UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended June 30, 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 June 30, 2008 and
      December 31, 2007
              1Condensed Consolidated Statements of Operations for the
      three and six months ended June 30,  2008 and
      2007
              2Condensed Consolidated Statements of Partners' Capital and
      Comprehensive Income (Loss) for the six months ended June 30, 2008 and
      2007
              3Condensed Consolidated Statements of Cash Flows for the six
      months ended June 30, 2008 and 2007
              4Notes to Condensed Consolidated Financial
      Statements
              5Item
      2
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              17Item
      3
              Quantitative and Qualitative Disclosures About Market
      Risk
              32Item
      4
              Controls and Procedures
              33
 
 PART II -
OTHER INFORMATION
 
 Item
      1A
              Risk Factors
              34Item
      6
              Exhibits
              34SIGNATURES
              35
 
 .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)
 
 
 June
      30,
              
              
              December
      31,2008
              
              
              2007AssetsCash
      and cash equivalents
              
              $
              7,841,343
              
              
              $
              14,821,946Restricted
      cash
              
              
              3,589,917
              
              
              
              2,865,890Interest
      receivable
              
              
              492,814
              
              
              
              534,699Tax-exempt
      mortgage revenue bonds
              
              
              60,849,952
              
              
              
              66,167,116Real
      estate assets:Land
              
              
              10,357,004
              
              
              
              10,357,004Buildings
      and improvements
              
              
              99,544,555
              
              
              
              99,218,397Real
      estate assets before accumulated depreciation
              
              
              109,901,559
              
              
              
              109,575,401Accumulated
      depreciation
              
              
              (33,390,460
              )
              
              
              (31,543,780
              )Net
      real estate assets
              
              
              76,511,099
              
              
              
              78,031,621Other
      assets
              
              
              2,145,481
              
              
              
              2,457,736Total
      Assets
              
              $
              151,430,606
              
              
              $
              164,879,008LiabilitiesAccounts
      payable, accrued expenses and other liabilities
              
              $
              6,472,962
              
              
              $
              6,808,458Distribution
      payable
              
              
              2,432,327
              
              
              
              2,432,327Debt
      financing
              
              
              65,091,372
              
              
              
              71,395,000Mortgage
      payable
              
              
              19,920,000
              
              
              
              19,920,000Total
      Liabilities
              
              
              93,916,661
              
              
              
              100,555,785Commitments
      and Contingencies (Note 10)Minority
      interest
              
              
              45,230
              
              
              
              48,756Partners'
      CapitalGeneral
      partner
              
              
              333,567
              
              
              
              348,913Beneficial
      Unit Certificate holders
              
              
              107,604,345
              
              
              
              112,880,314Unallocated
      deficit of variable interest entities
              
              
              (50,469,197
              )
              
              
              (48,954,760
              )Total
      Partners' Capital
              
              
              57,468,715
              
              
              
              64,274,467Total
      Liabilities and Partners' Capital
              
              $
              151,430,606
              
              
              $
              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 Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              
              
              June
      30, 2007Income:Total
      property revenue
              
              $
              4,676,501
              
              
              $
              3,508,156
              
              
              $
              9,311,841
              
              
              $
              7,084,406Mortgage
      revenue bond investment income
              
              
              1,056,825
              
              
              
              631,855
              
              
              
              2,265,389
              
              
              
              1,054,293Other
      income (loss)
              
              
              (83,028
              )
              
              
              309,101
              
              
              
              (54,894
              )
              
              
              517,8755,650,298
              
              
              
              4,449,112
              
              
              
              11,522,336
              
              
              
              8,656,574Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,849,254
              
              
              
              2,189,457
              
              
              
              5,404,583
              
              
              
              4,150,972Depreciation
      and amortization
              
              
              1,164,316
              
              
              
              569,503
              
              
              
              2,515,747
              
              
              
              1,056,883Interest
              
              
              875,893
              
              
              
              526,099
              
              
              
              2,399,448
              
              
              
              1,054,897General
      and administrative
              
              
              489,399
              
              
              
              402,115
              
              
              
              920,465
              
              
              
              693,1075,378,862
              
              
              
              3,687,174
              
              
              
              11,240,243
              
              
              
              6,955,859Minority
      interest in net loss of consolidated subsidiary
              
              
              781
              
              
              
              -
              
              
              
              3,526
              
              
              
              -Net
      income
              
              $
              272,217
              
              
              $
              761,938
              
              
              $
              285,619
              
              
              $
              1,700,715Net
      income allocated to:General
      Partner
              
              $
              24,583
              
              
              $
              71,945
              
              
              $
              31,245
              
              
              $
              84,435BUC
      holders
              
              
              1,109,288
              
              
              
              1,570,876
              
              
              
              1,768,811
              
              
              
              2,807,364Unallocated
      deficit of variable interest entities
              
              
              (861,654
              )
              
              
              (880,883
              )
              
              
              (1,514,437
              )
              
              
              (1,191,084
              )$
              272,217
              
              
              $
              761,938
              
              
              $
              285,619
              
              
              $
              1,700,715BUC
      holders' interest in net income per unit(basic
      and diluted):Net
      income, basic and diluted, per unit
              
              $
              0.08
              
              
              $
              0.12
              
              
              $
              0.13
              
              
              $
              0.25Weighted
      average number of unitsoutstanding,
      basic and diluted
              
              
              13,512,928
              
              
              
              13,050,565
              
              
              
              13,512,928
              
              
              
              11,453,121The
      accompanying notes are an integral part of the condensed
      consolidated 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
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
 
 
 UnallocatedBeneficial
      Unit Certificate holders
              
              
              deficit
      of
              
              
              
              
              
              Accumulatedvariable
              
              
              
              
              
              OtherGeneral
              
              
              
              
              
              
              
              
              interest
              
              
              
              
              
              ComprehensivePartner
              
              
              #
      of Units
              
              
              Amount
              
              
              entities
              
              
              Total
              
              
              Income
      (Loss)Balance
      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
              
              
              31,245
              
              
              
              -
              
              
              
              1,768,811
              
              
              
              (1,514,437
              )
              
              
              285,619
              
              
              
              -Unrealized
      loss on securities
              
              
              (28,164
              )
              
              
              -
              
              
              
              (2,788,207
              )
              
              
              -
              
              
              
              (2,816,371
              )
              
              
              (2,816,371
              )Total
      comprehensive income (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,530,752
              )Distributions
      paid or accrued
              
              
              (626,509
              )
              
              
              -
              
              
              
              (3,648,491
              )
              
              
              -
              
              
              
              (4,275,000
              )
              
              
              -Reclassification
      of Tier II income
              
              
              608,082
              
              
              
              -
              
              
              
              (608,082
              )
              
              
              -
              
              
              
              -
              
              
              
              -Balance
      at June 30, 2008
              
              $
              333,567
              
              
              
              13,512,928
              
              
              $
              107,604,345
              
              
              $
              (50,469,197
              )
              
              $
              57,468,715
              
              
              $
              (6,398,215
              )UnallocatedBeneficial
      Unit Certificate holders
              
              
              deficit of
              
              
              
              
              
              
              Accumulatedvariable
              
              
              
              
              
              
              OtherGeneral
              
              
              
              
              
              
              
              
              
              
              interest
              
              
              
              
              
              
              ComprehensivePartner
              
              
              #
      of Units
              
              
              Amount
              
              
              entities
              
              
              Total
              
              
              LossBalance
      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
              
              
              
              27,549,356
              
              
              
              
              
              
              
              27,549,356Comprehensive
      income:Net
      income
              
              
              84,435
              
              
              
              -
              
              
              
              2,807,364
              
              
              
              (1,191,084
              )
              
              
              1,700,715
              
              
              
              -Unrealized
      loss on securities
              
              
              (499
              )
              
              
              -
              
              
              
              (49,421
              )
              
              
              -
              
              
              
              (49,920
              )
              
              
              (49,920
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,650,795Distributions
      paid or accrued
              
              
              (31,659
              )
              
              
              -
              
              
              
              (3,134,124
              )
              
              
              -
              
              
              
              (3,165,783
              )
              
              
              -Balance
      at June 30, 2007
              
              $
              1,578,339
              
              
              
              13,512,928
              
              
              $
              117,895,642
              
              
              $
              (46,693,253
              )
              
              $
              72,780,728
              
              
              $
              (772,355
              )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 six months endedJune
      30, 2008
                
                
                June
      30, 2007Cash
      flows from operating activities:Net
      income
                
                $
                285,619
                
                
                $
                1,700,715Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
                
                
                2,515,747
                
                
                
                1,056,883Interest
      rate cap expense (income)
                
                
                38,328
                
                
                
                (117,886
                )Loss
      on sale of securities
                
                
                (68,748
                )
                
                
                -Minority
      interest in net loss of consolidated subsidiary
                
                
                (3,526
                )
                
                
                -Changes
      in operating assets and liabilities, net of effect of
      acquisitions(Increase)
      decrease in interest receivable
                
                
                41,885
                
                
                
                (181,468
                )Increase
      in other assets
                
                
                (398,615
                )
                
                
                (185,861
                )Decrease
      in accounts payable, accrued expenses and other
liabilities
                
                
                (1,123,589
                )
                
                
                (684,316
                )Net
      cash provided by operating activities
                
                
                1,287,101
                
                
                
                1,588,067Cash
      flows from investing activities:Proceeds
      from the sale of tax-exempt bonds
                
                
                14,933,635
                
                
                
                23,800,000Acquisition
      of tax-exempt mortgage revenue bonds
                
                
                (12,435,000
                )
                
                
                (55,149,000
                )Increase
      in restricted cash
                
                
                (724,027
                )
                
                
                (1,100,175
                )Capital
      expenditures
                
                
                (293,495
                )
                
                
                (305,475
                )Acquisition
      of partnerships
                
                
                -
                
                
                
                (9,220,390
                )Principal
      payments received on tax-exempt mortgage revenue bonds
                
                
                45,833
                
                
                
                25,000Principal
      payments received on taxable loans
                
                
                100,000
                
                
                
                -Net
      cash provided by (used in) investing activities
                
                
                1,626,946
                
                
                
                (41,950,040
                )Cash
      flows from financing activities:Distributions
      paid
                
                
                (4,275,000
                )
                
                
                (2,887,430
                )Swap
      payments
                
                
                (40,049
                )
                
                
                -Proceeds
      from mortgage payable
                
                
                -
                
                
                
                19,920,000Increase
      in liabilities related to restricted cash
                
                
                724,027
                
                
                
                1,100,175Debt
      financing costs paid
                
                
                -
                
                
                
                (1,271,266
                )Repayment
      of liabilities assumed
                
                
                -
                
                
                
                (15,112,771
                )Proceeds
      from debt financing
                
                
                65,091,372
                
                
                
                13,300,000Principal
      payments on debt financing and note payable
                
                
                (71,395,000
                )
                
                
                (130,000
                )Acquisition
      of interest rate cap agreements
                
                
                -
                
                
                
                (83,000
                )Sale
      of Beneficial Unit Certificates
                
                
                -
                
                
                
                27,549,356Net
      cash provided by (used in) financing activities
                
                
                (9,894,650
                )
                
                
                42,385,064Net
      increase (decrease) in cash and cash equivalents
                
                
                (6,980,603
                )
                
                
                2,023,091Cash
      and cash equivalents at beginning of period
                
                
                14,821,946
                
                
                
                8,476,928Cash
      and cash equivalents at end of period
                
                $
                7,841,343
                
                
                $
                10,500,019Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
                
                $
                2,755,228
                
                
                $
                1,066,431Supplemental
      disclosure of non-cash financing and investing activities:Liabilites
      assumed in the acquisition of partnerships
                
                $
                -
                
                
                $
                15,742,740Distributions
      declared but not paid
                
                $
                2,432,327
                
                
                $
                1,824,245The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
  4
 Table of Contents
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 (UNAUDITED)
 
 1.  Basis
of Presentation
 
 America
First Tax Exempt Investors, L.P. 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 include the accounts of the Partnership, its
wholly-owned subsidiary, America First LP Holding Corp. (“Holding Corp”), and
the variable interest entities (“VIEs”) of which the Partnership has been
determined to be the primary beneficiary (the “Company”). In this Form 10-Q,
America First Tax Exempt Investors, L.P. and Holding Corp (the
“Partnership”) is reported as a stand alone entity without the
consolidation of the VIEs. MF Properties refers to the multifamily apartment
projects that are owned by partnerships of which the Holding Corp is the 99%
limited partner and are consolidated with the Partnership.  In the
Company’s consolidated financial statements, all transactions and accounts
between the Partnership and the VIEs have been eliminated in
consolidation.  The Partnership does not presently believe that the
consolidation of VIEs for reporting under accounting principles generally
accepted in the United States of America (“GAAP”) will impact the Partnership’s
tax status, amounts reported to Beneficial Unit Certificate (“BUC”) holders on
IRS Form K-1, the Partnership’s ability to distribute tax-exempt income to BUC
holders, the current level of quarterly distributions or the tax-exempt status
of the underlying mortgage revenue bonds.
 
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.  The accompanying interim unaudited condensed consolidated
financial statements have been prepared according to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2007. In the opinion of management,
all normal and recurring adjustments necessary to present fairly the financial
position as of June 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.
 
 5
 Table of Contents
 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 is 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) is distributed
75% to the BUC holders and 25% to AFCA 2.
 
 The
Agreement of Limited Partnership also allows the General Partner to withhold,
from time to time, Interest Income and Residual Proceeds and to place these
amounts into a reserve to provide funding for working capital or additional
investments.  In 2005, the General Partner placed Net Residual
Proceeds representing contingent interest of approximately $10.9 million into
the reserve.  If and when the General Partner determines that this
contingent interest is no longer to be held in reserve and is to be distributed,
it is anticipated that it will be distributed as Net Residual Proceeds (Tier 2)
as defined in the Agreement of Limited Partnership.  As such, these
funds will be distributed 75% to the BUC holders and 25% to the General
Partner.  On June 30, 2008, the General Partner determined that
approximately $2.4 million of these 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.
 
  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.
  
 6
 Table of Contents
  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:
 
 
 June
      30, 2008Description
      of Tax-Exempt
              
              
              
              
              Unrealized
              
              
              Unrealized
              
              
              EstimatedMortgage
      Revenue Bonds
              
              Cost
              
              
              Gain
              
              
              Loss
              
              
              Fair
      ValueClarkson
      College
              
              $
              6,054,167
              
              
              $
              -
              
              
              $
              (378,813
              )
              
              $
              5,675,354Bella
      Vista
              
              
              6,785,000
              
              
              
              -
              
              
              
              (537,576
              )
              
              
              6,247,424Woodland
      Park
              
              
              15,715,000
              
              
              
              -
              
              
              
              (1,419,575
              )
              
              
              14,295,425Prairiebrook
      Village
              
              
              5,862,000
              
              
              
              -
              
              
              
              (614,048
              )
              
              
              5,247,952Gardens
      of DeCordova
              
              
              4,870,000
              
              
              
              -
              
              
              
              (607,727
              )
              
              
              4,262,273Gardens
      of Weatherford
              
              
              4,702,000
              
              
              
              -
              
              
              
              (586,763
              )
              
              
              4,115,237Runnymede
      Apartments
              
              
              10,825,000
              
              
              
              -
              
              
              
              (987,240
              )
              
              
              9,837,760Bridle
      Ridge Apartments
              
              
              7,885,000
              
              
              
              -
              
              
              
              (768,157
              )
              
              
              7,116,843Woodlynn
      Village
              
              
              4,550,000
              
              
              
              -
              
              
              
              (498,316
              )
              
              
              4,051,684$
              67,248,167
              
              
              $
              -
              
              
              $
              (6,398,215
              )
              
              $
              60,849,952December
      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.  When available, the Company bases the fair
value of the tax-exempt bonds, which have a limited market, on quotes from
external sources, such as brokers or pricing services, for these or similar
bonds. In the situation when quotes are unavailable, the Company estimates the
fair value for each bond using management’s discounted cash flow and yield to
maturity analysis. This calculation methodology encompasses judgment in its
application.
  As of
June 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.
 
 7
 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 June 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 three
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
record impairments to its investment portfolio which could negatively impact the
Company’s financial statements.
 
 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.
The Company expects to receive approximately $4.8 million held by the trustee
representing unused bond proceeds and the deed of ownership to the land owned by
the project.  The Company intends to sell the land to be obtained in
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 pursue the owner
and developer for between $750,000 and $850,000 from such
guarantees.  The Company has not recorded an impairment of these bonds
and does not expect to do so until the foreclosure process is finalized and an
evaluation of the owner and developer guarantees can be completed.
 
 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.
 
 
 8
 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 may acquire ownership positions in the MF Properties.  The
Partnership expects to ultimately restructure the property ownership through a
sale of the MF Properties and a syndication of the associated low income housing
tax credits (“LIHTCs”).  The Partnership expects to provide the
tax-exempt mortgage revenue bonds to the new property owners as part of the
restructuring.   Such restructurings will generally be expected
to be initiated within 36 months of the initial investment in 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.  The Partnership, through its wholly owned subsidiary
Holding Corp., currently owns the 99% limited partner interests in six Ohio
limited partnerships.  Each Property Partnership owns a multifamily
apartment property, of which four are located in Ohio and two are located in
Kentucky, with a total of 544 units.
 
 In
addition to the MF Properties, the Partnership consolidates the assets of the
VIEs in accordance with FIN 46R.  Although the assets of the VIEs are
consolidated, the Partnership has no ownership interest in them 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 Mortgage 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 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 six months ended June 30, 2008 and
2007, the Company’s average effective interest rate on P-Float program debt was
5.3% and 4.4%, respectively.  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%.
 9
 Table of Contents
  In
connection with the acquisition of the MF Properties, 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 June 30, 2008, one month LIBOR was 2.46% 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 of the Partnership, AFCA 2, is entitled to receive an
administrative fee from the Partnership equal to 0.45% per annum of the
outstanding principal balance of any its tax-exempt mortgage revenue bonds or
other tax-exempt investments for which the owner of the financed property or
other third party is not obligated to pay such administrative fee directly to
AFCA 2. For the three and six months ended June 30, 2008, the Partnership paid
administrative fees to AFCA 2 of approximately $83,400 and $175,900,
respectively. For the three and six months ended June 30, 2007, the Partnership
paid administrative fees to AFCA 2 of approximately $27,500 and $89,000,
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 $77,600 and $168,000 for the three and six months
ended June 30, 2008 respectively. For the three and six months ended June 30,
2007, these administrative fees totaled approximately $61,000 and $133,000,
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 six
months ended June 30, 2008, AFCA 2 earned mortgage placement fees of
approximately $0 and $61,250, respectively. There were no such fees earned
during the first half of 2007.
  An
affiliate of AFCA 2, America First Property Management Company, LLC (“Properties
Management”), was retained to provide property management services for Ashley
Square, Ashley Pointe at Eagle Crest, Iona Lakes Apartments, Bent Tree
Apartments, Lake Forest Apartments, Fairmont Oaks Apartments, Woodland Park,
Eagle Ridge, Crescent Village, Meadowview, Willow Bend, Postwoods I, and
Postwoods II. The management fees paid to Properties Management amounted to
approximately $186,000 for the three months ended June 30, 2008, and $158,000
for the three months ended June 30, 2007. The management fees paid to Properties
Management amounted to approximately $366,000 during the first half of 2008, and
$277,000 during the first half of 2007. For the VIEs, these management fees are
not Partnership expenses but are recorded by each applicable VIE entity and,
accordingly, have been reflected in the accompanying consolidated financial
statements. Such fees are paid out of the revenues generated by the properties
owned by the VIEs prior to the payment of any interest on the tax-exempt
mortgage revenue bonds and taxable loans held by the Partnership on these
properties. For the MF Properties, these management fees are considered real
estate operating expenses.  Additionally, Properties Management was
retained to provide property management services for Chandler Creek and Clarkson
College.  The management fees paid to Properties Management by these
entities amounted to approximately $16,000 and $23,000 during the second quarter
of 2008 and 2007, respectively, and $39,000 and $45,900 during the first six
months of 2008 and 2007, respectively.
 
 The
shareholders of the limited-purpose corporations which own five of the apartment
properties financed with tax-exempt bonds and taxable loans held by the Company
are employees of The Burlington Capital Group LLC, the general partner of AFCA 2
(“Burlington”) who are not involved in the operation or management of the
Company and who are not executive officers or managers of Burlington.
 
 
 10
 Table of Contents
  7.  Interest
Rate Derivative Agreements
 
 As of
June 30, 2008, the Company had four derivative agreements in order to mitigate
its exposure to increases in interest rates on its variable-rate debt financing
and mortgage payable. The terms of the derivative agreements were as
follows:
 
 
 Principal
      of
              
              Effective
              
              Maturity
              
              PurchaseDate
      Purchased
              
              Debt
      Financing
              
              Capped
      Rate
              
              Date
              
              Price
              
              CounterpartyFebruary
      1, 2003
              
              $15,000,000
              
              2.95%
              (1)
              January
      1, 2010
              
              $608,000
              
              Bank
      of AmericaJuly
      7, 2006
              
              $10,000,000
              
              4.00%
              (2)
              July
      1, 2011
              
              $159,700
              
              US
      BankMay
      1, 2007
              
              $10,000,000
              
              4.00%
              (2)
              May
      1, 2012
              
              $65,500
              
              US
      BankJune
      29, 2007
              
              $19,920,000
              
              8.30%
              
              July
      1, 2009
              
              $17,500
              
              JP
      Morgan(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 will pay
      a fixed rate of 2.95%.(2)  Effective
      capped rate before remarketing, credit enhancement, liquidity and trustee
      fees.
 
 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 value 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
value 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.
 
 On
February 1, 2008, the counterparty to the $15.0 million derivative elected to
exercise its option to convert the interest rate cap to a fixed rate swap at a
rate of 2.95%. Under the terms of the swap, the Partnership will pay the fixed
rate of interest to the counterparty 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 Partnership is required to
maintain a restricted compensating balance with the counterparty institution
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 June 30, 2008
are included in other liabilities on the consolidated balance sheet and totaled
$25,889. The interest rate derivatives at December 31, 2007 are included in
other assets on the consolidated balance sheet and totaled $12,439. 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 $145,000 decrease in interest expense for the three months ended
June 30, 2008 and an increase in interest expense of approximately $38,000 for
the six months ended June 30, 2008. The change in the fair value of these
derivative contracts resulted in an approximate reduction of interest expense of
approximately $150,000 and $118,000 for the three and six months ended June 30,
2007, respectively.
 
 
 11
 Table of Contents
  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 June 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 3,261 rental
units.
 
 MF
Properties Segment
 
 The MF
Properties segment consists of indirect equity interests in multifamily
apartment properties which are not currently financed by tax-exempt bonds held
by the Partnership but which the Partnership eventually intends to finance by
such bonds through a restructuring.  In connection with any such
restructuring, the Partnership will be required to dispose of any equity
interest held in such MF Properties.  The Partnership’s interests in
its current MF Properties are not currently classified as Assets Held for Sale
because the Partnership is not actively marketing them for sale, there is no
definitive purchase agreement in existence and, therefore, no sale is expected
in the next twelve months.  During the time the Partnership holds an
interest in a MF Property, any net rental income generated by the MF Properties
in excess of debt service will be available for distribution to the Partnership
in accordance with its interest in the MF Property.  Any such cash
distribution will contribute to the Partnership’s Cash Available for
Distribution (“CAD”).  As of June 30, 2008, the Company held interest
in six MF Properties containing a total of 544 rental units.
  The
VIE segment
 
 The VIE
segment consists of multifamily apartment properties which are financed with
tax-exempt bonds held by the Partnership, the assets, liabilities and operating
results of which are consolidated with those of the Partnership as a result of
FIN 46R.  The tax-exempt bonds on these VIE properties are eliminated
from the Company’s financial statements as a result of such consolidation,
however, such bonds are held as long-term investments by the Partnership which
continues to be entitled to receive principal and interest payments on such
bonds.  The Company does not actually own an equity position in the
VIEs or their underlying properties.  As of June 30, 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 Partnership 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 Partnership from the MF Properties
segment until such properties can be refinanced with additional tax-exempt
mortgage bonds meeting the Partnership’s investment criteria.  In
order to achieve these goals, management of these multifamily apartment
properties is focused on: (i) maintaining high economic occupancy and increasing
rental rates through effective leasing, reduced turnover rates and providing
quality maintenance and services to maximize resident satisfaction; (ii)
managing operating expenses and achieving cost reductions through operating
efficiencies and economies of scale generally inherent in the management of a
portfolio of multiple properties; and (iii) emphasizing regular programs of
repairs, maintenance and property improvements to enhance the competitive
advantage and value of its properties in their respective market
areas.
  12
 Table of Contents
  The
following table details certain key financial information for the Company’s
reportable segments for the periods ended June 30, 2008 and 2007:
 
 
 Three
      Months Ended
              
              
              Six
      Months EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              
              
              June
      30, 2007Total
      revenueTax-Exempt
      Bond Financing
              
              $
              2,454,655
              
              
              $
              2,572,009
              
              
              $
              5,118,927
              
              
              $
              4,653,118MF
      Properties
              
              
              1,091,834
              
              
              
              -
              
              
              
              2,184,870
              
              
              
              -VIEs
              
              
              3,542,387
              
              
              
              3,508,156
              
              
              
              7,084,691
              
              
              
              7,084,406Consolidation/eliminations
              
              
              (1,438,578
              )
              
              
              (1,631,053
              )
              
              
              (2,866,152
              )
              
              
              (3,080,950
              )Total
      revenue
              
              $
              5,650,298
              
              
              $
              4,449,112
              
              
              $
              11,522,336
              
              
              $
              8,656,574Interest
      ExpenseTax-Exempt
      Bond Financing
              
              $
              666,740
              
              
              $
              526,099
              
              
              $
              1,939,885
              
              
              $
              1,054,897MF
      Properties
              
              
              209,153
              
              
              
              -
              
              
              
              459,563
              
              
              
              -VIEs
              
              
              2,259,969
              
              
              
              1,771,217
              
              
              
              4,513,310
              
              
              
              3,934,448Consolidation/eliminations
              
              
              (2,259,969
              )
              
              
              (1,771,217
              )
              
              
              (4,513,310
              )
              
              
              (3,934,448
              )Total
      interest expense
              
              $
              875,893
              
              
              $
              526,099
              
              
              $
              2,399,448
              
              
              $
              1,054,897Depreciation
      ExpenseTax-Exempt
      Bond Financing
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -MF
      Properties
              
              
              229,598
              
              
              
              -
              
              
              
              459,196
              
              
              
              -VIEs
              
              
              694,940
              
              
              
              566,408
              
              
              
              1,418,888
              
              
              
              1,050,695Consolidation/eliminations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      depreciation expense
              
              $
              924,538
              
              
              $
              566,408
              
              
              $
              1,878,084
              
              
              $
              1,050,695Net
      income (loss)Tax-Exempt
      Bond Financing
              
              $
              1,211,252
              
              
              $
              1,637,138
              
              
              $
              2,149,143
              
              
              $
              2,891,799MF
      Properties
              
              
              (77,382
              )
              
              
              -
              
              
              
              (349,088
              )
              
              
              -VIEs
              
              
              (1,695,914
              )
              
              
              (1,456,747
              )
              
              
              (3,191,223
              )
              
              
              (2,503,573
              )Consolidation/eliminations
              
              
              834,261
              
              
              
              581,547
              
              
              
              1,676,787
              
              
              
              1,312,489Net
      income
              
              $
              272,217
              
              
              $
              761,938
              
              
              $
              285,619
              
              
              $
              1,700,715June
      30, 2008
              
              
              December
      31, 2007Total
      assetsTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              173,783,331
              
              
              $
              182,498,714MF
      Properties
              
              
              
              
              
              
              
              
              
              
              25,164,424
              
              
              
              25,774,045VIEs
              
              
              
              
              
              
              
              
              
              
              57,926,978
              
              
              
              58,313,099Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              (105,444,127
              )
              
              
              (101,706,850
              )Total
      assets
              
              
              
              
              
              
              
              
              
              $
              151,430,606
              
              
              $
              164,879,008Total
      partners' capitalTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              105,638,787
              
              
              $
              107,735,743MF
      Properties
              
              
              
              
              
              
              
              
              
              
              4,523,019
              
              
              
              4,875,632VIEs
              
              
              
              
              
              
              
              
              
              
              (65,778,995
              )
              
              
              (62,587,772
              )Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              13,085,904
              
              
              
              14,250,864Total
      partners' capital
              
              
              
              
              
              
              
              
              
              $
              57,468,715
              
              
              $
              64,274,467
  13
 Table of Contents
  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.
 
 
 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 generally accepted accounting principles in the
United States.  SFAS No. 162 is effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411, “The Meaning of ‘Present
fairly in conformity with generally accepted accounting
principles’”.  SFAS No. 162 is not expected to have a material impact
on our 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 our 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.
 
 
 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.
  14
 Table of Contents
  ·
              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 value of the Company’s investments in
tax-exempt mortgage revenue bonds is based on quotes from external sources, when
available, such as brokers or pricing services, for these or similar bonds. In
the situation when quotes are unavailable, the Company estimates the fair value
for each bond using either a calculation of the present value of its expected
cash flows using a discount rate for comparable tax-exempt investments or a
yield to maturity analysis.  The Company’s tax-exempt mortgage revenue
bonds have a limited market and the fair values, whether based on a broker quote
or estimated by the Company, are based largely on unobservable
inputs.  Additionally, the calculation methodology used by the
external sources and the Company encompasses the use of judgment in their
application. Given these facts the fair value measurement of the Company’s
investment in tax-exempt mortgage revenue bonds is categorized as a Level 3
input.
  Interest rate
derivatives.The effect of the Company’s interest rate caps is
to set a cap, or upper limit, on the base rate of interest paid on our variable
rate debt equal to the notional amount of the derivative
agreement.  The effect of the Company’s interest rate swap is to
change a variable rate debt obligation to a fixed rate for that portion of the
debt equal to the notional amount of the derivative agreement.  The
interest rate derivatives are recorded at fair value with changes in fair value
included in current period earnings within interest expense.  The fair
value of the interest rate derivatives is based on a model whose significant
inputs are not observable and therefore are categorized as a Level 3
input.
  15
 Table of Contents
  
 Assets and liabilities measured at fair
value on a recurring basis are summarized below:
  Fair
      Value Measurements at June 30, 2008 Using,Quoted
      Prices
              
              
              Significantin
      Active Markets
              
              
              Other
      Observable
              
              
              SignificantAssets/Liabilities
              
              
              for
      Identical Assets
              
              
              Inputs
              
              
              Unobservable
      InputsDescription
              
              at Fair Value
              
              
              (Level 1)
              
              
              (Level 2)
              
              
              (Level 3)AssetsTax-exempt
      Mortgage Revenue Bonds
              
              $
              60,849,952
              
              
              
              -
              
              
              
              -
              
              
              $
              60,849,952Total
      Assets at Fair Value
              
              $
              60,849,952
              
              
              
              -
              
              
              
              -
              
              
              $
              60,849,952LiabilitiesInterest
      Rate Derivatives
              
              $
              25,889
              
              
              
              -
              
              
              
              -
              
              
              $
              25,889Total
      Liabilities at Fair Value
              
              $
              25,889
              
              
              
              -
              
              
              
              -
              
              
              $
              25,889For
      three months ended June 30, 2008Fair
      Value Measurements Using SignificantUnobservable
      Inputs (Level 3)Tax-exempt
      Mortgage
              
              
              Interest
      RateRevenue Bonds
              
              
              Derivatives
              
              
              TotalBeginning
      Balance April 1, 2008
              
              
              
              
              
              $
              69,984,090
              
              
              $
              (170,752
              )
              
              $
              69,813,338Total
      gains or losses (realized/unrealized)Included
      in earnings
              
              
              
              
              
              
              -
              
              
              
              144,863
              
              
              
              144,863Included
      in other comprehensive income
              
              
              
              
              
              
              2,396,694
              
              
              
              -
              
              
              
              2,396,694Purchases,
      issuances and settlements
              
              
              
              
              
              
              (11,530,832
              )
              
              
              -
              
              
              
              (11,530,832
              )Ending
      Balance June 30, 2008
              
              
              
              
              
              $
              60,849,952
              
              
              $
              (25,889
              )
              
              $
              60,824,063Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of June 30, 2008
              
              
              
              
              
              $
              -
              
              
              $
              144,863
              
              
              $
              144,863For
      six months ended June 30, 2008Fair
      Value Measurements Using SignificantUnobservable
      Inputs (Level 3)Tax-exempt
      Mortgage
              
              
              Interest
      RateRevenue Bonds
              
              
              Derivatives
              
              
              TotalBeginning
      Balance January 1, 2008
              
              
              
              
              
              $
              66,167,116
              
              
              $
              12,439
              
              
              $
              66,179,555Total
      gains or losses (realized/unrealized)Included
      in earnings
              
              
              
              
              
              
              -
              
              
              
              (38,328
              )
              
              
              (38,328
              )Included
      in other comprehensive income
              
              
              
              
              
              
              (2,816,371
              )
              
              
              -
              
              
              
              (2,816,371
              )Purchases,
      issuances and settlements
              
              
              
              
              
              
              (2,500,793
              )
              
              
              -
              
              
              
              (2,500,793
              )Ending
      Balance June 30, 2008
              
              
              
              
              
              $
              60,849,952
              
              
              $
              (25,889
              )
              
              $
              60,824,063Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of June 30, 2008
              
              
              
              
              
              $
              -
              
              
              $
              (38,328
              )
              
              $
              (38,328
              )
 
  Losses
included in earnings for the period shown above are included in interest
expense.
  16
 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 its subsidiary 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 and the VIEs. All significant transactions and
accounts between the Partnership and the VIEs have been eliminated in
consolidation.
 
 
 Critical
Accounting Policies
 
 The
Company’s critical accounting policies are the same as those described in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
 
 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 record impairments to
its investment portfolio which could negatively impact the Company’s financial
statements.
  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 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.
 17
 Table of Contents
  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.  During the six months ended June 30, 2008 and 2007, the
Company’s average effective interest rate on P-Float program debt was 5.3% and
4.4%, respectively.  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%.
  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.  In recent years Cash Available for Distribution (“CAD”)
excluding contingent interest and realized gains has not been 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.  During the fourth quarter of
2007 and the first two quarters of 2008 CAD was lower than the quarterly
distribution amount as a result of the increased borrowing costs associated with
our P-Float debt.  The closing of the new TOB facility and the
resulting anticipated decrease in cost of borrowings compared to recent costs in
the P-Float program is expected 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 June
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 June 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 1,209
rental units.  At June 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 June 30, 2008
and 2007, the Partnership’s wholly-owned subsidiary, America First LP Holding
Corp., held limited partnership interests in six entities that own MF Properties
containing a total of 544 rental units.  In addition, as of June 30,
2008, America First LP Holding Corp. had entered into an agreement to acquire a
99% limited partnership interest in a limited partnership owning a 124 unit
apartment complex in Chesapeake, Virginia.  This acquisition is
expected to close in the third quarter of 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 June 30, 2008 and 2007, the Company
consolidated eight VIE multifamily apartment properties containing a total of
1,764 rental units.
  18
 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 six months of
2008.
 
 
 EconomicOccupancy
      (1)Number
              
              Percentage
      of Occupied
              
              for
      the period endedNumber
              
              of
      Units
              
              Units
      as of June 30,
              
              June
      30,Property
      Name
              Location
              of
      Units
              
              Occupied
              
              2008
              
              2007
              
              2008
              
              
              2007Non-Consolidated PropertiesClarkson
      College
              Omaha,
      NE
              
              142
              
              
              82
              
              
              58
              %
              
              68
              %
              
              79
              %
              
              
              84
              %Bella
      Vista Apartments
              Gainesville,
      TX
              
              144
              
              
              137
              
              
              95
              %
              
              86
              %
              
              91
              %
              
              
              59
              %Woodland
      Park     (2)
              Topeka,
      KS
              
              236
              
              
              n/a
              
              
              n/a
              
              
              n/a
              
              
              n/a
              
              
              
              n/aPrairiebrook
      Village     (4)
              Gardner,
      KS
              
              72
              
              
              n/a
              
              
              n/a
              
              
              n/a
              
              
              n/a
              
              
              
              n/aRunnymede
      Apartments     (3)
              Austin,
      TX
              
              252
              
              
              176
              
              
              70
              %
              
              n/a
              
              
              75
              %
              
              
              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
              
              
              117
              
              
              77
              %
              
              n/a
              
              
              64
              %
              
              
              n/aWoodlynn
      Village     (3)
              Maplewood,
      MN
              
              59
              
              
              52
              
              
              88
              %
              
              n/a
              
              
              99
              %
              
              
              n/a1,209
              
              
              564
              
              
              75
              %
              
              83
              %
              
              79
              %
              
              
              70
              %VIEsAshley
      Pointe at Eagle Crest
              Evansville,
      IN
              
              150
              
              
              139
              
              
              93
              %
              
              97
              %
              
              97
              %
              
              
              92
              %Ashley
      Square
              Des
      Moines, IA
              
              144
              
              
              139
              
              
              97
              %
              
              94
              %
              
              86
              %
              
              
              80
              %Bent
      Tree Apartments
              Columbia,
      SC
              
              232
              
              
              222
              
              
              96
              %
              
              88
              %
              
              86
              %
              
              
              82
              %Fairmont
      Oaks Apartments
              Gainsville,
      FL
              
              178
              
              
              171
              
              
              96
              %
              
              99
              %
              
              90
              %
              
              
              90
              %Iona
      Lakes Apartments
              Ft.
      Myers, FL
              
              350
              
              
              279
              
              
              80
              %
              
              74
              %
              
              66
              %
              
              
              75
              %Lake
      Forest Apartments
              Daytona
      Beach, FL
              
              240
              
              
              228
              
              
              95
              %
              
              88
              %
              
              92
              %
              
              
              99
              %Woodbridge
      Apts. of Bloomington III
              Bloomington,
      IN
              
              280
              
              
              236
              
              
              84
              %
              
              89
              %
              
              92
              %
              
              
              95
              %Woodbridge
      Apts. of Louisville II
              Louisville,
      KY
              
              190
              
              
              182
              
              
              96
              %
              
              94
              %
              
              93
              %
              
              
              92
              %1,764
              
              
              1596
              
              
              90
              %
              
              88
              %
              
              85
              %
              
              
              87
              %MF PropertiesEagle
      Ridge     (3)
              Erlanger,
      KY
              
              64
              
              
              54
              
              
              84
              %
              
              88
              %
              
              80
              %
              
              
              n/aMeadowview     (3)
              Highland
      Heights, KY
              
              118
              
              
              116
              
              
              98
              %
              
              94
              %
              
              98
              %
              
              
              n/aCrescent
      Village     (3)
              Cincinnati,
      OH
              
              90
              
              
              84
              
              
              93
              %
              
              97
              %
              
              86
              %
              
              
              n/aWillow
      Bend     (3)
              Columbus
      (Hilliard), OH
              
              92
              
              
              85
              
              
              92
              %
              
              99
              %
              
              88
              %
              
              
              n/aPostwoods
      I     (3)
              Reynoldsburg,
      OH
              
              92
              
              
              88
              
              
              96
              %
              
              92
              %
              
              87
              %
              
              
              n/aPostwoods
      II     (3)
              Reynoldsburg,
      OH
              
              88
              
              
              88
              
              
              100
              %
              
              94
              %
              
              93
              %
              
              
              n/a544
              
              
              515
              
              
              95
              %
              
              94
              %
              
              89
              %
  (1)Economic occupancy is presented for six months ended June 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 June 30, 2008, and therefore
      have no occupancy data.(3)Previous period occupancy numbers are not available, as this is a
      new investment.(4)Foreclosure proceedings were commenced on these bonds in May,
      2008.
 
 Ashley
Pointe – Ashley Pointe at Eagle Crest is located in Evansville,
Indiana.  In the first half of 2008, Net Operating Income (calculated
as property revenue less salaries, advertising, administration, utilities,
repair and maintenance, insurance, taxes, and management fee expenses) was
$313,000 as compared to $267,000 in 2007.  This increase was the
result of higher property revenues due to fewer rental concessions given to
tenants and slightly lower salary expenses.
 
 19
 Table of Contents
  Ashley
Square – Ashley Square Apartments is located in Des Moines, Iowa.  In
the first half of 2008, Net Operating Income was $141,000 as compared to
$125,000 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 half of 2008, Bella Vista’s operations resulted in Net Operating Income of
$270,000 on revenue of approximately $518,000.
 
 Bent Tree
– Bent Tree Apartments is located in Columbia, South
Carolina.   In the first half of 2008, Net Operating Income was
$379,000 as compared to $390,000 in 2007.  This decrease was the
result of higher real estate taxes and utilities expense.
 
 Bridle
Ridge Apartments -– Bridle Ridge Apartments is located in Greer, South
Carolina.  In the first half of 2008, Bridle Ridge Apartments’
operations have resulted in Net Operating Income of $225,000 on revenue of
approximately $362,000.
 
 Clarkson
College – Clarkson College is a 142 bed student housing facility located in
Omaha, Nebraska.  In the first half of 2008, Net Operating Income was
$226,000 as compared to $245,000 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 half of 2008, Crescent Village’s operations
resulted in Net Operating Income of $200,000 on revenue of approximately
$374,000.
 
 Eagle
Ridge – Eagle Ridge Townhomes is located in Erlanger, Kentucky.  In
the first half of 2008, Eagle Ridge’s operations resulted in Net Operating
Income of $99,000 on revenue of approximately $233,000.
 
 Fairmont
Oaks – Fairmont Oaks Apartments is located in Gainesville,
Florida.  In the first half of 2008, Net Operating Income was $408,000
as compared to $423,000 in 2007.  This decrease was the result of
increased property insurance expense and increased professional
fees.
 
 Gardens
of DeCordova – The Gardens of DeCordova Apartments is currently under
construction in Granbury, Texas and will contain 76 units upon
completion.  Based on the construction schedule, finished units are
expected to be available for leasing starting in August 2008 with a final
completion of the project expected by September 2008.  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.  The estimated completion date is December 2008 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 project has an additional two months of
capitalized interest reserve sufficient to fund debt service beyond the expected
date of completion.
 
 Iona
Lakes – Iona Lakes Apartments is located in Fort Myers, Florida.  In
the first half of 2008, Net Operating Income was $492,000 as compared to
$686,000 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 half of 2008, Net Operating Income was $568,000
as compared to $573,000 in 2007.  This decrease was attributable to
slightly higher advertising and utility expenses.
 
 Meadowview
– Meadowview Apartments is located in Highland Heights, Kentucky.  In
the first half of 2008, Meadowview’s operations resulted in Net Operating Income
of $283,000 on revenue of approximately $462,000.
 
 20
 Table of Contents
  Prairiebrook
Village – In June 2007, the Company acquired the Prairiebrook Village bonds at
par value of $5.5 million Series A and $0.4 million Series B, which together
represented 100% of the bond issuance.  The bonds were issued in order
to construct a 72 unit multifamily apartment complex in Gardner,
Kansas.  Construction of the apartment complex has not commenced and
in February, 2008, the bond trustee notified the owner and developer of
Prairiebrook Village that they were not in compliance with certain sections of
the bond indenture. In May, 2008, the bond trustee, acting on behalf of the
Company, filed a petition of foreclosure on the mortgage securing the bonds. The
Company expects to receive $4.8 million held by the trustee representing unused
bond proceeds and the deed of ownership to the land owned by the
project.  The Company intends to sell the land to be obtained in 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 pursue the owner
and developer for between $750,000 and $850,000 from such
guarantees.
  Postwoods
I – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first half of 2008, Postwoods I’s operations resulted in Net Operating Income of
$207,000 on revenue of approximately $375,000.
 
 Postwoods
II – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first half of 2008, Postwoods II’s operations resulted in Net Operating Income
of $208,000 on revenue of approximately $342,000.
 
 Runnymede
Apartments – Runnymede Apartments is located in Austin, Texas.  In the
first half of 2008, Runnymede Apartments’ operations resulted in Net Operating
Income of $179,000 on revenue of approximately $811,000.
 
 Willow
Bend – Willow Bend Townhomes is located in Columbus (Hilliard),
Ohio.  In the first half of 2008, Willow Bend’s operations resulted in
Net Operating Income of $247,000 on revenue of approximately
$399,000.
 
 Woodbridge
at Bloomington – Woodbridge Apartments at Bloomington is located in Bloomington,
Indiana.  In the first half of 2008, Net Operating Income was $607,000
as compared to $643,000 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 half of 2008, Net Operating Income was
$433,000 as compared to $405,000 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.  Based on the
construction schedule, finished units are expected to be available for leasing
starting in August 2008 with a final completion of project expected in April of
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 half of 2008, Woodlynn Village’s operations resulted in net operating
income of $166,000 on revenue of approximately $261,000.
 
  21
 Table of Contents
  Results
of Operations
 
 Consolidated Results of
Operations
 
 The
following discussion of the Company’s results of operations for the three and
six months ended June 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 June 30,
2008 compared to Three  Months Ended June 30, 2007
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      Ended
              
              
              DollarJune
      30, 2008
              
              
              June
      30, 2007
              
              
              ChangeRevenues:Property
      revenues
              
              $
              4,676,501
              
              
              $
              3,508,156
              
              
              $
              1,168,345Mortgage
      revenue bond investment income
              
              
              1,056,825
              
              
              
              631,855
              
              
              
              424,970Other
      income (loss)
              
              
              (83,028
              )
              
              
              309,101
              
              
              
              (392,129
              )Total
      Revenues
              
              $
              5,650,298
              
              
              $
              4,449,112
              
              
              $
              1,201,186Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,849,254
              
              
              
              2,189,457
              
              
              
              659,797Depreciation
      and amortization
              
              
              1,164,316
              
              
              
              569,503
              
              
              
              594,813Interest
              
              
              875,893
              
              
              
              526,099
              
              
              
              349,794General
      and administrative
              
              
              489,399
              
              
              
              402,115
              
              
              
              87,284Total
      Expenses
              
              $
              5,378,862
              
              
              $
              3,687,174
              
              
              $
              1,691,688Minority
      interest in net loss of consolidated subsidiary
              
              
              781
              
              
              
              -
              
              
              
              781Net
      income
              
              $
              272,217
              
              
              $
              761,938
              
              
              $
              (489,721
              )
 
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties, which added approximately $1.1 million
and averaged $669 per unit in monthly rent with economic occupancy at 92% during
the period.  Rental revenue associated with the apartment properties
of the consolidated VIEs decreased slightly but was offset by higher levels of
other property income such as fees, charges, and interest income.  VIE
economic occupancy was 89% in 2008 and 85% in 2007.  For the VIEs, the
average monthly rents per unit for the second quarter of 2008 were $669 as
compared to $627 in 2007.
 
 Mortgage revenue bond investment
income.  The $425,000 increase in mortgage revenue bond
investment income during the second quarter of 2008 compared to the second
quarter of 2007 is due to income generated by the tax-exempt mortgage bonds
acquired in 2007 and 2008.  In 2007, a total of six new bond
investments were acquired in the second quarter with a total par value of
approximately $31.2 million and one new bond investment was acquired in the
fourth quarter 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.
 
 Other income
(loss).  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 has subsequently been
deployed to acquire long term investments. The sale of the Chandler Creek
tax-exempt bonds resulted in a net loss in the second quarter of
2008.  The loss on the sale was the result of the write-off of
unamortized bond acquisition costs.  The bonds were sold at par plus
accrued interest.
 
 22
 Table of Contents
  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 $482,000 in the
second quarter of 2008.  Real estate expenses related to the VIEs
increased $178,000 compared to second quarter of 2007, primarily due to
increased professional fees and real estate tax expenses.
 
 Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the consolidated VIEs
and the MF Properties.  Amortization is primarily associated with
intangible assets recorded as part of the purchase accounting for the
acquisition of the MF Properties.  Depreciation and amortization
related to the MF Properties accounted for the majority of the increase as
depreciation expense on the MF Properties was approximately $230,000 and
financing cost amortization related to the MF Properties was approximately
$152,000 in during the second quarter of 2008.
 
 Interest
expense.The increase in interest expense was due to a higher
level of borrowing and the mark-to-market adjustments on our interest rate caps.
The average interest rate on Company’s borrowings was 4.5% per annum in the
second quarter of 2008 as compared to 4.5% per annum in second quarter of 2007.
Total outstanding debt increased from approximately $58.9 million on June
30, 2007 to approximately $85.0 million as of June 30, 2008.  Interest
expense on the new debt accounted for $317,000 of the increase. The remaining
increase is attributable to the recognition of additional interest expense as a
result of marking our interest rate caps and swap to fair
value.  This fair value adjustment and derivative payments increased
interest expense by $33,000 for 2008 as compared to the second quarter
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
approximately $72,500 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.
  23
 Table of Contents
  Six Months Ended June 30,
2008 compared to Six Months Ended June 30, 2007
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      Ended
              
              
              DollarJune
      30, 2008
              
              
              June
      30, 2007
              
              
              ChangeRevenues:Property
      revenues
              
              $
              9,311,841
              
              
              $
              7,084,406
              
              
              $
              2,227,435Mortgage
      revenue bond investment income
              
              
              2,265,389
              
              
              
              1,054,293
              
              
              
              1,211,096Other
      income (loss)
              
              
              (54,894
              )
              
              
              517,875
              
              
              
              (572,769
              )Total
      Revenues
              
              $
              11,522,336
              
              
              $
              8,656,574
              
              
              $
              2,865,762Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              5,404,583
              
              
              
              4,150,972
              
              
              
              1,253,611Depreciation
      and amortization
              
              
              2,515,747
              
              
              
              1,056,883
              
              
              
              1,458,864Interest
              
              
              2,399,448
              
              
              
              1,054,897
              
              
              
              1,344,551General
      and administrative
              
              
              920,465
              
              
              
              693,107
              
              
              
              227,358Total
      Expenses
              
              $
              11,240,243
              
              
              $
              6,955,859
              
              
              $
              4,284,384Minority
      interest in net loss of consolidated subsidiary
              
              
              3,526
              
              
              
              -
              
              
              
              3,526Net
      income
              
              $
              285,619
              
              
              $
              1,700,715
              
              
              $
              (1,415,096
              )
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties, which added approximately $2.2 million
and averaged $651 per unit in monthly rent with economic occupancy at 89% during
the period.  Rental revenue associated with the apartment properties
of the consolidated VIEs decreased slightly but was offset by higher levels of
other property income such as fees, charges, and interest income.  VIE
economic occupancy was 85% in 2008 and 87% in 2007.  Even though the
VIE occupancy declined the average monthly rents per unit in 2008 increased to
$641 as compared to $638 in 2007 due to market rental rates.
 
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first half of 2008 compared to the first half of 2007 is due
to income generated by the tax-exempt mortgage bonds acquired in 2007 and
2008.  In 2007, a total of six new bond investments were acquired in
the second quarter with a total par value of approximately $31.2 million and one
new bond investment was acquired in the fourth quarter 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.
 
 Other income
(loss).  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 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 for the first half of 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 $1.2 million in
2008.  Real estate expenses related to the VIEs increased slightly
compared to 2007, primarily due to increased professional fees and real estate
tax expenses.
 24
 Table of Contents
  Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the consolidated VIEs
and the MF Properties.  Amortization is primarily associated with
intangible assets recorded as part of the purchase accounting for the
acquisition of the MF Properties.  Depreciation and amortization
related to the MF Properties accounted for the majority of the increase as
depreciation expense on the MF Properties was approximately $460,000 and
amortization related to the MF Properties was approximately $530,000 in during
the first half 2008.
 
 Interest
expense.The increase in interest expense was due to a higher
average interest rate on the Company’s borrowings, higher levels of borrowing
and the mark-to-market adjustments on our interest rate caps.  The
average interest rate on Company’s borrowings was 5.3% per annum in the first
half of 2008 as compared to 4.4% per annum in 2007 and accounted for
approximately $73,000 of the increase. Total outstanding debt increased from
approximately $58.9 million on June 30, 2007 to approximately $85.0 million as
of June 30, 2008.  Interest expense on the new debt accounted for
approximately $1.0 million of the increase. The remaining increase is
attributable to the recognition of additional interest expense as a result of
marking our interest rate caps and swap to fair value.  This fair
value adjustment and derivative payments increased interest expense by $196,000
for the first half of 2008 as compared to the first half
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
approximately $122,000 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.
 
  25
 Table of Contents
  Partnership Only Results of
Operations
 
 The
following discussion of the Partnership’s results of operations for the three
and six months ended June 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 June 30,
2008 compared to Three Months Ended June 30, 2007 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      Ended
              
              
              DollarJune
      30, 2008
              
              
              June
      30, 2007
              
              
              ChangeRevenuesMortgage
      revenue bond investment income
              
              $
              2,482,497
              
              
              $
              2,062,194
              
              
              $
              420,303Property
      revenues
              
              
              1,091,834
              
              
              
              -
              
              
              
              1,091,834Other
      income (loss)
              
              
              (27,842
              )
              
              
              509,815
              
              
              
              (537,657
              )Total
      Revenues
              
              
              3,546,489
              
              
              
              2,572,009
              
              
              
              974,480ExpensesReal
      estate operating (exclusive of items shown below)
              
              
              579,906
              
              
              
              -
              
              
              
              579,906Interest
      expense
              
              
              875,893
              
              
              
              526,099
              
              
              
              349,794Depreciation
      and amortization expense
              
              
              468,201
              
              
              
              6,657
              
              
              
              461,544General
      and administrative
              
              
              489,399
              
              
              
              402,115
              
              
              
              87,284Total
      Expenses
              
              
              2,413,399
              
              
              
              934,871
              
              
              
              1,478,528Minority
      interest in net loss of consolidated subsidiary
              
              
              781
              
              
              
              -
              
              
              
              781Net
      income
              
              $
              1,133,871
              
              
              $
              1,637,138
              
              
              $
              (503,267
              )
 
 
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the second quarter of 2008 compared to the second quarter of 2007
is due to income generated by the tax-exempt mortgage bonds acquired in 2007 and
2008.  In 2007, a total of six new bond investments were acquired in
the second quarter with a total par value of approximately $31.2 million and one
new bond investment was acquired in the fourth quarter 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.
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties acquired in 2007.  These
properties averaged $669 per unit in monthly rent with economic occupancy at 92%
during the period.
 
 Other income
(loss).  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. The loss on the sale of securities is
due to the sale of the Chandler Creek tax-exempt bonds during the second quarter
of 2008. The loss on the sale was the result of the write-off of unamortized
bond acquisition costs.  The bonds were sold at par plus accrued
interest.
  26
 Table of Contents
  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 expenses incurred by the MF
Properties acquired in 2007.
 
 Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the MF Properties
and the amortization of intangible assets recorded as part of the
purchase accounting for the acquisition of the MF Properties. Depreciation
expense on the MF Properties was approximately $230,000 and financing cost
amortization related to the MF Properties was approximately $152,000 in during
the second quarter of 2008.
 
 Interest expense.The
increase in interest expense was due to a higher level of borrowing and the
mark-to-market adjustments on our interest rate caps. The average interest rate
on Partnership’s borrowings was 4.5% per annum in the second quarter of 2008 as
compared to 4.5% per annum in second quarter of 2007. Total outstanding debt
increased from approximately $58.9 million on June 30, 2007 to
approximately $85.0 million as of June 30, 2008.  Interest expense on
the new debt accounted for $317,000 of the increase. The remaining increase is
attributable to the recognition of additional interest expense as a result of
marking our interest rate caps and swap to fair value.  This fair
value adjustment and derivative payments increased interest expense by $33,000
for 2008 as compared to the second quarter 2007.
 
 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.  Administrative fees increased
approximately $72,500 as the Partnership is responsible for the payment of the
administrative fees on a greater portion of the Partnerships
investments.  Professional fees increased largely due to increased
legal and accounting fees associated with the Partnership’s assessment of
internal control over financial reporting pursuant to Sarbanes-Oxley Section
404.
 
  27
 Table of Contents
  Six Months Ended June 30,
2008 compared to Six Months Ended June 30, 2007 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      Ended
              
              
              DollarJune
      30, 2008
              
              
              June
      30, 2007
              
              
              ChangeRevenuesMortgage
      revenue bond investment income
              
              $
              5,118,635
              
              
              $
              3,909,607
              
              
              $
              1,209,028Property
      revenues
              
              
              2,184,870
              
              
              
              -
              
              
              
              2,184,870Other
      income
              
              
              292
              
              
              
              743,511
              
              
              
              (743,219
              )Total
      Revenues
              
              
              7,303,797
              
              
              
              4,653,118
              
              
              
              2,650,679ExpensesReal
      estate operating (exclusive of items shown below)
              
              
              1,088,955
              
              
              
              -
              
              
              
              1,088,955Interest
      expense
              
              
              2,399,448
              
              
              
              1,054,897
              
              
              
              1,344,551Depreciation
      and amortization expense
              
              
              1,098,399
              
              
              
              13,315
              
              
              
              1,085,084General
      and administrative
              
              
              920,465
              
              
              
              693,107
              
              
              
              227,358Total
      Expenses
              
              
              5,507,267
              
              
              
              1,761,319
              
              
              
              3,745,948Minority
      interest in net loss of consolidated subsidiary
              
              
              3,526
              
              
              
              -
              
              
              
              3,526Net
      income
              
              $
              1,800,056
              
              
              $
              2,891,799
              
              
              $
              (1,091,743
              )
 
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first half of 2008 compared to the first half of 2007 is due
to income generated by the tax-exempt mortgage bonds acquired in 2007 and
2008.  In 2007, a total of six new bond investments were acquired in
the second quarter with a total par value of approximately $31.2 million and one
new bond investment was acquired in the fourth quarter 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.
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the MF Properties acquired in 2007.  These
properties averaged $651 per unit in monthly rent with economic occupancy at 89%
during the period.
 
 Other income
(loss).  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. The Deerfield tax-exempt bonds
realized 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 for the first half of 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 direct result of the expenses incurred by the MF
Properties acquired in 2007.
  28
 Table of Contents
  Depreciation and amortization
expense.  Depreciation and amortization consists primarily of
depreciation associated with the apartment properties of the MF Properties and
the amortization of intangible assets recorded as part of the purchase
accounting for the acquisition of the MF Properties.  Depreciation
expense on the MF Properties was approximately $460,000 and amortization related
to the MF Properties was approximately $530,000 during the first half
2008.
 
 Interest
expense.The increase in interest expense was due to a higher
average interest rate on the Partnership’s borrowings, higher levels of
borrowing and the mark-to-market adjustments on our interest rate
caps.  The average interest rate on Partnership’s borrowings was 5.3%
per annum in the first half of 2008 as compared to 4.4% per annum in 2007 and
accounted for approximately $73,000 of the increase. Total outstanding debt
increased from approximately $58.9 million on June 30, 2007 to approximately
$85.0 million as of June 30, 2008.  Interest expense on the new debt
accounted for approximately $1.0 million of the increase. The remaining increase
is attributable to the recognition of additional interest expense as a result of
marking our interest rate caps and swap to fair value.  This fair
value adjustment and derivative payments increased interest expense by $196,000
for the first half of 2008 as compared to the first half
2007.
 
 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.  Administrative fees increased
approximately $122,000 as the Partnership is responsible for the payment of the
administrative fees on a greater portion of the Partnerships
investments.  Professional fees increased largely due to increased
legal and accounting fees associated with the Partnership’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 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.
 
 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.  The
Company intends to issue BUCs from time to time under this Registration
Statement to raise additional equity capital as needed to fund investment
opportunities.  Raising additional equity capital for deployment into
new investment opportunities is part of our overall growth strategy. 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.
 
 29
 Table of Contents
  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 the amount of base and
contingent interest received on its tax-exempt mortgage revenue bonds and cash
received from other investments (including MF Properties), the amount of its
borrowings and the effective interest rate of these borrowings, 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 six months
ended June 30, 2008 decreased approximately $301,000 compared to the same period
a year earlier mainly due to changes in working capital
components.  Cash from investing activities increased approximately
$43.5 million, for the six months ended June 30, 2008 compared to the same
period in 2007.  In 2008, cash provided investing activities of
approximately $1.6 million resulted from the sale of the Deerfield and Chandler
Creek bonds offset by the purchase of Bridle Ridge Apartments and Woodlynn
Village bonds.  In 2007, investing activities resulted in net cash
used of approximately $42.0 million due to the purchase of the MF Properties in
second quarter 2007 and the purchase of additional bond investments. Cash from
financing activities decreased approximately $52.3 million for the six months
ended June 30, 2008 compared to the same period in 2007.  In 2008,
cash used in financing activities totaled approximately $9.9 million due to the
payment of distributions and the net reduction of outstanding
debt.  In 2007, cash provided by financing activities resulted mainly
from the sale of Beneficial Unit Certificates and the net increase in
debt.
 
 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 and bears a variable interest rate at a
weekly floating bond rate, is 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.  During the six months ended June 30, 2008 and 2007, the
Company’s average effective interest rate on P-Float program debt was 5.3% and
4.4%, respectively.  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%.
 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.  In recent years CAD excluding contingent interest and
realized gains has not been 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.  During the fourth quarter of 2007 and the first 2 quarters of
2008 CAD was lower than the quarterly distribution amount as a result of the
increased borrowing costs associated with our P-Float debt.  The
closing of the new TOB facility and the resulting anticipated decrease in cost
of borrowings compared to recent costs in the P-Float program is expected to
have a positive impact on CAD in the future.
 30
 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 (loss)
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
Partnership’s regular annual distributions are currently equal to $0.54 per BUC,
or $0.135 per quarter per BUC.  In recent years CAD excluding
contingent interest and realized gains has not been 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.  During the fourth quarter of
2007 and the first two quarters of 2008 CAD was lower than the quarterly
distribution amount as a result of the increased borrowing costs associated with
our P-Float debt.  The closing of the new TOB facility and the
resulting anticipated decrease in cost of borrowings compared to recent costs in
the P-Float program is expected 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.
  The
following tables show the calculation of CAD.
 For
      the Three
              
              
              For
      the Three
              
              
              For
      the Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              
              
              June
      30, 2007Net
      income
              
              $
              272,217
              
              
              $
              761,938
              
              
              $
              285,619
              
              
              $
              1,700,715Net
      loss related to VIEs and eliminations due to consolidation
              
              
              861,654
              
              
              
              875,200
              
              
              
              1,514,437
              
              
              
              1,191,084Income
      before impact of VIE consolidation
              
              
              1,133,871
              
              
              
              1,637,138
              
              
              
              1,800,056
              
              
              
              2,891,799Change
      in fair value of derivatives and interest rate cap
      amortization
              
              
              (144,863
              )
              
              
              (149,839
              )
              
              
              38,328
              
              
              
              (117,886
              )Tier
      2 Income distributable to the General Partner
              
              
              (13,796
              )
              
              
              (57,830
              )
              
              
              (13,796
              )
              
              
              (57,830
              )Depreciation
      and amortization expense (Partnership only)
              
              
              468,201
              
              
              
              6,657
              
              
              
              1,098,399
              
              
              
              13,315CAD
              
              $
              1,443,413
              
              
              $
              1,436,126
              
              
              $
              2,922,987
              
              
              $
              2,729,398For
      the Three
              
              
              For
      the Three
              
              
              For
      the Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              
              
              June
      30, 2007CAD
              
              $
              1,443,413
              
              
              $
              1,436,126
              
              
              $
              2,922,987
              
              
              $
              2,729,398Contingent
      interest
              
              
              55,186
              
              
              
              231,319
              
              
              
              55,186
              
              
              
              231,319CAD
      excluding contingent interest
              
              $
              1,388,227
              
              
              $
              1,204,807
              
              
              $
              2,867,801
              
              
              $
              2,498,079Weighted
      average number of units outstanding,basic
      and diluted
              
              
              13,512,928
              
              
              
              13,050,565
              
              
              
              13,512,928
              
              
              
              11,453,121Net
      income, basic and diluted, per unit
              
              $
              0.08
              
              
              $
              0.12
              
              
              $
              0.13
              
              
              $
              0.25Total
      CAD per unit
              
              $
              0.11
              
              
              $
              0.11
              
              
              $
              0.22
              
              
              $
              0.24CAD
      from contingent interest per unit
              
              $
              0.01
              
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.02CAD
      excluding contingent interest per unit
              
              $
              0.10
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.22
 
  31
 Table of Contents
  Contractual
Obligations
 
 The
Partnership has the following contractual obligations as of June 30,
2008:
 
 
 Payments
      due by periodLess
      than
              
              
              1-2Total
              
              
              1 year
              
              
              yearsDebt
      financing
              
              
              
              
              $
              85,011,372
              
              
              $
              65,091,372
              
              
              $
              19,920,000Effective
      Interest Rate(s)
              
              
              (1
              )
              
              
              
              
              
              
              4.72
              %
              
              
              4.10
              %Interest
              
              
              (2
              )
              
              $
              3,892,020
              
              
              $
              3,075,300
              
              
              $
              816,720(1)
      Interest rates shown are the average effective rate as of June 30,
      2008.(2)
      Interest shown is estimated based upon current effective interest rates
      through maturity.
 
 
 The table
above reflects the changes in the Company’s debt financing as discussed in
footnote 5.
 
 
 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 effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411, “The Meaning of ‘Present
fairly in conformity with generally accepted accounting
principles’”.  SFAS No. 162 is not expected to have a material impact
on our 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 our 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.
 
 
 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.
 
  32
 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.
  33
 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)               Shortfall,
Fee and Collateral Agreement, dated June 26, 2008, between Registrant and Bank
of America, N.A.
 
 10(b)                 Promissory
Note, dated June 26, 2008, between Registrant and Bank of America,
N.A.
 
 10(c)               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
 
 10(d)                  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
 
 10(e)                 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
 
 10(f)                  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
 
 10(g)                 Interest
Rate Cap Transaction Confirmation letter, dated July 7, 2008, between the
Registrant and U.S. Bank, N.A.
 
 31.1 Certification of CEO pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
 
 31.2Certification 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.
 
 32.2Certification of CFO pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 
 
  34
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 AMERICA FIRST TAX EXEMPT INVESTORS,
L.P.
 
 By
America First Capital
 Associates
Limited
 Partnership
Two, General
 Partner
of the Partnership
 
 By  Burlington
Capital Group LLC,
 General
Partner of
 America
First Capital
 Associates
Limited
 Partnership
Two
 
 
 Date:  August
      7, 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.
  35