Investments in Tax-Exempt Bonds

The tax-exempt mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing of multifamily residential properties and do not include the tax-exempt mortgage revenue bonds issued with respect to properties owned by Consolidated VIEs or the Ohio Properties presented as MF Properties (Note 2 and Note 6). Tax-exempt mortgage revenue bonds are either held directly by the Company or are held in trusts created in connection with debt financing transactions (Note 9). The Company had the following investments in tax-exempt mortgage revenue bonds as of dates shown:



	June 30, 2012
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Ashley Square ⁽¹⁾	$	5,284,000	$	206,902	$	—		$	5,490,902
Autumn Pines ⁽²⁾	12,301,431		779,055		—			13,080,486
Bella Vista ⁽¹⁾	6,600,000		—		(792		)	6,599,208
Bridle Ridge ⁽¹⁾	7,790,000		—		—			7,790,000
Brookstone ⁽¹⁾	7,446,192		1,390,962		—			8,837,154
Cross Creek ⁽¹⁾	5,983,564		1,953,181		—			7,936,745
Lost Creek ⁽¹⁾	15,927,201		3,271,131		—			19,198,332
Runnymede ⁽¹⁾	10,645,000		456,883		—			11,101,883
Southpark ⁽¹⁾	11,965,225		2,293,635		—			14,258,860
Woodlynn Village ⁽¹⁾	4,476,000		—		(61,948		)	4,414,052
Tax-exempt mortgage revenue bonds held in trust	$	88,418,613	$	10,351,749	$	(62,740	)	$	98,707,622

	June 30, 2012
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Arbors at Hickory Ridge	$	10,164,815	462,285		—			$	10,627,100
Iona Lakes	15,630,000		650,833		—			16,280,833
Woodland Park	15,662,000		—		(4,430,936		)	11,231,064
Tax-exempt mortgage revenue bonds	$	41,456,815	$	1,113,118	$	(4,430,936	)	$	38,138,997

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

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



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

	December 31, 2011
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Iona Lakes	$	15,720,000	$	160,658	$	—		$	15,880,658
Woodland Park	15,662,000		—		(5,000,093		)	10,661,907
Tax-exempt mortgage revenue bonds	$	31,382,000	$	160,658	$	(5,000,093	)	$	26,542,565

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

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

In June 2012, the Partnership acquired a $10.0 million par value tax-exempt mortgage revenue bond secured by Arbors at Hickory Ridge Apartments, a 348 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance for approximately $10.2 million. The tax-exempt bond carries an annual interest rate of 7.98% and matures on April 1, 2026. The bonds do not provide for contingent interest.

In May 2012, the outstanding GMF-Madison Tower Apartments and GMF-Warren/Tulane Apartments tax-exempt mortgage revenue bonds held by the Company were sold for an amount greater than the outstanding principal and base interest. The Company received approximately $4.1 million for the GMF-Madison Tower Apartments tax-exempt mortgage revenue bond and approximately $12.7 million from the GMF-Warren/Tulane Apartments tax-exempt mortgage revenue bond resulting in an approximate $668,000 realized gain.

Valuation - As all of the Company’s investments in tax-exempt mortgage revenue bonds are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values. Due to the limited market for the tax-exempt mortgage revenue bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the bonds. There is no active trading market for the bonds and price quotes for the bonds are not generally available. As of June 30, 2012, all of the Company’s tax-exempt mortgage revenue bonds were valued using discounted cash flow and yield to maturity analyses performed by management. Management’s valuation encompasses judgment in its application. The key assumption in management’s yield to maturity analysis is the range of effective yields on the individual bonds. The effective yield analysis for each bond considers the current market yield on similar bonds as well as the debt service coverage ratio of each underlying property serving as collateral for the bond. At June 30, 2012, the range of effective yields on the individual bonds was 5.7% to 8.6%. At December 31, 2011, the range of effective yields on the individual bonds was 6.3% to 9.0%. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these bonds. Assuming a 10% adverse change in the key assumption, the effective yields on the individual bonds would increase to a range of 6.3% to 9.4% and would result in additional unrealized losses on the bond portfolio of approximately $10.2 million. This sensitivity analysis is hypothetical and is as of a specific point in time. The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. If available, the general partner may also consider price quotes on similar bonds or other information from external sources, such as pricing services. Pricing services, broker quotes and management’s analyses provide indicative pricing only.

Unrealized gains or losses on these tax-exempt mortgage revenue bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of June 30, 2012, the following bond investments have been in an unrealized loss position for greater than twelve months; Bella Vista, Woodlynn Village, and Woodland Park. The Company has reviewed each of these mortgage revenue bonds in an unrealized loss position for impairment. The Company's ability to recover the tax-exempt mortgage revenue bond's entire amortized cost basis is dependent upon the issuer being able to meet debt service requirements. Both the Bella Vista and Woodlynn Village properties which issued the bonds are current in their debt service and have debt service coverage ratios greater than 1.0 as of June 30, 2012. Based upon this evaluation, the current unrealized losses on these two bonds are considered to be temporary. Valuations of the bonds in an unrealized loss position have improved during the first half of 2012. If the credit and capital markets would deteriorate, the Company experiences deterioration in the values of its investment portfolio, or if the Company’s intent and ability to hold certain bonds changes, the Company may incur impairments to its investment portfolio which could negatively impact the Company’s financial condition, cash flows, and reported earnings.

The Partnership previously identified the Woodland Park tax-exempt mortgage revenue bond for which certain actions may be necessary to protect the Partnership’s position as a secured bondholder and lender. The Company evaluated the Woodland Park bond holding for an other-than-temporary decline in value as of December 31, 2011 (see Form 10-K, Footnote 5 for discussion of our impairment testing method which remains the same). Based on this evaluation, the Company has concluded that no other-than-temporary impairment of the Woodland Park bond existed at December 31, 2011. However, the evaluation determined that the interest receivable accrued on the Woodland Park bond was impaired and an approximate $953,000 allowance for loss on receivables was recorded during fiscal year 2011. The Partnership has recorded an additional allowance for loss on receivables of approximately $476,000 against the interest receivable in the first half of 2012, which represents the accrued interest income on the bond for the first half of 2012. The Partnership continues to monitor these investments for changes in circumstances that might warrant an impairment charge. As of December 31, 2011, the property had 215 units leased out of total available units of 236, or 91% physical occupancy. As of June 30, 2012, occupancy had decreased to 203 units leased, or 86% physical occupancy and we believe this is a temporary decline. As of July 31, 2012, the occupancy has increased to 212 units, or 90% physical occupancy and we project physical occupancy will be at or higher than 90% through December 31, 2012 which will increase the property's net operating income to be in line with what had been projected for the second half of 2012 in the most recent evaluation for other than temporary impairment. Based on this evaluation, the current unrealized loss on this bond is considered to be temporary.