ATAX 12.31.12 10K



	PART I

Item 1	Business	1
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	18
Item 2	Properties	18
Item 3	Legal Proceedings	19
Item 4	Mine Safety Disclosures	20

	PART II

Item 5	Market for Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities	21
Item 6	Selected Financial Data	22
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8	Financial Statements and Supplementary Data	56
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	110
Item 9A	Controls and Procedures	110
Item 9B	Other Information	112

	PART III

Item 10	Directors, Executive Officers and Corporate Governance	112
Item 11	Executive Compensation	114
Item 12	Security Ownership of Certain Beneficial Owners and Management	115
Item 13	Certain Relationships and Related Transactions, and Director Independence	116
Item 14	Principal Accountant Fee and Services	116

	PART IV

Item 15	Exhibits and Financial Statement Schedules	117

SIGNATURES		119

This report (including, but not limited to, the information contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations”) contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are intended to identify forward-looking statements. We have based forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. This report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this report. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under the headings “Risk Factors” in Item 1A of this report.

The Partnership has been in operation since 1998 and owned 22 federally tax-exempt mortgage revenue bonds with an aggregate outstanding principal amount of $198.6 million as of December 31, 2012. These bonds were issued by various state and local housing authorities in order to provide construction and/or permanent financing of 20 multifamily residential apartments containing a total of 3,880 rental units located in the states of Florida, Illinois, Iowa, Kansas, Kentucky, Minnesota, North Carolina, Ohio, South Carolina, Tennessee, and Texas. In each case the Partnership owns, either directly or indirectly, 100% of the bonds issued for these properties. Each bond is secured by a mortgage or deed of trust on the financed apartment property. Each of the bonds provides for "base" interest payable at a fixed rate on a periodic basis. Additionally, five of the bonds also provide for the payment of contingent interest determined by the net cash flow and net capital appreciation of the underlying real estate properties. As a result, these mortgage revenue bonds provide the Partnership with the potential to participate in future increases in the cash flow generated by the financed properties, either through operations or from their ultimate sale. Of the 22 bonds owned, eight are owned directly by the Partnership, 13 are owned by ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created to facilitate a Tax Exempt Bond Securitization (“TEBS”) Financing with Freddie Mac and one is securitized and held by Deutsche Bank ("DB") in a Tender Option Bond ("TOB") facility (see Notes 2 and 11). Three of the entities that own the apartment properties financed by three of the Partnership's tax-exempt mortgage revenue bonds were deemed to be Consolidated variable interest entities ("VIEs") of the Partnership at December 31, 2012 and, as a result, these bonds are eliminated in consolidation on the Company's consolidated financial statements. Two bonds are secured by three properties, Crescent Village, Post Woods, and Willow Bend apartments in Ohio (the “Ohio Properties”) and two bonds are secured by the Greens of Pine Glen property ("Greens Property") which are reported as discontinued operations (Note 10) and are eliminated upon consolidation in the Company's financial statements.

The ability of the properties collateralizing our tax-exempt mortgage revenue bonds to make payments of base and contingent interest is a function of the net operating income generated by these properties. Net operating income from a multifamily residential property depends on the rental and occupancy rates of the property and the level of operating expenses. Occupancy rates and rents are directly affected by the supply of, and demand for, apartments in the market areas in which a property is located. This, in turn, is affected by several factors such as local or national economic conditions, the amount of new apartment construction and interest rates on single-family mortgage loans. In addition, factors such as government regulation, inflation, real estate and other taxes, labor problems, and natural disasters can affect the economic operations of a property. Because the return to the Partnership from its investments in tax-exempt mortgage revenue bonds depends upon the economic performance of the multifamily residential properties which collateralize these bonds, the Partnership may be considered to be in competition with other multifamily rental properties located in the same geographic areas as the properties financed with its tax-exempt mortgage revenue bonds.

The Partnership may also invest in other types of tax-exempt securities that may or may not be secured by real estate to the extent allowed by its Agreement of Limited Partnership and the conditions to the exemption from registration under the Investment Company Act of 1940 that is relied upon for the Partnership. Under the Agreement of Limited Partnership, these tax-exempt securities must be rated in one of the four highest rating categories by at least one nationally recognized securities rating agency and may not represent more than 25% of the Partnership's assets at the time of acquisition. At December 31, 2012, the Partnership has two other tax-exempt class of investments, the Public Housing Capital Fund Trusts' Certificates ("PHC Certificates") and mortgage-backed securities ("MBS"). The PHC Certificates had an aggregate principal outstanding of $65.3 million at December 31, 2012 and are securitized into three separate TOB Trusts with DB ("PHC Trusts"). The PHC Certificates held by the PHC Trusts consist of custodial receipts evidencing loans made to a number of public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by the United States Department of Housing and Urban Development (“HUD”) under HUD's Capital Fund Program established under Quality Housing and Work Responsibility Act of 1998 (the “Capital Fund Program”). The PHC Trusts have a first lien on these annual Capital Fund Program payments to secure the public housing authorities' respective obligations to pay principal and interest on their loans. The state issued MBS have an aggregate principal outstanding of $31.6 million. At December 31, 2012, the MBS have been securitized into five separate TOB Trusts with DB. The MBS are backed by residential mortgage loans and have investment grade ratings by the most recent S&P or Moody's rating.

The Partnership generally does not seek to acquire direct interests in real property as long term or permanent investments. The Partnership may, however, acquire real estate securing its tax-exempt mortgage revenue bonds or taxable mortgage loans through foreclosure in the event of a default. In addition, the Partnership may acquire interests in multifamily apartment properties (“MF Properties”) in order to position itself for future investments in tax-exempt mortgage revenue bonds issued to finance these properties. The Partnership currently holds interests in seven MF Properties containing 1,346 rental units, of which two are located in Nebraska, one is located in Kentucky, one is located in Indiana, one is located in Georgia, , and two are located in Texas. The Ohio Properties and the Greens Property were previously reported each as MF Properties but are now reported as discontinued operations as a result of the sale of the Partnership's interests in these properties in connection with the acquisition of tax-exempt mortgage revenue bonds secured by these properties. The Partnership expects the MF Properties to eventually be sold to a not-for-profit entity or in connection with a syndication of Low Income Housing Tax Credits (“LIHTCs”) under Section 42 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Partnership expects to acquire tax-exempt mortgage revenue bonds issued to provide debt financing for these properties at the time the property ownership is restructured. Such restructurings will generally be expected to occur within 36 months of the Partnership's initial investment in an MF Property and will often coincide with the expiration of the compliance period relating to LIHTCs previously issued with respect to the MF Property. The Partnership will not acquire LIHTCs in connection with these transactions. These types of transactions represent a long-term market opportunity for the Partnership and will provide us with a pipeline of future bond investment opportunities as the market for LIHTC syndications continues to strengthen.

Properties Management. Seven of the 20 properties which collateralize the bonds owned by the Partnership are managed by America First Properties Management Company (“Properties Management”), an affiliate of the Partnership's general partner ("AFCA 2"), which provides property management services for Ashley Square, Iona Lakes Apartments, Bent Tree Apartments, Lake Forest Apartments, Fairmont Oaks Apartments, Cross Creek, Woodland Park, and each of the MF Properties. The Ohio Properties and the Greens Property, each is which is reported as discontinued operations but serve as collateral to tax-exempt bonds owned by the Partnership, are also managed by Properties Management. Management believes that this relationship provides greater insight and understanding of the underlying property operations and their ability to meet debt service requirements to the Partnership. The properties not currently managed by Properties Management are Arbors at Hickory Ridge, Autumn Pines, Bella Vista Apartments, Bridle Ridge, Brookstone Apartments, Runnymede Apartments, South Park Ranch Apartments, Vantage at Judson, Villages at Lost Creek, and Woodlynn Village.

Our business objectives are to (i) preserve and protect our capital and (ii) provide regular cash distributions to our unitholders which are substantially exempt from federal income tax. We have sought to meet these objectives by primarily investing in a portfolio of tax-exempt mortgage revenue bonds that were issued to finance, and are secured by mortgages on, multifamily apartment properties, including student housing. Certain of these bonds may be structured to provide a potential for an enhanced federally tax-exempt yield through the payment of contingent interest which is payable out of net cash flow from operations and net capital appreciation of the financed apartment properties.

We are pursuing a business strategy of acquiring additional tax-exempt mortgage revenue bonds and other tax-exempt investments on a leveraged basis in order to (i) increase the amount of tax-exempt interest available for distribution to our unitholders; (ii) reduce risk through asset diversification and interest rate hedging; and (iii) achieve economies of scale. We are pursuing this growth strategy by investing in additional tax-exempt mortgage revenue bonds and other tax-exempt investments as permitted by the Agreement of Limited Partnership, taking advantage of attractive financing structures available in the tax-exempt securities market, and entering into interest rate risk management instruments. We may finance the acquisition of additional tax-exempt mortgage revenue bonds and other tax-exempt investments through the reinvestment of cash flow, the issuance of additional units, or securitization financing using our existing portfolio of tax-exempt mortgage revenue bonds. Our operating policy is to use securitizations or other forms of leverage to maintain a level of debt financing between 40% and 60% of the total par value of our mortgage bond portfolio. At December 31, 2012, the leverage on the portfolio of the tax-exempt mortgage revenue bonds calculated to a ratio of 53% of the par value of the portfolio.

In connection with our business strategy, we continually assess opportunities to reposition our existing portfolio of tax-exempt mortgage revenue bonds. The principal objective of this assessment is to improve the quality and performance of our revenue bond portfolio and, ultimately, increase the amount of cash available for distribution to our unitholders. In some cases, we may elect to redeem selected tax-exempt mortgage revenue bonds that are secured by multifamily properties that have experienced significant appreciation. Through the selective redemption of the bonds, a sale or refinancing of the underlying property will be required which, if sufficient sale or refinancing proceeds exist, may entitle the Partnership to receive payment of contingent interest on its bond investment. In other cases, we may elect to sell bonds on properties that are in stagnant or declining markets. The proceeds received from these transactions would be redeployed into other tax-exempt investments consistent with our investment objectives. We may also be able to use a higher-quality investment portfolio to obtain higher leverage to be used to acquire additional investments.

Each of these bond structures permits the issuance of tax-exempt mortgage revenue bonds to finance the construction or acquisition and rehabilitation of affordable rental housing. Under applicable Treasury Regulations, any affordable apartment project financed with tax-exempt mortgage revenue bonds must set aside a percentage of its total rental units for occupancy by tenants whose incomes do not exceed stated percentages of the median income in the local area. In each case, the balance of the rental units in the apartment project may be rented at market rates. With respect to private activity bonds issued under Section 142(d) of the Internal Revenue Code, the owner of the apartment project may elect, at the time the bonds are issued, whether to set aside a minimum of 20% of the units for tenants making less than 50% of area median income (as adjusted for household size) or 40% of the units for tenants making less than 60% of the area median income (as adjusted for household size). Multifamily housing bonds that were issued prior to the Tax Reform Act of 1986 (so called “80/20” bonds) require that 20% of the rental units be set aside for tenants whose income does not exceed 80% of the area median income, without adjustment for household size.

We expect that many of the private activity housing bonds that we evaluate for acquisition will be issued in conjunction with the syndication of LIHTCs by the owner of the financed apartment project. Additionally, to facilitate our investment strategy of acquiring additional tax-exempt mortgage bonds secured by MF Properties, we may acquire ownership positions in the MF Properties. We expect to acquire tax-exempt mortgage revenue bonds on these MF Properties in many cases at the time of a restructuring of the MF Property ownership. Such restructuring may involve the syndication of LIHTCs in conjunction with property rehabilitation.

Tax-Exempt Mortgage Revenue Bonds. The Partnership invests in tax-exempt mortgage revenue bonds that are secured by a mortgage or deed of trust on multifamily apartment projects. Each of these bonds bears interest at a fixed annual base rate. Five of the 22 bonds currently owned by the Partnership also provide for the payment of contingent interest, which is payable out of the net cash flow and net capital appreciation of the underlying apartment properties. As a result, the amount of interest earned by the Partnership from its investment in tax-exempt mortgage revenue bonds is a function of the net operating income generated by the properties collateralizing the tax-exempt mortgage revenue bonds. Net operating income from a multifamily residential property depends on the rental and occupancy rates of the property and the level of operating expenses.

Public Housing Capital Fund Trust Certificates. The PHC Certificates consist of custodial receipts evidencing loans made to a number of public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by HUD under HUD's Capital Fund Program. The PHC Trusts have a first lien on these annual Capital Fund Program payments to secure the public housing authorities' respective obligations to pay principal and interest on their loans. The PHC Certificates most recent rating by Standard & Poor's is investment grade.

Interests in Real Property. While the Partnership generally does not seek to acquire equity interests in real property as long-term or permanent investments, it may acquire real estate securing its revenue bonds or taxable mortgage loans through foreclosure in the event of a default. In addition, as part of its growth strategy, the Partnership may acquire direct or indirect interests in MF Properties on a temporary basis in order to position itself for a future investment in tax-exempt mortgage revenue bonds issued to finance the acquisition or substantial rehabilitation of such apartment complexes by a new owner. A new owner would typically seek to obtain LIHTCs in connection with the issuance of the new tax-exempt bonds, but if LIHTCs had previously been issued for the property, such a restructuring could not occur until the expiration of a 15-year compliance period for the initial LIHTCs. The Partnership may acquire an interest in MF Properties prior to the end of the LIHTC compliance period. After the LIHTC compliance period, the Partnership would expect to sell its interest in such MF Property to a new owner which could syndicate new LIHTCs and seek tax-exempt bond financing on the MF Property which the Partnership could acquire. Such restructurings will generally be expected to occur within 36 months of the acquisition by the Partnership of an interest in an MF Property. The Partnership will not acquire LIHTCs in connection with these transactions.

There continues to be a significant unmet demand for affordable multifamily housing in the United States. The United States Department of Housing and Urban Development (“HUD”) reports that there are approximately 7.1 million American households in need of quality affordable housing. The types of tax-exempt mortgage revenue bonds in which we invest offer developers of affordable housing a low-cost source of construction and permanent debt financing for these types of properties. Investors purchase these bonds because the income paid on these bonds is exempt from federal income taxation. The National Council of State Housing Agencies Fact Sheet and HUD have captured some key scale metrics and opportunities of this market:

In addition to tax-exempt mortgage revenue bonds, the federal government promotes affordable housing through the use of LIHTCs for affordable multifamily rental housing. The syndication and sale of LIHTCs along with tax-exempt bond financing is attractive to developers of affordable housing because it helps them raise equity and debt financing for their projects. Under this program, developers that receive an allocation of private activity bonds will also receive an allocation of federal LIHTCs as a method to encourage the development of affordable multifamily housing. The Partnership does not invest in LIHTCs, but is attracted to tax-exempt mortgage revenue bonds that are issued in association with federal LIHTC syndications because in order to be eligible for federal LIHTCs a property must either be newly constructed or substantially rehabilitated and; therefore, may be less likely to become functionally obsolete in the near term than an older property. There are various requirements in order to be eligible for federal LIHTCs, including rent and tenant income restrictions. In general, the property owner must elect to set aside either 40% or more of the property's residential units for occupancy by individuals whose income is 60% or less of the area median gross income or 20% or more of the property's residential units for occupancy by individuals whose income is 50% or less of the area median gross income. These units remain subject to these set aside requirements for a minimum of 30 years.

The disruptions in domestic and international financial markets, and the resulting availability of debt financing has improved since the restrictions seen in 2008. While economic trends show signs of a stabilization of the economy and debt availability has increased, overall availability remains limited and the cost of credit may continue to be adversely impacted. These conditions, in our view, will continue to create potential investment opportunities for the Partnership. We believe this continues to create opportunities to acquire existing tax-exempt bonds from distressed holders at attractive yields. The Partnership continues to evaluate potential investments in bonds which are available on the secondary market. We believe many of these bonds will meet our investment criteria and that we have a unique ability to analyze and close on these opportunities while maintaining our ability and willingness to also participate in primary market transactions.

Current credit and real estate market conditions also create opportunities to acquire quality MF Properties from distressed owners and lenders. Our ability to restructure existing debt, together with the ability to improve the operations of the apartment properties through our affiliated property management company, can position these MF Properties for an eventual financing with tax-exempt mortgage revenue bonds meeting our investment criteria and that will be supported by a valuable and well-run apartment property. We believe we can selectively acquire MF Properties, restructure debt, and improve operations in order to create value to our unitholders in the form of a strong tax-exempt bond investment.

On the other hand, continued economic weakness in some markets may limit our ability to access additional debt financing that the Partnership uses to partially finance its investment portfolio or otherwise meet its liquidity requirements. The inability to access debt financing may result in adverse effects on our financial condition and results of operations. There can be no assurance that we will be able to finance additional acquisitions of tax-exempt mortgage revenue bonds through either additional equity or debt financing. Although the consequences of market and economic conditions and their impact on our ability to pursue our plan to grow through investments in additional tax-exempt housing bonds are not fully known, we do not anticipate that our existing assets will be adversely affected in the long-term. In addition, the economic conditions including higher levels of unemployment, lack of job growth and low home mortgage interest rates have had a negative effect on some of the apartment properties which collateralize our tax-exempt bond investments and our MF Properties in the form of lower occupancy. While some properties have been negatively effected, our overall economic occupancy (which is adjusted to reflect rental concessions, delinquent rents and non-revenue units such as model units and employee units) of the apartment properties that the Partnership has financed with tax-exempt mortgage revenue bonds was approximately at 86% during 2012 as compared to 85% during 2011. Overall economic occupancy of the MF Properties has remained the same at approximately 76% during 2012 and 2011. Based on the growth statistics in the market, we expect to see continued improvement in property operations and profitability in 2013 and 2014 and that rental rate and occupancy trends will continue to be positive.

Debt Financing. Our operating policy is to maintain a level of debt financing between 40% and 60% of the total par value of our mortgage revenue bond portfolio. As of December 31, 2012, the total par value of the Partnerships' total bond portfolio is approximately $198.6 million which includes the tax-exempt bonds secured by the Ohio Properties and the Greens Property which are eliminated upon consolidation. One TOB facility with DB and the TEBS financing agreement with Freddie Mac which have an outstanding balance of $103.9 million in total are the outstanding debt financing arrangements that have securitized tax-exempt mortgage revenue bonds. This calculates to a leverage ratio of 52%. The Partnership's operating policy is to use securitizations or other forms of leverage to maintain a level of debt financing between 60% and 80% of the total par value of the Partnership's other tax-exempt investments. There are eight outstanding TOB facilities at December 31, 2012, which sum to outstanding borrowings of $74.1 million, which are securitizations of the PHC Certificates and MBS. The par value of the PHC Certificates and MBS is $96.9 million which calculates to a leverage ratio of 76%. Additionally, the MF Properties are encumbered by mortgage loans with an aggregate principal balance of approximately $39.1 million. These mortgage loans mature at various times from May 2013 through February 2017. The debt financing plus mortgage loans total $217.1 million results in a leverage ratio to Partnership Total Assets of 51%.

Equity Financing. Beginning in 2007, the Partnership has issued BUCs to raise additional equity capital to fund investment opportunities. In April 2010, a Registration Statement on Form S-3 was declared effective by the SEC under which the Partnership may offer up to $200.0 million of additional BUCs. In May 2012, the Partnership issued an additional 12,650,000 BUCs through an underwritten public offering at a public offering price of $5.06 per BUC pursuant to the Registration Statement on Form S-3. Net proceeds realized by the Partnership from this issuance of these BUCs were approximately $60.0 million after payment of an underwriter's discount and other offering costs of approximately $4.0 million. In April 2010, the Partnership issued an additional 8,280,000 BUCs through an underwritten public offering at a public offering price of $5.37 per BUC pursuant to the Registration Statement. Net proceeds realized by the Partnership from the issuance of these BUCs were approximately $41.6 million after payment of an underwriter's discount and other offering costs of approximately $2.8 million. There was no equity raise completed in 2011.

Bond Acquisitions. In December 2012, the Partnership purchased a $6,049,000 subordinate tax-exempt mortgage revenue bond and a subordinate $934,000 taxable bond both secured by the Vantage at Judson apartments. This property is located in San Antonio, Texas and is currently under construction. Both bonds mature on February 1, 2053 and carry an annual cash interest rate of 9% plus allow for an additional 3% of interest calculated on the property's cash flows after debt service. The Vantage at Judson apartments has a construction loan with an unrelated bank and the Partnership's bonds are second lien borrowings to that construction loan. The property will have 288 units when construction is anticipated to be completed in the spring of 2014. Under the terms of a Forward Delivery Bond Purchase Agreement, the Partnership has agreed to purchase a new tax-exempt mortgage revenue bond of up to $26,687,000 (“Series B Bonds”) which will be delivered by the Issuer of the tax-exempt mortgage revenue bond once the property meets specific obligations and occupancy rates. The Series B Bonds will have a stated interest rate of 6% and bond proceeds must be used to pay off the construction loan to the bank and all or a portion of the $6,049,000 tax-exempt mortgage revenue bond.

In June 2012, the Partnership acquired a $10.0 million restructured 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. In December 2012, the tax-exempt mortgage revenue bond secured by Arbors at Hickory Ridge Apartments was restructured to an $11.5 million par value tax-exempt mortgage revenue bond with an annual interest rate of 6.25% and maturity of December 1, 2049. The Partnership then purchased 100% of this bond issuance plus a taxable loan of approximately $191,000 for a payment of approximately $1,041,000 made at closing, net of refunding of the $10.0 million tax-exempt mortgage revenue bond.

MF Property Acquisitions. In August 2012, the Company closed on the purchase of the Maples on 97^th property, a 258 unit facility located in Omaha, Nebraska, for a purchase price of approximately $5.5 million through the execution of a Qualified Exchange Accommodation Agreement that assigned the right to acquire and own the Maples on 97^th property to a wholly-owned subsidiary of a Title Company (EAT (Maples on 97th)), for a period not to exceed six months. During this six month hold period, the Company will rehabilitate the property. The Company lent the EAT (Maples on 97th) the necessary funds to purchase the replacement property; there is no other capital within that entity. The EAT (Maples on 97th) then executed a Master Lease Agreement and Construction Management Agreement with the Company. These two agreements give the Company the rights and obligations to manage the replacement property as well as the rehabilitation during the six month hold period. In February 2013, ownership of Maples on 97^th property was transferred to the Company.

MF Property Sales. In February 2013, the limited partner owners of the Ohio Properties contributed sufficient capital for a real estate sale to be recognized during the first quarter of 2013. As such, the Ohio Properties are reported as discontinued operations instead of MF Properties subject to a Sales Agreement in the consolidated financial statements for all periods presented. The Company will recognize the deferred gain of approximately $1.8 million in the first quarter of 2013, report the tax-exempt mortgage bonds collateralized by the Ohio Properties as an asset, and report the related interest income on the bonds commencing with first quarter of 2013.

In October 2012, the limited partnership that owns the Greens Property admitted two entities that are affiliates of Boston Capital (“BC Partners”) as new limited partners as part of a syndication of LIHTCs on the Greens Property. The Company acquired 100% of the $9.5 million tax-exempt mortgage revenue bonds issued by the North Carolina Housing Finance Agency as part of a plan of financing for the acquisition and rehabilitation of the Greens Property. Under the sales agreement, the Greens Property was sold for a total purchase price of $7.3 million resulting in a gain of approximately $1.5 million which has been deferred by the Company. The new limited partners are obligated to invest approximately $3.2 million of capital into the property, the majority of which is expected to be received prior to October 1, 2013. This transaction resulted in the property being reported as a discontinued operation for all periods reported.

The Partnership is managed by its general partner, America First Capital Associates Limited Partnership Two (“AFCA 2”) which is controlled by its general partner, the Burlington Capital Group LLC ("Burlington"). The persons acting as the Board of Managers and executive officers of Burlington act as the directors and executive officers of the Partnership. Certain services are provided to the Partnership by other employees of Burlington and the Partnership reimburses Burlington for its allocated share of these salaries and benefits. The Partnership is not charged, and does not reimburse Burlington, for the services performed by executive officers of Burlington.

Because the Partnership holds tax-exempt mortgage revenue bonds secured entirely by multifamily residential properties and holds an interest in the MF Properties, the Partnership may be considered to be in competition with other residential real estate in the same geographic areas. In each city in which the properties financed by the Partnership's tax-exempt mortgage revenue bonds owned by the Partnership or MF Properties are located, such properties compete with a substantial number of other multifamily properties. Multifamily properties also compete with single-family housing that is either owned or leased by potential tenants. To compete effectively, the apartment properties financed or owned by the Partnership must offer quality apartments at competitive rental rates. In order to maintain occupancy rates and attract quality tenants, the Partnership's apartment properties may also offer rental concessions, such as free rent to new tenants for a stated period. These apartment properties also compete by offering quality apartments in attractive locations and that provide tenants with amenities such as recreational facilities, garages and pleasant landscaping.

The VIEs which are reported on a consolidated basis with the Partnership for GAAP reporting purposes are separate legal entities who record and report income taxes based upon their individual legal structure which may include corporations, limited partnerships, and limited liability companies. The Partnership does not presently believe that the consolidation of VIEs for reporting under GAAP will impact the Partnership's tax status, amounts reported to unitholders on IRS Form K-1, the Partnership's ability to distribute tax-exempt income to unitholders, the current level of quarterly distributions, or the tax-exempt status of the underlying mortgage revenue bonds.

We do not have any employees of our own. Employees of Burlington, acting through our general partner, are responsible for our operations and we reimburse Burlington for the allocated salaries and benefits of these employees and for other expenses incurred in running our business operations. In connection with the operation of the Partnership, AFCA 2 is entitled to an administrative fee in an amount equal to 0.45% per annum of the principal amount of the revenue bonds, other tax-exempt investments, and taxable mortgage loans held by the Partnership. Ten of the tax-exempt mortgage revenue bonds held by the Partnership provide for the payment of this administrative fee to the general partner by the owner of the financed property. When the administrative fee is payable by a property owner, it is subordinated to the payment of all base interest to the Partnership on the tax-exempt mortgage revenue bond on that property. Our Agreement of Limited Partnership provides that the administrative fee will be paid directly by the Partnership with respect to any investments for which the administrative fee is not payable by the property owner or a third party. In addition, our Agreement of Limited Partnership provides that the Partnership will pay the administrative fee to the general partner with respect to any foreclosed mortgage bonds.

Properties Management is an affiliate of Burlington that is engaged in the management of apartment complexes. Properties Management currently manages the seven MF Properties, seven of the properties whose tax-exempt mortgage revenue bonds are held by the Partnership, and four of the properties whose tax-exempt bonds are owned by the Partnership and are reported as discontinued operations. Properties Management earns a fee paid out of property revenues. Properties Management may also seek to become the manager of apartment complexes financed by additional tax-exempt mortgage revenue bonds acquired by the Partnership, subject to negotiation with the owners of such properties. If the Partnership acquires ownership of any property through foreclosure of a revenue bond, Properties Management may provide property management services for such property and, in such case, earn a fee payable out of property revenues.

The Partnership currently distributes cash to unitholders at an annual rate of $0.50 per unit. The amount of the cash per unit distributed by the Partnership may increase or decrease at the determination of AFCA 2 based on its assessment of the amount of cash available to the Partnership for this purpose. During the year ended December 31, 2012, the Partnership generated cash available for distribution of $0.33 per unit. Although the Partnership may supplement its cash available for distribution with unrestricted cash, unless the Partnership is able to increase its cash receipts through completion of its current investment plans, the Partnership may need to reduce the level of cash distributions per unit from the current level. In addition, there is no assurance that the Partnership will be able to maintain its current level of annual cash distributions per unit even if the Partnership completes its current investment plans.

Although our tax-exempt mortgage revenue bonds are issued by state or local housing authorities, they are not obligations of these governmental entities and are not backed by any taxing authority. Instead, each of these revenue bonds is backed by a non-recourse loan made to the owner of the underlying apartment complex. Because of the non-recourse nature of the underlying mortgage loans, the sole source of cash to pay base and contingent interest on the revenue bond, and to ultimately pay the principal amount of the bond, is the net cash flow generated by the operation of the financed property and the net proceeds from the ultimate sale or refinancing of the property, except in limited cases where a property owner has provided a limited guarantee of certain payments. This makes our investments in these tax-exempt mortgage revenue bonds subject to the kinds of risks usually associated with direct investments in multifamily real estate. If a property is unable to sustain net cash flow at a level necessary to pay its debt service obligations on our tax-exempt mortgage revenue bond on the property, a default may occur. Net cash flow and net sale proceeds from a particular property are applied only to debt service payments of the particular tax-exempt mortgage revenue bond secured by that property and are not available to satisfy debt service obligations on other tax-exempt mortgage revenue bonds that we hold. In addition, the value of a property at the time of its sale or refinancing will be a direct function of its perceived future profitability. Therefore, the amount of base and contingent interest that we earn on our tax-exempt mortgage revenue bonds, and whether or not we will receive the entire principal balance of the bonds as and when due, will depend to a large degree on the economic results of the underlying apartment complexes.

The net cash flow from the operation of a property may be affected by many things, such as the number of tenants, the rental rates, operating expenses, the cost of repairs and maintenance, taxes, government regulation, competition from other apartment complexes, mortgage rates for single-family housing, and general and local economic conditions. In most of the markets in which the properties financed by our bonds are located, there is significant competition from other apartment complexes and from single-family housing that is either owned or leased by potential tenants. Low mortgage interest rates and federal tax credits make single-family housing more accessible to persons who may otherwise rent apartments.

The principal of most of our tax-exempt mortgage revenue bonds does not fully amortize over their terms. This means that all or some of the balance of the mortgage loans underlying these bonds will be repaid as a lump-sum “balloon” payment at the end of the term. The ability of the property owners to repay the mortgage loans with balloon payments is dependent upon their ability to sell the properties securing our tax-exempt mortgage revenue bonds or obtain adequate refinancing. The tax-exempt mortgage revenue bonds are not personal obligations of the property owners, and we rely solely on the value of the properties securing these bonds for security. Similarly, if a tax-exempt mortgage revenue bond goes into default, our only recourse is to foreclose on the underlying multifamily property. If the value of the underlying property securing the bond is less than the outstanding principal balance and accrued interest on the bond, we will suffer a loss.

In the event a property securing a tax-exempt mortgage revenue bond is not sold prior to the maturity or remarketing of the bond, any contingent interest payable from the net sale or refinancing proceeds of the underlying property will be determined on the basis of the appraised value of the underlying property. Real estate appraisals represent only an estimate of the value of the property being appraised and are based on subjective determinations, such as the extent to which the properties used for comparison purposes are comparable to the property being evaluated and the rate at which a prospective purchaser would capitalize the cash flow of the property to determine a purchase price. Accordingly, such appraisals may result in us realizing less contingent interest from a tax-exempt mortgage revenue bond than we would have realized had the underlying property been sold.

The taxable mortgage loans that we make to owners of the apartment properties that secure tax-exempt mortgage revenue bonds held by us are non-recourse obligations of the property owner. As a result, the sole source of principal and interest payments on these taxable loans is the net cash flow generated by these properties or the net proceeds from the sale of these properties. The net cash flow from the operation of a property may be affected by many things as discussed above. In addition, any payment of principal and interest on a taxable loan on a particular property will be subordinate to payment of all principal and interest (including contingent interest) on the tax-exempt mortgage revenue bond secured by the same property. As a result, there may be a higher risk of default on the taxable loans than on the associated tax-exempt mortgage revenue bonds. If a property is unable to sustain net cash flow at a level necessary to pay current debt service obligations on the taxable loan on such property, a default may occur. While these taxable loans are secured by the underlying properties, in general, the Partnership does not expect to pursue foreclosure or other remedies against a property upon default of a taxable mortgage loan if the property is not in default on the tax-exempt mortgage revenue bonds financing the property.

To facilitate our investment strategy of acquiring additional tax-exempt mortgage bonds secured by multifamily apartment properties, we may acquire ownership positions in MF Properties.We expect to ultimately sell these MF Properties to unaffiliated parties often as part of a syndication of LIHTCs after the expiration of the compliance period relating to existing LIHTCs issued with respect to the MF Properties. Our plan is to provide tax-exempt mortgage financing to the new property owners at the time of a syndication of new LIHTCs in connection with a rehabilitation of these MF Properties. The market for LIHTC syndications may be negatively affected from time to time by economic and market conditions. For this and other reasons, there is no assurance that the Partnership will be able to sell its interests in the MF Properties after the applicable LIHTC compliance period. In addition, the value of the Partnership's interest in MF Properties will be affected by the economic performance of the MF Properties and other factors generally affecting the value of residential rental properties. As a result, there is no assurance the Partnership will not incur a loss upon the sale of its interest in an MF Property. In addition, there is no assurance that we will be able to acquire tax-exempt mortgage revenue bonds on the MF Properties even if we are able to sell our interests in the MF Properties. During the time the Partnership owns an interest in an MF Property, any net income it receives from these MF Properties will not be exempt from federal or state income taxation.

We have financed the acquisition of some of our assets using variable-rate debt financing. The interest that we pay on these financings fluctuates with a specific interest rate indices. All of our tax-exempt mortgage revenue bonds bear interest at fixed rates and, notwithstanding the contingent interest feature on some of these bonds, the amount of interest we earn on these bonds will not increase with a general rise in interest rates. Accordingly, an increase in our interest expense due to an increase in the applicable interest rate index used for our variable rate debt financing will reduce the amount of cash we have available for distribution to unitholders and may affect the market value of our units. The use of derivatives is designed to mitigate some but not all of the exposure to the negative impact of a higher cost of borrowing.

We use derivative instruments, such as interest rate caps, to mitigate the risks we are exposed to as a result of changing interest rates. However, there is no assurance that these instruments will fully insulate the Partnership from the interest rate risks to which it is exposed. In addition, there are costs associated with these derivative instruments and there is no assurance these costs will not ultimately turn out to exceed the losses we would have suffered, if any, had these instruments not been in place. There is also a risk that a counterparty to such an instrument will be unable to perform its obligations to the Partnership. If a liquid secondary market does not exist for these instruments, we may be required to maintain a position until exercise or expiration, which could result in losses to the Partnership. In addition, we are required to record the fair value of these derivative instruments on our financial statements by recording changes in their values as interest earnings or expense. This can result in significant period to period volatility in the Partnership's reported net income over the term of these instruments.

We have obtained debt financing through the securitization of our tax-exempt mortgage revenue bonds, PHC Certificates, and MBS and may obtain this type of debt financing in the future. The terms of these securitization programs differ, but in general require our tax-exempt assets be placed into a trust or other special purpose entity that issues a senior security to unaffiliated investors and a residual interest to the Partnership. The trust or other entity receives all of the interest payments from its underlying tax-exempt mortgage revenue bonds, PHC Certificates, and MBS from which it pays interest on the senior security at a variable rate. As the holder of the residual interest, the Partnership is entitled to any remaining tax-exempt interest received by the trust holding the securitized asset after it has paid the full amount of interest due on the senior security and all of the expenses of the trust, including various fees to the trustee, remarketing agents and liquidity providers. Specific risks generally associated with these asset securitization programs include the following:

The interest rate payable on the senior securities resets periodically based on a specified index usually tied to interest rates on short-term instruments. In addition, because the senior securities may typically be tendered back to the trust, causing the trust to remarket the senior securities from time to time, an increase in interest rates may require an increase to the interest rate paid on the senior securities in order to successfully remarket these securities. Any increase in interest rate payable on the senior securities will result in more of the underlying tax-exempt interest being used to pay interest on the senior securities leaving less tax-exempt interest available to the Partnership. As a result, higher short-term interest rates will reduce, and could even eliminate, the Partnership's return on a residual interest in this type of financing.

The Partnership holds a residual interest (known as Class B interests in a TEBS financing facility and a LIFER in a TOB financing facility) in the securitization trusts established for the debt financing facilities. These residual interests are subordinate to the senior securities sold to investors. As a result, none of the tax-exempt interest received by such a trust will be paid to the Partnership as the holder of a residual interest until all payments currently due on the senior securities have been paid in full and other trust expenses satisfied. As the holder of a residual certificate in these trusts, the Partnership can look only to the assets of the trust remaining after payment of these senior obligations for payment on the residual certificates. No third party guarantees the payment of any amount on the residual certificates.

In general, the trust or other special purpose entity formed for an asset securitization financing can terminate for a number of different reasons relating to problems with the assets or problems with the trust itself. Problems with the assets that could cause the trust to collapse include payment or other defaults or a determination that the interest on the assets is taxable. Problems with a trust include a downgrade in the investment rating of the senior securities that it has issued, a ratings downgrade of the liquidity provider for the trust, increases in short term interest rates in excess of the interest paid on the underlying assets, an inability to remarket the senior securities or an inability to obtain liquidity for the trust. In each of these cases, the trust will be collapsed and the tax-exempt mortgage revenue bonds and other collateral held by the trusts will be sold. If the proceeds from the sale of the trust collateral are not sufficient to pay the principal amount of the senior securities with accrued interest and the other expenses of the trusts then the Partnership will be required, through its guarantee of the trusts, to fund any such shortfall. As a result, the Partnership, as holder of the residual interest in the trust, may not only lose its investment in the residual certificates but could also realize additional losses in order to fully repay trust obligations to the senior securities.

Economic conditions in international and domestic credit markets have been, and remain, challenging. Tighter credit conditions and slower economic growth combined with continued concerns about the systemic impact of high unemployment, restricted availability of credit, and overall business and consumer confidence have contributed to a slow economic recovery and it is unclear when and how quickly conditions and markets will improve. As a result of these economic conditions, the cost and availability of credit has been, and may continue to be, adversely affected in all markets in which we operate. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease, to provide funding to borrowers. As a result, our access to debt and equity financing may be adversely affected. If these market and economic conditions continue, they may limit our ability to replace or renew maturing debt financing on a timely basis and may impair our access to capital markets to meet our liquidity and growth requirements which may have an adverse effect on our financial condition and results of operations.

The majority of our assets consist of our tax-exempt mortgage revenue bonds. These mortgage revenue bonds are relatively illiquid, and there is no existing trading market for them. As a result, there are no market makers, price quotations, or other indications of a developed trading market for these tax-exempt mortgage revenue bonds. In addition, no rating has been issued on any of the existing tax-exempt mortgage revenue bonds and we do not expect to obtain ratings on tax-exempt mortgage revenue bonds we may acquire in the future. Accordingly, any buyer of these tax-exempt mortgage revenue bonds would need to perform its own due diligence prior to a purchase. As a result, our ability to sell our tax-exempt mortgage revenue bonds, and the price we may receive upon their sale, will be affected by the number of potential buyers, the number of similar securities on the market at the time and a number of other market conditions. As a result, such a sale could result in a loss to us.

The Company has acquired interests (known as "LIFERS") in three PHC TOB Trusts, which, in turn, hold PHC Certificates that have been issued by three PHC Trusts which hold custodial receipts evidencing loans made to a number of public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities solely out of annual appropriations to be made to the public housing authorities by HUD under HUD's Capital Fund Program. Annual appropriations for the Capital Fund Program must be determined by Congress each year, and there is no assurance that Congress will continue to make such appropriations at current levels or at all. If Congress fails to continue to make annual appropriations for the Capital Fund Program at or near current levels, or there is a delay in the approval of appropriations, the public housing authorities may not have funds from which to pay principal and interest on the loans underlying the PHC Certificates. The failure of public housing authorities to pay principal and interest on these loans will reduce or eliminate the payments received by the Company from the PHC TOB Trusts.

The Company's investment in PHC Certificates and MBS are made pursuant to the provision of its Agreement of Limited Partnership that allows investment in tax-exempt securities that are not mortgage revenue bonds backed by multifamily housing projects provided that these alternative tax-exempt securities are rated investment grade in one of the four highest rating categories by at least one nationally recognized securities rating agency. In the event the investment rating of any of the PHC Certificates held by a PHC TOB Trust or any of the MBS was reduced to less than investment grade, the trustee over the TOB Trust has no obligation to divest of that securitized asset. Accordingly, the Partnership would be required to liquidate its LIFERS in that TOB Trust or liquidate the TOB Trust entirely. The TOB Trusts have no obligation to purchase the LIFERS and there is no established trading market for the LIFERS. Likewise, if the Partnership liquidates the TOB Trust, any downgrade in the investment rating of the PHC Certificates or mortgage-backed securities will likely decrease the value of the investment. As a result, there can be no assurance that the Partnership will be able to divest its position in these LIFERS or terminate the TOB Trusts without incurring a material loss.

The Company's MBS are secured by pools of mortgages on residential properties. In general, the mortgages collateralizing our MBS may be prepaid at any time without penalty. Prepayments on our MBS result when homeowners/mortgagees satisfy (i.e., pay off) the mortgage upon selling or refinancing their mortgaged property. When we acquire a particular MBS, we anticipate that the underlying mortgage loans will prepay at a projected rate which, together with expected coupon income, provides us with an expected yield on such MBS. If we purchase assets at a premium to par value, and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on the MBS may reduce the expected yield on such securities because we will have to amortize the related premium on an accelerated basis. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments on the MBS may reduce the expected yield on such securities because we will not be able to accrete the related discount as quickly as originally anticipated. Prepayment rates on loans are influenced by changes in mortgage and market interest rates and a variety of economic, geographic, and other factors, all of which are beyond our control. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks. In periods of declining interest rates, prepayment rates on mortgage loans generally increase. If general interest rates decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the assets that were prepaid (to the extent such assets are available for us to reinvest in). In addition, the market value of our MBS may, because of the risk of prepayment, benefit less than other fixed-income securities from declining interest rates

All of the apartment properties securing our tax-exempt mortgage revenue bonds and the MF Properties in which our subsidiaries hold indirect interests are subject to certain federal, state and/or local requirements with respect to the permissible income of their tenants. Since federal rent subsidies are not generally available on these properties, rents must be charged on a designated portion of the units at a level to permit these units to be continuously occupied by low or moderate income persons or families. As a result, these rents may not be sufficient to cover all operating costs with respect to these units and debt service on the applicable tax-exempt mortgage revenue bond. This may force the property owner to charge rents on the remaining units that are higher than they would be otherwise and may, therefore, exceed competitive rents. This may adversely affect the occupancy rate of a property securing an investment and the property owner's ability to service its debt.

Five of the multifamily housing properties financed by tax-exempt mortgage revenue bonds held by the Partnership are located in areas that are prone to damage from hurricanes and other major storms. The current insurable value of these five properties is approximately $84.6 million. Due to the significant losses incurred by insurance companies in recent years due to damages from hurricanes, many property and casualty insurers now require property owners to assume the risk of first loss on a larger percentage of their property's value. In general, the current insurance policies on the five properties financed by the Partnership that are located in areas rated for hurricane and storm exposure carry a 5% deductible on the insurable value of the properties. As a result, if any of these properties were damaged in a hurricane or other major storm, the amount of uninsured losses could be significant and the property owner may not have the resources to fully rebuild the property and this could result in a default on the tax-exempt mortgage revenue bonds secured by the property. In addition, the damages to a property may result in all or a portion of the rental units not being rentable for a period of time. Unless a property owner carries rental interruption insurance, this loss of rental income would reduce the cash flow available to pay base or contingent interest on the Partnership's tax-exempt mortgage revenue bonds collateralized by these properties.

The owner or operator of real property may become liable for the costs of removal or remediation of hazardous substances released on its property. Various federal, state and local laws often impose such liability without regard to whether the owner or operator of real property knew of, or was responsible for, the release of such hazardous substances. We cannot assure you that the properties that secure our tax-exempt mortgage revenue bonds or the MF Properties in which our subsidiaries hold indirect interests, will not be contaminated. The costs associated with the remediation of any such contamination may be significant and may exceed the value of a property or result in the property owner defaulting on the revenue bond secured by the property or otherwise result in a loss of our investment in a property.

We may acquire ownership of apartment complexes financed by tax-exempt mortgage revenue bonds held by us in the event of a default on such bonds. We may also acquire indirect ownership of MF Properties on a temporary basis in order to facilitate the eventual acquisition by us of tax-exempt mortgage revenue bonds on these apartment properties. In either case, during the time we own an apartment complex, we will generate taxable income or losses from the operations of such property rather than tax exempt interest. In addition, we will be subject to all of the risks normally associated with the operation of commercial real estate including declines in property value, occupancy and rental rates and increases in operating expenses. We may also be subject to government regulations, natural disasters and environmental issues, any of which could have an adverse effect on the Partnership's financial results and ability to make distributions to unitholders.

We may invest in tax-exempt mortgage revenue bonds secured by multifamily housing properties which are still under construction. Construction of such properties generally takes approximately twelve to eighteen months. The principal risk associated with construction lending is that construction of the property will be substantially delayed or never completed. This may occur for a number of reasons including (i) insufficient financing to complete the project due to underestimated construction costs or cost overruns; (ii) failure of contractors or subcontractors to perform under their agreements; (iii) inability to obtain governmental approvals; (iv) labor disputes; and (v) adverse weather and other unpredictable contingencies beyond the control of the developer. While we may be able to protect ourselves from some of these risks by obtaining construction completion guarantees from developers, agreements of construction lenders to purchase our bonds if construction is not completed on time, and/or payment and performance bonds from contractors, we may not be able to do so in all cases or such guarantees or bonds may not fully protect us in the event a property is not completed. In other cases, we may decide to forego certain types of available security if we determine that the security is not necessary or is too expensive to obtain in relation to the risks covered. If a property is not completed, or costs more to complete than anticipated, it may cause us to receive less than the full amount of interest owed to us on the tax-exempt bond financing such property or otherwise result in a default under the mortgage loan that secures our tax-exempt mortgage revenue bond on the property. In such case, we may be forced to foreclose on the incomplete property and sell it in order to recover the principal and accrued interest on our tax-exempt mortgage revenue bond and we may suffer a loss of capital as a result. Alternatively, we may decide to finance the remaining construction of the property, in which event we will need to invest additional funds into the property, either as equity or as a taxable loan. Any return on this additional investment would not be tax-exempt. Also, if we foreclose on a property, we will no longer receive tax-exempt interest on the bond issued to finance the property. The overall return to the Partnership from its investment in such property is likely to be less than if the construction had been completed on time or within budget.

We may acquire tax-exempt mortgage revenue bonds issued to finance properties in various stages of construction or renovation. As construction or renovation is completed, these properties will move into the lease-up phase. The lease-up of these properties may not be completed on schedule or at anticipated rent levels, resulting in a greater risk that these investments may go into default than investments secured by mortgages on properties that are stabilized or fully leased-up. The underlying property may not achieve expected occupancy or debt service coverage levels. While we may require property developers to provide us with a guarantee covering operating deficits of the property during the lease-up phase, we may not be able to do so in all cases or such guarantees may not fully protect us in the event a property is not leased up to an adequate level of economic occupancy as anticipated.

Each of the executive officers of Burlington and four of the managers of Burlington hold equity positions in Burlington. A subsidiary of Burlington acts as the General Partner and manages our investments and performs administrative services for us and earns certain fees that are either paid by the properties financed by our tax-exempt mortgage revenue bonds or by us. Another subsidiary of Burlington provides on-site management for many of the multifamily apartment properties that underlie our tax-exempt mortgage revenue bonds and each of our MF Properties and earns fees from the property owners based on the gross revenues of these properties. The owners of the limited-purpose corporations which own three of the apartment properties financed with tax-exempt mortgage revenue bonds and taxable loans held by the Partnership are employees of Burlington who are not involved in the operation or management of the Partnership and who are not executive officers or managers of Burlington. Because of these relationships, our agreements with Burlington and its subsidiaries are related-party transactions. By their nature, related-party transactions may not be considered to have been negotiated at arm's length. These relationships may also cause a conflict of interest in other situations where we are negotiating with Burlington.

Certain of our tax-exempt mortgage revenue bonds bear interest at rates which include contingent interest. Payment of the contingent interest depends on the amount of net cash flow generated by, and net proceeds realized from a sale of, the property securing the bond. Due to this contingent interest feature, an issue may arise as to whether the relationship between the property owner and us is that of debtor and creditor or whether we are engaged in a partnership or joint venture with the property owner. If the IRS were to determine that tax-exempt mortgage revenue bonds represented an equity investment in the underlying property, the interest paid to us could be viewed as a taxable return on such investment and would not qualify as tax-exempt interest for federal income tax purposes. We have obtained legal opinions to the effect that the base interest paid on our tax-exempt mortgage revenue bonds is excludable from gross income for federal income tax purposes provided the interest is not paid to a “substantial user” or “related person” as defined in the Internal Revenue Code. However, these legal opinions are not binding on the IRS or the courts, and no assurances can be given that the conclusions reached will not be contested by the IRS or, if contested, will be sustained by a court. In addition, the tax-exempt status of the interest paid on our tax-exempt mortgage revenue bonds is subject to compliance by the underlying properties, and the owners thereof, with the bond documents and covenants required by the bond-issuing authority and the Internal Revenue Code. Among these requirements are tenant income restrictions, regulatory agreement compliance, reporting requirements, use of proceeds restrictions and compliance with rules pertaining to interest arbitrage. Each issuer of the revenue bonds, as well as each of the underlying property owners/borrowers, has agreed to comply with procedures and guidelines designed to ensure satisfaction with the continuing requirements of the Internal Revenue Code. Failure to comply with these continuing requirements of the Internal Revenue Code may cause the interest on our bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance, regardless of when such noncompliance occurs. In addition, we have, and may in the future, obtain debt financing through asset securitization programs in which we place tax-exempt mortgage revenue bonds, PHC Certificates, and MBS into trusts and are entitled to a share of the tax-exempt interest received by the trust on these bonds after the payment of interests on senior securities issued by the trust, it is possible that the characterization of our residual interest in such a securitization trust could be challenged and the income that we receive through these instruments could be treated as ordinary taxable income includable in our gross income for federal tax purposes.

We have made, and may make in the future, taxable mortgage loans to the owners of properties which are secured by tax-exempt mortgage revenue bonds that we hold. The interest income earned by the Partnership on these mortgage loans is subject to federal and state income taxes. In addition, if we acquire direct or indirect interests in real estate, either through foreclosure of a property securing a tax-exempt mortgage revenue bond or a taxable loan or through the acquisition of an MF Property, any income we receive from the property will be taxable income from the operation of real estate. In that case, the taxable income received by the Partnership will be allocated to our unitholders and will represent taxable income to them regardless of whether an amount of cash equal to such allocable share of this taxable income is actually distributed to unitholders.

The Partnership has made an election to be treated as a partnership for federal income tax purposes. The purpose of this election is to eliminate federal and state income tax liability for the Partnership and allow us to pass through our tax-exempt interest to our unitholders so that they are not subject to federal tax on this income. If our treatment as a partnership for tax purposes is challenged, we would be classified as an association taxable as a corporation. This would result in the Partnership being taxed on its taxable income, if any, and, in addition, would result in all cash distributions made by the Partnership to unitholders being treated as taxable ordinary dividend income to the extent of the Partnership's earnings and profits, which would include tax-exempt income. The payment of these dividends would not be deductible by the Partnership. The listing of the Partnership's units for trading on the Nasdaq Global Market causes the Partnership to be treated as a “publicly traded partnership” under Section 7704 of the Internal Revenue Code. A publicly traded partnership is generally taxable as a corporation unless 90% or more of its gross income is “qualifying” income. Qualifying income includes interest, dividends, real property rents, gain from the sale or other disposition of real property, gain from the sale or other disposition of capital assets held for the production of interest or dividends and certain other items. Substantially all of the Partnership's gross income will continue to be tax-exempt interest income on tax-exempt mortgage revenue bonds. While we believe that all of this interest income is qualifying income, it is possible that some or all of our income could be determined not to be qualifying income. In such a case, if more than 10% of our annual gross income in any year is not qualifying income, the Partnership will be taxable as a corporation rather than a partnership for federal income tax purposes. We have not received, and do not intend to seek, a ruling from the Internal Revenue Service regarding our status as a partnership for tax purposes.

As a result of the guidance on consolidations, the Company is required to consolidate certain of the multifamily residential properties securing its bonds because the owners of those properties are treated as Consolidated VIEs for which the Company is the primary beneficiary. As of December 31, 2012, the Company consolidated four multifamily housing properties owned by VIEs located in Florida, Nebraska and South Carolina. The Partnership does not hold title to the properties owned by the VIEs. Due to a Master Lease Agreement executed between the Partnership and the owner of the Maples on 97th property, the results from operations of that property are included in the MF Properties footnote and in the consolidated statement of operations.



Consolidated VIEs
Property Name	Location	Number of Units	Land		Buildings and Improvements		Carrying Value at December 31, 2012
Bent Tree Apartments	Columbia, SC	232	$	986,000	$	11,877,333	$	12,863,333
Fairmont Oaks Apartments	Gainsville, FL	178	850,400		8,713,038		9,563,438
Lake Forest Apartments	Daytona Beach, FL	240	1,396,800		11,352,854		12,749,654
EAT (Maples on 97th) ⁽¹⁾	Omaha, NE	258	905,000		6,161,770		7,066,770
							$	42,243,195
Less accumulated depreciation (depreciation expense of approximately $1.5 million in 2012)							(13,871,102		)
Balance at December 31, 2012							$	28,372,093



MF Properties
Property Name	Location	Number of Units	Land		Buildings and Improvements		Carrying Value at December 31, 2012
Arboretum	Omaha, NE	145	$	1,720,740	$	18,997,550	$	20,718,290
Eagle Village	Evansville, IN	511	564,726		12,277,210		12,841,936
Glynn Place	Brunswick, GA	128	743,996		4,750,267		5,494,263
Meadowview	Highland Heights, KY	118	688,539		5,214,306		5,902,845
Residences of DeCordova	Granbury, TX	110	680,852		8,389,721		9,070,573
Residences of Weatherford	Weatherford, TX	76	533,000		7,077,420		7,610,420
Construction work in process ⁽²⁾	Lincoln, NE	N/A	—		936,833		936,833
							$	62,575,160
Less accumulated depreciation (depreciation expense of approximately $2.5 million in 2012)							(5,458,961		)
Balance at December 31, 2012							$	57,116,199



	For the Year Ended December 31, 2012			For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			For the Year Ended December 31, 2009			For the Year Ended December 31, 2008


Property revenue	12,654,530			10,976,250			9,106,667			10,174,848			10,059,916
Real estate operating expenses	(7,877,931		)	(6,758,707		)	(6,060,676		)	(6,973,134		)	(6,865,593		)
Depreciation and amortization expense	(4,982,030		)	(3,963,502		)	(3,590,151		)	(4,178,377		)	(3,445,511		)
Investment income	11,078,467			9,497,281			6,881,314			4,253,164			4,230,205
Gain on sale and retirement of bonds	680,444			445,257
Other interest income	150,882			485,679			455,622			106,082			150,786
Other income	555,328			294,328			—			—			—
Gain on sale of assets held for sale	—			—			—			862,865			—
Gain on early extinguishment of debt	—			—			435,395			—			(68,218		)
Asset impairment charge - Weatherford	—			—			(2,528,852		)	—			—
Provision for loss on receivables	(452,700		)	(952,700		)
Provision for loan loss	—			(4,242,571		)	(562,385		)	(1,401,731		)	—
Interest expense	(5,530,995		)	(5,441,700		)	(1,887,823		)	(3,307,854		)	(3,316,993		)
General and administrative expenses	(3,512,233		)	(2,764,970		)	(2,383,784		)	(1,997,661		)	(1,808,459		)
Income (loss) from continuing operations	2,763,762			(2,425,355		)	(134,673		)	(2,461,798		)	(1,063,867		)
Income (loss) from discontinued operations, (including gain on sale of $1,406,608 and $26,514,809 in 2012 and 2009, respectively)	2,232,276			752,192			(469,518		)	26,289,211			23,263
Net income (loss)	4,996,038			(1,673,163		)	(604,191		)	23,827,413			(1,040,604		)
Less: net income (loss) attributable to noncontrolling interest	549,194			570,759			(203,831		)	(11,540		)	(9,364		)
Net income (loss) - America First Tax Exempt Investors, L. P.	4,446,844			(2,243,922		)	(400,360		)	23,838,953			(1,031,240		)
Less: general partners' interest in net income	691,312			152,359			28,532			804,223			64,059
Unallocated (loss) income related to variable interest entities	(1,522,846		)	(1,289,539		)	(2,466,260		)	20,495,957			(3,756,894		)
Unitholders' interest in net income (loss)	$	5,278,378		$	(1,106,742	)	$	2,037,368		$	2,538,773		$	2,661,595
Unitholders' Interest in net income per unit (basic and diluted):
Income (loss) from continuing operations	$	0.09		$	(0.06	)	$	0.09		$	0.18		$	0.24
Income (loss) from discontinued operations	$	0.05		$	0.02		$	(0.02	)	$	(0.03	)	$	(0.04	)
Net income (loss), basic and diluted, per unit	$	0.14		$	(0.04	)	$	0.07		$	0.15		$	0.20
Distributions paid or accrued per BUC	$	0.5000		$	0.5000		$	0.5400		$	0.5450		$	0.5400
Weighted average number of BUCs outstanding, basic and diluted	37,367,600			30,122,928			27,493,449			16,661,969			13,512,928



	For the Year Ended December 31, 2012			For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			For the Year Ended December 31, 2009			For the Year Ended December 31, 2008


Investments in tax-exempt mortgage revenue bonds, at fair value	$	45,703,294		$	26,542,565		$	27,115,164		$	69,399,763		$	44,492,526
Tax-exempt mortgage revenue bonds held in trust, at fair value	$	99,534,082		$	109,152,787		$	73,451,479		$	—		$	—
Public housing capital fund trusts, at fair value	$	65,389,298		$	—		$	—		$	—		$	—
Mortgage-backed securities, at fair value	$	32,121,412		$	—		$	—		$	—		$	—
Real estate assets, net	$	85,488,292		$	75,268,936		$	51,750,123		$	61,148,393		$	55,307,206
Total assets of discontinued operations	$	32,580,427		$	37,494,700		$	33,714,886		$	31,891,383		$	34,283,305
Total assets	$	413,150,755		$	297,976,545		$	241,607,249		$	190,770,720		$	157,863,276
Total debt of continuing operations	$	217,067,507		$	148,137,455		$	99,972,100		$	59,783,065		$	66,154,371
Total debt of discontinued operations	$	—		$	10,779,428		$	6,281,882		$	25,697,122		$	41,319,656
Cash flows provided by (used in) operating activities	$	7,482,090		$	10,229,300		$	2,200,893		$	(339,254	)	$	4,445,215
Cash flows (used in) provided by investing activities	$	(97,296,115	)	$	(31,811,420	)	$	(48,549,857	)	$	11,822,244		$	(16,598,170	)
Cash flows provided by (used in) financing activities	$	99,932,112		$	28,518,485		$	42,345,477		$	(1,563,495	)	$	4,692,149
Cash Available for Distribution ("CAD")⁽¹⁾	$	12,288,089		$	10,608,768		$	9,513,494		$	8,708,527		$	6,248,920

⁽¹⁾ To calculate CAD, amortization expense related to debt financing costs and bond reissuance costs, Tier 2 income due to the general partner (as defined in the Agreement of Limited Partnership), interest rate derivative income or expense (including adjustments to fair value), provision for loan losses, provision for loss on receivables, impairments on assets, deferred gain and related interest, bond discount amortization net of cash received, losses related to consolidated VIEs, and depreciation and amortization expense on MF Property assets are added back to the Company's net income (loss) as computed in accordance with GAAP. The Company uses CAD as a supplemental measurement of its ability to pay distributions. The Company believes that CAD provides relevant information about its operations and is necessary along with net income (loss) for understanding its operating results.



	2012			2011			2010			2009			2008
Net income (loss) - America First Tax Exempt Investors L.P.	$	4,446,844		$	(2,243,922	)	$	(400,360	)	$	23,838,953		$	(1,031,240	)
Net (loss) income related to VIEs and eliminations due to consolidation	1,522,846			1,289,539			2,466,260			(20,495,957		)	3,756,894
Net income (loss) before impact of VIE consolidation	5,969,690			(954,383		)	2,065,900			3,342,996			2,725,654
Change in fair value of derivatives and interest rate derivative amortization	944,541			2,083,521			(571,684		)	830,142			721,102
Depreciation and amortization expense (Partnership only)	3,447,316			2,281,541			1,337,859			1,625,120			1,298,594
Provision for loss on receivables	452,700			952,700			—			—			—
Provision for loan loss	—			4,242,571			1,147,716			1,696,730			—
Deposit liability gain - Ohio sale agreement	—			—			1,775,527			—			—
Tier 2 Income distributable to the General Partner ⁽¹⁾	(657,933		)	(170,410		)	(472,246		)	(802,909		)	(38,336		)
Asset impairment charge - Weatherford	—			—			2,716,330			—			—
Depreciation and amortization related to discontinued operations	452,942			887,492			1,172,771			1,888,953			1,541,906
Loss on bond sale	—			—			—			127,495			—
Bond purchase discount accretion (net of cash received)	160,464			(100,998		)	(403,906		)	—			—
Ohio and Greens deferred interest	1,518,369			1,390,056			745,227			—			—
CAD	$	12,288,089		$	10,612,090		$	9,513,494		$	8,708,527		$	6,248,920
Weighted average number of units outstanding,
basic and diluted	37,367,600			30,122,928			27,493,449			16,661,969			13,512,928
Net income (loss), basic and diluted, per unit	$	0.14		$	(0.04	)	$	0.07		$	0.15		$	0.20
Total CAD per unit	$	0.33		$	0.35		$	0.35		$	0.52		$	0.46
Distributions per unit	$	0.5000		$	0.5000		$	0.5000		$	0.5450		$	0.5400

⁽¹⁾As described in Note 2 to the consolidated financial statements, Net Interest Income representing contingent interest and Net Residual Proceeds representing contingent interest (Tier 2 income) will be distributed 75% to the unitholders and 25% to the General Partner. This adjustment represents the 25% of Tier 2 income due to the General Partner. For the year ended 2012, the Tier 2 income is approximately $557K recognized on the Arbors at Hickory Ridge mortgage revenue bond re-structuring, $668K recognized on the GMF-Madison and GMF-Warren/Tulane tax exempt revenue bond sale and $1.4 million recognized on the sale of the MF Properties. For the year ended December 31, 2011, the Tier 2 income is approximately $445K recognized on the Briarwood tax-exempt mortgage revenue bond retirement and approximately $308K of contingent interest recognized upon the Clarkson tax-exempt mortgage revenue bond retirement. For the second quarter of 2010, the deferred gain on the sale of the Ohio Properties generated approximately $1.8 million and contingent interest generated approximately $33K of Tier 2 income. For 2009, the Tier 2 income distributable to the General Partner was generated by the early redemption of Woodbridge - Bloomington and Woodbridge - Louisville tax-exempt mortgage revenue bond investments, the sale of Oak Grove, and contingent interest received from Fairmont Oaks and Lake Forest Apartments. For 2008, Lake Forest generated approximately $45,000, Fairmont Oaks generated approximately $54,000, and Iona Lakes generated approximately $54,000 of Tier 2 income.

The “Company” refers to the consolidated financial statements reported in this Form 10-K which include the assets, liabilities, and results of operations of the Partnership, its Consolidated Subsidiaries and three other consolidated entities in which the Partnership does not hold an ownership interest but which own multifamily apartment properties financed with tax-exempt mortgage revenue bonds held by the Partnership and which are treated as variable interest entities ("VIEs") of which the Partnership has been determined to be the primary beneficiary (“Consolidated VIEs”). All significant transactions and accounts between the Partnership and the VIEs have been eliminated in consolidation.

Tax-exempt Mortgage Revenue Bonds. On December 31, 2012, the Partnership owned 22 federally tax-exempt mortgage revenue bonds with an aggregate outstanding principal amount of $198.6 million. These bonds were issued by various state and local housing authorities in order to provide construction and/or permanent financing of 20 multifamily residential apartments containing a total of 3,880 rental units located in the states of Florida, Illinois, Iowa, Kansas, Kentucky, Minnesota, North Carolina, Ohio, South Carolina, Tennessee, and Texas. In each case the Partnership owns, either directly or indirectly, 100% of the bonds issued for these properties. Each bond is secured by a mortgage or deed of trust on the financed apartment property. The properties underlying the fourteen non-consolidated tax-exempt mortgage revenue bonds contain a total of 2,700 rental units at December 31, 2012. Two bonds secured by the three Ohio Properties containing 362 rental units and two bonds secured by the Greens Property containing 168 rental units are eliminated in consolidation in the Company's financial statement (see Note 3 to the consolidated financial statements) and the multifamily apartment properties are reported as discontinued operations. As of December 31, 2011, the properties underlying the fifteen non-consolidated tax-exempt mortgage revenue bonds contain a total of 2,947 rental units.

The tax-exempt bond segment reported revenue of approximately $12.2 million, interest expense of approximately $3.5 million and income from continuing operations of approximately $4.1 million for the year ended December 31, 2012. The tax-exempt bond investments segment reported revenue of approximately $12.6 million and $11.1 million, interest expense of approximately $4.5 million and $1.8 million and loss from continuing operations of approximately $0.4 million versus income from continuing operations of approximately $2.4 million for the years ended December 31, 2011 and 2010. The majority of the increase in income from continuing operations between 2011 to 2012 resulted from a $4.2 million impairment of the Iona Lakes taxable loan in 2011 and no taxable loan impairments in 2012. The remaining reason for the increase is due to the non-cash change in the fair value of the interest rate derivatives; which was a loss of $2.1 million and approximately $945,000 in 2011 and 2012, respectively. The approximately $2.7 million change in income from operations between 2011 versus 2010 can also be attributed to the $4.2 million impairment of the Iona Lakes taxable loan in 2011 versus an approximately $560,000 impairment of the Woodland Park and Ashley Square/Cross Creek cross-collateralized loans offset by the additional $1.5 million of revenue attributed to additional bonds purchased in 2011.

Public Housing Capital Fund Trusts' Certificates ("PHC Certificates"). The PHC Certificates, acquired during 2012, consist of custodial receipts evidencing loans made to a number of public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by HUD under HUD's Capital Fund Program. At December 31, 2012, the Company owns PHC Certificates with an aggregate outstanding principal amount of $65.3 million. The Public Housing Capital Fund Trust Certificates segment reported revenue of approximately $1.6 million, interest expense of approximately $542,000, and income from continuing operations of $1 million for the year ending December 31, 2012.

MF Properties. To facilitate its investment strategy of acquiring additional tax-exempt mortgage revenue bonds secured by multifamily apartment properties, the Partnership may acquire ownership positions in MF Properties, in order to ultimately restructure the property ownership through a sale of the MF Properties. The Partnership expects each of these MF Properties to eventually be sold to a not-for-profit entity or in connection with a syndication of LIHTCs under Section 42 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Partnership expects to acquire tax-exempt mortgage revenue bonds issued to provide debt financing for these properties at the time the property ownership is restructured. The Partnership expects to provide the tax-exempt mortgage revenue bonds to the new property owners as part of the restructuring. As of December 31, 2012, the Partnership’s wholly-owned subsidiaries held interests in three entities that own MF Properties containing a total of 504 rental units. In addition, the Partnership's subsidiaries own four MF Properties, Arboretum, DeCordova, Eagle Village and Weatherford containing a total of 842 rental units. The MF Properties' operating goal is similar to that of the properties underlying the Partnership's tax-exempt mortgage revenue bonds. As of December 31, 2011, the Partnership’s wholly-owned subsidiaries held interests in five entities that own MF Properties containing a total of 602 rental units which includes the Greens of Pine property, Eagle Ridge, and Commons atof which six Churchland property which were all legally sold in 2012. Also as of December 31, 2011, the Partnership's subsidiaries own four MF Properties, Arboretum, DeCordova, Eagle Village and Weatherford. Arboretum, Eagle Village and DeCordova contain a total of 732 rental units and the construction of 76 units was in process at Weatherford as of December 31, 2011 (see Note 2 and Note 8 to the consolidated financial statements).

The MF Properties segment reported revenue of approximately $7.8 million and $5.1 million and a loss from continuing operations of approximately $1.1 million and $783,000 for the years ended December 31, 2012 and 2011. The increase in revenue is due to having a full years worth of revenue from the Arboretum and Eagle Village properties which were acquired during 2011 and the Maples on 97th property which was acquired in August 2012. This increase in revenue was more than offset by an increase in real estate operating expenses and depreciation expense also attributed to these acquired properties as well as real estate operating expenses and depreciation expense from the Weatherford property which finalized construction during the first half of 2012 and is in lease-up at December 31, 2012.

Discontinued Operations. As of December 31, 2012, the Partnership’s wholly-owned subsidiaries held interests in three Ohio Properties containing 362 rental units and the Greens Property containing 168 rental units which are reported as discontinued operations (see Note 2 and Note 10 to the consolidated financial statements). The income (loss) from discontinued operations was approximately $2.2 million in 2012, $752,000 in 2011, and $(470,000) in 2010. The increase in income between 2011 and 2012 can be attributed to the $1.4 million gain realized from the sales of the Commons at Churchland and Eagle Ridge properties in 2012. The change from loss to income from 2010 to 2011 can be attributed to the one-time payment in 2010 of AFCA 2 fees by the Ohio Properties and other costs related to the sale of the Ohio Properties.

Tender Option Bond ("TOB") Financing. During 2012, the Company closed on eight new TOB Trusts all issued under the terms of the Company's Master Trust Agreement with DB. At December 31, 2012, the Company owes approximately $49.0 million under three TOB Trusts which are securitized by PHC Certificates ("PHC TOB Trusts") with outstanding principal balance of approximately $65.3 million, owes approximately $25.1 million under five TOB Trusts which are securitized by mortgage-backed securities ("MBS TOB Trusts") with a par value of approximately $31.6 million, and owes approximately $9.8 million securitized by a $13.2 million tax-exempt mortgage revenue bond (see Note 11 to the consolidated financial statements).

Tax Exempt Bond Securitization ("TEBS") Financing. As of September 1, 2010, the Partnership and its Consolidated Subsidiary ATAX TEBS I, LLC, entered into a number of agreements relating to along-term debt financing facility provided through the securitization of 13 tax-exempt mortgage revenue bonds pursuant to Freddie Mac's TEBS program. The gross proceeds from TEBS Financing were approximately $95.8 million. After the payment of transaction expenses, the Company received net proceeds from the TEBS Financing of approximately $90.4 million and the Company owes approximately $94.0 million at December 31, 2012 (see Note 11 to the consolidated financial statements).

Economic Conditions. The disruptions in domestic and international financial markets, and the resulting availability of debt financing has improved since the restrictions seen in 2008. While economic trends show signs of a stabilization of the economy and debt availability has increased, overall availability remains limited and the cost of credit may continue to be adversely impacted. These conditions, in our view, will continue to create potential investment opportunities for the Partnership. We believe this continues to create opportunities to acquire existing tax-exempt bonds from distressed holders at attractive yields. The Partnership continues to evaluate potential investments in bonds which are available on the secondary market. We believe many of these bonds will meet our investment criteria and that we have a unique ability to analyze and close on these opportunities while maintaining our ability and willingness to also participate in primary market transactions.

Current credit and real estate market conditions also create opportunities to acquire quality MF Properties from distressed owners and lenders. Our ability to restructure existing debt together with the ability to improve the operations of the apartment properties through our affiliated property management company can position these MF Properties for an eventual financing with tax-exempt mortgage revenue bonds meeting our investment criteria and that will be supported by a valuable and well-run apartment property. We believe we can selectively acquire MF Properties, restructure debt and improve operations in order to create value to our unitholders in the form of a strong tax-exempt bond investment.

On the other hand, continued economic weakness in some markets may limit our ability to access additional debt financing that the Partnership uses to partially finance its investment portfolio or otherwise meet its liquidity requirements. In addition, the economic conditions including a slow job growth and low home mortgage interest rates have had a negative effect on some of the apartment properties which collateralize our tax-exempt bond investments and our MF Properties in the form of lower occupancy. While some properties have been negatively effected, overall economic occupancy (which is adjusted to reflect rental concessions, delinquent rents and non-revenue units such as model units and employee units) of the apartment properties that the Partnership has financed with tax-exempt mortgage revenue bonds was approximately at 86% during 2012 as compared to 85% during 2011. Overall economic occupancy of the MF Properties has remained the same at approximately 76% during 2012 and 2011. Based on the growth statistics in the market, we expect to see continued improvement in property operations and profitability. We expect that property operations will improve in 2013 and that rental rate and occupancy trends will be continue to be positive.



			Number	Percentage of Occupied				Economic Occupancy ⁽¹⁾ for
		Number	of Units	Units as of December 31,				the period ended December 31,
Property Name	Location	of Units	Occupied	2012		2011		2012		2011

Non-Consolidated Properties
Arbors of Hickory Ridge ⁽²⁾	Memphis, TN	348	319	92	%	n/a		85	%	n/a
Ashley Square Apartments	Des Moines, IA	144	141	98	%	97	%	95	%	96	%
Autumn Pines	Humble, TX	250	230	92	%	92	%	96	%	92	%
Bella Vista Apartments	Gainesville, TX	144	131	91	%	96	%	88	%	90	%
Bridle Ridge Apartments	Greer, SC	152	140	92	%	93	%	92	%	88	%
Brookstone Apartments	Waukegan, IL	168	159	95	%	95	%	91	%	91	%
Cross Creek Apartments	Beaufort, SC	144	128	89	%	85	%	79	%	83	%
Iona Lakes Apartments	Ft. Myers, FL	350	310	89	%	88	%	69	%	69	%
Runnymede Apartments	Austin, TX	252	241	96	%	94	%	95	%	88	%
South Park Ranch Apartments	Austin, TX	192	187	97	%	98	%	96	%	93	%
Villages at Lost Creek	San Antonio, TX	261	249	95	%	97	%	90	%	87	%
Woodland Park	Topeka, KS	236	211	89	%	91	%	84	%	85	%
Woodlynn Village	Maplewood, MN	59	58	98	%	100	%	98	%	97	%
		2,700	2,504	93	%	94	%	87	%	87	%

Consolidated VIEs
Bent Tree Apartments	Columbia, SC	232	210	91	%	93	%	81	%	79	%
Fairmont Oaks Apartments	Gainesville, FL	178	154	87	%	89	%	78	%	78	%
Lake Forest Apartments	Daytona Beach, FL	240	217	90	%	88	%	78	%	78	%
		650	581	89	%	90	%	79	%	78	%

MF Properties
Arboretum	Omaha, NE	145	125	86	%	80	%	72	%	72	%
Eagle Village ⁽²⁾	Evansfille, IN	511	360	70	%	70	%	75	%	n/a
Glynn Place	Brunswick, GA	128	98	77	%	73	%	67	%	68	%
Maples on 97th ⁽²⁾	Omaha, NE	258	222	86	%	n/a		84	%	n/a
Meadowview	Highland Heights, KY	118	116	98	%	95	%	89	%	90	%
Residences at DeCordova ⁽³⁾	Granbury, TX	110	89	81	%	95	%	77	%	86	%
Residences at Weatherford ⁽³⁾	Weatherford, TX	76	55	72	%	n/a		n/a		n/a
		1,346	1,065	79	%	77	%	76	%	76	%

Arbors of Hickory Ridge - Arbors of Hickory Ridge Apartments is located in Memphis, Tennessee and contains 348 units. The tax-exempt mortgage revenue bond owned by the Partnership was sponsored by the 501(c)3 not-for-profit owner of Arbors of Hickory Ridge. The tax-exempt mortgage revenue bond has an outstanding principal amount of $11.5 million and has a base interest rate of 6.25% per annum. The bond does not provide for contingent interest. This bond was purchased at par in December 2012. Arbors of Hickory Ridge's operations resulted in net operating income of $568,000 before payment of bond debt service on net revenue of approximately $1.23 million in 2012. The property is current on the payment of principal and interest on the Partnership's bond as of December 31, 2012.

Ashley Square - Ashley Square Apartments is located in Des Moines, Iowa and contains 144 units. The tax-exempt mortgage revenue bond owned by the Partnership is a traditional “80/20” bond issued prior to the Tax Reform Act of 1986. This bond requires that 20% of the rental units be set aside for tenants whose income does not exceed 80% of the area median income, without adjustment for household size. The bond has an outstanding principal amount of $5.3 million and has a base interest rate of 6.25% per annum. The bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest. The bond accrues contingent interest at a rate of 3.0% annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property. To date, the property has not paid any contingent interest and the Partnership has not recognized any contingent interest income related to this bond. Ashley Square's operations resulted in net operating income of $644,000 and $663,000 before payment of bond debt service on net revenue of approximately $1.36 million and $1.38 million in 2012 and 2011, respectively. The decrease in net operating income is the result of an increase in administrative expenses and an increase in real estate taxes. The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Autumn Pines - Autumn Pines is located in Humble, Texas and contains 250 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $13.2 million and has a base interest rate of 5.8% per annum. The bond does not provide for contingent interest. The bond was purchased in November 2010 at a discount from par for approximately $12.3 million providing an approximate effective yield to maturity of 7.0%. Autumn Pines' operations resulted in net operating income of $1.24 million and $1.19 million before payment of bond debt service on net revenue of approximately $2.39 million and $2.38 million in 2012 and 2011, respectively. The improvement in net operating income from 2011 is primarily the result of an increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Bella Vista - Bella Vista Apartments is located in Gainesville, Texas and contains 144 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $6.6 million and has a base interest rate of 6.15% per annum. The bond does not provide for contingent interest. Bella Vista's operations resulted in net operating income of $639,000 and $583,000 before payment of debt service on net revenue of approximately $1.17 million and $1.12 million in 2012 and 2011, respectively. The increases in net operating income is due to a decrease in utility and repair and maintenance expenses and the increase in revenue is due to higher average rents. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Bridle Ridge - Bridle Ridge Apartments is located in Greer, South Carolina and contains 152 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $7.8 million and a base interest rate of 6.0% per annum. The bond does not provide for contingent interest. Bridle Ridge's operations resulted in net operating income of approximately $717,000 and $702,000 before payment of bond debt service on net revenue of approximately $1.14 million and $1.06 million in 2012 and 2011, respectively. The increase in net operating income is due to an increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Brookstone - Brookstone Apartments is located in Waukegan, Illinois and contains 168 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $9.4 million and a base interest rate of 5.45% per annum. The bond does not provide for contingent interest. These bonds were purchased in October 2009 at a discount from par for approximately $7.3 million providing an approximate yield to maturity of 7.5%. Brookstone's operations resulted in net operating income of $895,000 and $905,000 before payment of bond debt service on net revenue of approximately $1.35 million and $1.33 million in 2012 and 2011, respectively. The decrease in net operating income is due to an increase in utility and salary expenses. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Cross Creek - Cross Creek Apartments is located in Beaufort, South Carolina and contains 144 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $8.6 million and has a base interest rate of 6.15% per annum. The bond does not provide for contingent interest. These bonds were purchased in April 2009 at a discount from par for approximately $5.9 million providing an approximate yield to maturity of 7.4%. Cross Creek's operations resulted in net operating income of $453,000 and $411,000 before payment of bond debt service on net revenue of approximately $1.12 million and $1.17 million in 2012 and 2011, respectively. This increase in net operating income is due to a decrease in real estate taxes offset by a decrease in economic occupancy. The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Iona Lakes - Iona Lakes Apartments is located in Fort Myers, Florida and contains 350 units. The tax-exempt mortgage revenue bond owned by the Partnership is a traditional “80/20” bond issued prior to the Tax Reform Act of 1986. The bond has an outstanding principal amount of $15.5 million and has a base interest rate of 6.9% per annum. The bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest. The bond accrues contingent interest at a rate of 2.6% annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property. To date, the Partnership has realized $8,001 contingent interest income related to this bond. Iona Lake's operations resulted in net operating income of $1.11 million and $1.08 million before payment of bond debt service on net revenue of approximately $2.68 million and $2.67 million in 2012 and 2011, respectively. The increase in net operating income was a result of a decrease in advertising and utility expenses. The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Runnymede Apartments - Runnymede Apartments is located in Austin, Texas and contains 252 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $10.6 million and has a base interest rate of 6.00%. The bond does not provide for contingent interest. Runnymede's operations resulted in net operating income of $1.10 million and $995,000 before payment of bond debt service on net revenue of approximately $2.18 million and $2.07 million in 2012 and 2011 respectively. The increase in net operating income is due to an increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

South Park Ranch Apartments - South Park Ranch Apartments is located in Austin, Texas and contains 192 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $13.9 million and has a base interest rate of 6.13% per annum. The bond does not provide for contingent interest. These bonds were purchased in August 2009 at a discount from par for approximately $11.9 million providing an approximate yield to maturity of 6.8%. South Park's operations resulted in net operating income of $1.23 million and $1.18 million before payment of bond debt service on net revenue of approximately $1.95 million and $1.86 million in 2012 and 2011, respectively. The increase in net operating income is due to an increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Villages at Lost Creek - Villages at Lost Creek is located in San Antonio, Texas and contains 261 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond. The bond has an outstanding principal amount of $18.3 million and has a base interest rate of 6.25% per annum. The bond does not provide for contingent interest. The bond were purchased in May 2010 at a discount from par for approximately $15.9 million providing an approximate yield to maturity of 7.6%. Lost Creek's operations resulted in net operating income of approximately $1.64 million and $1.54 million before payment of bond debt service on net revenue of approximately $2.45 million and $2.42 million in 2012 and 2011, respectively. The increase in net operating income is due to an increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Woodland Park - Woodland Park is located in Topeka, Kansas and contains 236 units. The tax-exempt mortgage revenue bonds owned by the Partnership are private activity housing bonds. The bonds were issued in a Series A and B. The Series A bond has an outstanding principal amount of $15.0 million and a base interest rate of 6.0% per annum. The Series B bond has an outstanding principal amount of $0.7 million and a base interest rate of 8.0% per annum. The bonds do not provide for contingent interest. In May 2010, there were insufficient funds available to the property to meet debt service requirements and the property owner did not provide additional capital to fund the shortfall. As a result, a payment default on the bonds has occurred. In order to protect its investment, the Partnership issued a formal notice of default through the bond trustee and started the judicial foreclosure process. On February 28, 2013, the court issued a ruling confirming the bond trustee's right to foreclose its first mortgage on the Woodland Park property and confirming that the first mortgage securing the bond is senior to mechanic's liens filed on the property. Although the court's ruling is subject to appeal, the bond trustee has commenced foreclosure proceeding and we believe the Partnership will be able to acquire title to the Woodland Property within 75 days. Upon successfully taking ownership of Woodland Park, the Partnership will have the option of selling the property after converting it to 100% market-rate rents or maintaining the property as a rent restricted property and seeking to place new tax-exempt financing on the property and acquire the bonds. Although the foreclosure process has taken longer than originally anticipated, the Company continues to believe that the fair value of the Woodland Park property equals or exceeds the carrying amount of the Woodland Park tax-exempt mortgage revenue bond.

As of December 31, 2011, the property had 215 units leased out of total available units of 236, or 91% physical occupancy. As of December 31, 2012 the occupancy had decreased to 211 units leased, or 89% physical occupancy. America First Properties Management Company, LLC, an affiliate of AFCA 2, provides management for this property. Measures have been implemented that we believe will maintain the physical occupancy of this property at or above 89% for 2013, which will ensure ensure that net operating income is in line with what had been projected for 2013 in the most recent evaluation for other than temporary impairment. Woodland's operations resulted in net operating income of $562,000 and $754,000 before payment of bond debt service on revenue of $1.61 million and $1.55 million in 2012 and 2011, respectively. The decrease in operating income is due to an increase in real estate taxes, salary and administrative expenses for the year. The Partnership has completed an impairment evaluation of the Woodland Park bond and concluded that no other-than-temporary impairment existed at December 31, 2012 and 2011 (see Note 2 for discussion of the Partnership's impairment testing method). However, the evaluation identified that the interest receivable on the Woodland Park bond was impaired and an approximate $452,700 and $953,000 provision for loss on interest receivables was recorded in 2012 and 2011. The Partnership will record an allowance and bad debt expense against the bond interest receivable accrued in the future until the Partnership acquires title to the Woodland Park property through the foreclosure process.

Woodlynn Village - Woodlynn Village is located in Maplewood, Minnesota and contains 59 units. The tax-exempt mortgage revenue bond owned by the Partnership is a private activity housing bond issued in conjunction with the syndication of LIHTCs. The bond has an outstanding principal amount of $4.5 million and has a base interest rate of 6.0% per annum. The bond does not provide for contingent interest. Woodlynn Village's operations resulted in net operating income of $399,000 and $402,000 before payment of bond debt service on net revenue of approximately $606,000 and $599,000 in 2012 and 2011 respectively. The decrease in net operating income is due primarily to an increase in real estate taxes and utility expenses offset by a slight increase in economic occupancy. The property is current on principal and interest payments on the Partnership's bond as of December 31, 2012.

Bent Tree - Bent Tree Apartments is located in Columbia, South Carolina and contains 232 units. The tax-exempt mortgage revenue bond owned by the Partnership is a traditional “80/20” bond issued prior to the Tax Reform Act of 1986. The bond has an outstanding principal amount of $7.6 million and has a base interest rate of 6.25% per annum. The bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest. The bond accrues contingent interest at a rate of 1.9% annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property. To date, the property has not paid any contingent interest and the Partnership has not recognized any contingent interest income related to this bond. Bent Tree's operations resulted in net operating income of $571,000 and $526,000 before payment of bond debt service on net revenue of approximately $1.58 million and $1.51 million in 2012 and 2011, respectively. The increase in net operating income is due to an increase in economic occupancy along with a decrease in utilities expenses and repair and maintenance expenses. The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Fairmont Oaks - Fairmont Oaks Apartments is located in Gainesville, Florida and contains 178 units. The tax-exempt mortgage revenue bond owned by the Partnership is a traditional “80/20” bond issued prior to the Tax Reform Act of 1986. The bond has an outstanding principal amount of $7.4 million and has a base interest rate of 6.3% per annum. The bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest. The bond accrues contingent interest at a rate of 2.2% annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property. To date, the Partnership has realized $57,000 in contingent interest income related to this bond. Fairmont Oak's operations resulted in net operating income of $626,000 and $647,000 before payment of bond debt service on net revenue of approximately $1.39 million and $1.38 million in 2012 and 2011, respectively. The decrease in net operating income is the result of an increase in real estate taxes and property insurance. The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Lake Forest - Lake Forest Apartments is located in Daytona Beach, Florida and contains 240 units. The tax-exempt mortgage revenue bond owned by the Partnership is a traditional “80/20” bonds issued prior to the Tax Reform Act of 1986. The bond has an outstanding principal amount of $9.1 million and has a base interest rate of 6.25% per annum. The bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest. The bond accrues contingent interest at a rate of 1.6% annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property. To date, the Partnership has realized approximately $21,000 of contingent interest income related to this bond. Lake Forest's operations resulted in net operating income of $694,000 and $753,000 before payment of bond debt service on net revenue of approximately $1.84 million and $1.82 million in 2012 and 2011, respectively. The decrease in net operating income is a result of an increase in administrative expense and repair and maintenance expenses . The property is current on the payment of principal and base interest on the Partnership's bond as of December 31, 2012.

Residences at DeCordova - This property is a senior (55+) affordable housing project located in Granbury, Texas in the Dallas-Fort Worth area. The Company acquired ownership of the property through foreclosure in February 2011. At this time, the Partnership is operating the 110 unit property as a market rate rental property. DeCordova's operations resulted in recognition by the Company of net operating income of approximately $344,000 on net revenue of approximately $734,000 in 2012. In February 2012, the Company secured a $2.0 million construction loan for the expansion of the DeCordova property and an additional 34 units were constructed and completed adjacent to the first phase in August 2012. The construction loan is with an unrelated third party. Upon lease stabilization, the Partnership will evaluate its options in order to recoup its investment.

Residences at Weatherford - This property is a senior (55+) affordable housing project with 76 units located in Weatherford, Texas in the Dallas-Fort Worth area. The Company acquired ownership of the property through foreclosure in February 2011. In July 2011, the Company obtained a construction loan secured by the DeCordova and Weatherford properties. The $6.4 million construction loan funded the completion of Weatherford and is with an unrelated third party. This property was completed in April 2012 and the Partnership is operating the property as a market rate rental property. Weatherford's operations resulted in recognition by the Company of net operating loss of approximately $73,000 on net revenue of approximately $255,000 in 2012. The Partnership expects to operate the property as a market rate property and, upon lease stabilization, will evaluate its options in order to recoup its investment.

There are four properties which serve as the collateral for tax-exempt mortgage revenue bonds owned by the Partnership. These tax-exempt mortgage revenue bonds are eliminated upon consolidation because 1) the Partnership previously owned the four multi-family properties prior to purchasing the tax-exempt mortgage revenue bonds and 2) the Partnership has yet to be able to recognize for accounting purposes the sale of these MF Properties in conjunction with purchasing the tax-exempt mortgage revenue bonds. The limited partner owners of each of these four properties have commitments to make sufficient capital contributions that will allow for real estate sales to be recognized upon the investment by such limited partner owners. The Partnership currently expects to recognize real estate sales for these four properties during 2013. The following is a summary of the financial performance of these four properties:

Crescent Village - Crescent Village Townhomes is located in Cincinnati, Ohio and contains 90 units and was acquired in July 2007. The consolidation of Crescent Village's operations resulted in recognition by the Company of net operating income of approximately $393,000 and $324,000 on net revenue of approximately $825,000 and $731,000 in 2012 and 2011, respectively. The increase in net operating income is the result of an increase in economic occupancy along with a decrease in utility and advertising expenses. The property is current on the payment of principal and interest on the Partnership's bonds as of December 31, 2012.

Greens of Pine Glen - Greens of Pine Glen Apartments is located in Durham, North Carolina and contain 168 units and was acquired in February 2009. The Greens of Pine Glen Apartment's operations resulted in the recognition by the Company of approximately $585,000 and $588,000 of net operating income on revenue of approximately $1.39 million and $1.33 million during 2012 and 2011, respectively. The decrease of net operating income is the result of an increase in salaries expenses, offset by an increase in economic occupancy. The property is current on the payment of principal and interest on the Partnership's bonds as of December 31, 2012.

Post Woods - Post Woods Townhomes is located in Reynoldsburg, Ohio and contains 180 units and was acquired in July 2007. The consolidation of Post Woods' operations resulted in the recognition by the Company of net operating income of approximately $699,000 and $747,000 on net revenue of approximately $1.60 million and $1.49 million in 2012 and 2011, respectively. The decrease in net operating income is a result of an increase real estate taxes, salary and repair and maintenance expenses, offset by an increase in economic occupancy. The property is current on the payment of principal and interest on the Partnership's bonds as of December 31, 2012.

Willow Bend - Willow Bend Townhomes is located in Columbus (Hilliard), Ohio and contains 92 units and was acquired in July 2007. The consolidation of Willow Bend's operations resulted in recognition by the Company of net operating income of approximately $336,000 and $351,000 on net revenue of approximately $832,000 and $788,000 in 2012 and 2011, respectively. The decrease in net operating income is the result of an increase in real estate taxes and administrative expenses, offset by an increase in economic occupancy. The property is current on the payment of principal and interest on the Partnership's bonds as of December 31, 2012.



	For the Year Ended December 31, 2012		For the Year Ended December 31, 2011			For the Year Ended December 31, 2010


Revenues:
Property revenues	$	12,654,530	$	10,976,250		$	9,106,667
Investment income	11,078,467		9,497,281			6,881,314
Gain on sale and retirement of bonds	680,444		445,257			—
Other interest income	150,882		485,679			455,622
Other income	555,328		294,328			—
Gain on early extinguishment of debt	—		—			435,395
Total Revenues	25,119,651		21,698,795			16,878,998

Expenses:
Real estate operating (exclusive of items shown below)	7,877,931		6,758,707			6,060,676
Provision for loss on receivables	452,700		952,700			—
Provision for loan loss	—		4,242,571			562,385
Asset impairment charge - Weatherford	—		—			2,528,852
Depreciation and amortization	4,982,030		3,963,502			3,590,151
Interest	5,530,995		5,441,700			1,887,823
General and administrative	3,512,233		2,764,970			2,383,784
Total Expenses	22,355,889		24,124,150			17,013,671
Income (loss) from continuing operations	2,763,762		(2,425,355		)	(134,673		)
Income (loss) from discontinued operations (including gain on sale of MF Properties of $1,406,608 in 2012)	2,232,276		752,192			(469,518		)
Net income (loss )	4,996,038		(1,673,163		)	(604,191		)
Net income (loss) attributable to noncontrolling interest	549,194		570,759			(203,831		)
Net income (loss) - America First Tax Exempt Investors, L. P.	$	4,446,844	$	(2,243,922	)	$	(400,360	)

Property revenues. Property revenues increased approximately $2.7 million from the addition of Eagle Village and Arboretum which was acquired after the first quarter 2011, DeCordova and Weatherford which began leasing in 2012, and Maples on 97th which was acquired in third quarter 2012. Offsetting these increases was an approximate $1.1 million reduction in revenue due to the deconsolidation of Iona Lakes (which occurred in June 2011). Annual net rental revenues per unit related to the MF Properties increased to $5,705 per unit in 2012 from $4,974 in 2011. The annual net rental revenues per unit related to the Consolidated VIEs increased to approximately $7,064 in 2012 from approximately $6,973 in 2011.

Investment income. Investment income increased during 2012 as compared to 2011 due to offsetting factors. The increases are due to the additional tax-exempt interest payments of approximately $2.3 million from the acquisitions of the PHC Certificates, the Arbors at Hickory Ridge tax-exempt mortgage revenue bond, the MBS, and the Vantage at Judson tax-exempt mortgage revenue bond in 2012 and approximately $444,000 due to the deconsolidation of Iona Lakes in the second quarter 2011. Offsetting these increases was an approximate $659,000 decrease attributable to the redemptions of Briarwood Manor Apartments and Clarkson College tax-exempt mortgage revenue bonds and approximately $230,000 due to the foreclosure of Weatherford in 2011.

Real estate operating expenses. Real estate operating expenses associated with the MF Properties and the Consolidated VIEs is comprised principally of real estate taxes, property insurance, utilities, property management fees, repairs and maintenance, and salaries and related employee expenses of on-site employees. A portion of real estate operating expenses are fixed in nature, thus a decrease in physical and economic occupancy would result in a reduction in operating margins. Conversely, as physical and economic occupancy increase, the fixed nature of these expenses will increase operating margins as these real estate operating expenses would not increase at the same rate as rental revenues. The overall increase in real estate operating expenses was due to various factors. The Arboretum and Eagle Village properties reported approximately $507,000 of expenses which were not included in 2011, Weatherford reported approximately $328,000 of expenses as an MF Property for 2012 as it began lease-up in late March 2012, and DeCordova reported an additional approximate $129,000 due to the beginning lease-up of its 34 new units in third quarter 2012. In addition, Maples on 97th Apartments and the EAT reported approximately $468,000 of acquisition and operating expenses as it was acquired in third quarter 2012. The remaining increases were related to the existing VIEs and MF Properties normal operating expense increases in salaries, utilities, insurance and repair and maintenance. These increases in expenses were offset by approximately $678,000 reduction in operating expenses due to the deconsolidation of Iona Lakes in 2011.

Depreciation and amortization expense. Depreciation and amortization consists primarily of depreciation associated with the apartment properties of the Consolidated VIEs and the MF Properties, amortization associated with in-place lease intangible assets recorded as part of the purchase accounting for the acquisition of MF Properties and deferred finance cost amortization related to the closing of the TEBS and TOB Credit Facilities. The increase in depreciation and amortization expense from the 2011 to 2012 is related to approximately $1.3 million from the Arboretum property (acquired on March 31, 2011), the Eagle Village property acquired at the end of June 2011, the additional depreciation recorded once the Weatherford and DeCordova's construction was completed and placed in service in second and third quarter 2012, and the acquisition of Maples on 97th acquired in third quarter of 2012. Offsetting this increase is the approximate $317,000 decrease in depreciation and amortization expense due to the deconsolidation of Iona Lakes in second quarter 2011.

Interest expense. The increase in interest expense during 2012 compared to 2011 was due to offsetting factors. The Company's borrowing cost remained at approximately 2.7% per annum for both 2011 and 2012. However, the Company realized approximately $1.2 million increase in interest expense as a result of the higher average principal of outstanding debt in 2012 as compared to 2011. Offsetting this increase was the approximate $1.1 million decrease from the mark to market adjustment of the Company's derivatives. These interest rate derivatives do not qualify for hedge accounting and, accordingly, they are carried at fair value, with changes in fair value included in current period earnings within interest expense.

Property revenues. Property revenues increased mainly as a result of additional MF Properties. The Arboretum was acquired on March 31, 2011, and added approximately $1.8 million to property revenues during 2011. Eagle Village was acquired on June 29, 2011 and added approximately $945,000 to property revenues in 2011. Partially offsetting this increase was an approximately $1.4 million decrease in revenue due to the deconsolidation of Iona Lakes. The remaining increase is primarily attributable to the increased economic occupancy at the existing MF Properties year over year. Annual net rental revenues per unit related to the MF Properties decreased to $4,974 per unit in 2011 from $6,369 in 2010. This was due to the acqusition of the Eagle Village student housing project which was acquired in 2011. The annual net rental revenues per unit related to the Consolidated VIEs increased to approximately $6,973 in 2011 from approximately $6,888 in 2010.

Investment income. Investment income increased during 2011 due to a higher level of bond investments. Total bond investments at December 31, 2011 were approximately $135.7 million as compared to approximately $100.6 million at December 31, 2010. Interest payments of approximately $1.9 million were received from tax-exempt mortgage revenue bonds that the Company did not hold during 2010. The deconsolidation of Iona Lakes resulted in an approximate $635,000 increase in bond investment income during 2011 as compared to 2010. In addition, the Company realized approximately $308,000 of contingent interest from the Clarkson College bond retirement in second quarter 2011.

Real estate operating expenses. Real estate operating expenses increased from approximately $6.1 million in 2010 to approximately $6.8 million in 2011 due to the following offsetting factors. During 2011, real estate expenses increased approximately $1.2 million due to the addition of the Arboretum property, approximately $286,000 of which were acquisition related expenses, and approximately $667,000 due to the addition of the Eagle Village property. The deconsolidation of Iona Lakes reduced expenses by approximately $1.0 million when comparing 2011 to 2010. In addition, the Ohio Property rehabilitation caused a reduction in real estate taxes, insurance and repairs and maintenance expenses year over year.

Provision for loan loss. During 2011 and 2010, the Company determined that a portion of the taxable property loans were potentially impaired and an additional allowance for bad debt should be recorded. An allowance for bad debt and an associated provision for loan loss of approximately $4.2 million was recorded against the Iona Lakes taxable loan in 2011. In 2010, approximately $212,000 was recorded against the Woodland Park taxable loan and $350,000 was recorded against the cross collateralized Ashley Square and Cross Creek taxable loans as an allowance for bad debt and an associated provision for loan loss.

Asset impairment charge - Weatherford. As a result of a decision by the Texas Department of Housing and Community Affairs to terminate the anticipated Tax Credit Assistance Program funding for the Residences at Weatherford in October 2010, the Company determined that the property fixed assets and the associated tax-exempt mortgage revenue bond on this project were impaired and recorded an asset impairment charge of approximately $2.7 million in the third quarter of 2010. The resulting charge was attributable to the unitholders. In February 2011, the Company completed foreclosure proceedings on the bond issued on this property and now owns the property directly. No impairment charges were recorded on this project in 2011.

Depreciation and amortization expense. Depreciation and amortization consists primarily of depreciation associated with the apartment properties of the Consolidated VIEs and the MF Properties, amortization associated with in-place lease intangible assets recorded as part of the purchase accounting for the acquisition of MF Properties and deferred finance cost amortization related to the closing of the TEBS and TOB Credit Facilities. The increase in depreciation and amortization expense from 2010 to 2011 is related to offsetting factors. Approximately $742,000 of depreciation expense and approximately $163,000 of in-place lease amortization increases are directly related to the new MF Properties acquired in 2011. This was offset by the reduction of approximately $446,000 depreciation expense due to the deconsolidation of Iona Lakes and the $197,000 reduction of amortization expense related to reduced deferred financing costs. The remaining increase is attributable to depreciation on newly capitalized and newly acquired assets.

Interest expense. The increase in interest expense during 2011 compared to 2010 was due to offsetting factors. The Company's borrowing cost decreased from approximately 3.7% per annum in 2010 to approximately 2.7% resulting in an approximate decrease of $725,000 when comparing 2011 to 2010. Offsetting this decrease was an approximate $1.5 million increase resulting from the higher average principal of outstanding debt. The remaining approximate $2.7 million increase was the result of the mark to market adjustment of the Company's derivatives. These interest rate derivatives do not qualify for hedge accounting and, accordingly, they are carried at fair value, with changes in fair value included in current period earnings within interest expense.



	For the Year Ended December 31, 2012		For the Year Ended December 31, 2011			For the Year Ended December 31, 2010


Revenues:
Property revenues	$	7,846,812	$	5,066,443		$	1,619,229
Investment income	12,599,284		11,515,237			10,223,269
Gain on sale and retirement of bonds	680,444		445,257			—
Other interest income	150,882		485,679			488,427
Other income	557,300		189,340			—
Gain on early extinguishment of debt	—		—			435,395
Total Revenues	21,834,722		17,701,956			12,766,320
Expenses:
Real estate operating (exclusive of items shown below)	4,604,870		3,154,290			961,221
Provision for loss on receivables	452,700		952,700			—
Provision for loan loss	—		4,242,571			1,147,716
Asset impairment charge - Weatherford	—		—			2,716,330
Depreciation and amortization	3,447,316		2,281,541			1,337,859
Interest	5,530,995		5,441,700			1,887,823
General and administrative	3,512,233		2,764,970			2,383,784
Total Expenses	17,548,114		18,837,772			10,434,733
Net income (loss)	4,286,608		(1,135,816		)	2,331,587
Income (loss) from discontinued operations (including gain on sale of MF Properties of $1,408,608 in 2012)	2,232,276		752,192			(469,518		)
Net income (loss)	6,518,884		(383,624		)	1,862,069
Net income (loss) attributable to noncontrolling interest	549,194		570,759			(203,831		)
Net income (loss) - America First Tax Exempt Investors, L.P.	$	5,969,690	$	(954,383	)	$	2,065,900

Investment income. Investment income increased during 2012 as compared to 2011 due to offsetting factors. The increases are due to the additional tax-exempt interest payments of approximately $2.3 million from the the PHC Certificates, the Arbors at Hickory Ridge tax-exempt mortgage revenue bond, MBS, and the Vantage at Judson tax-exempt mortgage revenue bond acquired in 2012. Offsetting these increases was an approximate $659,000 decrease attributable to the redemptions of Briarwood Manor Apartments and Clarkson College tax-exempt mortgage revenue bonds and approximately $230,000 due to the foreclosure of Weatherford in 2011.

Real estate operating expenses. Real estate operating expenses associated with the MF Properties is comprised principally of real estate taxes, property insurance, utilities, property management fees, repairs and maintenance, and salaries and related employee expenses of on-site employees. A portion of real estate operating expenses are fixed in nature, thus a decrease in physical and economic occupancy would result in a reduction in operating margins. Conversely, as physical and economic occupancy increase, the fixed nature of these expenses will increase operating margins as these real estate operating expenses would not increase at the same rate as rental revenues. The overall increase in real estate operating expenses was due to various factors. The Arboretum and Eagle Village properties reported approximately $507,000 of expenses which were not included in 2011, Weatherford reported approximately $328,000 of expenses as an MF Property for 2012 as it began lease-up in late March 2012, and DeCordova reported an additional approximate $129,000 due to the beginning lease-up of its 34 new units in third quarter 2012. In addition, Maples on 97th Apartments reported approximately $243,000 of acquisition and operating expenses as it was acquired in third quarter 2012. The remaining increases were related to the existing MF Properties normal operating expense increases in salaries, utilities, insurance and repair and maintenance.

Depreciation and amortization expense. Depreciation and amortization consists primarily of depreciation associated with the MF Properties, amortization associated with in-place lease intangible assets recorded as part of the purchase accounting for the acquisition of MF Properties and deferred finance cost amortization related to the closing of the TEBS and TOB Credit Facilities. The increase in depreciation and amortization expense from the 2011 to 2012 is related to approximately $1.1 million from the Arboretum property (acquired on March 31, 2011), the Eagle Village property acquired at the end of June 2011, the additional depreciation recorded once the Weatherford and DeCordova's construction was completed and placed in service in second and third quarters of 2012, and the acquisition of Maples on 97th acquired in third quarter of 2012.

Property revenues. Property revenues increased mainly as a result of additional MF Properties. The Arboretum was acquired on March 31, 2011, Eagle Village was acquired on June 29, 2011, and DeCordova became an MF Property in the first quarter of 2011. DeCordova was reported by the Partnership as a bond investment in 2010. Arboretum added approximately $1.8 million, Eagle Village added approximately $945,000, and DeCordova added approximately $607,000 to property revenues in 2011. In addition, the MF Properties that have been in the portfolio since the beginning of 2011 reported higher economic occupancy which contributed approximately $388,000 of additional revenue in 2011 as compared to 2010. Annual net rental revenues per unit related to the MF Properties decreased to $4,974 per unit in 2011 from $6,369 in 2010. This was due to the acqusition of the Eagle Village student housing project which was acquired in 2011.

Investment income. Investment income increased during 2011 compared to 2010 due to a higher level of bond investments. Total bond investments at December 31, 2011 were approximately $159.4 million as compared to approximately $143.4 million at December 31, 2010 for the Partnership. Interest payments of approximately $1.9 million were received from tax-exempt mortgage revenue bonds that the Company did not hold during 2010. In addition, the Company realized approximately $308,000 of contingent interest from the Clarkson College bond retirement in second quarter 2011. These increases were offset by less interest earned due to bond restructuring required to execute the TEBS financing facility and the Clarkson bond retirement.

Depreciation and amortization expense. Depreciation and amortization consists primarily of depreciation associated with the MF Properties, amortization associated with in-place lease intangible assets recorded as part of the purchase accounting for the acquisition of MF Properties and deferred finance cost amortization related to the closing of the TEBS and TOB Credit Facilities. The increase in depreciation and amortization expense from 2010 to 2011 is related to offsetting factors. Approximately $934,000 of depreciation expense and approximately $163,000 of in-place lease amortization increases are directly related to the new MF Properties acquired in 2011. This was offset by the reduction of approximately $197,000 in amortization expense related to reduced deferred financing costs. The remaining increase is attributable to depreciation on newly capitalized and newly acquired assets.

Primary sources and uses of funds. Tax-exempt interest earned on the tax-exempt mortgage revenue bonds, including those financing properties held by Consolidated VIEs, represents the Partnership's principal source of cash flow. The Partnership also earns tax-exempt interest from its PHC Certificates, and MBS and may also receive cash distributions from equity interests held in MF Properties. Tax-exempt interest is primarily comprised of base interest payments received on the Partnership's tax-exempt mortgage revenue bonds, PHC Certificates, and MBS. Certain of the tax-exempt mortgage revenue bonds may also generate payments of contingent interest to the Partnership from time to time when the underlying apartment properties generate excess cash flow. Because base interest on each of the Partnership's tax-exempt mortgage revenue bonds and MBS is fixed, the Partnership's cash receipts tend to be fairly constant period to period unless the Partnership acquires or disposes of its investments in tax-exempt mortgage revenue bonds. Changes in the economic performance of the properties financed by tax-exempt mortgage revenue bonds with a contingent interest provision will affect the amount of contingent interest, if any, paid to the Partnership.

The Consolidated VIEs' and MF Properties' primary source of cash is net rental revenues generated by their real estate investments. The economic performance of a multifamily apartment property depends on the rental and occupancy rates of the property and on the level of operating expenses. Occupancy rates and rents are directly affected by the supply of, and demand for, apartments in the market area in which a property is located. This, in turn, is affected by several factors such as local or national economic conditions, the amount of new apartment construction and the affordability of single-family homes. In addition, factors such as government regulation (such as zoning laws), inflation, real estate and other taxes, labor problems, and natural disasters can affect the economic operations of an apartment property. The primary uses of cash by apartment properties are the payment of operating expenses and debt service.

The Partnership's principal uses of cash are the payment of distributions to unitholders, interest and principal on debt financing and general and administrative expenses. The Partnership also uses cash to acquire additional investments. Distributions to unitholders may increase or decrease at the determination of the General Partner. The per unit cash available for distribution primarily depends on the amount of interest and other cash received by the Partnership from its portfolio of tax-exempt mortgage revenue bonds and other investments, the amount of the Partnership's outstanding debt and the effective interest rates paid by the Partnership on this debt, the level of operating and other cash expenses incurred by the Partnership and the number of units outstanding. During the year ended December 31, 2012, the Partnership generated cash available for distribution of $0.33 per unit. See “Cash Available for Distribution,” on a following page within item 7. As a result, the Partnership was required to supplement its cash available for distribution during 2012, with unrestricted cash and expects to continue to do so until the Partnership is able to complete its current investment plans. The General Partner believes that upon completion of its current investment plans, the Partnership will be able meet its liquidity requirements, including the payment of expenses, interest on its debt financing, and cash distributions to unitholders at the current level of $0.50 per unit per year without the use of unrestricted cash. However, if actual results vary from current projections and the actual CAD generated is less than the new regular distribution, such distribution amount may need to be reduced.

Leverage. The Partnership's operating policy is to use securitizations or other forms of leverage to maintain a level of debt financing between 40% and 60% of the total par value of the Partnership's tax-exempt mortgage bond portfolio. As of December 31, 2012, the total par value of the Partnerships' total bond portfolio is approximately $198.6 million which includes the tax-exempt bonds secured by the Ohio Properties and the Greens Property which are eliminated upon consolidation. The outstanding debt financing arrangements are one TOB facility with Deutsche Bank and the TEBS financing agreement with Freddie Mac which have an outstanding balance of $103.9 million in total. This calculates to a leverage ratio of 52%. The Partnership's operating policy is to use securitizations or other forms of leverage to maintain a level of debt financing between 60% and 80% of the total par value of the Partnership's other tax-exempt investments. The Partnership also has eight outstanding TOB facilities at December 31, 2012, which have total outstanding borrowings of $74.1 million which are securitizations of its PHC Certificates and MBS. The par value of its PHC Certificates and MBS is $96.9 million which calculates to a leverage ratio of 76%. Additionally, the MF Properties are encumbered by mortgage loans with an aggregate principal balance of approximately $39.1 million. These mortgage loans mature at various times from May 2013 through February 2017 (see Note 12 to the consolidated financial statements). The debt financing plus mortgage loans total $217.1 million results in a leverage ratio to Partnership Total Assets of 51%.

TEBS Financing. As of September 1, 2010, the Partnership and its Consolidated Subsidiary ATAX TEBS I, LLC, entered into a number of agreements relating to a long-term debt financing facility provided through the securitization of 13 tax-exempt mortgage revenue bonds pursuant to Freddie Mac's TEBS program. The gross proceeds from TEBS Financing were approximately $95.8 million. After the payment of transaction expenses, the Company received net proceeds from the TEBS Financing of approximately $90.4 million. The Company applied approximately $49.5 million of these net proceeds to repay the entire outstanding principal of, and accrued interest on, its secured term loan from Bank of America.

The TEBS Financing essentially provides the Company with a long-term variable-rate debt facility at interest rates reflecting prevailing short-term tax-exempt rates. Under the TEBS Financing, the Company transferred the 13 bonds, which have a total outstanding principal amount of approximately $123.6 million at December 31, 2012, to ATAX TEBS I, LLC, a special purpose entity controlled by the Company (the “Sponsor”). The securitization of these tax-exempt mortgage revenue bonds was executed through the issuance of two classes of Certificates. The Class A TEBS Certificates were issued in an initial principal amount of $95.8 million and were sold through a placement agent to unaffiliated investors. The Class B TEBS Certificates were issued in an initial principal amount of $20.3 million and were retained by the Sponsor. The holders of the Class A TEBS Certificates are entitled to receive regular payments of interest from Freddie Mac at a variable rate which resets periodically based on the weekly Securities Industry and Financial Markets Association (“SIFMA”) floating index rate plus certain Facility Fees. As of closing, the SIFMA rate was equal to 0.25% and the total Facility Fees were 1.9%, resulting in a total initial cost of borrowing of 2.15%. As of December 31, 2012, the SIFMA rate was equal to .13% resulting in a total cost of borrowing of 2.03% on the approximate $94.0 million outstanding balance. As of December 31, 2011, the SIFMA rate was equal to 0.15% resulting in a total cost of borrowing of 2.05% on the approximate $94.9 million outstanding balance.

Payment of interest on the Class A TEBS Certificates are made from the interest payments received by Freddie Mac from the Bonds and Senior Custody Receipts held by Freddie Mac on designated interest payment dates prior to any payments of interest on the Class B TEBS Certificates held by the Sponsor. As the holder of the Class B TEBS Certificates, the Sponsor is not entitled to receive interest payments on the Class B TEBS Certificates at any particular rate, but will be entitled to all payments of principal and interest on the Bonds and Senior Custody Receipts held by Freddie Mac after payment of principal and interest due on the Class A TEBS Certificates and payment of all Facility Fees and associated expenses. Accordingly, the amount of interest paid to the Sponsor on the Class B TEBS Certificates is expected to vary over time, and could be eliminated altogether, due to fluctuations in the interest rate payable on the Class A TEBS Certificates, Facility Fees, expenses and other factors.

Freddie Mac has guaranteed payment of scheduled principal and interest payments on the Class A TEBS Certificates and also guarantees payment of the purchase price of any Class A TEBS Certificates that are tendered to Freddie Mac in accordance with their terms but which cannot be remarketed to new holders within five business days. The Sponsor has pledged the Class B TEBS Certificates to Freddie Mac to secure certain reimbursement obligations of the Sponsor to Freddie Mac. The Company also entered into various subordination and intercreditor agreements with Freddie Mac under which the Company has subordinated its rights and remedies with respect to the taxable mortgage loans made by it to the owners of properties securing certain of the Bonds to the rights of Freddie Mac as the holder of the Bonds.

TOB Financings. In July 2011, the Company executed a Master Trust Agreement with Duetsche Bank ("DB") which allows the Company to execute multiple TOB structures upon the approval and agreement of terms by DB. Under each TOB structure issued through the Master Trust Agreement, the TOB trustee issues senior floating-rate participation interests ("SPEARS"), and residual participation interests ("LIFERS"). These SPEARS and LIFERS represent beneficial interests in the securitized asset held by the TOB trustee. The Company will purchase the LIFERS from each of these TOB Trusts which will grant them certain rights to the securitized assets. Under each TOB structure, the asset is transferred to a custodian and trustee that provide these services on behalf of DB. The Master Trust Agreement with DB has covenants that the Company is required to maintain compliance, the most restrictive of which at December 31, 2012, is that cash available to distribute for the trailing twelve months must be at least two times trailing twelve month interest expense. The Company was in compliance with all of these covenants as of December 31, 2012. If the Company were to be out of compliance with any of these covenants, it would trigger a termination event of the financing facilities.

In November and December 2012, the Company purchased the LIFERS issued by the trustee over five different MBS TOB Trusts for approximately $6.5 million which are securitizations of mortgage-backed securities with a par value of approximately $31.6 million. The LIFERS entitle the Company to all principal and interest payments received by the MBS TOB Trusts on the mortgage-backed securities after payments due to the holders of the SPEARS and trust costs. The Company is reporting the MBS TOB Trusts on a consolidated basis as it has determined it is the primary beneficiary of these variable interest entities. The MBS TOB Trusts also issued SPEARS of approximately $25.1 million to unaffiliated investors which is the outstanding amount at December 31, 2012. The SPEARS represent senior interests in the MBS TOB Trusts and some have been credit enhanced by DB.

In July 2012, the Company purchased the PHC Certificate LIFERS issued by the trustee over the PHC TOB Trusts for approximately $16.0 million and pledged the LIFERS to the trustee to secure certain reimbursement obligations of the Company as the holder of LIFERS. The LIFERS entitle the Company to all principal and interest payments received by the PHC TOB Trusts on the $65.3 million of PHC Certificates held by it after payments due to the holders of the SPEARS and trust costs. The Company is reporting the PHC TOB Trust on a consolidated basis as it has determined it is the primary beneficiary of these variable interest entities. The PHC TOB Trusts also issued SPEARS of approximately $49.0 million to unaffiliated investors which is the outstanding amount at December 31, 2012. The SPEARS represent senior interests in the PHC TOB Trusts and have been credit enhanced by DB.

In July 2011, the Company closed a $10 million financing utilizing the TOB structure with the securitization of the Company's $13.4 million Autumn Pines Apartments tax-exempt mortgage revenue bond. In December 2011, the Company closed a second $7.8 million TOB financing structured as a securitization of the Company's $15.6 million GMF-Warren/Tulane Apartments and GMF-Madison apartments tax-exempt mortgage revenue and taxable mortgage revenue bonds. The SPEARS were credit-enhanced by DB and sold through a placement agent to unaffiliated investors and the gross proceeds from their sale were remitted to the Company. The LIFERS were retained by the Company and are pledged to DB to secure certain reimbursement obligations. In May 2012, the Company retired the $7.8 million TOB financing structure when the GMF-Warren/Tulane and GMF-Madison Tower tax-exempt mortgage revenue bonds were sold. At December 31, 2012, the Company owed $9.8 million on the Autumn Pines TOB financing facility and at December 31, 2011, the Company owed $17.7 million on both TOB facilities.

As a result, the TOB trusts essentially provide the Company with a secured variable rate debt facility at interest rates that reflect the prevailing short-term tax-exempt rates paid by the TOB trusts on the SPEARS. Payments made to the holders of the SPEARS and the amount of trust fees essentially represent the Company's effective cost of borrowing on the net proceeds it received from the sale of the SPEARS. The holders of the SPEARS are entitled to receive regular payments from the TOB trusts at a variable rate established by a third party remarketing firm that is expected to be similar to the weekly SIFMA floating index rate. Payments on the SPEARS will be made prior to any payments on the LIFERS held by the Company. The Company is accounting for these transactions as secured financing arrangements.

Equity Capital. The Partnership is authorized to issue additional BUCs to raise additional equity capital to fund investment opportunities. In April 2010, a Registration Statement on Form S-3 was declared effective by the SEC under which the Partnership may offer up to $200.0 million of additional BUCs from time to time. In May 2012, the Partnership issued an additional 12,650,000 BUCs through an underwritten public offering at a public offering price of $5.06 per BUC. Net proceeds realized by the Partnership from this issuance of these BUCs were approximately $60 million after payment of an underwriter's discount and other offering costs of approximately $4.0 million. In April 2010, the Partnership issued an additional 8,280,000 BUCs through an underwritten public offering at a public offering price of $5.37 per BUC pursuant to this new Registration Statement. Net proceeds realized by the Partnership from this issuance of these BUCs were approximately $41.6 million after payment of an underwriter's discount and other offering costs of approximately $2.8 million. There was no equity raise completed in 2011.

Cash flow. On a consolidated basis, cash provided by operating activities for the year ended December 31, 2012 decreased approximately $2.7 million compared to the same period a year earlier mainly due to changes in working capital components. Cash used for investing activities increased approximately $65.5 million for 2012 as compared to 2011. In 2012, the Company used approximately $145.8 million for the purchase of the PHC Trust Certificates, the purchase of the MBS, the purchase of Arbors at Hickory Ridge tax-exempt mortgage revenue bond, the purchase of the Vantage at Judson tax-exempt mortgage revenue bonds, the purchase of the Maples on 97th property and property renovations, and to make taxable loans. The Company received cash from the sale of the GMF-Madison Tower and GMF-Warren/Tulane tax-exempt mortgage revenue bonds, the restructuring of the Arbors at Hickory Ridge tax-exempt mortgage revenue bond, the sale of a mortgage-backed security, the sale of the Churchland and the Eagle Ridge properties, and the net release of restricted cash of approximately $47.5 million. In 2011, approximately $32.6 million of cash was used for investing activities to acquire the Arboretum Apartments, Eagle Village Apartments and the Briarwood Manor, GMF-Madison, and GMF-Warren/Tulane tax-exempt mortgage revenue bonds offset by the release of restricted cash upon foreclosure of the DeCordova and Weatherford properties, the retirement of the Clarkson College bond, the repayment of a taxable loan by the Foundation for Affordable Housing, and the renovations of the Ohio Properties. The Company had approximately $71.4 million additional cash available from financing activities for 2012 as compared to 2011. Financing cash flows in 2012 included approximately $60.0 million of cash from the equity raise in second quarter 2012 and approximately $55.6 million from the PHC and MBS TOB Trusts borrowings, offset by the use of cash to payoff the GMF Warren/Tulane TOB facility and the mortgages on the Churchland and Greens Property which were sold in 2012. In 2011, the Company had borrowings of $58.6 million and repaid approximately $14.9 million of short-term borrowings. Cash distributions increased year over year due to the additional shares outstanding resulting from the May 2012 equity raise.

Management utilizes a calculation of CAD as a means to determine the Partnership's ability to make distributions to unitholders. The General Partner believes that CAD provides relevant information about its operations and is necessary along with net income for understanding its operating results. To calculate CAD, amortization expense related to debt financing costs and bond reissuance costs, certain income due to the General Partner (defined as Tier 2 income in the Agreement of Limited Partnership), interest rate derivative expense or income (including adjustments to fair value), provision for loan losses, provision for loss on receivables, impairments on bonds, losses related to Consolidated VIEs including the cumulative effect of accounting change, and depreciation and amortization expense are added back to the Company's net income (loss) as computed in accordance with GAAP. There is no generally accepted methodology for computing CAD, and the Partnership's computation of CAD may not be comparable to CAD reported by other companies. Although the Partnership considers CAD to be a useful measure of its operating performance, CAD should not be considered as an alternative to net income or net cash flows from operating activities which are calculated in accordance with GAAP.

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 accrued 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. This gain meets the definition of Net Residual Proceeds representing Tier 2 income and was therefore distributed 75% to the unitholders and 25% to the General Partner (see Note 5 to the consolidated financial statements).

During June 2010, the Company completed a sales transaction whereby three of the MF Properties, the Ohio Properties, were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity (see Note 3). In February 2013, the limited Partner owners of the Ohio Properties contributed sufficient capital for a real estate sale to be recognized during the first quarter of 2013. As such, the Ohio Properties are reported as discontinued operations instead of MF Properties subject to a Sales Agreement in the consolidated financial statements for all periods presented. The Company will recognize the deferred gain of approximately $1.8 million in the consolidated financial statements during the first quarter of 2013, as well as report the tax-exempt mortgage bonds collateralized by the Ohio Properties as an asset and report the related interest income on the bonds commencing with first quarter of 2013. As the deferred gain on the transaction represented cash paid to the Company and no on-going legal obligations related to the Ohio Properties or potential obligation to repay any amounts exists, the deferred gain was reported as CAD in 2010 and is shown as an adjustment in the CAD Calculation below. This gain met the definition of Net Residual Proceeds representing contingent interest (Tier 2 income) and was therefore distributed 75% to the unitholders and 25% to the General Partner.

The Partnership has made annual cash distribution of $0.50 per unit since 2009. Since realized CAD per unit was less than $0.50 per unit, the Partnership paid approximately $5.8 million and $3.9 million of the distribution using unrestricted cash to supplement the deficit in 2012 and 2011. The Partnership has historically supplemented its cash available for distribution with unrestricted cash when necessary and expects to continue to do so until the Partnership is able to complete its current plans to invest the net proceeds realized by the Partnership from the issuance of BUCs in May 2012 on a leveraged basis. The General Partner has identified a pipeline of tax-exempt mortgage revenue bonds it intends to acquire in 2013 and is actively performing due diligence on these tax-exempt mortgage revenue bonds to ensure they meet the Partnership's investment criteria. The General Partner is also working with the Partnership's primary lender to finance a portion of the acquisition of these bonds and believes that upon completion of its current investment plans, the Partnership will be able to generate sufficient CAD to maintain cash distributions to unitholders at the current level of $0.50 per unit per year without the use of other available cash. However, there is no assurance that the Partnership will be unable to generate CAD at levels in excess of the current annual distribution rate. In that case, the annual distribution rate per unit may need to be reduced.



	2012			2011			2010
Net income (loss) - America First Tax Exempt Investors L.P.	$	4,446,844		$	(2,243,922	)	$	(400,360	)
Net loss related to VIEs and eliminations due to consolidation	1,522,846			1,289,539			2,466,260
Net income (loss) before impact of VIE consolidation	5,969,690			(954,383		)	2,065,900
Change in fair value of derivatives and interest rate derivative amortization	944,541			2,083,521			(571,684		)
Depreciation and amortization expense (Partnership only)	3,447,316			2,281,541			1,337,859
Provision for loss on receivables	452,700			952,700			—
Provision for loan loss	—			4,242,571			1,147,716
Deposit liability gain - Ohio sale agreement	—			—			1,775,527
Tier 2 Income distributable to the General Partner⁽¹⁾	(657,933		)	(170,410		)	(472,246		)
Asset impairment charge - Weatherford	—			—			2,716,330
Depreciation and amortization related to discontinued operations	452,942			887,492			1,172,771
Bond purchase discount accretion (net of cash received)	160,464			(100,998		)	(403,906		)
Ohio and Greens deferred interest	1,518,369			1,390,056			745,227
CAD	$	12,288,089		$	10,612,090		$	9,513,494
Weighted average number of units outstanding,
basic and diluted	37,367,600			30,122,928			27,493,449
Net income (loss), basic and diluted, per unit	$	0.14		$	(0.04	)	$	0.07
Total CAD per unit	$	0.33		$	0.35		$	0.35
Distributions per unit	$	0.5000		$	0.5000		$	0.5000

As of December 31, 2012 and 2011, the Partnership held tax-exempt mortgage revenue bonds which are collateralized by multifamily housing projects. The multifamily housing projects are owned by entities that are not controlled by the Partnership. The Partnership has no equity interest in these entities and does not guarantee any obligations of these entities. Some of the ownership entities are deemed to be Consolidated VIEs and are consolidated with the Partnership for financial reporting purposes. The VIEs that are consolidated with the Partnership do not have off-balance sheet arrangements.

The Partnership has the following contractual obligations as of December 31, 2012:



			Less than 1 year			1-3 years			3-5 years			More than 5 years
	Total		Less than 1 year			1-3 years			3-5 years			More than 5 years
Debt financing	$	177,948,000	$	84,969,000		$	2,222,000		$	2,484,000		$	88,273,000
Mortgages payable	$	39,119,507	$	13,339,707		$	23,784,172		$	1,995,628		$	—
Effective interest rate(s) ⁽¹⁾			2.52		%	2.39		%	2.12		%	2.09		%
Interest ⁽²⁾	$	15,321,821	$	4,724,112		$	4,875,169		$	3,877,369		$	1,845,171
Bond purchase commitment	$	20,638,000	$	—		$	20,638,000		$	—		$	—

⁽¹⁾Interest rates shown are the average effective rate as of December 31, 2012, and include the impact of our interest rate derivatives.
⁽²⁾ Interest shown is estimated based upon current effective interest rates through maturity.

In December 2012, the Partnership purchased a $6,049,000 tax-exempt mortgage revenue bond (“Series C Bonds”) and a $934,000 taxable bond both secured by the Vantage at Judson apartments. This property is located in San Antonio, Texas and is currently under construction. In connection with the purchase of these bonds, the Partnership also executed a Forward Delivery Bond Purchase Agreement with the borrower under the bonds, the issuer of the $6,049,000 tax-exempt mortgage revenue bond (“Issuer”), and the Bank which is providing the remainder of the construction financing and has the first lien on the property. Under the terms of this agreement and the Trust Indenture, the Issuer has agreed to fund up to $26,687,000 of senior tax-exempt mortgage revenue bonds (“Series B Bonds”) to allow for the full refunding of the Bank's construction loan (“Series A Bonds”) and all or a portion of the $6,049,000 Series C Bonds. The Partnership has an obligation to purchase the Series B Bonds upon the successful completion of specific conversion conditions. These conversion conditions include no material default by borrower under the trust indenture, the completion of the survey of the property and title insurance, and occupancy of 90% for 90 days at the property. The amount of the Series B Bonds will be no less than $20,638,000 and the final amount will depend on the Reallocation Calculation which is defined as 80% bond to appraised property value and a debt service coverage ratio of no less than 1.15 to 1.0. The Partnership expects to purchase the Series B bonds in 2014 but if the conversion conditions are not met by January 1, 2015, the Partnership has the ability to terminate the Forward Delivery Bond Purchase Agreement (See Note 17 to the consolidated financial statements).

With respect to the financial results of the Partnership's investments in tax-exempt mortgage revenue bonds and MF Properties, substantially all of the resident leases at the multifamily residential properties, which collateralize the Partnership's tax-exempt mortgage revenue bonds, allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the properties to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the properties of the adverse effects of inflation; however, market conditions may prevent the properties from increasing rental rates in amounts sufficient to offset higher operating expenses. Inflation did not have a significant impact on the Partnership's financial results for the years presented in this report.

The preparation of financial statements in accordance with GAAP requires management of the Company to make a number of judgments, assumptions, and estimates. The application of these judgments, assumptions, and estimates can affect the amounts of assets, liabilities, revenues, and expenses reported by the Company. All of the Company's significant accounting policies are described in Note 2. The Company considers the following to be its critical accounting policies because they involve judgments, assumptions and estimates by management that significantly affect the financial statements. If these estimates differ significantly from actual results, the impact on our consolidated financial statements may be material.

The Company evaluated the accounting guidance in regard to the TEBS and TOB Financing arrangements (see Note 11 to the consolidated financial statements) and has determined that the securitization transactions do not meet the accounting criteria for a sale or transfer of financial assets and will, therefore, be accounted for as secured financing transactions. More specifically, the guidance on transfers and servicing sets forth the conditions that must be met to de-recognize a transferred financial asset. This guidance provides, in part, that the transferor has surrendered control over transferred assets if and only if the transferor does not maintain effective control over the transferred assets through any of the following:



Delaware	47-0810385
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1004 Farnam Street, Suite 400	Omaha, Nebraska 68102
(Address of principal executive offices)	(Zip Code)

(402) 444-1630
(Registrant's telephone number, including area code)



Large accelerated filer ¨	Accelerated filer x	Non- accelerated filer ¨	Smaller reporting company ¨
		(do not check if a smaller reporting company)



2012	High		Low
1st Quarter	$	5.59	$	4.91
2nd Quarter	$	5.93	$	4.98
3rd Quarter	$	6.19	$	5.25
4th Quarter	$	7.10	$	5.81

2011	High		Low
1st Quarter	$	5.90	$	5.22
2nd Quarter	$	5.83	$	5.15
3rd Quarter	$	5.70	$	5.08
4th Quarter	$	5.35	$	4.80



TOB Trusts	SPEARS Outstanding		Cost of Borrowings

PHC Certificates	$	48,995,000	2.30	%
Autumn Pines	9,850,000		2.05	%
MBS - Trust 1	2,585,000		1.31	%
MBS - Trust 2	4,090,000		1.29	%
MBS - Trust 3	3,890,000		1.32	%
MBS - Trust 4	5,960,000		1.29	%
MBS - Trust 5	8,590,000		1.28	%
	$	83,960,000


•	defaults on the mortgage loans securing our tax-exempt mortgage revenue bonds;


•	risks associated with investing in multifamily apartments, including changes in business conditions and the general economy;


•	current negative economic and credit market conditions; and


•	changes in the United States Department of Housing and Urban Development's Capital Fund Program


•	changes in government regulations affecting our business.


1.	Private activity bonds issued under Section 142(d) of the Internal Revenue Code;


2.	Bonds issued under Section 145 of the Internal Revenue Code by not-for-profit entities qualified under Section 501(c)(3) of the Internal Revenue Code;


3.	Essential function bonds issued by a public instrumentality to finance an apartment property owned by such instrumentality; and


4.	Existing “80/20 bonds” that were issued under Section 103(b)(4)(A) of the Internal Revenue Code of 1954.


•	HUD has provided over 1.0 million lower-income Americans with affordable rental housing opportunities;


•	Housing Finance Agencies (HFAs) use multifamily tax-exempt housing bonds to finance more than 100,000 apartments each year; and


•	The availability of tax-exempt bond financing for affordable multifamily housing to be owned by private, for-profit developers in each state in each calendar year is limited by the statewide volume cap distributed as described in Section 146 of the Internal Revenue Code; this private activity bond financing is based on state population and indexed to inflation.


•	The supply of rental units is expected to fall short of demand with apartment vacancies continuing to decline.



	For the Year Ended		For the Year Ended		For the Year Ended
	December 31, 2012		December 31, 2011		December 31, 2010
Cash Distributions	$	0.5000	$	0.5000	$	0.5100


•	ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created to facilitate the Tax Exempt Bond Securitization (“TEBS”) Financing with Freddie Mac (See Notes 2 and 11 to the consolidated financial statements).


•	Four apartment properties are reported as discontinued operations (See Note 10 to the consolidated financial statements).


1.	An agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity,


2.	The ability to unilaterally cause the holder to return specific assets, other than through a cleanup call, or