Investments in Tax-Exempt Mortgage Revenue Bonds

Each of the tax-exempt mortgage revenue bonds were issued by various state and local governments, their agencies and authorities to finance the construction or rehabilitation of income-producing real estate properties. However, the tax-exempt mortgage revenue bonds do not constitute an obligation of any state or local government, agency or authority and no state or local government, agency or authority is liable on them, nor is the taxing power of any state or local government pledged to the payment of principal or interest on the tax-exempt mortgage revenue bonds. The tax-exempt mortgage revenue bonds are non-recourse obligations of the respective owners of the properties. The sole source of the funds to pay principal and interest on the tax-exempt mortgage revenue bonds is the net cash flow or the sale or refinancing proceeds from the properties. Each tax-exempt mortgage revenue bond, however, is collateralized by a first mortgage on all real and personal property included in the related property and an assignment of rents. Each of the tax-exempt mortgage revenue bonds bears tax-exempt interest at a fixed rate and five of the tax-exempt mortgage revenue bonds provide for the payment of additional contingent interest that is payable solely from available net cash flow generated by the financed property.

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 carrying value of each of the Partnership's tax-exempt mortgage revenue bonds as of December 31, 2011 and 2010 is as follows:



	December 31, 2011
Description of Tax-Exempt	Cost adjusted		Unrealized		Unrealized			Estimated
Mortgage Revenue Bonds	for pay-downs		Gain		Loss			Fair Value
Ashley Square ⁽¹⁾	$	5,308,000	$	—	$	—		$	5,308,000
Autumn Pines⁽²⁾	12,280,776		—		(152,094		)	12,128,682
Bella Vista⁽¹⁾	6,650,000		—		(405,184		)	6,244,816
Bridle Ridge ⁽¹⁾	7,815,000		—		(469,056		)	7,345,944
Brookstone⁽¹⁾	7,437,947		1,116,538		—			8,554,485
Cross Creek⁽¹⁾	5,961,478		1,824,167		—			7,785,645
GMF-Madison Tower⁽²⁾	3,810,000		51,130		—			3,861,130
GMF-Warren/Tulane⁽²⁾	11,815,000		321,722		—			12,136,722
Lost Creek⁽¹⁾	16,051,048		1,962,587		—			18,013,635
Runnymede⁽¹⁾	10,685,000		—		(434,452		)	10,250,548
Southpark ⁽¹⁾	11,925,483		1,431,637		—			13,357,120
Woodlynn Village⁽¹⁾	4,492,000		—		(325,940		)	4,166,060
Tax-exempt mortgage revenue bonds held in trust	$	104,231,732	$	6,707,781	$	(1,786,726	)	$	109,152,787


Description of Tax-Exempt	Cost adjusted		Unrealized		Unrealized			Estimated
Mortgage Revenue Bonds	for pay-downs		Gain		Loss			Fair Value
Iona Lakes	$	15,720,000	$	160,658	$	—		$	15,880,658
Woodland Park	15,662,000		—		(5,000,093		)	10,661,907
Tax-exempt mortgage revenue bonds	$	31,382,000	$	160,658	$	(5,000,093	)	$	26,542,565

	December 31, 2010
Description of Tax-Exempt	Cost adjusted		Unrealized		Unrealized			Estimated
Mortgage Revenue Bonds	for pay-downs		Gain		Loss			Fair Value
Ashley Square⁽¹⁾	$	5,356,000	$	—	$	(643,813	)	$	4,712,187
Bella Vista⁽¹⁾	6,695,000		—		(1,044,554		)	5,650,446
Bridle Ridge ⁽¹⁾	7,865,000		—		(1,342,509		)	6,522,491
Brookstone ⁽¹⁾	7,418,019		287,507		—			7,705,526
Cross Creek⁽¹⁾	5,913,776		1,337,352		—			7,251,128
Lost Creek ⁽¹⁾	15,928,741		516,094		—			16,444,835
Runnymede ⁽¹⁾	10,755,000		—		(1,545,327		)	9,209,673
Southpark ⁽¹⁾	11,940,458		264,143		—			12,204,601
Woodlynn Village ⁽¹⁾	4,522,000		—		(771,408		)	3,750,592
Tax-exempt mortgage revenue bonds held in trust	$	76,393,994	$	2,405,096	$	(5,347,611	)	$	73,451,479

Description of Tax-Exempt	Cost adjusted		Unrealized		Unrealized			Estimated
Mortgage Revenue Bonds	for pay-downs		Gain		Loss			Fair Value
Autumn Pines	$	12,334,247	$	—	$	(1,244,227	)	$	11,090,020
Clarkson College	5,836,667		—		(821,753		)	5,014,914
Woodland Park	15,662,000		—		(4,651,770		)	11,010,230
Tax-exempt mortgage revenue bonds	$	33,832,914	$	—	$	(6,717,750	)	$	27,115,164

(1) Bonds owned by ATAX TEBS I, LLC, Note 9

(2) Bond held by Duetsche Bank in a secured financing transaction, Note 9

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 sheets 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 December 31, 2011 and December 31, 2010, all of the Company's tax-exempt mortgage revenue bonds were valued using discounted cash flow and yield to maturity analysis 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 December 31, 2011, the range of effective yields on the individual bonds was 6.3% to 9.0%. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these bonds. Assuming an immediate ten percent adverse change in the key assumption, the effective yields on the individual bonds would increase to a range of 6.9% to 9.9% and would result in additional unrealized losses on the bond portfolio of approximately $10.7 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 analysis 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 December 31, 2011, the five current bonds that are in an unrealized loss position have been in an unrealized loss position for greater than twelve months. The valuation of all of the current bonds has improved over the prior year. The Company has reviewed each of its mortgage revenue bonds for impairment. Based upon this evaluation, the current unrealized losses on the bonds are not considered to be other-than-temporary. If the credit and capital markets deteriorate further, the Company experiences deterioration in the values of its investment portfolio, or if the Company's intent and ability to hold certain bonds changes, the Company may incur impairments to its investment portfolio which could negatively impact the Company's financial condition, cash flows, and reported earnings.

The Company previously identified three tax-exempt mortgage revenue bonds for which certain actions may be necessary to protect the Company’s position as a secured bondholder and lender. These bonds were Woodland Park, DeCordova and Weatherford. The Company foreclosed on the bonds secured by DeCordova and Weatherford in February 2011 and one of the Company's subsidiaries took full ownership of these two properties. These properties are now classified and presented as MF Properties of the Company as discussed in Note 6.

The Company has evaluated the Woodland Park bond holding for an other-than-temporary decline in value as of December 31, 2011 and 2010 (see Note 2 for discussion of our impairment testing method). Based on this evaluation, the Company has concluded that no other-than-temporary impairment of the Woodland Park bond existed at December 31, 2011 and 2010. However, the evaluation determined that the interest receivable accrued on the Woodland Park bond was impaired and an approximate $953,000 allowance for loss on receivables was recorded in 2011. There was no interest receivable allowance recorded at December 31, 2010. The Partnership will continue to monitor these investments for changes in circumstances that might warrant an impairment charge.

The Company's ability to recover the tax-exempt mortgage revenue bond's entire amortized cost basis is dependent upon the issuer being able to meet debt service requirements. The primary source of repayment is the cash flows produced by the property which serves as the collateral for the bonds. The Company utilizes a discounted cash flow model for the underlying property and compares the results of the model to the amortized cost basis of the bond. These models reflect the cash flows expected to be generated by the underlying properties over a ten year period, including an assumed property sale at the end of year ten, discounted using the effective interest rate on the bonds in accordance with the accounting guidance on other than temporary impairment of debt securities. The revenue, expense and resulting net operating income projections which are the basis for the discounted cash flow model are based on judgment.

The various revenue and expense projections for the Woodland Park property operations are summarized as follows:

•

Revenue and expenses projected for 2012 are equal to the property budget. Budgeted revenues of approximately $1.9 million are based on a budgeted average occupancy of 90%. Budgeted expenses are approximately $879,000. Revenues are projected to grow over the ten years in the model to approximately $2.2 million in year ten based on average annual rental increases of 2% and an average occupancy increasing over time to 93%. Expenses are projected to grow to approximately $1.1 million in year ten based on average annual increases of 2.5%.

The following is a discussion of the circumstances related to the Woodland Park bond. In May 2010, there were insufficient funds available for debt service and the property owner did not provide additional capital to fund the shortfall. As a result, a payment default on the bonds has occurred. In order to protect its investment, the Partnership issued a formal notice of default through the bond trustee and started the foreclosure process. The foreclosure process has been extended and the Partnership cannot estimate when it will be completed. The Partnership continues to enforce its rights as the first lien position. The Partnership believes it will be successful in removing and replacing the general and limited partners of the property owner through foreclosure. This action would allow a new property owner to re-syndicate the LIHTCs associated with this property. If these LIHTCs can be successfully re-syndicated, it will provide additional capital to the project which can be used to support debt service payments on the tax-exempt mortgage revenue bonds until property operations improve to the point that sufficient cash is generated to pay any past due amounts on the bonds as well as ongoing debt service. If the re-syndication of LIHTCs is not successful, the Partnership may pursue other options including making additional taxable loans to the property or completing the foreclosure process and taking direct ownership of the property. As of December 31, 2010, the property had 190 units leased out of total available units of 236, or 81% physical occupancy. As of December 31, 2011 the occupancy had increased to 215 units leased out of a total available units of 236, or 91% physical occupancy.

Recent Bond Activity

In October 2011, the Briarwood Manor bond was called and retired at par plus accrued interest for approximately $4.9 million. This transaction resulted in approximately $445,000 gain reported in the fourth quarter. The net redemption proceeds were used by the Company to retire its $4.0 million term note with Omaha State Bank. The Briarwood bond was originally purchased in February 2011 for $4.5 million.

In June 2011, the Partnership acquired at par a $3.8 million tax-exempt mortgage revenue bond and a $315,000 taxable revenue bond secured by the GMF-Madison Tower Apartments, a 147 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance. These bonds were issued for the acquisition of the GMF-Madison Tower Apartments by an affiliate of the Global Ministries Foundation, an unaffiliated not-for-profit entity. The tax-exempt bond carries an annual interest rate of 6.75% and matures on December 1, 2046. The taxable bond carries an annual interest rate of 7.75% and matures on December 1, 2019. The bonds do not provide for contingent interest. The Company has determined that the entity which owns GMF-Madison Tower Apartments is an unrelated not-for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, its financial statements are not consolidated into the consolidated financial statements of the Company.

In June 2011, the Partnership acquired at par an $11.8 million tax-exempt mortgage revenue bond and a $485,000 taxable revenue bond secured by the GMF-Warren/Tulane Apartments, a 448 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance. These bonds were issued for the acquisition of the GMF-Warren/Tulane Apartments by an affiliate of the Global Ministries Foundation, an unaffiliated not-for-profit entity. The tax-exempt bond carries an annual interest rate of 6.75% and matures on December 1, 2046. The taxable bond carries an annual interest rate of 6.5% and matures on December 1, 2015. The bonds do not provide for contingent interest. The Company has determined that the entity which owns GMF-Warren/Tulane Apartments is an unrelated not-for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, its financial statements are not consolidated into the consolidated financial statements of the Company.

In May 2011, the outstanding Clarkson College tax-exempt revenue bond held by the Company was retired early for an amount equal to the outstanding principal and base interest plus accrued but unpaid contingent interest. As of March 31, 2011, the Company carried the investment in the Clarkson College bond at an estimated fair market value of approximately $5.1 million. The retirement of the bond resulted in a payment to the Partnership of approximately $6.1 million consisting of approximately $5.8 million in principal, approximately $16,000 of base interest and approximately $308,000 of accrued contingent interest.

In November 2010, the Company acquired the tax-exempt mortgage revenue bond for a 250 unit multifamily apartment complex in Humble, Texas (Houston) known as Autumn Pines for approximately $12.3 million which represented 100% of the bond issuance. The bond par value is $13.4 million with an annual interest rate of 5.8%. The bond purchase price results in a yield to maturity of approximately 7.0% per annum. The bond matures in October 2046.

In June 2010, the Company acquired all of the $18.3 million tax-exempt mortgage revenue bonds issued by the Ohio Housing Finance Agency in order to provide debt financing for the acquisition and rehabilitation of Crescent Village, Post Woods I, Post Woods II and Willow Bend Apartments in Ohio (the “Ohio Properties”). The tax-exempt mortgage bonds secured by the Ohio Properties were acquired by the Company at par and were issued in two series. The Series A bond has a par value of $14.7 million and bears interest at a fixed annual rate of 7.0%. The Series B bond has a par value of $3.6 million and bears interest at a fixed annual rate of 10.0%. Neither series provides for contingent interest. Each series of bonds matures in June 2050. In connection with the bond financing transaction, ownership of the Ohio Properties was conveyed by the Company to three new ownership entities controlled by an unaffiliated not-for-profit entity. However, because the new ownership entities had no equity capital at the time of purchase and the property operations are the sole source of debt service on the Company's bonds, the Company is required to continue to account for the Ohio Properties as if it is the owner of real estate rather than as a secured lender. As such, the Company continued to consolidate the Ohio Properties on its financial statements as of December 31, 2011 which, among other things, results in the elimination of the bonds in consolidation (Note 3).

In May 2010, the Company acquired the tax-exempt mortgage revenue bond for a 261 unit multifamily apartment complex in San Antonio, Texas known as The Villages at Lost Creek for approximately $15.9 million which represented 100% of the bond issuance. The bond par value is $18.5 million with an annual interest rate of 6.25%. The bond purchase price results in a yield to maturity of approximately 7.55% per annum. The bond matures in June 2041.

The Company has determined that the underlying entities that own the Autumn Pines Apartments, Lost Creek Apartments, Brookstone Apartments, South Park Ranch Apartments, GMF-Warren/Tulane Apartments, and GMF-Madison Apartments, which are financed by bonds owned by the Partnership do not meet the definition of a VIE and accordingly, their financial statements are not required to be consolidated into the Company's consolidated financial statements under the guidance on consolidations.

Descriptions of certain terms of the tax-exempt mortgage revenue bonds are as follows:



Property Name	Location	Maturity Date	Base Interest Rate		Principal Outstanding Dec. 31, 2011		Income Earned In 2011

Ashley Square⁽¹⁾	Des Moines, IA	12/1/2025	6.25	%	$	5,308,000	$	333,125
Autumn Pines ⁽²⁾	Humble, TX	10/1/2046	5.80	%	13,325,000		776,983
Bella Vista⁽¹⁾	Gainesville, TX	4/1/2046	6.15	%	6,650,000		409,667
Bridle Ridge⁽¹⁾	Greer, SC	1/1/2043	6.00	%	7,815,000		469,550
Brookstone ⁽¹⁾	Waukegan, IL	5/1/2040	5.45	%	9,490,809		518,540
Cross Creek ⁽¹⁾	Granbury, TX	3/1/2049	6.15	%	8,634,693		532,810
GMF-Madison ⁽²⁾	Memphis, TN	12/1/2046	6.75	%	3,810,000		136,446
GMF-Warren/Tulane⁽²⁾	Memphis, TN	12/1/2046	6.75	%	11,815,000		423,125
Iona Lakes	Ft. Myers, FL	4/1/2030	6.90	%	15,720,000		634,800
Runnymede ⁽¹⁾	Austin, TX	10/1/2042	6.00	%	10,685,000		643,200
Southpark⁽¹⁾	Austin, TX	12/1/2049	6.13	%	14,000,000		862,834
Villages at Lost Creek⁽¹⁾	San Antonio, TX	6/1/2041	6.25	%	18,500,000		1,156,250
Woodland Park	Topeka, KS	11/1/2047	6.00	%	15,013,000		900,780
Woodland Park	Topeka, KS	11/1/2047	8.00	%	649,000		51,920
Woodlynn Village ⁽¹⁾	Maplewood, MN	11/1/2042	6.00	%	4,492,000		270,570
Total Tax-Exempt Mortgage Bonds					$	145,907,502	$	8,120,600

Property Name	Location	Maturity Date	Base Interest Rate		Principal Outstanding Dec. 31, 2010		Income Earned In 2010

Ashley Square⁽¹⁾	Des Moines, IA	12/1/2025	6.25	%	$	5,356,000	$	422,235
Autumn Pines	Humble, TX	10/1/2046	5.80	%	13,420,000		121,078
Bella Vista ⁽¹⁾	Gainesville, TX	4/1/2046	6.15	%	6,695,000		413,596
Bridle Ridge⁽¹⁾	Greer, SC	1/1/2043	6.00	%	7,865,000		472,600
Brookstone ⁽¹⁾	Waukegan, IL	5/1/2040	5.45	%	9,560,871		522,013
Clarkson College	Omaha, NE	11/1/2035	6.00	%	5,836,667		352,908
Cross Creek ⁽¹⁾	Granbury, TX	3/1/2049	6.15	%	8,697,032		539,349
Runnymede ⁽¹⁾	Austin, TX	10/1/2042	6.00	%	10,755,000		647,400
South Park ⁽¹⁾	Austin, TX	12/1/2049	6.13	%	14,095,000		867,810
Villages at Lost Creek⁽¹⁾	San Antonio, TX	6/1/2041	6.25	%	18,500,000		732,292
Woodland Park	Topeka, KS	11/1/2047	6.00	%	15,013,000		900,780
Woodland Park	Topeka, KS	11/1/2047	8.00	%	649,000		51,920
Woodlynn Village⁽¹⁾	Maplewood, MN	11/1/2042	6.00	%	4,522,000		272,300
Total Tax-Exempt Mortgage Bonds					$	120,964,570	$	6,316,281

(1) Bonds owned by ATAX TEBS I, LLC, Note 9

(2) Bond held by Deutsche Bank in a secured financing transaction, Note 9