-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DSPmqFb9JTjUCwLtUWK+5nfOu23m3OHPnWsNwpTeMJSKKz6NhTCXtAF01+4uMm1J CQ3JY6DYp8IBatKPTcGhfg== 0000912057-00-015252.txt : 20000504 0000912057-00-015252.hdr.sgml : 20000504 ACCESSION NUMBER: 0000912057-00-015252 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000130 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARTER MUNICIPAL MORTGAGE ACCEPTANCE CO CENTRAL INDEX KEY: 0001043325 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 133916825 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13237 FILM NUMBER: 589417 BUSINESS ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124215333 MAIL ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - ------- EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR - - ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13237 CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY --------------------------------------------- (Exact name of Registrant as specified in its Trust Agreement) Delaware 13-3949418 - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Madison Avenue, New York, New York 10022 - - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 421-5333 Securities registered pursuant to Section 12(b) of the Act: Title of each class -------------------------------------- Shares of Beneficial Interest Name of each exchange on which registered: ----------------------------------------- American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The approximate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of March 9, 2000 was $242,342,101, based on a price of $11 15/16 per share, the closing sales price for the Registrant's shares of beneficial interest on the American Stock Exchange on that date. As of March 9, 2000 there were 20,582,628 outstanding shares of the Registrant's shares of beneficial interest. DOCUMENTS INCORPORATED BY REFERENCE Part III: Those portions of the Registrant's Proxy Statement for Annual Meeting of Shareholders to be held on June 14, 2000, which are incorporated into Items 10, 11, 12 and 13. Index to exhibits may be found on page 53 Page 1 of 96 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. PART I Item 1. Business. GENERAL Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware business trust which is engaged in the acquisition and ownership (either directly or indirectly) of tax-exempt participating and non-participating first mortgage bonds ("FMBs") issued by various state or local governments or other agencies or authorities and secured by participating and non-participating mortgage loans on the underlying properties ("Underlying Properties"). As of December 31, 1999, the Company owned a portfolio of 69 FMBs. The Underlying Properties securing the bonds are garden apartments located in nineteen metropolitan markets in fourteen states. The properties, range in size from 70 units to 550 units with an average size of 231 units. All of the properties have an amenity package, competitive for their respective markets, with many including swimming pools, clubhouses, exercise rooms and tennis courts. As of December 31, 1999 there are 30 FMBs with Underlying Properties either under construction or undergoing major rehabilitation. The remaining properties in the portfolio are completed and have stabilized occupancies. The stabilized portfolio as of February 27, 2000 reports an average occupancy of 95.6%. The Company does not operate as a mortgage REIT, which generally utilize high levels of leverage and acquire subordinated interests in commercial and/or residential mortgage- backed securities. Rather, the Company utilizes low levels of leverage and generally invests in or acquires long-term, fixed-rate, tax-exempt FMBs. As a result, the Company did not experience the ill-effects associated with the volatile interest rate environment during 1999 and 1998. Pursuant to its Trust Agreement, the Company is only able to incur leverage or other financing up to 50% of the Company's Total Market Value (as defined in the Trust Agreement) as of the date incurred. Mortgage REITs typically incur leverage at ratios ranging from between 3:1 to 10:1. Due to the Company's low level of leverage, the Company has not been affected by the lack of liquidity that recently impaired mortgage REITs and its portfolio does not contain assets that are especially vulnerable to volatility during periods of interest rate fluctuations. In general, the FMBs that the Company either invests in or acquires call for ten-year restrictions from prepayments, eliminating the Company's susceptibility to significant levels of repayment risk as a result of interest rate reductions. Consistent with the foregoing, the Company focuses on providing investors with a stable level of distributions, even through unstable markets. ORGANIZATION The Company was formed on October 1, 1997 as the result of the consolidation (the "Consolidation") of three publicly registered limited partnerships, Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III") (the "Partnerships", and each individually a "Partnership"). One of the general partners of the Partnerships was an affiliate of Related Capital Company ("Related"), a nationwide, fully integrated real estate financial services firm. Unless otherwise indicated, the "Company", as hereinafter used, refers to Charter Municipal Mortgage Acceptance Company and its consolidated subsidiaries and, for references prior to October 1, 1997, refers to Tax Exempt II. Pursuant to the Consolidation, the Company issued shares of beneficial interest (the "Shares") to all partners in each of the Partnerships in exchange for their interests in the Partnerships based upon each partner's proportionate interest in the Shares issued to their Partnership in the Consolidation. The Shares commenced trading on the American Stock Exchange on October 1, 1997 under the symbol "CHC". As of December 31, 1999, there were 20,580,986 Shares outstanding. For financial accounting and reporting purposes, the Consolidation was accounted for using the purchase method of accounting. Under this method, the Partnership with the investor group receiving the largest ownership in the Company, in this case Tax Exempt II, was deemed to be the acquirer. As the surviving entity for accounting purposes, Tax Exempt II's assets and liabilities were recorded by the Company at their historical cost, with the assets and liabilities of the other Partnerships recorded at their estimated fair values for each Partnership (an aggregate of approximately $158,129,000) as set forth in the Solicitation Statement of the Company dated June 18, 1997 (the "Solicitation Statement"). Results of operations and other operating financial data for the Company prior to October 1, 1997 (the date of the Consolidation) is only with respect to Tax Exempt II. Information subsequent to September 30, 1997 is with respect to the Company and its consolidated subsidiaries which include Tax Exempt II and the other Partnerships pursuant to the Consolidation. Prior to the Consolidation, Tax Exempt II was a limited partnership which was formed under the laws of the State of Delaware on April 11, 1986. The general partners of Tax Exempt II were Related Tax Exempt Associates II, Inc., a Delaware corporation (the "Related General Partner"), and Prudential Bache Properties, Inc. ("PBP"). The general partners managed and controlled the affairs of Tax Exempt II prior to the Consolidation. The Company is governed by a board of trustees comprised of three independent managing trustees and four managing trustees who are affiliated with Related. The Company has engaged Related Charter LP (the "Manager"), an affiliate of Related, to manage its day-to-day affairs. Through the Manager, Related offers the Company a core group of experienced staff and executive management, who provide the Company with services on both a full and part-time basis. These services include, among other things, acquisition, financial, accounting, capital markets, asset monitoring, portfolio management, investor relations and public relations services. The Company believes that it benefits significantly from its relationship with Related, since Related provides the Company with resources that are not generally available to small-capitalized, self-managed companies. -3- BUSINESS PLAN In order to generate increased tax exempt income and, as a result, enhance the value of the Company's Shares, the Company intends to invest in or acquire additional tax-exempt bonds secured by multifamily properties. The Company believes that it can earn above market rates of interest on its bond acquisitions by focusing its efforts primarily on affordable housing. The Manager estimates that nearly 50% of all new multifamily development contains an affordable component which produces tax credits pursuant to Section 42 of the Internal Revenue Code. The Company has designed a Direct Purchase Program specifically designed to appeal to developers of such properties. In general, these properties are smaller than traditional multifamily housing properties, averaging 150 units. The traditional method of financing tax-exempt properties requires the involvement of credit enhancement, rating agencies and investment bankers. Therefore, the up-front cost of such financing is generally much higher than traditional multifamily financing. Through its Direct Purchase Program, the Company will invest in or acquire tax-exempt bonds without the cost associated with credit enhancement, rating agencies and investment bankers. The Company believes that the up-front cost savings to the developer will translate into a higher than market interest rate on the bonds acquired by the Company. The Company believes that it is well positioned to market its Direct Purchase Program as a result of the Manager's affiliation with Related. The Manager is a single purpose affiliate of Related which is controlled by the same individuals and entities which own Related. The Manager benefits from its affiliation with Related because the Manager is able to utilize Related's resources and relationships in the multifamily affordable housing finance industry to source potential borrowers of first mortgage bonds the Company could invest in or acquire. Related and its predecessor companies have specialized in offering debt and equity products to mid-market multifamily owners and developers for over 25 years. Related has provided debt and equity financing to properties valued at over $9.0 billion. According to the 1999 National Multihousing Council survey, Related is the third largest owner of apartments in the United States. During 1999, the Company's growth was financed by the Private Label Tender Option Program ("TOP"), the Preferred Offering and securitization transactions (see below) as well as funds generated from operations in excess of distributions. The Company's continued growth will be financed by the TOP or similar programs, additional securitization transactions and funds generated from operations in excess of distributions. In addition, before the end of 2000, the Company expects to raise funds through an equity offering; however, there can be no assurance that this initiative will be successful. During 1999, the Company acquired 23 FMBs and received repayments of three FMBs (see "First Mortgage Bond Repayments" below). Three of the FMBs are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. STRUCTURE OF ORIGINAL FIRST MORTGAGE BONDS The original 31 FMBs (owned at the date of the Consolidation) with an aggregate face amount of $348,602,428, call for interest only debt service payments during their respective terms (which generally are 24 to 30 years from issuance or re-issuance) with repayment of principal due in a lump sum "balloon" payment at the expiration of their respective terms or upon sale or refinancing. The newly acquired bonds call for amortization or "sinking fund" payments, generally at the completion of rehabilitation or construction, of principal based on thirty to forty year level debt service amortization schedules. The Company generally has the right to require redemption approximately 12 to 15 years from issuance or re-issuance and obligors generally are locked out of prepayment for seven to ten years from issuance or re-issuance. In addition to the stated base rates of interest, 28, 28 and 26 of the FMBs at December 31, 1999, 1998 and 1997, respectively, provided for "contingent interest" which is equal to: (i) an amount equal to 50% to 100% of net property cash flow and 50% to 100% of net sale or refinancing proceeds until the borrower has paid, during the post-construction period, annual compound interest at a rate ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (ii) an amount equal to 25% to 50% of the remaining net property cash flow and 25% to 50% of the remaining net sale or refinancing proceeds, until the borrower has paid interest at a simple annual rate of 16% over the term of the FMB. Both the stated and contingent interest on the FMBs are exempt from federal income taxation. During the years ended December 31, 1999, 1998 and 1997, five, six and five FMBs, paid contingent interest amounting to approximately $728,000, $960,000 and $353,000, respectively. FMBs that contain provisions for contingent interest are referred to as "participating"; FMBs lacking this provision are "non-participating". In December 1999, two of the original 31 FMBs were repaid (see "First Mortgage Bond Repayments", below). STRUCTURE OF MODIFIED FIRST MORTGAGE BONDS Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to 7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued interest through August 1999 to be paid at maturity or upon a sale or refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to 2011) and prepayment lock-out dates (to 2006). The contingent interest feature of the bonds was also modified. These modifications resulted in realized losses on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to write down the cost basis of each FMB to its then estimated fair value. Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate of the Manager, was transferred to a third party who provided new capital in the amount of $1,813,000. This new capital will be used primarily to provide for repairs to the property as well as costs of the transaction. Repairs are expected to be completed within the next 6-9 months. In conjunction with this transfer and infusion of capital, it is anticipated that the FMB will be formally modified within 6 to 9 months, subject to the approval of the local issuer of the FMB. In the interim, the property will continue to operate pursuant to a forbearance agreement with the Company which calls for a 5.5% minimum annual interest rate. The anticipated modification of this FMB resulted in a realized loss on impairment in the amount of $406,796, to write down the cost basis of this FMB to its estimated fair value. -4- Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"), affiliates of the Manager, transferred their interests, pursuant to a sale of stock, to a third party equity investor. Pursuant to such transfer, the Company entered into a modification agreement (subject to issuer approval) with the new obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the terms of the transaction, the Company received a payment on December 30, 1999 of $1,500,000 in full settlement of all accrued and unpaid base interest on the Sunset FMBs. In addition, in consideration for the waiver of the payment requirement for the payment of past and future contingent interest, a payment of $1,000,000 is expected on or before March 31, 2000. In connection with the transaction, it is expected that the new obligor will invest $800,000-$1,000,000 for physical improvements to the properties. The modifications of the Sunset Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to write down the cost basis of each of these FMBs to their estimated fair values. The estimated fair value of the Sunset Creek FMB continues to exceed its amortized cost basis. In addition to the above FMBs, ten of the Company's other FMBs with an aggregate face amount of $130,025,000, have previously been modified. These modifications have generally encompassed an extension of the maturity together with a prepayment lock out feature and/or prepayment penalties together with an extension of the mandatory redemption feature (5-10 years from modification). Stated interest rates have also been adjusted together with a change in the participation and contingent interest features. Base interest rates, contingent interest, prepayment lock-outs, mandatory redemption and maturity features vary dependent on the facts of a particular FMB, the developer, the Underlying Property's performance and requirements of bond counsel and local issuers. The Company may modify other FMBs to reflect generally similar terms as those modified previously, where and as appropriate. Significant modifications to interest rates and maturity dates are subject to final approval of the local issuers, bond counsel and indenture trustees. STRUCTURE OF NEW FIRST MORTGAGE BONDS Newly acquired FMBs (bonds acquired after October 1, 1997) will generally bear a fixed base interest rate and, to the extent permitted by existing regulations, they may or may not also provide for contingent interest and other features. Terms are expected to be 5 to 35 years, although the Company may have the right to cause repayment prior to maturity through a mandatory redemption feature (5 to 7 years with up to 6 month's notice). In some cases, the newly acquired bonds call for amortization or "sinking fund" payments, generally at the completion of rehabilitation or construction, of principal based on thirty to forty year level debt service amortization schedules. New FMBs are generally not expected to be subject to optional prepayment during the first 5-10 years of the Company's ownership of the bonds and may carry prepayment penalties thereafter beginning at 5% of the outstanding principal balance, declining by 1% per annum. Certain new FMBs may be purchased at a discount from their face value. Up to 15% of the Total Market Value of the Company (as defined in its trust agreement) may be invested in FMBs secured by Underlying Properties in which affiliates of the Manager have a controlling interest, equity interest or security interest. The 15% limit is not applicable to properties to which the Manager or its affiliates have taken title for the benefit of the Company and only applies to new FMBs acquired after the Consolidation. In selected circumstances and generally only in connection with the acquisition of tax-exempt FMBs the Company may acquire a small amount of taxable bonds (i) which the Company may be required to acquire in order to satisfy state regulations with respect to the issuance of tax-exempt bonds (see "Recent Legislation", below) and (ii) to fund certain costs associated with the issuance of FMBs, that under current law cannot be funded by FMBs. Since October 1, 1997, the Company has acquired 38 tax-exempt FMBs with an aggregate face amount of $284,162,100, one of which was repaid in January 1999 (see "First Mortgage Bond Repayments" below), and three taxable FMBs with an aggregate face amount of $3,790,000. FIRST MORTGAGE BOND REPAYMENTS On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside North Obligor") completed a refinancing with an unaffiliated third party. The Countryside North Obligor then fully repaid its outstanding debt due to the Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a $100,000 prepayment penalty and accrued interest due through the repayment date of $35,417 resulting in a loss on the repayment (including the prepayment penalty and the write off of unamortized bond selection costs) in the amount of $25,493. On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together the "Players Club/Suntree Obligor") completed a sale of the properties to an independent third party. The Players Club/Suntree Obligor then repaid the FMBs with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of $8,790,000 and $7,500,000 resulting in losses on the repayment (including the write off of unamortized bond selection costs) in the amounts of $376,496 and $61,158. In addition, the Players Club/Suntree Obligor also repaid promissory note obligations in the amounts of $472,128 and $88,618. The Players Club/Suntree Obligor has no further obligation to the company under the FMBs. -5- FIRST MORTGAGE BONDS - GENERAL The principal and interest payments on each FMB are payable only from the cash flows of the the Underlying Properties, including proceeds from a sale of an Underlying Property or the refinancing of the mortgage loan securing such FMBs (the "Mortgage Loans"). None of the FMBs constitute a general obligation of any state or local government, agency or authority. The structure of each Mortgage Loan mirrors the structure of the corresponding FMB which it secures. In order to protect the tax-exempt status of the FMBs, the owners of the Underlying Properties are required to enter into certain agreements to own, manage and operate such Underlying Properties in accordance with requirements of the Internal Revenue Code of 1986, as amended. No single FMB provided interest income which exceeded 10% of the Company's total revenue for the years ended December 31, 1999, 1998 and 1997, except for the Bristol Village FMB which provided 10% of total revenue in 1997. Based on the face amount of FMBs at December 31, 1999, approximately 26% of the Underlying Properties are located in California, 14% are located in Florida, 10% are located in Missouri and 10% are located in Georgia. No other states comprise more than 10% of the total face amount at December 31, 1999. Based on the face amount of FMBs at December 31, 1998, approximately 23% of the Underlying Properties were located in California, 15% were located in Florida, 14% were located in Missouri, 10% were located in Georgia and 10% were located in Minnesota. No other states comprised more than 10% of the total face amount at December 31, 1998. From time to time the Company has advanced funds to owners of certain Underlying Properties in order to preserve the underlying asset including completion of construction and/or when Underlying Properties have experienced operating difficulties including past due real estate taxes and/or deferred maintenance items. Such advances typically are secured by promissory notes and/or second mortgages. As of December 31, 1999, the face amount of such advances was $15,330,075, their rates range from 8% to 13% and their carrying value was $10,148,060, which is net of purchase accounting adjustments, and a reserve for collectibility of $138,000. Such advances with an aggregate face amount of $5,384,808, rates ranging from 8% to 10% and an aggregate carrying amount of $217,996 were advanced to obligors which are affiliates of the Manager. The original obligors and owners of the Underlying Properties of the Cedar Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with affiliates of the Manager who have not made equity investments. These entities have assumed the day-to-day responsibilities and obligations of the Underlying Properties. Buyers are being sought who would make equity investments in the Underlying Properties and assume the nonrecourse obligations for the FMB. These properties are generally paying as interest an amount equal to the net cash flow generated by operations, which in some cases is less than stated rate of the FMB. The Company has no present intention of declaring a default on these FMBs. The aggregate carrying value of these four FMBs at December 31, 1999 and 1998 was approximately $41,465,000 and $42,323,000, respectively and the income earned from them for the years ended December 31, 1999, 1998 and 1997 was approximately $2,991,000, $3,106,000 and $2,093,000, respectively. From time to time, the Company enters into forbearance agreements and/or permanent modifications with certain borrowers. The determination as to whether it is in the best interest of the Company to enter into permanent modifications or forbearance agreements on the FMBs, advance second mortgages, or alternatively, to pursue its remedies under the loan documents, including foreclosure, is based upon several factors. These factors include, but are not limited to, Underlying Property performance, owner cooperation and projected costs of foreclosure and litigation. Payments under each of the existing forbearance agreements are current as of December 31, 1999. With respect to the FMBs which are subject to forbearance agreements with the respective obligors, the difference between the stated interest rates and the rates paid (whether deferred and payable out of available future cash flow or, ultimately, from sale or refinancing proceeds) on FMBs is not accrued for financial statement purposes. The accrual of interest at the stated interest rate will resume once an Underlying Property's ability to pay the stated rate has been adequately demonstrated. Unrecorded contractual interest income was approximately $1,916,000, $3,047,000 and $2,415,000 for the years ended December 31, 1999, 1998 and 1997, respectively. -6- As of December 31, 1999, the Company and its consolidated subsidiaries owned 69 FMBs (26 participating FMBs and 43 non-participating FMBs). Three of the FMBs are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. The taxable FMBs are secured by the same Underlying Properties which secure the associated tax-exempt FMBs. The following table provides certain information with respect to each of the FMBs.
Fair Value Stated Closing Face Amount at December Interest Property Location Date of FMB 31, 1999 (A) Rate* - - -------- -------- ------- ----------- ------------ -------- Tax-Exempt First Mortgage Bonds - - ------------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Highpointe Club (K)(N) Harrisburg, PA 7/29/86 $ 8,900,000 $ 5,769,000 8.50% ------------ ------------ Owned by Charter Mac Equity Issuer Trust (H) - - -------------------------------------------- Barnaby Manor (P)(S) Washington, DC 11/23/99 4,500,000 4,500,000 7.375 Casa Ramon (P) Orange County, CA 6/8/99 50,000(Q) 52,000 7.50 Chapel Ridge of Little Rock, AR 8/12/99 5,600,000 5,481,000 7.125 Little Rock (O)(S) Chapel Ridge of Texarkana, AR 9/29/99 5,800,000 5,876,000 7.375 Texarkana (O)(S) Country Lake (P) West Palm Beach, FL 11/9/99 6,255,000 6,255,000 (V) Del Monte Pines (R)(P) Fresno, CA 5/6/99 11,000,000 10,275,000 6.80 Douglas Pointe(O)(S)(R) Miami, FL 9/28/99 7,100,000 6,827,000 7.00 Forest Hills (R)(P) Garner, NC 12/15/98 5,930,000 5,804,000 7.125 Fort Chaplin (P) Washington, DC 12/21/99 25,800,000 25,800,000 6.90 Franciscan Riviera (P)(R) Antioch, CA 8/24/99 6,587,500 6,447,000 7.125 Garfield Park (P) Washington, DC 8/31/99 3,260,000 3,247,000 7.25 Greenbriar (M)(P) Concord, CA 5/6/99 9,585,000 9,052,000 6.875 Hamilton Gardens (R)(P) Hamilton, NJ 3/26/99 6,400,000 6,264,000 (U) Lake Jackson (R)(O)(S) Lake Jackson, TX 12/22/98 10,934,000 10,513,000 7.00 Lakemoor (O) (S) Durham, NC 12/23/99 9,000,000 9,000,000 7.25 Lake Park (P) Turlock, CA 6/8/99 (T) 3,638,000 3,623,000 7.25 Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 14,850,000 14,075,000 6.90 Lennox Park (O)(S)(M) Gainesville, GA 7/29/99 13,000,000 12,143,000 6.80 Lewis Place (O)(S)(M) Gainsville, FL 6/22/99 4,000,000 3,709,000 (I) Mountain Ranch (R)(O) Austin, TX 12/23/98 9,128,000 8,934,000 7.125 Standiford (P)(R) Modesto, CA 9/20/99 9,520,000 9,317,000 7.125 Sunset Creek (M)(K) Lancaster, CA 3/25/88 8,275,000 6,225,000 8.50 Sunset Village (M)(K) Lancaster, CA 3/25/88 11,375,000 8,557,000 8.50 Sycamore Woods (R)(P) Antioch, CA 5/6/99 9,415,000 8,891,000 6.875 Tallwood (O)(S)(R) Virginia Beach, VA 9/30/99 6,205,000 6,179,000 7.25 ----------- ----------- 207,207,500 197,046,000 ----------- ----------- Minimum Average Rental Pay Rate at Interest Occupancy Rates at Year December Rate Paid at February December of Con- Property 31, 1999* for 1999* 20, 2000 31, 1999 struction - - -------- ----------- --------- ----------- -------- --------- Tax-Exempt First Mortgage Bonds - - ------------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Highpointe Club (K)(N) (W) 4.72% 97% $550-725 1991 Owned by Charter Mac Equity Issuer Trust (H) - - -------------------------------------------- Barnaby Manor (P)(S) 7.375% 7.375 0 - 1974 Casa Ramon (P) 7.50 7.50 0 - 1976 Chapel Ridge of 7.125 7.125 0 - (Y) Little Rock (O)(S) Chapel Ridge of 7.375 7.375 0 - (Y) Texarkana (O)(S) Country Lake (P) 6.00 6.00 100 657-983 1985 Del Monte Pines (R)(P) 6.80 6.80 57.7 388-538 1975 Douglas Pointe(O)(S)(R) 7.00 7.00 0 - (Y) Forest Hills (R)(P) 7.125 7.13 68.4 550-650 1982 Fort Chaplin (P) 6.90 6.90 16.9 450-1100 (X) Franciscan Riviera (P)(R) 7.125 7.125 67.2 640-780 1972 Garfield Park (P) 7.25 7.25 87.2 585-695 1970 Greenbriar (M)(P) 6.875 6.875 68 400-975 1966 Hamilton Gardens (R)(P) 7.625 7.625 92.4 625-730 1941 Lake Jackson (R)(O)(S) 7.00 7.00 46.5 525-1045 (Y) Lakemoor (O) (S) 7.25 7.25 0 - (Y) Lake Park (P) 7.25 7.25 100 452-622 1973 Lakes Edge At Walden (P)(M) 6.90 6.90 95.8 677-898 1986 Lennox Park (O)(S)(M) 6.80 6.80 0 - (Y) Lewis Place (O)(S)(M) 6.75 6.75 13.4 529-611 (Y) Mountain Ranch (R)(O) 7.125 7.13 0 - (Y) Standiford (P)(R) 7.125 7.125 56.3 455-625 1970 Sunset Creek (M)(K) 5.48 8.68 93.1 455-755 1989 Sunset Village (M)(K) 5.48 8.68 93.5 495-755 1989 Sycamore Woods (R)(P) 6.875 6.875 58.7 640-975 1970 Tallwood (O)(S)(R) 7.25 7.25 0 - (Y) Comparable Competing No. of Properties Rental within Property Units Location - - -------- ------ ---------- Tax-Exempt First Mortgage Bonds - - ------------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Highpointe Club (K)(N) 240 24 Owned by Charter Mac Equity Issuer Trust (H) - - -------------------------------------------- Barnaby Manor (P)(S) 124 158 Casa Ramon (P) 75 43 Chapel Ridge of 128 83 Little Rock (O)(S) Chapel Ridge of 144 26 Texarkana (O)(S) Country Lake (P) 192 44 Del Monte Pines (R)(P) 366 256 Douglas Pointe(O)(S)(R) 176 184 Forest Hills (R)(P) 136 5 Fort Chaplin (P) 495 158 Franciscan Riviera (P)(R) 129 17 Garfield Park (P) 94 158 Greenbriar (M)(P) 199 81 Hamilton Gardens (R)(P) 174 16 Lake Jackson (R)(O)(S) 160 10 Lakemoor (O) (S) 160 89 Lake Park (P) 104 24 Lakes Edge At Walden (P)(M) 400 184 Lennox Park (O)(S)(M) 292 15 Lewis Place (O)(S)(M) 112 91 Mountain Ranch (R)(O) 212 453 Standiford (P)(R) 249 63 Sunset Creek (M)(K) 148 37 Sunset Village (M)(K) 204 37 Sycamore Woods (R)(P) 186 17 Tallwood (O)(S)(R) 120 86 -7- Fair Value Stated Closing Face Amount at December Interest Property Location Date of FMB 31, 1999 (A) Rate* - - -------- -------- ------- ----------- ------------ -------- Owned by Charter Mac Origination Trust I (H)(L) - - ----------------------------------------------- Bay Club (K) Mt. Pleasant, SC 9/11/86 6,400,000 7,253,000 8.25 Clarendon Hills (K) Hayward, CA 12/8/86 17,600,000 13,599,000 5.52 Cypress Run (K) Tampa, FL 8/14/86 15,402,428 13,576,000 8.50 East Ridge (K) Mt. Pleasant, SC 5/20/86 8,700,000 9,859,000 8.25 Greenway Manor (K)(N) St. Louis, MO 10/9/86 12,850,000 15,003,000 8.50 The Lakes (K) Kansas City, MO 12/30/86 13,650,000 9,821,000 4.87 Loveridge (K)(N) Contra Costa, CA 11/13/86 8,550,000 6,459,000 8.00 Martin's Creek (K) Summerville, SC 5/20/86 7,300,000 8,273,000 8.25 ----------- ----------- 90,452,428 83,843,000 ----------- ----------- Minimum Average Rental Pay Rate at Interest Occupancy Rates at Year December Rate Paid at February December of Con- Property 31, 1999* for 1999* 20, 2000 31, 1999 struction - - -------- ----------- --------- ----------- -------- --------- Owned by Charter Mac Origination Trust I (H)(L) - - ----------------------------------------------- Bay Club (K) 8.25 10.11 94.0 635-805 1987 Clarendon Hills (K) 5.52 6.48 99.6 950-1600 1989 Cypress Run (K) 5.50 .68 87.6 460-775 1988 East Ridge (K) 8.25 8.24 88.9 615-875 1986 Greenway Manor (K)(N) 8.50 8.64 95.8 520-620 1987 The Lakes (K) 4.87 6.71 92.4 475-675 1989 Loveridge (K)(N) (W) 5.00 88.3 640-875 1987 Martin's Creek (K) 8.25 8.25 98.0 470-770 1986 Comparable Competing No. of Properties Rental within Property Units Location - - -------- ------ ---------- Owned by Charter Mac Origination Trust I (H)(L) - - ----------------------------------------------- Bay Club (K) 164 12 Clarendon Hills (K) 285 99 Cypress Run (K) 408 247 East Ridge (K) 200 12 Greenway Manor (K)(N) 312 172 The Lakes (K) 400 152 Loveridge (K)(N) 148 18 Martin's Creek (K) 200 13 -8- Fair Value Stated Closing Face Amount at December Interest Property Location Date of FMB 31, 1999 (A) Rate* - - -------- -------- ------- ----------- ------------ -------- Owned by Charter Mac Owner Trust I (J) (H) - - ------------------------------------------ Bedford Square Clovis, CA 8/25/98 3,850,000 3,371,000 (D) Bristol Village Bloomington, MN 7/31/87 17,000,000 17,513,000 7.50 Carrington Pointe Los Banos, CA 9/24/98 3,375,000 2,955,000 6.375 Cedarbrook Hanford, CA 4/28/98 2,840,000 2,779,000 7.125 Cedar Creek (K)(N) McKinney, TX 12/29/86 8,100,000 9,457,000 8.50 Cedar Pointe (K) Nashville, TN 4/22/87 9,500,000 9,134,000 7.00 College Park (O)(S) Naples, FL 7/15/98 10,100,000 9,711,000 (C) Crowne Pointe (K) Olympia, WA 12/31/86 5,075,000 5,054,000 7.25 Falcon Creek (O)(S) Indianapolis, IN 9/14/98 6,144,600 6,119,000 (F) Gulfstream (P) Dania, FL 7/22/98 3,500,000 3,486,000 7.25 Highland Ridge (K) St. Paul, MN 2/02/87 15,000,000 14,938,000 7.25 Jubilee Courtyards Florida City, FL 9/15/98 4,150,000 4,062,000 (G) Lakepoint (K) Stone Mountain, GA 11/18/87 15,100,000 12,445,000 6.00 Madalyn Landing (O)(S) Palm Bay, FL 11/13/98 14,000,000 13,461,000 7.00 The Mansion Independence, MO 5/13/86 19,450,000 19,678,000 7.25 Marsh Landings (P)(S) Portsmouth, VA 5/20/98 6,050,000 6,025,000 7.25 Newport Village (K) Tacoma, WA 2/11/87 13,000,000 12,946,000 7.25 North Glen (K) Atlanta, GA 9/30/86 12,400,000 12,775,000 (AA) Northpointe Village (P) Fresno, CA 8/25/98 13,250,000 13,650,000 (E) Ocean Air (P)(S) Norfolk, VA 4/20/98 10,000,000 9,959,000 7.25 Orchard Hills (K) Tacoma, WA 12/31/86 5,650,000 5,627,000 7.25 Orchard Mill (K) Atlanta, GA 12/31/86 10,500,000 10,517,000 7.50 Pelican Cove (K)(N) St Louis, MO 2/27/87 18,000,000 19,780,000 8.00 Phoenix Stockton, CA 4/28/98 3,250,000 3,181,000 7.125 River Run (K) Miami, FL 8/7/87 7,200,000 7,912,000 8.00 Shannon Lake (K) Atlanta, GA 6/26/87 12,000,000 11,538,000 (B) Silvercrest Clovis, CA 9/24/98 2,275,000 2,227,000 7.125 Stone Creek (O)(S) Watsonville, CA 4/28/98 8,820,000 8,632,000 7.125 Sunset Downs (K) Lancaster, CA 2/11/87 15,000,000 11,284,000 8.00 Sunset Terrace (K) Lancaster, CA 2/12/87 10,350,000 7,786,000 8.00 Thomas Lake Eagan, MN 9/02/86 12,975,000 13,367,000 7.50 Willow Creek (K) Ames, IA 2/27/87 6,100,000 6,075,000 7.25 ----------- ----------- 304,004,600 297,444,000 ----------- ----------- Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000 ----------- ----------- Minimum Average Rental Pay Rate at Interest Occupancy Rates at Year December Rate Paid at February December of Con- Property 31, 1999* for 1999* 20, 2000 31, 1999 struction - - -------- ----------- --------- ----------- -------- --------- Owned by Charter Mac Owner Trust I (J) (H) - - ------------------------------------------ Bedford Square 7.00 7.00 96.1 388-466 (Y) Bristol Village 7.50 7.50 94.7 755-1299 1989 Carrington Pointe 6.375 6.38 98.7 443-558 1999 Cedarbrook 7.125 7.13 100 434-554 1999 Cedar Creek (K)(N) 8.50 8.50 94.7 530-875 1988 Cedar Pointe (K) 7.00 7.00 96.2 550-840 1989 College Park (O)(S) 7.00 7.00 99.0 580-780 (Y) Crowne Pointe (K) 8.00 7.76 96.1 495-795 1980 Falcon Creek (O)(S) 7.00 7.00 33.8 430-800 (Y) Gulfstream (P) 7.25 7.25 36.2 575-650 1961 Highland Ridge (K) 7.25 7.36 95.6 855-1460 1989 Jubilee Courtyards 7.00 7.00 92.9 510-640 1999 Lakepoint (K) 6.00 6.08 96.7 585-835 1989 Madalyn Landing (O)(S) 7.00 7.00 68.8 464-654 (Y) The Mansion 7.25 9.84 92.7 485-825 1987 Marsh Landings (P)(S) 7.25 7.25 44.3 445-475 1952 Newport Village (K) 8.00 7.76 90.6 460-600 1987 North Glen (K) 7.00 7.15 91.9 575-880 1987 Northpointe Village (P) 8.125 8.12 83.0 388-538 1972 Ocean Air (P)(S) 7.25 7.25 31.6 540-645 (Z) Orchard Hills (K) 8.00 7.76 100 475-770 1987 Orchard Mill (K) 5.00 6.57 94.5 590-850 1990 Pelican Cove (K)(N) (W) 8.08 97.0 495-680 1989 Phoenix 7.125 7.12 97.8 245-395 1999 River Run (K) 8.00 9.10 90.0 733-1030 1987 Shannon Lake (K) 6.00 6.08 92.8 465-840 1988 Silvercrest 7.125 7.12 100 275-382 1999 Stone Creek (O)(S) 7.125 7.13 65.8 646-981 (Y) Sunset Downs (K) 5.48 8.70 93.5 495-755 1987 Sunset Terrace (K) 5.48 8.61 92.3 495-755 1987 Thomas Lake 7.50 7.50 98.1 830-1370 1988 Willow Creek (K) 7.25 7.32 100 550-825 1988 Comparable Competing No. of Properties Rental within Property Units Location - - -------- ------ ---------- Owned by Charter Mac Owner Trust I (J) (H) - - ------------------------------------------ Bedford Square 130 42 Bristol Village 290 25 Carrington Pointe 80 5 Cedarbrook 70 18 Cedar Creek (K)(N) 250 10 Cedar Pointe (K) 210 168 College Park (O)(S) 210 33 Crowne Pointe (K) 160 39 Falcon Creek (O)(S) 131 252 Gulfstream (P) 96 5 Highland Ridge (K) 228 86 Jubilee Courtyards 98 2 Lakepoint (K) 360 30 Madalyn Landing (O)(S) 304 8 The Mansion 550 15 Marsh Landings (P)(S) 250 23 Newport Village (K) 402 181 North Glen (K) 284 371 Northpointe Village (P) 406 256 Ocean Air (P)(S) 434 60 Orchard Hills (K) 174 181 Orchard Mill (K) 238 371 Pelican Cove (K)(N) 402 172 Phoenix 184 96 River Run (K) 164 184 Shannon Lake (K) 294 371 Silvercrest 100 42 Stone Creek (O)(S) 120 5 Sunset Downs (K) 264 37 Sunset Terrace (K) 184 37 Thomas Lake 216 16 Willow Creek (K) 138 7 -9- Fair Value Stated Closing Face Amount at December Interest Property Location Date of FMB 31, 1999 (A) Rate* - - -------- -------- ------- ----------- ------------ -------- Taxable First Mortgage Bonds - - ---------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Greenbriar (P) Concord, CA 5/6/99 2,015,000 2,015,000 9.00 Lake Park (P) Turlock, CA 7/15/99 375,000 375,000 9.00 Lakes Edge at Walden (P) Miami, FL 10/6/99 1,400,000 1,400,000 11.00 ----------- ----------- Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000 ----------- ----------- Total First Mortgage Bonds $614,354,528 $587,892,000 =========== =========== Minimum Average Rental Pay Rate at Interest Occupancy Rates at Year December Rate Paid at February December of Con- Property 31, 1999* for 1999* 20, 2000 31, 1999 struction - - -------- ----------- --------- ----------- -------- --------- Taxable First Mortgage Bonds - - ---------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Greenbriar (P) 9.00 9.00 68 400-975 1966 Lake Park (P) 9.00 9.00 100 452-622 1973 Lakes Edge at Walden (P) 11.00 11.00 95.8 677-898 1986 Comparable Competing No. of Properties Rental within Property Units Location - - -------- ------ ---------- Taxable First Mortgage Bonds - - ---------------------------- Owned by the Company (not including its consolidated subsidiaries) - - ------------------------------------------------------------------ Greenbriar (P) 199 81 Lake Park (P) 104 24 Lakes Edge at Walden (P) 400 184
*The average interest rate paid (which in certain cases includes the receipt of contingent interest and deferred base interest relating to prior periods) represents the interest recorded by the Company while the stated interest rate represents the coupon rate of the FMB and the minimum pay rate represents the minimum rate payable pursuant to the applicable forbearance agreement, if any. (A) The FMBs are deemed to be available-for-sale debt securities and, accordingly, are carried at their estimated fair values at December 31, 1999. (B) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 6% through July 31, 2000 and 7% thereafter. (C) The interest rates for College Park are 7% during the construction period and 7.25% thereafter. (D) The interest rates for Bedford Square are 7% during the construction period and 6.375% thereafter. (E) The interest rates for Northpointe Village are 7.965% through September 23, 1998, 8.125% during the remainder of the construction period and 7.5% thereafter. (F) The interest rates for Falcon Creek are 7% through August 31, 2000 and 7.25% thereafter. (G) The interest rates for Jubilee Courtyards are 7% through September 30, 2000 and 7.125% thereafter. (H) This entity is a consolidated subsidiary of the Company (see Private Label Tender Option Program below and Item 5. Market for the Company's Shares and Related Shareholder Matters. - Preferred Equity Offering). (I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00% thereafter. (J) These FMBs have been transferred to Charter Mac Owner Trust I in connection with the Company's Private Label Tender Option Program (TOP) (see Private Label Tender Option Program below). (K) These FMBs are participating FMBs which contain additional interest features contingent on available cash flow. (L) The FMBs are held as collateral in connection with the TOP (see Private Label Tender Option Program below). (M) These FMBs are pledged as collateral in connection with the Merrill Lynch RITES/P-FLOATS Program (see Securitization Transactions below). (N) The original owners of the Underlying Properties and the obligors of these FMBs have been replaced with affiliates of the Manager. (O) The Underlying Property is under construction. In the event construction is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (P) The Underlying Property is undergoing substantial rehabilitation. In the event rehabilitation is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (Q) Initial advance on an FMB which will have a face amount of $4,744,000 when it is fully funded. The balance of $4,694,000 is expected to be funded in the second quarter of 2000. (R) Held by Merrill Lynch as collateral for secured borrowings (see Securitization Transactions below). (S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit issued by the construction lender to the Company. (T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The balance was funded on July 15, 1999. (U) The interest rates for Hamilton Gardens are 7.625% during the construction period and 7.125% thereafter. (V) The interest rates for Country Lake are 6% until expected refunding in June 2000 and 7.25% thereafter. (W) The minimum pay rate is the current cash flow of the property. (X) Built in two phases in 1961 and 1963. (Y) The property is still in construction phase as of December 31, 1999. (Z) Originally constructed in 1949 and converted into affordable housing in 1988. (AA) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 7% through June 30, 2000 and 7.50% thereafter. -10- SECURITIZATION TRANSACTIONS To raise additional capital to acquire additional FMBs, the Company has securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits each FMB into an individual special purpose trust created to hold such asset, together with a Credit Enhancement Guarantee ("Guarantee"). Two types of securities are then issued by each trust, evidencing ownership in the FMBs and the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a short-term senior security which bears interest at a floating rate that is reset weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOAT security at par (up to 99% of the underlying face amount of the FMB); and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security which receives the residual interest payment after payment of P-FLOAT interest and ongoing transaction fees. The P-FLOATS are sold to qualified third party, tax-exempt investors and the RITES are sold back to the Company. The Company has the right, with 14 days notice to the trustee, to purchase the outstanding P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are deposited into the P-FLOAT Trust, the Company receives the proceeds from the sale of the P-FLOATS less certain transaction costs. In certain other cases, Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the trust, sell the P-FLOAT security to qualified investors and then the RITES to the Company. In order to facilitate the securitization, the Company has pledged certain additional FMBs, cash and cash equivalents and temporary investments as collateral for the benefit of the credit enhancer or liquidity provider. At December 31, 1999, the total carrying amount of such additional FMBs, cash and cash equivalents and temporary investments pledged as collateral was $53,761,000, $1,028,209 and $45,541,000, respectively. During the period May 1999 through December 1999, the Company transferred ten FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616. The Company's cost of funds relating to its secured borrowings under the Merrill Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of the weighted average amount of the secured borrowings) was approximately 4.8%, annualized, for the period June 29, 1999 (inception of this program) through December 31, 1999. During June 1999, Merrill Lynch purchased three FMBs with an aggregate face amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch whereby P-FLOATS and RITES were sold. The Company purchased the related RITES interests with an aggregate face amount of $15,000 for an aggregate purchase price of $579,118 which includes bond selection and other transaction costs. OTHER BOND RELATED INVESTMENTS The Company's other bond related investments consist of investments in RITES (see Securitization Transactions above). The following table provides certain information with respect to each of the RITES.
Face Amount Amortized Fair of RITES Cost Basis at Value at FMB Date Face Amount Interest December December Description/Location Purchased of FMB Purchased 31, 1999 31, 1999 - - -------------------- --------- ----------- --------- ------------- -------- Owned by Charter Mac Equity Issuer Trust - - ---------------------------------------- RITES-Avalon Court/ Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $200,045 $200,000 RITES-Meadowview Park/ Santa Rosa, CA 6/17/99 6,250,000 5,000 162,432 160,000 RITES-The Courtyards/ Santa Rosa, CA 6/17/99 7,940,000 5,000 201,817 200,000 ----------- ------- ------- ------- $22,430,000 $15,000 $564,294 $560,000 ========== ====== ======= =======
PRIVATE LABEL TENDER OPTION PROGRAM On May 21, 1998, the Company closed on its Private Label Tender Option Program ("TOP") in order to raise additional capital to acquire additional FMBs. As of March 31, 1999, the maximum amount of capital which could be raised under the TOP ($150,000,000) had been raised. In April 1999, the Company successfully negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the Company has contributed 40 issues of FMBs in the aggregate principal amount of approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination Trust"), a wholly-owned, indirect subsidiary of the Company, which has contributed 32 of those FMBs, with an aggregate principal amount of approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the Company. The Owner Trust has issued two equity certificates: (i) a Senior Certificate, with an outstanding face amount of $177,000,000 at December 31, 1999, which has been deposited into another Delaware business trust (the "Certificate Trust") which issued and sold Floater Certificates representing proportional interests in the Senior Certificate to new investors and (ii) a Residual Certificate representing the remaining beneficial ownership interest in the Owner Trust, which has been issued to the Origination Trust. The FMBs remaining in the Origination Trust (aggregate principal amount of approximately $90,452,000) are a collateral pool for the Owner Trust's obligations under the Senior Certificate. In addition, the Owner Trust obtained a municipal bond insurance policy from MBIA to credit enhance Certificate distributions for the benefit of the -11- holders of the Floater Certificates and has also arranged for a liquidity facility, issued by a consortium of highly rated European banks, with respect to the Floater Certificates. The Company owns no beneficial interest in, and does not control, the Certificate Trust. The effect of the TOP structure is that a portion of the interest received by the Owner Trust on the FMBs it holds is distributed through the Senior Certificate to the holders of the Floater Certificates in an amount determined each week by the remarketing agent, Goldman Sachs & Co., at the distribution amount that is required to enable the remarketing agent to sell the Floater Certificates at par on any weekly determination date, with the residual interest remitted to the Origination Trust via the Residual Certificate. The Company's cost of funds relating to the TOP (calculated as income allocated to the minority interest plus recurring fees as a percentage of the weighted average amount of the outstanding Senior Certificate) was approximately 4.5% and 4.9% for the year ended December 31, 1999 and the period May 21, 1998 (inception) through December 31, 1998, respectively. PROPOSED MERGER On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"), whose manager is an affiliate of the Manager of the Company, entered into a merger agreement pursuant to which ATEBT would merge with and into CM Holding Trust, a wholly-owned subsidiary of the Company. Following the merger, CM Holding Trust would continue to be a wholly-owned subsidiary of the Company. ATEBT is a Delaware business trust which owns four tax-exempt first mortgage bonds and had total assets of approximately $27,382,000 and net assets of approximately $26,030,000 at December 31, 1999. The four tax-exempt first mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at December 31, 1999, have interest rates of 9% and have underlying properties located in four different states. Under the terms of the merger agreement, each share of beneficial ownership in ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares at December 31, 1999) will be converted into the right to receive 1.43112 Shares of the Company. In addition, the manager of ATEBT (which owns a 1% interest in ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of the Company. Following the merger, current ATEBT shareholders will own approximately 9.3% of the outstanding Shares of the Company. Consummation of the merger is subject to several conditions, including approval by ATEBT shareholders. In addition, either entity has the ability to opt out of the transaction if the 30-day average trading price of the Company's Shares preceding the closing of the transaction is outside of the Company's historical trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the Company and ATEBT expect that this transaction will close during the second quarter of 2000. COMPETITION The Company competes with various financial institutions and credit enhancers in regard to acquisitions of FMBs. These institutions include quasi-governmental agencies such as FNMA and FHA as well as sponsors of investors in affordable housing such as high yield municipal funds, private investment funds and financial institutions which invest in affordable housing. The Company's business is also affected by competition to the extent that the Underlying Properties from which it derives interest and, ultimately, principal payments may be subject to competition relating to rental rates and relative levels of amenities from offered by comparable neighboring properties. See the comprehensive table under the heading "First Mortgage Bonds - General", above, for additional competitive information. In addition, the Manager and/or its affiliates have formed, and may continue to form, various entities to engage in businesses which may be competitive with the Company. EMPLOYEES The Company has no employees. Management and administrative services for the Company and its subsidiaries are performed by the Manager and its affiliates pursuant to the Management Agreement between the Company and the Manager dated October 1, 1997, as amended (the "Management Agreement"). The Manager receives compensation for such services and the Company and its subsidiaries reimburses the Manager and certain of its affiliates for expenses incurred in connection with the performance by their employees of services for the Company in accordance with the Management Agreement (see Note 10 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). RECENT LEGISLATION The States of California and Florida recently adopted administrative amendments to their allocation plans pursuant to which they award bond value capital to developers of multifamily housing. These amendments will require, in some cases, a certain portion of the debt financing for such properties to be taxable. Therefore, in certain cases, the Company may be required to offer taxable financing to California and Florida developers in order to be competitive. On March 9, 2000, the United States House of Representatives passed the Wage and Employment Growth Act of 1999 ("HR3081"). Section 511 of HR3081 calls for an acceleration of phase-in of increases in the volume cap on private activity bonds. As of March 23, -12- 2000, the bill has been read twice by the Senate and has been placed on the Senate legislative calendar. This bill would increase the amount of bonds available annually for acquisition by the Company or other financial institutions. Item 2. Properties The Company does not own or lease any property. Item 3. Legal Proceedings The Company is not a party to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Shareholders None. PART II Item 5. Market for the Company's Shares and Related Shareholder Matters. As of March 9, 2000, there were 3,694 registered shareholders owning 20,582,628 Shares. The Company's Shares have been listed on the American Stock Exchange since October 1, 1997 under the symbol "CHC". Prior to October 1, 1997, there was no established public trading market for the Company's Shares. The high and low prices for each quarterly period of the last two years for which the Shares were traded is as follows:
1999 1999 1998 1998 Quarter Ended Low High Low High - - ------------- ---- ---- ---- ---- March 31 11 15/16 13 3/8 12 11/16 14 1/2 June 30 12 3/8 13 1/16 12 7/8 14 7/16 September 30 12 3/8 13 1/16 12 9/16 14 1/4 December 31 11 3/8 13 1/8 11 11/16 13
The last reported sale price of Shares on the American Stock Exchange on March 9, 2000 was $11 15/16. INCENTIVE SHARE OPTION PLAN The Company has adopted an incentive share option plan (the "Incentive Share Option Plan"), the purpose of which is to (i) attract and retain qualified persons as trustees and officers and (ii) to incentivize and more closely align the financial interests of the Manager and its employees and officers with the interests of the shareholders by providing the Manager with substantial financial interest in the Company's success. The Compensation Committee administers the Incentive Share Option Plan. Pursuant to the Incentive Share Option Plan, if the Company's distributions per Share in the immediately preceding calendar year exceed $0.9517 per Share, the Compensation Committee has the authority to issue options to purchase, in the aggregate, that number of Shares which is equal to three percent of the Shares outstanding as of December 31 of the immediately preceding calendar year (or in the initial year, as of October 1, 1997), provided that the Compensation Committee may only issue, in the aggregate, options to purchase a maximum number of Shares over the life of the Incentive Shares Option Plan equal to 10% of the Shares outstanding on October 1, 1997 (2,058,748 Shares). Subject to the limitations described in the preceding paragraph, if the Compensation Committee does not grant the maximum number of options in any year, then the excess of the number of authorized options over the number of options granted in such year will be added to the number of authorized options in the next succeeding year and will be available for grant by the Compensation Committee in such succeeding year. All options granted by the Compensation Committee will have an exercise price equal to or greater than the fair market value of the Shares on the date of the grant. The maximum option term is ten years from the date of grant. All Share options granted pursuant to the Incentive Share Option Plan may vest immediately upon issuance or in accordance with the determination of the Compensation Committee. No options were granted for the year ended December 31, 1997. In 1998, the Company distributed only $.93 per Share, thus prohibiting the Compensation Committee, from issuing options. In 1999, the Company distributed $.995 per Share, thus enabling the Compensation Committee, at their discretion, to issue options. The Compensation Committee is considering granting options; however, as of March 17, 2000, no options have been granted. Three percent of the Shares outstanding as of December 31, 1999 are equal to 617,624 Shares. -13- SHARE REPURCHASE PLAN On October 9, 1998, the Board of Trustees authorized the implementation of a Share repurchase plan, enabling the Company to repurchase, from time to time, up to 1,500,000 of its Shares. The repurchases will be made in the open market and the timing will be dependant on the availability of Shares and other market conditions. As of both December 31, 1999 and 1998, the Company had acquired 8,400 of its Shares for an aggregate purchase price of $103,359 (including commissions and service charges). Repurchased Shares are accounted for as treasury Shares of beneficial interest. PREFERRED EQUITY OFFERING On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt preferred equity offering (the "Preferred Offering") comprising 45 shares ("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch, Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred Shares to qualified institutional investors. In connection with this transaction, the Company caused 100% of the ownership of the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the "Issuer"), a newly formed Delaware business trust and an indirectly owned subsidiary in which the Company owns 100% of the common equity. The Issuer then issued the Series A Cumulative Preferred Shares. As a result of such transaction, the Issuer became the direct and indirect owner of the entire outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its two directly and indirectly owned subsidiaries. In addition to contributing the ownership of the Origination Trust, the Company also contributed eight FMBs to the Issuer. As of the closing, the aggregate par value of FMBs held directly or indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of approximately $86,395,000 from the Preferred Offering have been used to invest in or acquire additional tax-exempt assets for the Issuer. The Series A Cumulative Preferred Shares have an annual preferred dividend rate of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing October 31, 1999 and payable upon declaration thereof by the Issuer's Board of Trustees, but only to the extent of the Issuer's tax-exempt income (net of expenses) for the particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred Shares are subject to mandatory tender by the holders thereof for remarketing and purchase on June 30, 2009 and each remarketing date thereafter at a price equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly Net Income, an amount equal to all distributions accrued but unpaid on the Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375 (66,986.11 per share) were paid to the preferred shareholders of the Issuer for the period June 29, 1999 (inception) through December 31, 1999. Holders of the Series A Cumulative Preferred Shares may elect to retain their shares upon a remarketing, with a distribution rate to be determined immediately prior to the remarketing date by the remarketing agent. Each holder of the Series A Cumulative Preferred Shares will be required to tender its shares to the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides to remarket the shares on such date. The Issuer may not redeem the Series A Cumulative Preferred Shares before June 30, 2009. After that date, all or a portion of the shares may be redeemed, subject to certain conditions. The Series A Cumulative Preferred Shares are not convertible into common shares of the Issuer or Shares of the Company. The Series A Cumulative Preferred Shares rank, with respect to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Issuer, senior to all classes or series of common shares of the Issuer and therefore, of the Company. OTHER Through calendar year 1999, each independent trustee was entitled to receive annual compensation for serving as a trustee in the aggregate amount of $15,000 payable in cash (maximum of $5,000 per year) and/or Shares valued based on the fair market value at the date of issuance. Beginning in calendar year 2000, the annual compensation for the two original independent trustees was increased from $15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to $7,500. In 2000, a third independent trustee was appointed and such trustee will receive annual compensation in the aggregate amount of $30,000 payable in cash (maximum of $20,000 per year) and or Shares. As of December 31, 1999 and 1998, 1910 and 372 Shares, respectively, having an aggregate value of $25,000 and $5,000, respectively, have been issued to the independent trustees as compensation for their services. The Company was created as part of the settlement in 1997 of class action litigation against, among others, the sponsors of the Partnerships which were consolidated to form the Company. As part of that settlement, counsel ("Class Counsel") for the partners of the Partnerships had the right to petition the United States District Court for the Southern District of New York (the "Court") for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be determined in the Court's sole discretion. The Counsel's Fee Shares were based upon a percentage (which Class Counsel proposed to be 25%) of the increase in value of the Company, ("the Added Value") if any, as of October 1, 1998 based upon the difference between (i) the trading prices of the Company's shares of beneficial interest during the six month period ended October 1, 1998 and (ii) the trading prices of the limited partnership units and the asset values of the Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was entitled to receive 608,955 shares of beneficial interest in the Company. On April 15, 1999, the Company successfully negotiated a discounted cash settlement (the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was approved by the Board of Trustees and it was paid on May 3, 1999. -14- DISTRIBUTION INFORMATION DISTRIBUTIONS PER SHARE Quarterly cash distributions per share for the years ended December 31, 1999 and 1998 were as follows:
Shareholders of the Company ------------------------------------ Cash Distribution Total Amount for Quarter Ended Date Paid Per Share Distributed - - ----------------- --------- --------- ------------ March 31, 1999 5/14/99 $ .240 $ 4,939,437 June 30, 1999 8/15/99 .245 5,042,352 September 30, 1999 11/14/99 .245 5,042,352 December 31, 1999 2/14/00 .265 5,453,971 ------- ---------- $ .995 $20,478,112 ======= ========== Total for 1999 March 31, 1998 5/15/98$ .23 $ 4,735,119 June 30, 1998 8/14/98 .23 4,735,205 September 30, 1998 11/14/98 .23 4,735,205 December 31, 1998 2/14/99 .24 4,939,068 ------- ---------- Total for 1998 $ .93 $19,144,597 ======= ==========
In addition to the distributions set forth in the table above, the Company paid the Manager a special distribution (equal to .375% per annum of the total invested assets of the Company) which amounted to $2,018,822 and $1,477,797 for the years ended December 31, 1999 and 1998, respectively. There are no material legal restrictions upon the Company's present or future ability to make distributions in accordance with the provisions of the Company's Amended and Restated Trust Agreement. Future distributions paid by the Company will be at the discretion of the Trustees and will depend on the actual cash flow of the Company, its financial condition, capital requirements and such other factors as the Trustees deem relevant. -15- Item 6. Selected Financial Data. The information set forth below presents selected financial data of the Company. Additional financial information is set forth in the audited financial statements and notes thereto contained in "Item 8. Financial Statements and Supplementary Data".
Year ended December 31, -------------------------------------------------------------------------- OPERATIONS 1999 1998* 1997* 1996* 1995* - - ---------- ------------ ------------ ------------ ------------ ------------ Total revenues $ 40,437,190 $ 27,940,120 $ 14,229,774 $ 11,627,595 $ 11,854,566 Loss on impairment of assets***** (1,859,042) 0 (1,843,135) (4,000,000) (1,000,000) Other expenses (6,316,544) (4,350,249) (2,330,831) (1,782,554) (1,666,763) ----------- ----------- ----------- ----------- ----------- Income before loss on repayment of first mortgage 32,261,604 23,589,871 10,055,808 5,845,041 9,187,803 bonds Loss on repayment of first mortgage bonds (463,147) 0 0 0 0 ----------- ----------- ----------- ----------- ----------- Income before minority interests 31,798,457 23,589,871 10,055,808 5,845,041 9,187,803 Income allocated to preferred shareholders of (3,014,375) 0 0 0 0 subsidiary Minority interest in income of subsidiary (5,602,264) (1,563,999) 0 0 0 ----------- ----------- ----------- ----------- ----------- Net income $ 23,181,818 $ 22,025,872 $ 10,055,808 $ 5,845,041 $ 9,187,803 =========== =========== =========== =========== =========== Net income applicable to shareholders of beneficial interest $ 20,951,366 $ 20,342,594 $ 2,437,538*** =========== =========== =========== Net income per share (1) Basic** $ 1.02 $ .99 $ .12*** =========== =========== =========== Diluted** $ 1.02 $ .98 $ .12*** =========== =========== =========== Weighted average shares outstanding: Basic** 20,580,756 20,587,151 20,587,465*** =========== =========== =========== Diluted** 20,580,756 20,740,641 20,587,465*** =========== =========== =========== December 31, -------------------------------------------------------------------------- FINANCIAL POSITION 1999 1998 1997 1996* 1995* - - ------------------ ------------ ------------ ------------ ------------ ------------ Total assets $673,791,224 $492,585,806 $362,390,563 $154,896,475 $157,019,314 =========== =========== =========== =========== =========== Secured borrowings $ 80,769,616 $ 0 $ 0 $ 0 $ 0 =========== =========== =========== =========== =========== Notes payable $ 0 $ 0 $ 21,445,340 $ 0 $ 0 =========== =========== =========== =========== =========== Total liabilities $ 91,238,729 $ 15,091,600 $ 30,722,364 $ 573,874 $ 652,350 =========== =========== =========== =========== =========== Minority interest in subsidiary (subject to mandatory redemption) $177,000,000 $150,000,000 $ 0 $ 0 $ 0 =========== =========== =========== =========== =========== Preferred shares of subsidiary (subject to mandatory repurchase) $ 90,000,000 $ 0 $ 0 $ 0 $ 0 =========== =========== =========== =========== =========== Total shareholders' equity/partners' capital $315,552,495 $327,494,206 $331,668,199 $154,322,601 $156,366,964 =========== =========== =========== =========== =========== DISTRIBUTIONS - - ------------- Distributions to BUCSholders N/A N/A $ 7,138,263**** $ 9,517,685 $ 9,517,685 =========== =========== =========== Distributions to shareholders of beneficial interest $ 20,478,112 $ 19,144,597 $ 4,735,120*** =========== =========== =========== Distributions per share** $ 1.00 $ .93 $ .23*** =========== =========== ===========
-16- OTHER DATA
Year Ended Year Ended Three Months Ended December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ----------------- ------------------ Cash available for distribution (2) $ 26,570,394 $ 22,243,193 $ 4,624,279 Less: distributions to the Manager (2,018,833) (1,477,807) (330,582) ------------ ------------ ------------ Cash available for distribution to shareholders $ 24,551,561 $ 20,765,386 $ 4,293,697 ============ ============ ============ Distributions to shareholders $ 20,478,101 $ 19,144,587 $ 4,735,117 ============ ============ ============ Payout ratio 83.4% 92.2% 110.3% ============ =========== ============ Cash flows from: Operating activities $ 23,252,906 $ 22,651,186 $ 4,465,552 ============ ============ ============ Investing activities $(196,857,829) $(117,243,543) $ (8,497,439) ============ ============ ============ Financing activities $ 169,165,403 $ 105,388,481 $ 2,144,509 ============ ============ ============
*Information prior to October 1, 1997 (the date of the Consolidation) is only with respect to Tax Exempt II. Information subsequent to September 30, 1997 is with respect to the Company and its consolidated subsidiaries which include Tax Exempt II and the other Partnerships pursuant to the Consolidation. **Net income and distribution per Share information for periods prior to October 1, 1997 is not presented because it is not indicative of the Company's continuing capital structure. ***Represents amount for the three months ended December 31, 1997. ****Represents amount for the nine months ended September 30, 1997. *****The losses on impairment of assets recognized in 1999, 1997, 1996 and 1995 reflect the write-down of the cost basis of certain FMBs to their estimated fair values, upon the determination that such decline in value was other than temporary. (1) Net income per Share equals net income, less the special allocations to the Manager, divided by the weighted average Shares outstanding for the period. (2) See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a definition and calculation of Cash Available for Distribution. -17- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. LIQUIDITY AND CAPITAL RESOURCES GENERAL Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware business trust which is engaged in the acquisition and ownership (either directly or indirectly) of tax-exempt participating and non-participating first mortgage bonds ("FMBs") issued by various state or local governments or other agencies or authorities and secured by participating and non-participating mortgage loans on the underlying properties ("Underlying Properties"). As of December 31, 1999, the Company owned a portfolio of 69 FMBs and had net assets of approximately $315,552,495. The Company was formed by the consolidation (the "Consolidation"), on October 1, 1997, of Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III"), three publicly registered limited partnerships (the "Partnerships"). One of the general partners of the Partnerships was an affiliate of Related Capital Company ("Related"). In order to generate increased tax exempt income and, as a result, enhance the value of the Company's Shares, the Company intends to invest in or acquire additional tax-exempt bonds secured by multifamily properties. The Company believes that it can earn above market rates of interest on its bond acquisitions by focusing its efforts primarily on affordable housing. The Manager estimates that nearly 50% of all new multifamily development contains an affordable component which produces tax credits pursuant to Section 42 of the Internal Revenue Code. The Company has designed a Direct Purchase Program specifically designed to appeal to developers of such properties. In general, these properties are smaller than traditional multifamily housing properties, averaging 150 units. The traditional method of financing tax-exempt properties requires the involvement of credit enhancement, rating agencies and investment bankers. Therefore, the up-front cost of such financing is generally much higher than traditional multifamily financing. Through its Direct Purchase Program, the Company will invest in or acquire tax-exempt bonds without the cost associated with credit enhancement, rating agencies and investment bankers. The Company believes that the up-front cost savings to the developer will translate into a higher than market interest rate on the bonds acquired by the Company. The Company believes that it is well positioned to market its Direct Purchase Program as a result of the Manager's affiliation with Related. The Manager is a single purpose affiliate of Related which is controlled by the same individuals and entities which own Related. The Manager benefits from its affiliation with Related because the Manager is able to utilize Related's resources and relationships in the multifamily affordable housing finance industry to source potential borrowers of first mortgage bonds the Company could invest in or acquire. Related and its predecessor companies have specialized in offering debt and equity products to mid-market multifamily owners and developers for over 25 years. Related has provided debt and equity financing to properties valued at over $9.0 billion. According to the 1999 National Multihousing Council survey, Related is the third largest owner of apartments in the United States. The Company does not operate as a mortgage REIT, which generally utilize high levels of leverage and acquire subordinated interests in commercial and/or residential mortgage-backed securities. Rather, the Company utilizes low levels of leverage and generally invests in or acquires long-term, fixed-rate, tax-exempt FMBs. As a result, the Company did not experience the ill-effects associated with the volatile interest rate environment during 1999 and 1998. Pursuant to its Trust Agreement, the Company is only able to incur leverage or other financing up to 50% of the Company's Total Market Value (as defined in the Trust Agreement) as of the date incurred. Mortgage REITs typically incur leverage at ratios ranging from between 3:1 to 10:1. Due to the Company's low level of leverage, the Company has not been affected by the lack of liquidity that recently impaired mortgage REITs and its portfolio does not contain assets that are especially vulnerable to volatility during periods of interest rate fluctuations. In general, the FMBs that the Company either invests in or acquires call for ten-year restrictions from prepayments, eliminating the Company's susceptibility to significant levels of repayment risk as a result of interest rate reductions. Consistent with the foregoing, the Company focuses on providing investors with a stable level of distributions, even through unstable markets. The Company requires long-term financing in order to invest in and hold its portfolio of FMBs. To date, this long-term liquidity has come from the Company's Private Label Tender Option Program, a preferred equity offering by a subsidiary, and secured borrowings under securitization transactions. These financing sources have expected lives equal to the expected lives of the FMBs used to collateralize them, and are explained in more detail below. On a short-term basis, the Company requires funds to pay its operating expenses and to make distributions to its shareholders. The primary sources of the Company's short-term liquidity needs are the interest income from the FMBs and promissory notes in excess of the related financing costs, and interest income from cash and temporary investments. During the year ended December 31, 1999 cash and cash equivalents of the Company and its consolidated subsidiaries decreased approximately $4,440,000. The decrease was primarily due to the purchase of FMBs ($165,356,000), the purchase of other bond related investments ($579,000), an increase in deferred bond selection costs ($3,907,000), the net purchase of temporary investments ($45,541,000), an increase in restricted cash and cash equivalents ($1,028,000), loans made to properties ($2,847,000), distributions paid to the Manager and shareholders of the Company and to preferred shareholders of subsidiary, ($23,339,000), an increase in deferred costs relating to the Private Label Tender Option Program ($560,000) and deferred costs relating to the issuance of preferred stock of subsidiary ($3,605,000) which exceeded cash provided by operating activities ($23,253,000), proceeds from repayments of FMBs ($21,395,000), an increase in minority interest ($27,000,000), proceeds from secured borrowings ($80,770,000) and the -18- issuance of preferred shares of subsidiary ($90,000,000). Included in the adjustments to reconcile the net income to cash provided by operating activities is a loss on repayments of FMBs ($463,000) a loss on impairment of assets ($1,859,000) and net amortization ($1,066,000). The Company has entered into forbearance agreements on several FMBs and may be required to extend these agreements or enter into new agreements in the future. Such agreements may adversely impact liquidity; however, interest payments from FMBs and RITES are anticipated to provide sufficient liquidity to fund the Company's operating expenditures, debt service and distributions in future years. The determination as to whether it is in the best interest of the Company to enter into forbearance agreements on the FMBs or, alternatively, to pursue its remedies under the loan documents, including foreclosure, is based upon several factors including, but not limited to, Underlying Property performance, owner cooperation and projected legal costs. The difference between the stated interest rates and the rates paid by FMBs is not accrued as interest income for financial reporting purposes. The accrual of interest at the stated interest rate will resume once an Underlying Property's ability to pay the stated rate has been adequately demonstrated. Interest income of approximately $1,916,000, $3,047,000 and $2,415,000 was not recognized for the years ended December 31, 1999, 1998 and 1997, respectively. In January and February 2000, distributions of $1,490,625 ($33,125 per preferred share) and $5,453,971 ($.265 per Share), respectively, which were declared in December 1999, were paid to the preferred shareholders of subsidiary and shareholders of the Company, respectively, from cash flow from operations for the quarter ended December 31, 1999. Management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed that will or are likely to impact liquidity in a material way. CAPITAL RAISING TRANSACTIONS (i) PRIVATE LABEL TENDER OPTION PROGRAM On May 21, 1998, the Company closed on its Private Label Tender Option Program ("TOP") in order to raise additional capital to acquire additional FMBs. As of March 31, 1999, the maximum amount of capital which could be raised under the TOP ($150,000,000) had been raised. In April 1999, the Company successfully negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the Company has contributed 40 issues of FMBs in the aggregate principal amount of approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination Trust"), a wholly-owned, indirect subsidiary of the Company, which has contributed 32 of those FMBs, with an aggregate principal amount of approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the Company. The Owner Trust has issued two equity certificates: (i) a Senior Certificate, with an outstanding face amount of $177,000,000 at December 31, 1999, which has been deposited into another Delaware business trust (the "Certificate Trust") which issued and sold Floater Certificates representing proportional interests in the Senior Certificate to new investors and (ii) a Residual Certificate representing the remaining beneficial ownership interest in the Owner Trust, which has been issued to the Origination Trust. The FMBs remaining in the Origination Trust (aggregate principal amount of approximately $90,452,000) are a collateral pool for the Owner Trust's obligations under the Senior Certificate. In addition, the Owner Trust obtained a municipal bond insurance policy from MBIA to credit enhance Certificate distributions for the benefit of the holders of the Floater Certificates and has also arranged for a liquidity facility, issued by a consortium of highly rated European banks, with respect to the Floater Certificates. The Company owns no beneficial interest in, and does not control, the Certificate Trust. The effect of the TOP structure is that a portion of the interest received by the Owner Trust on the FMBs it holds is distributed through the Senior Certificate to the holders of the Floater Certificates in an amount determined each week by the remarketing agent, Goldman Sachs & Co., at the distribution amount that is required to enable the remarketing agent to sell the Floater Certificates at par on any weekly determination date, with the residual interest remitted to the Origination Trust via the Residual Certificate. The Company's cost of funds relating to the TOP (calculated as income allocated to the minority interest plus recurring fees as a percentage of the weighted average amount of the outstanding Senior Certificate) was approximately 4.5% and 4.9% for the year ended December 31, 1999 and the period May 21, 1998 (inception) through December 31, 1998, respectively. (ii) PREFERRED EQUITY ISSUANCE BY SUBSIDIARY On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt preferred equity offering (the "Preferred Offering") comprising 45 shares ("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch, Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred Shares to qualified institutional investors. In connection with this transaction, the Company caused 100% of the ownership of the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the "Issuer"), a newly formed Delaware business trust and an indirectly owned subsidiary in which the Company owns 100% of the common equity. The Issuer then issued the Series A Cumulative Preferred Shares. As a result of such transaction, the Issuer became the direct and indirect owner of the entire outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its two directly and indirectly owned subsidiaries (see Note 8). In addition to contributing the ownership of the Origination Trust, the Company also contributed eight FMBs to the Issuer. As of the closing, the aggregate par value of FMBs held -19- directly or indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of approximately $86,395,000 from the Preferred Offering have been used to invest in or acquire additional tax-exempt assets for the Issuer. The Series A Cumulative Preferred Shares have an annual preferred dividend rate of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing October 31, 1999 and payable upon declaration thereof by the Issuer's Board of Trustees, but only to the extent of the Issuer's tax-exempt income (net of expenses) for the particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred Shares are subject to mandatory tender by the holders thereof for remarketing and purchase on June 30, 2009 and each remarketing date thereafter at a price equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly Net Income, an amount equal to all distributions accrued but unpaid on the Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375 (66,986.11 per share) were paid to the preferred shareholders of the Issuer for the period June 29, 1999 (inception) through December 31, 1999. Holders of the Series A Cumulative Preferred Shares may elect to retain their shares upon a remarketing, with a distribution rate to be determined immediately prior to the remarketing date by the remarketing agent. Each holder of the Series A Cumulative Preferred Shares will be required to tender its shares to the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides to remarket the shares on such date. The Issuer may not redeem the Series A Cumulative Preferred Shares before June 30, 2009. After that date, all or a portion of the shares may be redeemed, subject to certain conditions. The Series A Cumulative Preferred Shares are not convertible into common shares of the Issuer or Shares of the Company. The Series A Cumulative Preferred Shares rank, with respect to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Issuer, senior to all classes or series of common shares of the Issuer and therefore, of the Company. (iii) SECURITIZATION TRANSACTIONS To raise additional capital to acquire additional FMBs, the Company has securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits each FMB into an individual special purpose trust created to hold such asset, together with a Credit Enhancement Guarantee ("Guarantee"). Two types of securities are then issued by each trust, evidencing ownership in the FMBs and the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a short-term senior security which bears interest at a floating rate that is reset weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOAT security at par (up to 99% of the underlying face amount of the FMB); and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security which receives the residual interest payment after payment of P-FLOAT interest and ongoing transaction fees. The P-FLOATS are sold to qualified third party, tax-exempt investors and the RITES are sold back to the Company. The Company has the right, with 14 days notice to the trustee, to purchase the outstanding P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are deposited into the P-FLOAT Trust, the Company receives the proceeds from the sale of the P-FLOATS less certain transaction costs. In certain other cases, Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the trust, sell the P-FLOAT security to qualified investors and then the RITES to the Company. In order to facilitate the securitization, the Company has pledged certain additional FMBs, cash and cash equivalents and temporary investments as collateral for the benefit of the credit enhancer or liquidity provider. At December 31, 1999, the total carrying amount of such additional FMBs, cash and cash equivalents and temporary investments pledged as collateral was $53,761,000, $1,028,209 and $45,541,000, respectively. During the period May 1999 through December 1999, the Company transferred ten FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616. The Company's cost of funds relating to its secured borrowings under the Merrill Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of the weighted average amount of the secured borrowings) was approximately 4.8%, annualized, for the period June 29, 1999 (inception of this program) through December 31, 1999. During June 1999, Merrill Lynch purchased three FMBs with an aggregate face amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch whereby P-FLOATS and RITES were sold. The Company purchased the related RITES interests with an aggregate face amount of $15,000 for an aggregate purchase price of $579,118 which includes bond selection and other transaction costs. ACQUISITIONS AND DISPOSITIONS During the period January 1, 1999 through December 31, 1999 the Company acquired 23 FMBs for an aggregate purchase price of approximately $165,355,500, not including bond selection fees and expenses of approximately $3,683,991. The purchases were financed by the TOP, the Preferred Offering and securitization transactions. Three of the FMBs are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside North Obligor") completed a refinancing with an unaffiliated third party. The Countryside North Obligor then fully repaid its outstanding debt due to the Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a $100,000 prepayment penalty and accrued interest due through the repayment date of $35,417 resulting in a loss on the repayment (including the prepayment penalty and the write off of unamortized bond selection costs) in the amount of $25,493. -20- On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together the "Players Club/Suntree Obligor") completed a sale of the properties to an independent third party. The Players Club/Suntree Obligor then repaid the FMBs with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of $8,790,000 and $7,500,000 resulting in losses on the repayment (including the write off of unamortized bond selection costs) in the amounts of $376,496 and $61,158. In addition, the Players Club/Suntree Obligor also repaid promissory note obligations in the amounts of $472,128 and $88,618. The Players Club/Suntree Obligor has no further obligation to the company under the FMBs. FMB MODIFICATIONS Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to 7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued interest through August 1999 to be paid at maturity or upon a sale or refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to 2011) and prepayment lock-out dates (to 2006). The contingent interest feature of the bonds was also modified. These modifications resulted in realized losses on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to write down the cost basis of each FMB to its then estimated fair value. Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate of the Manager, was transferred to a third party who provided new capital in the amount of $1,813,000. This new capital will be used primarily to provide for repairs to the property as well as costs of the transaction. Repairs are expected to be completed within the next 6-9 months. In conjunction with this transfer and infusion of capital, it is anticipated that the FMB will be formally modified within 6 to 9 months, subject to the approval of the local issuer of the FMB. In the interim, the property will continue to operate pursuant to a forbearance agreement with the Company which calls for a 5.5% minimum annual interest rate. The anticipated modification of this FMB resulted in a realized loss on impairment in the amount of $406,796, to write down the cost basis of this FMB to its estimated fair value. Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"), affiliates of the Manager, transferred their interests, pursuant to a sale of stock, to a third party equity investor. Pursuant to such transfer, the Company entered into a modification agreement (subject to issuer approval) with the new obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the terms of the transaction, the Company received a payment on December 30, 1999 of $1,500,000 in full settlement of all accrued and unpaid base interest on the Sunset FMBs. In addition, in consideration for the waiver of the payment requirement for the payment of past and future contingent interest, a payment of $1,000,000 is expected on or before March 31, 2000. In connection with the transaction, it is expected that the new obligor will invest $800,000-$1,000,000 for physical improvements to the properties. The modifications of the Sunset Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to write down the cost basis of each of these FMBs to their estimated fair values. The estimated fair value of the Sunset Creek FMB continues to exceed its amortized cost basis. Certain of the Company's other FMBs have previously been modified. These modifications have generally encompassed an extension of the maturity together with a prepayment lock out feature and/or prepayment penalties together with an extension of the mandatory redemption feature (5-10 years from modification). Stated interest rates have also been adjusted together with a change in the participation and contingent interest features. Base interest rates, contingent interest, prepayment lock-outs, mandatory redemption and maturity features vary dependent on the facts of a particular FMB, the developer, the Underlying Property's performance and requirements of bond counsel and local issuers. The Company currently anticipates that it may modify certain other FMBs to reflect generally similar terms as those modified previously and effective in 1999, where and as appropriate. Significant modifications to interest rates and maturity dates are subject to final approval of the local issuers, bond counsel and indenture trustees. PROPOSED MERGER On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"), whose manager is an affiliate of the Manager of the Company, entered into a merger agreement pursuant to which ATEBT would merge with and into CM Holding Trust, a wholly-owned subsidiary of the Company. Following the merger, CM Holding Trust would continue to be a wholly-owned subsidiary of the Company. ATEBT is a Delaware business trust which owns four tax-exempt first mortgage bonds and had total assets of approximately $27,382,000 and net assets of approximately $26,030,000 at December 31, 1999. The four tax-exempt first mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at December 31, 1999, have interest rates of 9% and have underlying properties located in four different states. Under the terms of the merger agreement, each share of beneficial ownership in ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares at December 31, 1999) will be converted into the right to receive 1.43112 Shares of the Company. In addition, the manager of ATEBT (which owns a 1% interest in ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of the Company. Following the merger, current ATEBT shareholders will own approximately 9.3% of the outstanding Shares of the Company. Consummation of the merger is subject to several conditions, including approval by ATEBT shareholders. In addition, either entity has the ability to opt out of the transaction if the 30-day average trading price of the Company's Shares preceding the closing of the transaction is outside of the Company's historical trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the Company and ATEBT expect that this transaction will close during the second quarter of 2000. -21- OTHER The Company was created as part of the settlement in 1997 of class action litigation against, among others, the sponsors of the Partnerships which were consolidated to form the Company. As part of that settlement, counsel ("Class Counsel") for the partners of the Partnerships had the right to petition the United States District Court for the Southern District of New York (the "Court") for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be determined in the Court's sole discretion. The Counsel's Fee Shares were based upon a percentage (which Class Counsel proposed to be 25%) of the increase in value of the Company, ("the Added Value") if any, as of October 1, 1998 based upon the difference between (i) the trading prices of the Company's shares of beneficial interest during the six month period ended October 1, 1998 and (ii) the trading prices of the limited partnership units and the asset values of the Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was entitled to receive 608,955 shares of beneficial interest in the Company. On April 15, 1999, the Company successfully negotiated a discounted cash settlement (the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was approved by the Board of Trustees and it was paid on May 3, 1999. RESULTS OF OPERATIONS The following is a summary of the results of operations of the Company for the years ended December 31, 1999, 1998 and 1997. The net income for the years ended December 31, 1999, 1998 and 1997 was $23,181,818, $22,025,872 and $10,055,808, respectively. 1999 VS. 1998 For the year ended December 31, 1999 as compared to 1998, total revenues, total expenses and net income increased due to the net result of the acquisition of 23 FMBs during 1999 and 1998, the acquisition of three RITES during 1999 and the repayment of one of three FMBs repaid during 1999. The Company's results of operations for the year ended December 31, 1998 consisted primarily of the results of the Company's investment in 49 FMBs. Interest income from FMBs increased approximately $11,017,000 for the year ended December 31, 1999 as compared to 1998. An increase of $9,473,000 was due to the acquisition of 40 FMBs during 1999 and 1998 (the "1999 and 1998 Acquisitions"), a decrease of $371,000 was due to the repayment of one of the three FMBs repaid during 1999 (the "1999 Repayment") and a decrease of $412,000 was due to the amortization of goodwill in 1999 and the accretion of excess of acquired net assets over cost in 1998, both relating to the Consolidation (see Note 2(j) to the Company's financial statements included in "Item 8. Financial Statements and Supplementary Data"). Excluding the above increases and decreases, interest income from FMBs increased approximately 10% for the year ended December 31, 1999 as compared to 1998. The increase was primarily due to the receipt of deferred base interest relating to prior periods with respect to the Suntree, Players Club, Sunset Creek, Sunset Village, Sunset Downs and Sunset Terrace FMBs and the repayment of a loan made to the Obligor of the Players Club FMB which had previously been recorded as a reduction of income, partially offset by a decrease in interest income from the Cypress Run FMB. Interest income from other bond related investments in the amount of approximately $303,000 was recorded for the year ended December 31, 1999 relating to three RITES purchased in June 1999. Interest income from temporary investments increased approximately $1,068,000 for the year ended December 31, 1999 as compared to 1998 primarily due to higher invested cash balances in 1999. Interest income from promissory notes increased approximately $109,000 for the year ended December 31, 1999 as compared to 1998 primarily due to loans made to the obligors of the Lakepoint and Country Lake FMBs in 1999. Interest expense increased approximately $245,000 for the year ended December 31, 1999 as compared to 1998. The increase was primarily due to secured borrowings in 1999 which offset a decrease due to the repayment of an interim credit facility in December 1998. Recurring fees relating to the Private Label Tender Option program increased approximately $962,000 for the year ended December 31, 1999 as compared to 1998 primarily due to a higher outstanding balance of the TOP during 1999. Loan servicing and asset management fees increased approximately $353,000 for the year ended December 31, 1999 as compared to 1998 due to an increase of $365,000 and a decrease of $12,000 relating to the 1999 and 1998 Acquisitions and the 1999 Repayment, respectively. General and administrative expenses increased approximately $184,000 for the year ended December 31, 1999 as compared to 1998 primarily due to an increase in public relations expenses and an increase in audit/tax fees due to the 1999 and 1998 Acquisitions. Amortization increased approximately $223,000 for the year ended December 31, 1999 as compared to 1998 primarily due to an increase in amortization of deferred costs relating to the TOP. A loss on impairment of assets in the amount of approximately $1,859,000 was recorded for the year ended December 31, 1999 to recognize other than temporary impairment of seven FMBs based upon modifications of, and the anticipated modification of, six and one FMBs, respectively. A loss on repayment of three FMBs in the amount of approximately $463,000 was recorded for the year ended December 31, 1999. -22- Income allocated to preferred shareholders of subsidiary for the year ended December 31, 1999 relates to the Preferred Offering executed on June 29, 1999. Minority interest in income of subsidiary increased approximately $4,038,000 for the year ended December 31, 1999 as compared to 1998 primarily due to a higher outstanding balance of the TOP during 1999. 1998 VS. 1997 For the year ended December 31, 1998 as compared to 1997, total revenues, total expenses and net income increased and the results of operations are not comparable due to (i) the Consolidation of Tax Exempt II with two other Partnerships on October 1, 1997, which resulted in the formation of the Company and (ii) the acquisition of 18 FMBs after the Consolidation. The Company's results of operations for the year ended December 31, 1998 consisted primarily of the results of the Company's investment in 49 FMBs. The Company's results of operations for the year ended December 31, 1997 consisted primarily of the results of Tax Exempt II's investment in 16 FMBs. In addition, the results of operations are not reflective of future operations due to the anticipated continued acquisition of FMBs. Interest income from FMBs increased approximately $13,222,000 for the year ended December 31, 1998 as compared to 1997. An increase of $9,815,000 was due to the 16 FMBs (including Tax Exempt III's portion of the Players Club FMB) acquired from Tax Exempt I and Tax Exempt III in the Consolidation (the "Tax Exempt I and III Acquisitions") and an increase of $3,252,000 was due to the acquisition of 18 FMBs after the Consolidation (the "New Acquisitions"). Excluding these acquisitions, interest income from FMBs increased approximately 1% for the year ended December 31, 1998 as compared to 1997. Interest income from temporary investments increased approximately $66,000 for the year ended December 31, 1998 as compared to 1997 primarily due to higher invested cash balances in 1998. Interest income from promissory notes increased approximately $422,000 for the year ended December 31, 1998 as compared to 1997. An increase of $405,000 was due to the Tax Exempt I and III Acquisitions. Excluding these acquisitions, interest income from promissory notes increased approximately $17,000 for the year ended December 31, 1998 as compared to 1997 primarily due to loans to the owners of the Suntree and Bristol Village Underlying Properties in November 1997 and June 1998, respectively. Interest expense increased approximately $1,075,000 for the year ended December 31, 1998 as compared to 1997 primarily due to higher outstanding balances of the Interim Credit Facility during 1998. Recurring fees relating to the Private Label Tender Option Program were recorded for the period May 21, 1998 (inception) through December 31, 1998. Management fees incurred to the general partners of Tax Exempt II in the amount of approximately $608,000 were recorded in 1997. Loan servicing fees increased approximately $462,000 for the year ended December 31, 1998 as compared to 1997 due to increases of $349,000 and $113,000 relating to the Tax Exempt I and III Acquisitions and the New Acquisitions, respectively. General and administrative expenses increased approximately $518,000 for the year ended December 31, 1998 as compared to 1997. This increase was primarily due to an increase in printing and investor service expenses resulting from an increase in investors, an increase in insurance expense, an increase in audit/tax fees and expense reimbursements to the Manager and its affiliates due to the Tax Exempt I and III Acquisitions and the New Acquisitions and fees to the independent trustees relating to their services for 1998. Amortization increased approximately $117,000 for the year ended December 31, 1998 as compared to 1997 primarily due to amortization of deferred costs relating to the TOP. A loss on impairment of assets in the amount of approximately $1,843,000 was recorded in 1997 to recognize other than temporary impairment of the Shannon Lake, Players Club and Lakepoint FMBs based upon operating difficulties at the properties securing the FMBs. Minority interest in income of subsidiary in the amount of approximately $1,564,000 was recorded in 1998, relating to the TOP. CASH AVAILABLE FOR DISTRIBUTION The Company uses cash available for distribution ("CAD") as the primary measure of its dividend paying ability. The difference between CAD and net income results from variations between generally accepted accounting principles ("GAAP") and cash received. One difference between CAD and GAAP is the amortization of bond selection costs, costs relating to the TOP, costs relating to the issuance of preferred stock of subsidiary and other intangible assets. These amounts have been excluded from CAD due to their noncash nature. Another difference is the noncash gain or loss associated with bond impairments, repayments and sales for GAAP purposes, which are not included in the calculation of CAD. During the year ended December 31, 1999 and the three months ended December 31, 1997, there were FMB impairments in the amounts of $1,859,042 and $1,843,135, respectively, and during the year ended December 31, 1999, there were losses on repayments of FMBs in the aggregate amount of $463,147. -23- CAD should not be considered an alternative to net income as a measure of the Company's financial performance or to cash flow from operating activities (computed in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Cash available for distribution ("CAD") for the years ended December 31, 1999 and 1998 and the three months ended December 31, 1997 is summarized in the following table:
Year Ended Year Ended Three Months Ended December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ----------------- ------------------ Sources of Cash Interest income: First mortgage bonds $ 38,141,250 $ 27,124,667 $ 5,514,011 Other bond related investments 303,280 0 0 Temporary investments 1,289,669 221,270 49,483 Promissory notes 702,991 594,183 140,180 Net amortization (accretion) included in income 684,360 58,749 (53,096) ------------- ------------- ------------- Total sources of cash 41,121,550 27,998,869 5,650,578 ------------- ------------- ------------- Uses of Cash Total expenses, loss on repayment of first mortgage bonds, minority interest and income allocated to preferred shareholders of subsidiary 17,255,372 5,914,248 2,910,934 Less: Amortization of amounts included in expenses (382,027) (158,572) (41,500) Loss on impairment of assets (1,859,042) 0 (1,843,135) Loss on repayment of FMBs (463,147) 0 0 ------------- ------------- ------------- Total uses of cash 14,551,156 5,755,676 1,026,299 ------------- ------------- ------------- Cash available for distribution $ 26,570,394 $ 22,243,193 $ 4,624,279 Less: distributions to the Manager (2,018,833) (1,477,807) (330,582) ------------- ------------- ------------- Cash available for distribution to shareholders $ 24,551,561 $ 20,765,386 $ 4,293,697 ============= ============= ============= Distributions to shareholders $ 20,478,101 $ 19,144,587 $ 4,735,117 ============= ============= ============= Payout ratio 83.4% 92.2% 110.3% ============= ============= ============= Cash flows from: Operating activities $ 23,252,906 $ 22,651,186 $ 4,465,552 ============= ============= ============= Investing activities $ (196,857,829) $ (117,243,543) $ (8,497,439) ============= ============= ============= Financing activities $ 169,165,403 $ 105,388,481 $ 2,144,509 ============= ============= =============
RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It is effective for the Company beginning with the first quarter of 2001. Because the Company does not currently utilize derivatives or engage in hedging activities, management does not anticipate that implementation of this statement will have a material effect on the Company's financial statements. FORWARD-LOOKING STATEMENTS Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions, which will, among other things, affect the availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing; adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environment/safety requirements. -24- INFLATION Inflation did not have a material effect on the Company's results for the periods presented. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The nature of the Company's investments and the instruments used to raise capital for their acquisition expose the Company to gains and losses due to fluctuations in market interest rates. Market interest rates are highly sensitive to many factors, including governmental policies, domestic and international political considerations and other factors beyond the control of the Company. The FMBs generally bear interest at fixed rates, or pay interest according to the cash flows of the Underlying Properties, which do not fluctuate with changes in market interest rates. In contrast, payments required under the TOP program and on the secured borrowings under the P-FLOAT program vary based on market interest rates, primarily Bond Market Association ("BMA") and are re-set weekly. Thus, an increase in market interest rates would result in increased payments under these financing programs, without a corresponding increase in cash flows from the investments in FMBs. For example, based on the $257,769,616 outstanding under these financing programs at December 31, 1999, the Company estimates that an increase of 0.5% in the BMA rate would decrease the Company's annual net income by approximately $1,289,000; a 1.0% increase in BMA would decrease annual net income by approximately $2,578,000. For the same reasons, a decrease in market interest rates would generally benefit the Company, as a result of decreased allocations to the minority interest and interest expense without corresponding decreases in interest received on the FMBs, in the same amounts as described above. During June of 1999, a subsidiary of the Company completed a $90 million Preferred Offering. These preferred shares carry a fixed dividend rate of 6 5/8% through June 30, 2009, and so are not impacted by changes in market interest rates. Various financial vehicles exist which would allow Company management to mitigate the impact of interest rate fluctuations on the Company's cash flows and earnings. Although management has not engaged in any of these hedging strategies in the past, it may do so in the future, depending on management's analysis of the interest rate environment and the costs and risks of such strategies. Changes in market interest rates would also impact the estimated fair value of the Company's portfolio of FMBs. The Company estimates the fair value for each FMB as the present value of its expected cash flows, using a discount rate for comparable tax-exempt investments. Therefore, as market interest rates for tax-exempt investments increase, the estimated fair value of the company's FMBs will generally decline, and a decline in interest rates would be expected to result in an increase in the estimated fair values. For example, the Company projects that a 1% increase in market rates for tax-exempt investments would decrease the estimated fair value of its portfolio of FMBs from its December 31, 1999 value of $587,892,000 to approximately $522,849,000. A 1% decline in interest rates would increase the value of the December 31, 1999 portfolio to approximately $673,644,000. Changes in the estimated fair value of the FMBs do not impact the Company's reported net income, earnings per share, distributions or cash flows, but are reported as components of other comprehensive income and affect reported shareholders' equity. -25- Item 8. Financial Statements and Supplementary Data. Page ---------- (a) 1. FINANCIAL STATEMENTS Independent Auditors' Report 27 Consolidated Balance Sheets as of December 31, 1999 and 1998 28 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 29 Consolidated Statements of Changes in Shareholders' Equity/Partners' Capital (Deficit) for the years ended December 31, 1999, 1998 and 1997 30 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 32 Notes to Consolidated Financial Statements 35 -26- INDEPENDENT AUDITORS' REPORT To the Board of Trustees And Shareholders of Charter Municipal Mortgage Acceptance Company New York, New York We have audited the accompanying consolidated balance sheets of Charter Municipal Mortgage Acceptance Company and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity/partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedules listed in Item 14(a)2. These financial statements and the financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Charter Municipal Mortgage Acceptance Company and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP New York, New York March 14, 2000 -27- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------------- 1999 1998 ----------- ----------- ASSETS First mortgage bonds-at fair value $587,892,000 $458,662,600 Other bond related investments-at fair value 560,000 0 Temporary investments 45,541,000 0 Cash and cash equivalents 8,653,503 13,093,023 Cash and cash equivalents-restricted 1,028,209 0 Interest receivable, net 2,803,278 1,512,562 Promissory notes receivable 10,148,060 7,628,920 Deferred costs, net 14,222,451 7,005,965 Goodwill, net 2,674,626 4,671,236 Other assets 268,097 11,500 ----------- ----------- Total assets $673,791,224 $492,585,806 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Secured borrowings $80,769,616 $ 0 Accounts payable, accrued expenses and other liabilities 2,306,306 8,993,174 Due to Manager and affiliates 1,218,211 1,159,358 Distributions payable to preferred shareholders of subsidiary 1,490,625 0 Distributions payable to shareholders 5,453,971 4,939,068 ----------- ----------- Total liabilities 91,238,729 15,091,600 ----------- ----------- Minority interest in subsidiary (subject to mandatory redemption) 177,000,000 150,000,000 ----------- ----------- Preferred shares of subsidiary (subject to mandatory repurchase) 90,000,000 0 ----------- ----------- Commitments and contingencies Shareholders' equity: Beneficial owner's equity-manager 441,878 230,259 Beneficial owners' equity-other shareholders (50,000,000 shares authorized; 20,589,375 issued and 20,580,975 outstanding and 20,587,837 issued and 20,579,437 outstanding in 1999 and 1998, respectively) 312,800,380 312,307,115 Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359) Accumulated other comprehensive income 2,413,596 15,060,191 Total shareholders' equity 315,552,495 327,494,206 ----------- ----------- Total liabilities and shareholders' equity $673,791,224 $492,585,806 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements -28- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------ 1999 1998 1997 ----------- ----------- ----------- Revenues: Interest income: First mortgage bonds $38,141,250 $27,124,667 $13,902,592 Other bond related investments 303,280 0 0 Temporary investments 1,289,669 221,270 155,460 Promissory notes 702,991 594,183 171,722 ---------- ---------- ---------- Total revenues 40,437,190 27,940,120 14,229,774 ---------- ---------- ---------- Expenses: Interest expense 1,749,225 1,504,334 429,012 Recurring fees relating to the Private Label Tender Option Program 1,416,756 454,919 0 Partnership management fees 0 0 607,969 Loan servicing and management fees 1,337,738 985,198 523,538 General and administrative 1,430,798 1,247,226 728,812 Amortization 382,027 158,572 41,500 Loss on impairment of assets 1,859,042 0 1,843,135 ---------- ---------- ---------- Total expenses 8,175,586 4,350,249 4,173,966 ---------- ---------- ---------- Income before loss on repayment of first mortgage bonds 32,261,604 23,589,871 10,055,808 Loss on repayment of first mortgage bonds (463,147) 0 0 ---------- ---------- ---------- Income before minority interests 31,798,457 23,589,871 10,055,808 Income allocated to preferred shareholders of subsidiary (3,014,375) 0 0 Minority interest in income of subsidiary (5,602,264) (1,563,999) 0 ---------- ---------- ---------- Net income $23,181,818 $22,025,872 $10,055,808 ---------- ---------- Special allocation of net income to the Manager $ 2,230,452 $ 1,683,278 $ 355,202* ---------- ---------- ---------- ---------- ---------- ---------- Net income applicable to shareholders $20,951,366 $20,342,594 $ 2,437,538* ---------- ---------- ---------- ---------- ---------- ---------- Net income per share: Basic $ 1.02 $ .99 $ .12** ---------- ---------- ---------- ---------- ---------- ---------- Diluted $ 1.02 $ .98 $ .12** ---------- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding: Basic 20,580,756 20,587,151 20,587,465** ---------- ---------- ---------- ---------- ---------- ---------- Diluted 20,580,756 20,740,641 20,587,465** ---------- ---------- ---------- ---------- ---------- ----------
*Represents amount for the three months ended December 31, 1997. **Represents amount for the three months ended December 31, 1997. Net income per unit information for the period before October 1, 1997 is not presented because it is not indicative of the Company's continuing capital structure. See accompanying notes to consolidated financial statements -29- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Beneficial Beneficial Owners' Treasury Owner's Equity- Shares of General Equity - Other Beneficial BUC$holders Partners Manager Shareholders Interest ----------- -------- ------- ------------ -------- Balance at January 1, 1997 $160,622,463 $(184,260) $ 0 $ 0 $ 0 Net income - January 1, 1997 to September 30, 1997 7,117,807 145,261 0 0 0 Distributions - January 1, 1997 to September 30, 1997 (9,517,685) (194,238) 0 0 0 Consolidation and issuance of shares (158,222,585) 233,237 169 316,117,946 0 Consolidation costs 0 0 (1) (2,497,602) 0 Net income - October 1, 1997 to December 31, 1997 0 0 355,202 2,437,538 0 Comprehensive income: Net Income - January 1, 1997 to December 31, 1997 Other comprehensive income: Net unrealized gain on first mortgage bonds: Net unrealized holding gain arising during the period Add: reclassification adjustment for losses included in net income Other comprehensive income Comprehensive income Distributions - October 1, 1997 to December 31, 1997 0 0 (330,582) (4,735,117) 0 ----------- -------- ---------- ----------- --------- Balance at December 31, 1997 0 0 24,788 311,322,765 0 Comprehensive income: Net income 0 0 1,683,278 20,342,594 0 Other comprehensive loss: Net unrealized loss on first mortgage bonds: Net unrealized holding loss arising during the period Comprehensive income Issuance of shares of beneficial interest 0 0 0 5,000 0 Purchase of treasury shares of beneficial interest 0 0 0 0 (103,359) Consolidation costs 0 0 0 (218,657) 0 Distributions 0 0 (1,477,807) (19,144,587) 0 ----------- -------- ---------- ----------- -------- Balance at December 31, 1998 0 0 230,259 312,307,115 (103,359) Accumulated Other Comprehensive Comprehensive Income Income Total ------ ------ ----- Balance at January 1, 1997 $(6,115,602) $154,322,601 Net income - January 1, 1997 to September 30, 1997 $7,263,068 0 7,263,068 Distributions - January 1, 1997 to September 30, 1997 0 (9,711,923) Consolidation and issuance of shares 0 158,128,767 Consolidation costs 0 (2,497,603) Net income - October 1, 1997 to December 31, 1997 2,792,740 0 2,792,740 ---------- Comprehensive income: Net Income - January 1, 1997 to December 31, 1997 10,055,808 ---------- Other comprehensive income: Net unrealized gain on first mortgage bonds: Net unrealized holding gain arising during the period 24,593,113 Add: reclassification adjustment for losses included in net income 1,843,135 ---------- Other comprehensive income 26,436,248 26,436,248 26,436,248 ---------- Comprehensive income 36,492,056 ---------- ---------- Distributions - October 1, 1997 to December 31, 1997 0 (5,065,699) ---------- ----------- Balance at December 31, 1997 20,320,646 331,668,199 Comprehensive income: Net income 22,025,872 0 22,025,872 Other comprehensive loss: Net unrealized loss on first mortgage bonds: Net unrealized holding loss arising during the period (5,260,455) (5,260,455) (5,260,455) ---------- Comprehensive income 16,765,417 ---------- Issuance of shares of beneficial interest 0 5,000 Purchase of treasury shares of beneficial interest 0 (103,359) Consolidation costs 0 (218,657) Distributions 0 (20,622,394) ---------- ----------- Balance at December 31, 1998 15,060,191 327,494,206
See accompanying notes to consolidated financial statements (continued) -30- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT)
Beneficial Beneficial Owners' Treasury Owner's Equity- Shares of General Equity - Other Beneficial BUC$holders Partners Manager Shareholders Interest ----------- -------- ------- ------------ -------- Comprehensive income: Net income 0 0 2,230,452 20,951,366 0 Other comprehensive loss: Net unrealized loss on first mortgage bonds and bond related investments: Net unrealized holding loss arising during the period Add: Reclassification adjustment for losses included in net income Other comprehensive loss Comprehensive income Issuance of shares of beneficial interest 0 0 0 20,000 0 Distributions 0 0 (2,018,833) (20,478,101) 0 ---------- ------- ---------- ----------- -------- Balance at December 31, 1999 $ 0 $ 0 $ 441,878 $312,800,380 $(103,359) ---------- ------- ---------- ----------- -------- ---------- ------- ---------- ----------- -------- Accumulated Other Comprehen- Comprehen- sive Income sive Income Total ----------- ----------- ----- Comprehensive income: Net income 23,181,818 0 23,181,818 ----------- Other comprehensive loss: Net unrealized loss on first mortgage bonds and bond related investments: Net unrealized holding loss arising during the period (14,968,784) Add: Reclassification adjustment for losses included in net income 2,322,189 ----------- Other comprehensive loss (12,646,595) (12,646,595) (12,646,595) ----------- Comprehensive income 10,535,223 ----------- ----------- Issuance of shares of beneficial interest 0 20,000 Distributions 0 (22,496,934) ------------ ------------ Balance at December 31, 1999 $ 2,413,596 $315,552,495 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements -31- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ---------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income $23,181,818 $22,025,872 $10,055,808 ---------- ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Loss on repayments of first mortgage bonds 463,147 0 0 Loss on impairment of assets 1,859,042 0 1,843,135 Amortization 382,027 158,572 41,500 Amortization of goodwill 297,624 134,592 0 Amortization of bond selection costs 452,949 238,928 184,851 Accretion of excess of acquired net assets over cost 0 (248,559) (82,853) Accretion of deferred income (66,212) (66,212) (66,212) Income allocated to preferred shareholders of subsidiary 3,014,375 0 0 Changes in operating assets and liabilities: Interest receivable (1,290,716) (633,043) 449,808 Other assets (5,097) 29,971 (5,503) Accounts payable, accrued expenses and other liabilities (4,948,125) 608,704 69,393 Due from affiliates 0 0 84,225 Due to Manager and affiliates (87,926) 402,361 (162,178) ----------- ----------- ----------- Total adjustments 71,088 625,314 2,356,166 ----------- ----------- ----------- Net cash provided by operating activities 23,252,906 22,651,186 12,411,974 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from repayments of first mortgage bonds 21,395,213 0 0 Purchase of first mortgage bonds (165,355,500) (117,596,600) (5,000,000) Purchase of other bond related investments (579,118) 0 0 Increase in deferred bond selection costs (3,906,784) (2,598,288) (130,091) Net sale (purchase) of temporary investments (45,541,000) 3,500,000 100,000 Increase in other assets (251,500) 0 0 Increase in other deferred costs (100,000) 0 0 Loans made to properties (2,847,185) (1,055,695) (324,000) Principal payments received from loans made to properties 328,045 507,040 129,257 ----------- ----------- ----------- Net cash used in investing activities (196,857,829) (117,243,543) (5,224,834) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from note payable 0 96,039,231 23,945,340 Repayments of note payable 0 (117,484,571) (16,180,866) Proceeds from secured borrowings 80,769,616 0 0 Increase in cash and cash equivalents-restricted (1,028,209) 0 0 Distributions paid to the Manager and shareholders of the Company/partners (21,815,252) (20,331,395) (12,164,011) Distributions paid to preferred shareholders of subsidiary (1,523,750) 0 0 Increase in minority interest 27,000,000 150,000,000 0 Increase in deferred costs relating to the Private Label Tender Option Program (559,632) (2,512,768) (583,727) Issuance of preferred stock of subsidiary 90,000,000 0 0 Deferred costs relating to the issuance of preferred stock of subsidiary (3,605,331) 0 0 Increase in other deferred costs (72,039) 0 0 Purchase of treasury shares of beneficial interest 0 (103,359) 0 Consolidation costs 0 (218,657) (2,497,603) Cash effect of Consolidation and issuance of shares 0 0 2,341,434 ----------- ----------- ----------- Net cash provided by (used in) financing activities 169,165,403 105,388,481 (5,139,433) ----------- ----------- -----------
See accompanying notes to consolidated financial statements -32- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------ 1999 1998 1997 ------------ ------------ -------------- Net increase (decrease) in cash and cash equivalents (4,439,520) 10,796,124 2,047,707 Cash and cash equivalents at the beginning of the year 13,093,023 2,296,899 249,192 ---------- ----------- ------------- Cash and cash equivalents at the end of the year $ 8,653,503 $ 13,093,023 $ 2,296,899 ---------- ----------- ------------- ---------- ----------- ------------- Supplemental information: Interest paid $ 1,418,865 $ 1,507,871 $ 400,009 ---------- ----------- ------------- ---------- ----------- ------------- Supplemental disclosure of noncash activities: Issuance of shares of beneficial interest for trustee fees $ 20,000 $ 5,000 $ 0 ---------- ----------- ------------- ---------- ----------- ------------- Shares of beneficial interest: Payable to trustees liquidated through the issuance of Increase in goodwill $ 0 $ (4,805,828) $ 0 Decrease in excess of acquired net assets over cost 0 (2,982,708) 0 Increase in accounts payable, accrued expenses and other liabilities 0 7,788,536 0 ---------- ----------- ------------- $ 0 $ 0 $ 0 ---------- ----------- ------------- ---------- ----------- ------------- Adjustment to goodwill due to the Discounted Cash Settlement: Decrease in goodwill 1,698,986 0 0 Decrease in accounts payable, accrued expenses and other liabilities (1,698,986) 0 0 ---------- ----------- ------------- $ 0 $ 0 $ 0 ---------- ----------- ------------- ---------- ----------- ------------- Consolidation and issuance of shares: Increase in first mortgage bonds $ 0 $ 0 $ (168,557,007) Increase in interest receivable 0 0 (593,984) Increase in promissory notes receivable 0 0 (6,609,950) Increase in other assets 0 0 (12,193) Increase in notes payable 0 0 13,680,866 Increase in accounts payable, accrued expenses and other liabilities 0 0 104,376 Increase in due to affiliates 0 0 434,351 Increase in distributions payable 0 0 2,452,088 Increase in excess of acquired net assets over cost 0 0 3,314,120 Decrease in BUC$holders' capital 0 0 (158,222,585) Increase in general partners' capital 0 0 233,237 Issuance of shares of beneficial interest 0 0 313,776,681 ---------- ----------- ------------- $ 0 $ 0 $ 0 ---------- ----------- ------------- ---------- ----------- -------------
(continued) See accompanying notes to consolidated financial statements -33- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------ 1999 1998 1997 ------------ ------------ -------------- Distributions to the Manager and shareholders of the Company/partners $(22,496,934) $(20,622,394) $ (14,777,622) Increase in special distribution payable to the Manager 166,779 87,050 330,580 Increase in distributions payable to shareholders of the Company/partners 514,903 203,949 2,283,031 ----------- ----------- ------------- Distributions paid to the Manager and shareholders of the Company/partners $(21,815,252) $(20,331,395) $ (12,164,011) ----------- ----------- ------------- ----------- ----------- ------------- Distributions to preferred shareholders of subsidiary $ (3,014,375) $ 0 $ 0 Increase in distribution payable to preferred shareholders of subsidiary 1,490,625 0 0 ----------- ----------- ------------- Distributions paid to preferred shareholders of subsidiary $ (1,523,750) $ 0 $ 0 ----------- ----------- ------------- ----------- ----------- -------------
See accompanying notes to consolidated financial statements -34- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - General Charter Municipal Mortgage Acceptance Company (the "Company") is a Delaware business trust which is engaged in the acquisition and ownership (either directly or indirectly) of tax-exempt participating and non-participating first mortgage bonds ("FMBs") issued by various state or local governments or other agencies or authorities and secured by participating and non-participating mortgage loans on the underlying properties ("Underlying Properties"). As of December 31, 1999 the Company owned a portfolio of 69 FMBs. The Company was formed on October 1, 1997 as the result of the consolidation (the "Consolidation") of three publicly registered limited partnerships, Summit Tax Exempt Bond Fund, L.P. ("Tax Exempt I"), Summit Tax Exempt L.P. II ("Tax Exempt II") and Summit Tax Exempt L.P. III ("Tax Exempt III") (the "Partnerships", and each individually a "Partnership"). One of the general partners of the Partnerships was an affiliate of Related Capital Company ("Related"), a nationwide, fully integrated real estate financial services firm. Unless otherwise indicated, the "Company", as hereinafter used, refers to Charter Municipal Mortgage Acceptance Company and its consolidated subsidiaries and, for references prior to October 1, 1997, refers to Tax Exempt II. Pursuant to the Consolidation, the Company issued shares of beneficial interest (the "Shares") to all partners in each of the Partnerships in exchange for their interests in the Partnerships based upon each partner's proportionate interest in the Shares issued to their Partnership in the Consolidation. The Shares commenced trading on the American Stock Exchange on October 1, 1997 under the symbol "CHC". As of December 31, 1999, there were 20,580,986 Shares outstanding. The Company is governed by a board of trustees comprised of three independent managing trustees and four managing trustees who are affiliated with Related. The Company has engaged Related Charter LP (the "Manager"), an affiliate of Related, to manage its day-to-day affairs. NOTE 2 - Summary of Significant Accounting Policies a) Basis of Accounting The books and records of the Company are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles ("GAAP"). For financial accounting and reporting purposes, the Consolidation was accounted for using the purchase method of accounting. Under this method, the Partnership with the investor group receiving the largest ownership in the Company, in this case Tax Exempt II, was deemed to be the acquirer. As the surviving entity for accounting purposes, Tax Exempt II's assets and liabilities were recorded by the Company at their historical cost, with the assets and liabilities of the other Partnerships recorded at their estimated fair values for each Partnership (an aggregate of approximately $158,129,000) as set forth in the Solicitation Statement of the Company dated June 18, 1997 (the "Solicitation Statement"). Results of operations and other operating financial data for the Company prior to October 1, 1997 (the date of the Consolidation) is only with respect to Tax Exempt II. Information subsequent to September 30, 1997 is with respect to the Company and its consolidated subsidiaries which include Tax Exempt II and the other Partnerships pursuant to the Consolidation. Prior to the Consolidation, Tax Exempt II was a limited partnership which was formed under the laws of the State of Delaware on April 11, 1986. b) Basis of Consolidation The consolidated financial statements include the accounts of the Company and four majority owned subsidiary business trusts which it controls: CM Holding Trust, Charter Mac Equity Issuer Trust, Charter Mac Origination Trust I and Charter Mac Owner Trust I (see Notes 8 and 9). All intercompany accounts and transactions have been eliminated in consolidation. c) FMBs and Promissory Notes Receivable The Company accounts for its investments in the FMBs as available-for-sale debt securities under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In most cases the Company has a right to require redemption of the FMBs prior to their maturity, although it can and may elect to hold them up to their maturity dates unless otherwise modified. As such, SFAS 115 requires the Company to classify these investments as "available-for-sale." Accordingly, investments in FMBs are carried at their estimated fair values, with unrealized gains and losses reported in other comprehensive income. Unrealized gains or losses do not affect the cash flow generated from property operations, distributions to shareholders, the characterization of the tax-exempt income stream or the financial obligations under the FMBs. The Company periodically evaluates each FMB to determine whether a decline in fair value below the FMB's cost basis is other than temporary. Such a decline is considered to be other than temporary if, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms of the FMB. If the decline is judged to be other than temporary, the cost basis of the FMB is written down to its then estimated fair value, with the amount of the write-down accounted for as a realized loss. Because the FMBs are not readily marketable, the Company estimates fair value for each bond as the present value of its expected cash flows using a discount rate for comparable tax-exempt investments. This process is based upon projections of future economic events affecting the real estate collateralizing the bonds, such as property occupancy rates, rental rates, operating cost inflation, -35- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS market capitalization rates and upon determination of an appropriate market rate of interest, all of which are based on good faith estimates and assumptions developed by the Manager. Changes in market conditions and circumstances may occur which would cause these estimates and assumptions to change; therefore, actual results may vary from the estimates and the variance may be material. From time to time the Company has advanced funds to owners of certain Underlying Properties in order to preserve the underlying asset including completion of construction and/or when Underlying Properties have experienced operating difficulties including past due real estate taxes and/or deferred maintenance items. Such advances typically are secured by promissory notes and/or second mortgages. These promissory notes are carried at cost less a valuation allowance where appropriate. The Company periodically evaluates the collectibility of both interest and principal of these investments to determine whether a reserve is necessary. For both FMBs and promissory notes, interest income is recognized at the stated rate when collectibility of future amounts is reasonably assured. Interest income from FMBs with modified terms or where the collectibility of future amounts is uncertain is recognized based upon expected cash receipts. d) Other Bond Related Investments The Company's other bond related investments consist of investments in RITES, a security offered by Merrill Lynch Pierce Fenner & Smith Incorporated through its P-FLOATS/RITES program discussed more fully in Note 4. The Company accounts for its investments in RITES as available-for-sale debt securities under the provisions of SFAS 115. Accordingly, the RITES are carried at their estimated fair values, with unrealized gains and losses reported in other comprehensive income, while other than temporary impairments are recorded in operations. Interest income is recognized as it accrues. The fair value of the RITES, which have a limited market, is estimated by management, utilizing quotes from external sources, such as brokers, for these or similar investments, as necessary. e) Temporary Investments Temporary investments at December 31, 1999 represent puttable floating option tax-exempt receipts ("P-FLOATS"), short-term senior securities which bear interest at a floating rate that is reset weekly, for which cost is equal to market value. f) Cash and Cash Equivalents - Restricted and Unrestricted Cash and cash equivalents - restricted as collateral relating to the securitization of certain FMBs (see Note 4) and unrestricted cash and cash equivalents include cash in banks and investments in short-term instruments with an original maturity of three months or less. g) Deferred Bond Selection Costs Prior to the Consolidation the general partners of Tax Exempt II were paid, and after the Consolidation the Advisor is paid, fees for the activities performed to originate the FMBs, including evaluating and selecting FMBs, negotiating the terms of mortgage loans and coordinating the development effort with property developers and government agencies. These fees, and other expenditures representing direct costs of acquiring or investing in FMBs, are capitalized and amortized as a reduction to interest income over the terms of the FMBs. Direct costs relating to unsuccessful acquisitions and all indirect costs relating to the FMBs are charged to operations. h) Deferred Costs Relating to the Private Label Tender Option Program Costs incurred in connection with the Company's Private Label Tender Option Program (see Note 8), such as legal, accounting documentation and other direct costs, have been capitalized and are being amortized over the life of the program using the effective yield method. i) Deferred Costs Relating to the Issuance of Preferred Shares of Subsidiary Costs incurred in connection with the issuance of preferred shares of subsidiary (see Note 9), such as legal, accounting documentation and other direct costs, have been capitalized and are being amortized using the straight line method over 50 years which is the term to the mandatory repurchase in 2049. j) Goodwill/Excess of Acquired Net Assets Over Cost The application of purchase accounting to the Consolidation resulted in the Company recording a deferred credit for the excess of the fair value of the net assets acquired from Tax Exempt I and Tax Exempt III over their cost. This deferred credit was being accreted to interest income from FMBs using the straight-line method over 10 years, which approximated the average remaining term to maturity of the FMBs. The accrual of the estimated value of the Counsel Fee Shares (see Note 12) at October 1, 1998 was considered to be a purchase price adjustment and, in accordance with the application of purchase accounting to the Consolidation, resulted in the reversal of the carrying value of the excess of acquired net assets over cost and the recognition of goodwill at October 1, 1998 in the amount of $4,805,828. In April 1999, the Company successfully negotiated a Discounted Cash Settlement (see Note 12) in lieu of the issuance of Shares which resulted in a decrease in the liability for Counsel Fee Shares and in goodwill in the amount of -36- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $1,698,986. Goodwill is being amortized to interest income from FMBs using the straight-line method over nine years, which approximates the average remaining term to maturity of the FMBs acquired in the Consolidation. k) Fair Value of Financial Instruments As described above, the Company's investments in FMBs and other bond related investments are carried at estimated fair values. The Company has determined that the fair value of its remaining financial instruments, including its temporary investments, cash and cash equivalents, promissory notes receivable and secured borrowings approximate their carrying values at December 31, 1999 and 1998. l) Consolidation Costs Costs incurred in the Consolidation including legal, accounting and registration fees, amounting to $2,716,260, were charged to shareholders' equity. m) Income Taxes The Company is not required to provide for, or pay, any federal income taxes. Income tax attributes that arise from its operations are passed directly to the Company's shareholders. The Company may be subject to state and local taxes in jurisdictions in which it operates. At December 31, 1999, the net tax basis of the Company's assets and liabilities exceeded the net book basis by approximately $63,428,000. n) Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income," requires the Company to classify items of "other comprehensive income", such as unrealized gains and losses on its FMBs and other bond related investments, by their nature in the financial statements and display the accumulated balance of other comprehensive income (loss) separately from beneficial owners' equity in the shareholders' equity section of the consolidated balance sheets. In accordance with SFAS No. 130, cumulative unrealized gains and losses on securities available-for-sale are classified as accumulated other comprehensive income in shareholders' equity and current period unrealized gains and losses are included as a component of comprehensive income. o) Use of Estimates The preparation of financial statements in conformity with GAAP requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. p) Segment Information SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", requires enterprises to report certain financial and descriptive information about their reportable operating segments, and certain enterprise-wide disclosures regarding products and services, geographic areas and major customers. The Company is an investor in tax-exempt First Mortgage Bonds, and operates in only one reportable segment. The Company does not have or rely upon any major customers. All of the Company's investments are secured by real estate properties located in the United States; accordingly, all of its revenues were derived from U.S. operations. q) New Pronouncements The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It is effective for the Company beginning with the first quarter of 2001. Because the Company does not currently utilize derivatives or engage in hedging activities, management does not anticipate that implementation of this statement will have a material effect on the Company's financial statements. r) Reclassifications Certain amounts in the 1998 and 1997 financial statements have been reclassified to conform to the 1999 presentation. -37- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - First Mortgage Bonds As of December 31, 1999, the Company and its consolidated subsidiaries owned 69 FMBs (26 participating FMBs (see Footnote K below) and 43 non-participating FMBs). Three of the FMBs are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. The taxable FMBs are secured by the same Underlying Properties which secure the associated tax-exempt FMBs. The following table provides certain information with respect to each of the FMBs.
Stated Fair Value Closing Interest Maturity Face Amount at December Property Location Date Rate Call Date Date of FMB 31, 1999 (A) - - -------- -------- ---- ---- --------- ---- ------ ------------ TAX-EXEMPT FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Highpointe Club (K)(N) Harrisburg, PA 7/29/86 8.50% June 1998 June 2006 $ 8,900,000 $ 5,769,000 ----------- ----------- OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H) Barnaby Manor (P)(S) Washington, DC 11/23/99 7.375 May 2017 May 2032 4,500,000 4,500,000 Casa Ramon (P) Orange County, CA 6/8/99 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000 Chapel Ridge of Little Rock Little Rock, AR 8/12/99 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000 (O)(S) Chapel Ridge of Texarkana Texarkana, AR 9/29/99 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000 (O)(S) Country Lake (P) West Palm Beach, FL 11/9/99 (V) June 2015 June 2032 6,255,000 6,255,000 Del Monte Pines (R)(P) Fresno, CA 5/6/99 6.80 May 2017 May 2036 11,000,000 10,275,000 Douglas Pointe(O)(S)(R) Miami, FL 9/28/99 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000 Forest Hills (R)(P) Garner, NC 12/15/98 7.125 June 2016 June 2034 5,930,000 5,804,000 Fort Chaplin (P) Washington, DC 12/21/99 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000 Franciscan Riviera (P)(R) Antioch, CA 8/24/99 7.125 Apr. 2016 Aug. 2036 6,587,500 6,447,000 Garfield Park (P) Washington, DC 8/31/99 7.25 Aug. 2017 Aug. 2031 3,260,000 3,247,000 Greenbriar (M)(P) Concord, CA 5/6/99 6.875 May 2017 May 2036 9,585,000 9,052,000 Hamilton Gardens (R)(P) Hamilton, NJ 3/26/99 (U) Apr. 2015 Mar. 2035 6,400,000 6,264,000 Lake Jackson (R)(O)(S) Lake Jackson, TX 12/22/98 7.00 Jan. 2018 Jan. 2041 10,934,000 10,513,000 Lakemoor (O)(S) Durham, NC 12/23/99 7.25 Jan. 2017 Dec. 2041 9,000,000 9,000,000 Lake Park (P) Turlock, CA 6/8/99 (T) 7.25 Oct. 2015 Sep. 2035 3,638,000 3,623,000 Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 6.90 June 2016 May 2035 14,850,000 14,075,000 Lennox Park (O)(S)(M) Gainesville, GA 7/29/99 6.80 Aug. 2021 July 2041 13,000,000 12,143,000 Lewis Place (O)(S)(M) Gainsville, FL 6/22/99 (I) June 2016 June 2041 4,000,000 3,709,000 Mountain Ranch (R)(O) Austin, TX 12/23/98 7.125 Jan. 2018 Jan. 2041 9,128,000 8,934,000 Standiford (P)(R) Modesto, CA 9/20/99 7.125 Apr. 2016 Aug. 2036 9,520,000 9,317,000 Sunset Creek (M)(K) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 8,275,000 6,225,000 Sunset Village (M)(K) Lancaster, CA 3/25/88 8.50 Mar. 2000 Mar. 2008 11,375,000 8,557,000 Sycamore Woods (R)(P) Antioch, CA 5/6/99 6.875 May 2017 May 2036 9,415,000 8,891,000 Tallwood (O)(S)(R) Virginia Beach, VA 9/30/99 7.25 Nov. 2017 Oct. 2041 6,205,000 6,179,000 ------------- ------------- 207,207,500 197,046,000 ------------- ------------- OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L) Bay Club (K) Mt. Pleasant, SC 9/11/86 8.25 Sep. 2000 Sep. 2006 6,400,000 7,253,000 Clarendon Hills (K) Hayward, CA 12/08/86 5.52 Dec. 2003 Dec. 2003 17,600,000 13,599,000 Cypress Run (K) Tampa, FL 8/14/86 8.50 Aug. 1998 Aug. 2006 15,402,428 13,576,000 East Ridge (K) Mt. Pleasant, SC 5/20/86 8.25 Mar. 2000 May 2010 8,700,000 9,859,000 Greenway Manor (K)(N) St. Louis, MO 10/09/86 8.50 Oct. 1998 Sept. 2006 12,850,000 15,003,000 The Lakes (K) Kansas City, MO 12/30/86 4.87 Dec. 2006 Dec. 2006 13,650,000 9,821,000 Loveridge (K)(N) Contra Costa, CA 11/13/86 8.00 Nov. 1998 Nov. 2006 8,550,000 6,459,000 Martin's Creek (K) Summerville, SC 5/20/86 8.25 Mar. 2000 May 2010 7,300,000 8,273,000 ------------- ------------- 90,452,428 83,843,000 ------------- ------------- -38- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stated Fair Value Closing Interest Maturity Face Amount at December Property Location Date Rate Call Date Date of FMB 31, 1999 (A) - - -------- -------- ---- ---- --------- ---- ------ ------------ OWNED BY CHARTER MAC OWNER TRUST I (J) (H) Bedford Square Clovis, CA 8/25/98 (D) Sep. 2017 Aug. 2040 3,850,000 3,371,000 Bristol Village Bloomington, MN 7/31/87 7.50 Jan. 2010 Dec. 2027 17,000,000 17,513,000 Carrington Pointe Los Banos, CA 9/24/98 6.375 Oct. 2017 Sep. 2040 3,375,000 2,955,000 Cedarbrook Hanford, CA 4/28/98 7.125 May 2017 May 2040 2,840,000 2,779,000 Cedar Creek (K)(N) McKinney, TX 12/29/86 8.50 Dec. 1998 Dec. 2006 8,100,000 9,457,000 Cedar Pointe (K) Nashville, TN 4/22/87 7.00 Apr. 2006 Apr. 2017 9,500,000 9,134,000 College Park (O)(S) Naples, FL 7/15/98 (C) Jul. 2025 Jul. 2040 10,100,000 9,711,000 Crowne Pointe (K) Olympia, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,075,000 5,054,000 Falcon Creek (O)(S) Indianapolis, IN 9/14/98 (F) Sep. 2016 Aug. 2038 6,144,600 6,119,000 Gulfstream (P) Dania, FL 7/22/98 7.25 Apr. 2016 Jul. 2038 3,500,000 3,486,000 Highland Ridge (K) St. Paul, MN 2/02/87 7.25 June 2010 June 2018 15,000,000 14,938,000 Jubilee Courtyards Florida City, FL 9/15/98 (G) Oct. 2025 Sep. 2040 4,150,000 4,062,000 Lakepoint (K) Stone Mountain, GA 11/18/87 6.00 Jul. 2005 June 2017 15,100,000 12,445,000 Madalyn Landing (O)(S) Palm Bay, FL 11/13/98 7.00 Dec. 2017 Nov. 2040 14,000,000 13,461,000 The Mansion Independence, MO 5/13/86 7.25 Jan. 2011 April 2025 19,450,000 19,678,000 Marsh Landings (P)(S) Portsmouth, VA 5/20/98 7.25 Jul. 2017 Jul. 2030 6,050,000 6,025,000 Newport Village (K) Tacoma, WA 2/11/87 7.25 Jan. 1999 Aug. 2029 13,000,000 12,946,000 North Glen (K) Atlanta, GA 9/30/86 (W) Jul. 2005 June 2017 12,400,000 12,775,000 Northpointe Village (P) Fresno, CA 8/25/98 (E) Sep. 2017 Aug. 2040 13,250,000 13,650,000 Ocean Air (P)(S) Norfolk, VA 4/20/98 7.25 Jan. 2016 Nov. 2030 10,000,000 9,959,000 Orchard Hills (K) Tacoma, WA 12/31/86 7.25 Dec. 1998 Aug. 2029 5,650,000 5,627,000 Orchard Mill (K) Atlanta, GA 12/31/86 7.50 Jul. 2005 June 2017 10,500,000 10,517,000 Pelican Cove (K)(N) St Louis, MO 2/27/87 8.00 Feb. 1999 Feb. 2007 18,000,000 19,780,000 Phoenix Stockton, CA 4/28/98 7.125 Nov. 2016 Oct. 2029 3,250,000 3,181,000 River Run (K) Miami, FL 8/7/87 8.00 Aug. 1999 Aug. 2007 7,200,000 7,912,000 Shannon Lake (K) Atlanta, GA 6/26/87 (B) Jul. 2005 June 2017 12,000,000 11,538,000 Silvercrest Clovis, CA 9/24/98 7.125 Oct. 2017 Sep. 2040 2,275,000 2,227,000 Stone Creek (O)(S) Watsonville, CA 4/28/98 7.125 May 2017 Apr. 2040 8,820,000 8,632,000 Sunset Downs (K) Lancaster, CA 2/11/87 8.00 May 1999 May 2007 15,000,000 11,284,000 Sunset Terrace (K) Lancaster, CA 2/12/87 8.00 Feb. 1999 May 2007 10,350,000 7,786,000 Thomas Lake Eagan, MN 9/02/86 7.50 Jan. 2010 Dec. 2027 12,975,000 13,367,000 Willow Creek (K) Ames, IA 2/27/87 7.25 Jan. 2010 June 2022 6,100,000 6,075,000 ------------- ------------- 304,004,600 297,444,000 ------------- ------------- Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000 ------------- ------------- -39- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stated Fair Value Closing Interest Maturity Face Amount at December Property Location Date Rate Call Date Date of FMB 31, 1999 (A) - - -------- -------- ---- ---- --------- ---- ------ ------------ TAXABLE FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Greenbriar (P) Concord, CA 5/6/99 9.00 May 2017 May 2036 2,015,000 2,015,000 Lake Park (P) Turlock, CA 7/15/99 9.00 Oct. 2015 Sep. 2035 375,000 375,000 Lakes Edge at Walden (P) Miami, FL 10/6/99 11.00 June 2000 Aug. 2010 1,400,000 1,400,000 ------------- ------------- Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000 ------------- ------------- Total First Mortgage Bonds $614,354,528 $587,892,000 ------------- ------------- ------------- -------------
(A) The FMBs are deemed to be available-for-sale debt securities and, accordingly, are carried at their estimated fair values at December 31, 1999. (B) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 6% through July 31, 2000 and 7% thereafter. (C) The interest rates for College Park are 7% during the construction period and 7.25% thereafter. (D) The interest rates for Bedford Square are 7% during the construction period and 6.375% thereafter. (E) The interest rates for Northpointe Village are 7.965% through September 23, 1998, 8.125% during the remainder of the construction period and 7.5% thereafter. (F) The interest rates for Falcon Creek are 7% through August 31, 2000 and 7.25% thereafter. (G) The interest rates for Jubilee Courtyards are 7% through September 30, 2000 and 7.125% thereafter. (H) This entity is a consolidated subsidiary of the Company (see Notes 8 and 9). (I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00% thereafter. (J) These FMBs have been transferred to Charter Mac Owner Trust I in connection with the Company's Private Label Tender Option Program (TOP) (see Note 8). (K) These FMBs are participating FMBs which contain additional interest features contingent on available cash flow. FMBs that contain provisions for contingent interest are referred to as "participating"; FMBs lacking this provision are "non-participating". (L) The FMBs are held as collateral in connection with the TOP (see Note 8). (M) These FMBs are pledged as collateral in connection with the Merrill Lynch RITES/P-FLOATS Program (see Note 4). (N) The original owners of the Underlying Properties and the obligors of these FMBs have been replaced with affiliates of the Manager. (O) The Underlying Property is under construction. In the event construction is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (P) The Underlying Property is undergoing substantial rehabilitation. In the event rehabilitation is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (Q) Initial advance on an FMB which will have a face amount of $4,744,000 when it is fully funded. The balance of $4,694,000 is expected to be funded in the second quarter of 2000. (R) Held by Merrill Lynch as collateral for secured borrowings (see Note 4). (S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit issued by the construction lender to the Company. (T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The balance was funded on July 15, 1999. (U) The interest rates for Hamilton Gardens are 7.625% during the construction period and 7.125% thereafter. (V) The interest rates for Country Lake are 6% until expected refunding in June 2000 and 7.25% thereafter. (W) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 7% through June 30, 2000 and 7.50% thereafter. -40- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted average interest rates recognized on the face amount of the portfolio of FMBs for the years ended December 31, 1999, 1998 and 1997 were 7.26%, 6.94% and 6.75%, respectively, based on weighted average face amounts of approximately $525,092,000, $394,079,000 and $208,744,000, respectively. The principal and interest payments on each FMB are payable only from the cash flows of the the Underlying Properties, including proceeds from a sale of an Underlying Property or the refinancing of the mortgage loan securing such FMBs (the "Mortgage Loans"). None of the FMBs constitute a general obligation of any state or local government, agency or authority. The structure of each Mortgage Loan mirrors the structure of the corresponding FMB which it secures. The original 31 FMBs (owned at the date of the Consolidation), with an aggregate face amount of $348,602,428, call for interest only debt service payments during their respective terms (which generally are 24 to 30 years from issuance or re-issuance) with repayment of principal due in a lump sum "balloon" payment at the expiration of their respective terms or upon sale or refinancing. The newly acquired bonds (bonds acquired after October 1, 1997) call for amortization or "sinking fund" payments, generally at the completion of rehabilitation or construction, of principal based on thirty to forty year level debt service amortization schedules. The Company generally has the right to require redemption approximately 12 to 15 years from issuance or re-issuance and obligors generally are locked out of prepayment for seven to ten years from issuance or re-issuance. In December 1999, two of the original 31 FMBs were repaid (see below). The original obligors and owners of the Underlying Properties of the Cedar Creek, Highpointe, Pelican Cove and Loveridge FMBs have been replaced with affiliates of the Manager who have not made equity investments. These entities have assumed the day-to-day responsibilities and obligations of the Underlying Properties. Buyers are being sought who would make equity investments in the Underlying Properties and assume the nonrecourse obligations for the FMB. These properties are generally paying as interest an amount equal to the net cash flow generated by operations, which in some cases is less than stated rate of the FMB. The Company has no present intention of declaring a default on these FMBs. The aggregate carrying value of these four FMBs at December 31, 1999 and 1998 was approximately $41,465,000 and $42,323,000, respectively and the income earned from them for the years ended December 31, 1999, 1998 and 1997 was approximately $2,991,000, $3,106,000 and $2,093,000, respectively. From time to time, the Company enters into forbearance agreements and/or permanent modifications with certain borrowers. The determination as to whether it is in the best interest of the Company to enter into permanent modifications or forbearance agreements on the FMBs, advance second mortgages, or alternatively, to pursue its remedies under the loan documents, including foreclosure, is based upon several factors. These factors include, but are not limited to, Underlying Property performance, owner cooperation and projected costs of foreclosure and litigation. Payments under each of the existing forbearance agreements are current as of December 31, 1999. Effective September 8, 1999, the Crowne Pointe, Orchard Hills and Newport Village FMBs were modified to: (i) change the stated interest rate (from 8.0% to 7.25%); (ii) allow for a portion of deferred base (Newport) and other accrued interest through August 1999 to be paid at maturity or upon a sale or refinancing; and (iii) extend the maturity (to 2029) mandatory redemption (to 2011) and prepayment lock-out dates (to 2006). The contingent interest feature of the bonds was also modified. These modifications resulted in realized losses on impairment in the amounts of $21,000, $23,000 and $54,000, respectively, to write down the cost basis of each FMB to its then estimated fair value. Effective December 1, 1999, the obligor under the Cypress Run FMB, an affiliate of the Manager, was transferred to a third party who provided new capital in the amount of $1,813,000. This new capital will be used primarily to provide for repairs to the property as well as costs of the transaction. Repairs are expected to be completed within the next 6-9 months. In conjunction with this transfer and infusion of capital, it is anticipated that the FMB will be formally modified within 6 to 9 months, subject to the approval of the local issuer of the FMB. In the interim, the property will continue to operate pursuant to a forbearance agreement with the Company which calls for a 5.5% minimum annual interest rate. The anticipated modification of this FMB resulted in a realized loss on impairment in the amount of $406,796, to write down the cost basis of this FMB to its estimated fair value. Effective December 16, 1999, the obligors under the Sunset Terrace, Sunset Downs, Sunset Creek and Sunset Village FMB's (together "the Sunset FMBs"), affiliates of the Manager, transferred their interests, pursuant to a sale of stock, to a third party equity investor. Pursuant to such transfer, the Company entered into a modification agreement (subject to issuer approval) with the new obligor that calls for an annual base rate of 5.48% on the FMBs. Pursuant to the terms of the transaction, the Company received a payment on December 30, 1999 of $1,500,000 in full settlement of all accrued and unpaid base interest on the Sunset FMBs. In addition, in consideration for the waiver of the payment requirement for the payment of past and future contingent interest, a payment of $1,000,000 is expected on or before March 31, 2000. In connection with the transaction, it is expected that the new obligor will invest $800,000-$1,000,000 for physical improvements to the properties. The modifications of the Sunset Terrace, Sunset Downs and Sunset Village FMBs resulted in realized losses on impairment in the amounts of $309,850, $516,000 and $528,396, respectively, to write down the cost basis of each of these FMBs to their estimated fair values. The estimated fair value of the Sunset Creek FMB continues to exceed its amortized cost basis. In addition to the above FMBs, ten of the Company's other FMBs, with an aggregate face amount of $130,025,000, have previously been modified. These modifications have generally encompassed an extension of the maturity together with a prepayment lock out feature and/or prepayment penalties together with an extension of the mandatory redemption feature (5-10 years from modification). Stated interest rates have also been adjusted together with a change in the participation and contingent interest features. Base interest rates, contingent interest, prepayment lock-outs, mandatory redemption and maturity features vary dependent on the facts -41- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of a particular FMB, the developer, the Underlying Property's performance and requirements of bond counsel and local issuers. The Company may modify other FMBs to reflect generally similar terms as those modified previously, where and as appropriate. Significant modifications to interest rates and maturity dates are subject to final approval of the local issuers, bond counsel and indenture trustees. In addition to the stated base rates of interest, 28, 28 and 26 of the FMBs at December 31, 1999, 1998 and 1997, respectively, provided for "contingent interest" which is equal to: (i) an amount equal to 50% to 100% of net property cash flow and 50% to 100% of net sale or refinancing proceeds until the borrower has paid, during the post-construction period, annual compound interest at a rate ranging from 8.875% to 9.34% on a cumulative basis, and thereafter (ii) an amount equal to 25% to 50% of the remaining net property cash flow and 25% to 50% of the remaining net sale or refinancing proceeds, until the borrower has paid interest at a simple annual rate of 16% over the term of the FMB. Both the stated and contingent interest on the FMBs are exempt from federal income taxation. During the years ended December 31, 1999, 1998 and 1997, five, six and five FMBs, paid contingent interest amounting to approximately $728,000, $960,000 and $353,000, respectively. FMBs that contain provisions for contingent interest are referred to as "participating"; FMBs lacking this provision are "non-participating". With respect to the FMBs which are subject to forbearance agreements with the respective obligors, the difference between the stated interest rates and the rates paid (whether deferred and payable out of available future cash flow or, ultimately, from sale or refinancing proceeds) on FMBs is not accrued for financial statement purposes. The accrual of interest at the stated interest rate will resume once an Underlying Property's ability to pay the stated rate has been adequately demonstrated. Unrecorded contractual interest income was approximately $1,916,000, $3,047,000 and $2,415,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Newly acquired FMBs (bonds acquired after October 1, 1997) will generally bear a fixed base interest rate and, to the extent permitted by existing regulations, they may or may not also provide for contingent interest and other features. Terms are expected to be 5 to 35 years, although the Company may have the right to cause repayment prior to maturity through a mandatory redemption feature (5 to 7 years with up to 6 month's notice). In some cases, the newly acquired bonds (bonds acquired after October 1, 1997) call for amortization or "sinking fund" payments, generally at the completion of rehabilitation or construction, of principal based on thirty to forty year level debt service amortization schedules. New FMBs are generally not expected to be subject to optional prepayment during the first 5-10 years of the Company's ownership of the bonds and may carry prepayment penalties thereafter beginning at 5% of the outstanding principal balance, declining by 1% per annum. Certain new FMBs may be purchased at a discount from their face value. Up to 15% of the Total Market Value of the Company (as defined in its trust agreement) may be invested in FMBs secured by Underlying Properties in which affiliates of the Manager have a controlling interest, equity interest or security interest. The 15% limit is not applicable to properties to which the Manager or its affiliates have taken title for the benefit of the Company and only applies to new FMBs acquired after the Consolidation. In selected circumstances and generally only in connection with the acquisition of tax-exempt FMBs the Company may acquire a small amount of taxable bonds (i) which the Company may be required to acquire in order to satisfy state regulations with respect to the issuance of tax-exempt bonds and (ii) to fund certain costs associated with the issuance of FMBs, that under current law cannot be funded by FMBs. Since October 1, 1997, the Company has acquired 38 tax-exempt FMBs with an aggregate face amount of $284,162,100, one of which was repaid in January 1999 (see below), and three taxable FMBs with an aggregate face amount of $3,790,000. In order to protect the tax-exempt status of the FMBs, the owners of the Underlying Properties are required to enter into certain agreements to own, manage and operate such Underlying Properties in accordance with requirements of the Internal Revenue Code of 1986, as amended. From time to time the Company has advanced funds to owners of certain Underlying Properties in order to preserve the underlying asset including completion of construction and/or when Underlying Properties have experienced operating difficulties including past due real estate taxes and/or deferred maintenance items. Such advances typically are secured by promissory notes and/or second mortgages. As of December 31, 1999, the face amount of such advances was $15,330,075, their rates range from 8% to 13% and their carrying value was $10,148,060, which is net of purchase accounting adjustments, and a reserve for collectibility of $138,000. Such advances with an aggregate face amount of $5,384,808, rates ranging from 8% to 10% and an aggregate carrying amount of $217,996 were advanced to obligors which are affiliates of the Manager. On January 4, 1999, the obligor of the Countryside North FMB (the "Countryside North Obligor") completed a refinancing with an unaffiliated third party. The Countryside North Obligor then fully repaid its outstanding debt due to the Company totaling $5,135,417 including the FMB in the amount of $5,000,000, a $100,000 prepayment penalty and accrued interest due through the repayment date of $35,417 resulting in a loss on the repayment (including the prepayment penalty and the write off of unamortized bond selection costs) in the amount of $25,493. On December 26, 1999, the obligor of the Players Club and Suntree FMBs (together the "Players Club/Suntree Obligor") completed a sale of the properties to an independent third party. The Players Club/Suntree Obligor then repaid the FMBs with face amounts of $9,700,000 and $7,500,000, respectively, in the amounts of $8,790,000 and $7,500,000 resulting in losses on the repayment (including the write off of unamortized bond selection costs) in the amounts of $376,496 and $61,158. In addition, the Players Club/Suntree Obligor also repaid promissory note obligations in the amounts of $472,128 and $88,618. The Players Club/Suntree Obligor has no further obligation to the company under the FMBs. -42- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS No single FMB provided interest income which exceeded 10% of the Company's total revenue for the years ended December 31, 1999, 1998 and 1997, except for the Bristol Village FMB which provided 10% of total revenue in 1997. Based on the face amount of FMBs at December 31, 1999, approximately 26% of the Underlying Properties are located in California, 14% are located in Florida, 10% are located in Missouri and 10% are located in Georgia. No other states comprise more than 10% of the total face amount at December 31, 1999. Based on the face amount of FMBs at December 31, 1998, approximately 23% of the Underlying Properties were located in California, 15% were located in Florida, 14% were located in Missouri, 10% were located in Georgia and 10% were located in Minnesota. No other states comprised more than 10% of the total face amount at December 31, 1998. The amortized cost basis of the Company's portfolio of 69 FMBs at December 31, 1999 and 49 FMBs at December 31, 1998 was $585,474,109 and $443,602,409, respectively. The net unrealized gain on FMBs in the amount of $2,417,891 at December 31, 1999 consisted of gross unrealized gains and losses of $16,484,461 and $14,066,570, respectively. The net unrealized gain on FMBs in the amount of $15,060,191 at December 31, 1998 consisted of gross unrealized gains and losses of $22,256,064 and $7,195,873, respectively. During December of 1997, an unrelated publicly-registered partnership sold a portfolio of nine bonds similar to the Company's FMBs. Based on the information available to Company management regarding the pricing of this sale, management determined that market conditions for the Company's FMBs were much more favorable than was previously believed. Accordingly, the estimated fair values of the FMBs calculated by management at December 31, 1997 increased by a total of approximately $22,700,000 over the estimated fair values at December 31, 1996. NOTE 4 - Securitization Transactions To raise additional capital to acquire additional FMBs, the Company has securitized certain FMBs through the Merrill Lynch Pierce Fenner & Smith Incorporated ("Merrill Lynch") P-FLOATS/RITES program. Under this program, the Company transfers certain FMBs to Merrill Lynch. Merrill Lynch then deposits each FMB into an individual special purpose trust created to hold such asset, together with a Credit Enhancement Guarantee ("Guarantee"). Two types of securities are then issued by each trust, evidencing ownership in the FMBs and the Guarantee: (1) Puttable Floating Option Tax-Exempt Receipts ("P-FLOATS"), a short-term senior security which bears interest at a floating rate that is reset weekly by the Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOAT security at par (up to 99% of the underlying face amount of the FMB); and (2) Residual Interest Tax Exempt Securities ("RITES), a subordinate security which receives the residual interest payment after payment of P-FLOAT interest and ongoing transaction fees. The P-FLOATS are sold to qualified third party, tax-exempt investors and the RITES are sold back to the Company. The Company has the right, with 14 days notice to the trustee, to purchase the outstanding P-FLOATS and withdraw the underlying FMBs from the trust. When the FMBs are deposited into the P-FLOAT Trust, the Company receives the proceeds from the sale of the P-FLOATS less certain transaction costs. In certain other cases, Merrill Lynch may directly buy the FMBs from local issuers, deposit them in the trust, sell the P-FLOAT security to qualified investors and then the RITES to the Company. For financial reporting purposes, due to the repurchase right, the Company accounts for the net proceeds received upon the transfer of its FMBs to Merrill Lynch through the P-FLOATS/RITES program as secured borrowings and, accordingly, continues to account for the FMBs as its assets in the accompanying consolidated balance sheets. When Merrill Lynch purchases FMBs directly and sells the RITES to the Company, such RITES are classified as other bond related investments in the accompanying consolidated balance sheets (See Note 5). In order to facilitate the securitization, the Company has pledged certain additional FMBs, cash and cash equivalents and temporary investments as collateral for the benefit of the credit enhancer or liquidity provider. At December 31, 1999, the total carrying amount of such additional FMBs, cash and cash equivalents and temporary investments pledged as collateral was $53,761,000, $1,028,209 and $45,541,000, respectively. During the period May 1999 through December 1999, the Company transferred ten FMBs with an aggregate face amount of $82,219,500 to Merrill Lynch through the Merrill Lynch P-FLOATS/RITES program and received proceeds of $80,769,616. The Company's cost of funds relating to its secured borrowings under the Merrill Lynch P-FLOATS/RITES program (calculated as interest expense as a percentage of the weighted average amount of the secured borrowings) was approximately 4.8%, annualized, for the period June 29, 1999 (inception of this program) through December 31, 1999. During June 1999, Merrill Lynch purchased three FMBs with an aggregate face amount of $22,430,000. The FMBs were placed into a trust by Merrill Lynch whereby P-FLOATS and RITES were sold. The Company purchased the related RITES interests with an aggregate face amount of $15,000 for an aggregate purchase price of $579,118 which includes bond selection and other transaction costs. -43- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - Other Bond Related Investments The Company's other bond related investments consist of investments in RITES (see Note 4). The following table provides certain information with respect to each of the RITES.
Face Amount Amortized Fair of RITES Cost Basis at Value at FMB Date Face Amount Interest December December Description/Location Purchased of FMB Purchased 31, 1999 31, 1999 - - -------------------- --------- ------ --------- -------- -------- OWNED BY CHARTER MAC EQUITY ISSUER TRUST RITES-Avalon Court/ Oakley, CA 6/17/99 $ 8,240,000 $ 5,000 $200,045 $200,000 RITES-Meadowview Park/ Santa Rosa, CA 6/17/99 6,250,000 5,000 162,432 160,000 RITES-The Courtyards/ Santa Rosa, CA 6/17/99 7,940,000 5,000 201,817 200,000 ---------- ------- ------- ------- $22,430,000 $15,000 $564,294 $560,000 ---------- ------- ------- ------- ---------- ------- ------- -------
NOTE 6 - Deferred Costs The components of deferred costs are as follows:
December 31, --------------------------- 1999 1998 ------------- ------------ Deferred bond selection costs $ 9,904,683 $6,355,252 Deferred costs relating to the Private Label Tender Option Program (see Note 8) 3,614,627 3,054,995 Deferred costs relating to the issuance of preferred shares of subsidiary (see Note 9) 3,605,331 0 Other 172,039 0 ----------- ---------- 17,296,680 9,410,247 Less: Accumulated amortization (3,074,229) (2,404,282) ----------- ---------- $14,222,451 $7,005,965 ----------- ---------- ----------- ----------
For a description of these costs see note 2(g), (h) and (i). NOTE 7 - Note Payable During 1998, an interim credit facility with Goldman Sachs & Company was available to the Company at prevailing rates of interest for such accounts (5.98% at December 14, 1998 which was the date the facility was terminated). NOTE 8 - Minority Interest In Subsidiary On May 21, 1998, the Company closed on its Private Label Tender Option Program ("TOP") in order to raise additional capital to acquire additional FMBs. As of March 31, 1999, the maximum amount of capital which could be raised under the TOP ($150,000,000) had been raised. In April 1999, the Company successfully negotiated an increase in its TOP to $200,000,000. As of December 31, 1999, the Company has contributed 40 issues of FMBs in the aggregate principal amount of approximately $394,457,000 to Charter Mac Origination Trust I (the "Origination Trust"), a wholly-owned, indirect subsidiary of the Company, which has contributed 32 of those FMBs, with an aggregate principal amount of approximately $304,005,000, to Charter Mac Owner Trust I (the "Owner Trust") which is controlled by the Company. The Owner Trust has issued two equity certificates: (i) a Senior Certificate, with an outstanding face amount of $177,000,000 at December 31, 1999, which has been deposited into another Delaware business trust (the "Certificate Trust") which issued and sold Floater Certificates representing proportional interests in the Senior Certificate to new investors and (ii) a Residual Certificate representing the remaining beneficial ownership interest in the Owner Trust, which has been issued to the Origination Trust. The FMBs remaining in the Origination Trust (aggregate principal amount of approximately $90,452,000) are a collateral pool for the Owner Trust's obligations under the Senior Certificate. In addition, the Owner Trust obtained a municipal bond insurance policy from MBIA to credit enhance Certificate distributions for the benefit of the holders of the Floater Certificates and has also arranged for a liquidity facility, issued by a consortium of highly rated European banks, with respect to the Floater Certificates. The Company owns no beneficial interest in, and does not control, the Certificate Trust. The effect of the TOP structure is that a portion of the interest received by the Owner Trust on the FMBs it holds is distributed through the Senior Certificate to the holders of the Floater Certificates in an amount determined each week by the remarketing agent, Goldman Sachs & Co., at the distribution amount that is required to enable the remarketing agent to sell the Floater Certifi- -44- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS cates at par on any weekly determination date, with the residual interest remitted to the Origination Trust via the Residual Certificate. For financial accounting and reporting purposes, the Owner Trust, which is controlled by the Company, is consolidated. The equity in the Owner Trust represented by the Senior Certificate is classified as "minority interest in subsidiary (subject to mandatory redemption)" in the accompanying consolidated balance sheets. Income earned by the Owner Trust is allocated to the minority interest in an amount equal to the distributions through the Senior Certificate to the holders of the Floater Certificates. Such allocation of income is classified as "minority interest in income of subsidiary" in the accompanying consolidated statements of income. Deferred costs relating to the TOP are being amortized using the straight line method over 10 years, which approximates the average remaining term to maturity of the FMBs contributed to the Owner Trust. The Company's cost of funds relating to the TOP (calculated as income allocated to the minority interest plus recurring fees as a percentage of the weighted average amount of the outstanding Senior Certificate) was approximately 4.5% and 4.9% for the year ended December 31, 1999 and the period May 21, 1998 (inception) through December 31, 1998, respectively. NOTE 9 - Preferred Shares of Subsidiary On June 29, 1999 a subsidiary of the Company completed a $90 million tax-exempt preferred equity offering (the "Preferred Offering") comprising 45 shares ("Series A Cumulative Preferred Shares") which were purchased by Merrill Lynch, Legg Mason Wood Walker, Inc. and McDonald Investments, Inc. (the "Initial Purchasers"). The Initial Purchasers then sold the Series A Cumulative Preferred Shares to qualified institutional investors. In connection with this transaction, the Company caused 100% of the ownership of the Origination Trust to be transferred to Charter Mac Equity Issuer Trust (the "Issuer"), a newly formed Delaware business trust and an indirectly owned subsidiary in which the Company owns 100% of the common equity. The Issuer then issued the Series A Cumulative Preferred Shares. As a result of such transaction, the Issuer became the direct and indirect owner of the entire outstanding issue of 40 FMBs held by the Origination Trust and Owner Trust, its two directly and indirectly owned subsidiaries (see Note 8). In addition to contributing the ownership of the Origination Trust, the Company also contributed eight FMBs to the Issuer. As of the closing, the aggregate par value of FMBs held directly or indirectly by the Issuer or its subsidiaries was $463,699,028. Net proceeds of approximately $86,395,000 from the Preferred Offering have been used to invest in or acquire additional tax-exempt assets for the Issuer. The Series A Cumulative Preferred Shares have an annual preferred dividend rate of 6 5/8% through June 30, 2009, payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing October 31, 1999 and payable upon declaration thereof by the Issuer's Board of Trustees, but only to the extent of the Issuer's tax-exempt income (net of expenses) for the particular quarter ("Quarterly Net Income"). The Series A Cumulative Preferred Shares are subject to mandatory tender by the holders thereof for remarketing and purchase on June 30, 2009 and each remarketing date thereafter at a price equal to the $2,000,000 per share plus, to the extent of the Issuer's Quarterly Net Income, an amount equal to all distributions accrued but unpaid on the Series A Cumulative Preferred Shares. Distributions in the amount of $3,014,375 (66,986.11 per share) were paid to the preferred shareholders of the Issuer for the period June 29, 1999 (inception) through December 31, 1999. Holders of the Series A Cumulative Preferred Shares may elect to retain their shares upon a remarketing, with a distribution rate to be determined immediately prior to the remarketing date by the remarketing agent. Each holder of the Series A Cumulative Preferred Shares will be required to tender its shares to the Issuer for mandatory repurchase on June 30, 2049, unless the Issuer decides to remarket the shares on such date. The Issuer may not redeem the Series A Cumulative Preferred Shares before June 30, 2009. After that date, all or a portion of the shares may be redeemed, subject to certain conditions. The Series A Cumulative Preferred Shares are not convertible into common shares of the Issuer or Shares of the Company. The Series A Cumulative Preferred Shares rank, with respect to payment of distributions and amounts upon liquidation, dissolution or winding-up of the Issuer, senior to all classes or series of common shares of the Issuer and therefore, of the Company. For financial accounting and reporting purposes, the Series A Cumulative Preferred Shares are classified as "Preferred shares of subsidiary (subject to mandatory repurchase)" in the accompanying consolidated balance sheets. Net income earned by the Issuer and its two subsidiaries is allocated to the holders of the Series A Cumulative Preferred Shares in an amount equal to the distributions to such holders. Such allocation of income is classified as "Income allocated to preferred shareholders of subsidiary" in the accompanying consolidated statements of income. Deferred costs relating to the issuance of the Series A Cumulative Preferred Shares are included in "Deferred Costs" (see Note 6) and are being amortized using the straight line method over 50 years which is the term to the mandatory repurchase in 2049. NOTE 10 - Related Parties CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY (AFTER THE CONSOLIDATION) Pursuant to the Management Agreement, the Manager receives (inclusive of fees paid directly to the Manager by subsidiaries of the Company) (i) bond selection fees equal to 2% of the principal amount of each FMB or other instrument acquired or invested in by the Company; (ii) special distributions equal to .375% per annum of the total invested assets of the Company; (iii) loan servicing fees equal to .25% per annum of the outstanding principal amount of FMBs held by the Company (not including its consolidated subsidiaries) and .15% per annum of the outstanding principal amount of FMBs held by the consolidated subsidiaries of the Company; (iv) management fees equal to .10% per annum of the total invested assets of the consolidated subsidiaries of the Company; (v) a -45- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS liquidation fee based on the gross sales price of assets sold by the Company in connection with a liquidation of the Company's assets; and (vi) reimbursement of certain administrative costs incurred by the Manager and its affiliates on behalf of the Company. Fees payable to the Manager which are based on FMBs or assets of the Company include such FMBs or assets which are either held directly by the Company or held by other entities to whom the Company has transferred such FMBs or assets to facilitate financing. In addition, the Manager receives bond placement fees from the borrower in an amount equal to 1% to 1.5% of the principal amount of each FMB or other instrument acquired or invested in by the Company, and affiliates of the Manager are part of a joint venture which has a development services agreement with the obligors of five FMBs. The original term of the Management Agreement will terminate on October 1, 2001. Thereafter, the Management Agreement will be renewed annually by the Company, subject to majority approval of the Company's Board of Trustees. The Management Agreement cannot be terminated by the Company prior to October 1, 2001, other than for gross negligence or willful misconduct of the Manager and by a majority vote of the Company's independent trustees. The Management Agreement may be terminated without cause by a majority vote of the Company's independent trustees following October 1, 2001 or by the Manager at any time. The costs, expenses and the special distributions incurred to the Manager and its affiliates for the year ended December 31, 1999 and 1998 and the three months ended December 31, 1997 (after the Consolidation) were as follows:
Year Year Three Months Ended Ended Ended December 31, December 31, December 31, 1999 1998 1997 ----------- ----------- ------------ Bond selection fees $3,806,510 $2,351,932 $ 100,000 Expense reimbursement 384,231 374,315 36,747 Loan servicing fees 856,949 591,119 220,386 Management fees 480,789 394,079 0 Special distribution 2,018,822 1,477,797 330,580 --------- --------- --------- $7,547,301 $5,189,242 $ 687,713 --------- --------- --------- --------- --------- ---------
TAX EXEMPT II (PRIOR TO THE CONSOLIDATION) Prior to the Consolidation, the general partners of Tax Exempt II were Related Tax Exempt Associates II, Inc., a Delaware corporation (the "Related General Partner"), and Prudential Bache Properties, Inc. ("PBP"). The general partners managed and controlled the affairs of Tax Exempt II prior to the Consolidation. The general partners and their affiliates performed services for Tax Exempt II which included, but were not limited to: accounting and financial management; registrar, transfer and assignment functions; asset management; investor communications; printing and other administrative services. The general partners and their affiliates received reimbursements for costs incurred in connection with these services, the amount of which was limited by the provisions of the partnership agreement of Tax Exempt II. The general partners were paid, in aggregate, an annual management fee equal to .5% of the total invested assets (which equaled the total original face amount of the FMBs). An affiliate of the Related General Partner received loan servicing fees in an amount of .25% per annum of the principal amount outstanding on mortgage loans serviced by the affiliate. The expenses incurred by Tax Exempt II to related parties for the nine months ended September 30, 1997 were as follows:
Nine Months Ended September 30, 1997 ------------ PBP and affiliates General and administrative $ 58,170 Management fee 303,984 ---------- 362,154 Related General Partner and affiliates General and administrative 66,222 Management fee 303,984 Loan servicing fee 303,152 ---------- 673,358 ---------- $1,035,512 ---------- ----------
GENERAL As of December 31, 1999, the obligors of the River Run, Ocean Air, Phoenix, Stone Creek, Cedarbrook, Marsh Landings, Gulfstream, Bedford Square, Northpointe Village, Falcon Creek, Jubilee Courtyards, Silvercrest, Carrington Pointe, Madalyn Landing, Forest Hills, Lake Jackson, Mountain Ranch, Hamilton Garden, Del Monte Pines, Greenbriar, Sycamore Woods, Avalon Court, The Courtyards, Meadowview Park, Casa Ramon, Lake Park, Lewis Place, Lennox Park, Chapel Ridge of Little Rock, Franciscan Riviera, Standiford, Douglas Pointe, Chapel Ridge of Texarkana, Tallwood, Barnaby Manor and Fort Chaplin FMBs are local partnerships in -46- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS which investment partnerships, whose general partners are affiliates of the Manager, own a controlling partnership interest. With respect to three of the above FMBs, the Company owns the RITES (see Note 5). As of December 31, 1999, the original owners of the Underlying Properties and obligors of the Cedar Creek, Highpointe, Pelican Cove and Loveridge FMBs had been replaced with affiliates of the Manager who have not made equity investments. These entities have assumed the day-to-day responsibilities and obligations of the Underlying Properties. Buyers are being sought who would make equity investments in the Underlying Properties and assume the nonrecourse obligations for the FMB or otherwise buy the property and payoff all or most of the FMB obligation. NOTE 11 - Earnings Per Share, Profit and Loss Allocations and Distributions CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY (AFTER THE CONSOLIDATION) Pursuant to the Management Agreement, the Manager receives a special distribution equal to .375% per annum of the total invested assets of the Company (which equals the face amount of the FMBs), payable quarterly, for managing the affairs of the Company. After payment of the special distribution, distributions are made to the shareholders in accordance with their percentage interests. Income is allocated first to the Manager in an amount equal to the special distribution. The net remaining profits or losses, after a special allocation of 1% to the Manager, are then allocated to shareholders in accordance with their percentage interests. Basic net income per Share in the amount of $1.02, $.99 and $.12 for the years ended December 31, 1999 and 1998 and the three months ended December 31, 1997, respectively, equals net income for the periods ($23,181,818, $22,025,872 and $2,792,740, respectively), less the special allocations to the Manager ($2,230,452, $1,683,278 and $355,202, respectively), divided by the weighted average number of Shares outstanding for the periods (20,580,756, 20,587,151 and 20,587,465, respectively). Diluted net income per Share in the amount of $1.02, $.98 and $.12 for the years ended December 31, 1999 and 1998 and the three months ended December 31, 1997, respectively, equals net income for the periods, less the special allocations to the Manager, divided by the weighted average number of diluted Shares outstanding for the periods (20,580,756, 20,740,641 and 20,587,465, respectively). The weighted average number of diluted Shares outstanding for the year ended December 31, 1998 reflects the weighted average impact of an additional 608,955 Shares presumed to be issued to counsel for the Partnerships pursuant to an Order and Stipulation of Settlement by the United States District Court for the Southern District of New York on February 18, 1999. In April 1999, the Company successfully negotiated a discounted cash settlement in lieu of the issuance of shares (see Note 9). As the Company had no contingently-issuable Shares or potentially dilutive securities outstanding at December 31, 1999 and 1997, diluted net income per share is the same as basic net income per share. Net income per unit information for the period before the Consolidation is not presented because it is not indicative of the Company's continuing capital structure. TAX EXEMPT II (PRIOR TO THE CONSOLIDATION) Net profits or losses and distributions were allocated 98% to the BUC$holders and 2% to the general partners of Tax Exempt II in accordance with the Agreement of Limited Partnership of Tax Exempt II. NOTE 12 - Capital Stock and Share Option Plan The Company has adopted an incentive share option plan (the "Incentive Share Option Plan"), the purpose of which is to (i) attract and retain qualified persons as trustees and officers and (ii) to incentivize and more closely align the financial interests of the Manager and its employees and officers with the interests of the shareholders by providing the Manager with substantial financial interest in the Company's success. The Compensation Committee administers the Incentive Share Option Plan. Pursuant to the Incentive Share Option Plan, if the Company's distributions per Share in the immediately preceding calendar year exceed $0.9517 per Share, the Compensation Committee has the authority to issue options to purchase, in the aggregate, that number of Shares which is equal to three percent of the Shares outstanding as of December 31 of the immediately preceding calendar year (or in the initial year, as of October 1, 1997), provided that the Compensation Committee may only issue, in the aggregate, options to purchase a maximum number of Shares over the life of the Incentive Shares Option Plan equal to 10% of the Shares outstanding on October 1, 1997 (2,058,748 Shares). Subject to the limitations described in the preceding paragraph, if the Compensation Committee does not grant the maximum number of options in any year, then the excess of the number of authorized options over the number of options granted in such year will be added to the number of authorized options in the next succeeding year and will be available for grant by the Compensation Committee in such succeeding year. All options granted by the Compensation Committee will have an exercise price equal to or greater than the fair market value of the Shares on the date of the grant. The maximum option term is ten years from the date of grant. All Share options granted pursuant to the Incentive Share Option Plan may vest immediately upon issuance or in accordance with the determination of the Compensation Committee. No options were granted for the year ended December 31, 1997. In 1998, the Company distributed only $.93 per Share, thus prohibiting the Compensation Committee, from issuing options. In 1999, the Company distributed $.995 per Share, thus enabling the Compensation Committee, at their discretion, to issue options. The Compensation Committee is considering granting options; however, as of March 17, 2000, no options have been granted. Three percent of the Shares outstanding as of December 31, 1999 are equal to 617,624 Shares. -47- Through calendar year 1999, each independent trustee was entitled to receive annual compensation for serving as a trustee in the aggregate amount of $15,000 payable in cash (maximum of $5,000 per year) and/or Shares valued based on the fair market value at the date of issuance. Beginning in calendar year 2000, the annual compensation for the two original independent trustees was increased from $15,000 to $17,500 and the maximum payable in cash was increased from $5,000 to $7,500. In 2000, a third independent trustee was appointed and such trustee will receive annual compensation in the aggregate amount of $30,000 payable in cash (maximum of $20,000 per year) and or Shares. As of December 31, 1999 and 1998, 1910 and 372 Shares, respectively, having an aggregate value of $25,000 and $5,000, respectively, have been issued to the independent trustee as compensation for their services. On October 9, 1998, the Board of Trustees authorized the implementation of a Share repurchase plan, enabling the Company to repurchase, from time to time, up to 1,500,000 of its Shares. The repurchases will be made in the open market and the timing will be dependant on the availability of Shares and other market conditions. As of both December 31, 1999 and 1998, the Company had acquired 8,400 of its Shares for an aggregate purchase price of $103,359 (including commissions and service charges). Repurchased Shares are accounted for as treasury Shares of beneficial interest. The Company was created as part of the settlement in 1997 of class action litigation against, among others, the sponsors of the Partnerships which were consolidated to form the Company. As part of that settlement, counsel ("Class Counsel") for the partners of the Partnerships had the right to petition the United States District Court for the Southern District of New York (the "Court") for additional attorneys' fees ("Counsel's Fee Shares") in an amount to be determined in the Court's sole discretion. The Counsel's Fee Shares were based upon a percentage (which Class Counsel proposed to be 25%) of the increase in value of the Company, ("the Added Value") if any, as of October 1, 1998 based upon the difference between (i) the trading prices of the Company's shares of beneficial interest during the six month period ended October 1, 1998 and (ii) the trading prices of the limited partnership units and the asset values of the Partnerships prior to October 1, 1997. As of October 1, 1998, 25% of the Added Value amounted to $7,788,536 and, in accordance with an Order and Stipulation of Settlement by the Court on February 18, 1999 (the "Order"), Class Counsel was entitled to receive 608,955 shares of beneficial interest in the Company. An accrual for this amount was included in accounts payable, accrued expenses and other liabilities at December 31, 1998. On April 15, 1999, the Company successfully negotiated a discounted cash settlement (the "Discounted Cash Settlement") of $6,089,550 with Class Counsel in lieu of the issuance of shares. On April 26, 1999, the Discounted Cash Settlement was approved by the Board of Trustees and it was paid on May 3, 1999. -48- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - Selected Quarterly Financial Data (unaudited)
1999 Quarter Ended ---------------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------ ----------- -------------- ------------- Revenues: Interest income: First mortgage bonds $ 7,921,003 $ 8,499,941 $10,045,763 $11,674,543 Other bond related investments 0 22,378 154,877 126,025 Temporary investments 102,522 155,475 556,614 475,058 Promissory notes 165,159 166,654 164,792 206,386 ---------- ---------- ---------- ---------- Total revenues 8,188,684 8,844,448 10,922,046 12,482,012 ---------- ---------- ---------- ---------- Expenses: Interest expense 8,368 365,110 558,758 816,989 Recurring fees relating to the Private Label Tender Option Program 319,750 348,919 364,265 383,822 Loan servicing and management fees 287,749 307,107 352,300 390,582 General and administrative 335,069 342,407 389,990 363,332 Amortization 78,512 85,814 105,944 111,757 Loss on impairment of assets 0 0 0 1,859,042 ---------- ---------- ---------- ---------- Total expenses 1,029,448 1,449,357 1,771,257 3,925,524 ---------- ---------- ---------- ---------- Income before loss on repayment of first mortgage bonds 7,159,236 7,395,091 9,150,789 8,556,488 Loss on repayment of first mortgage bonds (25,493) 0 0 (437,654) ---------- ---------- ---------- ---------- Income before minority interests 7,133,743 7,395,091 9,150,789 8,118,834 Income allocated to preferred shareholders of subsidiary 0 (33,125) (1,490,625) (1,490,625) Minority interest in income of subsidiary (1,128,221) (1,409,729) (1,388,095) (1,676,219) ---------- ---------- ---------- ---------- Net income 6,005,522 5,952,237 6,272,069 4,951,990 Special allocation of net income to the Manager (487,362) (517,514) (597,491) (416,455) ---------- ---------- ---------- ---------- Net income applicable to shareholders $ 5,518,160 $ 5,434,723 $ 5,674,578 $ 4,535,535 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share (basic and diluted) $ .27 $ .26 $ .28 $ .22 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Certain amounts in the quarters prior to the quarter ended December 31, 1999 have been reclassified from amounts previously reported in the Company's Forms 10-Q to conform to such quarter's presentation. The results for the quarter ended December 31, 1999 reflect losses on impairment of assets, totaling $1,859,042 relating to certain FMBs whose terms were modified and losses totaling $437,654 resulting from the repayment of two FMBs (see Note 3). -49- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 Quarter Ended ---------------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------ ----------- -------------- ------------- Revenues: Interest income: First mortgage bonds $ 5,843,408 $ 6,511,978 $ 7,060,874 $ 7,708,407 Temporary investments 41,526 62,868 57,655 59,221 Promissory notes 145,799 144,631 148,551 155,202 ---------- ---------- ---------- ---------- Total revenues 6,030,733 6,719,477 7,267,080 7,922,830 ---------- ---------- ---------- ---------- Expenses: Interest expense 344,770 328,875 305,326 525,363 Recurring fees relating to the Private Label Tender Option Program 0 0 242,370 212,549 Loan servicing and management fees 217,974 233,604 255,200 278,420 General and administrative 220,027 347,854 367,721 311,624 Amortization 0 24,304 56,437 77,831 ---------- ---------- ---------- ---------- Total expenses 782,771 934,637 1,227,054 1,405,787 ---------- ---------- ---------- ---------- Income before minority interest 5,247,962 5,784,840 6,040,026 6,517,043 Minority interest in income of subsidiary 0 (256,757) (534,442) (772,800) ---------- ---------- ---------- ---------- Net income 5,247,962 5,528,083 5,505,584 5,744,243 Special allocation of net income to the Manager (376,171) (402,183) (434,027) (470,897) ---------- ---------- ---------- ---------- Net income applicable to shareholders $ 4,871,791 $ 5,125,900 $ 5,071,557 $ 5,273,346 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share: Basic $ .24 $ .25 $ .25 $ .26 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Diluted $ .24 $ .25 $ .25 $ .25 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Certain amounts in the above quarterly information differ from those previously reported in the Company's Form 10-Qs due to reclassifications made to conform to the presentations used in the fourth quarter of 1999. These reclassifications did not affect previously reported net income or per share amounts. NOTE 14 - Commitments and Contingencies On November 2, 1999, the Company and American Tax Exempt Bond Trust ("ATEBT"), whose manager is an affiliate of the Manager of the Company, entered into a merger agreement pursuant to which ATEBT would merge with and into CM Holding Trust, a wholly-owned subsidiary of the Company. Following the merger, CM Holding Trust would continue to be a wholly-owned subsidiary of the Company. ATEBT is a Delaware business trust which owns four tax-exempt first mortgage bonds and had total assets of approximately $27,382,000 and net assets of approximately $26,030,000 at December 31, 1999. The four tax-exempt first mortgage bonds have an aggregate outstanding loan balance of $23,775,000 at December 31, 1999, have interest rates of 9% and have underlying properties located in four different states. Under the terms of the merger agreement, each share of beneficial ownership in ATEBT outstanding on the effective date of the proposed merger (1,463,521 shares at December 31, 1999) will be converted into the right to receive 1.43112 Shares of the Company. In addition, the manager of ATEBT (which owns a 1% interest in ATEBT not currently represented by ATEBT shares) will receive 21,156 shares of the Company. Following the merger, current ATEBT shareholders will own approximately 9.3% of the outstanding Shares of the Company. Consummation of the merger is subject to several conditions, including approval by ATEBT shareholders. In addition, either entity has the ability to opt out of the transaction if the 30-day average trading price of the Company's Shares preceding the closing of the transaction is outside of the Company's historical trading range of $11.13 to $14.50. Subject to ATEBT shareholder approval, the Company and ATEBT expect that this transaction will close during the second quarter of 2000. -50- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - Subsequent Event On February 15, 2000, 1642 Shares, having an aggregate value of $20,000 based on the closing price per share on February 14, 2000, were issued to the independent trustees as compensation for their services for the year ended December 31, 1999. On March 14, 2000, the Company acquired one FMB for a purchase price of $5,600,000, not including bond selection fees and expenses of approximately $112,000. The obligor of the FMB is a local partnership in which an investment partnership, whose general partner is an affiliate of the Manager, owns a controlling partnership interest. Further information regarding the FMB is as follows:
Stated Face No. of Closing Interest Call Date/ Amount Rental Property/Location Date Rate Maturity Date of FMB Units - - ----------------- ------- ---- ------------- ------ ----- TAX-EXEMPT FIRST MORTGAGE BONDS OWNED BY CHARTER MAC EQUITY ISSUER TRUST Summerlake 4/1/27 /Davie, FL 3/14/00 7.40% 3/1/42 $5,600,000 108
-51- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Company. Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Item 11. Executive Compensation. Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. Item 13. Certain Relationships and Related Transactions. Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act. -52- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential Page ---------- (a) 1. Financial Statements Independent Auditors' Report 27 Consolidated Balance Sheets as of December 31, 1999 and 1998 28 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 29 Consolidated Statements of Changes in Shareholders' Equity/Partners' Capital (Deficit) for the years ended December 31, 1999, 1998 and 1997 30 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 32 Notes to Consolidated Financial Statements 35 (a) 2. FINANCIAL STATEMENT SCHEDULES Schedule I - Condensed Financial Information of Registrant 59 Schedule IV - Mortgage Loans on Real Estate at December 31, 1999 67 All other schedules have been omitted because they are not applicable or the required information is included in the financial statements and the notes thereto. (a) 3. EXHIBITS 3.1(a) Certificate of Business Trust dated as of August 12, 1996 (incorporated by reference to the Company's Registration Statement on Form 10, File No. 001-13237) 3.1(b) Certificate of Amendment of Certificate of Business Trust dated as of April 30, 1997 (incorporated by reference to the Company's Registration Statement on Form 10, File No. 001-13237) 3.1(c) Trust Agreement dated as of August 12, 1996 (incorporated by reference to the Company's Registration Statement on Form 10, File No. 001-13237) 3.1(d) Amendment No. 1 to Trust Agreement dated as of April 30, 1997 (incorporated by reference to the Company's Registration Statement on Form 10, File No. 001-13237) 3.1(e) Amended and Restated Trust Agreement dated as of September 30, 1997 (incorporated by reference to the Company's Current Report on Form 8-K, filed with the Commission on March 19, 1998) -53- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (continued) Sequential Page ---------- 3.2 Amended and Restated Bylaws (filed herewith) 72 4.1 Specimen Copy of Share Certificate for shares of beneficial interest of the Company (incorporated by reference to the Company's Amendment No. 1 on Form 10/A to the Company's Registration Statement on Form 10, File No. 001-13237) 10(a) Management Agreement dated as of October 1, 1997, between the Company and Related Charter L.P. (incorporated by reference to the Company's Current Report on Form 8-K, filed with the Commission on March 19, 1998) 10(b) Agreement and Plan of Merger dated as of October 1, 1997, by and among the Company, Summit Tax Exempt Bond Fund, L.P., Summit Tax Exempt L.P. II and Summit Tax Exempt L.P. III (incorporated by reference to the Company's Current Report on Form 8-K, filed with the Commission on March 19, 1998) 10(c) Incentive Share Option Plan (incorporated by reference to the Company's Current Report on Form 8-K, filed with the Commission on March 19, 1998) 10(d) Contribution Agreement between CharterMac and CharterMac Origination Trust ("Origination Trust") dated as of May 21, 1998 (incorporated by reference to Exhibit 10 (aaaw) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(e) Contribution Agreement between Origination Trust and CharterMac Owner Trust ("Owner Trust") dated as of May 21, 1998 (incorporated by reference to Exhibit 10 (aaax) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(f) Insurance Agreement among MBIA, CharterMac, Origination Trust, Owner Trust, CharterMac Floater Certificate Trust ("Floater Certificate Trust"), First Tennessee Bank National Association ("First Tennessee"), Related Charter LP, and Bayerische Landesbank Girozentrale, New York Branch ("Bayerische") dated as of May 21, 1998 (incorporated by reference to Exhibit 10 (aaay) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(g) Liquidity Agreement among Owner Trust, Floater Certificate Trust, First Tennessee, MBIA and Bayerische dated as of May 21, 1998 (incorporated by reference to Exhibit 10 (aaaz) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(h) Liquidity Pledge and Security Agreement among Origination Trust, Owner Trust, Floater Certificate Trust, MBIA, First Tennessee and Bayerische dated as of May 21, 1998 (incorporated by reference to -54- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (continued) Sequential Page ---------- Exhibit 10 (aaaaa) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(i) Fee Agreement among Wilmington Trust Company, Floater Certificate Trust and CharterMac dated as of May 21, 1998 (incorporated by reference to Exhibit 10 (aaaab) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(j) Certificate Placement Agreement (incorporated by reference to Exhibit 10 (aaaac) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(k) Remarketing Agreement (incorporated by reference to Exhibit 10 (aaaad) in the Company's June 30, 1998 Quarterly Report on Form 10-Q) 10(l) Charter Mac Equity Issuer Trust, 6 5/8% Series A Cumulative Preferred Shares, Purchase Agreement, dated June 14, 1999 (incorporated by reference to Exhibit 10 (aaaaz) in the Company's June 30, 1999 Quarterly Report on Form 10-Q) 10(m) Agreement and Plan of Merger by and among Charter Municipal Mortgage Acceptance Company, CM Holding Trust and American Tax Exempt Bond Trust dated as of November 2, 1999 (incorporated by reference to Exhibit 99.2 in the Company's Current Report on Form 8-K dated November 2, 1999) 12 Ratio of earnings to fixed charges and preferred share dividends of subsidiary 94 21 Subsidiaries of the Company (filed herewith) 95 27 Financial Data Schedule (filed herewith) 96 99.1 Amended and Restated Trust Agreement by and among J. Michael Fried, Stuart J. Boesky, Alan P. Hirmes, Robert W. Grier and Andrew T. Panaccione as Managing Trustees, Charter Municipal Mortgage Acceptance Company and Wilmington Trust Company, as Registered Trustee dated June 22, 1999 relating to Charter Mac Equity Issuer Trust (incorporated by reference to Exhibit 99 in the Company's June 30, 1999 Quarterly Report on Form 10-Q) 99.2 Agreement dated as of April 15, 1999 between Charter Municipal Mortgage Acceptance Company and Melvyn I. Weiss, Esq. and Lawrence A. Sucharow, Esq., as Class Counsel co-chairmen (incorporated by reference to the Company's current report on Form 8-K filed with the Commission on April 29, 1999) -55- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (continued) Sequential Page ---------- (b) REPORTS ON FORM 8-K Current report on Form 8-K relating to an Agreement and Plan of Merger providing for the merger of American Tax Exempt Bond Trust, a Delaware Business Trust, with and into a subsidiary of the Company, with the Company's subsidiary as the surviving trust in the merger was dated November 2, 1999 and was filed on November 4, 1999. Current report on Form 8-K relating to the resignation of J. Michael Fried as Chairman of the Board of Trustees and Chief Executive Officer and Stuart J. Boesky as Chief Operating Officer and the unanimous appointment of Stephen M. Ross as Chairman of the Board of Trustees and Stuart J. Boesky as Chief Executive Officer was dated December 16, 1999 and was filed on January 5, 2000.
-56- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY (COMPANY) Date: March 29,2000 By: /s/ Stuart J. Boesky -------------------- Stuart J. Boesky Managing Trustee, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated: Signature Title Date - - ------------------------- -------------------------------- -------------- /s/ Stuart J. Boesky Managing Trustee, President - - -------------------- and Chief Executive Officer March 29, 2000 Stuart J. Boesky /s/ Stephen M. Ross Managing Trustee and - - ------------------- Chairman of the Board March 29, 2000 Stephen M. Ross /s/ Michael J. Brenner - - ---------------------- Managing Trustee March 29, 2000 Michael J. Brenner /s/ Alan P. Hirmes Managing Trustee, Executive - - ------------------ Vice President and Secretary March 29, 2000 Alan P. Hirmes /s/ Peter T. Allen - - ------------------ Managing Trustee March 29, 2000 Peter T. Allen /s/ Arthur P. Fisch - - ------------------- Managing Trustee March 29, 2000 Arthur P. Fisch /s/ Thomas M. White - - ------------------- Managing Trustee March 29, 2000 Thomas M. White /s/ John B. Roche Chief Financial Officer and - - ----------------- Chief Accounting Officer March 29, 2000 John B. Roche CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT Summarized condensed financial information of registrant (not including its consolidated subsidiaries) CONDENSED BALANCE SHEETS
December 31, ------------------------- 1999 1998 ----------- ----------- ASSETS First mortgage bonds-at fair value $9,559,000 $75,015,000 Temporary investments 19,790,000 0 Cash and cash equivalents 3,523,956 11,887,236 Cash and cash equivalents-restricted 971,758 0 Interest receivable, net 199,548 304,713 Promissory notes receivable 10,148,060 7,628,920 Due from subsidiaries 439,108 230,221 Investment in Charter Mac Origination Trust I 9,989,851 219,715,109 Investment in CM Holding Trust 250,099,847 0 Deferred costs, net 10,653,865 7,005,965 Goodwill, net 2,674,626 4,671,235 Other assets 262,344 11,500 ------------------------- Total assets $318,311,963 $326,469,899 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable, accrued expenses and other liabilities $ 423,540 $ 8,140,184 Due to Manager and affiliates 838,567 1,035,748 Due to subsidiaries 155,717 1,483,893 Distributions payable to shareholders 5,453,971 4,939,068 Total liabilities 6,871,795 15,598,893 ----------- ----------- Commitments and contingencies Shareholders' equity: Beneficial owner's equity-manager 441,878 230,259 Beneficial owners' equity-other shareholders (50,000,000 shares authorized; 20,589,375 issued and 20,580,975 outstanding and 20,587,837 issued and 20,579,437 outstanding in 1999 and 1998, respectively) 312,800,380 312,307,115 Treasury shares of beneficial interest (8,400 shares) (103,359) (103,359) Accumulated other comprehensive loss (1,698,731) (1,563,009) Total shareholders' equity 311,440,168 310,871,006 ----------- ----------- Total liabilities and shareholders' equity $318,311,963 $326,469,899 =========== ===========
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Revenues: Interest income: First mortgage bonds $ 5,988,021 $20,287,754 $13,902,592 Other bond related investments 62,910 0 0 Temporary investments 662,728 213,138 155,460 Promissory notes 702,991 594,183 171,722 Income from Charter Mac Origination Trust I 9,989,851 4,570,337 0 Income from CM Holding Trust 8,187,277 0 0 ---------- ---------- ---------- Total revenues 25,593,778 25,665,412 14,229,774 ---------- ---------- ---------- Expenses: Interest expense 417,263 1,504,334 429,012 Partnership management fees 0 0 607,969 Loan servicing and management fees 135,767 729,840 523,538 General and administrative 1,406,501 1,246,794 728,812 Amortization 345,282 158,572 41,500 Loss on impairment of assets 0 0 1,843,135 ---------- ---------- ---------- Total expenses 2,304,813 3,639,540 4,173,966 ---------- ---------- ---------- Income before loss on repayment of first mortgage bonds 23,288,965 22,025,872 10,055,808 Loss on repayment of first mortgage bonds 107,147 0 0 ---------- ---------- ---------- Net income $23,181,818 $22,025,872 $10,055,808 ========== Special allocation of net income to the Manager $ 2,230,452 $ 1,683,278 $ 355,202* ---------- ---------- ---------- Net income applicable to shareholders $20,951,366 $20,342,594 $ 2,437,538* ========== ========== ==========
*Represents amount for the three months ended December 31, 1997. CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ---------------------------------------- 1999 1998 1997 ------------ ------------ ----------- Cash flows from operating activities: Net income $ 23,181,818 $ 22,025,872 $10,055,808 ------------ ------------ ----------- Adjustments to reconcile net income to net cash provided by operating activities: Loss on repayments of first mortgage bonds 107,147 0 0 Loss on impairment of assets 0 0 1,843,135 Amortization 345,282 158,572 41,500 Amortization of goodwill 297,623 134,593 0 Amortization of bond selection costs 450,743 238,928 184,851 Accretion of excess of acquired net assets over cost 0 (248,559) (82,853) Accretion of deferred income 0 (39,753) (66,212) Income from investment in Charter Mac Origination Trust I (9,989,851) (4,570,337) 0 Income from investment in CM Holding Trust (8,187,277) 0 0 Distributions from Charter Mac Origination Trust I 16,467,319 151,538,426 0 Changes in operating assets and liabilities: Interest receivable 105,165 574,806 449,808 Other assets 656 29,971 (5,503) Accounts payable, accrued expenses and other liabilities (5,918,615) 70,457 69,393 Due from subsidiaries (208,887) (230,221) 84,225 Due to subsidiaries (1,328,176) 1,483,893 0 Due to Manager and affiliates (343,960) 278,751 (162,178) ------------ ------------ ----------- Total adjustments (8,202,831) 149,419,527 2,356,166 ------------ ------------ ----------- Net cash provided by operating activities 14,978,987 171,445,399 12,411,974 ------------ ------------ ----------- Cash flows from investing activities: Proceeds from repayments of first mortgage bonds 5,100,000 0 0 Purchase of first mortgage bonds (44,290,000) (117,596,600) (5,000,000) Purchase of other bond related investments (480,162) 0 0 Proceeds from secured borrowings 52,807,000 0 0 Contribution of first mortgage bonds to CM Holding Trust for cash 13,492,000 0 0 Contribution of other bond related investment to CM Holding Trust for cash 15,000 0 0 Increase in deferred bond selection costs (3,906,784) (2,598,288) (130,091) Net sale (purchase) of temporary investments (19,790,000) 3,500,000 100,000 Increase in other assets (251,500) 0 0 Increase in other deferred costs (100,000) 0 0 Loans made to properties (2,847,185) (1,055,695) (324,000) Principal payments received from loans made to properties 328,045 507,040 129,257 ------------ ------------ ----------- Net cash provided by (used in) investing activities 76,414 (117,243,543) (5,224,834) ------------ ------------ -----------
(continued) CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ---------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from note payable 0 96,039,231 23,945,340 Repayments of note payable 0 (117,484,571) (16,180,866) Increase in cash and cash equivalents-restricted (971,758) 0 0 Distributions paid to the Manager and shareholders of the Company/partners (21,815,252) (20,331,395) (12,164,011) Increase in deferred costs relating to the Private Label Tender Option Program (559,632) (2,512,768) (583,727) Increase in other deferred costs (72,039) 0 0 Purchase of treasury shares of beneficial interest 0 (103,359) 0 Consolidation costs 0 (218,657) (2,497,603) Cash effect of Consolidation and issuance of shares 0 0 2,341,434 ----------- ----------- ----------- Net cash used in financing activities (23,418,681) (44,611,519) (5,139,433) ----------- ----------- -----------
(continued) CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------- 1999 1998 1997 ----------- ------------ ---------- Net increase (decrease) in cash and cash equivalents (8,363,280) 9,590,337 2,047,707 Cash and cash equivalents at the beginning of the year 11,887,236 2,296,899 249,192 ----------- ------------ ---------- Cash and cash equivalents at the end of the year $ 3,523,956 $ 11,887,236 $ 2,296,899 =========== ============ ========== Supplemental information: Interest paid $ 417,263 $ 1,507,871 $ 400,009 =========== ============ ========== Supplemental disclosure of noncash activities: Payable to trustees liquidated through the issuance of shares of beneficial interest $ 20,000 $ 5,000 $ 0 =========== ============ ========== Shares of beneficial interest required to be issued to counsel for the partners in the Partnership Increase in goodwill $ 0 $ (4,805,828) $ 0 Decrease in excess of acquired net assets over cost 0 (2,982,708) 0 Increase in accounts payable, accrued expenses and other liabilities 0 7,788,536 0 ----------- ------------ ---------- $ 0 $ 0 $ 0 =========== ============ ========== Adjustment to goodwill due to the Discounted Cash Settlement: Decrease in goodwill $ 1,698,986 $ 0 $ 0 Decrease in accounts payable, accrued expenses and other liabilities (1,698,986) 0 0 ----------- ------------ ---------- $ 0 $ 0 $ 0 =========== ============ ========== Contribution of first mortgage bonds to Charter Mac Origination Trust I: Decrease in first mortgage bonds $ 8,550,000 $366,308,931 $ 0 Increase in investment in Charter Mac Origination Trust I $ (8,550,000) $(366,308,931) $ 0 ----------- ------------ ---------- $ 0 $ 0$ 0 =========== ============ ==========
(continued) CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------------------- 1999 1998 1997 -------------- -------------- -------------- Contribution of other bond related investments to CM Holding Trust: Decrease in other bond related investments $ (83,957) $ 0 $ 0 Increase in investment in CM Holding Trust 83,957 0 0 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ============== Contribution of first mortgage bonds to CM Holding Trust: Decrease in first mortgage bonds $ (103,350,009) $ 0 $ 0 Increase in investment in CM Holding Trust 103,350,009 0 0 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ============== Transfer of secured borrowings to CM Holding Trust: Decrease in secured borrowings $ (52,807,000)$ 0 $ 0 Decrease in investment in CM Holding Trust 52,807,000 0 0 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ============== Distribution of first mortgage bond from CM Holding Trust: Increase in first mortgage bonds $ (7,000,186)$ 0 $ 0 Decrease in investment in CM Holding Trust 7,000,186 0 0 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ============== Transfer of net investment in Charter Mac Origination Trust I to CM Holding Trust: Increase in investment in CM Holding Trust $ (211,797,790) $ 0 $ 0 Decrease in CharterMac Origination Trust I 211,797,790 0 0 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ============== Consolidation and issuance of shares: Increase in first mortgage bonds $ 0 $ 0 $ (168,557,007) Increase in interest receivable 0 0 (593,984) Increase in promissory notes receivable 0 0 (6,609,950) Increase in other assets 0 0 (12,193) Increase in notes payable 0 0 13,680,866 Increase in accounts payable, accrued expenses and other liabilities 0 0 104,376 Increase in due to affiliates 0 0 434,351 Increase in distributions payable 0 0 2,452,088 Increase in excess of acquired net assets over cost 0 0 3,314,120 Decrease in BUC$holders' capital 0 0 (158,222,585) Increase in general partners' capital 0 0 233,237 Issuance of shares of beneficial interest 0 0 313,776,681 -------------- -------------- -------------- $ 0 $ 0 $ 0 ============== ============== ==============
(continued) CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 1998 1997 ------------------ ------------------ ------------------ Distributions to the Manager and shareholders of the Company/partners $ (22,496,934) $ (20,622,394) $ (14,777,622) Increase in special distribution payable to the Manager 166,779 87,050 330,580 Increase in distributions payable to shareholders of the Company/partners 514,903 203,949 2,283,031 ------------------ ------------------ ------------------ Distributions paid to the Manager and shareholders of the Company/partners $ (21,815,252) $ (20,331,395) $ (12,164,011) ================== ================== ==================
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Introduction and Basis of Presentation Basis of Financial Information The accompanying condensed financial statements (the "Parent Company Financial Statements") are for Charter Municipal Mortgage Acceptance Company (not including its consolidated subsidiaries). Charter Municipal Mortgage Company (the "Company") had no consolidated subsidiaries during the year ended December 31, 1997. The Parent Company Financial Statements, including the notes thereto, should be read in conjunction with the consolidated financial statements of the Company and the notes thereto which are included in this Form 10-K. 2. Transactions with Subsidiaries The Company received distributions from its consolidated subsidiaries totaling approximately $16,467,000 and $151,538,000 during the years ended December 31, 1999 and 1998, respectively. CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999 Participating First Mortgage Bonds As of December 31, 1999, the Company and its consolidated subsidiaries owned 69 FMBs (26 participating FMBs and 43 non-participating FMBs). Three of the FMBs are taxable FMBs acquired in connection with the purchase of tax-exempt FMBs. The taxable FMBs are secured by the same Underlying Properties which secure the associated tax-exempt FMBs. The following table provides certain information with respect to each of the FMBs.
Minimum Average Fair Stated Pay Rate at Interest Face Value at Interest December Rate Paid Maturity Amount December Property Location Rate* 31, 1999* for 1999* Call Date Date of FMB 31, 1999(A) - - -------- -------- -------- ---------- --------- --------- -------- ------ ----------- TAX-EXEMPT FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Highpointe Club (K)(N) Harrisburg, PA 8.50% (W) 4.72% June 1998 June 2006 $ 8,900,000 $ 5,769,000 ----------- ----------- OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H) Barnaby Manor (P)(S) Washington, DC 7.375 7.375% 7.375 May 2017 May 2032 4,500,000 4,500,000 Casa Ramon (P) Orange County, CA 7.50 7.50 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000 Chapel Ridge of Little Rock (O)(S) Little Rock, AR 7.125 7.125 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000 Chapel Ridge of Texarkana (O)(S) Texarkana, AR 7.375 7.375 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000 Country Lake (P) West Palm Beach, FL (V) 6.00 6.00 June 2015 June 2032 6,255,000 6,255,000 Del Monte Pines (R)(P) Fresno, CA 6.80 6.80 6.80 May 2017 May 2036 11,000,000 10,275,000 Douglas Pointe(O)(S)(R) Miami, FL 7.00 7.00 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000 Forest Hills (R)(P) Garner, NC 7.125 7.125 7.13 June 2016 June 2034 5,930,000 5,804,000 Fort Chaplin (P) Washington, DC 6.90 6.90 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000 Franciscan Riviera (P)(R) Antioch, CA 7.125 7.125 7.125 Apr. 2016 Aug. 2036 6,587,500 6,447,000 Garfield Park (P) Washington, DC 7.25 7.25 7.25 Aug. 2017 Aug. 2031 3,260,000 3,247,000 Greenbriar (M)(P) Concord, CA 6.875 6.875 6.875 May 2017 May 2036 9,585,000 9,052,000 Hamilton Gardens (R)(P) Hamilton, NJ (U) 7.625 7.625 Apr. 2015 Mar. 2035 6,400,000 6,264,000 Lake Jackson (R)(O)(S) Lake Jackson, TX 7.00 7.00 7.00 Jan. 2018 Jan. 2041 10,934,000 10,513,000 Lakemoor (O) (S) Durham, NC 7.25 7.25 7.25 Jan. 2017 Dec. 2041 9,000,000 9,000,000 Lake Park (P) Turlock, CA 7.25 7.25 7.25 Oct. 2015 Sep. 2035 3,638,000 3,623,000 Lakes Edge At Walden (P)(M) Miami, FL 6.90 6.90 6.90 June 2016 May 2035 14,850,000 14,075,000 Lennox Park (O)(S)(M) Gainesville, GA 6.80 6.80 6.80 Aug. 2021 July 2041 13,000,000 12,143,000 Lewis Place (O)(S)(M) Gainsville, FL (I) 6.75 6.75 June 2016 June 2041 4,000,000 3,709,000 Mountain Ranch (R)(O) Austin, TX 7.125 7.125 7.13 Jan. 2018 Jan. 2041 9,128,000 8,934,000 Standiford (P)(R) Modesto, CA 7.125 7.125 7.125 Apr. 2016 Aug. 2036 9,520,000 9,317,000 Sunset Creek (M)(K) Lancaster, CA 8.50 5.48 8.68 Mar. 2000 Mar. 2008 8,275,000 6,225,000 Sunset Village (M)(K) Lancaster, CA 8.50 5.48 8.68 Mar. 2000 Mar. 2008 11,375,000 8,557,000 Sycamore Woods (R)(P) Antioch, CA 6.875 6.875 6.875 May 2017 May 2036 9,415,000 8,891,000 Tallwood (O)(S)(R) Virginia Beach, VA 7.25 7.25 7.25 Nov. 2017 Oct. 2041 6,205,000 6,179,000 ----------- ----------- 207,207,500 197,046,000 ----------- -----------
- 10 - CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999
Minimum Average Fair Stated Pay Rate at Interest Face Value at Interest December Rate Paid Maturity Amount December Property Location Rate* 31, 1999* for 1999* Call Date Date of FMB 31, 1999(A) - - -------- -------- -------- ---------- --------- --------- -------- ------ ----------- OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L) Bay Club (K) Mt. Pleasant, SC 8.25 8.25 10.11 Sep. 2000 Sep. 2006 6,400,000 7,253,000 Clarendon Hills (K) Hayward, CA 5.52 5.52 6.48 Dec. 2003 Dec. 2003 17,600,000 13,599,000 Cypress Run (K) Tampa, FL 8.50 5.50 .68 Aug. 1998 Aug. 2006 15,402,428 13,576,000 East Ridge (K) Mt. Pleasant, SC 8.25 8.25 8.24 Mar. 2000 May 2010 8,700,000 9,859,000 Greenway Manor (K)(N) St. Louis, MO 8.50 8.50 8.64 Oct. 1998 Sept. 2006 12,850,000 15,003,000 The Lakes (K) Kansas City, MO 4.87 4.87 6.71 Dec. 2006 Dec. 2006 13,650,000 9,821,000 Loveridge (K)(N) Contra Costa, CA 8.00 (W) 5.00 Nov. 1998 Nov. 2006 8,550,000 6,459,000 Martin's Creek (K) Summerville, SC 8.25 8.25 8.25 Mar. 2000 May 2010 7,300,000 8,273,000 ----------- ----------- 90,452,428 83,843,000 ----------- -----------
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999
Minimum Average Fair Stated Pay Rate at Interest Face Value at Interest December Rate Paid Maturity Amount December Property Location Rate* 31, 1999* for 1999* Call Date Date of FMB 31, 1999(A) - - -------- -------- -------- ---------- --------- --------- -------- ------ ----------- OWNED BY CHARTER MAC OWNER TRUST I (J) (H) Bedford Square Clovis, CA (D) 7.00 7.00 Sep. 2017 Aug. 2040 3,850,000 3,371,000 Bristol Village Bloomington, MN 7.50 7.50 7.50 Jan. 2010 Dec. 2027 17,000,000 17,513,000 Carrington Pointe Los Banos, CA 6.375 6.375 6.38 Oct. 2017 Sep. 2040 3,375,000 2,955,000 Cedarbrook Hanford, CA 7.125 7.125 7.13 May 2017 May 2040 2,840,000 2,779,000 Cedar Creek (K)(N) McKinney, TX 8.50 8.50 8.50 Dec. 1998 Dec. 2006 8,100,000 9,457,000 Cedar Pointe (K) Nashville, TN 7.00 7.00 7.00 Apr. 2006 Apr. 2017 9,500,000 9,134,000 College Park (O)(S) Naples, FL (C) 7.00 7.00 Jul. 2025 Jul. 2040 10,100,000 9,711,000 Crowne Pointe (K) Olympia, WA 7.25 8.00 7.76 Dec. 1998 Aug. 2029 5,075,000 5,054,000 Falcon Creek (O)(S) Indianapolis, IN (F) 7.00 7.00 Sep. 2016 Aug. 2038 6,144,600 6,119,000 Gulfstream (P) Dania, FL 7.25 7.25 7.25 Apr. 2016 Jul. 2038 3,500,000 3,486,000 Highland Ridge (K) St. Paul, MN 7.25 7.25 7.36 June 2010 June 2018 15,000,000 14,938,000 Jubilee Courtyards Florida City, FL (G) 7.00 7.00 Oct. 2025 Sep. 2040 4,150,000 4,062,000 Lakepoint (K) Stone Mountain, GA 6.00 6.00 6.08 Jul. 2005 June 2017 15,100,000 12,445,000 Madalyn Landing (O)(S) Palm Bay, FL 7.00 7.00 7.00 Dec. 2017 Nov. 2040 14,000,000 13,461,000 The Mansion Independence, MO 7.25 7.25 9.84 Jan. 2011 April 2025 19,450,000 19,678,000 Marsh Landings (P)(S) Portsmouth, VA 7.25 7.25 7.25 Jul. 2017 Jul. 2030 6,050,000 6,025,000 Newport Village (K) Tacoma, WA 7.25 8.00 7.76 Jan. 1999 Aug. 2029 13,000,000 12,946,000 North Glen (K) Atlanta, GA (X) 7.00 7.15 Jul. 2005 June 2017 12,400,000 12,775,000 Northpointe Village (P) Fresno, CA (E) 8.125 8.12 Sep. 2017 Aug. 2040 13,250,000 13,650,000 Ocean Air (P)(S) Norfolk, VA 7.25 7.25 7.25 Jan. 2016 Nov. 2030 10,000,000 9,959,000 Orchard Hills (K) Tacoma, WA 7.25 8.00 7.76 Dec. 1998 Aug. 2029 5,650,000 5,627,000 Orchard Mill (K) Atlanta, GA 7.50 5.00 6.57 Jul. 2005 June 2017 10,500,000 10,517,000 Pelican Cove (K)(N) St Louis, MO 8.00 (W) 8.08 Feb. 1999 Feb. 2007 18,000,000 19,780,000 Phoenix Stockton, CA 7.125 7.125 7.12 Nov. 2016 Oct. 2029 3,250,000 3,181,000 River Run (K) Miami, FL 8.00 8.00 9.10 Aug. 1999 Aug. 2007 7,200,000 7,912,000 Shannon Lake (K) Atlanta, GA (B) 6.00 6.08 Jul. 2005 June 2017 12,000,000 11,538,000 Silvercrest Clovis, CA 7.125 7.125 7.12 Oct. 2017 Sep. 2040 2,275,000 2,227,000 Stone Creek (O)(S) Watsonville, CA 7.125 7.125 7.13 May 2017 Apr. 2040 8,820,000 8,632,000 Sunset Downs (K) Lancaster, CA 8.00 5.48 8.70 May 1999 May 2007 15,000,000 11,284,000 Sunset Terrace (K) Lancaster, CA 8.00 5.48 8.61 Feb. 1999 May 2007 10,350,000 7,786,000 Thomas Lake Eagan, MN 7.50 7.50 7.50 Jan. 2010 Dec. 2027 12,975,000 13,367,000 Willow Creek (K) Ames, IA 7.25 7.25 7.32 Jan. 2010 June 2022 6,100,000 6,075,000 ----------- ----------- 304,004,600 297,444,000 ----------- ----------- Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000 ----------- -----------
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999
Minimum Average Fair Stated Pay Rate at Interest Face Value at Interest December Rate Paid Maturity Amount December Property Location Rate* 31, 1999* for 1999* Call Date Date of FMB 31, 1999(A) - - -------- -------- -------- ---------- --------- --------- -------- ------ ----------- TAXABLE FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Greenbriar (P) Concord, CA 9.00 9.00 9.00 May 2017 May 2036 2,015,000 2,015,000 Lake Park (P) Turlock, CA 9.00 9.00 9.00 Oct. 2015 Sep. 2035 375,000 375,000 Lakes Edge at Walden (P) Miami, FL 11.00 11.00 11.00 June 2000 Aug. 2010 1,400,000 1,400,000 ----------- ----------- Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000 ----------- ----------- Total First Mortgage Bonds $614,354,528 $587,892,000 ----------- ----------- ----------- -----------
*The average interest rate paid (which in certain cases includes the receipt of contingent interest and deferred base interest relating to prior periods) represents the interest recorded by the Company while the stated interest rate represents the coupon rate of the FMB and the minimum pay rate represents the minimum rate payable pursuant to the applicable forbearance agreement, if any. (A) The FMBs are deemed to be available-for-sale debt securities and, accordingly, are carried at their estimated fair values at December 31, 1999. (B) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 6% through July 31, 2000 and 7% thereafter. (C) The interest rates for College Park are 7% during the construction period and 7.25% thereafter. (D) The interest rates for Bedford Square are 7% during the construction period and 6.375% thereafter. (E) The interest rates for Northpointe Village are 7.965% through September 23, 1998, 8.125% during the remainder of the construction period and 7.5% thereafter. (F) The interest rates for Falcon Creek are 7% through August 31, 2000 and 7.25% thereafter. (G) The interest rates for Jubilee Courtyards are 7% through September 30, 2000 and 7.125% thereafter. (H) This entity is a consolidated subsidiary of the Company (see Notes 8 and 9 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). (I) The interest rates for Lewis Place are 6.75% through May 31, 2001 and 7.00% thereafter. (J) These FMBs have been transferred to Charter Mac Owner Trust I in connection with the Company's Private Label Tender Option Program (TOP) (see Note 6 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). (K) These FMBs are participating FMBs which contain additional interest features contingent on available cash flow. (L) The FMBs are held as collateral in connection with the TOP (see Note 8 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). (M) These FMBs are pledged as collateral in connection with the Merrill Lynch RITES/P-FLOATS Program (see Note 4 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). (N) The original owners of the Underlying Properties and the obligors of these FMBs have been replaced with affiliates of the Manager. (O) The Underlying Property is under construction. In the event construction is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (P) The Underlying Property is undergoing substantial rehabilitation. In the event rehabilitation is not completed in a timely manner, the Company may "put" the FMB to the construction lender at par. (Q) Initial advance on an FMB which will have a face amount of $4,744,000 when it is fully funded. The balance of $4,694,000 is expected to be funded in the second quarter of 2000. (R) Held by Merrill Lynch as collateral for secured borrowings (see Note 4 to the Company's Financial Statements included in "Item 8. Financial Statements and Supplementary Data"). (S) All of the "puts" (see (O) and (P) above) are secured by a letter of credit issued by the construction lender to the Company. (T) Initial advance in the amount of $50,000 was funded on June 8, 1999. The balance was funded on July 15, 1999. (U) The interest rates for Hamilton Gardens are 7.625% during the construction period and 7.125% thereafter. (V) The interest rates for Country Lake are 6% until expected refunding in June 2000 and 7.25% thereafter. (W) The minimum pay rate is the current cash flow of the property. (X) Pursuant to a bond modification as of October 1, 1997, the base interest rate was lowered to 7% through June 30, 2000 and 7.50% thereafter. CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999 Participating First Mortgage Bonds
Reconciliation of FMBs: 1999 1998 1997 ------------ ------------ ------------ Balance at beginning of period: $458,662,600 $346,300,000 $148,123,426 Acquisitions 165,355,500 117,596,600 173,557,007 Proceeds from repayments of first mortgage bonds (21,395,213) 0 0 Carrying amount of first mortgage bonds in excess of proceeds from the repayment (256,000) 0 0 Realized loss on impairment of assets (1,859,042) 0 (1,843,135) Net change in fair value of participating first mortgage bonds (12,642,300) (5,260,455) 26,436,248 Accretion of deferred income 26,455 26,455 26,454 ------------ ------------ ------------ Balance at close of period: $587,892,000 $458,662,600 $346,300,000 ----------- ----------- ----------- ----------- ----------- -----------
EX-3.2 2 EXHIBIT-3.2 EXHIBIT 3.2 CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AMENDED AND RESTATED BYLAWS ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located at such place as the Board of Trustees may designate in its sole discretion. Section 2. ADDITIONAL OFFICES. The Trust may have additional offices at such places as the Board of Trustees may from time to time determine in its sole discretion or the business of the Trust may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE. All meetings of Shareholders shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. ANNUAL MEETING. An annual meeting of the Shareholders for the election of Managing Trustees whose terms have expired and the transaction of any business within the powers of the Trust shall be held on a date and at the time set by the Board of Trustees during the month of June in each year. Section 3. SPECIAL MEETINGS. The Board of Trustees may call special meetings of the Shareholders. Special meetings of Shareholders shall also be called by the Board of Trustees upon the written request of the holders of Shares entitled to cast not less than 10% of all the votes entitled to be cast at such meeting. Such request shall briefly state the purpose of such meeting and the matters proposed to be acted on at such meeting. Section 4. NOTICE. Not less than 10 nor more than 90 days before each meeting of Shareholders, the Board of Trustees shall give to each Shareholder entitled to vote at such meeting and to each Shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, stating briefly the purpose for which the meeting is called, either by mail or by presenting it to such Shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the Shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 5. SCOPE OF NOTICE. Any business of the Trust may be transacted at an annual meeting of Shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of Shareholders except as specifically designated in the notice. Section 6. ORGANIZATION. At every meeting of Shareholders, the chairman of the Board of Trustees, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the chairman of the Board of Trustees, (i) the following officers of the Manager, if there be one: the president, the vice presidents in their order of rank and seniority, or (ii) if there is no Manager, a chairman chosen by the Shareholders entitled to cast a majority of the votes which all Shareholders present in person or by proxy are entitled to cast, shall act as chairman, and a person appointed by the chairman shall act as secretary. Section 7. QUORUM. At any meeting of Shareholders, the presence in person or by proxy of Shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute, the Trust Agreement or these Bylaws for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the Shareholders, the Shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 120 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each Shareholder of record entitled to vote at the meeting. The Shareholders present at a meeting which has been duly called and convened may continue to transact -2- business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. Section 8. VOTING. A plurality of all the votes entitled to be cast at a meeting of Shareholders duly called and at which a quorum is present shall be sufficient to elect a Managing Trustee. Each Share may be voted for as many individuals as there are Managing Trustees to be elected and for whose election the Share is entitled to be voted. A majority of the votes cast at a meeting of Shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless a different vote is required by statute, the Trust Agreement or these Bylaws. Unless otherwise provided in the Trust Agreement, each outstanding Share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of Shareholders. Section 9. PROXIES. A Shareholder may cast the votes entitled to be cast by the Shares owned of record by him either in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Board of Trustees before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Shareholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Board of Trustees. Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation, partnership, trust or other entity or agreement governing the organization of such other entity presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or other fiduciary may vote stock registered in his name as such fiduciary, either in person or by proxy. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding Shares -3- entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding Shares at any given time. The Board of Trustees may adopt by resolution a procedure by which a Shareholder may certify in writing to the Trust that any Shares registered in the name of the Shareholder are held for the account of a specified Person other than the Shareholder. The resolution shall set forth the class of Shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the Share transfer books, the time after the record date or closing of the Share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board of Trustees considers necessary or desirable. On receipt of such certification, the Person specified in the certification shall be regarded as, for the purposes set forth in the certification, the Shareholder of record of the specified Shares in place of the Shareholder who makes the certification. Section 11. INSPECTORS. At any meeting of Shareholders, the chairman of the meeting may appoint one or more Persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the Shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of Shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. NOMINATIONS AND SHAREHOLDER BUSINESS (a) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for election as a Managing Trustee to the Board of Trustees and the proposal of business to be considered by the Shareholders may be made at an annual meeting of Shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) by any Shareholder of the Trust who was a Shareholder of record both at the time of giving of notice provided for in this Section 12(a) and at the time of the annual meeting, who is entitled to vote at the -4- meeting and who complied with the notice procedures set forth in this Section 12(a). (2) For nominations or other business to be properly brought before an annual meeting of Shareholders by a Shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 12, the Shareholder must have given timely notice thereof in writing to the Board of Trustees. To be timely, a Shareholder's notice shall be delivered to the Board of Trustees at the principal executive offices of the Trust not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date or if the Trust has not previously held an annual meeting, notice by the Shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such Shareholder's notice shall set forth (i) as to each person whom the Shareholder proposes to nominate for election or reelection as a Managing Trustee all information relating to such person that is required to be disclosed in solicitations of proxies for election of Managing Trustees, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Managing Trustee if elected); (ii) as to any other business that the Shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such Shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the Shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such Shareholder, as they appear on the Trust's books, and of such beneficial owner and (y) the number of Shares of each class of beneficial interests of the Trust which are owned beneficially and of record by such Shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, in the event that the number of Managing Trustees to be elected to the Board of Trustees is increased and there is no public announcement naming all of the nominees for Managing Trustee or specifying the size of the increased Board of Trustees made by the Trust at least 70 days prior to the first anniversary of the preceding year's annual meeting, a Shareholder's notice required -5- by this Section 12(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Board of Trustees at the principal office of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust. (b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted at a special meeting of Shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board of Trustees may be made at a special meeting of Shareholders at which Managing Trustees are to be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board of Trustees or (iii) provided that the Board of Trustees has determined that Managing Trustees shall be elected at such special meeting, by any Shareholder of the Trust who is a Shareholder of record both at the time of giving of notice provided for in this Section 12(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(b). In the event the Trust calls a special meeting of Shareholders for the purpose of electing one or more Managing Trustees to the Board of Trustees, any such Shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the Shareholder's notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the Board of Trustees at the principal office of the Trust not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Trustees to be elected at such meeting. (c) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as Managing Trustees and only such business shall be conducted at a meeting of Shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such defective nomination or proposal be disregarded. (2) For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported -6- by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 12, a Shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Nothing in this Section 12 shall be deemed to affect any rights of Shareholders to request inclusion of proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 13. VOTING BY BALLOT. Voting on any question or in any election may be VIVA VOCE unless the chairman of the meeting shall order or any Shareholder shall demand that voting be by ballot. Section 14. CONDUCT OF MEETINGS. The Board of Trustees may adopt by resolution such rules and regulations for the conduct of meeting of Shareholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Trustees, the chairman of any meeting of Shareholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Trustees or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) The establishment of an agenda or order of business for the meeting; (b) Rules and procedures for maintaining order at the meeting and the safety of those present; (c) Limitations on attendance at or participation in the meeting of Shareholders of record, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (d) Restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) Limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Trustees or the chairman of the meeting, meetings of Shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. -7- Section 15. ACTION BY CONSENT OF SHAREHOLDERS. Any action required or permitted to be taken at any annual or special meeting of the Shareholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding Shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Trust by delivery to its principal place of business, or an agent of the Trust having custody of the book in which proceedings of minutes of Shareholders are recorded. Notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those Shareholders who have not consented in writing. ARTICLE III MANAGING TRUSTEES Section 1. GENERAL POWERS. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Trustees may establish, increase or decrease the number of Managing Trustees, provided that the number thereof shall never be less than three nor more than 9, and that at least one-third are Independent Trustees and further provided that the tenure of office of a Managing Trustee shall not be affected by any decrease in the number of Managing Trustees. Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Trustees shall be held immediately after and at the same place as the annual meeting of Shareholders, no notice other than this Bylaw being necessary. The Board of Trustees may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of regular meetings of the Board of Trustees without other notice than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the Board of Trustees may be called by or at the request of the chairman of the board, or by a majority of the Managing Trustees then in office. The person or persons authorized to call special meetings of the Board of Trustees may fix any place, either -8- within or without the State of Delaware, as the place for holding any special meeting of the Board of Trustees called by them. Section 5. NOTICE. Notice of any special meeting of the Board of Trustees shall be delivered personally or by telephone, facsimile transmission, United States mail or courier to each Managing Trustee at his business or residence address. Notice by personal delivery, by telephone or a facsimile transmission shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Telephone notice shall be deemed to be given when the Managing Trustee is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the Managing Trustee and receipt of a completed answer-back indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Trustees need be stated in the notice, unless specifically required by statute or these Bylaws. Section 6. QUORUM. A majority of the Managing Trustees shall constitute a quorum for transaction of business at any meeting of the Board of Trustees, provided that, if less than a majority of such Managing Trustees are present at said meeting, a majority of the Managing Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the Trust Agreement or these Bylaws, the vote of a majority of a particular group of Managing Trustees is required for action, a quorum must also include a majority of such group, but only with respect to a vote on such action. The Managing Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Managing Trustees to leave less than a quorum. Section 7. VOTING. The action of the majority of the Managing Trustees present at a meeting at which a quorum is present shall be the action of the Board of Trustees (including with respect to actions to merge, consolidate or convert the Trust), unless the concurrence of a greater proportion is required for such action by applicable law. Section 8. TELEPHONE MEETINGS. Managing Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation -9- in a meeting by these means shall constitute presence in person at the meeting. Section 9. INFORMAL ACTION BY MANAGING TRUSTEES. Any action required or permitted to be taken at any meeting of the Board of Trustees may be taken without a meeting, if a consent in writing to such action is signed by each Managing Trustee and such written consent is filed with the minutes of proceedings of the Board of Trustees. Section 10. VACANCIES. If for any reason any or all the Managing Trustees cease to be Managing Trustees, such event shall not annul, dissolve terminate the Trust or affect these Bylaws or the powers of the remaining Managing Trustees hereunder (even if fewer than three Managing Trustees remain). Any vacancy on the Board of Trustees for any cause other than an increase in the number of Managing Trustees shall be filled by a majority of the remaining Managing Trustees, although such majority is less than a quorum. If such vacancy must be filled with an Independent Trustee to comply with the terms of Section 3.1 of the Trust Agreement, and there are any remaining Independent Trustees, a majority of, or the sole, such remaining Independent Trustees or Managing Trustees, as the case may be, shall nominate a replacement. If there is no remaining Independent Trustee, such vacancies shall be filled by a majority of the remaining Managing Trustees. Any vacancy in the number of Managing Trustees created by an increase in the number of Managing Trustees may be filled by a majority vote of the entire Board of Trustees. Any individual so elected as Managing Trustee shall hold office until the next annual meeting of Shareholders at which such Managing Trustee's class is to be elected and until his successor is elected and qualifies. Section 11. COMPENSATION. Managing Trustees other than Independent Trustees shall not receive any salary or other compensation for their services as Managing Trustees. By resolution of the Board of Trustees, Independent Trustees may receive fixed sums, Shares in the Trust or other compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Trust and for any service or activity they performed or engaged in as Managing Trustees. Managing Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Trustees or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as Managing Trustees; but nothing herein contained shall be construed to preclude any Managing Trustees from serving the Trust in any other capacity and receiving compensation therefor. -10- Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or property have been deposited. Section 13. SURETY BONDS. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties. Section 14. RELIANCE. Each Trustee, officer (if any), employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers (if any) or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers (if any) of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer (if any), employee or agent of the Trust, in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Trust. ARTICLE IV COMMITTEES Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Trustees may appoint from among its members an Executive Committee, an Audit Committee, a Compensation Committee and other committees, composed of one or more Managing Trustees, to serve at the pleasure of the Board of Trustees. Section 2. POWERS. The Board of Trustees may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Trustees, except as prohibited by law. Section 3. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority -11- of the committee members present at a meeting shall be the act of such committee. The Board of Trustees may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meeting unless the Board of Trustees shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Managing Trustee to act in the place of such absent member. Each committee shall keep minutes of its proceedings. Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be taken at any meeting of a committee of the Board of Trustees may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. Section 6. VACANCIES. Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. ARTICLE V OFFICERS The Trust shall not have any officers. Notwithstanding the foregoing, the Board of Trustees may from time to time in its sole discretion appoint agents or employees of the Trust as "officers" of the Trust with such titles, powers and duties as they shall deem necessary or desirable. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. Subject to the terms of the Trust Agreement, the Board of Trustees may authorize the Manager or other agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific -12- instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Managing Trustees or by an authorized person shall be valid and binding upon the Trust when authorized or ratified by action of the Board of Trustees. Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer of the Manager or other agent of the Trust in such manner as shall from time to time be determined by the Board of Trustees. Section 3. DEPOSITS. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board of Trustees may designate. ARTICLE VII SHARES OF BENEFICIAL INTEREST Section 1. CERTIFICATES. Each Shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of Shares of each class or series of beneficial interest held by him in the Trust. Each certificate shall be signed by the chairman of the Board of Trustees, if any, or any Managing Trustee if no chairman has been elected, and may be sealed with the seal, if any, of the Trust. The signatures of the Managing Trustees may be either manual or facsimile. Certificates are not valid until manually countersigned and registered by the Trust's transfer agent and/or registrar. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes or series of Shares, each class may have its own number series. A certificate is valid and may be issued whether or not a Managing Trustee who signed it is still a Managing Trustee when it is issued. Each certificate representing Shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their distributions or as to their allocable portion of the assets upon dissolution and liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. If the Trust intends to issue Shares of more than one class, the certificate representing such Shares shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions and other qualifications and terms and conditions of redemption of such class of beneficial interest and the differences in the relative rights and -13- preferences between the Shares of each series of such class to the extent they have been set and the authority of the Board of Trustees to set the relative rights and preferences of subsequent series of such class. In lieu of such statement or summary, the certificate may state that the Trust will furnish a full statement of such information to any Shareholder upon written request and without charge. If any class or series of Shares is restricted by the Trust as to transferability, the certificate representing such Shares shall contain a full statement of the restrictions. Section 2. TRANSFERS. Upon surrender to the Trust or the transfer agent of the Trust of a Share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the Person entitled thereto, cancel the old certificate and record the transaction upon its books. The Trust shall be entitled to treat the holder of record of any Shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share or on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. Notwithstanding the foregoing, transfers of Shares shall be subject in all respects to the Trust Agreement and all of the terms and conditions contained therein, and to the terms of such Shares determined by the Board of Trustees in accordance with Section 10.2 of the Trust Agreement. Section 3. REPLACEMENT CERTIFICATE. The Manager or any other Person designated by the Board of Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the Person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Manager or such other Person designated by the Board of Trustees may, in his or its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as the Manager or such other Person shall require and/or to give bond, with sufficient surety, to the Trust and the Trustees of the Trust to indemnify them against any loss or claim which may arise as a result of the issuance of a new certificate. -14- Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Trustees may set, in advance, a record date for the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or determining Shareholders entitled to receive payment of any distribution or the allotment of any other rights, or in order to make a determination of Shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of Shareholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of Shareholders of record is to be held or taken. In lieu of fixing a record date, the Board of Trustees may provide that the Share transfer books shall be closed for a stated period but not longer than 20 days. If the Share transfer books are closed for the purpose of determining Shareholders entitled to notice of or to vote at a meeting of Shareholders, such books shall be closed for at least ten days before the date of such meeting. If no record date is fixed and the Share transfer books are not closed for the determination of Shareholders, (a) the record date for the determination of Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of Shareholders entitled to receive payment of a distribution or an allotment of any other rights shall be the close of business on the day on which the resolution of the directors, declaring the distribution or allotment of rights, is adopted. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein. Section 5. SHARE LEDGER. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate Share ledger containing the name and address of each Shareholder and the number of Shares of each class or series held by such Shareholder. -15- Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Board of Trustees may issue fractional Shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Trust Agreement or these Bylaws, the Board of Trustees may issue units consisting of different securities of the Trust. Any such security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board of Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII ACCOUNTING YEAR The Board of Trustees shall have the power, from time to time, to fix the fiscal year of the Trust by a duly adopted resolution. ARTICLE IX DISTRIBUTIONS Section 1. AUTHORIZATION. Distributions upon the Shares of the Trust may be authorized and declared by the Board of Trustees, subject to the provisions of law and the Trust Agreement. Distributions may be paid in cash, property or Shares of the Trust, subject to the provisions of law and the Trust Agreement. Section 2. CONTINGENCIES. Before payment of any distributions, there may be set aside out of any assets of the Trust available for distributions such sum or sums as the Board of Trustees may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing distributions, for repairing or maintaining any property of the Trust or for such other purpose as the Board of Trustees shall determine to be in the best interest of the Trust, and the Board of Trustees may, in its sole discretion, modify or abolish any such reserve in the manner in which it was created. ARTICLE X INVESTMENT POLICY Subject to the provisions of the Trust Agreement, the Board of Trustees may from time to time adopt, amend, revise or -16- terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion. ARTICLE XI SEAL Section 1. SEAL. The Board of Trustees may authorize the adoption of a seal by the Trust. The seal shall contain the name of the Trust and the year of its creation and the words "Delaware Business Trust." The Board of Trustees may authorize one or more duplicate seals and provide for the custody thereof. Section 2. AFFIXING SEAL. Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. ARTICLE XII INDEMNIFICATION AND ADVANCE OF EXPENSES To the maximum extent permitted by Delaware law in effect from time to time and in addition to any rights set forth in the Trust Agreement, the Trust shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former Trustee, Manager, officer (if any), employee or agent of the Trust and who is made a party to the proceeding by reason of his service in that capacity or (b) any individual who, while a Trustee, Manager, officer (if any), employee or agent of the Trust and at the request of the Trust, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity. The Trust may, with the approval of its Board of Trustees, provide such indemnification and advance for expenses to a Person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above and to any officer (if any), employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Bylaws or -17- Trust Agreement inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal, adoption or amendment. ARTICLE XIII WAIVER OF NOTICE Whenever any notice is required to be given pursuant to the Trust Agreement or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Person or Persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Person at any meeting shall constitute a waiver of notice of such meeting, except where such Person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE XIV AMENDMENT OF BYLAWS The Board of Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. ARTICLE XV REQUESTS FOR LISTS OF SHAREHOLDERS Section 1. GENERAL. Any request for access to the lists of Shareholders must be in writing setting forth with particularity a proper purpose reasonably related to the current status of the person making the request as a Shareholder in the Trust at the time of the request. The request must certify that the person making the request is doing so solely on his/her/its own behalf and not on behalf of or for the benefit of any other person. If any such request is for the purpose of communicating with Shareholders, such request shall be accompanied by a copy of the proposed communication. The person making the request for the list of Shareholders shall reimburse the Trust for all reasonable costs incurred by the Trust in responding to such request. -18- Section 2. TENDER OFFERS. The Trust will not provide the Shareholders access to or copies of any of the Trust's books and records or the lists of Shareholders for the purpose of conducting or facilitating any tender offer or other offer or solicitation to buy 5% or less of the outstanding Shares of the Trust (a "Mini-Tender Offer") unless, in addition to compliance with all other applicable legal requirements, the person making such Mini-Tender Offer agrees in writing to comply with all of the terms and conditions set forth herein: (a) Such Mini-Tender Offer shall afford Shareholders withdrawal rights during the entire period the Mini-Tender Offer remains open. (b) Such Mini-Tender Offer shall afford Shareholders proration rights for all Shares of the Trust tendered during the entire period the Mini-Tender Offer remains open. (c) Such Mini-Tender Offer shall truthfully and completely disclose all material facts pertaining to such Mini-Tender Offer, the Trust and the market and prices for the Shares of the Trust that the person making the Mini-Tender Offer knows or reasonably should know. (d) Such Mini-Tender Offer shall fully comply in all respects with all applicable federal and state laws. (e) At least seven business days prior to the commencement of any Mini-Tender Offer, the persons conducting such Mini-Tender Offer shall deliver to the Trust copies of all written materials respecting such Mini-Tender Offer that the person making the Mini-Tender Offer intends to disseminate to the Shareholders. (f) The Trust shall have the right to require any person making any Mini-Tender Offer to deliver to the Trust an opinion rendered by legal counsel, in form and substance satisfactory to the Trust, stating that such Mini-Tender Offer is in full compliance in all respects with applicable federal and state laws. Section 3. MAILING BY THE TRUST IN LIEU OF PROVIDING SHAREHOLDER LIST. In lieu of providing any other form of access to the lists of Shareholders(and subject to any such communication complying with all requirements of this instrument, the Trust Agreement and applicable law), the Trust reserves the right to mail any such communication (including, without limitation, copies of all written materials that a person making a Mini-Tender Offer intends to disseminate to the Shareholders) to Shareholders on behalf of the requesting Shareholder at the expense of the Shareholder. -19- ARTICLE XVI DEFINITIONS All terms not otherwise defined in these Bylaws shall have the meanings ascribed to them in the Amended and Restated Trust Agreement of the Trust, as amended from time to time (the "Trust Agreement"). -20- EX-99.12 3 EXHIBIT 99.12 Exhibit 12 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends of Subsidiary
Years Ended December 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Earnings: Net Income $23,181,818 $22,025,872 $10,055,808 Add-Fixed charges and preferred stock dividends of subsidiary 4,763,600 1,504,334 429,012 ---------- ---------- ---------- Income before fixed charges and preferred stock dividends of subsidiary $27,945,418 $23,530,206 $10,484,820 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges and Preferred Stock Dividends of Subsidiary: Interest expense $ 1,749,225 $ 1,504,334 $ 429,012 Preferred stock dividends of subsidiary 3,014,375 ---------- ---------- ---------- Total fixed charges and preferred stock dividends of subsidiary $ 4,763,600 $ 1,504,334 $ 429,012 ---------- ---------- ---------- ---------- ---------- ---------- Ratio of Earnings to Fixed Charges and Preferred Stock Dividends of Subsidiary 5.87 15.64 24.44
The Company had no interest expense or other fixed charges prior to 1997. The Company had no preferred stock of subsidiary prior to 1999. EX-99.21 4 EXHIBIT 99.21 Exhibit 21 SUBSIDIARIES OF THE COMPANY CM Holding Trust, a Delaware business trust Charter Mac Equity Issuer Trust, a Delaware business trust SUBSIDIARY OF CHARTER MAC EQUITY ISSUER TRUST, A DELAWARE BUSINESS TRUST CharterMac Origination Trust I, a Delaware business trust CharterMac Owner Trust I, a Delaware business trust EX-27 5 EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001043325 CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY 1 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 9,681,712 633,993,000 13,089,338 138,000 0 268,097 0 0 673,791,224 91,238,729 0 0 0 0 315,552,495 673,791,224 0 40,437,190 0 0 13,647,105 1,859,042 1,749,225 23,181,818 0 0 0 0 0 23,181,818 1.02 1.02
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