In this Management's Discussion and Analysis, the "Partnership" refers to America First Tax Exempt Investors, L.P. and its subsidiary on a consolidated basis and the "Company" refers to the consolidated financial information of the Partnership and certain entities that own multifamily apartment projects financed with mortgage revenue bonds held by the Partnership that are treated as "variable interest entities" ("VIEs") because the Partnership has been determined to be the primary beneficiary of these entities although it does not hold an equity position in them. The consolidated financial statements of the Company include the accounts of the Partnership and the VIEs. All significant transactions and accounts between the Partnership and the VIEs have been eliminated in consolidation.

Critical Accounting Policies

The Company's critical accounting policies are the same as those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Executive Summary

Recently the Company has faced a challenging operating environment as the credit and capital markets have continued to deteriorate. Although the consequences of the credit and capital market issues are not fully known, we do not anticipate that our existing assets will be adversely affected in the long-term by these events. If uncertainties in these markets continue, the markets deteriorate further or the Company experiences further deterioration in the values of its investment portfolio, the Company may record impairments to its investment portfolio which could negatively impact the Company's financial statements.

The Company does not issue mortgage loans secured by mortgages on single-family residential properties. In addition, we believe that additional demand for affordable rental housing may be created if there are continued defaults on sub-prime single family mortgages and a general contraction of credit available for single family mortgage loans. Additional demand for rental housing may have a positive economic effect on apartment properties financed by the tax-exempt bonds held by the Company. While we believe the current tightening of credit may also create opportunities for additional investments consistent with the Company's investment strategy because there may be fewer parties competing to acquire tax-exempt bonds issued to finance affordable housing there can be no assurance that we will be able to finance the acquisition of additional tax-exempt bonds through either additional equity or debt financing.

Historically, our primary leverage vehicle has been the Merrill Lynch P-Float program. Credit rating downgrades at Merrill Lynch resulted in a significant increase in Merrill Lynch's cost of borrowing which, in turn, resulted in a significantly higher interest rate on the Company's P-Float financing. As discussed in Note 5 to the financial statements, on June 26, 2008, the Company effectively replaced the Merrill Lynch P-Float program by entering into an agreement for a new tender option bond credit facility ("TOB facility") agreement with Bank of America. The new TOB facility functions in much the same fashion as the P-Float program. In connection with the TOB facility tax-exempt mortgage revenue bonds are placed into trusts which issue senior securities (known as "Floater Certificates") to unaffiliated institutional investors and subordinated residual interest securities (known as "Inverse Certificates") to the Company. Net proceeds generated by the sale of the Floater Certificates are then remitted to the Company and accounted for as secured borrowings and, in effect, provide variable-rate financing for the acquisition of tax-exempt mortgage revenue bonds and other investments meeting the Company's investment criteria and for other purposes. The new TOB facility is a one year agreement with a one year renewal option and bears a variable interest rate at a weekly floating bond rate, the Securities Industry and Financial Markets Association ("SIFMA") floating index, plus associated remarketing, credit enhancement, liquidity and trustee fees.

On June 26, 2008, as part of the new TOB facility, Bank of America funded a $65.1 million bridge loan which was used to retire the Merrill Lynch P-float program debt. On July 3, 2008, the new TOB facility was closed and the resulting Floater Certificates were sold. The closing of the TOB facility resulted in debt proceeds of approximately $76.7 million. After repayment of the bridge loan and related fees and expenses, net proceeds of approximately $10.8 million were remitted to the Company for investment in additional tax-exempt mortgage bonds and other investments consistent with its investment policies and for other purposes. During the six months ended June 30, 2008 and 2007, the Company's average effective interest rate on P-Float program debt was 5.3% and 4.4%, respectively. The initial variable interest rate at closing of the TOB facility was 3.27% calculated as the SIFMA index of 1.62% plus fees of 1.65%.

In the long term, the General Partner believes that cash provided by the Company's tax-exempt mortgage revenue bonds and other investments will be adequate to meet its projected liquidity requirements, including the payment of expenses, interest and distributions to BUC holders. The Company's regular annual distributions are currently equal to $0.54 per BUC, or $0.135 per quarter per BUC. In recent years Cash Available for Distribution ("CAD") excluding contingent interest and realized gains has not been sufficient to fully fund such distributions without utilizing cash reserves to supplement the deficit. During the third quarter of 2007, CAD exceeded the quarterly distribution amount of $0.135 per BUC. During the fourth quarter of 2007 and the first two quarters of 2008 CAD was lower than the quarterly distribution amount as a result of the increased borrowing costs associated with our P-Float debt. The closing of the new TOB facility and the resulting anticipated decrease in cost of borrowings compared to recent costs in the P-Float program is expected to have a positive impact on CAD in the future. The General Partner currently expects to maintain the annual distribution amount of $0.54 per BUC. See also the discussion below regarding "Cash Available for Distribution."

Discussion of the Partnership Bond Holdings and the Related Apartment Properties as of June 30, 2008

The Partnership's purpose is to acquire and hold as long-term investments a portfolio of federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. At June 30, 2008, the Partnership held 19 tax-exempt mortgage bonds (secured by 17 properties), eight of which are secured by properties held by VIEs and, therefore, eliminated in consolidation on the Company's financial statements. The nine properties underlying the eleven non-consolidated tax-exempt mortgage bonds contain a total of 1,209 rental units. At June 30, 2007, the Partnership held ten non-consolidated tax-exempt mortgage bonds secured by eight apartment properties containing a total of 1,034 rental units.

To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by multifamily apartment properties, the Partnership may acquire ownership positions in apartment properties ("MF Properties"). The Partnership expects to ultimately restructure the property ownership through a sale of the MF Properties and a syndication of low income housing tax credits ("LIHTCs"). The Partnership expects to provide the tax-exempt mortgage revenue bonds to the new property owners as part of the restructuring. Such restructurings will generally be expected to be initiated within 36 months of the initial investment in MF Properties and will often coincide with the expiration of the compliance period relating to LIHTCs previously issued with respect to the MF Property. However, the market for syndicated LIHTCs has become very difficult over the last few quarters and there can be no assurance that these syndications and restructurings can be successfully completed within this time frame, or at all. The Partnership will not acquire LIHTCs in connection with these transactions. As of June 30, 2008 and 2007, the Partnership's wholly-owned subsidiary, America First LP Holding Corp., held limited partnership interests in six entities that own MF Properties containing a total of 544 rental units. In addition, as of June 30, 2008, America First LP Holding Corp. had entered into an agreement to acquire a 99% limited partnership interest in a limited partnership owning a 124 unit apartment complex in Chesapeake, Virginia. This acquisition is expected to close in the third quarter of 2008.

The VIEs' primary operating strategy focuses on multifamily apartment properties as long-term investments. Each VIE owns one multifamily apartment property that has been financed by a tax-exempt mortgage revenue bond held by the Partnership. As of June 30, 2008 and 2007, the Company consolidated eight VIE multifamily apartment properties containing a total of 1,764 rental units.

The following table outlines certain information regarding the apartment properties on which the Partnership holds tax-exempt mortgage bonds (separately identifying those treated as VIEs) and the MF Properties owned by the Partnership. The narrative discussion that follows provides a brief operating analysis of each property during the first six months of 2008.

                                                                                                       Economic
                                                                                                     Occupancy (1)
                                                   Number         Percentage of Occupied          for the period ended
                                     Number       of Units        Units as of June 30,                 June 30,
Property Name        Location       of Units      Occupied        2008             2007           2008             2007

Non-Consolidated
Properties
Clarkson College     Omaha, NE             142           82             58 %             68 %           79 %           84 %
Bella Vista          Gainesville,
Apartments           TX                    144          137             95 %             86 %           91 %           59 %
Woodland Park   (2)  Topeka, KS            236          n/a            n/a              n/a            n/a            n/a
Prairiebrook
Village   (4)        Gardner, KS            72          n/a            n/a              n/a            n/a            n/a
Runnymede
Apartments   (3)     Austin, TX            252          176             70 %            n/a             75 %          n/a
Gardens of
DeCordova   (2)      Granbury, TX           76          n/a            n/a              n/a            n/a            n/a
Gardens of           Weatherford,
Weatherford   (2)    TX                     76          n/a            n/a              n/a            n/a            n/a
Bridle Ridge
Apartments   (3)     Greer, SC             152          117             77 %            n/a             64 %          n/a
Woodlynn
Village   (3)        Maplewood, MN          59           52             88 %            n/a             99 %          n/a
                                         1,209          564             75 %             83 %           79 %           70 %

VIEs
Ashley Pointe at     Evansville,
Eagle Crest          IN                    150          139             93 %             97 %           97 %           92 %
                     Des Moines,
Ashley Square        IA                    144          139             97 %             94 %           86 %           80 %
Bent Tree Apartments Columbia, SC          232          222             96 %             88 %           86 %           82 %
Fairmont Oaks        Gainsville,
Apartments           FL                    178          171             96 %             99 %           90 %           90 %
Iona Lakes
Apartments           Ft. Myers, FL         350          279             80 %             74 %           66 %           75 %
Lake Forest          Daytona
Apartments           Beach, FL             240          228             95 %             88 %           92 %           99 %
Woodbridge Apts. of  Bloomington,
Bloomington III      IN                    280          236             84 %             89 %           92 %           95 %
Woodbridge Apts. of  Louisville,
Louisville II        KY                    190          182             96 %             94 %           93 %           92 %
                                         1,764         1596             90 %             88 %           85 %           87 %

MF Properties
Eagle Ridge   (3)    Erlanger, KY           64           54             84 %             88 %           80 %          n/a
                     Highland
Meadowview   (3)     Heights, KY           118          116             98 %             94 %           98 %          n/a
Crescent             Cincinnati,
Village   (3)        OH                     90           84             93 %             97 %           86 %          n/a
                     Columbus
                     (Hilliard),
Willow Bend   (3)    OH                     92           85             92 %             99 %           88 %          n/a
                     Reynoldsburg,
Postwoods I   (3)    OH                     92           88             96 %             92 %           87 %          n/a
                     Reynoldsburg,
Postwoods II   (3)   OH                     88           88            100 %             94 %           93 %          n/a
                                           544          515             95 %             94 %           89 %

(1) Economic occupancy is presented for six months ended June 30, 2008 and 2007, and is defined as the net rental income received divided by the maximum amount of rental income to be derived from each property. This statistic is reflective of rental concessions, delinquent rents and non-revenue units such as model units and employee units. Actual occupancy is a point in time measure while economic occupancy is a measurement over the period presented, therefore, economic occupancy for a period may exceed the actual occupancy at any point in time.
(2) These properties are still under construction as of June 30, 2008, and therefore have no occupancy data.
(3) Previous period occupancy numbers are not available, as this is a new investment.
(4) Foreclosure proceedings were commenced on these bonds in May, 2008.

Ashley Pointe - Ashley Pointe at Eagle Crest is located in Evansville, Indiana. In the first half of 2008, Net Operating Income (calculated as property revenue less salaries, advertising, administration, utilities, repair and maintenance, insurance, taxes, and management fee expenses) was $313,000 as compared to $267,000 in 2007. This increase was the result of higher property revenues due to fewer rental concessions given to tenants and slightly lower salary expenses.

Ashley Square - Ashley Square Apartments is located in Des Moines, Iowa. In the first half of 2008, Net Operating Income was $141,000 as compared to $125,000 in 2007. This increase was the result of higher property revenue from improved occupancy.

Bella Vista -Bella Vista Apartments is located in Gainesville, Texas. June 2007 was the first full month of operations at Bella Vista. In the first half of 2008, Bella Vista's operations resulted in Net Operating Income of $270,000 on revenue of approximately $518,000.

Bent Tree - Bent Tree Apartments is located in Columbia, South Carolina. In the first half of 2008, Net Operating Income was $379,000 as compared to $390,000 in 2007. This decrease was the result of higher real estate taxes and utilities expense.

Bridle Ridge Apartments -- Bridle Ridge Apartments is located in Greer, South Carolina. In the first half of 2008, Bridle Ridge Apartments' operations have resulted in Net Operating Income of $225,000 on revenue of approximately $362,000.

Clarkson College - Clarkson College is a 142 bed student housing facility located in Omaha, Nebraska. In the first half of 2008, Net Operating Income was $226,000 as compared to $245,000 in 2007. The decrease is attributable to lower revenues due to lower occupancy.

Crescent Village - Crescent Village Townhomes is located in Cincinnati, Ohio. In the first half of 2008, Crescent Village's operations resulted in Net Operating Income of $200,000 on revenue of approximately $374,000.

Eagle Ridge - Eagle Ridge Townhomes is located in Erlanger, Kentucky. In the first half of 2008, Eagle Ridge's operations resulted in Net Operating Income of $99,000 on revenue of approximately $233,000.

Fairmont Oaks - Fairmont Oaks Apartments is located in Gainesville, Florida. In the first half of 2008, Net Operating Income was $408,000 as compared to $423,000 in 2007. This decrease was the result of increased property insurance expense and increased professional fees.

Gardens of DeCordova - The Gardens of DeCordova Apartments is currently under construction in Granbury, Texas and will contain 76 units upon completion. Based on the construction schedule, finished units are expected to be available for leasing starting in August 2008 with a final completion of the project expected by September 2008. The originally scheduled completion date was August 2008. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The project has an additional five months of capitalized interest reserve sufficient to fund debt service beyond the expected date of completion.

Gardens of Weatherford - The Gardens of Weatherford Apartments is currently under construction in Weatherford, Texas and will contain 76 units upon completion. The estimated completion date is December 2008 with some units available for rent prior to that date. The originally scheduled completion date was August 2008. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The project has an additional two months of capitalized interest reserve sufficient to fund debt service beyond the expected date of completion.

Iona Lakes - Iona Lakes Apartments is located in Fort Myers, Florida. In the first half of 2008, Net Operating Income was $492,000 as compared to $686,000 in 2007. This decrease was directly related to poor occupancy trends resulting in lower revenues. The decline in occupancy is a reflection of the poor market conditions in the Fort Myers area.

Lake Forest - Lake Forest Apartments is located in Daytona Beach, Florida. In the first half of 2008, Net Operating Income was $568,000 as compared to $573,000 in 2007. This decrease was attributable to slightly higher advertising and utility expenses.

Meadowview - Meadowview Apartments is located in Highland Heights, Kentucky. In the first half of 2008, Meadowview's operations resulted in Net Operating Income of $283,000 on revenue of approximately $462,000.

Prairiebrook Village - In June 2007, the Company acquired the Prairiebrook Village bonds at par value of $5.5 million Series A and $0.4 million Series B, which together represented 100% of the bond issuance. The bonds were issued in order to construct a 72 unit multifamily apartment complex in Gardner, Kansas. Construction of the apartment complex has not commenced and in February, 2008, the bond trustee notified the owner and developer of Prairiebrook Village that they were not in compliance with certain sections of the bond indenture. In May, 2008, the bond trustee, acting on behalf of the Company, filed a petition of foreclosure on the mortgage securing the bonds. The Company expects to receive $4.8 million held by the trustee representing unused bond proceeds and the deed of ownership to the land owned by the project. The Company intends to sell the land to be obtained in the foreclosure. After the sale of the land the Company will pursue the project owner and project developer for any remaining unpaid bond principal based upon guarantees by these entities. Based upon the expected land sale proceeds of $350,000 to $450,000 the Company expects to pursue the owner and developer for between $750,000 and $850,000 from such guarantees.

Postwoods I - Postwoods Townhomes is located in Reynoldsburg, Ohio. In the first half of 2008, Postwoods I's operations resulted in Net Operating Income of $207,000 on revenue of approximately $375,000.

Postwoods II - Postwoods Townhomes is located in Reynoldsburg, Ohio. In the first half of 2008, Postwoods II's operations resulted in Net Operating Income of $208,000 on revenue of approximately $342,000.

Runnymede Apartments - Runnymede Apartments is located in Austin, Texas. In the first half of 2008, Runnymede Apartments' operations resulted in Net Operating Income of $179,000 on revenue of approximately $811,000.

Willow Bend - Willow Bend Townhomes is located in Columbus (Hilliard), Ohio. In the first half of 2008, Willow Bend's operations resulted in Net Operating Income of $247,000 on revenue of approximately $399,000.

Woodbridge at Bloomington - Woodbridge Apartments at Bloomington is located in Bloomington, Indiana. In the first half of 2008, Net Operating Income was $607,000 as compared to $643,000 in 2007. The decrease is due to increased real estate taxes.

Woodbridge at Louisville - Woodbridge Apartments at Louisville is located in Louisville, Kentucky. In the first half of 2008, Net Operating Income was $433,000 as compared to $405,000 in 2007. This increase was the result of higher property revenue from improved occupancy.

Woodland Park - Woodland Park Apartments is currently under construction in Topeka, Kansas and will contain 236 units upon completion. Based on the construction schedule, finished units are expected to be available for leasing starting in August 2008 with a final completion of project expected in April of 2009. The originally scheduled completion date was January 2009. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The project has an additional four months of capitalized interest reserve sufficient to fund debt service beyond the expected date of completion.

Woodlynn Village - Woodlynn Village is located in Maplewood, Minnesota. In the first half of 2008, Woodlynn Village's operations resulted in net operating income of $166,000 on revenue of approximately $261,000.

Results of Operations

Consolidated Results of Operations

The following discussion of the Company's results of operations for the three and six months ended June 30, 2008 and 2007 should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this report as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

Three Months Ended June 30, 2008 compared to Three Months Ended June 30, 2007

                        Change in Results of Operations


                                                      For the Three       For the Three
                                                      Months Ended        Months Ended         Dollar
                                                      June 30, 2008       June 30, 2007        Change
Revenues:
Property revenues                                    $     4,676,501     $     3,508,156     $ 1,168,345
Mortgage revenue bond investment income                    1,056,825             631,855         424,970
Other income (loss)                                          (83,028 )           309,101        (392,129 )
  Total Revenues                                     $     5,650,298     $     4,449,112     $ 1,201,186

Expenses:
Real estate operating (exclusive of items shown
below)                                                     2,849,254           2,189,457         659,797
Depreciation and amortization                              1,164,316             569,503         594,813
Interest                                                     875,893             526,099         349,794
General and administrative                                   489,399             402,115          87,284
  Total Expenses                                     $     5,378,862     $     3,687,174     $ 1,691,688

Minority interest in net loss of consolidated
subsidiary                                                       781                   -             781
Net income                                           $       272,217     $       761,938     $  (489,721 )

Property revenues. Property revenues increased as a direct result of revenue generated by the MF Properties, which added approximately $1.1 million and averaged $669 per unit in monthly rent with economic occupancy at 92% during the period. Rental revenue associated with the apartment properties of the consolidated VIEs decreased slightly but was offset by higher levels of other property income such as fees, charges, and interest income. VIE economic occupancy was 89% in 2008 and 85% in 2007. For the VIEs, the average monthly rents per unit for the second quarter of 2008 were $669 as compared to $627 in 2007.

Mortgage revenue bond investment income. The $425,000 increase in mortgage revenue bond investment income during the second quarter of 2008 compared to the second quarter of 2007 is due to income generated by the tax-exempt mortgage bonds acquired in 2007 and 2008. In 2007, a total of six new bond investments were acquired in the second quarter with a total par value of approximately $31.2 million and one new bond investment was acquired in the fourth quarter with a total par value of approximately $10.8 million. During the first half of 2008, two bond investments were sold and two additional bond investments were acquired with a total par value of $12.4 million.

Other income (loss). The decrease in other interest income is attributable to decreased temporary investments in liquid securities. The proceeds from the sale of Northwoods Lake during the third quarter of 2006 created additional cash that was invested during the second quarter of 2007 in short term liquid securities. Such additional cash has subsequently been deployed to acquire long term investments. The sale of the Chandler Creek tax-exempt bonds resulted in a net loss in the second quarter of 2008. The loss on the sale was the result of the write-off of unamortized bond acquisition costs. The bonds were sold at par plus accrued interest.

. . .