,757,179
              
              
              
              -
              
              
              
              -
              
              
              $
              58,757,179Interest
      Rate Derivatives
              
              
              1,142,327
              
              
              
              -
              
              
              
              -
              
              
              
              1,142,327Total
      Assets at Fair Value
              
              $
              59,899,506
              
              
              $
              -
              
              
              $
              -
              
              
              $
              59,899,506For
      three months ended September 30, 2008Fair
      Value Measurements Using SignificantUnobservable
      Inputs (Level 3)Tax-exempt
      Mortgage
              
              
              Interest
      Rate DerivativesRevenue Bonds
              
              
              
              
              TotalBeginning
      Balance July 1, 2008
              
              
              
              
              
              $
              60,849,952
              
              
              $
              (25,889
              )
              
              $
              60,824,063Total
      gains or losses (realized/unrealized)Included
      in earnings
              
              
              
              
              
              
              -
              
              
              
              183,216
              
              
              
              183,216Included
      in other comprehensive income
              
              
              
              
              
              
              (2,075,271
              )
              
              
              -
              
              
              
              (2,075,271
              )Purchases,
      issuances and settlements
              
              
              
              
              
              
              (17,502
              )
              
              
              985,000
              
              
              
              967,498Ending
      Balance September 30, 2008
              
              
              
              
              
              $
              58,757,179
              
              
              $
              1,142,327
              
              
              $
              59,899,506Total
      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 September 30, 2008
              
              
              
              
              
              $
              -
              
              
              $
              183,216
              
              
              $
              183,216For
      nine months ended September 30, 2008Fair
      Value Measurements Using SignificantUnobservable
      Inputs (Level 3)Tax-exempt
      Mortgage
              
              
              Interest
      Rate DerivativesRevenue Bonds
              
              
              
              
              TotalBeginning
      Balance January 1, 2008
              
              
              
              
              
              $
              66,167,116
              
              
              $
              12,439
              
              
              $
              66,179,555Total
      gains or losses (realized/unrealized)Included
      in earnings
              
              
              
              
              
              
              -
              
              
              
              144,888
              
              
              
              144,888Included
      in other comprehensive income
              
              
              
              
              
              
              (4,891,642
              )
              
              
              -
              
              
              
              (4,891,642
              )Purchases,
      issuances and settlements
              
              
              
              
              
              
              (2,518,295
              )
              
              
              985,000
              
              
              
              (1,533,295
              )Ending
      Balance September 30, 2008
              
              
              
              
              
              $
              58,757,179
              
              
              $
              1,142,327
              
              
              $
              59,899,506Total
      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 September 30, 2008
              
              
              
              
              
              $
              -
              
              
              $
              144,888
              
              
              $
              144,888
 
  Gains
included in earnings for the period shown above are included in interest
expense.
  13
 Table of Contents
  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 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”) because the Partnership has been determined to be
the primary beneficiary of these entities although it does not hold an equity
position in them. The consolidated financial statements of the Company include
the accounts of the Partnership, the MF Properties and the VIEs. All significant
transactions and accounts between the Partnership, the MF Properties 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,
2007.  There have been no changes to those critical accounting
policies during 2008, except that the Company implemented SFAS No. 157, Fair
Value Measurements, on January 1, 2008 as described in Note 11.
 
 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
 
 Recently
the Company has faced a challenging operating environment as the credit and
capital markets have continued to deteriorate.  Although the
consequences of the credit and capital market issues are not fully known, we do
not anticipate that our existing assets will be adversely affected in the
long-term by these events. 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 recognize impairments to
its investment portfolio through earnings which could negatively impact the
Company’s results of operations and ability to make cash distributions at
planned levels.
 
 The
Company does not issue mortgage loans secured by mortgages on single-family
residential properties.  In addition, we believe that additional
demand for affordable rental housing may be created if there are continued
defaults on sub-prime single family mortgages and a general contraction of
credit available for single family mortgage loans.  Additional demand
for rental housing may have a positive economic effect on apartment properties
financed by the tax-exempt bonds held by the Company.  While we
believe the current tightening of credit may also create opportunities for
additional investments consistent with the Company's investment strategy because
there may be fewer parties competing to acquire tax-exempt bonds issued to
finance affordable housing, there can be no assurance that we will be able to
finance the acquisition of additional tax-exempt bonds through either additional
equity or debt financing.
 
 Historically,
our primary leverage vehicle has been the Merrill Lynch P-Float
program.  Credit rating downgrades at Merrill Lynch resulted in a
significant increase in Merrill Lynch’s cost of borrowing which, in turn,
resulted in a significantly higher interest rate on the Company’s P-Float
financing.  As discussed in Note 5 to the financial statements, on
June 26, 2008, the Company effectively replaced the Merrill Lynch P-Float
program by entering into an agreement for a new tender option bond credit
facility (“TOB facility”) agreement with Bank of America.  The new TOB
facility functions in much the same fashion as the P-Float
program.  In connection with the TOB facility tax-exempt mortgage
revenue bonds are placed into trusts which issue senior securities (known as
“Floater Certificates”) to unaffiliated institutional investors and subordinated
residual interest securities (known as “Inverse Certificates”) to the
Company.  Net proceeds generated by the sale of the Floater
Certificates are then remitted to the Company and accounted for as secured
borrowings and, in effect, provide variable-rate financing for the acquisition
of tax-exempt mortgage revenue bonds and other investments meeting the Company’s
investment criteria and for other purposes. The new TOB facility is a one year
agreement with a one year renewal option by Bank of America and bears a
variable interest rate at a weekly floating bond rate, the Securities Industry
and Financial Markets Association (“SIFMA”) floating index, plus associated
remarketing, credit enhancement, liquidity and trustee fees.
 
 On June
26, 2008, as part of the new TOB facility, Bank of America funded a $65.1
million bridge loan which was used to retire the Merrill Lynch P-float program
debt.  On July 3, 2008, the new TOB facility was closed and the
resulting Floater Certificates were sold.  The closing of the TOB
facility resulted in debt proceeds of approximately $76.7
million.  After repayment of the bridge loan and related fees and
expenses, net proceeds of approximately $10.8 million were remitted to the
Company for investment in additional tax-exempt mortgage bonds and other
investments consistent with its investment policies and for other purposes. The
initial variable interest rate at closing of the TOB facility was 3.27%
calculated as the SIFMA index of 1.62% plus fees of 1.65%. During the three
months ended September 30, 2008 and 2007, the Company’s average effective
interest rate on the TOB facility and P-Float program was approximately 4.2% and
4.5%, respectively.  During the nine months ended September 30, 2008
and 2007, the Company’s average effective interest rate on the P-Float and TOB
facility was approximately 4.5% and 4.4%, respectively.
  14
 Table of Contents
 In the
long term, the General Partner believes 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.  The Company’s regular
annual distributions are currently equal to $0.54 per BUC, or $0.135 per quarter
per BUC.  For the three and nine months ended September 30, 2008, Cash
Available for Distribution (“CAD”) excluding contingent interest and realized
gains was not sufficient to fully fund such distributions without utilizing cash
reserves to supplement the deficit. The closing of the new TOB facility, in the
long-term, is expected to result in a decrease in cost of borrowings compared to
recent costs in the P-Float program and to have a positive impact on CAD in the
future.  The General Partner currently expects to maintain the annual
distribution amount of $0.54 per BUC.  See also the discussion below
regarding “Cash Available for Distribution.”
 
 
 Discussion
of the Partnership Bond Holdings and the Related Apartment Properties as of
September 30, 2008
 
 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 September 30, 2008, the Partnership held 19 tax-exempt
mortgage bonds (secured by 17 properties), eight of which are secured by
properties held by VIEs and, therefore, eliminated in consolidation on the
Company’s financial statements.  The nine properties underlying the
eleven non-consolidated tax-exempt mortgage bonds contain a total of 1,137
rental units.  At September 30, 2007, the Partnership held ten
non-consolidated tax-exempt mortgage bonds secured by eight apartment properties
containing a total of 1,034 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 MF Properties and
will often coincide with the expiration of the compliance period relating to
LIHTCs previously issued with respect to the MF Property. However, the market
for syndicated LIHTCs has become very difficult over the last few quarters and
there can be no assurance that these syndications and restructurings can be
successfully completed within this time frame, or at all. The Partnership will
not acquire LIHTCs in connection with these transactions. As of September 30,
2008 and 2007, the Partnership held indirect limited partnership interests in
seven entities that own MF Properties containing a total of 668 rental units
including a 124 unit apartment complex in Chesapeake, Virginia (“Churchland”)
that was acquired on August 29, 2008.
 
 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 September 30, 2008 and 2007, the Company
consolidated eight VIE multifamily apartment properties containing a total of
1,764 rental units.
 15
 Table of Contents
 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 nine months of
2008.
 
 Percentage
      of Occupied Units
      as of September 30,
              Economic
      Occupancy (1)Number
      of
      Units Occupied
              for
      the period endedNumber
              September
      30,Property
      Name
              Location
              of
      Units
              2008
              2007
              2008
              2007Non-Consolidated PropertiesClarkson
      College
              Omaha,
      NE
              142
              120
              85%
              92%
              67%
              72%Bella
      Vista Apartments
              Gainesville,
      TX
              144
              140
              97%
              92%
              93%
              66%Woodland
      Park     (2)
              Topeka,
      KS
              236
              n/a
              n/a
              n/a
              n/a
              n/aRunnymede
      Apartments     (3)
              Austin,
      TX
              252
              165
              65%
              n/a
              69%
              n/aGardens
      of DeCordova     (2)
              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/aBridle
      Ridge Apartments     (3)
              Greer,
      SC
              152
              148
              97%
              n/a
              80%
              n/aWoodlynn
      Village     (3)
              Maplewood,
      MN
              59
              52
              88%
              n/a
              92%
              n/a1,137
              625
              83%
              92%
              77%
              70%VIEsAshley
      Pointe at Eagle Crest
              Evansville,
      IN
              150
              140
              93%
              94%
              95%
              91%Ashley
      Square
              Des
      Moines, IA
              144
              134
              93%
              76%
              86%
              80%Bent
      Tree Apartments
              Columbia,
      SC
              232
              219
              94%
              81%
              85%
              82%Fairmont
      Oaks Apartments
              Gainsville,
      FL
              178
              171
              96%
              97%
              91%
              96%Iona
      Lakes Apartments
              Ft.
      Myers, FL
              350
              289
              83%
              72%
              66%
              74%Lake
      Forest Apartments
              Daytona
      Beach, FL
              240
              229
              95%
              87%
              91%
              88%Woodbridge
      Apts. of Bloomington III
              Bloomington,
      IN
              280
              275
              98%
              100%
              92%
              93%Woodbridge
      Apts. of Louisville II
              Louisville,
      KY
              190
              179
              94%
              97%
              92%
              91%1,764
              1636
              93%
              87%
              85%
              86%MF PropertiesEagle
      Ridge
              Erlanger,
      KY
              64
              55
              86%
              84%
              79%
              86%Meadowview
              Highland
      Heights, KY
              118
              109
              92%
              85%
              95%
              88%Crescent
      Village
              Cincinnati,
      OH
              90
              80
              89%
              92%
              86%
              94%Willow
      Bend
              Columbus
      (Hilliard), OH
              92
              82
              89%
              95%
              85%
              95%Postwoods
      I
              Reynoldsburg,
      OH
              92
              89
              97%
              90%
              89%
              91%Postwoods
      II
              Reynoldsburg,
      OH
              88
              83
              94%
              91%
              92%
              90%Churchland
      (3)
              Chesapeake,
      VA
              124
              106
              85%
              n/a
              85%
              n/a668
              604
              90%
              90%
              87%
              91%(1)Economic occupancy is presented for the nine months ended September
      30, 2008 and 2007, 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)  These
      properties are still under construction as of September 30, 2008, and
      therefore have no occupancy data.(3)Previous period occupancy numbers are not available, as this is a
      new investment.
 
 16
 Table of Contents
 Ashley
Pointe – Ashley Pointe at Eagle Crest is located in Evansville,
Indiana.  In the first nine months of 2008, Net Operating Income
(calculated as property revenue less salaries, advertising, administration,
utilities, repair and maintenance, insurance, taxes, and management fee
expenses) was $475,000 as compared to $464,000 in 2007.  This increase
was the result of higher property revenues due to fewer rental concessions given
to tenants.
 
 Ashley
Square – Ashley Square Apartments is located in Des Moines, Iowa.  In
the first nine months of 2008, Net Operating Income was $207,000 as compared to
$174,000 in 2007.  This increase was the result of higher property
revenue from improved occupancy.
 
 Bella
Vista –Bella Vista Apartments is located in Gainesville, Texas.  June
2007 was the first full month of operations at Bella Vista.  In the
first nine months of 2008, Bella Vista’s operations resulted in Net Operating
Income of $416,000 on revenue of approximately $738,000.
 
 Bent Tree
– Bent Tree Apartments is located in Columbia, South
Carolina.   In the first nine months of 2008, Net Operating
Income was $552,000 as compared to $549,000 in 2007.  This increase
was the result of higher property revenue from improved occupancy but offset by
higher real estate taxes and utilities expense.
 
 Bridle
Ridge Apartments -– Bridle Ridge Apartments is located in Greer, South
Carolina.  In the first nine months of 2008, Bridle Ridge Apartments’
operations have resulted in Net Operating Income of $566,000 on revenue of
approximately $773,000.
 
 Clarkson
College – Clarkson College is a 142 bed student housing facility located in
Omaha, Nebraska.  In the first nine months of 2008, Net Operating
Income was $300,000 as compared to $342,000 in 2007.  The decrease is
attributable to lower revenues due to lower occupancy.
 
 Crescent
Village – Crescent Village Townhomes is located in Cincinnati,
Ohio.  In the first nine months of 2008, Crescent Village’s operations
resulted in Net Operating Income of $311,000 on revenue of approximately
$566,000.
 
 Eagle
Ridge – Eagle Ridge Townhomes is located in Erlanger, Kentucky.  In
the first nine months of 2008, Eagle Ridge’s operations resulted in Net
Operating Income of $142,000 on revenue of approximately $342,000.
 
 Fairmont
Oaks – Fairmont Oaks Apartments is located in Gainesville,
Florida.  In the first nine months of 2008, Net Operating Income was
$627,000 as compared to $630,000 in 2007.  This decrease was the
result of slightly higher property insurance contractual expenses offset by
slightly higher rental revenues from improved occupancy.
 
 Gardens
of DeCordova – The Gardens of DeCordova Apartments is currently under
construction in Granbury, Texas and will contain 76 units upon
completion.  Pre-leasing for finished units has begun and final
completion of the project is expected in the fourth quarter.  The
originally scheduled completion date was August 2008.  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.  The project
has an additional five months of capitalized interest reserve sufficient to fund
debt service beyond the expected date of completion.
 
 Gardens
of Weatherford – The Gardens of Weatherford Apartments is currently under
construction in Weatherford, Texas and will contain 76 units upon
completion.  Construction has been delayed significantly due to
planning and zoning issues.  The current estimated completion date is
August 2009 with some units available for rent prior to that
date.  The originally scheduled completion date was August
2008.  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.  The owner has represented that it will add funds to the
project as required to meet potential funding shortfalls through project
completion and stabilization.
 
 Iona
Lakes – Iona Lakes Apartments is located in Fort Myers, Florida.  In
the first nine months of 2008, Net Operating Income was $675,000 as compared to
$925,000 in 2007.  This decrease was directly related to poor
occupancy trends resulting in lower revenues.  The decline in
occupancy is a reflection of the poor market conditions in the Fort Myers
area.
 
 Lake
Forest – Lake Forest Apartments is located in Daytona Beach,
Florida.  In the first nine months of 2008, Net Operating Income was
$813,000 as compared to $834,000 in 2007.  This decrease was
attributable to slightly higher advertising and utility expenses.
 
 17
 Table of Contents
 Meadowview
– Meadowview Apartments is located in Highland Heights, Kentucky.  In
the first nine months of 2008, Meadowview’s operations resulted in Net Operating
Income of $401,000 on revenue of approximately $690,000.
 
 Postwoods
I – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first nine months of 2008, Postwoods I’s operations resulted in Net Operating
Income of $325,000 on revenue of approximately $573,000.
 
 Postwoods
II – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first nine months of 2008, Postwoods II’s operations resulted in Net Operating
Income of $298,000 on revenue of approximately $513,000.
 
 Runnymede
Apartments – Runnymede Apartments is located in Austin, Texas.  In the
first nine months of 2008, Runnymede Apartments’ operations resulted in Net
Operating Income of $280,000 on revenue of approximately $1.2
million.
 
 Churchland
– The Commons at Churchland is located in Chesapeake,
Virginia.  Churchland generated approximately $65,000 in Net Operating
Income since its acquisition on August 29, 2008.
 
 Willow
Bend – Willow Bend Townhomes is located in Columbus (Hilliard),
Ohio.  In the first nine months of 2008, Willow Bend’s operations
resulted in Net Operating Income of $335,000 on revenue of approximately
$582,000.
 
 Woodbridge
at Bloomington – Woodbridge Apartments at Bloomington is located in Bloomington,
Indiana.  In the first nine months of 2008, Net Operating Income was
$814,000 as compared to $840,000 in 2007.  The decrease is due to
increased real estate taxes.
 
 Woodbridge
at Louisville – Woodbridge Apartments at Louisville is located in Louisville,
Kentucky.  In the first nine months of 2008, Net Operating Income was
$611,000 as compared to $555,000 in 2007.  This increase was the
result of higher property revenue from improved occupancy.
 
 Woodland
Park – Woodland Park Apartments is currently under construction in Topeka,
Kansas and will contain 236 units upon completion.  Finished units
have been delivered and are currently leasing.  Final completion of
the project is expected by April 2009.  The originally scheduled
completion date was January 2009.  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.  The project has an additional four months of
capitalized interest reserve sufficient to fund debt service beyond the expected
date of completion.
 
 Woodlynn
Village – Woodlynn Village is located in Maplewood, Minnesota.  In the
first nine months of 2008, Woodlynn Village’s operations resulted in Net
Operating Income of $244,000 on revenue of approximately
$394,000.
  18
 Table of Contents
  Results
of Operations
 
 Consolidated Results of
Operations
 
 The
following discussion of the Company’s results of operations for the three and
nine months ended September 30, 2008 and 2007 should be read in conjunction with
the condensed 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, 2007.
 
 Three Months Ended September
30, 2008 compared to Three Months Ended September 30, 2007
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Three

                  Months
      Ended
              
              
              For
      the Three

                  Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              Dollar
      ChangeRevenues:Property
      revenues
              
              $
              4,664,068
              
              
              $
              4,438,001
              
              
              $
              226,067Mortgage
      revenue bond investment income
              
              
              1,016,176
              
              
              
              1,143,354
              
              
              
              (127,178
              )Other
      income
              
              
              81,612
              
              
              
              128,957
              
              
              
              (47,345
              )Total
      Revenues
              
              $
              5,761,856
              
              
              $
              5,710,312
              
              
              $
              51,544Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,941,474
              
              
              
              2,828,252
              
              
              
              113,222Depreciation
      and amortization
              
              
              1,429,172
              
              
              
              1,279,426
              
              
              
              149,746Interest
              
              
              835,382
              
              
              
              1,119,930
              
              
              
              (284,548
              )General
      and administrative
              
              
              394,810
              
              
              
              374,623
              
              
              
              20,187Total
      Expenses
              
              $
              5,600,838
              
              
              $
              5,602,231
              
              
              $
              (1,393
              )Minority
      interest in net loss of consolidated subsidiary
              
              
              911
              
              
              
              5,232
              
              
              
              (4,321
              )Net
      income
              
              $
              161,929
              
              
              $
              113,313
              
              
              $
              48,616
 
 
 Property
revenues.Property revenues increased mainly as a result of
revenue generated by Churchland and improved economic occupancy associated with
the apartment properties of the consolidated VIEs.  MF Properties
economic occupancy was 86% in 2008 and 91% in 2007.  MF Properties
average monthly rents per unit for the third quarter of 2008 were $648 as
compared to $624 in 2007.  VIE economic occupancy was 84% in 2008 and
83% in 2007.  For the VIEs, the average monthly rents per unit for the
third quarter of 2008 were $636 as compared to $612 in 2007.
 
 Mortgage revenue bond investment
income.  Mortgage revenue bond investment income was lower in
2008 compared to 2007 due to the recognition of deferred interest income in
2007. This was partially offset by interest income generated by new bond
investments in 2008.  In 2007, deferred interest totaling
approximately $258,000 was recognized on one bond investment. No such deferred
interest was recognized in 2008. One new bond was acquired in the fourth quarter
of 2007 with a total par value of approximately $10.8 million. During the first
half of 2008, two bond investments were sold and two additional bond investments
were acquired with a total par value of $12.4 million.   The net
impact of these purchases and sales was an increase in interest income of
approximately $131,000.
 
 Other income.  The
decrease in other interest income is attributable to decreased temporary
investments in liquid securities.  The proceeds from the sale of
Northwoods Lake during the third quarter of 2006 created additional cash that
was invested during the second quarter of 2007 in short term liquid
securities.  Such additional cash was subsequently deployed to acquire
long term investments.
 
 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.  The real estate expense increase is related to increased
insurance, professional fees, utilities and repairs expenses at the VIEs and the
acquisition of Churchland.
 19
 Table of Contents
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the
consolidated VIEs and the MF Properties and amortization associated with
intangible assets recorded as part of the purchase accounting for the
acquisition of the MF Properties and deferred costs related to the Company’s new
TOB debt facility with Bank of America.  The increase in depreciation
and amortization expense for the period is the result of increased depreciation
expense resulting from the completion of several capital projects by VIEs in the
first half of 2008, deferred finance cost amortization associated with the new
TOB facility and the acquisition of Churchland.  These increases were
offset by a net decrease in amortization expense associated with in-place leases
on the MF Properties acquired in 2007 being fully amortized in the first quarter
2008 and only one month of amortization expense being recognized for in-place
leases related to Churchland.
 
 Interest
expense.The net decrease in interest expense was due to the
mark-to-market adjustment on interest rate derivatives offset by interest
expense on higher levels of borrowing. In the third quarter of 2008, the
mark-to-market adjustment for interest rate derivatives reduced interest expense
by $183,000 as compared to an increase in interest expense of $208,000 in 2007.
This net change of $391,000 in the mark-to-market adjustment is offset by
increased interest expense due to higher levels of
borrowings.  Although the average interest rate on the Company’s
borrowings declined to 4.5% per annum in the third quarter of 2008 as compared
to 5.2% per annum in third quarter of 2007, total interest expense increased
$106,000 due to higher levels of borrowing. Total outstanding debt increased
from approximately $78.9 million on September 30, 2007 to approximately $103.1
million as of September 30, 2008.
 
 General and administrative
expenses.General and administrative expenses increased due to
increased administrative fees payable to the Partnership’s general partner and
increased professional fees.
 
 Nine Months Ended September
30, 2008 compared to Nine Months Ended September 30, 2007
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Nine Months Ended
              
              
              For
      the Nine Months EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              Dollar
      ChangeRevenues:Property
      revenues
              
              $
              13,975,909
              
              
              $
              11,522,407
              
              
              $
              2,453,502Mortgage
      revenue bond investment income
              
              
              3,281,565
              
              
              
              2,197,647
              
              
              
              1,083,918Other
      income
              
              
              26,718
              
              
              
              646,832
              
              
              
              (620,114
              )Total
      Revenues
              
              $
              17,284,192
              
              
              $
              14,366,886
              
              
              $
              2,917,306Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              8,346,057
              
              
              
              6,979,224
              
              
              
              1,366,833Depreciation
      and amortization
              
              
              3,944,919
              
              
              
              2,336,309
              
              
              
              1,608,610Interest
              
              
              3,234,830
              
              
              
              2,174,827
              
              
              
              1,060,003General
      and administrative
              
              
              1,315,275
              
              
              
              1,067,730
              
              
              
              247,545Total
      Expenses
              
              $
              16,841,081
              
              
              $
              12,558,090
              
              
              $
              4,282,991Minority
      interest in net loss of consolidated subsidiary
              
              
              4,437
              
              
              
              5,232
              
              
              
              (795
              )Net
      income
              
              $
              447,548
              
              
              $
              1,814,028
              
              
              $
              (1,366,480
              )
 
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties acquired in June of 2007.  The
additional six months of rental revenue in 2008 from the MF properties added
approximately $2.2 million.  This increase was also due to the
addition of a new property, Churchland, in August of 2008. The MF Properties
economic occupancy was 87% in 2008 and 91% in 2007.  MF Properties
average monthly rents per unit for the third quarter of 2008 were $655 as
compared to $624 in 2007.  VIE economic occupancy was 85% in 2008 and
86% in 2007.  Even though the VIE occupancy slightly decreased, the
average monthly rents per unit in 2008 increased to $640 as compared to $629 in
2007 due to market rental rates.
 
 20
 Table of Contents
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first nine months of 2008 compared to the first nine months of
2007 is due to income generated by the tax-exempt mortgage bonds acquired in
2007 and 2008.  A total of six new bond investments were acquired in
the second quarter of 2007 with a total par value of approximately $31.2
million, one new bond investment was acquired in the fourth quarter of 2007 with
a total par value of approximately $10.8 million and two bond investments were
acquired in the first quarter of 2008 with a total par value of $12.4 million.
During the first half of 2008, two bond investments were sold with a total par
value of approximately $14.9 million. During 2007, deferred interest totaling
$258,000 was recognized on one bond investment. No such deferred interest was
recognized in 2008.
 
 Other income.  The
decrease in other income is attributable to decreased interest income on
temporary investments in liquid securities and a net loss on sale of bonds in
2008.  The proceeds from the sale of Northwoods Lake during the third
quarter of 2006 created additional cash that was invested during the first half
of 2007 in short term liquid securities.  Such additional cash has
subsequently been deployed to acquire long term investments. The sale of the
Deerfield tax-exempt bonds resulted in a slight gain during the first quarter of
2008, however, the sale of the Chandler Creek tax-exempt bonds resulted in a net
loss in the second quarter of 2008. The net effect of these sales in 2008 was a
net loss. The loss on the sale was the result of the write-off of unamortized
bond acquisition costs.  The Chandler Creek bonds were sold at par
plus accrued interest.
 
 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 expenses increased as a direct result of the
expenses incurred by the MF Properties, which were approximately $1.0 million in
2008.  Real estate expenses related to the VIEs increased slightly
compared to 2007, primarily due to increased professional fees, utilities and
insurance expenses.
 
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the
consolidated VIEs and the MF Properties and amortization associated with
intangible assets recorded as part of the purchase accounting for the
acquisition of the MF Properties and deferred costs related to the Company’s new
TOB debt facility with Bank of America.  The increase in depreciation
and amortization expense for the period is the result of increased depreciation
expense resulting from the completion of several capital projects by VIEs in the
first half of 2008, deferred finance cost amortization associated with the new
TOB facility and the acquisition of Churchland.  These increases were
offset by a net decrease in amortization expense associated with in-place leases
on the MF Properties acquired in 2007 being fully amortized in the first quarter
2008 and only one month of amortization expense being recognized for in-place
leases related to Churchland.
 
 Interest
expense.The interest expense increase is due to higher levels
of borrowing in 2008 offset by changes in the mark-to-market adjustments for
interest rate derivatives. The average interest rate on the Company’s borrowings
was 4.5% per annum for nine months ended September 30, 2008 as compared to 5.0%
per annum in the same months in 2007. The total outstanding debt increased from
approximately $78.9 million on September 30, 2007 to approximately $103.1
million as of September 30, 2008. Even though the average interest rate on
borrowings has declined, the increased level of borrowings has resulted in an
increase in interest expense of approximately $1.3 million.  This
increase is offset by the mark-to-market adjustment and net derivative payments
resulting in a decrease in the interest expense of $172,000 for 2008 as compared
to the 2007.
 
 General and administrative
expenses.General and administrative expenses increased due to
increased administrative fees payable to the Company’s general partner and
increased professional fees.  Administrative fees increased as the
Company is responsible for the payment of the administrative fees on a greater
portion of the Company’s investments. Professional fees increased largely due to
increased legal and accounting fees associated with the Company’s assessment of
internal control over financial reporting pursuant to Sarbanes-Oxley Section
404.
 
 21
 Table of Contents
 Partnership Only Results of
Operations
 
 The
following discussion of the Partnership’s results of operations for the three
and nine months ended September 30, 2008 and 2007 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 8 to the
consolidated financial statements.
 
 
 Three Months Ended September
30, 2008 compared to Three Months Ended September 30, 2007 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              Dollar
      ChangeRevenuesMortgage
      revenue bond investment income
              
              $
              2,450,584
              
              
              $
              2,580,443
              
              
              $
              (129,859
              )Property
      revenues
              
              
              1,170,145
              
              
              
              1,038,814
              
              
              
              131,331Other
      income
              
              
              81,081
              
              
              
              130,535
              
              
              
              (49,454
              )3,701,810
              
              
              
              3,749,792
              
              
              
              (47,982
              )ExpensesReal
      estate operating (exclusive of items shown below)
              
              
              589,481
              
              
              
              546,745
              
              
              
              42,736Interest
      expense
              
              
              835,382
              
              
              
              1,119,930
              
              
              
              (284,548
              )Depreciation
      and amortization expense
              
              
              715,468
              
              
              
              731,956
              
              
              
              (16,488
              )General
      and administrative
              
              
              394,810
              
              
              
              374,623
              
              
              
              20,1872,535,141
              
              
              
              2,773,254
              
              
              
              (238,113
              )Minority
      interest in net loss of consolidated subsidiary
              
              
              911
              
              
              
              5,232
              
              
              
              (4,321
              )Net
      income
              
              $
              1,167,580
              
              
              $
              981,770
              
              
              $
              185,810
 
 
 Mortgage revenue bond investment
income.  Mortgage revenue bond investment income was lower in
2008 compared to 2007 due to the recognition of deferred interest income in
2007. This was partially offset by interest income generated by new bond
investments in 2008.  In 2007, deferred interest totaling
approximately $258,000 was recognized on one bond investment. No such deferred
interest was recognized in 2008. One new bond was acquired in the fourth quarter
of 2007 with a total par value of approximately $10.8 million. During the first
half of 2008, two bond investments were sold and two additional bond investments
were acquired with a total par value of $12.4 million.   The net
impact of these purchases and sales was an increase in interest income of
approximately $131,000.
 
 Property
revenues.Property revenues increased mainly as a result of
revenue generated by Churchland.  MF Properties economic occupancy was
87% in 2008 and 91% in 2007.  MF Properties average monthly rents per
unit for the third quarter of 2008 were $648 as compared to $624 in
2007.
 
 Other income.  The
decrease in other interest income is attributable to decreased temporary
investments in liquid securities.  The proceeds from the sale of
Northwoods Lake during the third quarter of 2006 created additional cash that
was invested during the first quarter of 2007 in short term liquid
securities.  Such additional cash has subsequently been deployed to
acquire long term investments.
 
 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
expenses increased as a direct result of the acquisition of Churchland in
2008.
 
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the MF
Properties and amortization associated with intangible assets recorded as part
of the purchase accounting for the acquisition of the MF Properties and deferred
costs related to the Company’s new TOB debt facility with Bank of
America.  The increase in depreciation and amortization expense for
the period is the result of deferred finance cost amortization associated with
the new TOB facility and the acquisition of Churchland.  These
increases were offset by a net decrease in amortization expense associated with
in-place leases on the MF Properties acquired in 2007 being fully amortized in
the first quarter 2008 and only one month of amortization expense being
recognized for in-place leases related to Churchland.
 
 22
 Table of Contents
 Interest
expense.The net decrease in interest expense was due to the
mark-to-market adjustment on interest rate derivatives offset by interest
expense on higher levels of borrowing. In the third quarter of 2008, the
mark-to-market adjustment for interest rate derivative reduced interest expense
by $183,000 as compared to an increase in interest expense of $208,000 in 2007.
This net change of $391,000 in the mark-to-market adjustment is offset by
increased interest expense due to higher levels of
borrowings.  Although the average interest rate on the Partnership’s
borrowings declined to 4.5% per annum for the third quarter 2008 as compared to
5.2% per annum in the third quarter of 2007, total interest expense increased
$106,000 due to higher levels of borrowing. Total outstanding debt increased
from approximately $78.9 million on September 30, 2007 to approximately $103.1
million as of September 30, 2008.
 
 General and administrative expenses.General and administrative expenses increased due to increased
administrative fees payable to the Partnership’s general partner and increased
professional fees.
 
 Nine Months Ended September
30, 2008 compared to Nine Months Ended September 30, 2007 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              Dollar
      ChangeRevenuesMortgage
      revenue bond investment income
              
              $
              7,569,219
              
              
              $
              6,490,050
              
              
              $
              1,079,169Property
      revenues
              
              
              3,355,015
              
              
              
              1,038,814
              
              
              
              2,316,201Other
      income
              
              
              81,373
              
              
              
              874,046
              
              
              
              (792,673
              )11,005,607
              
              
              
              8,402,910
              
              
              
              2,602,697ExpensesReal
      estate operating (exclusive of items shown below)
              
              
              1,678,436
              
              
              
              546,745
              
              
              
              1,131,691Interest
      expense
              
              
              3,234,830
              
              
              
              2,174,827
              
              
              
              1,060,003Depreciation
      and amortization expense
              
              
              1,813,867
              
              
              
              745,271
              
              
              
              1,068,596General
      and administrative
              
              
              1,315,275
              
              
              
              1,067,730
              
              
              
              247,5458,042,408
              
              
              
              4,534,573
              
              
              
              3,507,835Minority
      interest in net loss of consolidated subsidiary
              
              
              4,437
              
              
              
              5,232
              
              
              
              (795
              )Net
      income
              
              $
              2,967,636
              
              
              $
              3,873,569
              
              
              $
              (905,933
              )
 
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first nine months of 2008 compared to the first nine months of
2007 is due to income generated by the tax-exempt mortgage bonds acquired in
2007 and 2008.  A total of six new bond investments were acquired in
the second quarter of 2007 with a total par value of approximately $31.2
million, one new bond investment was acquired in the fourth quarter of 2007 with
a total par value of approximately $10.8 million and two bond investments were
acquired in the first quarter of 2008 with a total par value of $12.4 million.
During the first half of 2008, two bond investments were sold with a total par
value of approximately $14.9 million. During 2007, deferred interest of $258,000
was recognized on one bond investment. No such deferred interest was recognized
in 2008.
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties acquired in June of 2007.  The
additional six months of rental revenue in 2008 from the MF properties added
approximately $2.2 million.  This increase was also due to the
acquisition of Churchland in August of 2008. The MF Properties economic
occupancy was 87% in 2008 and 91% in 2007.  MF Properties average
monthly rents per unit for the third quarter of 2008 were $655 as compared to
$624 in 2007.
 
 Other income.  The
decrease in other income is attributable to decreased interest income on
temporary investments in liquid securities and a net loss on sale of bonds in
2008.  The proceeds from the sale of Northwoods Lake during the third
quarter of 2006 created additional cash that was invested during the first half
of 2007 in short term liquid securities.  Such additional cash has
subsequently been deployed to acquire long term investments. The sale of the
Deerfield tax-exempt bonds resulted in a slight gain during the first quarter of
2008, however, the sale of the Chandler Creek tax-exempt bonds resulted in a net
loss in the second quarter of 2008. The net effect of these sales on 2008 was a
net loss. The loss on the sale was the result of the write-off of unamortized
bond acquisition costs.  The Chandler Creek bonds were sold at par
plus accrued interest.
 
 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
expenses increased as a result of six extra months of  expenses
incurred at the MF Properties acquired in 2007 and the acquisition of
Churchland.
 
 23
 Table of Contents
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the MF
Properties and amortization associated with intangible assets recorded as part
of the purchase accounting for the acquisition of the MF Properties and deferred
costs related to the Company’s new TOB debt facility with Bank of
America.  The increase in depreciation and amortization expense for
the period is the result of deferred finance cost amortization associated with
the new TOB facility and the acquisition of Churchland.  These
increases were offset by a net decrease in amortization expense associated with
in-place leases on the MF Properties acquired in 2007 being fully amortized in
the first quarter 2008 and only one month of amortization expense being
recognized for in-place leases related to Churchland.
 
 Interest
expense.The interest expense increase is due to higher levels
of borrowing in 2008 offset by changes in the mark-to-market adjustments for
interest rate derivatives. The average interest rate on the Company’s borrowings
was 4.5% per annum for the nine months ended September 30, 2008 as compared to
5.0% per annum in the same months in 2007. The total outstanding debt increased
from approximately $78.9 million on September 30, 2007 to approximately $103.1
million as of September 30, 2008. Even though the average interest rate on
borrowings has declined, the increased level of borrowings has resulted in an
increase in interest expense of approximately $1.3 million.  This
increase is offset by the mark-to-market adjustment and net derivative payments
resulting in a decrease in the interest expense of $172,000 for 2008 as compared
to 2007.
 
 General and administrative
expenses.General and administrative expenses increased due to
increased administrative fees payable to the Company’s general partner and
increased professional fees.  Administrative fees increased as the
Company is responsible for the payment of the administrative fees on a greater
portion of the Company’s investments.  Professional fees increased
largely due to increased legal and accounting fees associated with the Company’s
assessment of internal control over financial reporting pursuant to
Sarbanes-Oxley Section 404.
 
 
 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 the 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: (i) the payment of operating expenses; and (ii) the payment of
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.  Raising
additional equity capital for deployment into new investment opportunities is
part of our overall growth strategy. We believe that current market conditions
have created significant investment opportunities, and by raising additional
capital, we will seek to aggressively pursue those
opportunities.  More specifically, the current credit crisis has
severely disrupted the financial markets, and in our view, it has also created
significant potential long-term investment opportunities.  The
evaluation of proper credit spreads and re-pricing of risk is resulting in the
opportunity for placing a higher yield on potential
investments.  Additionally, other significant participants in the
multifamily housing debt sector are either reducing their participation in the
market or are seeking to downsize their existing portfolio of
investments.  We believe this is creating opportunities to acquire
existing tax-exempt bonds on the secondary market at attractive
yields.  The ability to acquire existing assets on the secondary
market is important as primary market activity, specifically the issuance of new
tax-exempt bonds, is currently limited.  We believe that having the
ability to acquire assets on the secondary market while maintaining the ability
and willingness to also participate in primary market transactions will put us
in a unique position of strength.
  The
current credit crisis is also providing the potential for investments in
distressed assets.  We believe an opportunity exists to acquire
distressed bonds at a discount which would allow for the debt to be restructured
into viable, current market rate investments.  The 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, LLC, results in a valuable
tax-exempt bond investment which is supported by the valuable collateral and
operations of the underlying real property.  We believe the Company is
uniquely positioned to selectively acquire distressed assets, restructure debt
and improve operations thereby creating value to BUC holders in the form of a
strong tax-exempt bond investment.
 24
 Table of Contents
 In
January 2007, the Company filed a 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 April 2007 the
Company issued, through an underwritten public offering, a total of 3,675,000
BUCs at a public offering price of $8.06 per BUC.  Net proceeds
realized by the Company from the issuance of the additional BUCs were
approximately $27.5 million, after payment of an underwriter’s discount and
other offering costs of approximately $2.1 million.  The proceeds were
used to acquire additional tax-exempt revenue bonds and other investments
meeting the Partnership’s investment criteria, and for general working capital
needs.  This Registration Statement remains active with the SEC and is
available for the Company to conduct further underwritten public
offerings.
 
 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.  Each Rights Certificate will entitle the holder to purchase
additional BUCs at a price established in the Rights Offering.  One
Rights Certificate will be issued for every four BUCs owned at the time of the
offering.  The Company has not yet determined when, or if, such a
Rights Offering will be conducted.
 
 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. The Partnership is currently paying distributions at the
rate of $0.54 per BUC per year. The General Partner determines the amount of the
distributions based upon the projected future cash flows of the Partnership.
Future distributions to BUC holders will depend upon a number of
factors.  Such factors include, but are not limited to, the amount of
base and contingent interest received on its tax-exempt mortgage revenue bonds,
cash received from other investments (including MF Properties), the amount of
borrowings, the effective interest rate of these borrowings, the ability to
refinance existing debt, general credit and real estate market conditions and
the amount of the Partnership’s undistributed cash.
 
 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 nine months
ended September 30, 2008 increased approximately $238,000 compared to the same
period a year earlier mainly due to changes in working capital
components.  Cash from investing activities increased approximately
$25.7 million, for the nine months ended September 30, 2008 compared to the same
period in 2007.  In 2008, cash used for investing activities of
resulted from the purchase of Bridle Ridge bonds, the Woodlynn Village bonds,
the Churchland property and the increase in restricted cash offset by the sale
of the Deerfield and Chandler Creek bonds. Restricted cash increased in 2008 due
to a requirement of the new TOB facility to maintain a cash account with Bank of
America with a minimum balance of $5.0 million.  In 2007, investing
activities resulted in net cash used of approximately $37.9 million due to the
purchase of the MF Properties in the second quarter 2007 and the purchase of
additional bond investments offset by the sale of bonds. Cash from financing
activities decreased approximately $36.8 million for the nine months ended
September 30, 2008 compared to the same period in 2007. In 2008 and 2007, net
cash provided by financing activities totaled approximately $4.6 and $41.4
million, respectively, due to the net increase of outstanding debt offset by the
payment of distributions. In addition, the sale of Beneficial Unit Certificates
increased the 2007 financing cash flows by $27.5 million.
 
 25
 Table of Contents
 Historically,
our primary leverage vehicle has been the Merrill Lynch P-Float
program.  Credit rating downgrades at Merrill Lynch resulted in a
significant increase in Merrill Lynch’s cost of borrowing which, in turn,
resulted in a significantly higher interest rate on the Company’s P-Float
financing.  As discussed in Note 5 to the financial statements, on
June 26, 2008, the Company effectively replaced the Merrill Lynch P-Float
program by entering into an agreement for a TOB facility agreement with Bank of
America.  The new TOB facility functions in much the same fashion as
the P-Float program.  In connection with the TOB facility, tax-exempt
mortgage revenue bonds are placed into trusts which issue senior securities
(known as “Floater Certificates”) to unaffiliated institutional investors and
subordinated residual interest securities (known as “Inverse Certificates”) to
the Company.  Net proceeds generated by the sale of the Floater
Certificates are then remitted to the Company and accounted for as secured
borrowings and, in effect, provide variable-rate financing for the acquisition
of tax-exempt mortgage revenue bonds and other investments meeting the Company’s
investment criteria and for other purposes. The new TOB facility is a one year
agreement with a one year renewal option held by Bank of America and bears a
variable interest rate at a weekly floating bond rate, the SIFMA floating index,
plus associated remarketing, credit enhancement, liquidity and trustee
fees.
 On June
26, 2008, as part of the new TOB facility, Bank of America funded a $65.1
million bridge loan which was used to retire the Merrill Lynch P-float program
debt.  On July 3, 2008, the new TOB facility was closed and the
resulting Floater Certificates were sold.  The closing of the TOB
facility resulted in debt proceeds of approximately $76.7
million.  After repayment of the bridge loan and related fees and
expenses, net proceeds of approximately $10.8 million were remitted to the
Company for investment in additional tax-exempt mortgage bonds and other
investments consistent with its investment policies and for other
purposes.  The initial variable interest rate at closing of the TOB
facility was 3.27% calculated as the SIFMA index of 1.62% plus fees of 1.65%.
During the three months ended September 30, 2008 and 2007, the Company’s average
effective interest rate on the TOB facility and P-Float program was
approximately 4.2% and 4.5%, respectively.  During the nine months
ended September 30, 2008 and 2007, the Company’s average effective interest rate
on the P-Float and TOB facility was approximately 4.5% and 4.4%,
respectively.
 
 In the
long term, the General Partner believes 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.  The Company’s regular
annual distributions are currently equal to $0.54 per BUC, or $0.135 per quarter
per BUC.  For the three and nine months ended September 30, 2008, Cash
Available for Distribution (“CAD”) excluding contingent interest and realized
gains was not sufficient to fully fund such distributions without utilizing cash
reserves to supplement the deficit.  During the third quarter of 2007,
CAD exceeded the quarterly distribution amount of $0.135 per BUC. The closing of
the new TOB facility, in the long-term, is expected to result in a decrease in
cost of borrowings compared to recent costs in the P-Float program and to have a
positive impact on CAD in the future. The General Partner currently expects to
maintain the annual distribution amount of $0.54 per BUC.
 
 26
 Table of Contents
 Cash
Available for Distribution
 
 Management
utilizes a calculation of 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 its operations and is necessary
along with net income for understanding its 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 losses, impairments on bonds, losses related to VIEs
including depreciation expense are added back to the Company’s net income as
computed in accordance with GAAP. Management evaluates two measures of CAD by
further breaking down the calculation into Total CAD and CAD excluding
contingent interest and realized gains.  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
              
              
              For
      the Three
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007Net
      income
              
              $
              161,929
              
              
              $
              113,313
              
              
              $
              447,548
              
              
              $
              1,814,028Net
      loss related to VIEs and eliminations due to consolidation
              
              
              1,005,651
              
              
              
              868,459
              
              
              
              2,520,088
              
              
              
              2,059,543Income
      before impact of VIE consolidation
              
              
              1,167,580
              
              
              
              981,772
              
              
              
              2,967,636
              
              
              
              3,873,571Change
      in fair value of derivatives and interest rate cap
      amortization
              
              
              (183,216
              )
              
              
              207,967
              
              
              
              (144,888
              )
              
              
              58,128Tier
      2 Income distributable to the General Partner
              
              
              -
              
              
              
              -
              
              
              
              (13,796
              )
              
              
              (57,830
              )Depreciation
      and amortization expense (Partnership only)
              
              
              715,468
              
              
              
              731,956
              
              
              
              1,926,271
              
              
              
              745,271CAD
              
              $
              1,699,832
              
              
              $
              1,921,695
              
              
              $
              4,735,223
              
              
              $
              4,619,140For
      the Three
              
              
              For
      the Three
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007CAD
              
              $
              1,699,832
              
              
              $
              1,921,695
              
              
              $
              4,735,223
              
              
              $
              4,619,140Contingent
      interest
              
              
              -
              
              
              
              -
              
              
              
              (55,186
              )
              
              
              (173,489
              )CAD
      excluding contingent interest
              
              $
              1,699,832
              
              
              $
              1,921,695
              
              
              $
              4,680,037
              
              
              $
              4,445,651Weighted
      average number of units outstanding,basic
      and diluted
              
              
              13,512,928
              
              
              
              13,512,928
              
              
              
              13,512,928
              
              
              
              12,147,269Net
      income, basic and diluted, per unit
              
              $
              0.09
              
              
              $
              0.07
              
              
              $
              0.22
              
              
              $
              0.31Total
      CAD per unit
              
              $
              0.13
              
              
              $
              0.14
              
              
              $
              0.35
              
              
              $
              0.38CAD
      from contingent interest, per unit
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              0.00
              
              
              $
              (0.01
              )CAD
      excluding contingent interest, per unit
              
              $
              0.13
              
              
              $
              0.14
              
              
              $
              0.35
              
              
              $
              0.37
 27
 Table of Contents
  Contractual
Obligations
 
 The
Partnership has the following contractual obligations as of September 30,
2008:
 
 
 Payments
      due by periodLess
      than
              
              
              1-2
              
              
              More
      than 2Total
              
              
              1 year
              
              
              years
              
              
              yearsDebt
      financing
              
              
              
              
              $
              76,745,237
              
              
              $
              76,745,237
              
              
              $
              -
              
              
              $
              -Mortgages
      payable
              
              
              
              
              $
              26,450,800
              
              
              $
              19,999,428
              
              
              $
              158,856
              
              
              $
              6,292,516Effective
      Interest Rate(s)
              
              
              (1
              )
              
              
              
              
              
              
              4.28
              %
              
              
              5.39
              %
              
              
              5.49
              %Interest
              
              
              (2
              )
              
              $
              4,492,081
              
              
              $
              4,138,252
              
              
              $
              8,562
              
              
              $
              345,267(1)
      Interest rates shown are the average effective rate as of September 30,
      2008.(2)
      Interest shown is estimated based upon current effective interest rates
      through maturity.
 
 As
discussed in Note 5 to the financial statements, on June 26, 2008, the Company
effectively replaced the Merrill Lynch P-Float program by entering into an
agreement for a TOB facility agreement with Bank of America, which closed on
July 3, 2008.  The new TOB facility functions in much the same fashion as
the P-Float program.  The new TOB facility is a one year agreement with a
one year renewal option held by Bank of America and bears a variable interest
rate at a weekly floating bond rate, the SIFMA floating index, plus associated
remarketing, credit enhancement, liquidity and trustee fees.  At September
30, 2008, approximately $76.8 million is outstanding under the TOB
facility.  The remaining $19.9 million in outstanding debt financing due in
less than one year relates to the mortgage loan for the six MF Properties
located in Ohio and Kentucky.  We expect to renew the TOB facility
agreement with Bank of America and to refinance the mortgage loan for these
properties.  However, if the current illiquidity in the financial markets
continues or further deteriorates, our ability to renew or refinance our
outstanding debt financing may be impacted.
  Recently Issued Accounting Pronouncements
 
 In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements that are presented in
conformity with generally accepted accounting principles in the United States.
SFAS No. 162 is November 15, 2008.  SFAS No. 162 is not expected to have a
material impact on the Company’s financial statements.
 
 In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS No. 161”).This statement
changesthe
existing disclosure requirements in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.SFAS
No. 161 requires enhanced disclosures about an entity’s derivative and hedging
activities.  This statement is effective for the Company on January 1,
2009. Because the provisions of this statement are disclosure related, the
Company does not believe that the adoption of this statement will have a
material effect on its financial position or results of operations.
 
 In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ­­­–Including an
amendment of FASB No. 115 (“SFAS No. 159”).  This statement permits,
but does not require, entities to choose to measure many financial instruments
and certain other items at fair value.  SFAS No. 159 was effective for
the Company beginning on January 1, 2008.  The Company elected not to
adopt the provisions of SFAS No. 159 with respect to any financial instruments
held by the Company as of or after January 1, 2008.
  In
October 2008, the FASB issued FSP FAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP FAS
No. 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements, in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP is effective upon
issuance, including prior periods for which financial statements have not been
issued. Therefore, FSP FAS No. 157-3 is effective for the consolidated
financial statements included in the Company’s quarterly report for the period
ended September 30, 2008. The adoption of FSP FAS No. 157-3 did not
have a material impact on the Company’s consolidated financial
statements.
 
 Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.
 
 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 2007 Annual Report on Form 10-K.
  28
 Table of Contents
  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.
  29
 Table of Contents
  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 2007 Annual Report on Form 10-K.
 
 
 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)  Series
Trust Agreement for Austin Trust, Series 10000, by and between Bank of America,
National Association, as trustor, and Deutsche Bank Trust Company Americas, as
trustee and tender agent, dated as of July 3, 2008 (incorporated herein by
reference to Exhibit 10(c) to Form 10-Q (No. 000-24843) filed by the Company on
August 8, 2008)
 
 10(b)  Series
Trust Agreement for Austin Trust, Series 10001, by and between Bank of America,
National Association, as trustor, and Deutsche Bank Trust Company Americas, as
trustee and tender agent, dated as of July 3, 2008 (incorporated herein by
reference to Exhibit 10(d) to Form 10-Q (No. 000-24843) filed by the Company on
August 8, 2008)
 
 10(c)  Series
Trust Agreement for Austin Trust, Series 10002, by and between Bank of America,
National Association, as trustor, and Deutsche Bank Trust Company Americas, as
trustee and tender agent, dated as of July 3, 2008 (incorporated herein by
reference to Exhibit 10(e) to Form 10-Q (No. 000-24843) filed by the Company on
August 8, 2008)
 
 10(d)  Series
Trust Agreement for Austin Trust, Series 10003, by and between Bank of America,
National Association, as trustor, and Deutsche Bank Trust Company Americas, as
trustee and tender agent, dated as of July 3, 2008 (incorporated herein by
reference to Exhibit 10(f) to Form 10-Q (No. 000-24843) filed by the Company on
August 8, 2008)
 
 10(e)  Interest
Rate Cap Transaction Confirmation letter, dated July 7, 2008, between the
Registrant and U.S. Bank, N.A. (incorporated herein by reference to Exhibit
10(g) to Form 10-Q (No. 000-24843) filed by the Company on August 8,
2008)
 
 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.
 
 
 
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  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:  November
      7, 2008
              /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.
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