10-K/A 1 a10-ka.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 (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 52 Page 1 of 93 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/A-1, 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/A-1 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"). FMBs that contain provisions for the Company to receive additional interest payments by participating with the borrower in a portion of the cash flow or sale or refinancing proceeds on the Underlying Properties are referred to as "participating"; FMBs lacking this provision are "non-participating". 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 "participating 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 participating 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 participating interest amounting to approximately $728,000, $960,000 and $353,000, respectively. In December 1999, two of the original 31 FMBs were repaid (see "First Mortgage Bond Repayments", below). STRUCTURE OF MODIFIED FIRST MORTGAGE BONDS From time to time, the Company, as an alternative to foreclosure in the event of a default, 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 irrespective of whether the obligor has an affiliation with the Manager or not. The obligors of (i) thirty-three FMBs, as noted in footnote BB to the Table of Investments above, and (ii) three RITES as noted under Other Bond Related Investments, are partnerships in which affiliates of the Manager are partners that own a controlling interest. In addition, the original owners of underlying properties and obligors of five FMBs, as noted in footnote N of the Table of Investments above, have been replaced with affiliates of the Manager who have not made equity investments. These affiliate entities could have interests which do not coincide with, and may be adverse to, the interests of the Company. Negotiations, if any, with respect to modifications of FMBs between the Company and obligors who are affiliates may be affected by these conflicts as the Manager determines the appropriate terms and conditions of modifications or otherwise opts for some other remedy including foreclosure. -4- 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 participating 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 participating 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 participating interest features. Base interest rates, participating interest, prepayment lock-outs, mandatory redemption and maturity features are arrived at through negotiations between the Company and the owners of the Underlying Properties and vary dependent on the facts of a particular FMB, the owner of the Underlying Property, the Underlying Property's performance and requirements of bond counsel and local issuers. Should negotiations break down, the Company always has the option to pursue its other remedies including acceleration and foreclosure. 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 participating 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 -5- 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. 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. 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. Payments under each of the existing forbearance agreements are current as of December 31, 1999. -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. TABLE OF INVESTMENTS
MINIMUM FAIR VALUE STATED PAY RATE AT CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999* -------- -------- ------ ----------- ------------ ------- --------- 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% (W) ----------- ----------- OWNED BY CHARTER MAC EQUITY ISSUER TRUST (H) Barnaby Manor (P)(S)(BB) Washington, DC 11/23/99 4,500,000 4,500,000 7.375 7.375% Casa Ramon (P)(BB) Orange County, CA 6/8/99 50,000(Q) 52,000 7.50 7.50 Chapel Ridge of Little Rock, AR 8/12/99 5,600,000 5,481,000 7.125 7.125 Little Rock (O)(S)(BB) Chapel Ridge of Texarkana, AR 9/29/99 5,800,000 5,876,000 7.375 7.375 Texarkana (O)(S)(BB) Country Lake (P) West Palm Beach, FL 11/9/99 6,255,000 6,255,000 (V) 6.00 Del Monte Pines (R)(P)(BB) Fresno, CA 5/6/99 11,000,000 10,275,000 6.80 6.80 Douglas Pointe(O)(S)(R)(BB) Miami, FL 9/28/99 7,100,000 6,827,000 7.00 7.00 Forest Hills (R)(P)(BB) Garner, NC 12/15/98 5,930,000 5,804,000 7.125 7.125 Fort Chaplin (P)(BB) Washington, DC 12/21/99 25,800,000 25,800,000 6.90 6.90 Franciscan Riviera (P)(R)(BB) Antioch, CA 8/24/99 6,587,500 6,447,000 7.125 7.125 Garfield Park (P) Washington, DC 8/31/99 3,260,000 3,247,000 7.25 7.25 Greenbriar (M)(P)(BB) Concord, CA 5/6/99 9,585,000 9,052,000 6.875 6.875 Hamilton Gardens(R)(P)(BB) Hamilton, NJ 3/26/99 6,400,000 6,264,000 (U) 7.625 Lake Jackson (R)(O)(S)(BB) Lake Jackson, TX 12/22/98 10,934,000 10,513,000 7.00 7.00 Lakemoor (O) (S) Durham, NC 12/23/99 9,000,000 9,000,000 7.25 7.25 Lake Park (P)(BB) Turlock, CA 6/8/99 (T) 3,638,000 3,623,000 7.25 7.25 Lakes Edge At Walden (P)(M) Miami, FL 7/1/99 14,850,000 14,075,000 6.90 6.90 Lennox Park (O)(S)(M)(BB) Gainesville, GA 7/29/99 13,000,000 12,143,000 6.80 6.80 Lewis Place (O)(S)(M)(BB) Gainsville, FL 6/22/99 4,000,000 3,709,000 (I) 6.75 Mountain Ranch (R)(O)(BB) Austin, TX 12/23/98 9,128,000 8,934,000 7.125 7.125 Standiford (P)(R)(BB) Modesto, CA 9/20/99 9,520,000 9,317,000 7.125 7.125 Sunset Creek (M)(K) Lancaster, CA 3/25/88 8,275,000 6,225,000 8.50 5.48 Sunset Village (M)(K) Lancaster, CA 3/25/88 11,375,000 8,557,000 8.50 5.48 Sycamore Woods (R)(P)(BB) Antioch, CA 5/6/99 9,415,000 8,891,000 6.875 6.875 Tallwood (O)(S)(R)(BB) Virginia Beach, VA 9/30/99 6,205,000 6,179,000 7.25 7.25 ----------- ----------- 207,207,500 197,046,000 ----------- -----------
COMPARABLE AVERAGE RENTAL COMPETING INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION --------- ----------- -------- --------- ----- --------- 4.72% 97% $550-725 1991 240 24 7.375 0 - 1974 124 158 7.50 0 - 1976 75 43 7.125 0 - (Y) 128 83 7.375 0 - (Y) 144 26 6.00 100 657-983 1985 192 44 6.80 57.7 388-538 1975 366 256 7.00 0 - (Y) 176 184 7.13 68.4 550-650 1982 136 5 6.90 16.9 450-1100 (X) 495 158 7.125 67.2 640-780 1972 129 17 7.25 87.2 585-695 1970 94 158 6.875 68.0 400-975 1966 199 81 7.625 92.4 625-730 1941 174 16 7.00 46.5 525-1045 (Y) 160 10 7.25 0 - (Y) 160 89 7.25 100 452-622 1973 104 24 6.90 95.8 677-898 1986 400 184 6.80 0 - (Y) 292 15 6.75 13.4 529-611 (Y) 112 91 7.13 0 - (Y) 212 453 7.125 56.3 455-625 1970 249 63 8.68 93.1 455-755 1989 148 37 8.68 93.5 495-755 1989 204 37 6.875 58.7 640-975 1970 186 17 7.25 0 - (Y) 120 86
-7-
MINIMUM FAIR VALUE STATED PAY RATE AT CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999* -------- -------- ------ ----------- ------------ ------- --------- 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 8.25 Clarendon Hills (K) Hayward, CA 12/08/86 17,600,000 13,599,000 5.52 5.52 Cypress Run (K) Tampa, FL 8/14/86 15,402,428 13,576,000 8.50 5.50 East Ridge (K) Mt. Pleasant, SC 5/20/86 8,700,000 9,859,000 8.25 8.25 Greenway Manor (K)(N) St. Louis, MO 10/09/86 12,850,000 15,003,000 8.50 8.50 The Lakes (K) Kansas City, MO 12/30/86 13,650,000 9,821,000 4.87 4.87 Loveridge (K)(N) Contra Costa, CA 11/13/86 8,550,000 6,459,000 8.00 (W) Martin's Creek (K) Summerville, SC 5/20/86 7,300,000 8,273,000 8.25 8.25 ---------- ---------- 90,452,428 83,843,000 ---------- ----------
COMPARABLE AVERAGE RENTAL COMPETING INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION --------- ----------- -------- --------- ----- --------- 10.11 94.0 635-805 1987 164 12 6.48 99.6 950-1600 1989 285 99 .68 87.6 460-775 1988 408 247 8.24 88.9 615-875 1986 200 12 8.64 95.8 520-620 1987 312 172 6.71 92.4 475-675 1989 400 152 5.00 88.3 640-875 1987 148 18 8.25 98.0 470-770 1986 200 13
-8-
MINIMUM FAIR VALUE STATED PAY RATE AT CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999* -------- -------- ------ ----------- ------------ ------- --------- OWNED BY CHARTER MAC OWNER TRUST I (J) (H) Bedford Square (BB) Clovis, CA 8/25/98 3,850,000 3,371,000 (D) 7.00 Bristol Village Bloomington, MN 7/31/87 17,000,000 17,513,000 7.50 7.50 Carrington Pointe (BB) Los Banos, CA 9/24/98 3,375,000 2,955,000 6.375 6.375 Cedarbrook (BB) Hanford, CA 4/28/98 2,840,000 2,779,000 7.125 7.125 Cedar Creek (K)(N) McKinney, TX 12/29/86 8,100,000 9,457,000 8.50 8.50 Cedar Pointe (K) Nashville, TN 4/22/87 9,500,000 9,134,000 7.00 7.00 College Park (O)(S) Naples, FL 7/15/98 10,100,000 9,711,000 (C) 7.00 Crowne Pointe (K) Olympia, WA 12/31/86 5,075,000 5,054,000 7.25 8.00 Falcon Creek (O)(S)(BB) Indianapolis, IN 9/14/98 6,144,600 6,119,000 (F) 7.00 Gulfstream (P)(BB) Dania, FL 7/22/98 3,500,000 3,486,000 7.25 7.25 Highland Ridge (K) St. Paul, MN 2/02/87 15,000,000 14,938,000 7.25 7.25 Jubilee Courtyards (BB) Florida City, FL 9/15/98 4,150,000 4,062,000 (G) 7.00 Lakepoint (K) Stone Mountain, GA 11/18/87 15,100,000 12,445,000 6.00 6.00 Madalyn Landing(O)(S)(BB) Palm Bay, FL 11/13/98 14,000,000 13,461,000 7.00 7.00 The Mansion Independence, MO 5/13/86 19,450,000 19,678,000 7.25 7.25 Marsh Landings (P)(S)(BB) Portsmouth, VA 5/20/98 6,050,000 6,025,000 7.25 7.25 Newport Village (K) Tacoma, WA 2/11/87 13,000,000 12,946,000 7.25 8.00 North Glen (K) Atlanta, GA 9/30/86 12,400,000 12,775,000 (AA) 7.00 Northpointe Village (P)(BB) Fresno, CA 8/25/98 13,250,000 13,650,000 (E) 8.125 Ocean Air (P)(S)(BB) Norfolk, VA 4/20/98 10,000,000 9,959,000 7.25 7.25 Orchard Hills (K) Tacoma, WA 12/31/86 5,650,000 5,627,000 7.25 8.00 Orchard Mill (K) Atlanta, GA 12/31/86 10,500,000 10,517,000 7.50 5.00 Pelican Cove (K)(N) St Louis, MO 2/27/87 18,000,000 19,780,000 8.00 (W) Phoenix (BB) Stockton, CA 4/28/98 3,250,000 3,181,000 7.125 7.125 River Run (K)(BB) Miami, FL 8/7/87 7,200,000 7,912,000 8.00 8.00 Shannon Lake (K) Atlanta, GA 6/26/87 12,000,000 11,538,000 (B) 6.00 Silvercrest (BB) Clovis, CA 9/24/98 2,275,000 2,227,000 7.125 7.125 Stone Creek (O)(S)(BB) Watsonville, CA 4/28/98 8,820,000 8,632,000 7.125 7.125 Sunset Downs (K) Lancaster, CA 2/11/87 15,000,000 11,284,000 8.00 5.48 Sunset Terrace (K) Lancaster, CA 2/12/87 10,350,000 7,786,000 8.00 5.48 Thomas Lake Eagan, MN 9/02/86 12,975,000 13,367,000 7.50 7.50 Willow Creek (K) Ames, IA 2/27/87 6,100,000 6,075,000 7.25 7.25 ----------- ----------- 304,004,600 297,444,000 ----------- ----------- Subtotal - Tax-Exempt First Mortgage Bonds 610,564,528 584,102,000 ----------- -----------
COMPARABLE AVERAGE RENTAL COMPETING INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION --------- ----------- -------- --------- ----- --------- 7.00 96.1 388-466 (Y) 130 42 7.50 94.7 755-1299 1989 290 25 6.38 98.7 443-558 1999 80 5 7.13 100 434-554 1999 70 18 8.50 94.7 530-875 1988 250 10 7.00 96.2 550-840 1989 210 168 7.00 99.0 580-780 (Y) 210 33 7.76 96.1 495-795 1980 160 39 7.00 33.8 430-800 (Y) 131 252 7.25 36.2 575-650 1961 96 5 7.36 95.6 855-1460 1989 228 86 7.00 92.9 510-640 1999 98 2 6.08 96.7 585-835 1989 360 30 7.00 68.8 464-654 (Y) 304 8 9.84 92.7 485-825 1987 550 15 7.25 44.3 445-475 1952 250 23 7.76 90.6 460-600 1987 402 181 7.15 91.9 575-880 1987 284 371 8.12 83.0 388-538 1972 406 256 7.25 31.6 540-645 (Z) 434 60 7.76 100 475-770 1987 174 181 6.57 94.5 590-850 1990 238 371 8.08 97.0 495-680 1989 402 172 7.12 97.8 245-395 1999 184 96 9.10 90.0 733-1030 1987 164 184 6.08 92.8 465-840 1988 294 371 7.12 100 275-382 1999 100 42 7.13 65.8 646-981 (Y) 120 5 8.70 93.5 495-755 1987 264 37 8.61 92.3 495-755 1987 184 37 7.50 98.1 830-1370 1988 216 16 7.32 100 550-825 1988 138 7
-9-
MINIMUM FAIR VALUE STATED PAY RATE AT CLOSING FACE AMOUNT AT DECEMBER INTEREST DECEMBER PROPERTY LOCATION DATE OF FMB 31, 1999 (A) RATE* 31, 1999* -------- -------- ------ ----------- ------------ ------- --------- 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 9.00 Lake Park (P) Turlock, CA 7/15/99 375,000 375,000 9.00 9.00 Lakes Edge at Walden (P) Miami, FL 10/6/99 1,400,000 1,400,000 11.00 11.00 ------------ ----------- Subtotal - Taxable First Mortgage Bonds 3,790,000 3,790,000 ------------ ----------- Total First Mortgage Bonds $614,354,528 $587,892,000 ============ ===========
COMPARABLE AVERAGE RENTAL COMPETING INTEREST OCCUPANCY RATES AT YEAR NO. OF PROPERTIES RATE PAID AT FEBRUARY DECEMBER OF CON- RENTAL WITHIN FOR 1999* 20, 2000 31, 1999 STRUCTION UNITS LOCATION --------- ----------- -------- --------- ----- --------- 9.00 68 400-975 1966 199 81 9.00 100 452-622 1973 104 24 11.00 95.8 677-898 1986 400 184
*The average interest rate paid (which in certain cases includes the receipt of participating 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. (BB) The obligors of these mortgage bonds are partnerships in which affiliates of the Manager are partners that own a controlling interest. -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) (2,350,831) (1,782,554) (1,666,763) ------------ ------------ ------------ ------------ ------------ Income before loss on repayment of first mortgage bonds 32,261,604 23,589,871 10,055,808 5,845,041 9,187,803 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 subsidiary (3,014,375) 0 0 0 0 Minority interest in income of subsidiary (5,602,264) (1,563,959) 0 0 0 ------------ ------------ ------------ ------------ ------------ Net income $ 23,181,818 $ 22,025,872 $ 10,055,808 $ 5,845,041 $ 9,187,801 ============ ============ ============ ============ ============ 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 $ 30,72,364 $ 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 $156,366,964 ============ ============ ============ ============ ============ DISTRIBUTIONS Distributions to BUC$holders 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 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. -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. 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 although, in accordance with prudent business practice and industry standards, the surety and liquidity commitment relating to the Private Label Tender Option Program have shorter terms. The surety commitment has three years remaining on its five year term and the liquidity commitment is a one year renewable commitment. The Company expects to renew or replace such commitments upon expiration of their terms. 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 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. The Company believes that its long-term financing sources, explained in more detail below, and its short-term liquidity are adequate to meet its current and projected long-term and short-term liquidity requirements. 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, as an alternative to foreclosure in the event of a default, 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 irrespective of whether the obligor has an affiliation with the Manager or not. 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 -19- 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. (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. 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 -23- 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. 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. -24- Item 8. Financial Statements and Supplementary Data.
PAGE (a) 1. FINANCIAL STATEMENTS ---- -------------------- Independent Auditors' Report 26 Consolidated Balance Sheets as of December 31, 1999 and 1998 27 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 28 Consolidated Statements of Changes in Shareholders' Equity/Partners' Capital (Deficit) for the years ended December 31, 1999, 1998 and 1997 29 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 31 Notes to Consolidated Financial Statements 34
-25- 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 -27- 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 ============ ============ ========== Allocation of net income: Special distribution to Manager $ 2,018,822 $ 1,477,797 $ 330,580* ============ ============ ========== Manager $ 211,630 $ 205,481 $ 24,622* ============ ============ ========== 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 -28-
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL (DEFICIT) BENEFICIAL BENEFICIAL OWNERS' OWNER'S EQUITY- GENERAL EQUITY- OTHER BUC$HOLDERS PARTNERS MANAGER SHAREHOLDERS --------------- ------------- -------------- --------------- Balance at January 1, 1997 $ 160,622,463 $ (184,260) $ 0 $ 0 Net income - January 1, 1997 to September 30, 1997 7,117,807 145,261 0 0 Distributions - January 1, 1997 to September 30, 1997 (9,517,685) (194,238) 0 0 Consolidation and issuance of shares (158,222,585) 233,237 169 316,117,946 Consolidation costs 0 0 (1) (2,497,602) Net income - October 1, 1997 to December 31, 1997 0 0 355,202 2,437,538 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) ------------- ----------- ------------ ------------ Balance at December 31, 1997 0 0 24,788 311,322,765 Comprehensive income: Net income 0 0 1,683,278 20,342,594 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 Purchase of treasury shares of beneficial interest 0 0 0 0 Consolidation costs 0 0 0 (218,657) Distributions 0 0 (1,477,807) (19,144,587) ------------- ----------- ------------ ------------ Balance at December 31, 1998 0 0 230,259 312,307,115 TREASURY ACCUMU- SHARES OF LATED OTHER BENEFICIAL COMPREHEN- COMPREHEN- INTEREST SIVE INCOME SIVE INCOME TOTAL -------------- ------------- ------------- ----------------- Balance at January 1, 1997 $ 0 $(6,115,602) $ 154,322,601 Net income - January 1, 1997 to September 30, 1997 0 $ 7,263,068 0 7,263,068 Distributions - January 1, 1997 to September 30, 1997 0 0 (9,711,923) Consolidation and issuance of shares 0 0 158,128,767 Consolidation costs 0 0 (2,497,603) Net income - October 1, 1997 to December 31, 1997 0 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 0 (5,065,699) --------- ----------- ----------- Balance at December 31, 1997 0 20,320,646 331,668,199 Comprehensive income: Net income 0 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 0 5,000 Purchase of treasury shares of beneficial interest (103,359) 0 (103,359) Consolidation costs 0 0 (218,657) Distributions 0 0 (20,622,394) --------- ----------- ----------- Balance at December 31, 1998 (103,359) 15,060,191 327,494,206
(continued) See accompanying notes to consolidated financial statements.
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) ============== ============ =========== ============= ============= ACCUMU- LATED 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 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) ----------- ----------- ----------
(continued) 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 ------------- ------------ ------------- 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 ============= ============== ================ Payable to trustees liquidated through the issuance of shares of beneficial interest: 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 -32- 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 -33- 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, -34- 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 -35- 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. -36- 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)(X) Washington, DC 11/23/99 7.375 May 2017 May 2032 4,500,000 4,500,000 Casa Ramon (P)(X) 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)(X) Chapel Ridge of Texarkana Texarkana, AR 9/29/99 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000 (O)(S)(X) 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)(X) Fresno, CA 5/6/99 6.80 May 2017 May 2036 11,000,000 10,275,000 Douglas Pointe(O)(S)(R)(X) Miami, FL 9/28/99 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000 Forest Hills (R)(P)(X) Garner, NC 12/15/98 7.125 June 2016 June 2034 5,930,000 5,804,000 Fort Chaplin (P)(X) Washington, DC 12/21/99 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000 Franciscan Riviera (P)(R)(X) 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)(X) Concord, CA 5/6/99 6.875 May 2017 May 2036 9,585,000 9,052,000 Hamilton Gardens (R)(P)(X) Hamilton, NJ 3/26/99 (U) Apr. 2015 Mar. 2035 6,400,000 6,264,000 Lake Jackson (R)(O)(S)(X) 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)(X) 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)(X) Gainesville, GA 7/29/99 6.80 Aug. 2021 July 2041 13,000,000 12,143,000 Lewis Place (O)(S)(M)(X) Gainsville, FL 6/22/99 (I) June 2016 June 2041 4,000,000 3,709,000 Mountain Ranch (R)(O)(X) Austin, TX 12/23/98 7.125 Jan. 2018 Jan. 2041 9,128,000 8,934,000 Standiford (P)(R)(X) 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)(X) Antioch, CA 5/6/99 6.875 May 2017 May 2036 9,415,000 8,891,000 Tallwood (O)(S)(R)(X) 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 ------------- -------------
-37- 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 (X) 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 (X) Los Banos, CA 9/24/98 6.375 Oct. 2017 Sep. 2040 3,375,000 2,955,000 Cedarbrook (X) 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)(X) Indianapolis, IN 9/14/98 (F) Sep. 2016 Aug. 2038 6,144,600 6,119,000 Gulfstream (P)(X) 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 (X) 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)(X) 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)(X) 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)(X) Fresno, CA 8/25/98 (E) Sep. 2017 Aug. 2040 13,250,000 13,650,000 Ocean Air (P)(S)(X) 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 (X) Stockton, CA 4/28/98 7.125 Nov. 2016 Oct. 2029 3,250,000 3,181,000 River Run (K)(X) 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 (X) Clovis, CA 9/24/98 7.125 Oct. 2017 Sep. 2040 2,275,000 2,227,000 Stone Creek (O)(S)(X) 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 ------------- -------------
-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) -------- -------- -------- -------- --------- ---------- ------------ ------------ 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. (X) The obligors of these mortgage bonds are partnerships in which affiliates of the Manager are partners that own a controlling interest. -39- 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 -40- 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. -41- 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. -42- 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- -43- 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 -44- 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 which investment partnerships, whose general partners are affiliates of the Manager, own a controlling partnership interest. With -45- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS respect to three of the above FMBs, the Company owns the RITES (see Note 5). These affiliate entities could have interests which do not coincide with, and may be adverse to, the interests of the Company. Negotiations, if any, with respect to modifications of FMBs between the Company and obligors who are affiliates may be affected by these conflicts as the Manager determines the appropriate terms and conditions of modifications or otherwise opts for some other remedy including foreclosure. 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 Company's Trust Agreement and the Management Agreement with the Manager, the Manager is entitled, in its capacity as the general partner of the Company, to a special distribution equal to .375% per annum of the Company's total invested assets (which equals the face amount of the FMBs), payable quarterly. 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 -46- CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. -47- 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). -48- 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. -49- 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
-50- 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. -51- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Sequential Page ---------- (a) 1. Financial Statements Independent Auditors' Report 26 Consolidated Balance Sheets as of December 31, 1999 and 1998 27 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 28 Consolidated Statements of Changes in Shareholders' Equity/Partners' Capital (Deficit) for the years ended December 31, 1999, 1998 and 1997 29 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 31 Notes to Consolidated Financial Statements 34 (a) 2. FINANCIAL STATEMENT SCHEDULES Schedule I - Condensed Financial Information of Registrant 58 Schedule IV - Mortgage Loans on Real Estate at December 31, 1999 66 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) -52- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) Sequential Page ---------- 3.2 Amended and Restated Bylaws (filed herewith) 71 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 -53- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-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 91 21 Subsidiaries of the Company (filed herewith) 92 27 Financial Data Schedule (filed herewith) 93 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) -54- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-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. -55- 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: July 31, 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 July 31, 2000 Stuart J. Boesky /s/ Stephen M. Ross Managing Trustee and ------------------- Chairman of the Board July 31, 2000 Stephen M. Ross /s/ Michael J. Brenner Managing Trustee July 31, 2000 ---------------------- Michael J. Brenner /s/ Alan P. Hirmes ------------------ Managing Trustee, Executive Vice July 31, 2000 Alan P. Hirmes President, Chief Financial Officer, Chief Accounting Officer and Secretary /s/ Peter T. Allen Managing Trustee July 31, 2000 ------------------ Peter T. Allen /s/ Arthur P. Fisch Managing Trustee July 31, 2000 ------------------- Arthur P. Fisch /s/ Thomas W. White Managing Trustee July 31, 2000 ------------------- Thomas W. White
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 ========== ========== ========== Allocation of net income: Special distribution to Manager $ 2,018,822 $ 1,477,797 $ 330,580* =========== =========== ============ Manager $ 211,630 $ 205,481 $ 24,622* =========== =========== ============ 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 INTEREST FACE VALUE AT INTEREST AT 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)(Y) Washington, DC 7.375 7.375% 7.375 May 2017 May 2032 4,500,000 4,500,000 Casa Ramon (P)(Y) Orange County, CA 7.50 7.50 7.50 Oct. 2015 Sep. 2035 50,000(Q) 52,000 Chapel Ridge of Little Rock Little Rock, AR 7.125 7.125 7.125 Aug. 2015 Aug. 2039 5,600,000 5,481,000 (O)(S)(Y) Chapel Ridge of Texarkana Texarkana, AR 7.375 7.375 7.375 Oct. 2016 Sept. 2041 5,800,000 5,876,000 (O)(S)(Y) 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)(Y) Fresno, CA 6.80 6.80 6.80 May 2017 May 2036 11,000,000 10,275,000 Douglas Pointe(O)(S)(R)(Y) Miami, FL 7.00 7.00 7.00 Oct. 2026 Sept. 2041 7,100,000 6,827,000 Forest Hills (R)(P)(Y) Garner, NC 7.125 7.125 7.13 June 2016 June 2034 5,930,000 5,804,000 Fort Chaplin (P)(Y) Washington, DC 6.90 6.90 6.90 Jan. 2016 Jan. 2036 25,800,000 25,800,000 Franciscan Riviera (P)(R)(Y) 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)(Y) Concord, CA 6.875 6.875 6.875 May 2017 May 2036 9,585,000 9,052,000 Hamilton Gardens (R)(P)(Y) Hamilton, NJ (U) 7.625 7.625 Apr. 2015 Mar. 2035 6,400,000 6,264,000 Lake Jackson (R)(O)(S)(Y) 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)(Y) 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)(Y) Gainesville, GA 6.80 6.80 6.80 Aug. 2021 July 2041 13,000,000 12,143,000 Lewis Place (O)(S)(M)(Y) Gainsville, FL (I) 6.75 6.75 June 2016 June 2041 4,000,000 3,709,000 Mountain Ranch (R)(O)(Y) Austin, TX 7.125 7.125 7.13 Jan. 2018 Jan. 2041 9,128,000 8,934,000 Standiford (P)(R)(Y) 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)(Y) Antioch, CA 6.875 6.875 6.875 May 2017 May 2036 9,415,000 8,891,000 Tallwood (O)(S)(R)(Y) 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 ----------- ------------
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY ITEM 14, SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999 MINIMUM AVERAGE STATED PAY RATE AT INTEREST INTEREST DECEMBER RATE PAID PROPERTY LOCATION RATE* 31, 1999* FOR 1999* -------- -------- --------- ----------- --------- OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L) Bay Club (K) Mt. Pleasant, SC 8.25 8.25 10.11 Clarendon Hills (K) Hayward, CA 5.52 5.52 6.48 Cypress Run (K) Tampa, FL 8.50 5.50 .68 East Ridge (K) Mt. Pleasant, SC 8.25 8.25 8.24 Greenway Manor (K)(N) St. Louis, MO 8.50 8.50 8.64 The Lakes (K) Kansas City, MO 4.87 4.87 6.71 Loveridge (K)(N) Contra Costa, CA 8.00 (W) 5.00 Martin's Creek (K) Summerville, SC 8.25 8.25 8.25 FAIR FACE VALUE AT MATURITY AMOUNT DECEMBER PROPERTY CALL DATE DATE OF FMB 31, 1999(A) -------- --------- ---------- ------------- ------------- OWNED BY CHARTER MAC ORIGINATION TRUST I (H)(L) Bay Club (K) Sep. 2000 Sep. 2006 6,400,000 7,253,000 Clarendon Hills (K) Dec. 2003 Dec. 2003 17,600,000 13,599,000 Cypress Run (K) Aug. 1998 Aug. 2006 15,402,428 13,576,000 East Ridge (K) Mar. 2000 May 2010 8,700,000 9,859,000 Greenway Manor (K)(N) Oct. 1998 Sept. 2006 12,850,000 15,003,000 The Lakes (K) Dec. 2006 Dec. 2006 13,650,000 9,821,000 Loveridge (K)(N) Nov. 1998 Nov. 2006 8,550,000 6,459,000 Martin's Creek (K) 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 STATED PAY RATE AT INTEREST INTEREST DECEMBER RATE PAID PROPERTY LOCATION RATE* 31, 1999* FOR 1999* -------- -------- --------- ----------- --------- OWNED BY CHARTER MAC OWNER TRUST I (J) (H) Bedford Square (Y) Clovis, CA (D) 7.00 7.00 Bristol Village Bloomington, MN 7.50 7.50 7.50 Carrington Pointe (Y) Los Banos, CA 6.375 6.375 6.38 Cedarbrook (Y) Hanford, CA 7.125 7.125 7.13 Cedar Creek (K)(N) McKinney, TX 8.50 8.50 8.50 Cedar Pointe (K) Nashville, TN 7.00 7.00 7.00 College Park (O)(S) Naples, FL (C) 7.00 7.00 Crowne Pointe (K) Olympia, WA 7.25 8.00 7.76 Falcon Creek (O)(S)(Y) Indianapolis, IN (F) 7.00 7.00 Gulfstream (P)(Y) Dania, FL 7.25 7.25 7.25 Highland Ridge (K) St. Paul, MN 7.25 7.25 7.36 Jubilee Courtyards (Y) Florida City, FL (G) 7.00 7.00 Lakepoint (K) Stone Mountain, GA 6.00 6.00 6.08 Madalyn Landing (O)(S)(Y) Palm Bay, FL 7.00 7.00 7.00 The Mansion Independence, MO 7.25 7.25 9.84 Marsh Landings (P)(S)(Y) Portsmouth, VA 7.25 7.25 7.25 Newport Village (K) Tacoma, WA 7.25 8.00 7.76 North Glen (K) Atlanta, GA (X) 7.00 7.15 Northpointe Village (P)(Y) Fresno, CA (E) 8.125 8.12 Ocean Air (P)(S)(Y) Norfolk, VA 7.25 7.25 7.25 Orchard Hills (K) Tacoma, WA 7.25 8.00 7.76 Orchard Mill (K) Atlanta, GA 7.50 5.00 6.57 Pelican Cove (K)(N) St Louis, MO 8.00 (W) 8.08 Phoenix (Y) Stockton, CA 7.125 7.125 7.12 River Run (K)(Y) Miami, FL 8.00 8.00 9.10 Shannon Lake (K) Atlanta, GA (B) 6.00 6.08 Silvercrest (Y) Clovis, CA 7.125 7.125 7.12 Stone Creek (O)(S)(Y) Watsonville, CA 7.125 7.125 7.13 Sunset Downs (K) Lancaster, CA 8.00 5.48 8.70 Sunset Terrace (K) Lancaster, CA 8.00 5.48 8.61 Thomas Lake Eagan, MN 7.50 7.50 7.50 Willow Creek (K) Ames, IA 7.25 7.25 7.32 FAIR FACE VALUE AT MATURITY AMOUNT DECEMBER PROPERTY CALL DATE DATE OF FMB 31, 1999(A) -------- --------- ---------- ------------- ------------- OWNED BY CHARTER MAC OWNER TRUST I (J) (H) Bedford Square (Y) Sep. 2017 Aug. 2040 3,850,000 3,371,000 Bristol Village Jan. 2010 Dec. 2027 17,000,000 17,513,000 Carrington Pointe (Y) Oct. 2017 Sep. 2040 3,375,000 2,955,000 Cedarbrook (Y) May 2017 May 2040 2,840,000 2,779,000 Cedar Creek (K)(N) Dec. 1998 Dec. 2006 8,100,000 9,457,000 Cedar Pointe (K) Apr. 2006 Apr. 2017 9,500,000 9,134,000 College Park (O)(S) Jul. 2025 Jul. 2040 10,100,000 9,711,000 Crowne Pointe (K) Dec. 1998 Aug. 2029 5,075,000 5,054,000 Falcon Creek (O)(S)(Y) Sep. 2016 Aug. 2038 6,144,600 6,119,000 Gulfstream (P)(Y) Apr. 2016 Jul. 2038 3,500,000 3,486,000 Highland Ridge (K) June 2010 June 2018 15,000,000 14,938,000 Jubilee Courtyards (Y) Oct. 2025 Sep. 2040 4,150,000 4,062,000 Lakepoint (K) Jul. 2005 June 2017 15,100,000 12,445,000 Madalyn Landing (O)(S)(Y) Dec. 2017 Nov. 2040 14,000,000 13,461,000 The Mansion Jan. 2011 April 2025 19,450,000 19,678,000 Marsh Landings (P)(S)(Y) Jul. 2017 Jul. 2030 6,050,000 6,025,000 Newport Village (K) Jan. 1999 Aug. 2029 13,000,000 12,946,000 North Glen (K) Jul. 2005 June 2017 12,400,000 12,775,000 Northpointe Village (P)(Y) Sep. 2017 Aug. 2040 13,250,000 13,650,000 Ocean Air (P)(S)(Y) Jan. 2016 Nov. 2030 10,000,000 9,959,000 Orchard Hills (K) Dec. 1998 Aug. 2029 5,650,000 5,627,000 Orchard Mill (K) Jul. 2005 June 2017 10,500,000 10,517,000 Pelican Cove (K)(N) Feb. 1999 Feb. 2007 18,000,000 19,780,000 Phoenix (Y) Nov. 2016 Oct. 2029 3,250,000 3,181,000 River Run (K)(Y) Aug. 1999 Aug. 2007 7,200,000 7,912,000 Shannon Lake (K) Jul. 2005 June 2017 12,000,000 11,538,000 Silvercrest (Y) Oct. 2017 Sep. 2040 2,275,000 2,227,000 Stone Creek (O)(S)(Y) May 2017 Apr. 2040 8,820,000 8,632,000 Sunset Downs (K) May 1999 May 2007 15,000,000 11,284,000 Sunset Terrace (K) Feb. 1999 May 2007 10,350,000 7,786,000 Thomas Lake Jan. 2010 Dec. 2027 12,975,000 13,367,000 Willow Creek (K) 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 STATED PAY RATE AT INTEREST INTEREST DECEMBER RATE PAID PROPERTY LOCATION RATE* 31, 1999* FOR 1999* -------- -------- --------- ----------- --------- TAXABLE FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Greenbriar (P) Concord, CA 9.00 9.00 9.00 Lake Park (P) Turlock, CA 9.00 9.00 9.00 Lakes Edge at Walden (P) Miami, FL 11.00 11.00 11.00 FAIR FACE VALUE AT MATURITY AMOUNT DECEMBER PROPERTY CALL DATE DATE OF FMB 31, 1999(A) -------- --------- ---------- ------------- ------------- TAXABLE FIRST MORTGAGE BONDS OWNED BY THE COMPANY (NOT INCLUDING ITS CONSOLIDATED SUBSIDIARIES) Greenbriar (P) May 2017 May 2036 2,015,000 2,015,000 Lake Park (P) Oct. 2015 Sep. 2035 375,000 375,000 Lakes Edge at Walden (P) 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. (Y) The obligors of these mortgage bonds are partnerships in which affiliates of the Manager are partners that own a controlling interest. 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 =============== ============== ==============