UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended September 30, 2009
 
 OR
 
 o           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
ACT OF 1934
 
 For the
transition period
from            to
 Commission
File Number:  000-24843
 
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                47-0810385(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)1004
      Farnam Street, Suite 400
                Omaha,
      Nebraska 68102(Address
      of principal executive offices)
                (Zip
      Code)(402)
      444-1630(Registrant's
      telephone number, including area
code)
 
 Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
 YES  x  NO  o
 
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
 YES  o  NO  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer”, “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
 
 Large
      accelerated filero
                Accelerated
      filer  x
                Non-
      accelerated filer  o
                Smaller
      reporting company  o(do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 YES  o  NO  x
  
  
  INDEX
 
 
 PART I –
FINANCIAL INFORMATION
 
 Item 1
                Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of September 30, 2009 and December 31,
      2008
                1Condensed
      Consolidated Statements of Operations for the three and nine months ended
      September 30, 2009 and 2008
                2Condensed
      Consolidated Statements of Partners’ Capital and Comprehensive Income
      (Loss) for the nine months ended September 30, 2009 and
    2008
                3Condensed
      Statement of Cash Flows for the nine months ended September 30, 2009 and
      2008
                4Notes
      to Condensed Consolidated Financial Statements
                5Item 2
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                21Item 3
                Quantitative
      and Qualitative Disclosures About Market Risk
                35Item 4
                Controls
      and Procedures
                35
 
 PART II –
OTHER INFORMATION
 
 Item 1A
                Risk
      Factors
                36Item 6
                Exhibits
                36
 
 
 SIGNATURES
                
                37
 Forward-Looking
Statements
 
 This
report (including, but not limited to, the information contained in
“Management's Discussion and Analysis of Financial Condition and Results of
Operations") contains forward-looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Company's performance and financial results. All statements,
trend analysis and other information concerning possible or assumed future
results of operations of the Company and the investments it has made constitute
forward-looking statements. Beneficial Unit Certificate (“BUC”) holders and
others should understand that these forward-looking statements are subject to
numerous risks and uncertainties and a number of factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements contained herein. These
factors include general economic and business conditions such as the
availability and credit worthiness of prospective tenants, lease rents,
operating expenses, the terms and availability of financing for properties
financed by the tax-exempt mortgage revenue bonds owned by the Partnership,
adverse changes in the real estate markets from governmental or legislative
forces, lack of availability and credit worthiness of counterparties to finance
future acquisitions and interest rate fluctuations and other items discussed
under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008 and in Item 1A of Part II of this
report.
 
 
  
  PART
I - FINANCIAL INFORMATION
 
 Item 1.  Financial Statements.
 
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 
 September
      30,
              
              
              December
      31,2009
              
              
              2008AssetsCash
      and cash equivalents
              
              $
              6,436,632
              
              
              $
              7,196,274Restricted
      cash
              
              
              6,164,079
              
              
              
              12,848,614Interest
      receivable
              
              
              1,418,897
              
              
              
              769,201Tax-exempt
      mortgage revenue bonds, at fair value
              
              
              63,070,112
              
              
              
              44,492,526Real
      estate assets:Land
              
              
              13,403,655
              
              
              
              10,774,790Buildings
      and improvements
              
              
              99,739,426
              
              
              
              86,903,743Real
      estate assets before accumulated depreciation
              
              
              113,143,081
              
              
              
              97,678,533Accumulated
      depreciation
              
              
              (20,700,508
              )
              
              
              (17,499,670
              )Net
      real estate assets
              
              
              92,442,573
              
              
              
              80,178,863Other
      assets
              
              
              4,040,698
              
              
              
              4,263,937Assets
      of discontinued operations
              
              
              -
              
              
              
              8,113,861Total
      Assets
              
              $
              173,572,991
              
              
              $
              157,863,276LiabilitiesAccounts
      payable, accrued expenses and other liabilities
              
              $
              9,337,110
              
              
              $
              3,380,666Distribution
      payable
              
              
              2,942,034
              
              
              
              2,432,327Debt
      financing
              
              
              50,000,000
              
              
              
              56,981,577Mortgages
      payable
              
              
              30,160,804
              
              
              
              30,908,790Liabilities
      of discontinued operations
              
              
              -
              
              
              
              23,264,589Total
      Liabilities
              
              
              92,439,948
              
              
              
              116,967,949Commitments
      and Contingencies (Note 12)Partners'
      CapitalGeneral
      partner
              
              
              330,080
              
              
              
              261,785Beneficial
      Unit Certificate holders
              
              
              112,090,081
              
              
              
              93,277,480Unallocated
      deficit of variable interest entities
              
              
              (31,352,655
              )
              
              
              (52,711,654
              )Total
      Partners' Capital
              
              
              81,067,506
              
              
              
              40,827,611Noncontrolling
      interest (Note 13)
              
              
              65,537
              
              
              
              67,716Total
      Capital
              
              
              81,133,043
              
              
              
              40,895,327Total
      Liabilities and Capital
              
              $
              173,572,991
              
              
              $
              157,863,276The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
  1
  AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 
 For
      the Three Months Ended,
              
              
              For
      the Nine Months Ended,September
      30, 2009
              
              
              September
      30, 2008
              
              
              September
      30, 2009
              
              
              September
      30, 2008Revenues:Property
      revenues
              
              $
              3,872,079
              
              
              $
              3,399,780
              
              
              $
              11,526,594
              
              
              $
              10,099,212Mortgage
      revenue bond investment income
              
              
              1,019,970
              
              
              
              1,016,176
              
              
              
              3,022,865
              
              
              
              3,281,565Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              862,865
              
              
              
              -Other
      income
              
              
              22,587
              
              
              
              81,082
              
              
              
              74,481
              
              
              
              26,188Total
      Revenues
              
              
              5,777,501
              
              
              
              4,497,038
              
              
              
              15,486,805
              
              
              
              13,406,965Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,615,013
              
              
              
              2,196,626
              
              
              
              7,555,922
              
              
              
              6,265,613Depreciation
      and amortization
              
              
              1,387,032
              
              
              
              1,281,671
              
              
              
              4,646,940
              
              
              
              3,501,793Interest
              
              
              1,062,181
              
              
              
              630,381
              
              
              
              3,218,379
              
              
              
              2,422,345General
      and administrative
              
              
              508,647
              
              
              
              394,810
              
              
              
              1,409,810
              
              
              
              1,315,275Total
      Expenses
              
              
              5,572,873
              
              
              
              4,503,488
              
              
              
              16,831,051
              
              
              
              13,505,026Income
      (loss) from continuing operations
              
              
              204,628
              
              
              
              (6,450
              )
              
              
              (1,344,246
              )
              
              
              (98,061
              )Income
      from discontinued operations (including gain on bond redemption of
      $26,514,809 in 2009)
              
              
              -
              
              
              
              167,468
              
              
              
              26,734,754
              
              
              
              541,172Net
      income
              
              
              204,628
              
              
              
              161,018
              
              
              
              25,390,508
              
              
              
              443,111Less:
      net loss attributable to noncontrolling interest
              
              
              1,721
              
              
              
              911
              
              
              
              8,545
              
              
              
              4,437Net
      income - America First Tax Exempt Investors, L. P.
              
              $
              206,349
              
              
              $
              161,929
              
              
              $
              25,399,053
              
              
              $
              447,548Net
      income (loss) allocated to:General
      Partner
              
              $
              221,636
              
              
              $
              11,676
              
              
              $
              809,492
              
              
              $
              42,921Limited
      Partners - BUC holders
              
              
              1,233,185
              
              
              
              1,155,904
              
              
              
              3,230,562
              
              
              
              2,924,715Unallocated
      gain (loss) of variable interest entities
              
              
              (1,248,472
              )
              
              
              (1,005,651
              )
              
              
              21,358,999
              
              
              
              (2,520,088
              )Noncontrolling
      interest
              
              
              (1,721
              )
              
              
              (911
              )
              
              
              (8,545
              )
              
              
              (4,437
              )$
              204,628
              
              
              $
              161,018
              
              
              $
              25,390,508
              
              
              $
              443,111Limited
      partners' interest in net income per unit (basic and
    diluted):Income
      from continuing operations
              
              $
              0.07
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.22Income
      from discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income, basic and diluted, per unit
              
              $
              0.07
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.22Weighted
      average number of units outstanding,basic
      and diluted
              
              
              17,012,928
              
              
              
              13,512,928
              
              
              
              15,128,313
              
              
              
              13,512,928The
      accompanying notes are an integral part of the consolidated financial
      statements.
 
  2
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME
(LOSS)
 FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
   Beneficial
      Unit
                
                
                Unallocated
                
                
                
                
                
                
                
                
                Accumulated
      Other
      Comprehensive
      Income
      (Loss)Certificate
      holders
                
                
                deficit
      ofGeneral
                
                
                
                
                
                
                
                
                variable
      interest
                
                
                NoncontrollingPartner
                
                
                # of
      Units
                
                
                Amount
                
                
                entities
                
                
                Interest
                
                
                TotalBalance
      at January 1, 2009
                
                $
                261,785
                
                
                
                13,512,928
                
                
                $
                93,277,480
                
                
                $
                (52,711,654
                )
                
                $
                67,716
                
                
                $
                40,895,327
                
                
                $
                (16,857,807
                )Sale
      of Beneficial Unit Certificates
                
                
                
                
                
                
                3,500,000
                
                
                
                16,134,400
                
                
                
                
                
                
                
                
                
                
                
                16,134,400Noncontrolling
      interest contribution
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,366
                
                
                
                6,366
                
                
                
                -Comprehensive
      income (loss):Net
      income (loss)
                
                
                809,492
                
                
                
                -
                
                
                
                3,230,562
                
                
                
                21,358,999
                
                
                
                (8,545
                )
                
                
                25,390,508
                
                
                
                -Unrealized
      gain on securities
                
                
                67,957
                
                
                
                -
                
                
                
                6,727,770
                
                
                
                -
                
                
                
                
                
                
                
                6,795,727
                
                
                
                6,795,727Total
      comprehensive income (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                32,186,235Distributions
      paid or accrued
                
                
                (1,416,355
                )
                
                
                -
                
                
                
                (6,672,930
                )
                
                
                -
                
                
                
                
                
                
                
                (8,089,285
                )
                
                
                -Reclassification
      of Tier II income
                
                
                607,201
                
                
                
                -
                
                
                
                (607,201
                )
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -Balance
      at September 30, 2009
                
                $
                330,080
                
                
                
                17,012,928
                
                
                $
                112,090,081
                
                
                $
                (31,352,655
                )
                
                $
                65,537
                
                
                $
                81,133,043
                
                
                $
                (10,062,080
                )Beneficial
      Unit
                
                
                Unallocated
                
                
                
                
                
                
                
                
                
                
                Accumulated
      Other
      Comprehensive
      Income
      (Loss)Certificate
      holders
                
                
                deficit
      ofGeneral
                
                
                
                
                
                
                
                
                
                
                variable
      interest
                
                
                NoncontrollingPartner
                
                
                # of
      Units
                
                
                Amount
                
                
                entities
                
                
                Interest
                
                
                TotalBalance
      at January 1, 2008
                
                $
                348,913
                
                
                
                13,512,928
                
                
                $
                112,880,314
                
                
                $
                (48,954,760
                )
                
                $
                48,756
                
                
                $
                64,323,223
                
                
                $
                (3,581,844
                )Sale
      of Beneficial Unit CertificatesNoncontrolling
      interest contribution
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,804
                
                
                
                13,804Comprehensive
      income (loss):Net
      income (loss)
                
                
                42,921
                
                
                
                -
                
                
                
                2,924,715
                
                
                
                (2,520,088
                )
                
                
                (4,437
                )
                
                
                443,111
                
                
                
                -Unrealized
      loss on securities
                
                
                (48,916
                )
                
                
                -
                
                
                
                (4,842,726
                )
                
                
                -
                
                
                
                
                
                
                
                (4,891,642
                )
                
                
                (4,891,642
                )Total
      comprehensive income (loss)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (4,448,531
                )Distributions
      paid or accrued
                
                
                (1,234,591
                )
                
                
                -
                
                
                
                (5,472,736
                )
                
                
                -
                
                
                
                
                
                
                
                (6,707,327
                )Reclassification
      of Tier II income
                
                
                1,216,164
                
                
                
                -
                
                
                
                (1,216,164
                )
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                -Balance
      at September 30, 2008
                
                $
                324,491
                
                
                
                13,512,928
                
                
                $
                104,273,403
                
                
                $
                (51,474,848
                )
                
                $
                58,123
                
                
                $
                53,181,169
                
                
                $
                (8,473,486
                )
 
 
 The
accompanying notes are an integral part of the condensed consolidated financial
statements.
  3
 AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 For
      the nine months endedSeptember
      30, 2009
              
              
              September
      30, 2008Cash
      flows from operating activities:Net
      income
              
              $
              25,390,508
              
              
              $
              443,111Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
              
              
              4,646,940
              
              
              
              3,944,919Non-cash
      loss (gain) on derivatives
              
              
              721,811
              
              
              
              (144,888
              )Loss
      on sale of securities
              
              
              -
              
              
              
              18,524Gain
      on sale of assets held for sale
              
              
              (862,865
              )
              
              
              -Gain
      on sale of discontinued operations
              
              
              (26,514,809
              )
              
              
              -Changes
      in operating assets and liabilities, net of effect of
      acquisitionsIncrease
      in interest receivable
              
              
              (649,696
              )
              
              
              (355,024
              )Decrease
      (increase) in other assets
              
              
              (1,697,032
              )
              
              
              (67,709
              )Increase
      (decrease) in accounts payable, accrued expenses and other
      liabilities
              
              
              4,443,786
              
              
              
              (1,015,573
              )Net
      cash provided by operating activities
              
              
              5,478,643
              
              
              
              2,823,360Cash
      flows from investing activities:Proceeds
      from the sale of tax-exempt mortgage revenue bonds
              
              
              -
              
              
              
              14,846,363Proceeds
      from sale of discontinued operations
              
              
              32,000,000
              
              
              
              -Acquisition
      of tax-exempt mortgage revenue bonds
              
              
              (11,919,859
              )
              
              
              (12,435,000
              )Increase
      in restricted cash
              
              
              (1,522,066
              )
              
              
              (1,906,188
              )Restricted
      cash - debt collateral  released
              
              
              8,529,161
              
              
              
              (5,000,000
              )Capital
      expenditures
              
              
              (1,472,674
              )
              
              
              (502,350
              )Acquisition
      of asset held for sale
              
              
              (2,649,991
              )
              
              
              -Proceeds
      from assets held for sale
              
              
              3,512,856
              
              
              
              -Acquisition
      of partnerships, net of cash acquired
              
              
              (7,886,852
              )
              
              
              (7,466,097
              )Principal
      payments received on tax-exempt mortgage revenue bonds
              
              
              138,000
              
              
              
              63,334Proceeds
      from termination of derivatives
              
              
              -
              
              
              
              54,000Principal
      payments received on taxable loans
              
              
              -
              
              
              
              100,000Net
      cash provided (used) by investing activities
              
              
              18,728,575
              
              
              
              (12,245,938
              )Cash
      flows from financing activities:Distributions
      paid
              
              
              (7,579,578
              )
              
              
              (6,707,327
              )Derivative
      settlements
              
              
              (238,980
              )
              
              
              (25,341
              )(Decrease)
      increase in liabilities related to restricted cash
              
              
              1,522,066
              
              
              
              1,906,188Deferred
      financing costs
              
              
              (550,912
              )
              
              
              (1,487,161
              )Proceeds
      from debt financing and mortgages payable
              
              
              50,000,000
              
              
              
              83,276,037Principal
      payments on debt financing and mortgage payable
              
              
              (83,813,222
              )
              
              
              (71,395,000
              )Acquisition
      of interest rate cap agreements
              
              
              (605,500
              )
              
              
              (985,000
              )Sale
      of Beneficial Unit Certificates
              
              
              16,134,400
              
              
              
              -Net
      cash (used) provided by financing activities
              
              
              (25,131,726
              )
              
              
              4,582,396Net
      decrease in cash and cash equivalents
              
              
              (924,508
              )
              
              
              (4,840,182
              )Cash
      and cash equivalents at beginning of period, including cash and cash
      equivalents of discontinued operations of $164,866 and $145,278
      respectively
              
              $
              7,361,140
              
              
              $
              14,821,946Cash
      and cash equivalents at end of period, including cash and cash equivalents
      of discontinued operations of $0 and $385,379 respectively
              
              $
              6,436,632
              
              
              $
              9,981,764Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
              
              $
              3,453,076
              
              
              $
              3,061,100Liabilites
      assumed in the acquisition of partnerships
              
              $
              6,506,329
              
              
              $
              49,921Distributions
      declared but not paid
              
              $
              2,942,034
              
              
              $
              2,432,327The
      accompanying notes are an integral part of the condensed consolidated
      financial statements.
  4
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009
 (UNAUDITED)
 
 1.  Basis
of Presentation
 
 America
First Tax Exempt Investors, L.P. (the “Partnership”) was formed on April 2, 1998
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring, holding, selling and otherwise dealing with a portfolio of federally
tax-exempt mortgage revenue bonds which have been issued to provide construction
and/or permanent financing of multifamily residential
properties.  Interest on these bonds is excludable from gross income
for federal income tax purposes.  As a result, most of the income
earned by the Partnership is exempt from federal income taxes.  Our
general partner is America First Capital Associates Limited Partnership Two
(“AFCA 2” or “General Partner”).  The Partnership will terminate on
December 31, 2050 unless terminated earlier under provisions of its Agreement of
Limited Partnership.
  Recent
economic conditions have been unprecedented and challenging, with significantly
tighter
credit conditions and slower growth.  As a result of these conditions,
the cost and availability of credit has been, and is expected to continue to be,
adversely affected in all markets in which we operate. Concern about the
stability of the markets generally, and the strength of counterparties
specifically, has led many lenders and institutional investors to reduce, and in
some cases, cease to provide, funding to borrowers. If these market and economic
conditions continue, they may limit the Partnership’s ability to replace or
renew maturing liabilities on a timely basis, access the capital markets to meet
liquidity and capital expenditure requirements and may result in adverse effects
on the Partnership’s financial condition and results of operations.
 
 Although
the consequences of these conditions and their impact on the Partnership’s
ability to pursue its plan to grow through investments in additional tax-exempt
bonds secured by first mortgages on affordable multifamily housing projects are
not fully known, the Partnership does not anticipate that its existing assets
will be adversely affected in the long-term.  The Partnership believes
the current tightening of credit may create opportunities for additional
investments consistent with its investment strategy because it may result in
fewer parties competing to acquire tax-exempt bonds issued to finance affordable
housing.  There can be no assurance that the Partnership will be able
to finance additional acquisitions of tax-exempt bonds through either additional
equity or debt financing.  If uncertainties in these markets continue,
the markets deteriorate further or the Partnership experiences further
deterioration in the values of its investment portfolio, the Partnership may
incur impairments to its investment portfolio which could negatively impact its
financial statements.
 
 The
consolidated financial statements of the “Company” reported in this Form 10-Q
include the assets and results of operations of the Partnership, the multifamily
apartment properties (the “MF Properties”) owned by various limited partnerships
in which one of the Partnership’s wholly-owned subsidiaries (each a “Holding
Company”) holds a 99% limited partner interest and six other entities in which
the Partnership does not hold an ownership interest but which own multifamily
apartment properties financed with tax-exempt bonds held by the Partnership and
which are treated as variable interest entities of which the Partnership has
been determined to be the primary beneficiary (the “VIEs”). Stand alone
financial information of the Partnership reported in this Form 10-Q includes
only the assets and results of operation of the Partnership and the MF
Properties without the consolidation of the VIEs.  In the Company’s
consolidated financial statements, all transactions and accounts between the
Partnership, the MF Properties and the VIEs have been eliminated in
consolidation.  The Partnership does not presently believe that the
consolidation of VIEs for reporting under accounting principles generally
accepted in the United States of America (“GAAP”) will impact the Partnership’s
tax status, amounts reported to Beneficial Unit Certificate (“BUC”) holders on
IRS Form K-1, the Partnership’s ability to distribute tax-exempt income to BUC
holders, the current level of quarterly distributions or the tax-exempt status
of the underlying mortgage revenue bonds.
 
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.  The accompanying interim unaudited condensed consolidated
financial statements have been prepared according to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008. These condensed consolidated
financial statements and notes have been prepared consistently with the 2008
Form 10-K with the exception of the reclassification of certain prior-year
amounts on the Company’s Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Operations, Condensed Consolidated Statements of
Partners’ Capital and Comprehensive Income (Loss) and Condensed Consolidated
Statements of Cash Flows in accordance with the Company’s adoption of Accounting
Standards Codification ("ASC") 810-10-65-1, Transition,, (“ASC
810-10-65-1”) (pre-codification reference SFAS 160 (see Note 13) on January 1,
2009, which required retrospective application.  In the opinion of
management, all adjustments (consisting of normal and recurring accruals)
necessary to present fairly the financial position as of September 30, 2009, and
the results of operations for all periods presented have been made. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
 
 5
 Other
comprehensive income (loss) for the nine months ended September 30, 2009 and
2008 were as follows:
 
 
 September
      30, 2009
              
              
              September
      30, 2008Net
      income
              
              $
              25,390,508
              
              
              $
              443,111Unrealized
      gain (loss) on securities
              
              
              6,795,727
              
              
              
              (4,891,642
              )Comprehensive
      income (loss) before noncontrolling interest
              
              
              32,186,235
              
              
              
              (4,448,531
              )Comprehensive
      income (loss) attributable to noncontrolling interest
              
              
              8,545
              
              
              
              4,437Comprehensive
      income (loss) attributable to the Partnership
              
              $
              32,194,780
              
              
              $
              (4,444,094
              )
 
 
 In May
2009, the FASB issued pre-codification guidance of SFAS No. 165, Subsequent Events. Effective
July 1, 2009, this guidance was codified into ASC 855-10, Subsequent Events,("ASC
855-10") which provided guidance on management’s assessment of subsequent
events, effective for all interim or annual reporting periods ending after June
15, 2009.  In accordance with ASC 855-10, the Company has evaluated
transactions and events for disclosure as a subsequent event through November 6,
2009, the date on which these financial statements were issued.  Any
transactions or events which the Company has determined require disclosure as a
subsequent event have been disclosed in the footnotes.
 
 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 its Investment in MF
Properties (See Note 5) will be included in the Partnership’s Interest Income
and cash distributions received by the Partnership from the sale of such
Properties will be included in the Partnership Residual Proceeds.
 
 Cash
distributions are currently made on a quarterly basis but may be made on a
monthly or semiannual basis at the election of AFCA 2.  On each
distribution date, Net Interest Income is distributed 99% to the BUC holders and
1% to AFCA 2 and Net Residual Proceeds are distributed 100% to BUC holders
except that Net Interest Income and Net Residual Proceeds representing
contingent interest in an amount equal to 0.9% per annum of the principal amount
of the mortgage bonds on a cumulative basis (defined as Net Interest Income
(Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed
75% to the BUC holders and 25% to AFCA 2.
 The
unallocated deficit of the VIEs is primarily comprised of the accumulated
historical net losses of the VIEs as of the implementation of ASC 810-10, Consolidations,("ASC
810-10"). The unallocated deficit of the VIEs and the VIE’s net losses
subsequent to that date are not allocated to the General Partner and BUC holders
as such activity is not contemplated by, or addressed in, the Agreement of
Limited Partnership.
 
 3.  Variable
Interest Entities
 
 The
Partnership operates for the purpose of acquiring, holding, selling and
otherwise dealing with a portfolio of federally tax-exempt mortgage revenue
bonds which have been issued to provide construction and/or permanent financing
of multifamily residential apartments. Each multifamily property financed with
tax-exempt mortgage bonds held by the Partnership is owned by a separate
entity.  The Partnership does not hold an equity ownership interest in
any of these entities; however, the bonds held by the Partnership create a
variable interest in the entities.  Under consolidation guidance
included in ASC 810-10,
the Partnership must make an evaluation of these entities to determine if they
meet the definition of a VIE.  If the underlying entity is determined
to be a VIE, the Partnership must then determine if it is the primary
beneficiary of the VIE pursuant to the terms of each tax-exempt mortgage revenue
bond and the criteria within applicable guidance.  ASC 810-10 is a
complex standard that requires significant analysis and judgment.
 
 The
Partnership has determined that six of the entities financed by tax-exempt bonds
owned by the Partnership at September 30, 2009 are held by VIEs and that the
Partnership is the primary beneficiary of these VIEs. All six of these VIEs were
included in results of operation for the three month and nine month periods
ended September 30, 2009. The Partnership determined that eight of the entities
financed by tax-exempt bonds owned by the Partnership at December 31, 2008 were
held by VIEs and that the Partnership was the primary beneficiary of these
VIEs.  Five of these consolidated VIEs were included in the results
from continuing operations while three of the consolidated VIEs are presented as
discontinued operations for the year ended December 31, 2008.
 6
 In April
2009, the Company acquired the Cross Creek Apartments tax-exempt mortgage
revenue bond for $5.9 million which represented 100% of the bond
issuance.  The bond par value is $8.85 million and the bond earns
interest at an annual rate of 6.15%. The interest payments are monthly with a
stated maturity date of March 1, 2049.  The bond was issued for the
construction of the Cross Creek Apartments, a 144 unit multifamily apartment
complex located in Beaufort, South Carolina.  At the time of
acquisition the bonds were in technical default as the property construction was
not completed, the property had not reached stabilization and the property was
not current on debt service.  The Company also purchased a $4.125
million construction loan for approximately $920,000 from the property
developer. The Company has since made a $1.7 million taxable loan to the
property owner to allow for the completion of construction, lease up and
stabilization of the property and the payment of bond debt service. Marketing
and leasing activities for the property began in the second quarter of
2009.  The Company has determined that the underlying entity that owns
the Cross Creek Apartments meets the definition of a VIE and that the Company is
the primary beneficiary.  Accordingly, its financial statements are
consolidated into the Company’s consolidated financial statements under ASC
810-10.
  In
February 2009, the tax-exempt mortgage revenue bonds secured by assets of the
three VIEs presented as discontinued operations as of December 31, 2008, were
redeemed.  In order to properly reflect the transaction under
consolidation guidance, the Company recorded the redemption of the bonds as a
sale of the properties as though they were owned by the Company.  The
transaction was completed for a total purchase price of $32.0 million resulting
in a gain on sale for GAAP reporting of approximately $26.5
million.  On a stand-alone basis, the Partnership received
approximately $30.9 million of net proceeds from the bond redemption. The
redemption of the bonds did not result in a taxable gain to the
Partnership.  However, proceeds represent the repayment of the bond
par values plus accrued base interest and approximately $2.3 million of
contingent interest.  The contingent interest represents additional
earnings to the Partnership beyond the recurring base interest earned on these
bonds.  The contingent interest also represents additional Cash
Available for Distribution to the BUC holders of approximately $1.7 million, or
$0.13 per unit.
 
 The
consolidated financial statements of the Company include the assets, liabilities
and results of operation of the Partnership and the VIEs.  Financial
information of the Partnership, on a stand-alone basis, includes only the
assets, liabilities and results of operations of the Partnership and the MF
Properties without the impact of the consolidation of the VIEs.  In
the Company’s consolidated financial statements, all transactions and accounts
between the Partnership, the MF Properties and the VIEs have been
eliminated.
 The
following tables present the effects of the consolidation of the VIEs on the
Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Operations.
 
 Condensed
Consolidating Balance Sheets as of September 30, 2009 and December 31,
2008:
 Partnership
      as of September 30, 2009
              
              
              VIEs
      as of September 30, 2009
              
              
              Consolidation
      -Elimination as of September 30, 2009
              
              
              Total
      as of September 30, 2009AssetsCash
      and cash equivalents
              
              $
              6,354,511
              
              
              $
              82,121
              
              
              $
              -
              
              
              $
              6,436,632Restricted
      cash
              
              
              2,663,206
              
              
              
              3,500,873
              
              
              
              -
              
              
              
              6,164,079Interest
      receivable
              
              
              6,554,173
              
              
              
              -
              
              
              
              (5,135,276
              )
              
              
              1,418,897Tax-exempt
      mortgage revenue bonds
              
              
              118,588,914
              
              
              
              -
              
              
              
              (55,518,802
              )
              
              
              63,070,112Real
      estate assets:Land
              
              
              6,736,351
              
              
              
              6,667,304
              
              
              
              -
              
              
              
              13,403,655Buildings
      and improvements
              
              
              37,264,690
              
              
              
              65,106,077
              
              
              
              (2,631,341
              )
              
              
              99,739,426Real
      estate assets before accumulated depreciation
              
              
              44,001,041
              
              
              
              71,773,381
              
              
              
              (2,631,341
              )
              
              
              113,143,081Accumulated
      depreciation
              
              
              (2,851,623
              )
              
              
              (17,848,885
              )
              
              
              -
              
              
              
              (20,700,508
              )Net
      real estate assets
              
              
              41,149,418
              
              
              
              53,924,496
              
              
              
              (2,631,341
              )
              
              
              92,442,573Other
      assets
              
              
              18,158,669
              
              
              
              1,222,167
              
              
              
              (15,340,138
              )
              
              
              4,040,698Total
      Assets
              
              $
              193,468,891
              
              
              $
              58,729,657
              
              
              $
              (78,625,557
              )
              
              $
              173,572,991LiabilitiesAccounts
      payable, accrued expenses and other
              
              $
              6,937,378
              
              
              $
              40,778,947
              
              
              $
              (38,379,215
              )
              
              $
              9,337,110Distribution
      payable
              
              
              2,942,034
              
              
              
              -
              
              
              
              -
              
              
              
              2,942,034Debt
      financing
              
              
              50,000,000
              
              
              
              -
              
              
              
              -
              
              
              
              50,000,000Mortgage
      payable
              
              
              30,160,805
              
              
              
              57,864,629
              
              
              
              (57,864,630
              )
              
              
              30,160,804Total
      Liabilities
              
              
              90,040,217
              
              
              
              98,643,576
              
              
              
              (96,243,845
              )
              
              
              92,439,948Partners'
      CapitalGeneral
      Partner
              
              
              330,080
              
              
              
              -
              
              
              
              -
              
              
              
              330,080Beneficial
      Unit Certificate holders
              
              
              103,033,057
              
              
              
              -
              
              
              
              9,057,024
              
              
              
              112,090,081Unallocated
      deficit of variable interest entities
              
              
              -
              
              
              
              (39,913,919
              )
              
              
              8,561,264
              
              
              
              (31,352,655
              )Total
      Partners' Capital
              
              
              103,363,137
              
              
              
              (39,913,919
              )
              
              
              17,618,288
              
              
              
              81,067,506Noncontrolling
      interest
              
              
              65,537
              
              
              
              -
              
              
              
              -
              
              
              
              65,537Total
      Capital
              
              
              103,428,674
              
              
              
              (39,913,919
              )
              
              
              17,618,288
              
              
              
              81,133,043Total
      Liabilities and Partners' Capital
              
              $
              193,468,891
              
              
              $
              58,729,657
              
              
              $
              (78,625,557
              )
              
              $
              173,572,991
  7
   Partnership
      as of December 31, 2008
              
              
              VIEs
      as of December 31, 2008
              
              
              Consolidation
      -Elimination as of December 31, 2008
              
              
              Total
      as of December 31, 2008AssetsCash
      and cash equivalents
              
              $
              7,068,297
              
              
              $
              127,977
              
              
              $
              -
              
              
              $
              7,196,274Restricted
      cash
              
              
              10,836,084
              
              
              
              2,012,530
              
              
              
              -
              
              
              
              12,848,614Interest
      receivable
              
              
              4,249,760
              
              
              
              -
              
              
              
              (3,480,559
              )
              
              
              769,201Tax-exempt
      mortgage revenue bonds
              
              
              112,991,268
              
              
              
              -
              
              
              
              (68,498,742
              )
              
              
              44,492,526Real
      estate assets:Land
              
              
              4,991,590
              
              
              
              5,783,200
              
              
              
              -
              
              
              
              10,774,790Buildings
      and improvements
              
              
              31,877,661
              
              
              
              55,026,082
              
              
              
              -
              
              
              
              86,903,743Real
      estate assets before accumulated depreciation
              
              
              36,869,251
              
              
              
              60,809,282
              
              
              
              -
              
              
              
              97,678,533Accumulated
      depreciation
              
              
              (1,519,845
              )
              
              
              (15,979,825
              )
              
              
              -
              
              
              
              (17,499,670
              )Net
      real estate assets
              
              
              35,349,406
              
              
              
              44,829,457
              
              
              
              -
              
              
              
              80,178,863Other
      assets
              
              
              16,332,459
              
              
              
              1,383,674
              
              
              
              (13,452,196
              )
              
              
              4,263,937Assets
      of discontinued operations
              
              
              -
              
              
              
              8,113,861
              
              
              
              -
              
              
              
              8,113,861Total
      Assets
              
              $
              186,827,274
              
              
              $
              56,467,499
              
              
              $
              (85,431,497
              )
              
              $
              157,863,276Liabilities
      and Owners' EquityAccounts
      payable, accrued expenses and other
              
              $
              1,571,177
              
              
              $
              31,565,556
              
              
              $
              (29,756,067
              )
              
              $
              3,380,666Distribution
      Payable
              
              
              2,432,327
              
              
              
              -
              
              
              
              -
              
              
              
              2,432,327Debt
      financing
              
              
              76,565,237
              
              
              
              -
              
              
              
              (19,583,660
              )
              
              
              56,981,577Mortgage
      payable
              
              
              30,908,790
              
              
              
              51,670,000
              
              
              
              (51,670,000
              )
              
              
              30,908,790Liabilities
      of discontinued operations
              
              
              -
              
              
              
              42,900,305
              
              
              
              (19,635,716
              )
              
              
              23,264,589Total
      Liabilities
              
              
              111,477,531
              
              
              
              126,135,861
              
              
              
              (120,645,443
              )
              
              
              116,967,949Partners'
      CapitalGeneral
      Partner
              
              
              261,785
              
              
              
              -
              
              
              
              -
              
              
              
              261,785Beneficial
      Unit Certificate holders
              
              
              75,020,242
              
              
              
              -
              
              
              
              18,257,238
              
              
              
              93,277,480Unallocated
      deficit of variable interest entities
              
              
              -
              
              
              
              (69,668,362
              )
              
              
              16,956,708
              
              
              
              (52,711,654
              )Total
      Partners' Capital
              
              
              75,282,027
              
              
              
              (69,668,362
              )
              
              
              35,213,946
              
              
              
              40,827,611Noncontrolling
      interest
              
              
              67,716
              
              
              
              -
              
              
              
              -
              
              
              
              67,716Total
      Capital
              
              
              75,349,743
              
              
              
              (69,668,362
              )
              
              
              35,213,946
              
              
              
              40,895,327Total
      Liabilities and Partners' Capital
              
              $
              186,827,274
              
              
              $
              56,467,499
              
              
              $
              (85,431,497
              )
              
              $
              157,863,276
 
  
  
  
  
  
  
   8
  Condensed
Consolidating Statements of Operations for the three months ended September 30,
2009 and 2008:
 
 
 Partnership
              
              
              VIEs
              
              
              Consolidation-Elimination
              
              
              TotalFor
      the Three
              
              
              For
      the Three
              
              
              For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSep.
      30, 2009
              
              
              Sep.
      30, 2009
              
              
              Sep.
      30, 2009
              
              
              Sep.
      30, 2009Revenues:Property
      revenues
              
              $
              1,812,213
              
              
              $
              2,059,866
              
              
              $
              -
              
              
              $
              3,872,079Mortgage
      revenue bond investment income
              
              
              2,051,262
              
              
              
              -
              
              
              
              (1,031,292
              )
              
              
              1,019,970Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              -
              
              
              
              862,865Other
      income
              
              
              22,587
              
              
              
              -
              
              
              
              -
              
              
              
              22,587Total
      Revenues
              
              
              4,748,927
              
              
              
              2,059,866
              
              
              
              (1,031,292
              )
              
              
              5,777,501Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              1,015,334
              
              
              
              1,599,679
              
              
              
              -
              
              
              
              2,615,013Depreciation
      and amortization
              
              
              709,665
              
              
              
              691,101
              
              
              
              (13,734
              )
              
              
              1,387,032Interest
              
              
              1,062,181
              
              
              
              1,759,337
              
              
              
              (1,759,337
              )
              
              
              1,062,181General
      and administrative
              
              
              508,647
              
              
              
              -
              
              
              
              -
              
              
              
              508,647Total
      Expenses
              
              
              3,295,827
              
              
              
              4,050,117
              
              
              
              (1,773,071
              )
              
              
              5,572,873Net
      income (loss)
              
              
              1,453,100
              
              
              
              (1,990,251
              )
              
              
              741,779
              
              
              
              204,628Less:
      net loss attributable to noncontrolling interest
              
              
              1,721
              
              
              
              -
              
              
              
              -
              
              
              
              1,721Net
      income (loss) - America First Tax Exempt Investors, L. P.
              
              $
              1,454,821
              
              
              $
              (1,990,251
              )
              
              $
              741,779
              
              
              $
              206,349Partnership
              
              
              VIEs
              
              
              Consolidation-Elimination
              
              
              TotalFor
      the Three
              
              
              For
      the Three
              
              
              For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSep.
      30, 2008
              
              
              Sep.
      30, 2008
              
              
              Sep.
      30, 2008
              
              
              Sep.
      30, 2008Revenues:Property
      revenues
              
              $
              1,170,217
              
              
              $
              2,229,635
              
              
              $
              (72
              )
              
              $
              3,399,780Mortgage
      revenue bond investment income
              
              
              2,450,512
              
              
              
              -
              
              
              
              (1,434,336
              )
              
              
              1,016,176Other
      income
              
              
              81,082
              
              
              
              -
              
              
              
              -
              
              
              
              81,082Total
      Revenues
              
              
              3,701,811
              
              
              
              2,229,635
              
              
              
              (1,434,408
              )
              
              
              4,497,038Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              589,481
              
              
              
              1,607,145
              
              
              
              -
              
              
              
              2,196,626Depreciation
      and amortization
              
              
              715,469
              
              
              
              581,015
              
              
              
              (14,813
              )
              
              
              1,281,671Interest
              
              
              835,382
              
              
              
              1,493,068
              
              
              
              (1,698,069
              )
              
              
              630,381General
      and administrative
              
              
              394,810
              
              
              
              -
              
              
              
              -
              
              
              
              394,810Total
      Expenses
              
              
              2,535,142
              
              
              
              3,681,228
              
              
              
              (1,712,882
              )
              
              
              4,503,488Income
      (loss) from continuing operations
              
              
              1,166,669
              
              
              
              (1,451,593
              )
              
              
              278,474
              
              
              
              (6,450
              )Income
      (loss) from discontinued operations
              
              
              -
              
              
              
              (422,437
              )
              
              
              589,905
              
              
              
              167,468Net
      income (loss)
              
              
              1,166,669
              
              
              
              (1,874,030
              )
              
              
              868,379
              
              
              
              161,018Less:
      net loss attributable to noncontrolling interest
              
              
              911
              
              
              
              -
              
              
              
              -
              
              
              
              911Net
      income (loss) - America First Tax Exempt Investors, L. P.
              
              $
              1,167,580
              
              
              $
              (1,874,030
              )
              
              $
              868,379
              
              
              $
              161,929
 
  9
  Condensed
Consolidating Statements of Operations for the nine months ended September 30,
2009 and 2008:
 
 Partnership
              
              
              VIEs
              
              
              Consolidation-Elimination
              
              
              TotalFor
      the Nine
              
              
              For
      the Nine
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSep.
      30, 2009
              
              
              Sep.
      30, 2009
              
              
              Sep.
      30, 2009
              
              
              Sep.
      30, 2009Revenues:Property
      revenues
              
              $
              5,283,154
              
              
              $
              6,243,440
              
              
              $
              -
              
              
              $
              11,526,594Mortgage
      revenue bond investment income
              
              
              8,821,346
              
              
              
              -
              
              
              
              (5,798,481
              )
              
              
              3,022,865Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              -
              
              
              
              862,865Other
      income (loss)
              
              
              (53,014
              )
              
              
              -
              
              
              
              127,495
              
              
              
              74,481Total
      Revenues
              
              
              14,914,351
              
              
              
              6,243,440
              
              
              
              (5,670,986
              )
              
              
              15,486,805Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              3,092,047
              
              
              
              4,463,875
              
              
              
              -
              
              
              
              7,555,922Loan
      loss expense
              
              
              294,999
              
              
              
              -
              
              
              
              (294,999
              )
              
              
              -Depreciation
      and amortization
              
              
              2,786,053
              
              
              
              1,902,810
              
              
              
              (41,923
              )
              
              
              4,646,940Interest
              
              
              3,299,933
              
              
              
              4,908,757
              
              
              
              (4,990,311
              )
              
              
              3,218,379General
      and administrative
              
              
              1,409,810
              
              
              
              -
              
              
              
              -
              
              
              
              1,409,810Total
      Expenses
              
              
              10,882,842
              
              
              
              11,275,442
              
              
              
              (5,327,233
              )
              
              
              16,831,051Income
      (loss) from continuing operations
              
              
              4,031,509
              
              
              
              (5,032,002
              )
              
              
              (343,753
              )
              
              
              (1,344,246
              )Income
      (loss) from discontinued operations
              
              
              -
              
              
              
              34,786,445
              
              
              
              (8,051,691
              )
              
              
              26,734,754Net
      income (loss)
              
              
              4,031,509
              
              
              
              29,754,443
              
              
              
              (8,395,444
              )
              
              
              25,390,508Less:
      net loss attributable to noncontrolling interest
              
              
              8,545
              
              
              
              -
              
              
              
              -
              
              
              
              8,545Net
      income (loss) - America First Tax Exempt Investors, L. P.
              
              $
              4,040,054
              
              
              $
              29,754,443
              
              
              $
              (8,395,444
              )
              
              $
              25,399,053Partnership
              
              
              VIEs
              
              
              Consolidation-Elimination
              
              
              TotalFor
      the Nine
              
              
              For
      the Nine
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSep.
      30, 2008
              
              
              Sep.
      30, 2008
              
              
              Sep.
      30, 2008
              
              
              Sep.
      30, 2008Revenues:Property
      revenues
              
              $
              3,355,015
              
              
              $
              6,701,918
              
              
              $
              42,279
              
              
              $
              10,099,212Mortgage
      revenue bond investment income
              
              
              7,624,404
              
              
              
              -
              
              
              
              (4,342,839
              )
              
              
              3,281,565Other
      income
              
              
              26,188
              
              
              
              -
              
              
              
              -
              
              
              
              26,188Total
      Revenues
              
              
              11,005,607
              
              
              
              6,701,918
              
              
              
              (4,300,560
              )
              
              
              13,406,965Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              1,678,435
              
              
              
              4,587,178
              
              
              
              -
              
              
              
              6,265,613Depreciation
      and amortization
              
              
              1,813,868
              
              
              
              1,732,370
              
              
              
              (44,445
              )
              
              
              3,501,793Interest
              
              
              3,234,830
              
              
              
              4,438,653
              
              
              
              (5,251,138
              )
              
              
              2,422,345General
      and administrative
              
              
              1,315,275
              
              
              
              -
              
              
              
              -
              
              
              
              1,315,275Total
      Expenses
              
              
              8,042,408
              
              
              
              10,758,201
              
              
              
              (5,295,583
              )
              
              
              13,505,026Income
      (loss) from continuing operations
              
              
              2,963,199
              
              
              
              (4,056,283
              )
              
              
              995,023
              
              
              
              (98,061
              )Income
      (loss) from discontinued operations
              
              
              -
              
              
              
              (1,008,970
              )
              
              
              1,550,142
              
              
              
              541,172Net
      income (loss)
              
              
              2,963,199
              
              
              
              (5,065,253
              )
              
              
              2,545,165
              
              
              
              443,111Less:
      net loss attributable to noncontrolling interest
              
              
              4,437
              
              
              
              -
              
              
              
              -
              
              
              
              4,437Net
      income (loss) - America First Tax Exempt Investors, L. P.
              
              $
              2,967,636
              
              
              $
              (5,065,253
              )
              
              $
              2,545,165
              
              
              $
              447,548
 
 
  10
  4.  Investments
in Tax-Exempt Bonds
 
 The
tax-exempt mortgage revenue bonds owned by the Company have been issued to
provide construction and/or permanent financing of multifamily residential
properties. The Company had the following investments in tax-exempt mortgage
revenue bonds as of the dates shown:
 
 
 September
      30, 2009Description
      of Tax-Exempt Mortgage
      Revenue Bonds
              
              Cost
      adjusted
              
              
              Unrealized
      Gain
              
              
              Unrealized
      Loss
              
              
              Estimated
      Fair
      Valuefor
      pay-downsBella
      Vista
              
              $
              6,740,000
              
              
              $
              -
              
              
              $
              (984,310
              )
              
              $
              5,755,690Bridle
      Ridge Apartments
              
              
              7,885,000
              
              
              
              -
              
              
              
              (1,275,793
              )
              
              
              6,609,207Clarkson
      College
              
              
              5,958,332
              
              
              
              -
              
              
              
              (863,393
              )
              
              
              5,094,939Gardens
      of DeCordova
              
              
              4,853,000
              
              
              
              -
              
              
              
              (960,166
              )
              
              
              3,892,834Gardens
      of Weatherford
              
              
              4,686,000
              
              
              
              -
              
              
              
              (1,217,189
              )
              
              
              3,468,811Runnymede
      Apartments
              
              
              10,825,000
              
              
              
              -
              
              
              
              (1,569,733
              )
              
              
              9,255,267Southpark
      Apartments
              
              
              11,919,860
              
              
              
              342,223
              
              
              
              -
              
              
              
              12,262,083Woodland
      Park
              
              
              15,715,000
              
              
              
              -
              
              
              
              (2,702,980
              )
              
              
              13,012,020Woodlynn
      Village
              
              
              4,550,000
              
              
              
              -
              
              
              
              (830,739
              )
              
              
              3,719,261$
              73,132,192
              
              
              $
              342,223
              
              
              $
              (10,404,303
              )
              
              $
              63,070,112December
      31, 2008Description
      of Tax-Exempt Mortgage
      Revenue Bonds
              
              Cost
      adjusted
              
              
              Unrealized
      Gain
              
              
              Unrealized
      Loss
              
              
              Estimated
      Fair
      Valuefor
      pay-downsBella
      Vista
              
              $
              6,785,000
              
              
              $
              -
              
              
              $
              (1,821,433
              )
              
              $
              4,963,567Bridle
      Ridge Apartments
              
              
              7,885,000
              
              
              
              -
              
              
              
              (2,047,419
              )
              
              
              5,837,581Clarkson
      College
              
              
              6,018,333
              
              
              
              -
              
              
              
              (1,241,441
              )
              
              
              4,776,892Gardens
      of DeCordova
              
              
              4,870,000
              
              
              
              -
              
              
              
              (1,493,142
              )
              
              
              3,376,858Gardens
      of Weatherford
              
              
              4,702,000
              
              
              
              -
              
              
              
              (1,566,989
              )
              
              
              3,135,011Runnymede
      Apartments
              
              
              10,825,000
              
              
              
              -
              
              
              
              (2,902,074
              )
              
              
              7,922,926Woodland
      Park
              
              
              15,715,000
              
              
              
              -
              
              
              
              (4,507,533
              )
              
              
              11,207,467Woodlynn
      Village
              
              
              4,550,000
              
              
              
              -
              
              
              
              (1,277,776
              )
              
              
              3,272,224$
              61,350,333
              
              
              $
              -
              
              
              $
              (16,857,807
              )
              
              $
              44,492,526
 
 Valuation
- As all of the Company’s investments in tax-exempt mortgage revenue bonds are
classified as available-for-sale securities, they are carried on the balance
sheet at their estimated fair values.  Due to the limited market for
the tax-exempt bonds, these estimates of fair value do not necessarily represent
what the Company would actually receive in a sale of the bonds.  There
is no active trading market for the bonds and price quotes for the bonds are not
generally available.  As of September 30, 2009 and December 31, 2008,
all of the Company’s tax-exempt mortgage revenue bonds were valued using
discounted cash flow and yield to maturity analyses performed by
management.  Management’s valuation encompasses judgment in its
application.  The key assumption in management’s yield to maturity
analysis is the range of effective yields on the individual bonds.  At
September 30, 2009, the range of effective yields on the individual bonds was
7.2% to 8.3%.  Additionally, the Company calculated the sensitivity of
the key assumption used in calculating the fair values of these
bonds.  Assuming an immediate 10 percent adverse change in the key
assumption, the effective yields on the individual bonds would increase to a
range of 7.9% to 9.1% and would result in additional unrealized losses on the
bond portfolio of approximately $5.4 million.  This sensitivity
analysis is hypothetical and is as of a specific point in time.  The
results of the sensitivity analysis may not be indicative of actual changes in
fair value and should be used with caution.  If available, the general
partner may also consider price quotes on similar bonds or other information
from external sources, such as pricing services.  Pricing services,
broker quotes and management’s analyses provide indicative pricing
only.
 
 Unrealized
gains or losses on these tax-exempt bonds are recorded in accumulated other
comprehensive income (loss) to reflect changes in their estimated fair values
resulting from market conditions and fluctuations in the present value of the
expected cash flows from the underlying properties. As of September 30, 2009,
all of the current bond investments, except for the recently acquired Southpark
bond, have been in an unrealized loss position for greater than twelve
months.  The current unrealized losses on the bonds are not considered
to be other-than-temporary because the Company has the intent and ability to
hold these securities until their value recovers or until maturity, if
necessary.  Ultimately, the Company views the bond collateral as the
most likely source of bond principal repayment.  Therefore, as long as
the value of the real property securing the bonds exceeds the outstanding bond
principal, the Company believes that no other-than-temporary impairment is
indicated.  The unrealized gain or loss will continue to fluctuate
each reporting period based on the market conditions and present value of the
expected cash flow.
  11
 In
general, credit and capital markets have deteriorated over the past 12 to 18
months.  The deterioration has negatively impacted the fair value of
the bonds over that same time period.  Although valuations have
improved since December 31, 2008, if uncertainties in these markets continue,
the markets deteriorate further or the Company experiences further deterioration
in the values of its investment portfolio, or if the Company’s intent and
ability to hold certain bonds changes, the Company may recognize impairments to
its investment portfolio through earnings which would negatively impact the
Company’s results of operations.
 
 In
October 2009, the Company acquired the Series 2007 Brookstone Apartments Project
tax-exempt mortgage revenue bond for approximately $7.3 million which
represented 100% of the bond issuance. The bond par value is $9.6 million and
earns interest at an annual rate of 5.45% with a monthly interest payment and
stated maturity date of May 1, 2040. Based on the purchase price discount, the
bond will yield approximately 7.5% per annum to the Company.  The bond
was issued for the construction of the Brookstone Apartments, a 168 unit
multifamily apartment complex located in Waukegan, Illinois.
 
 In August
2009, the Company acquired the tax-exempt mortgage revenue bond for a 192 unit
multi-family apartment complex in Austin, Texas known as Southpark Ranch
Apartments ("Southpark") for $11.9 million which represented 100% of the bond
issuance. The bond par value is $14.2 million and the bond earns interest at an
annual rate of 6.125%. Based on the purchase price discount, the bond will yield
approximately 7.5% per annum to the Company. Interest is payable on June 1 and
December 1with a stated maturity date of December 1, 2049. The bond is subject
to a mandatory sinking fund redemption schedule at a redemption price equal to
100% of the principal amount over the term of the bond beginning December 1,
2010.   The Company has determined that the entity that owns
Southpark does not meet the definition of a VIE and, accordingly, its financial
statements are not consolidated into the consolidated financial statements of
the Company.
 
 During
the quarter ended September 30, 2009, the Company made taxable loans to the
property owners of Woodland Park and The Gardens of Decordova to allow for the
continued lease up and stabilization of the properties and the payment of bond
debt service.  Such taxable loans were approximately $700,000 and
$315,000, respectively.  The construction of Woodland Park was
completed in November 2008 and lease up continues.  As of September
30, 2009, the property had 107 units leased out of a total available units of
236, or 45% physical occupancy.  The construction of The Gardens of
Decordova was completed in April 2009 and lease up continues.  As of
September 30, 2009, the property had 28 units leased out of a total available
units of 76, or 37% physical occupancy.   During the first
quarter of 2009, the Company made a taxable loan to the owners of The Gardens of
Weatherford Apartments of approximately $141,000 to fund construction activities
and current bond debt service reserves through construction completion and
property stabilization.
 
 In
September 2009, the Partnership was notified by the limited partner of the
limited partnerships that own the Gardens of DeCordova and the Gardens of
Weatherford of its intent to withdraw from these limited partnerships and assign
its limited partnership interests to another party.  Such interests
include the rights to receive the Low Income Housing Tax Credits ("LIHTCs") yet
to be syndicated on the properties.  The change in ownership may have
a negative impact on the tax-exempt bonds owned by the Partnership on these two
properties unless a successor limited partner is located and agrees to fund any
capital contributions necessary to complete and stabilize the
projects.  The Partnership is working with the general partner of
these limited partnerships to resolve this issue and will use its senior secured
position as bondholder to help seek a positive outcome and protect Partnership
interests.  Until such time as a new limited partner is admitted to
these limited partnerships, the full impact of this change in ownership will not
be known.  As discussed above, construction on the Gardens of
DeCordova project has been completed and the project is in the “lease up and
stabilization” phase of development.  Currently only utility and
infrastructure work has been completed on the Gardens of Weatherford
project.  While approximately $2.0 million remains on deposit with the
bond trustee for the Gardens of Weatherford, such funds are insufficient to
complete construction of the project or to pay the outstanding principal on the
bonds should the project not be constructed.  At this time the Gardens
of DeCordova owes the Partnership approximately $4.9 million under tax-exempt
bonds and $315,000 under taxable loans while the Gardens of Weatherford owes
approximately $4.7 million under tax-exempt bonds and $141,000 under taxable
loans.
  In
June 2007, the Company acquired bonds with a combined face value of $5.9
million, the proceeds of which were to be used to finance the construction of a
72 unit multifamily apartment complex in Gardner, Kansas known as Prairiebrook
Village.  The property owner defaulted on these bonds and the bond
trustee filed a petition of foreclosure on the mortgage securing the bonds in
May 2008.  In October 2008, the Company received approximately $4.5
million from the trustee representing unused bond proceeds.  The bond
trustee has received a summary judgment against the owner and developer for the
unpaid principal balance. In August 2009, the Company received approximately
$270,000 from the trustee. Currently the land which was owned by the project is
being held for sale by the bond trustee.  The Company is currently
pursuing its remedies against the project owner and developer on their
guarantees.  Such remedies include placing liens on assets identified
as owned by the guarantors and garnishing wages or other income.  The
Company has recorded a receivable of $718,000 which is included in Other Assets
on the Condensed Consolidated Balance Sheet and holds the related land as an
asset held for sale valued at $375,000.
 
 12
 5.  Real
Estate Assets
 
 To
facilitate its investment strategy of acquiring additional tax-exempt mortgage
bonds secured by MF Properties, the Partnership has caused its various Holding
Companies to acquire 99% limited partner positions in the nine limited
partnerships that own the MF Properties.  The general partners of
these partnerships are unaffiliated parties and their 1% ownership interests in
these limited partnerships is reflected in the Company’s consolidated financial
statements as non-controlling interests.  The Partnership expects each
of these MF Properties to eventually be sold either to a not-for-profit entity
or in connection with a syndication of LIHTCs under Section 42 of the Internal
Revenue Code of 1986, as amended (the “Code”).  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 Partnership’s
initial investment in a MF Property and will often coincide with the expiration
of the compliance period relating to LIHTCs previously issued with respect to
the MF Property.  The Partnership will not acquire LIHTCs in
connection with these transactions.  While current credit markets and
general economic conditions have resulted in very few LIHTC syndication and
tax-exempt bond financing transactions being completed in the past twelve to
eighteen months, the Partnership is evaluating the potential sale of three MF
Properties in a transaction that it expects to partially finance through the
acquisition of tax-exempt bonds secured by the properties.  These
types of transactions represent a long-term market opportunity for the
Partnership and provide a significant future bond investment pipeline when the
market for LIHTC syndications strengthens.  Until such a restructuring
occurs the operations of the properties owned by the limited partnerships will
continue to be consolidated with the Partnership.
  At
September 30, 2009, the Partnership held an interest in nine MF Properties
containing 964 rental units, of which four are located in Ohio, two are located
in Kentucky, one is located in Virginia, one is located in Georgia, and one in
North Carolina.  The ninth MF Property, Greens of Pine Glen Limited
Partnership (“Greens”), which is located in North Carolina, was acquired in
February 2009, for a $7.0 million purchase price.  The Company
incurred transaction expenses of approximately $165,000 which were expensed
based on the Company’s adoption of ASC 805-10, Business Combinations,(pre-codification reference SFAS No. 141R), on January 1, 2009. As a
result, the financial statements of this property have been consolidated with
those of the Partnership since that time.  The Company has
preliminarily allocated $6.8 million of the purchase price to real estate
assets.  The purchase price was funded through an assumed mortgage
loan of $6.5 million and cash on hand. The unpaid balance of the assumed
mortgage loan bears a 7% annual interest rate payable monthly.  The
initial maturity date of the loan is September 2010 at which time the borrower
has an option to extend the note for 18 months.
  In
addition to the MF Properties, the Partnership consolidates the assets,
liabilities and results of operation of the VIEs in accordance with ASC 810-10
(see Note 3).  Although the assets of the VIEs are consolidated, the
Partnership has no ownership interest in the VIEs other than to the extent they
serve as collateral for the tax-exempt mortgage revenue bonds owned by the
Partnership.  The results of operations of the VIEs are recorded by the
Company in consolidation but any net income or loss of the VIEs does not accrue
to the BUC holders or the General Partner, but is instead included in
"Unallocated deficit of variable interest entities.”
 
 6.  Discontinued
Operations and Assets Held for Sale
 
 In April
2009, the Company acquired the Series A and B Oak Grove Commons Apartments
tax-exempt mortgage revenue bonds for $2.6 million which represented 100% of the
bond issuance.  The Series A bond par value is $5.6 million and the
Series B bond par value is $1.4 million.  The bonds were issued for
the construction of the Oak Grove Commons Apartments, a 168 unit multifamily
apartment complex located in Conway, Arkansas.  At the time of
acquisition the bonds were in technical default as the property had not reached
stabilization and was not current on debt service.  The Company
purchased the bonds with the intent to evaluate the property and determine if
the bonds could be restructured and maintained as an investment.  The
Company determined that it would no longer maintain the bond as an investment
and, therefore, foreclosed on the bonds.  In June 2009, the Company
took ownership of the property with the intent to sell the apartment complex to
a third party and classified the property as an asset held for
sale.  In September 2009, the Company sold Oak Grove to an
unaffiliated party for $3.75 million.  After the deduction of selling
expenses, commissions and cash advances made to the property, the Company
realized a taxable gain of approximately $863,000 from the sale.  The
General Partner approved a special distribution of the net cash proceeds
realized on this transaction.  In accordance with the Company’s
Agreement of Limited Partnership, this special distribution was considered a
distribution of Tier 2 Net Residual Proceeds and, as such, was distributed 75%
to the BUCs and 25% to the General Partner.  The distribution to the
BUCholders of $0.035 per BUC was made on October 30, 2009 to the BUCholders
of record as of September 30, 2009.  The remainder of the special
distribution, approximately $215,000, was paid to the General
Partner.
  In
February 2009, the tax-exempt mortgage revenue bonds secured by Ashley Pointe at
Eagle Crest in Evansville, Indiana, Woodbridge Apartment of Bloomington III in
Bloomington, Indiana, and Woodbridge Apartments of Louisville II in Louisville,
Kentucky were redeemed.  The properties financed by these redeemed
mortgage revenue bonds were required to be consolidated into the Company’s
financial statements as VIEs under ASC 810-10.  During the fourth
quarter of 2008, these VIEs met the criteria for discontinued operations under
ASC 360-10 and they were classified as such in the consolidated financial
statements for all periods presented. In order to properly reflect the
transaction under ASC 810-10, the Company recorded the redemption of the bonds
as a sale of the properties as though they were owned by the
Company.  The transaction was completed for a total purchase price of
$32.0 million resulting in a gain on sale for GAAP reporting to the Company of
approximately $26.5 million.  The redemption of the bonds did not
result in a taxable gain to the Partnership.  The redeemed bonds were
collateral on the Company’s Tender Option Bond (“TOB") facility (see Note
7).  As of the closing date of the redemption, the Company placed on
deposit with Bank of America $23.6 million as replacement
collateral.  The restricted cash amount was released on June 18, 2009
when the TOB facility was collapsed and the Company entered into its new term
loan agreement with Bank of America (see Note 7).
 
 As of
December 31, 2008, $19.6 million of the Company's outstanding debt under the TOB
facility was allocated to discontinued operations.  Interest expense on
this debt was allocated to discontinued operations based on the historical
effective rate of the Company’s debt financing applied to the debt financing
allocated to discontinued operations.  The Company allocated interest
expense of $0 and $81,500 to discontinued operations for the three and nine
months ended September 30, 2009, respectively, and $205,000 and $812,400 for the
three and nine months ended September 30, 2008, respectively.
 13
 The
following presents the components of the assets and liabilities of discontinued
operations as of September 30, 2009 and December 31, 2008 and the revenues,
expenses and income from discontinued operations, excluding the gain on sale of
$26.5 million, for the three and nine months ended September 30, 2009 and
2008.
 September
      30, 2009
              
              
              December
      31, 2008Cash
      and cash equivalents
              
              $
              -
              
              
              $
              164,861Restricted
      cash
              
              
              -
              
              
              
              322,560Land
              
              
              -
              
              
              
              1,497,355Buildings
      and improvements
              
              
              -
              
              
              
              23,696,355Real
      estate assets before accumulated depreciation
              
              
              -
              
              
              
              25,193,710Accumulated
      depreciation
              
              
              -
              
              
              
              (17,927,345
              )Net
      real estate assets
              
              
              -
              
              
              
              7,266,365Other
      assets
              
              
              -
              
              
              
              360,075Total
      assets from discontinued operations
              
              
              -
              
              
              
              8,113,861Total
      liabilities of discontinued operations
              
              
              -
              
              
              
              23,264,589Net
      deficits of discontinued operations
              
              $
              -
              
              
              $
              (15,150,728
              )Three
      Months Ended September 30,2009
              
              
              
              2008Rental
      Revenues
              
              $
              -
              
              
              $
              1,264,818Expenses
              
              
              -
              
              
              
              1,097,350Income
      from discontinued operations
              
              $
              -
              
              
              $
              167,468Nine
      Months Ended September 30,2009
              
              
              
              2008Rental
      Revenues
              
              $
              849,366
              
              
              $
              3,877,227Expenses
              
              
              501,926
              
              
              
              3,336,055Income
      from discontinued operations
              
              $
              347,440
              
              
              $
              541,172
  7.  Debt
Financing and Mortgage Payable
 
 In June
2009, the Company entered into a new secured credit facility with Bank of
America which refinanced the maturing TOB facility.  The new credit
facility has a one-year term with a six-month renewal option held by the
Company, an annual floating interest rate of one-month LIBOR plus 390 basis
points and a loan amount of $50.0 million.  The proceeds from the new
credit facility plus the cash collateral held by Bank of America for the TOB
facility were used to retire the outstanding balance on the TOB
facility.  The new credit facility is secured by 13 tax-exempt
mortgage revenue bonds with a total par value of $112.1 million plus
approximately $1.5 million in restricted cash.  Financial covenants
for the new credit facility include the maintenance of a leverage ratio not to
exceed 70% and a minimum liquidity of $5.0 million by the
Company.  Additionally, the properties which secure the bond portfolio
which is collateral for the new credit facility are to maintain, as a group, a
minimum debt service coverage of 1.1 to 1 and a loan to value ratio not to
exceed 75%.  At September 30, 2009, the Company was in compliance with
these covenants.  Subsequent to September 30, 2009, the Company was
notified by Bank of America that it was no longer in compliance with the loan to
value covenant.  In November 2009, the Company transferred additional
collateral of approximately $2.0 million to Bank of America to maintain
compliance with the covenant.  At September 30, 2009, all of the Company’s
debt financing was attributable to continuing operations. As of December 31,
2008, the Company had debt financing of $76.6 million secured by 17 tax-exempt
mortgage revenue bonds with a total par value of $141.3 million plus
approximately $5.0 million in restricted cash.  At December 31, 2008,
three of the tax-exempt mortgage revenue bonds securing the debt financing were
those of the consolidated VIEs presented as discontinued
operations.  Accordingly, $19.6 million of the debt financing was
classified in liabilities of discontinued operations.  The remaining
$57.0 million of debt financing at December 31, 2008, was classified as
continuing operations.
 
 As of
September 30, 2009, Mortgages Payables related to the MF Properties totaled
approximately $30.2 million. The acquisition of the Greens of Pine Glen in
February 2009 was financed with an assumed mortgage loan of $6.5 million. The
unpaid balance of the assumed mortgage loan bears a 7% annual interest rate
payable monthly.  The initial maturity date of the loan is September
2010 at which time the borrower has an option to extend the note for 18
months.  In July 2009, the owners of the six MF Properties located in
Ohio and Kentucky entered into a Maturity Date Extension Agreement for the $19.9
million mortgage loan secured by these MF Properties which extended the maturity
date by one year to July 2010.  In connection with the extension, $7.1
million of the principal balance of this mortgage was repaid leaving a new
outstanding mortgage balance of approximately $12.8 million.  Two of
the MF Properties, known as Eagle Ridge and Meadowview, were released as
collateral for the mortgage loan in connection with the extension of the
maturity date.
  The
Company’s aggregate borrowings as of September 30, 2009, contractually mature
over the next five years and thereafter as follows:
 2009
              
              $
              177,1852010
              
              
              62,856,6292011
              
              
              4,627,8962012
              
              
              6,411,4362013
              
              
              6,087,658Thereafter
              
              
              -Total
              
              $
              80,160,804
 14
 The
Company continues to explore refinancing opportunities for its outstanding
debt.  While the Company expects to be able to renew or refinance its
debt as it matures, if the current illiquidity in the financial markets
continues or further deteriorates, the counterparties on the Company’s credit
facilities may be unable or unwilling to meet their commitments and the
Company’s ability to renew or refinance its outstanding debt financing may be
negatively affected.
  8.  Issuance
of Additional Beneficial Unit Certificates
 
 In
October 2009, the Partnership issued, through an underwritten public offering, a
total of 4,830,000 BUCs at a public offering price of $5.05 per BUC. Net
proceeds realized by the Partnership from the issuance of the additional BUCs
were approximately $22.9 million, after payment of an underwriter's discount and
other offering costs of approximately $1.5 million. In May 2009, the Partnership
issued, through an underwritten public offering, a total of 3,500,000 BUCs at a
public offering price of $5.00 per BUC. Net proceeds realized by the Partnership
from the issuance of the additional BUCs were approximately $16.1 million, after
payment of an underwriter's discount and other offering costs of approximately
$1.4 million. Both offerings were made pursuant to a $100.0 million shelf
registration statement filed with the Securities and Exchange
Commission.  The shelf registration statement remains active with the
SEC and, to date, the Partnership has issued approximately $71.5 million of BUCs
under this Registration Statement.  The Partnership intends to issue
additional BUCs from time to time.
 
 9.  Transactions
with Related Parties
 
 The
general partner of the Partnership, AFCA 2, is entitled to receive an
administrative fee from the Partnership equal to 0.45% per annum of the
outstanding principal balance of any of its tax-exempt mortgage revenue bonds or
other tax-exempt investments for which the owner of the financed property or
other third party is not obligated to pay such administrative fee directly to
AFCA 2. For the three and nine months ended September 30, 2009, the Partnership
paid administrative fees to AFCA 2 of approximately $69,000 and $207,000,
respectively.  For the three and nine months ended September 30, 2008,
the Partnership paid administrative fees to AFCA 2 of approximately $76,000 and
$252,000, respectively. 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 $68,800 and $186,400 for the three and nine months
ended September 30, 2009, respectively. For the three and nine months ended
September 30, 2008, these administrative fees totaled approximately $78,000 and
$246,000, 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 third parties involved in the transaction. During the three and nine
months ended September 30, 2009, AFCA 2 earned mortgage placement fees of
approximately $117,500 and $209,200, respectively. During the three and nine
months ended September 30, 2008, AFCA 2 earned mortgage placement fees of
approximately $0 and $61,250, respectively.
 An
affiliate of AFCA 2, Properties Management, was retained to provide property
management services for Ashley Square, Ashley Pointe at Eagle Crest, Iona Lakes
Apartments, Bent Tree Apartments, Lake Forest Apartments, Fairmont Oaks
Apartments, Cross Creek Apartments, Eagle Ridge, Crescent Village, Meadowview,
Willow Bend, Postwoods I, Postwoods II, Churchland, Glynn Place and The Greens.
The management fees paid to Properties Management amounted to approximately
$224,300 and $653,900 for the three and nine months ended September 30, 2009,
respectively. The management fees paid to Properties Management during the three
and nine months ended September 30, 2008 totaled approximately $192,700 and
$477,800, respectively. For the VIEs, these management fees are not Partnership
expenses but are recorded by each applicable VIE entity and, accordingly, have
been reflected in the accompanying consolidated financial statements. Such fees
are paid out of the revenues generated by the properties owned by the VIEs prior
to the payment of any interest on the tax-exempt mortgage revenue bonds and
taxable loans held by the Partnership on these properties. For the MF
Properties, these management fees are considered Company real estate operating
expenses.  Additionally, Properties Management was retained to provide
property management services for Clarkson College and Chandler in 2008 and
Clarkson College, Woodland Park, Gardens of Decordova and Oak Grove in
2009.  The management fees paid to Properties Management by these
nonconsolidated entities amounted to approximately $12,500 and $80,700 during
the three and nine months ended September 30, 2009, respectively. The management
fees paid to Properties Management by these entities amounted to approximately
$14,300 and $63,200 during the three and nine months ended September 30, 2008,
respectively.
 
 The
shareholders of the limited-purpose corporations which own four of the apartment
properties financed with tax-exempt bonds and taxable loans held by the Company
are employees of The Burlington Capital Group LLC, the general partner of AFCA 2
(“Burlington”) who are not involved in the operation or management of the
Company and who are not executive officers or managers of Burlington.
  10.  Interest
Rate Derivative Agreements
 
 As of
September 30, 2009, the Company had three derivative agreements in order to
mitigate its exposure to increases in interest rates on its variable-rate debt
financing and mortgages payable. The terms of the derivative agreements are as
follows:
 Notional
      Amount
              
              
              Effective
      Capped
      Rate
              
              Maturity
      Date
              
              Purchase
      PriceDate
      Purchased
              
              
              
              
              
              
              CounterpartyJune
      18, 2009
              
              $
              50,000,000
              
              
              
              4.65
              %
              December
      31, 2010
              
              $
              554,000
              
              Bank
      of AmericaJuly
      9, 2009
              
              $
              12,793,570
              
              
              
              2.05
              %
              July
      10, 2010
              
              $
              51,500
              
              JP
      MorganOctober
      29, 2008
              
              $
              4,480,000
              
              
              
              6.00
              %
              November
      1, 2011
              
              $
              26,512
              
              Bank
      of America
  15
  Prior to
June 2009, the Company had four derivative agreements.  As part of the
refinancing of the TOB facility in June 2009, two of these agreements were
cancelled and one new derivative was purchased.  The cancelled
derivatives were a $15.0 million interest rate swap and a $60.0 million interest
rate cap.  The cancellation of these derivatives resulted in a cash
payment by the Company to counterparties of approximately
$62,300.  The derivative purchased is a one-month LIBOR interest rate
cap with a notional value of $50.0 million which was purchased for approximately
$554,000.  This new interest rate cap effectively caps the interest
rate to be paid on the Company’s new secured credit facility at 0.75% plus 390
basis points, or 4.65%.  In addition, in July 2009, the Company
purchased a new interest rate cap related to the extension of the mortgage loan
secured by certain MF Properties described in Note 7. This derivative
effectively caps the interest rate  to be paid on the mortgage loan at
0.5% plus 155 basis points, or 2.05%.with a notional value of $12.8 million and
a purchase price of $51,500.
 
 These
interest rate derivatives do not qualify for hedge accounting and, accordingly,
they are carried at fair value, with changes in fair value included in current
period earnings within interest expense. The change in the fair value of these
derivative contracts resulted in an increase in interest expense of
approximately $231,300 and $721,800 for the three and nine months ended
September 30, 2009, respectively. The change in fair value of these derivative
contracts resulted in an approximate $183,000 decrease in interest expense for
the three months ended September 30, 2008 and a decrease in interest expense of
approximately $145,000 for the nine months ended September 30,
2008.
 
 11.  Segment
Reporting
 
 The
Company consists of three reportable segments, Tax-Exempt Bond Investments, MF
Properties, and VIEs.  In addition to the three reportable segments,
the Company also separately reports its consolidation and elimination
information because it does not allocate certain items to the
segments.
 
 Tax-Exempt
Bond Investments Segment
 
 The
Tax-Exempt Bond Investments segment consists of the Company’s portfolio of
federally tax-exempt mortgage revenue bonds which have been issued to provide
construction and/or permanent financing of multifamily residential
apartments.  Such tax-exempt bonds are held as long-term
investments.  As of September 30, 2009, the Company held ten
tax-exempt bonds (secured by nine properties) not associated with VIEs and six
tax-exempt bonds associated with VIEs.  The multifamily apartment
properties financed by these tax-exempt bonds contain a total of 1,329 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 September 30, 2009, the Company held
limited partner interests in the owners of nine MF Properties containing a total
of 964 rental units.
 
 The
VIE Segment
 
 The VIE
segment consists of multifamily apartment properties which are financed with
tax-exempt bonds held by the Partnership, the assets, liabilities and operating
results of which are consolidated with those of the Partnership as a result of
ASC 810-10. 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 September 30, 2009, the
Company consolidated six VIE multifamily apartment properties containing a total
of 1,288 rental units.
 
 Management
closely monitors and evaluates the financial reporting associated with and the
operations of the VIEs and the MF Properties and performs such evaluation
separately from the other operations of the Partnership through interaction with
the affiliated property management company which manages the multifamily
apartment properties held by the VIEs and the MF Properties.
  Management’s
goals with respect to the properties constituting each of the Company’s
reportable segments is to generate increasing amounts of net rental income from
these properties that will allow them to (i) make all payments of base
interest, and possibly pay contingent interest, on the properties included in
the Tax-Exempt Bond Investments segment and the VIE segment, and
(ii) distribute net rental income to the Partnership from the MF Properties
segment until such properties can be refinanced with additional tax-exempt
mortgage bonds meeting the Partnership’s investment criteria.  In
order to achieve these goals, management of these multifamily apartment
properties is focused on: (i) maintaining high economic occupancy and increasing
rental rates through effective leasing, reduced turnover rates and providing
quality maintenance and services to maximize resident satisfaction; (ii)
managing operating expenses and achieving cost reductions through operating
efficiencies and economies of scale generally inherent in the management of a
portfolio of multiple properties; and (iii) emphasizing regular programs of
repairs, maintenance and property improvements to enhance the competitive
advantage and value of its properties in their respective market
areas.
 16
  The
following table details certain key financial information for the Company’s
reportable segments for the three and nine month periods ended September 30,
2009 and 2008:
 For
      the Three Months Ended
              
              
              For
      the Nine Months EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              September
      30, 2009
              
              
              September
      30, 2008Total
      revenueTax-Exempt
      Bond Financing
              
              $
              2,936,714
              
              
              $
              2,531,665
              
              
              $
              9,631,197
              
              
              $
              7,650,592MF
      Properties
              
              
              1,812,213
              
              
              
              1,170,146
              
              
              
              5,283,154
              
              
              
              3,355,015VIEs
              
              
              2,059,866
              
              
              
              2,229,635
              
              
              
              6,243,440
              
              
              
              6,701,918Consolidation/eliminations
              
              
              (1,031,292
              )
              
              
              (1,434,408
              )
              
              
              (5,670,986
              )
              
              
              (4,300,560
              )Total
      revenue
              
              $
              5,777,501
              
              
              $
              4,497,038
              
              
              $
              15,486,805
              
              
              $
              13,406,965Interest
      expenseTax-Exempt
      Bond Financing
              
              $
              650,590
              
              
              $
              597,920
              
              
              $
              2,341,833
              
              
              $
              2,537,805MF
      Properties
              
              
              411,591
              
              
              
              237,462
              
              
              
              958,100
              
              
              
              697,025VIEs
              
              
              1,759,337
              
              
              
              1,493,068
              
              
              
              4,908,757
              
              
              
              4,438,653Consolidation/eliminations
              
              
              (1,759,337
              )
              
              
              (1,698,069
              )
              
              
              (4,990,311
              )
              
              
              (5,251,138
              )Total
      interest expense
              
              $
              1,062,181
              
              
              $
              630,381
              
              
              $
              3,218,379
              
              
              $
              2,422,345Depreciation
      expenseTax-Exempt
      Bond Financing
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -MF
      Properties
              
              
              467,620
              
              
              
              254,391
              
              
              
              1,331,778
              
              
              
              713,587VIEs
              
              
              679,851
              
              
              
              569,766
              
              
              
              1,869,060
              
              
              
              1,698,618Consolidation/eliminations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      depreciation expense
              
              $
              1,147,471
              
              
              $
              824,157
              
              
              $
              3,200,838
              
              
              $
              2,412,205Income
      (loss) from continuing operationsTax-Exempt
      Bond Financing
              
              $
              1,625,151
              
              
              $
              1,257,763
              
              
              $
              4,885,970
              
              
              $
              3,406,906MF
      Properties
              
              
              (172,051
              )
              
              
              (91,094
              )
              
              
              (854,461
              )
              
              
              (443,707
              )VIEs
              
              
              (1,990,251
              )
              
              
              (1,451,593
              )
              
              
              (5,032,002
              )
              
              
              (4,056,283
              )Consolidation/eliminations
              
              
              741,779
              
              
              
              278,474
              
              
              
              (343,753
              )
              
              
              995,023Income
      (loss) from continuing operations
              
              $
              204,628
              
              
              $
              (6,450
              )
              
              $
              (1,344,246
              )
              
              $
              (98,061
              )Net
      income (loss)Tax-Exempt
      Bond Financing
              
              $
              1,625,151
              
              
              $
              1,257,763
              
              
              $
              4,885,970
              
              
              $
              3,406,906MF
      Properties
              
              
              (170,330
              )
              
              
              (90,183
              )
              
              
              (845,916
              )
              
              
              (439,270
              )VIEs
              
              
              (1,990,251
              )
              
              
              (1,874,030
              )
              
              
              29,754,443
              
              
              
              (5,065,253
              )Consolidation/eliminations
              
              
              741,779
              
              
              
              868,379
              
              
              
              (8,395,444
              )
              
              
              2,545,165Net
      income
              
              $
              206,349
              
              
              $
              161,929
              
              
              $
              25,399,053
              
              
              $
              447,548September
      30, 2009
              
              
              December
      31, 2008Total
      assetsTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              139,167,556
              
              
              $
              158,156,573MF
      Properties
              
              
              
              
              
              
              
              
              
              
              54,301,335
              
              
              
              47,571,345VIEs
              
              
              
              
              
              
              
              
              
              
              58,729,657
              
              
              
              56,467,499Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              (78,625,557
              )
              
              
              (104,322,141
              )Total
      assets
              
              
              
              
              
              
              
              
              
              $
              173,572,991
              
              
              $
              157,873,276Total
      partners' capitalTax-Exempt
      Bond Financing
              
              
              
              
              
              
              
              
              
              $
              96,809,374
              
              
              $
              77,498,951MF
      Properties
              
              
              
              
              
              
              
              
              
              
              6,553,763
              
              
              
              6,771,635VIEs
              
              
              
              
              
              
              
              
              
              
              (39,913,919
              )
              
              
              (69,668,362
              )Consolidation/eliminations
              
              
              
              
              
              
              
              
              
              
              17,618,288
              
              
              
              26,225,387Total
      partners' capital
              
              
              
              
              
              
              
              
              
              $
              81,067,506
              
              
              $
              40,827,611
  17
 12.
Commitments and Contingencies
  The
Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance.
If it has been determined that a loss is probable to occur, the estimated amount
of the loss is accrued in the consolidated financial statements. While the
resolution of these matters cannot be predicted with certainty, management
believes the final outcome of such matters will not have a material adverse
effect on the Company’s consolidated financial statements.
  13.  Recently
Issued Accounting Pronouncements
  In June
2009, the FASB issued pre-codification guidance in Statement No. 168,
The FASB Accounting  Standards Codification  and the
Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162, Effective July 1, 2009, this guidance was codified into
ASC 105-10, Generally Accepted Accounting Standards ("ASC 105-10"), which became
the source of authoritative GAAP recognized by the FASB to be applied by
non-governmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. Effective July 1, 2009, the Codification superseded all
existing non-SEC accounting and reporting standards. All other non-grandfathered
non-SEC accounting literature not included in the Codification became
nonauthoritative on that effective date. ASC 105-10 does not have a material
impact on the financial statements.
  In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R) (SFAS No. 167). SFAS No. 167 retains the scope of Interpretation
46(R), Consolidation of Variable Interest Entities, with the addition of
entities previously considered qualifying special-purpose entities, as the
concept of these entities was eliminated in FASB Statement No. 166,
Accounting for Transfers of Financial Assets—an amendment of FASB Statement
No. 140. SFAS No. 167 shall be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. The Company is
currently evaluating the impact of SFAS No. 167 on the financial statements.
SFAS No. 167 has not been codified to date.
  In June
2009, the FASB issued Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140(SFAS No.
166). On and after the effective date of SFAS No. 166 , the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities (as defined under
previous accounting standards) should be evaluated for consolidation by
reporting entities on and after the effective date in accordance with the
applicable consolidation guidance. SFAS No. 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. SFAS
No. 166 is not expected to have a material impact on the financial statements.
SFAS No. 166 has not been codified to date.
  In May
2009, the FASB issued pre-codification Statement No. 165, Subsequent Events. On July 1,
2009, this Statement was codified into ASC 855-10, Subsequent Events,("ASC
855-10") which establishes general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. The Company adopted ASC 855-10 in the second
quarter. The adoption did not affect the consolidated balance sheet, statement
of operations, or cash flows.
 
 On
January 1, 2009, the Company adopted the pre-codification guidance
of  SFAS No. 141R, Business Combination.Effective July 1, 2009, this guidance was codified into ASC 805-10, Business Combinations ("ASC
805-10"), which changes the way the Company accounts for business acquisition.
and requires the acquiring entity in a business combination to recognize all
(and only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business
combination.  Certain provisions of ASC 805-10 will, among other
things, impact the determination of acquisition date fair value of consideration
paid in a business combination, exclude transaction costs from acquisition
accounting and change some accounting practices.
 
 On
January 1, 2009, the Company adopted the pre-codification guidance
of  SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51). Effective
July 1, 2009, this guidance was codified into ASC 810-10, Consolidations("ASC
810-10"). It requires that a noncontrolling interest in a subsidiary be reported
as equity and the amount of consolidated net income specifically attributable to
the noncontrolling interest be identified in the consolidated financial
statements.  It also calls for consistency in the manner of reporting
changes in the parent’s ownership interest and requires fair value measurement
of any noncontrolling equity investment retained in
deconsolidation.  The adoption recharacterized minority interests as
noncontrolling interests and reclassified minority interests as a component of
equity on the Company’s financial statements.  Prior year amounts
relating to noncontrolling interests have been reclassified to conform to
current year presentation as required by ASC 810-10.
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following
pre-codification guidance in FASB Staff Positions. Effective July 1, 2009, this
guidance was codified into various codification sections as noted below
("ASC"):
 
 ASC
820-10-65-4, Fair Value
Measurements and Disclosures ("ASC 820-10-65-4") (pre-codification
guidance of FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales and reaffirms what ASC 820-10 states is
the objective of fair value measurement—to reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced
transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive.
 
 18
 ASC
825-10-65-1, Financial
Instruments, ("ASC 825-10-65-1") (pre-codification guidance of FSP FAS
107-1 and APB 28-1) relate to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value. Prior to issuing this guidance, fair values for these assets and
liabilities were only disclosed once a year. ASC 825-10-65-1 now requires these
disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all financial instruments not
measured on the balance sheet at fair value.
 
 ASC
320-10-65-1, Investments -
Debt and Equity Securities("ASC 320-10-65-1") (pre-codification guidance
of FSP FAS 115-2 and FAS 124-2) on other-than-temporary impairments is intended
to bring greater consistency to the timing of impairment recognition, and
provide greater clarity to investors about the credit and noncredit components
of impaired debt securities that are not expected to be sold. The measure of
impairment in comprehensive income remains fair value. ASC 320-10 also requires
increased and timelier disclosures sought by investors regarding expected cash
flows, credit losses, and an aging of securities with unrealized
losses.
 
 ASC
820-10-65-4, ASC 825-10-65-1 and ASC 320-10-65-1 were effective for the Company
for the quarter ended June 30, 2009 and did not have a material impact on the
Company’s financial statements.
  14.   Fair
Value Measurements
  Effective
January 1, 2008, the Company adopted the pre-codification guidance of SFAS No.
157,Fair Value
Measurements. Effective July 1, 2009, this guidance was codified into ASC
820-10, Fair Value
Measurements("ASC 820-10") which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. The adoption of ASC 820-10 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 ASC 820-10 apply
to other accounting pronouncements that require or permit fair value
measurements.  ASC 820-10:
  ·
              Defines
      fair value as the exchange price that would be received for an asset or
      paid to transfer a liability (an exit price) in the principal or most
      advantageous market for the asset or liability in an orderly transaction
      between market participants at the measurement date;
  and
  ·
              Establishes
      a three-level hierarchy for fair value measurements based upon the
      transparency of inputs to the valuation of an asset or liability as of the
      measurement date.
  Inputs
refer broadly to the assumptions that market participants would use in pricing
the asset or liability, including assumptions about risk.  To increase
consistency and comparability in fair value measurements and related
disclosures, the fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.  The
three-levels of the hierarchy are defined as follows:
  ·
              Level
      1 inputs are quoted prices (unadjusted) in active markets for identical
      assets or liabilities.
  ·
              Level
      2 inputs are inputs other than quoted prices included within Level 1 that
      are observable for the asset or liability, either directly or indirectly,
      for substantially the full term of the financial
    instrument.
  ·
              Level
      3 inputs are unobservable inputs for asset or
  liabilities.
  The
categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
  Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value.
 
 Investments in Tax-exempt Mortgage
Revenue Bonds.The fair values of the Company’s investments in
tax-exempt mortgage revenue bonds have each been based on a discounted cash flow
and yield to maturity analysis performed by the General
Partner.  There is no active trading market for the bonds and price
quotes for the bonds are not available.  If available, the General
Partner may also consider price quotes on similar bonds or other information
from external sources, such as pricing services.  The estimates of the
fair values of these bonds, whether estimated by the Company or based on
external sources, are based largely on unobservable inputs the General Partner
believes would be used by market participants.  Additionally, the
calculation methodology used by the external sources and the Company encompasses
the use of judgment in its application. Given these facts the fair value
measurement of the Company’s investment in tax-exempt mortgage revenue bonds is
categorized as a Level 3 input.
 
 Interest rate
derivatives.The effect of the Company’s interest rate caps is
to set a cap, or upper limit, on the base rate of interest paid on the Company’s
variable rate debt equal to the notional amount of the derivative
agreement.  The effect of the Company’s interest rate swap is to
change a variable rate debt obligation to a fixed rate for that portion of the
debt equal to the notional amount of the derivative agreement.  The
interest rate derivatives are recorded at fair value with changes in fair value
included in current period earnings within interest expense.  The fair
value of the interest rate derivatives is based on a model whose inputs are not
observable and therefore are categorized as a Level 3 input.
  19
 Assets
and liabilities measured at fair value on a recurring basis, in thousands, are
summarized below:
  Fair
      Value Measurements at September 30, 2009Quoted
      Prices
              
              
              Significant
      Other
      Observable Inputsin
      Active Markets
              
              
              
              
              SignificantAssets/Liabilities
              
              
              for
      Identical Assets
              
              
              
              
              Unobservable
      InputsDescription
              
              at Fair Value
              
              
              (Level 1)
              
              
              (Level 2)
              
              
              (Level 3)AssetsTax-exempt
      Mortgage Revenue Bonds
              
              $
              63,070,112
              
              
              $
              -
              
              
              $
              -
              
              
              $
              63,070,112Interest
      Rate Derivatives
              
              
              248,838
              
              
              
              -
              
              
              
              -
              
              
              
              248,838Total
      Assets at Fair Value
              
              $
              63,318,950
              
              
              $
              -
              
              
              $
              -
              
              
              $
              63,318,950For
      nine months ended September 30, 2009Fair
      Value Measurements Using SignificantUnobservable
      Inputs (Level 3)Tax-exempt
      Mortgage
              
              
              Interest
      RateRevenue Bonds
              
              
              Derivatives
              
              
              TotalBeginning
      Balance January 1, 2009
              
              
              
              
              
              $
              44,492,526
              
              
              $
              302,849
              
              
              $
              44,795,375Total
      gains or losses (realized/unrealized)Included
      in earnings
              
              
              
              
              
              
              -
              
              
              
              (721,811
              )
              
              
              (721,811
              )Included
      in other comprehensive income
              
              
              
              
              
              
              6,795,727
              
              
              
              -
              
              
              
              6,795,727Purchases,
      issuances and settlements
              
              
              
              
              
              
              11,781,859
              
              
              
              667,800
              
              
              
              12,449,659Ending
      Balance September 30, 2009
              
              
              
              
              
              $
              63,070,112
              
              
              $
              248,838
              
              
              $
              63,318,950Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of September 30, 2009
              
              
              
              
              
              $
              -
              
              
              $
              (721,811
              )
              
              $
              (721,811
              )Fair
      Value Measurements at December 31, 2008Quoted
      Prices
              
              
              Significant
      Other
      Observable Inputsin
      Active Markets
              
              
              
              
              SignificantAssets/Liabilities
              
              
              for
      Identical Assets
              
              
              
              
              Unobservable
      InputsDescription
              
              at Fair Value
              
              
              (Level 1)
              
              
              (Level 2)
              
              
              (Level 3)AssetsTax-exempt
      Mortgage Revenue Bonds
              
              $
              44,492,526
              
              
              $
              -
              
              
              $
              -
              
              
              $
              44,492,526Interest
      Rate Derivatives
              
              
              302,849
              
              
              
              -
              
              
              
              -
              
              
              
              302,849Total
      Assets at Fair Value
              
              $
              44,795,375
              
              
              $
              -
              
              
              $
              -
              
              
              $
              44,795,375For
      nine months ended September 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
              
              
              
              
              
              
              
              
              
              
              144,888
              
              
              
              144,888Included
      in other comprehensive income
              
              
              
              
              
              
              (4,891,642
              )
              
              
              
              
              
              
              (4,891,642
              )Purchases,
      issuances and settlements
              
              
              
              
              
              
              (2,518,295
              )
              
              
              985,000
              
              
              
              (1,533,295
              )Ending
      Balance September 30, 2008
              
              
              
              
              
              $
              58,757,179
              
              
              $
              1,142,327
              
              
              $
              59,899,506Total
      amount of gains or losses for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets or
      liabilities still held as of September 30, 2008
              
              
              
              
              
              $
              -
              
              
              $
              144,888
              
              
              $
              144,888
  Losses
included in earnings for the period shown above is included in interest
expense.
  20
 Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
 
 In this
Management’s Discussion and Analysis, the “Partnership” refers to America First
Tax Exempt Investors, L.P. and its subsidiaries (which are limited partners in
the entities that own the MF Properties) on a consolidated basis and the
“Company” refers to the consolidated financial information of the Partnership
and certain entities that own multifamily apartment projects financed with
mortgage revenue bonds held by the Partnership that are treated as “variable
interest entities” (“VIEs”).  The Partnership has been determined to
be the primary beneficiary of these VIEs although it does not hold an equity
position in them and, therefore, must consolidate these entities. The
consolidated financial statements of the Company include the accounts of the
Partnership and the VIEs. All significant transactions and accounts between the
Partnership and the VIEs have been eliminated in consolidation.
 
 Critical
Accounting Policies
 
 The
Company’s critical accounting policies are the same as those described in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
 
 Executive
Summary
 
 Challenging
economic conditions have continued throughout 2009, with tight credit conditions
and slow growth.  As a result of these conditions, the cost and
availability of credit has been, and may continue to be, adversely affected in
all markets in which we operate. Concern about the stability of the markets
generally, and the strength of counterparties specifically, has led many lenders
and institutional investors to reduce, and in some cases, cease, to provide
funding to borrowers. If these market and economic conditions continue, they may
limit our ability to replace or renew maturing liabilities on a timely basis,
access the capital markets to meet liquidity and capital expenditure
requirements and may result in adverse effects on our financial condition and
results of operations.
 
 Although
the consequences of these conditions and their impact on our ability to pursue
our plan to grow through investments in additional tax-exempt bonds secured by
first mortgages on affordable multifamily housing projects are not fully known,
we do not anticipate that our existing assets will be adversely affected in the
long-term.  If uncertainties in these markets continue, the markets
deteriorate further or the Company experiences further deterioration in the
values of its investment portfolio, the Company may incur impairments to its
investment portfolio which could negatively impact the Company’s financial
statements.
 
 The
Company believes that current economic and credit market conditions have created
investment opportunities for the Company that it intends to aggressively pursue.
Many participants in the multifamily housing debt sector are either reducing
their participation in the market or are being forced to divest their existing
portfolio of investments.  This has resulted in fewer investors
competing for new issuances of tax-exempt housing bonds and has created
opportunities to acquire existing tax-exempt bonds from distressed entities at
attractive yields.  We believe that we are well-positioned as a result
of our ability to acquire assets on the secondary market while maintaining the
ability and willingness to also participate in primary market
transactions.  Additionally, the current credit crisis is providing
the potential for investments in quality real estate assets to be acquired from
distressed owners and lenders.  Our ability to restructure existing
debt together with the ability to improve the operations of the underlying
apartment properties through our affiliated property management company results
in a valuable tax-exempt bond investment which is supported by the collateral
and operations of the underlying real property.  The Company is
currently evaluating a number of attractive potential investments and continues
to be presented with investment opportunities on a regular
basis.  While we believe the Company is well-positioned to
aggressively pursue new investment opportunities thereby creating value to
shareholders in the form of a strong tax-exempt bond investment, there is no
guarantee that we will be able to consummate any such transaction.
 
 Additionally,
the current negative economic conditions, unemployment, lack of jobs growth, low
home mortgage interest rates and tax incentives provided to first time
homebuyers have begun to have a negative impact on the properties which
collateralize our tax-exempt bond investments, the VIEs and our MF Properties in
the form of declining occupancy.  Economic occupancy at the MF
Properties was 85% during the first nine months of 2009 as compared to 87% in
the first nine months of 2008. Economic occupancy of the VIEs was 74% in 2009
and 84% in 2008.  These issues will have a negative impact on the
overall property operations and profitability in the short-term, however, we
expect that long-term property operations will not be impacted
significantly.
 21
 Until
June 2009, Company debt consisted of the TOB facility of approximately $76.6
million and approximately $37.3 million of mortgage debt on MF Properties. In
June 2009, the Company entered into a new secured credit facility with Bank of
America which refinanced the maturing TOB facility.  The new credit
facility has a one-year term with a six-month renewal option held by the
Company, an annual floating interest rate of one-month LIBOR plus 390 basis
points and a loan amount of $50.0 million.  The proceeds from the new
credit facility plus the cash collateral held by Bank of America for the TOB
facility were used to retire the outstanding balance on the TOB
facility.  The new credit facility is secured by 13 tax-exempt
mortgage revenue bonds with a total par value of $112.1 million plus
approximately $1.5 million in restricted cash.  Financial covenants
for the new credit facility include the maintenance of a leverage ratio not to
exceed 70% and a minimum liquidity of $5.0 million by the
Company.  Additionally, the properties which secure the bond portfolio
which is collateral for the new credit facility are to maintain, as a group,
minimum debt service coverage of 1.1 to 1 and a loan to value ratio not to
exceed 75%.  At September 30, 2009, the Company was in compliance with
these covenants.  Subsequent to September 30, 2009, the Company was
notified by Bank of America that it was no longer in compliance with the loan to
value covenant.  In November 2009, the Company transferred additional
collateral of approximately $2.0 million to Bank of America to maintain
compliance with the covenant.  The Company continues to explore
opportunities to improve its financing arrangements.  One option
currently being pursued is a Tax-Exempt Bond securitization facility (“TEBs”)
with Freddie Mac.  The Company feels this financing option offers
several advantages over the current credit facility including a longer term of
up to 10 years. There can be no assurance that we will be able to enter into a
TEBs securitization facility on terms favorable to the Partnership or at
all.
  Approximately
$19.9 million in outstanding mortgage financing related to the MF Properties
located in Ohio and Kentucky was due in July 2009.  This mortgage loan
contains three one-year renewal options held by the borrower.  In July
2009, the borrower entered into a Maturity Date Extension Agreement for the
mortgage loan which extended the maturity on the mortgage one year to July
2010.  In conjunction with the extension, the borrower paid down the
mortgage balance related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million resulting in a new outstanding mortgage balance of approximately
$12.8 million and the Eagle Ridge and Meadowview properties were released as
collateral for the loan. If the current illiquidity in the financial markets
continues or further deteriorates, our ability to renew or refinance our
outstanding credit facility, as well as the mortgage debt financing MF
Properties, may be negatively affected.
 
 The
Partnership has an effective Registration Statement on Form S-3 with the SEC
relating to the sale of up to $100.0 million of its BUCs.  Pursuant to
this Registration Statement, in October 2009, the Partnership issued, through an
underwritten public offering, a total of 4,830,000 BUCs at a public offering
price of $5.05 per BUC. Additionally, pursuant to this Registration Statement,
in May 2009, the Partnership issued, through an underwritten public offering, a
total of 3,500,000 BUCs at a public offering price of $5.00 per BUC. Net
proceeds realized by the Partnership from the issuance of the additional BUCs
were approximately $22.9 million and $16.1 million, respectively, after payment
of an underwriter's discount and other offering costs. The proceeds will be used
to acquire additional tax-exempt revenue bonds and other investments meeting the
Partnership's investment criteria and for general working capital
needs.  To date, the Partnership has issued approximately $71.5
million of BUCs under this Registration Statement which will expire in January
2010. The Partnership intends to issue additional BUCs from time to
time.  In that regard, the Partnership expects to file a new
Registration Statement on Form S-3 for the sale of additional BUCs beyond the
amount registered under its existing Registration Statement.
 
 The
Company’s regular annual distributions were paid at a rate of $0.54 per BUC, or
$0.135 per quarter per BUC, through the first quarter of 2009.  Given
the changes to the Company’s credit facilities, the General Partner completed
financial models in order to estimate the impact of the change on the Company's
assets, debt and cash available for distribution ("CAD").  In order to
ensure that cash provided by the Company’s tax-exempt mortgage revenue bonds and
other investments will be adequate to meet its projected liquidity requirements,
including the payment of expenses, interest and distributions to BUC holders,
beginning with the second quarter 2009 distribution, the General Partner changed
the Company’s regular annual distribution to $0.50 per BUC, or $0.125 per
quarter per BUC.  The General Partner believes that distributions at
this level are sustainable; however, if actual results vary from current
projections and the actual CAD generated is less than the new regular
distribution, such distribution amount may need to be reduced.
 
 Discussion
of the Partnership Bond Holdings and the Related Apartment Properties as of
September 30, 2009
 
 The
Partnership’s purpose is to acquire and hold as long-term investments a
portfolio of federally tax-exempt mortgage revenue bonds which have been issued
to provide construction and/or permanent financing of multifamily residential
apartments.  At September 30, 2009, the Partnership held 16 tax-exempt
mortgage bonds (secured by 15 properties), six 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
ten non-consolidated tax-exempt mortgage bonds contain a total of 1,329 rental
units.  At September 30, 2008, the Partnership held 19 tax-exempt
mortgage bonds (secured by 17 properties), eight of which were secured by
properties held by VIEs and, therefore, eliminated in consolidation on the
Company's financial statements. At September 30, 2008, the nine properties
underlying the eleven non-consolidated tax-exempt mortgage bonds secured by
apartment properties contained a total of 1,137 rental units. The VIEs’ primary
operating strategy focuses on multifamily apartment properties as long-term
investments.  Each VIE owns one multifamily apartment property that
has been financed by a tax-exempt mortgage revenue bond held by the
Partnership.  As of September 30, 2009, the Company consolidated six
VIE multifamily apartment properties containing a total of 1,288 rental
units.  As of September 30, 2008, the Company consolidated eight VIE
multifamily apartment properties containing a total of 1,764 rental
units.
 
 To
facilitate its investment strategy of acquiring additional tax-exempt mortgage
bonds secured by multifamily apartment properties, the Partnership may acquire
ownership positions in apartment properties (“MF Properties”). The Partnership
expects to ultimately restructure the property ownership through a sale of the
MF Properties and a syndication of low income housing tax credits
(“LIHTCs”).  The Partnership expects to provide the tax-exempt
mortgage revenue bonds to the new property owners as part of the
restructuring.   Such restructurings will generally be expected
to be initiated within 36 months of the initial investment in an MF Property and
will often coincide with the expiration of the compliance period relating to
LIHTCs previously issued with respect to the MF Property.  The
Partnership will not acquire LIHTCs in connection with these transactions. As of
September 30, 2009, the Partnership's subsidiaries held an interest in nine MF
Properties containing 964 rental units, of which four are located in Ohio, two
are located in Kentucky, one is located in Virginia, one is located in Georgia,
and one in North Carolina.  As of September 30, 2008, a wholly-owned
subsidiary of the Partnership held limited partnership interests in seven
entities that own MF Properties containing a total of 668 rental
units.
 22
 The
following table outlines certain information regarding the apartment properties
on which the Partnership holds tax-exempt mortgage bonds (separately identifying
those treated as VIEs) and the MF Properties owned by the
Partnership.  The narrative discussion that follows provides a brief
operating analysis of each property during the first nine months of
2009.
 Number
      of
      Units Occupied
              
              
              Percentage
      of Occupied Units
      as of September 30,
              
              
              Economic
      Occupancy (1)
      for the
      period ended September 30,NumberProperty
      Name
              Location
              
              of
      Units
              
              
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Non-Consolidated
      PropertiesBella
      Vista Apartments
              Gainesville,
      TX
              
              
              144
              
              
              
              129
              
              
              
              90
              %
              
              
              97
              %
              
              
              89
              %
              
              
              93
              %Bridle
      Ridge Apartments
              Greer,
      SC
              
              
              152
              
              
              
              135
              
              
              
              89
              %
              
              
              97
              %
              
              
              77
              %
              
              
              80
              %Clarkson
      College
              Omaha,
      NE
              
              
              142
              
              
              
              125
              
              
              
              88
              %
              
              
              85
              %
              
              
              69
              %
              
              
              67
              %Gardens of DeCordova
      (4)
              Granbury,
      TX
              
              
              76
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/aGardens of
      Weatherford (2)
              Weatherford,
      TX
              
              
              76
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/aRunnymede
      Apartments
              Austin,
      TX
              
              
              252
              
              
              
              242
              
              
              
              96
              %
              
              
              65
              %
              
              
              95
              %
              
              
              69
              %Southpark Apartments
      (4)
              Austin,
      TX
              
              
              192
              
              
              
              182
              
              
              
              95
              %
              
              
              n/a
              
              
              
              89
              %
              
              
              n/aWoodland Park (4)
              Topeka,
      KS
              
              
              236
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/aWoodlynn
      Village
              Maplewood,
      MN
              
              
              59
              
              
              
              57
              
              
              
              97
              %
              
              
              88
              %
              
              
              100
              %
              
              
              92
              %1,329
              
              
              
              870
              
              
              
              92
              %
              
              
              83
              %
              
              
              88
              %
              
              
              79
              %VIEsAshley
      Square
              Des
      Moines, IA
              
              
              144
              
              
              
              133
              
              
              
              92
              %
              
              
              93
              %
              
              
              92
              %
              
              
              86
              %Bent
      Tree Apartments
              Columbia,
      SC
              
              
              232
              
              
              
              201
              
              
              
              87
              %
              
              
              94
              %
              
              
              78
              %
              
              
              85
              %Cross Creek (4)
              Beaufort,
      SC
              
              
              144
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/aFairmont
      Oaks Apartments
              Gainsville,
      FL
              
              
              178
              
              
              
              169
              
              
              
              95
              %
              
              
              96
              %
              
              
              82
              %
              
              
              91
              %Iona
      Lakes Apartments
              Ft.
      Myers, FL
              
              
              350
              
              
              
              276
              
              
              
              79
              %
              
              
              83
              %
              
              
              62
              %
              
              
              66
              %Lake
      Forest Apartments
              Daytona
      Beach, FL
              
              
              240
              
              
              
              219
              
              
              
              91
              %
              
              
              95
              %
              
              
              74
              %
              
              
              91
              %1,288
              
              
              
              998
              
              
              
              87
              %
              
              
              92
              %
              
              
              74
              %
              
              
              84
              %MF
      PropertiesChurchland (3)
              Chesapeake,
      VA
              
              
              124
              
              
              
              120
              
              
              
              97
              %
              
              
              85
              %
              
              
              89
              %
              
              
              85
              %Crescent
      Village
              Cincinnati,
      OH
              
              
              90
              
              
              
              85
              
              
              
              94
              %
              
              
              89
              %
              
              
              83
              %
              
              
              86
              %Eagle
      Ridge
              Erlanger,
      KY
              
              
              64
              
              
              
              53
              
              
              
              83
              %
              
              
              86
              %
              
              
              73
              %
              
              
              79
              %Glynn Place (3)
              Brunswick,
      GA
              
              
              128
              
              
              
              85
              
              
              
              66
              %
              
              
              n/a
              
              
              
              70
              %
              
              
              n/aGreens of Pine Glen
      (3)
              Durham,
      NC
              
              
              168
              
              
              
              160
              
              
              
              95
              %
              
              
              n/a
              
              
              
              90
              %
              
              
              n/aMeadowview
              Highland
      Heights, KY
              
              
              118
              
              
              
              96
              
              
              
              81
              %
              
              
              92
              %
              
              
              84
              %
              
              
              95
              %Postwoods
      I
              Reynoldsburg,
      OH
              
              
              92
              
              
              
              82
              
              
              
              89
              %
              
              
              97
              %
              
              
              86
              %
              
              
              89
              %Postwoods
      II
              Reynoldsburg,
      OH
              
              
              88
              
              
              
              82
              
              
              
              93
              %
              
              
              94
              %
              
              
              90
              %
              
              
              92
              %Willow
      Bend
              Columbus
      (Hilliard), OH
              
              
              92
              
              
              
              89
              
              
              
              97
              %
              
              
              89
              %
              
              
              93
              %
              
              
              85
              %964
              
              
              
              852
              
              
              
              88
              %
              
              
              90
              %
              
              
              85
              %
              
              
              87
              %(1)Economic
      occupancy is presented for the nine months ended September 30, 2009 and
      2008, and is defined as the net rental income received divided by the
      maximum amount of rental income to be derived from each
      property. This statistic is reflective of rental concessions,
      delinquent rents and non-revenue units such as model units and employee
      units. Actual occupancy is a point in time measure while economic
      occupancy is a measurement over the period presented, therefore, economic
      occupancy for a period may exceed the actual occupancy at any point in
      time.(2)This property is
      still under construction as of September 30, 2009, and therefore has no
      occupancy data.(3)Previous
      period occupancy numbers are not available, as this is a new
      investment.(4)Construction on these
      properties has been completed and the properties are in a lease up and
      stabilization period. As of September 30, 2009, Cross Creek as leased
      61 of a total of 144 units, Gardens of Decordova has leased 28 of a total
      of 76 units and Woodland Park has leased 107 of a total of 236
      units.
 
 23
 Non-Consolidated
Properties
 
 Bella
Vista – Bella Vista Apartments is located in Gainesville, Texas.  In
the first nine months of 2009, Bella Vista’s operations resulted in Net
Operating Income (calculated as property revenue less salaries, advertising,
administration, utilities, repair and maintenance, insurance, taxes, and
management fee expenses) of $404,000 as compared to $416,000 in
2008.  The decrease was a result of a decrease in economic
occupancy.
 
 Bridle
Ridge Apartments -  Bridle Ridge Apartments is located in Greer, South
Carolina.  In the first nine months of 2009, Bridle Ridge Apartments’
operations resulted in Net Operating Income of $335,000 as compared to $566,000
in 2008.  This decrease is a direct result of decreased economic
occupancy combined with an increase in renting, administration and maintenance
expenses.
 
 Clarkson
College – Clarkson College is a 142 bed student housing facility located in
Omaha, Nebraska.  In the first nine months of 2009, Net Operating
Income was $275,000 as compared to $300,000 in 2008.  The decrease is
attributable to an increase in utilities, market ready, and repair
expenses.
 
 Gardens
of DeCordova – The Gardens of DeCordova Apartments is located in Granbury, Texas
and began leasing its 76 units in November 2008.  As of September 30,
2009, 76 units have been completed and are available for rent and 28 units are
currently occupied.  The developer and principals have guaranteed
completion and stabilization of the project.  During the first nine
months of 2009, the property owners made additional capital contributions and in
July 2009 the Company made a taxable loan of approximately $315,000 to the
project to fund debt service on the bonds through property
stabilization.  Additionally, Properties Management was engaged to
replace the prior property manager and is currently managing the property. In
September 2009, the Partnership was notified by the limited partner of the
limited partnership that owns the Gardens of DeCordova of its intent to withdraw
from the limited partnership and assign its limited partnership interest to
another party.  Such interest includes the rights to receive the
LIHTCs yet to be syndicated on the property.  The change in ownership
may have a negative impact on the tax-exempt bonds owned by the Partnership on
this property unless a successor limited partner is located and agrees to fund
any capital contributions necessary to allow the project to reach stabilized
occupancy. The Partnership is working with the general partner of this limited
partnership to resolve this issue and will use its senior secured position as
bondholder to help seek a positive outcome and protect Partnership
interests.  Until such time as a new limited partner is admitted to
this limited partnership, the full impact of this change in ownership will not
be known. At this time the Gardens of DeCordova owes the Partnership
approximately $4.9 million under tax-exempt bonds and $315,000 under taxable
loans.
 
 Gardens
of Weatherford – The Gardens of Weatherford Apartments is currently under
construction in Weatherford, Texas and will contain 76 units upon completion. At
this time infrastructure construction activities have been substantially
completed but no construction has begun on the actual apartment buildings. The
developer and principals have guaranteed completion and stabilization of the
project.  During the first half of 2009, the Company made a taxable
loan to the owners of the property of approximately $141,000 to help fund the
construction activities and current bond debt service reserves through
construction completion and property stabilization.  Additionally,
Properties Management was engaged to replace the prior property manager and is
currently managing the property and monitoring the construction
progress.  Due to numerous zoning, planning and design issues
encountered in the building permit application process; construction on this
project is significantly behind schedule. In September 2009, the Partnership was
notified by the limited partner of the limited partnership that owns the Gardens
of Weatherford of its intent to withdraw from the limited partnership and assign
its limited partnership interest to another party.  Such interest
includes the rights to receive the LIHTCs yet to be syndicated on the
property.  The change in ownership may have a negative impact on the
tax-exempt bonds owned by the Partnership on this property unless a successor
limited partner is located and agrees to fund any capital contributions
necessary to complete and stabilize the project.  The Partnership is
working with the general partner of this limited partnership to resolve this
issue and will use its senior secured position as bondholder to help seek a
positive outcome and protect Partnership interests.  Until such time
as a new limited partner is admitted to this limited partnership, the full
impact of this change in ownership will not be known.  While
approximately $2.0 million remains on deposit with the bond trustee for the
Gardens of Weatherford, such funds are insufficient to complete construction of
the project or to pay the outstanding principal on the bonds should the project
not be constructed.  At this time the Gardens of Weatherford owes
approximately $4.7 million under tax-exempt bonds and $141,000 under taxable
loans.
  Runnymede
Apartments – Runnymede Apartments is located in Austin, Texas.  In the
first nine months of 2009, Runnymede Apartment’s operations resulted in Net
Operating Income of $643,000 as compared to $280,000 in 2008.  This
increase is a direct result of increased occupancy which led to increased
revenues.
 
 Southpark
Apartments – Southpark Apartments is located in Austin, TX and contains 192
units.  In the first nine months of 2009, Southpark’s operations
resulted in Net Operating Income of $859,000 on revenue of approximately $1.3
million.
 
 Woodland
Park – Woodland Park Apartments began leasing its 236 units in Topeka, Kansas in
November 2008. As of September 30, 2009, all units have been completed and are
available for rent and 107 units are currently occupied.  The
developer has guaranteed completion and stabilization of the
project.
 
 Woodlynn
Village – Woodlynn Village is located in Maplewood, Minnesota.  In the
first nine months of 2009, Net Operating Income was $292,000 as compared to
$244,000 in 2008.  This increase is a direct result of increased
economic occupancy.
 
 24
 VIEs
 
 Ashley
Square – Ashley Square Apartments is located in Des Moines, Iowa.  In
the first nine months of 2009, Net Operating Income was $286,000 as compared to
$207,000 in 2008.  This increase was the result of improved economic
occupancy and a decrease in administration and repair and maintenance
expenses.
 
 Bent Tree
– Bent Tree Apartments is located in Columbia, South
Carolina.   In the first nine months of 2009, Net Operating
Income was $387,000 as compared to $552,000 in 2008.  This decrease
was the result of lower property revenue based on decreased
occupancy.
  Cross
Creek – Cross Creek Apartments is located in Beaufort, South
Carolina.  The Cross Creek bonds were acquired in April
2009.  At that time the project was not completed and was
vacant.  The Company has made a $1.7 million taxable loan to the
property owner to allow for the completion of construction, lease up and
stabilization of the property and the payment of bond debt
service.  Cross Creek Apartments began leasing its 144 units in June
2009.  As of September 30, 2009, 120 units have been completed and are
available for rent and 61 units are currently occupied.
 
 Fairmont
Oaks – Fairmont Oaks Apartments is located in Gainesville,
Florida.  In the first nine months of 2009, Net Operating Income was
$479,000 as compared to $627,000 in 2008.  This decrease was a direct
result of lower property revenues from decreased economic
occupancy.
 
 Iona
Lakes – Iona Lakes Apartments is located in Fort Myers, Florida.  In
the first nine months of 2009, Net Operating Income was $607,000 as compared to
$675,000 in 2008.  This decrease was related to lower property
revenues from decreased economic occupancy.
 
 Lake
Forest – Lake Forest Apartments is located in Daytona Beach,
Florida.  In the first nine months of 2009, Net Operating Income was
$452,000 as compared to $813,000 in 2008.  This decrease was a direct
result of lower property revenues due to decreased economic occupancy along with
an increase in salary and utility expenses.
 
 MF
Properties
 
 Churchland
– Churchland is located in Chesapeake, Virginia and was acquired in August
2008.  During the first nine months of 2009, the property recognized
approximately $413,000 in Net Operating Income on revenue of
$751,000.
 
 Crescent
Village – Crescent Village Townhomes is located in Cincinnati,
Ohio.  In the first nine months of 2009, Crescent Village’s operations
resulted in Net Operating Income of $262,000 as compared to $311,000 in
2008.   This decrease was the result of lower property revenue
from decreased economic occupancy.
 
 Eagle
Ridge – Eagle Ridge Townhomes is located in Erlanger, Kentucky.  In
the first nine months of 2009, Eagle Ridge’s operations resulted in Net
Operating Income of $87,000 as compared to $142,000 in 2008.  This
decrease was the result of lower property revenue from decreased economic
occupancy and an increase in salary and utility expense.
 
 Glynn
Place – Glynn Place Apartments is located in Brunswick,
Georgia.  Glynn Place Apartments was acquired in October
2008.  During the first nine months of 2009, the property recognized
approximately $188,000 in Net Operating Income on Revenue of
$570,000.
 
 Greens of
Pine Glen – Greens of Pine Glen Apartments is located in Durham, North Carolina
and contains 168 units.  A wholly-owned subsidiary of the Partnership
acquired a 99% limited partner in the partnership that owns this property in
February 2009.  As a result, the financial statements of this property
have been consolidated with those of the Partnership since that
time.  During this period, the property recognized approximately
$163,000 of net operating income on revenue of $781,000.
 
 Meadowview
– Meadowview Apartments is located in Highland Heights, Kentucky.  In
the first nine months of 2009, Meadowview’s operations resulted in Net Operating
Income of $287,000 as compared to $401,000 in 2008.  This decrease was
a result of lower property revenue due to a decrease in economic
occupancy.
 
 Postwoods
I – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first nine months of 2009, Postwoods I’s operations resulted in Net Operating
Income of $268,000 as compared to $325,000 in 2008. This decrease was a result
of lower property revenue due to a decrease in economic occupancy along with an
increase in salary expense.
 
 Postwoods
II – Postwoods Townhomes is located in Reynoldsburg, Ohio.  In the
first nine months of 2009, Postwoods II’s operations resulted in Net Operating
Income of $255,000 as compared to $298,000 in 2008.  This decrease was
a result of lower property revenue due to a decrease in economic occupancy and
an increase in salary expense.
 
 Willow
Bend – Willow Bend Townhomes is located in Columbus (Hilliard),
Ohio.  In the first nine months of 2009, Willow Bend’s operations
resulted in Net Operating Income of $273,000 as compared to $335,000 in
2008.  This decrease was a result of increased real estate taxes,
salaries expense, and utilities expense offset by increased revenues resulting
from increased occupancy.
 
 25
 
 Three Months Ended September
30, 2009 compared to Three Months Ended September 30, 2008
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              Dollar
      ChangeRevenues:Property
      revenues
              
              $
              3,872,079
              
              
              $
              3,399,780
              
              
              $
              472,299Mortgage
      revenue bond investment income
              
              
              1,019,970
              
              
              
              1,016,176
              
              
              
              3,794Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              862,865Other
      income
              
              
              22,587
              
              
              
              81,082
              
              
              
              (58,495
              )Total
      Revenues
              
              $
              5,777,501
              
              
              $
              4,497,038
              
              
              $
              1,280,463Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              2,615,013
              
              
              
              2,196,626
              
              
              
              418,387Depreciation
      and amortization
              
              
              1,387,032
              
              
              
              1,281,671
              
              
              
              105,361Interest
              
              
              1,062,181
              
              
              
              630,381
              
              
              
              431,800General
      and administrative
              
              
              508,647
              
              
              
              394,810
              
              
              
              113,837Total
      Expenses
              
              $
              5,572,873
              
              
              $
              4,503,488
              
              
              $
              1,069,385Income
      from continuing operations
              
              
              204,628
              
              
              
              (6,450
              )
              
              
              211,078Income
      from discontinued operations
              
              
              -
              
              
              
              167,468
              
              
              
              (167,468
              )Net
      income
              
              
              204,628
              
              
              
              161,018
              
              
              
              43,610Less:
      net loss attributable to noncontrolling interest
              
              
              1,721
              
              
              
              911
              
              
              
              810Net
      income - America First Tax Exempt Investors, L. P.
              
              $
              206,349
              
              
              $
              161,929
              
              
              $
              44,420
  Property revenues.Property revenues increased as
a result of revenue generated by the MF Properties acquired in the second half
of 2008 and the first quarter of 2009 and the consolidation of one additional
VIE in second quarter 2009.  These new properties added approximately
$730,000 in revenue in the third quarter of 2009.  This increase was
offset by a decrease in revenue at the existing VIEs and MF Properties of
approximately $252,000 due to lower economic occupancy levels.  The MF
Properties averaged $607 per unit in monthly rent in 2009 as compared with $648
per unit in 2008.  Economic occupancy at the MF Properties was 84%
during the third quarter of 2009 as compared to 86% in the third quarter of
2008. The VIEs averaged $551 per unit in monthly rent in 2009 as compared to
$636 per unit in 2008.  Economic occupancy of the VIEs was 71% in 2009
and 84% in 2008.
 
 Mortgage revenue bond investment
income.  Mortgage revenue bond investment income during the
third quarter of 2009 was flat compared to the third quarter of 2008 due to
several items which offset each other. The Prairiebrook Village bond continued
to pay interest until foreclosure proceedings were completed in the third
quarter of 2008. The Prairiebrook Village bond paid approximately $78,000 of
bond interest in the third quarter of 2008 and none in 2009. This decrease was
offset by the Southpark bond investment acquired in August 2009, which generated
approximately $82,000 in interest income in the quarter.
 
 Gain on sale of asset held for sale.In September 2009, the Partnership sold the Oak Grove Commons apartments,
an asset held for sale, to an unaffiliated party for $3.75
million.  After the deduction of selling expenses, commissions and
cash advances made to the property, the Partnership realized a taxable gain of
approximately $863,000 from the sale.
 
 Other income.  The
decrease in other income is attributable to higher levels of temporary
investments in liquid securities representing amounts presented as cash and cash
equivalents and restricted cash in 2008 as compared to
2009.  Temporary investments were lower in the third quarter of 2009
as available cash was used to acquire the Southpark bond.
 
 Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties and the consolidated VIEs are comprised principally of real estate
taxes, property insurance, utilities, property management fees, repairs and
maintenance, and salaries and related employee expenses of on-site employees. A
portion of real estate operating expenses is fixed in nature, thus a decrease in
physical and economic occupancy results 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. Approximately
$410,000 of the real estate operating expenses was due to the newly acquired MF
Properties. The remaining increase in real estate operating expenses is due to
the consolidation of an additional VIE offset by decreases in real estate taxes,
utilites, and repairs and maintenance expenses at the existing
VIEs.
 
 26
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the
consolidated VIEs and the MF Properties, amortization associated with in-place
lease intangible assets recorded as part of the purchase accounting for the
acquisition of MF Properties and deferred finance cost amortization related to
the TOB credit facility that was entered into in the second quarter of 2008. The
net increase consists of several offsetting items.  Approximately
$323,000 of the increase is attributable to depreciation expense from the
acquisition of three MF Properties and the consolidation of an existing VIE,
additional capital assets placed in service at existing properties, and
approximately $61,000 of in-place lease amortization expense. The increase is
offset by a decrease of approximately $147,000 in amortization related to the
deferred finance costs from the purchase of the six MF properties in June, 2007
that are now fully amortized and a decrease of approximately $134,000 in
deferred finance cost amortization related to the TOB facility that was
terminated in June 2009.
 
 Interest
expense.Interest expense increased approximately $432,000
during the third quarter 2009 compared to the third quarter 2008. This increase
is due to the interest expense attributable to marking interest rate derivatives
to fair value.  The fair value adjustment increased interest expense
by approximately $483,000 for 2009 as compared to the third quarter
2008.  The Company’s quarterly borrowing cost decreased from 4.4% per
annum in 2008 to 4.0% per annum in 2009 which offset the increase from the mark
to market of interest rate derivatives.
 
 General and administrative
expenses.General and administrative expenses increased due to
an increase in professional fees and salaries expense.
 
 
 Nine Months Ended September
30, 2009 compared to Nine Months Ended September 30, 2008
(Consolidated)
 
 Change in Results of
Operations
 
 
 For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              Dollar
      ChangeRevenues:Property
      revenues
              
              $
              11,526,594
              
              
              $
              10,099,212
              
              
              $
              1,427,382Mortgage
      revenue bond investment income
              
              
              3,022,865
              
              
              
              3,281,565
              
              
              
              (258,700
              )Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              862,865Other
      income
              
              
              74,481
              
              
              
              26,188
              
              
              
              48,293Total
      Revenues
              
              $
              15,486,805
              
              
              $
              13,406,965
              
              
              $
              2,079,840Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              7,555,922
              
              
              
              6,265,613
              
              
              
              1,290,309Depreciation
      and amortization
              
              
              4,646,940
              
              
              
              3,501,793
              
              
              
              1,145,147Interest
              
              
              3,218,379
              
              
              
              2,422,345
              
              
              
              796,034General
      and administrative
              
              
              1,409,810
              
              
              
              1,315,275
              
              
              
              94,535Total
      Expenses
              
              $
              16,831,051
              
              
              $
              13,505,026
              
              
              $
              3,326,025Income
      from continuing operations
              
              
              (1,344,246
              )
              
              
              (98,061
              )
              
              
              (1,246,185
              )Income
      from discontinued operations (including gain on bond redemption of
      $26,514,809 in 2009)
              
              
              26,734,754
              
              
              
              541,172
              
              
              
              26,193,582Net
      income
              
              
              25,390,508
              
              
              
              443,111
              
              
              
              24,947,397Less:
      net loss attributable to noncontrolling interest
              
              
              8,545
              
              
              
              4,437
              
              
              
              4,108Net
      income - America First Tax Exempt Investors, L. P.
              
              $
              25,399,053
              
              
              $
              447,548
              
              
              $
              24,951,505
  Property
revenues.Property revenues increased as a result of revenue
generated by the MF Properties acquired in the second half of 2008 and the first
quarter of 2009 and the consolidation of one additional VIE acquired in the
second quarter 2009.  These new properties added approximately $2.1
million in net revenue in the first nine months of 2009.  This
increase was offset by a decrease in revenue at the existing VIEs and MF
Properties of approximately $614,000 due to lower economic occupancy
levels.  The MF Properties averaged $593 per unit in monthly rent in
2009 as compared with $655 per unit in 2008.  Economic occupancy at
the MF Properties was 85% during the first nine months of 2009 as compared to
87% in the first nine months of 2008. The VIEs averaged $574 per unit in monthly
rent in 2009 as compared to $640 per unit in 2008.  Economic occupancy
of the VIEs was 74% in 2009 and 84% in 2008.
 27
 Mortgage revenue bond investment
income.  The decrease in mortgage revenue bond investment
income is the result of a number of items which offset each other.  A
decrease of approximately $478,000 during the first nine months of 2009 compared
to the first nine months of 2008 is related to the disposition of the Chandler
Creek and Deerfield bonds and the foreclosure of the Prairiebrook Village
bonds.  This decrease was offset by the Oak Grove bond investment
acquired at the beginning of the second quarter of 2009 and the Southpark bond
investment completed in August, 2009, which generated approximately $192,000 in
interest income in the period.   An additional offsetting
increase is related to owning the Bridle Ridge and Woodlynn Village bonds for
the entire first nine months of 2009, but only a portion of the first nine
months of 2008.
  Gain on sale of asset held for sale.In September 2009, the Partnership sold the Oak Grove Commons apartments,
an asset held for sale, to an unaffiliated party for $3.75
million.  After the deduction of selling expenses, commissions and
cash advances made to the property, the Partnership realized a taxable gain of
approximately $863,000 from the sale.
 
 Other income. The increase in
other income is attributable to higher levels of temporary investments in liquid
securities representing amounts presented as cash and cash equivalents and
restricted cash.  Temporary investment levels were higher throughout
most of 2009 due mainly to the cash received on the bond redemptions completed
in February 2009 and the sale of BUCs in May 2009.
 
 Real estate operating
expenses. Real estate operating expenses increased as a direct result of
the expenses incurred by the newly acquired MF Properties and the additional
consolidated VIE.
 
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the apartment properties of the
consolidated VIEs and the MF Properties, amortization associated with in-place
lease intangible assets recorded as part of the purchase accounting for the
acquisition of MF Properties and deferred finance cost amortization related to
the TOB credit facility that was entered into in the second quarter of 2008. The
net increase consists of several offsetting items. Approximately $378,000 of the
increase is attributable to deferred financing cost amortization related to the
TOB facility and a net increase of approximately $419,000 of in-place lease
amortization.  Depreciation expense increased approximately $713,000
due to the acquisition of new MF Properties and the additional consolidated VIE.
The increases are offset by an approximate $368,000 decrease in amortization
related to the deferred finance costs from the purchase of the six MF properties
in June 2007 that are now fully amortized.
 
 Interest
expense.Interest expense increased approximately $796,000
during the first nine months of 2009 compared to the first nine months of 2008.
This increase is due to the interest expense attributable to marking interest
rate derivatives to fair value.  The fair value adjustment increased
interest expense by approximately $1.1 million for 2009 as compared to
2008.  The Company’s average borrowing cost decreased from 4.6% per
annum in 2008 to 3.3% per annum in 2009.  The decrease in average
borrowing cost was offset by an increase in average borrowing outstanding
resulting in a net decrease of approximately $355,000 in interest
expense.
 
 General and administrative
expenses.General and administrative expenses increased due to
an increase in professional fees and salaries expenses.
 
 Partnership Only Results of
Operations
 
 The
following discussion of the Partnership’s results of operations for the three
and nine months ended September 30, 2009 and 2008 reflects the operations of the
Partnership without the consolidation of the VIEs, which is required under ASC
810-10. This information is used by management to analyze the Partnership’s
operations and is reflective of the segment data discussed in Note 11 to the
consolidated financial statements.
 
  28
 Three Months Ended September
30, 2009 compared to Three Months Ended September 30, 2008 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              Dollar
      ChangeRevenues:Mortgage
      revenue bond investment income
              
              $
              2,051,262
              
              
              $
              2,450,512
              
              
              $
              (399,250
              )Property
      revenues
              
              
              1,812,213
              
              
              
              1,170,217
              
              
              
              641,996Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              862,865Other
      income
              
              
              22,587
              
              
              
              81,082
              
              
              
              (58,495
              )Total
      Revenues
              
              $
              4,748,927
              
              
              $
              3,701,811
              
              
              $
              1,047,116Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              1,015,334
              
              
              
              589,481
              
              
              
              425,853Interest
      expense
              
              
              1,062,181
              
              
              
              835,382
              
              
              
              226,799Depreciation
      and amortization expense
              
              
              709,665
              
              
              
              715,469
              
              
              
              (5,804
              )General
      and administrative
              
              
              508,647
              
              
              
              394,810
              
              
              
              113,837Total
      Expenses
              
              $
              3,295,827
              
              
              $
              2,535,142
              
              
              $
              760,685Net
      income
              
              
              1,453,100
              
              
              
              1,166,669
              
              
              
              286,431Less:
      net loss attributable to noncontrolling interest
              
              
              1,721
              
              
              
              911
              
              
              
              810Net
      Income - America First Tax Exempt Investors, L.P.
              
              $
              1,454,821
              
              
              $
              1,167,580
              
              
              $
              287,241
  Mortgage revenue bond investment
income.  The decrease in mortgage revenue bond investment
income during the third quarter of 2009 compared to the third quarter of 2008 is
related to the foreclosure of the Prairiebrook Village bond during the first
half of 2008, and the redemption of three bonds in the first quarter of
2009.  The Prairiebrook Village bond continued to pay interest until
foreclosure proceedings were completed in the third quarter of 2008. The
Prairiebrook Village bond paid approximately $78,000 of bond interest in the
third quarter of 2008 and none in 2009. The redemption of the bonds accounted
for approximately $541,000 of the total decrease. This was offset by the Cross
Creek and Southpark bond investments acquired at the beginning of the second
quarter and middle of the third quarter 2009, which generated approximately
$220,000 in interest income.
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the newly acquired MF Properties, two of which were
acquired in the second half of 2008 and one of which was acquired in first
quarter of 2009.  These acquired properties added approximately
$660,000 of rental income. Property revenues generated by the other MF
Properties were slightly down due to lower economic occupancy.  The MF
Properties averaged $607 per unit in monthly rent in 2009 as compared with $648
per unit in 2008.  Economic occupancy at the MF Properties during the
third quarter of 2009 was 84% compared to 86% in 2008.
 
 Gain on sale of asset held for sale.In September 2009, the Partnership sold the Oak Grove Commons apartments,
an asset held for sale, to an unaffiliated party for $3.75
million.  After the deduction of selling expenses, commissions and
cash advances made to the property, the Partnership realized a taxable gain of
approximately $863,000 from the sale.
 
 Other income.  The
decrease in other income is attributable to higher levels of temporary
investments in liquid securities representing amounts presented as cash and cash
equivalents and restricted cash in 2008 as compared to
2009.  Temporary investments were lower in the third quarter of 2009
as available cash was used to acquire the Southpark bond.
 
 Real estate operating
expenses.  Real estate operating expenses associated with the
MF Properties are comprised principally of real estate taxes, property
insurance, utilities, property management fees, repairs and maintenance, and
salaries and related employee expenses of on-site employees. A portion of real
estate operating expenses are fixed in nature, thus a decrease in physical and
economic occupancy would result in a reduction in operating margins. Conversely,
as physical and economic occupancy increase, the fixed nature of these expenses
will increase operating margins as these real estate operating expenses would
not increase at the same rate as rental revenues.  Approximately
$410,000 of the real estate operating expenses was due to the newly acquired MF
Properties.
 
 Interest
expense.Interest expense increased approximately $227,000
during the third quarter of 2009 compared to the third quarter of
2008.  This increase is due to the interest expense attributable to
marking interest rate derivatives to fair value.  The fair value
adjustment increased interest expense by approximately $483,000 for 2009 as
compared to the third quarter of 2008.  The Partnership’s quarterly
borrowing cost decreased from 4.3% per annum in 2008 to 4.0% per annum in 2009
which, together with a decrease in average borrowing outstanding resulting in
the net decrease of approximately $259,000.
 29
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the MF Properties, amortization
associated with in-place lease intangible assets recorded as part of the
purchase accounting for the acquisition of MF Properties and deferred finance
cost amortization related to the TOB credit facility that was entered into in
the second quarter of 2008.  The net decrease is due to a decrease of
approximately $280,000 in reduced deferred finance cost amortization related to
the TOB facility and fully amortized deferred finance costs related to six MF
Properties purchased in June 2007 offset by increased depreciation and in-place
lease amortization expense of approximately $267,000 from the acquisition of new
MF Properties.
 
 General and administrative
expenses.General and administrative expenses increased due to
an increase in professional fees and salaries expense.
 
 Nine Months Ended September
30, 2009 compared to Nine Months Ended September 30, 2008 (Partnership
Only)
 
 Changes in Results of
Operations
 
 
 For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              Dollar
      ChangeRevenues:Mortgage
      revenue bond investment income
              
              $
              8,821,346
              
              
              $
              7,624,404
              
              
              $
              1,196,942Property
      revenues
              
              
              5,283,154
              
              
              
              3,355,015
              
              
              
              1,928,139Gain
      on sale of assets held for sale
              
              
              862,865
              
              
              
              -
              
              
              
              862,865Other
      income (loss)
              
              
              (53,014
              )
              
              
              26,188
              
              
              
              (79,202
              )Total
      Revenues
              
              $
              14,914,351
              
              
              $
              11,005,607
              
              
              $
              3,908,744Expenses:Real
      estate operating (exclusive of items shown below)
              
              
              3,092,047
              
              
              
              1,678,435
              
              
              
              1,413,612Loan
      loss expense
              
              
              294,999
              
              
              
              -
              
              
              
              294,999Interest
      expense
              
              
              3,299,933
              
              
              
              3,234,830
              
              
              
              65,103Depreciation
      and amortization expense
              
              
              2,786,053
              
              
              
              1,813,868
              
              
              
              972,185General
      and administrative
              
              
              1,409,810
              
              
              
              1,315,275
              
              
              
              94,535Total
      Expenses
              
              $
              10,882,842
              
              
              $
              8,042,408
              
              
              $
              2,840,434Net
      income
              
              
              4,031,509
              
              
              
              2,963,199
              
              
              
              1,068,310Less:
      net loss attributable to noncontrolling interest
              
              
              8,545
              
              
              
              4,437
              
              
              
              4,108Net
      Income - America First Tax Exempt Investors, L.P.
              
              $
              4,040,054
              
              
              $
              2,967,636
              
              
              $
              1,072,418
 
 Mortgage revenue bond investment
income.  The increase in mortgage revenue bond investment
income during the first nine months of 2009 compared to the first nine months of
2008 is due to a number of items which offset each other.  First, the
Partnership realized approximately $2.3 million of contingent interest related
to the redemption of three bonds in the first quarter of 2009. Second, the Oak
Grove, Cross Creek, and Southpark bond investments were acquired at the
beginning of the second quarter and third quarter of 2009, which generated
approximately $464,000 of additional interest income.  These increases
were offset by a decline in interest income due to the disposition of the
Chandler Creek and Deerfield bonds in 2008, the foreclosure of the Prairiebrook
Village bond, and the redemption of three bonds in the first quarter of
2009.  The disposition and redemption of these bonds accounted for a
decrease of approximately $1.8 million in interest income.
 
 Property
revenues.Property revenues increased as a direct result of
revenue generated by the newly acquired MF Properties, two of which were
acquired in the second half of 2008 and one of which was acquired in first
quarter 2009.  These properties added $2.0 million of rental income.
Property revenues generated by the other MF Properties were down slightly in
2009 compared to the same period of 2008. The MF Properties averaged $593 per
unit in monthly rent in 2009 as compared with $655 per unit in
2008.  Economic occupancy at the MF Properties was 85% during the
first nine months of 2009 as compared to 87% in the first nine months of
2008.
 
 Other income
(loss).  In 2009, the other loss represents the write-off of
unamortized deferred finance costs related to the three bonds redeemed during
the first quarter of 2009. In 2008, a net loss was recorded for the Chandler
Creek and Deerfield bond sales. In both years, these losses were offset by an
increase in other interest income attributable to temporary investments in
liquid securities representing amounts presented as cash and cash equivalents
and restricted cash.
 
 Real estate operating
expenses. Real estate operating expenses increased by approximately $1.3
million as a direct result of the expenses incurred by the two MF Properties
acquired in 2008 and the one acquired in 2009.  Additionally, real
estate operating expenses related to the nine existing MF Properties increased
approximately $100,000 compared to 2008 mainly due to an increase in real estate
tax expense.
 
 30
 Loan loss reserve
expense.  The Partnership periodically, or as changes in
circumstances or operations dictate, evaluates its investments for
impairment.  The value of the underlying property assets is ultimately
the most relevant measure of value to support the investment carrying
values.  Due to current economic pressures, declining property
occupancy and declines in net operating income at the property level, the
Partnership determined it was appropriate to evaluate its investments for
impairment as of June 30, 2009.  Investments tested for impairment
include all fixed assets, bond investments and taxable loans made to various
properties.  Such evaluation is based on cash flow and discounted cash
flow models.  The Partnership concluded that there was no impairment
of fixed assets or bond investments.  This evaluation did determine
that a portion of the Partnership taxable property loans was potentially
impaired and that additional loan loss reserves should be
recorded.  As a result, $220,000 of additional loan loss reserves
related to the taxable loans between various properties and the Partnership was
recorded in second quarter of 2009.   The Partnership has net
outstanding taxable loans to various properties recorded on its balance sheet of
approximately $15.3 million.
 
 Interest
expense.Interest expense increased approximately $65,000
during the first nine months of 2009 compared to the first nine months of
2008.  The increase was due to a number of offsetting
factors.  The increase in interest expense was attributable to marking
interest rate derivatives to fair value, thereby increasing interest expense by
approximately $1.1 million for 2009 as compared to 2008.  The
Partnership’s average borrowing cost decreased from 4.9% per annum in 2008 to
3.2% per annum in 2009 and the average borrowings outstanding also
decreased.  Together these two items offset the increase related to
the derivatives fair value adjustment resulting in the slight net increase in
interest expense.
 
 Depreciation and amortization
expense.  Depreciation and amortization expense consists
primarily of depreciation associated with the MF Properties, amortization
associated with in-place lease intangible assets recorded as part of the
purchase accounting for the acquisition of MF Properties and deferred finance
cost amortization related to the TOB credit facility that was entered into in
the first half of 2008. The net increase consists of several offsetting items.
Of the total increase approximately $378,000 is attributable to deferred
financing cost amortization related to the TOB facility and approximately
$419,000 of additional in-place lease amortization related to acquisition of new
MF Properties.  Depreciation expense increased approximately $603,000
due to the acquisition of new MF Properties and additional capital assets placed
in service at existing properties. The increases are offset by an approximate
$368,000 decrease in amortization related to the deferred finance costs from the
purchase of the six MF properties in June 2007 that are now fully
amortized.
 
 General and administrative
expenses.General and administrative expenses increased due to
an increase in professional fees and salaries expense.
 
 Liquidity
and Capital Resources
 
 Partnership
Liquidity
 
 Tax-exempt
interest earned on the mortgage revenue bonds, including those financed
properties held by VIEs, represents the Partnership's principal source of cash
flow.  The Partnership may also receive cash distributions from equity
interests held in MF Properties.  Tax-exempt interest is primarily
comprised of base interest payments received on the Partnership’s tax-exempt
mortgage revenue bonds.  Certain of the tax-exempt mortgage revenue
bonds may also generate payments of contingent interest to the Partnership from
time to time when the underlying apartment properties generate excess cash
flow.  Because base interest on each of the Partnership’s mortgage
revenue bonds is fixed, the Partnership’s cash receipts tend to be fairly
constant period to period unless the Partnership acquires or disposes of its
investments in tax-exempt bonds.  Changes in the economic performance
of the properties financed by tax-exempt bonds with a contingent interest
provision will affect the amount of contingent interest, if any, paid to the
Partnership.  Similarly, the economic performance of MF Properties
will affect the amount of cash distributions, if any, received by the
Partnership from its ownership of these properties.  The economic
performance of a multifamily apartment property depends on the rental and
occupancy rates of the property and on the level of operating
expenses.  Occupancy rates and rents are directly affected by the
supply of, and demand for, apartments in the market area in which a property is
located.  This, in turn, is affected by several factors such as local
or national economic conditions, the amount of new apartment construction and
the affordability of single-family homes.  In addition, factors such
as government regulation (such as zoning laws), inflation, real estate and other
taxes, labor problems and natural disasters can affect the economic operations
of an apartment property.  The primary uses of cash by apartment
properties are the payment of operating expenses and debt
service.  Other sources of cash include debt financing and the sale of
additional BUCs.
 
 The
Company intends to issue BUCs from time to time to raise additional equity
capital as needed to fund investment opportunities.  In this regard,
the Company has an effective Registration Statement on Form S-3 with the SEC
relating to the sale of up to $100.0 million of its BUCs.  Pursuant to
this Registration Statement, in May 2009, the Company issued, through an
underwritten public offering, a total of 3,500,000 BUCs at a public offering
price of $5.00 per BUC. Net proceeds realized by the Company from the issuance
of the additional BUCs were approximately $16.1 million, after payment of an
underwriter's discount and other offering costs of approximately $1.4
million.  Additionally, in October 2009, the Company issued, through
an underwritten public offering, a total of 4,830,000 BUCs at a public offering
price of $5.05 per BUC.  Net proceeds realized by the Company from
issuance of the additional BUCs were approximately $22.9 million, after payment
of an underwriter’s discount and other offering costs of approximately $1.5
million.  The proceeds will be used to acquire additional tax-exempt
revenue bonds and other investments meeting the Partnership's investment
criteria and for general working capital needs.  To date, the Company
has issued approximately $71.5 million of BUCs under this Registration Statement
which will expire in January 2010. The Company intends to issue additional BUCs
from time to time. In that regard, the Company expects to file a new
Registration Statement on Form S-3 for the sale of additional BUCs beyond the
amount registered under its existing Registration Statement. In addition, in
October 2008, the Company filed a Registration Statement on Form S-3 with the
SEC relating to a Rights Offering.  Pursuant to this Registration
Statement, the Company may issue Rights Certificates to existing BUC
holders.  The Company has not yet determined when, or if, such a
Rights Offering will be conducted.  Raising additional equity capital
for deployment into new investment opportunities is part of the Company’s
overall growth strategy.
 
 31
 The
Company believes that current economic and credit market conditions have created
investment opportunities for the Company that it intends to aggressively pursue.
Many participants in the multifamily housing debt sector are either reducing
their participation in the market or are being forced to divest their existing
portfolio of investments.  This has resulted in fewer investors
competing for new issuances of tax-exempt housing bonds and has created
opportunities to acquire existing tax-exempt bonds from distressed entities at
attractive yields.  We believe that we are well-positioned as a result
of our ability to acquire assets on the secondary market while maintaining the
ability and willingness to also participate in primary market
transactions.  Additionally, the current credit crisis is providing
the potential for investments in quality real estate assets to be acquired from
distressed owners and lenders.  Our ability to restructure existing
debt together with the ability to improve the operations of the underlying
apartment properties through our affiliated property management company results
in a valuable tax-exempt bond investment which is supported by the collateral
and operations of the underlying real property.  The Company is
currently evaluating a number of attractive potential investments and continues
to be presented with investment opportunities on a regular
basis.  While we believe the Company is well-positioned to
aggressively pursue new investment opportunities thereby creating value to
shareholders in the form of a strong tax-exempt bond investment, there is no
guarantee that we will be able to consummate any such
transaction.
 
 The
Partnership’s principal uses of cash are the payment of distributions to BUC
holders, interest and principal on debt financing and general and administrative
expenses. The Partnership also uses cash to acquire additional investments.
Distributions to BUC holders may increase or decrease at the determination of
the General Partner. Distributions to BUC holders depend upon the amount of base
and contingent interest received on the Company’s tax-exempt mortgage revenue
bonds and cash received from other investments, the amount of borrowings and the
effective interest rate of these borrowings, and the amount of the Partnership’s
undistributed cash. The Company’s regular annual distributions were paid at a
rate of $0.54 per BUC, or $0.135 per quarter per BUC, through the first quarter
of 2009.  Beginning with the second quarter 2009 distribution, the
General Partner has changed the Company’s regular annual distribution to $0.50
per BUC, or $0.125 per quarter per BUC. The General Partner believes that
distributions at this level are sustainable; however, if actual results vary
from current projections and the actual CAD generated is less than the new
regular distribution, such distribution amount may need to be
reduced.
 
 VIE
Liquidity
 
 The VIEs’
primary source of cash is net rental revenues generated by their real estate
investments. Net rental revenues from a multifamily apartment property depend on
the rental and occupancy rates of the property and on the level of operating
expenses. Occupancy rates and rents are directly affected by the supply of, and
demand for, apartments in the market area in which a property is located. This,
in turn, is affected by several factors such as local or national economic
conditions, the amount of new apartment construction and the affordability of
single-family homes. In addition, factors such as government regulation (such as
zoning laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of an apartment
property.
 
 The VIEs’
primary uses of cash are: (i) the payment of operating expenses; and (ii) the
payment of debt service on the VIEs’ bonds and mortgage notes payable which are
held by the Partnership.
  Consolidated
Liquidity
 
 On a
consolidated basis, cash provided by operating activities for the nine months
ended September 30, 2009 increased approximately $2.7million compared to the
same period a year earlier mainly due to changes in working capital components.
Cash from investing activities increased approximately $30.9 million for the
nine months ended September 30, 2009 compared to the same period in 2008
primarily due to cash inflows from the early redemption of the Ashley Pointe,
Woodbridge – Louisville and Woodbridge – Bloomington bonds.  Proceeds
from the early redemption were $32.0 million as compared to bond sale proceeds
in 2008 of $14.9 million.  Additionally, changes in restricted cash
increased investing cash flows year over year by approximately $13.8 million due
mainly to the release of restricted cash that was collateral on the Company’s
TOB credit facility when the facility was refinanced in June 2009. Cash from
financing activities decreased approximately $29.7 million for the nine months
ended September 30, 2009 compared to the same period in 2008.  This
decrease was a result of net debt repayments totaling approximately $33.8
million as compared to a net increase in debt in 2008 of approximately $11.9
million, additional distributions paid of approximately $872,000, and restricted
cash reductions of approximately $384,000. The decreases were offset by an
approximate $16.1 million increase from the sale of additional
BUCs.
 
 Historically,
the Company’s primary leverage vehicle was the Merrill Lynch P-Float
program.  The P-Float program was replaced in June of 2008 by a TOB
facility with Bank of America.  The TOB facility was refinanced in
June 2009 by a new term credit facility.  The new credit facility has
a one-year term with a six-month renewal option held by the Company, an annual
floating interest rate of one-month LIBOR plus 390 basis points and a loan
amount of $50.0 million.  The proceeds from the new credit facility
plus the cash collateral held by Bank of America for the TOB facility were used
to retire the outstanding balance on the TOB facility.  The new credit
facility is secured by 13 tax-exempt mortgage revenue bonds with a total par
value of $112.1 million plus approximately $1.5 million in restricted
cash.  The properties which secure the bond portfolio which is collateral
for the new credit facility are to maintain, as a group, minimum debt service
coverage of 1.1 to 1 and a loan to value ratio not to exceed 75%.  At
September 30, 2009, the Company was in compliance with these covenants. 
Subsequent to September 30, 2009, the Company was notified by Bank of America
that it was no longer in compliance with the loan to value covenant.  In
November 2009, the Company transferred additional collateral of
approximately $2.0 million to Bank of America to maintain compliance with the
covenant.  The Partnership continues to explore opportunities to
improve its financing arrangements.  One option currently being
pursued is a Tax-Exempt Bond securitization facility (“TEBs”) with Freddie
Mac.  The Company feels this financing option offers several
advantages over the current Credit Facility including a longer term of up to 10
years. There can be no assurance that we will be able to enter into a TEBs
securitization facility on terms favorable to the Partnership or at
all.
 
 32
 Approximately
$19.9 million in outstanding mortgage financing related to the MF Properties
located in Ohio and Kentucky was due in July 2009.  This mortgage loan
contains three one-year renewal options held by the borrower.  In July
2009, the borrower entered into a Maturity Date Extension Agreement for the
mortgage loan which extended the maturity on the mortgage one year to July
2010.  In conjunction with the extension, the borrower paid down the
mortgage balance related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million resulting in a new outstanding mortgage balance of approximately
$12.8 million and the Eagle Ridge and Meadowview properties were released as
collateral for the loan.
   While the
Company expects to be able to renew or refinance current debt maturities, if the
current illiquidity in the financial markets continues or further deteriorates
the counterparties on the Company’s credit facilities may be unable or unwilling
to meet or extend their commitments and the Company’s ability to renew or
refinance its outstanding debt financing may be negatively
affected.
 
 The
General Partner has completed financial models in order to estimate the impact
on CAD of the changes in the Company's assets and credit facilities during the
first half of 2009.  The actual impact on CAD may vary from current
projections.  The new distribution rate was determined based upon the
current projections.  The general partner will evaluate the new
distribution rate against actual CAD generated by the Company and may increase
or decrease the distribution based on such actual results.
 
 Cash
Available for Distribution
 
 Management
utilizes a calculation of Cash Available for Distribution (“CAD”) as a means to
determine the Partnership’s ability to make distributions to BUC
holders.  The general partner believes that CAD provides relevant
information about the Partnership’s operations and is necessary along with net
income for understanding the Partnership’s operating results.  To
calculate CAD, amortization expense related to debt financing costs and bond
reissuance costs, Tier 2 income due to the general partner as defined in the
Agreement of Limited Partnership, interest rate derivative expense or income,
provision for loan loss reserves, impairments on bonds and losses related to
VIEs including depreciation expense are added back to the Company’s net income
(loss) as computed in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). There is no generally accepted
methodology for computing CAD, and the Company’s computation of CAD may not be
comparable to CAD reported by other companies.  Although the Company
considers CAD to be a useful measure of its operating performance, CAD should
not be considered as an alternative to net income or net cash flows from
operating activities which are calculated in accordance with GAAP.
 
 The
following tables show the calculation of CAD for the three and nine months ended
September 30, 2009 and 2008:
 
 
 For
      the Three
              
              
              For
      the Three
              
              
              For
      the Nine
              
              
              For
      the NineMonths
      Ended
              
              
              Months
      Ended
              
              
              Months
      Ended
              
              
              Months
      EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              September
      30, 2009
              
              
              September
      30, 2008Net
      income - America First Tax Exempt Investors, L.P.
              
              $
              206,349
              
              
              $
              161,929
              
              
              $
              25,399,053
              
              
              $
              447,548Net
      (income) loss related to VIEs and eliminations due to
      consolidation
              
              
              1,248,472
              
              
              
              1,005,651
              
              
              
              (21,358,999
              )
              
              
              2,520,088Net
      income before impact of VIE consolidation
              
              
              1,454,821
              
              
              
              1,167,580
              
              
              
              4,040,054
              
              
              
              2,967,636Change
      in fair value of derivatives and interest rate cap
      amortization
              
              
              231,289
              
              
              
              (183,216
              )
              
              
              721,811
              
              
              
              (144,888
              )Loss
      on taxable loans
              
              
              -
              
              
              
              -
              
              
              
              294,999
              
              
              
              -Loss
      on bond sale
              
              
              -
              
              
              
              -
              
              
              
              127,495
              
              
              
              -Tier
      2 Income distributable to the General Partner (1)
              
              
              (215,716
              )
              
              
              -
              
              
              
              (801,137
              )
              
              
              (13,796
              )Depreciation
      and amortization expense (Partnership only)
              
              
              709,665
              
              
              
              715,468
              
              
              
              2,786,053
              
              
              
              1,926,271CAD
              
              $
              2,180,059
              
              
              $
              1,699,832
              
              
              $
              7,169,275
              
              
              $
              4,735,223Net
      income, basic and diluted, per BUC
              
              $
              0.07
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.22Total
      CAD per BUC
              
              $
              0.13
              
              
              $
              0.13
              
              
              $
              0.47
              
              
              $
              0.35Weighted
      average number of units outstanding, basic
      and diluted
              
              
              17,012,928
              
              
              
              13,512,928
              
              
              
              15,128,313
              
              
              
              13,512,928
 
 (1) As
      described in Note 2 to the consolidated financial statements, Net Interest
      Income representing contingent interest and Net Residual Proceeds
      representing contingent (Tier 2 income) will be distributed 75% to the BUC
      holders and 25% to the General Partner. This adjustment represents the 25%
      of Tier 2 income due to the General Partner. For 2009, the Tier 2 income
      distributable to the General Partner was generated by the early redemption
      of the Woodbridge – Louisville and Woodbridge - Bloomington bond
      investments, the sale of Oak Grove and from Fairmont Oaks and Lake Forest
      Apartments.
  33
 Contractual
Obligations
 
 There
were no significant changes to the Company’s contractual obligations as of
September 30, 2009 from the December 31, 2008 information presented in the
Company’s Annual Report on Form 10-K, except as follows.  As discussed
in the Annual Report on Form 10-K, the Company’s TOB facility was to mature in
July 2009.  The TOB facility was refinanced in June
2009.   In addition to the TOB facility maturity, approximately
$19.9 million in outstanding mortgage financing related to the MF Properties
located in Ohio and Kentucky was due in July 2009.  In July 2009, the
borrower entered into a Maturity Date Extension Agreement for the mortgage loan
which extended the maturity on the mortgage one year to July 2010.  In
connection with the extension, the borrower paid down the mortgage balance
related to two of the financed properties, Eagle Ridge and
Meadowview.  The outstanding principal was reduced by approximately
$7.1 million resulting in a new outstanding mortgage balance of approximately
$12.8 million.  The Eagle Ridge and Meadowview properties were
released from collateral for the loan.
 
 The
Partnership had the following contractual obligations as of September 30,
2009:
 
 
 Payments
      due by periodLess
      than
              
              
              1-2
              
              
              More
      than 2Total
              
              
              1 year
              
              
              years
              
              
              yearsDebt
      financing
              
              $
              50,000,000
              
              
              $
              50,000,000
              
              
              $
              -
              
              
              $
              -Mortgages
      payable (1)
              
              $
              30,160,804
              
              
              $
              12,955,644
              
              
              $
              644,590
              
              
              $
              16,560,570Effective
      interest rate(s) (2)
              
              
              
              
              
              
              4.06
              %
              
              
              4.70
              %
              
              
              3.35
              %Interest
              
              $
              4,612,016
              
              
              $
              2,360,767
              
              
              $
              1,597,959
              
              
              $
              653,290(1) Interest rates shown
      are the average effective rate as of September 30, 2009 and include the
      impact of our interest rate derivatives.(2) Interest shown is
      estimated based upon current effective interest rates through
      maturity.
 
 Recently
Issued Accounting Pronouncements
 
 In June
2009, the FASB issued pre-codification guidance in Statement No.
168,The FASB Accounting
Standards Codificationand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement
No. 162, Effective July 1, 2009, this guidance was codified into ASC
105-10, Generally Accepted
Accounting Standards ("ASC 105-10"), which became the source of
authoritative GAAP recognized by the FASB to be applied by non-governmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants.
Effective July 1, 2009, the Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification became nonauthoritative
on that effective date. ASC 105-10 does not have a material impact on the
financial statements.
  In June
2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R)(SFAS No. 167). SFAS No. 167 retains the scope of
Interpretation 46(R), Consolidation of Variable Interest
Entities, with the addition of entities previously considered qualifying
special-purpose entities, as the concept of these entities was eliminated in
FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140. SFAS No.
167 shall be effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is currently evaluating the impact of
SFAS No. 167 on the financial statements. SFAS No. 167 has not been codified to
date.
  In June
2009, the FASB issued Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140(SFAS No.
166). On and after the effective date of SFAS No. 166, the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes.
Therefore, formerly qualifying special-purpose entities (as defined under
previous accounting standards) should be evaluated for consolidation by
reporting entities on and after the effective date in accordance with the
applicable consolidation guidance. SFAS No. 166 must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. SFAS
No. 166 is not expected to have a material impact on the financial statements.
SFAS No. 166 has not been codified to date.
  In May
2009, the FASB issued pre-codification Statement No. 165, Subsequent Events. On July 1,
2009, this Statement was codified into ASC 855-10, Subsequent Events,("ASC
855-10") which establishes general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. The Company adopted ASC 855-10 in the second
quarter. The adoption did not affect the consolidated balance sheet, statement
of operations, or cash flows.
 
 On
January 1, 2009, the Company adopted the pre-codification guidance
of  SFAS No. 141R, Business Combination.Effective July 1, 2009, this guidance was codified into ASC 805-10, Business Combinations ("ASC
805-10"), which changes the way the Company accounts for business acquisition.
and requires the acquiring entity in a business combination to recognize all
(and only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business
combination.  Certain provisions of ASC 805-10 will, among other
things, impact the determination of acquisition date fair value of consideration
paid in a business combination, exclude transaction costs from acquisition
accounting and change some accounting practices.
 34
 On
January 1, 2009, the Company adopted the pre-codification guidance
of  SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51). Effective July 1, 2009, this guidance
was codified into ASC 810-10, Consolidations ("ASC 810-10"). It requires that a
noncontrolling interest in a subsidiary be reported as equity and the amount of
consolidated net income specifically attributable to the noncontrolling interest
be identified in the consolidated financial statements.  It also calls
for consistency in the manner of reporting changes in the parent’s ownership
interest and requires fair value measurement of any noncontrolling equity
investment retained in deconsolidation.  The adoption recharacterized
minority interests as noncontrolling interests and reclassified minority
interests as a component of equity on the Company’s financial
statements.  Prior year amounts relating to noncontrolling interests
have been reclassified to conform to current year presentation as required by
ASC 810-10.
 ASC
820-10-65-4, Fair Value Measurements and Disclosures ("ASC 820-10-65-4")
(pre-codification guidance of FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales and reaffirms what ASC 820-10 states is
the objective of fair value measurement—to reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced
transaction) at the date of the financial statements under current market
conditions. Specifically, it reaffirms the need to use judgment to ascertain if
a formerly active market has become inactive and in determining fair values when
markets have become inactive.
 
 ASC
825-10-65-1, Financial Instruments, ("ASC 825-10-65-1") (pre-codification
guidance of FSP FAS 107-1 and APB 28-1) relate to fair value disclosures for any
financial instruments that are not currently reflected on the balance sheet of
companies at fair value. Prior to issuing this guidance, fair values for these
assets and liabilities were only disclosed once a year. ASC 825-10 now requires
these disclosures on a quarterly basis, providing qualitative and quantitative
information about fair value estimates for all financial instruments not
measured on the balance sheet at fair value.
 
 ASC
320-10-65-1, Investments - Debt and Equity Securities ("ASC 320-10-65-1")
(pre-codification guidance of FSP FAS 115-2 and FAS 124-2) on
other-than-temporary impairments is intended to bring greater consistency to the
timing of impairment recognition, and provide greater clarity to investors about
the credit and noncredit components of impaired debt securities that are not
expected to be sold. The measure of impairment in comprehensive income remains
fair value. ASC 320-10 also requires increased and timelier disclosures sought
by investors regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses.
 
 ASC
820-10-65-4, ASC 825-10-65-1 and ASC 320-10-65-1 were effective for the Company
for the quarter ended June 30, 2009 and did not have a material impact on the
Company’s financial statements.
  Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
 
 The
Partnership's primary market risk exposures are interest rate risk and credit
risk. The Partnership's exposure to market risks relates primarily to its
investments in tax-exempt mortgage revenue bonds and its debt financing. There
have been no material changes in market risk from the information provided under
“Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of the
Company’s 2008 Annual Report on Form 10-K except as discussed
below.
 
 Interest
Rate Risk
 
 Historically,
the interest rate on the Partnership’s floating rate debt facility has
fluctuated based on the SIFMA Index Rate, which resets
weekly.  Accordingly, the Partnership’s cost of borrowing fluctuated
with the SIFMA Index Rate.  In June 2009, the Partnership entered into
a new credit facility with a one-year term, a six-month renewal option held by
the Partnership, an annual floating interest rate of daily LIBOR plus 390 basis
points and a loan amount of $50.0 million.  As a result, the
Partnership’s cost of borrowing now fluctuates with the daily
LIBOR.  The weighted average effective interest rate for 2008 on debt
indexed to the SIFMA rate was approximately 4.2%, including all
fees.  The weighted average effective interest rate for first nine
months of 2009 on the debt indexed to the SIFMA rate was approximately 2.0%,
including all fees.  The effective interest rate for the new credit
facility as of September 30, 2009 was 4.2%.  This rate is calculated
as one-month LIBOR, 0.25% as of September 30, 2009, plus 390 basis
points.  In order to hedge the cost of borrowing against a significant
unfavorable fluctuation in the one-month LIBOR, the Partnership entered into an
interest rate derivative.  The derivative purchased is a one-month
LIBOR interest rate cap with a notional value of $50.0 million which was
purchased for approximately $554,000.  This new interest rate cap
effectively caps the interest rate to be paid on the Company’s new secured
credit facility at 0.75% plus 390 basis points, or 4.65%.
  Item 4.  Controls and Procedures.
  Evaluation of disclosure controls
and procedures.The Partnership's Chief Executive Officer and
Chief Financial Officer have reviewed and evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Partnership's current disclosure
controls and procedures are effective, providing them with material information
relating to the Partnership as required to be disclosed in the reports the
Partnership files or submits under the Exchange Act on a timely
basis.
  Changes in internal control over
financial reporting.  The Partnership’s Chief Executive Officer
and Chief Financial Officer have determined that there were no changes in the
Partnership's internal control over financial reporting during the Partnership’s
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Partnership’s internal control over financial
reporting.
 35
  
 PART
II - OTHER INFORMATION
 
 Item 1A. Risk Factors.
  The risk
factors affecting the Company are described in Item 1A “Risk Factors” of the
Company’s 2008 Annual Report on Form 10-K and the following:
 
 The
Partnership recently changed its distribution policy and may do so again in the
future.
 Cash
distributions made by the Partnership to shareholders may increase or decrease
at the determination of AFCA 2 based on its assessment of the amount of
cash available to the Partnership for this purpose.  Beginning with
the distribution for the second quarter of 2009, the Partnership’s annual
distribution was reduced from $0.54 per share to $0.50 per share due to AFCA 2’s
determination that higher borrowing costs and other factors would reduce the
cash available to the Partnership to make distributions.  Although
AFCA 2 believes that distributions at this new level are sustainable, if the
Partnership’s actual results of operations vary from current projections and the
actual cash generated is less than the new regular distribution, the Partnership
may need to reduce the distribution rate further.  Any change in our
distribution policy could have a material adverse effect on the market price of
shares.
  Any
future issuances of additional shares could cause their market value to
decline.
 The
issuance of shares in any future offerings may have a dilutive impact on our
existing shareholders.  In January 2007, the Partnership filed a
Registration Statement on Form S-3 with the SEC relating to the sale of up to
$100.0 million of its shares.  The Partnership intends to issue shares
from time to time under this Registration Statement to raise additional equity
capital as needed to fund investment opportunities.  This Registration
Statement remains active with the SEC and is available for the Partnership to
conduct further public offerings.  The issuance of additional shares
could cause dilution of the existing shares and a decrease in the market price
of the shares.  In addition, if additional shares are issued but we
are unable to invest the additional equity capital in assets that generate
tax-exempt income at levels at least equivalent to our existing assets, the
amount of cash available for distribution may decline.
  We
are subject to various risks associated with our derivative
agreements.
 We have used interest rate swaps and
caps to help us mitigate out interest rate risks. However, these derivative
transactions do not fully insulate us from the interest rate risks to which we
are exposed. We cannot assure you that a liquid secondary market will exist for
any instruments purchased or sold in those transactions, thus, we may be
required to maintain a position until exercise or expiration, which could result
in losses. Moreover, the derivative instruments are required to be marked to
market with the difference recognized in earnings as interest expense which can
result in significant volatility to reported net income over the term of these
instruments. The counterparty to certain of these agreements has the right to
convert them to fixed-rate agreements, and it is possible that such a conversion
could result in our paying more interest than we would under our variable-rate
financing. There is also a risk that a counterparty so such agreements will be
unable to perform its obligations under the agreement.
  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).
 
 31.1  Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2  Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1  Certification
of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2  Certification
of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 36
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 AMERICA FIRST TAX EXEMPT INVESTORS,
L.P.
 
 By
America First Capital
 Associates
Limited
 Partnership
Two, General
 Partner
of the Partnership
 
 By  Burlington
Capital Group LLC,
 General
Partner of
 America
First Capital
 Associates
Limited
 Partnership
Two
 
 
 Date:  November
      6, 2009
              /s/ Lisa Y.
      Roskens
 Lisa Y.
Roskens
 Chief
Executive Officer
 Burlington
Capital Group LLC, acting in its capacity as general partner of the General
Partner of America First Tax Exempt Investors, L.P.
  37