2009 MHEG ANNUAL REPORT

Building Tomorrows...

2009 Annual Report Midwest Housing Equity Group, Inc.

Building Tomorrows

In 2009, Midwest Housing Equity Group, Inc., along with the rest of the affordable housing industry, experienced more challenges than in any other year. Even with the difficulties, we stayed focus on our mission of changing lives for a better tomorrow.

2 4 8 10 12 14 16 18 20 22 24 25

Message from the President 2009 Developments MHEG Profile Equity Summary Actual vs. Projected Return Investor Summary Iowa Kansas Nebraska Oklahoma Board of Directors and Committees Staff

Table of Contents

With each obstacle, we continued to remember our objective and worked even harder with our partners to reach our goal of building tomorrows. As a result of much teamwork, Midwest Housing Equity Group, Inc. was able to create over 350 units of affordable housing for the Midwest community.

Messa ge from the Pre s id e nt 2

The good news about 2009 is that I’m able to write a message to talk about 2009. For many in the tax credit industry, they may not have that luxury. I will be the first to admit that 2009 was the most difficult year I can remember in my 28 years in the affordable housing industry. I doubt I’m alone in saying I’ve never seen anything like this. For the record, I hope I never do again. It was a tough year but if you recall my comments from 2008, God does not give us more than we can handle; so while 2009 was trying, we will learn from it and come out stronger than before. The building blocks are there for building a better tomorrow. If we just stay to what we know and what works best, we can do this.

MHEG did raise a pretty healthy sum of capital in 2009, but unfortunately we weren’t able to close all of the investors by year’s end. In this economy, many investors are more cautious and want to do more diligence on MHEG, the deals and the development teams, so the closing process took much longer. As a result, we closed $40M in equity out of the $71M committed from our investors and closed $41M worth of deals. That is a far cry to previous years, but we have the deals lined up to close once we get the remaining balance of investors closed. What is most impressive about 2009 is our EVP’s brought in a record 13 new investors that had never invested in tax credits before. This is not just impressive, but exceedingly impressive.

I like to equate raising capital to baseball. I played ball most of my life until the old body said it was too old for the pain (sound familiar to raising capital)? Anyway, as an industry, we got used to the long ball game of hitting triples and home runs. With the GSE’s in the market and the CRA driven investors, it was pretty easy to play long ball. But once the GSE’s left and the CRA driven investors changed, we had to go to the small ball game. Instead of getting big chunks of capital all at once, we are getting smaller investors and smaller chunks of capital, which means we have to get more of them. Instead of playing with triples and home runs, we are bunting and singling. Still every once in a while we do get a long ball hitter to the plate. Many a good team has made it to the World Series with this approach, so MHEG is playing the game with a great team of new investors mixed in with the old.

2009 also brought us the TCAP and 1602 programs as part of the stimulus package. While I’ll be the first to admit these programs are not my favorite because they did nothing to stimulate new investors, they did do what they were intended to do and that is unclog the backlog of deals that weren’t getting done due to the reduced capital in the market. The learning curve was difficult but as we all figured it out, the process became more and more smooth. We need to now focus on what it takes to bring new capital/investors to the market, as opposed to worrying about a grant program like the TCAP and 1602 technically were. We may need another round of 1602 funds, but most feel it would be troubling to the industry if we went beyond that.

I would like to say a special thank you to the MHEG staff. We fortunately did not have to reduce staff, but that didn’t come at a sacrifice. The MHEG staff hung in there and continued to do their jobs, very well I might add. I say this wherever I go and speak, I’ll put my staff up against anyone’s.

We have some of the best, brightest and most dedicated staff in the country. For them to hang in the way they did for 2009 says a lot about their commitment to MHEG and the work we do. Thanks for all you do!!!

As mentioned above, we had a good year in attracting new investors. That not only is a testament of the EVP’s hard work, but a buy in of what we do by those new investors. Along with our repeat/core group of investors, we have a good group that has stuck with us through all of this. Obviously, it all starts with the investors because without them, we really don’t have much to do. Thank you for your partnership, support of affordable housing and most importantly, your friendship.

MHEG’s Board and sub-committees played another important role this year. Their help in opening doors to new investors and working through the issues with the changes in the market is greatly appreciated. However, I would be remiss if I didn’t point out the great leadership of Sister Marilyn Ross. Sister has been on the Board since the creation of MHEG back in 1993 and has served as Chair for the past nine years. This year Sister told me she was having more visions of her recliner and less of her working so hard, so she informed me that 2009 was going to be her last year on the Board. Just for the record, she has to serve until June 2010 so you have time to convince her to stay on a few more years. Regardless of if we can convince her to stay or not, she has provided tremendous leadership to Midwest Housing and to me, personally.

While many of the developers were frustrated by the delays of being able to close their deals, we appreciate their patience and understanding as we brought in new investors and lived through the new requirements of many of the existing ones. We understand the pressure this has put on the development community and their partners. In time, we will get beyond this and hopefully look back at this as a learning experience. We appreciate you hanging in there and your support. A special thank you to those of you who brought us leads for new investors. That is a true sense of a partnership and a better tomorrow.

A year wouldn’t be complete without thanking our professional partners as well. Thank you to all at the law firm of Kutak Rock; the accounting firm of Dauby, O’Connor, Zaleski; our bridge lender, Horizon Bank and all the other professionals that have worked with us throughout the year.

So what will 2010 bring? That is really a good question. I hope this market will calm down, pricing will stabilize and yields will flatten out a bit. It may not happen right away, but I do see 2010 as the start of a new beginning for the program. I am very hopeful that we can start the process of building tomorrows, today. If we all work together, we can start this resurgence. We ask you all to be patient because as I said, it won’t happen overnight. I do see some other changes to the program in 2010 that may help raise capital, but those too will take time.

I wish you all the best in the upcoming year and look forward to working with you 2010. May God bless you and the work that you do to promote affordable housing. I hate to repeat what I said last year and above, but just remember God is with us and will not give us more than we can handle.

I’m a firm believer in that, in time we’ll look back at 2009 and appreciate all that we learned. Until next year’s report, God Bless.

Jim Rieker President/CEO MHEG

3

Midwest Housing Equity Group, Inc. closed 13 deals in 2009, for a total of 356 affordable housing units. These developments extend over ten cities in our four states and will provide much needed affordable housing.

S i n g l e Fa m i l y H o m e s

2 00 9 Development s

Cardinal Estates, L.L.C.: Wayne, NE - 10 units - NF XIV, L.P. Cardinal Estates offers ten newly constructed rent-to-own single family units located in the northeast community of Wayne. Each of the new homes has four bedrooms, two baths and will range in size from 1,790 to 2,025 square feet. The homes also have many great amenities included such as a refrigerator, washer/dryer, dishwasher, storage and attached two-car garages.

Developer: Foundations Development, L.L.C.

Crown VII Limited Partnership: Omaha, NE - 24 units - NF XIV, L.P. Crown VII will provide 24 newly constructed single family homes scattered throughout North Omaha.

Each home will have three bedrooms and offer 1,170 square feet. These homes will participate in the CROWN program, which enables the tenants the opportunity to purchase the homes at the end of 15 years. Tenants complete a series of programs on budget counseling, good maintenance and repair and the basics of becoming a responsible home owner.

Developer: Holy Name Housing Corporation

Larned Dream Homes, LLC: Larned, KS - 6 units - KF VII, L.P. Larned Dream Homes offers six newly constructed single family homes for the community of Larned.

Each home has three bedrooms with an average of 1,120 square feet. The homes also include many amenities such as appliances, washer/dryer, a patio and two-car garages.

Developer: Mesner Development Company

Special Needs or Tr a n s i t i o n a l H o u s i n g Coventry Court Townhomes II, L.L.C.: Hutchinson, KS - 11 units - KF VII, L.P.

Coventry Court consists of eleven newly constructed special needs units; each unit will have two bedrooms and an average of 1,043 square feet. The townhomes have many great amenities such as on-site staff, a van for transportation of tenants, as well as being specifically designed for people with developmental disabilities. The development is adjacent to nearby public and private health facilities and other similar four-plexes serving as group homes.

Developer: Manske & Associates, L.L.C.

Home to Stay: Cedar Rapids, IA - 24 units - IF IV, L.P. Home to Stay represents a very unique development for the Cedar Rapids community, which is home to the Sixth Judicial District of Iowa - Department of Correctional Services. This development is targeted to families who have a member reentering the community following release from a correctional facility, giving them the opportunity to reunite with their family and hopefully a better chance at success. Home to Stay offers 24 units total, six one-bedroom units, six twobedroom units, ten three-bedroom units and two four-bedroom units. They range in size from 550 to 1,106 square feet. It will also provide many amenities to tenants such as a community clubhouse, playground and security.

Developers: Community Housing Initiatives, Inc. and Community Corrections Improvement Assoc.

McKinley Housing LLC: Independence, KS - 28 units - KF VII, L.P. McKinley Housing offers a variety of units targeted towards families, seniors and disabled persons.

The Independence community has a great need for affordable rental housing, as many households were displaced as a result of the 2007 floods. McKinley Housing, made up of duplexes and fourplexes, provides ten one-bedroom units, six two-bedroom units and twelve three-bedroom units ranging from 650 to 1,600 square feet.

Developer: Vintage Construction LLC

4

McKinley Housing

Home to Stay

Cardinal Estates

Crown VII

Coventry Court Townhomes II Larned Dream Homes

5

Multifamily Housing Aniston Village, LP: Iowa City, IA - 22 units - IF IV, L.P. Aniston Village offers 18 newly constructed single family homes and two duplexes. Each unit offers three bedrooms, two baths and ranges in size from 1,100 to 1,400 square feet. The development, consisting of three scattered sites, is located on the east side of Iowa City. It will provide much needed affordable housing for the community, as similar properties have a waiting list.

Developer: The Housing Fellowship

2 00 9 Development s

Chapel Ridge West II Limited Partnership: West Des Moines, IA - 95 units - IF V, L.P. Chapel Ridge West II consists of 95 one, two and three-bedroom units ranging in size from 648 to 1,080 square feet. The development has several amenities such as community clubhouse, playground and basketball court area, computer learning center and a 24-hour onsite manager. Chapel Ridge West also has an in-house case manager who will work in partnership with Children and Families of Iowa, The Family Violence Center, and the Institute of Social and Economic Development to provide supportive services. This is the second phase of the Chapel Ridge West Apartments; the first phase was syndicated through IF IV, L.P. Developers: Conlin Development Group, L.L.C. and Barnes Realty, LLC

MLK Brickstone Development, LP: Des Moines, IA - 18 units - IF V, L.P. MLK Brickstone has 18 one and two-bedroom units, ranging from 656 to 880 square feet. MLK Brickstone is located in the Drake neighborhood of Des Moines. This will be the first development in the neglected neighborhood, commencing redevelopment and improvement of the area.

Developer: Hatch Development Group, L.L.C.

Old Spencer School, LLLP: Spencer, IA - 16 units - IF IV, L.P. This 16-unit development involves the renovation of former Spencer Middle School, a historic three-story brick school building built in 1914. The apartments will offer one and two-bedroom units and will range in size from 778 to 1,015 square feet. The modern units will provide additional amenities such as storage, ceiling fans, individual washer/dryers, as well as a clubhouse with a fitness and computer center.

Developer: Community Housing Initiatives, Inc.

Willow Bend I Limited Partnership: Des Moines, IA - 58 units - IF V, L.P. Willow Bend I involved rehabbing of 58 one and two-bedroom units, ranging from 600 to 920 square feet. Renovations included the installation of new countertops, kitchen appliances, floor coverings, windows, exterior doors, roofs and siding. The development also offers a community clubhouse, playground area and computer learning center.

Developer: Conlin Development Group, L.L.C.

Senior Living Windridge Townhomes II, LLC: Grand Island, NE - 18 units - NF XIII, L.P. Windridge Townhomes II is a second phase development that offers nine two-bedroom duplexes, for a total of 18 senior units, each at 1,342 square feet. The townhomes have many great amenities included such as additional storage space, storm shelters and garages. They are also within close proximity to a medical center, physician offices and transportation.

Developer: Mesner Development Company

Woodland Park Townhomes II, LLC: Grand Island, NE - 26 units - NF XIII & NF XIV, L.P. Woodland Park Townhomes II consists of 26 newly constructed senior units. It offers 18 twobedroom units and eight three-bedroom units, with one and two baths respectively, and will range in size from 983 to 1,241 square feet. The townhomes have many great amenities included such as a refrigerator, washer/dryer, dishwasher, storage, patio and garages. The development also shares a community clubhouse with Woodland Park Townhomes I. Developer: Excel Development Group

6

Chapel Ridge West II

Woodland Park Townhomes II

Old Spencer School

Windridge Townhomes II

MLK Brickstone

Willow Bend I

7

3000

2500

Location of Properties

Multifamily Housing

43%

Status of Development

Senior Living

32%

Operational

Single Family Homes

15%

Pre-Stabilized

8%

Suburban

Special Needs Housing

8%

In Lease-Up

7%

Urban

Transitional Housing

2%

Construction

2%

Types of Housing

83%

9

8

200

7

6

200

200

5

4

200

200

200

2 200 3

200

200

200

199

7 199

199

199

199

199

1

500

0

1000

9

1000

8

2000

6

1500

5

3000

4

2000

3

4000

Individual State Totals

6000

199

MHEG Total

MHEG Nebraska Kansas Iowa Oklahoma

5000

M HEG Profile

3

4

3500

7000

8

199

5

6

199

199

7

8

199

199

9

199

0

199

200

1 200

2

3

200

200

4 200

8

7 200 6 200 5

200

200

200

9

Growth of Housing Units

Rural

56% 2% 42%

Types of Construction New Construction

76%

Rehab

16%

Historic Rehab

8%

1-250 units 250-500 units 500+ units

MHEG Overview Number of Developments

247

Number of Housing Units

6,748

Number of Counties Represented

106

Number of Cities Represented

129

Information current as of 12/31/2009.

9

Millions $600

Equity Summary

$500

$400

$300

$200

$100

$0 Y 1993 Y 1994 Y 1995 Y 1996 Y 1997 Y 1998 Y 1999 Y 2000 Y 2001 Y 2002 Y 2003 Y 2004 Y 2005 Y 2006 Y 2007 Y 2008 Y 2009

Cumulative Equity Raised

10

Millions $300

$250

Nebraska Kansas Iowa Oklahoma

$200

$150

$100

$50

$0 Y 1993 Y 1994 Y 1995 Y 1996 Y 1997 Y 1998 Y 1999 Y 2000 Y 2001 Y 2002 Y 2003 Y 2004 Y 2005 Y 2006 Y 2007 Y 2008 Y 2009

Equity Raised - Individual States Information current as of 12/31/2009.

11

Actua l vs. Projected R e t u rn

EFN VIII EFN VIII EFN IX EFN IX

NAHF 93 NAHF 94 NAHF 95 NAHF 96 NAHF 97 EFN VI EFN VII - A Shares - B Shares - A Shares - B Shares

EFN X EFN X EFN XI EFN XI EFN XII EFN XII NF XIII NF XIII NF XIV NF XIV KEF I KEF I KEF II

EFN IX-B - A Shares - B Shares - A Shares - B Shares - A Shares - B Shares - A Shares - B Shares - A Shares - B Shares - A Shares - B Shares - A Shares

KEF II KEF III KEF III KEF IV KEF IV KEF V

-

B A B A B A

Shares Shares Shares Shares Shares Shares

KEF V KF VI KF VI KF VII KF VII IEF I IEF I IEF II IEF II IEF III IF IV IF IV IF V IF V OEF I OEF I OEF II OF III OF III -

B A B A B A B A B B A B A B A B B A B

Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares 0%

12

N

A - 15.70% P - 15.00% A - 18.19% P - 15.00% A - 17.21% P - 15.00%

A - 19.06% P - 13.00%

A - 23.77% P - 14.00% A - 24.29% P - 14.00% A - 23.89% P - 13.00%

A - 19.97% P -13.00% A - 8.01% P - 7.50% A - 20.33% P - 13.00%

A - 7.80% P - 7.50%

A - 17.24% P - 13.00% A - 18.09% P - 13.00%

A - 7.90% P - 7.50%

A - 13.60% P - 10.00%

A - 5.71% P - 5.75%

A - 13.52%** P - 9.75%

A - 6.12%** P - 5.75%

A - 13.40%** P - 10.75%

A - 8.67%** P - 6.75%

A - 14.15%** P - 14.15% A - 10.15%** P - 10.15% A - 11.45% P - 13.00% A - 7.11% P - 7.50% A - 15.85% P - 13.00% A - 8.08% P - 7.50% A - 16.20% P - 13.00% A - 7.47% P - 7.75% A - 11.08% P - 10.00% A - 5.91% P - 6.00% A - 16.31% P - 9.75% A - 6.02% P - 5.75%

A - 15.99%** P - 10.50%

A - 7.50%** P - 6.50%

A - 14.15%** P - 14.15% A - 10.15%** P - 10.15%

A - 8.31% P - 7.50%

A - 25.09% P - 13.00%

A - 6.61% P - 6.00% A - 5.93%** P - 5.75% A - 9.15%** P - 6.75%

A - 15.63%** P - 10.75%

A - 14.15%** P - 14.15% A - 10.15%** P - 10.15% A - 11.77%** P -10.00%

A - 6.05%** P - 6.15% A - 6.34%** P - 5.75%

A - 10.15%* P - 10.15%

10%

A - 14.15%* P - 14.15%

20%

30%

40%

Nebraska Actual IRR Kansas Actual IRR Iowa Actual IRR Oklahoma Actual IRR Projected IRR * No developments closed into Fund as of 12/31/2009. ** Some developments in Fund are currently in construction and lease-up.

A - 59.47% P - 13.00%

50%

60%

Information current as of 12/31/2009.

13

NAHF 93

NAHF 94

NAHF 95

NAHF 96

NAHF 97

EFN VI

EFN VII

EFN VIII

EFN IX

EFN IX-B

EFN X

EFN XI

EFN XII

NF XIII

NF XIV

NAHF 93

NAHF 94

NAHF 95

NAHF 96

NAHF 97

EFN VI

EFN VII

EFN VIII

EFN IX

EFN IX-B

EFN X

EFN XI

EFN XII

NF XIII

NF XIV

Alltel Bank of America Community Development Corp.

Bank of Bennington Bank of the West Behlen Mfg. Company Berkshire Hathaway, Inc. Cargill Financial Service Corporation Central States Health & Life Company of Omaha Commerce Bank, N.A.

I nvestor Summary

Consolidated Companies Country Bank Shares Equitable Federal Savings Bank Fannie Mae Farm & Home Insurance Agency, Inc. Farmers and Merchants Bank Farmers and Merchants Investment, Inc. First State Bank First State Bancshares Freddie Mac Geneva State Bank Home Federal Savings & Loan of Grand Island Info USA Jefferson Pilot Level 3 Communications Marine Bank Mutual of Omaha Insurance Company National Education Loan Network, Inc. North Central Bancorp, Inc. (Bank First) Pinnacle Bank Platte Valley Bank Principal Financial Services Qwest Communications, Inc. South Central State Bank Summit Investments TierOne Bank United Nebraska Bank US Bancorp Community Development Corp.

Valley Bank and Trust Company Wells Fargo Community Development Corp.

Information current as of 12/31/2009.

14

KEF I

KEF II

KEF III

KEF IV

KEF V

KF VI

KF VII

IEF I

IEF II

IEF III

IF IV

IF V

OEF I

OEF II

OF III

KEF I

KEF II

KEF III

KEF IV

KEF V

KF VI

KF VII

IEF I

IEF II

IEF III

IF IV

IF V

OEF I

OEF II

OF III

Arvest BancFirst Bank of the West Bankers Trust Capital City Bank Capitol Federal Savings Bank Carroll County State Bank Cedar Rapids Bank and Trust Central Bank Central National Bank Central State Bank Citizens Savings & Loan Association, FSB Commerce Bank, N.A. Community State Bank - Ankeny, Iowa Community State Bank - Tipton, Iowa Dubuque Bank & Trust Community Development Corp.

ESIC on behalf of Fannie Mae Fannie Mae Farmers and Merchants Investment, Inc. Fidelity Bank & Trust First Federal Savings & Loan Association of Independence First Federal Savings Bank of Iowa First National Bank of Hutchinson First National Bank of Olathe First National Bank of Waverly Freddie Mac The Grundy National Bank of Grundy Center Industrial State Bank INTRUST Bank, N.A. JP Morgan Chase Kaw Valley Bank Landmark National Bank Maquoketa State Bank Midwest Heritage Bank The Mission Bank Principal Financial Services, Inc. Security State Bank TierOne Bank Transamerica Life Insurance Company (Aegon) Treynor State Bank UMB Bank Valley View Bank Wells Fargo Community Development Corp.

West Bank

15

“There are no secrets to success. It is the result of preparation and learning from failure.”

Colin Powell

In December 2008, the MHEG executive staff gathered around a table in a conference room in Omaha and tried to figure out what the upcoming year would hold for us, as a company and as individuals. The pressure was definitely evident in that room. We all knew the prognosis that the pundits were stating, the financial markets in crisis were only going to get worse. In 2008, MHEG did well in Iowa, closing 13 of the 14 deals closed in the state. But would this be a precursor of what 2009 would hold for us or would we be the ones sitting on the sidelines? The overriding question, “How will we survive 2009?”

Iowa

In leaving the conference room that day, the task was obvious – MHEG needed to raise new money in a year the financial markets would be reeling from the effects of the recession. There is no secret to what needed to be done… without having any magic tricks in our bag or a lucky lottery ticket; it would require hard work, much preparation and frankly, high expectations. As many have said, high achievement takes high expectations.

What many do not know about me is that I keep a “No’s” List (from prospective investors), which might seem strange, but I wanted this list in front of me every time I sat down. And while the No’s may have seemed very frequent and took up a lot of space on my board, it gave me a sense of purpose to know that for every no, we were that much closer to the next yes. While I have never been accused of lacking in self-confidence, to be totally truthful, I entered 2009 wondering, “Am I good enough for this position, to represent MHEG and the staff, for our partners, developers and investors alike?” I decided after that meeting that I was going to use that list as motivation to be successful. The feeling was that no one was going to outwork us; we were going to be prepared and go out fighting.

I am here to state that in 2009, one of the toughest years our industry has ever seen, MHEG shined. No one outworked us, and as a result, we had a strong year. The company brought in 13 new investors (seven in Iowa); closing 13 deals total (six in Iowa). We did the deals that we are known for and when people had questions about the equity market, they called us.

In the end, MHEG did the best it could for the developer partners, protected the investor partners and survived. I appreciate the faith those partners had in me; and once again, sincerely appreciate the effort done by the MHEG staff. All of us can all look back at 2009 with a sense of pride and accomplishment.

Dan Garrett Executive Vice President Iowa

16

Lyon

Sioux

Osceola

Dickinson

O’Brien

Clay

Emmet

14

Winnebago

Worth

Mitchell

Howard

Hancock

Cerro Gordo

Floyd

Chickasaw

Kossuth Palo Alto

16

Plymouth

46

Buena Vista

Cherokee

27

Humboldt

Pocahontas

Franklin

Wright

Woodbury 46

Sac

Ida

75

Monona

10

Crawford

Harrison

Audubon

172

31

Butler

Boone 24

Polk

11

24

458

Adair

Mills

Montgomery

Adams

Union

Fremont

Page

Taylor

Ringgold

Types of Housing per County

Marion

Delaware

Linn

Mahaska 30

15

Dubuque 79

24

Clinton

36

19

Cedar

Scott

183

Muscatine 72

Keokuk

Washington Louisa

Lucas

Monroe

Wapello

Jefferson

Decatur

Wayne

Appanoose

Davis

Van Buren

8

Jackson

Jones

Johnson

Iowa

Clarke

Multifamily

Single Family

Senior

Special Needs

Status of Types of Housing Development

Location of Properties

Multifamily Housing

59%

Operational

67%

Rural

Senior Living

31%

Pre-Stabilized

12%

Suburban

Single Family Homes

0%

In Lease-Up

12%

Urban

Special Needs Housing

5%

Construction

9%

Transitional Housing

5%

Information current as of 12/31/2009.

Buchanan

Benton

Poweshiek

Jasper

Warren

Madison

Tama

Marshall

Story

Dallas

Cass

Black Hawk

Grundy

Hardin

Clayton

42

Guthrie

10

Pottawattamie

24

Greene

Carroll

Shelby

Webster Hamilton

Calhoun

Fayette Bremer

24

Woodbury 120 units

Allamakee

Winneshiek

36%

Henry

Des Moines

Lee

Transitional

Types of Construction New Construction

48%

Rehab

33%

Historic Rehab

19%

2% 62%

Number of Developments

42

Number of Housing Units

1,520

Number of Counties Represented

23

Number of Cities Represented

24

17

It was a difficult year for many, but isn’t there always a crisis of some sort? In life, we always have challenges and obstacles; the bitter and the sweet. However, in this difficult economy and with our changing industry, not everyone will survive. It is a time for each of us to check our competitive advantages. The challenges in 2009 forced us all to ask many questions about our organizations…

If we continue to do what we have always done, will we get the same results? What new opportunites can be seized? What expenses are no longer necessary, what can be reduced? What are we doing that is no longer productive or brings little in return? How do we better leverage our resources?

Kansas

The answers….the rules and circumstances have changed, what used to be true may be no longer.

We must make moves and adjustments. We need to make ourselves stronger, and not only survive but thrive. We must seize new opportunities and redirect our efforts to be more productive. Today the economy is down, but it will turn and when it does, be ready!

Even with the obstacles of 2009, we closed three new properties in Kansas: McKinley Housing, Independence; Larned Dream Homes, Larned; and Coventry Court II, Hutchinson. The Kansas investor base is strong and growing, in 2009 we signed five investors to Kansas Fund VII. A big thanks to Capitol Federal Savings Bank, Topeka; Kaw Valley Bank, Topeka; Commerce Bank, N.A., Kansas City; Citizens Saving and Loan, Leavenworth; and Farmers and Merchants Investments, Lincoln, NE. We value their continued support and friendship. Additionally, in the first quarter of 2010 we signed Wells Fargo into the fund and closed Pioneer Adams II, Topeka; Cornerstone Apartments, Topeka; and Flor de Sol II, Liberal.

I expect there to be a strong correlation between investor preference and development location in 2010. The fund’s returns are outstanding but more than ever there is a need for workforce and senior housing throughout Kansas. Our investors are always the strongest advocates for their communities and new affordable housing is an excellent way to provide community support.

To conclude, I want to emphasize cooperation, trust, and partnership. The economy, new rules, changing requirements, new faces, and refocused efforts mean we need each other more than ever.

The way we operate is changing by choice and necessity. Cooperation, trust and partnership are a must. I look forward to working with you in 2010.

Pat Michaelis Executive Vice President Kansas

18

Cheyenne

Decatur

Rawlins

Norton

14

Sherman

Wallace

Thomas

Graham

Sheridan

Logan

Trego

Grove

8

16

Phillips

Smith

22

10

Ellis 10

Jewell

Cloud

Mitchell

Clay

42

Wichita

Scott

Ness

Lane

78

10

14

Shawnee Wabaunsee 25 170 8

Osage

Morris

Marion

14

Chase

Kearny

Hodgeman

Finney

12

16

Stanton

Morton

Grant

Haskell

Stevens

Seward

Ford

Kiowa

9

36

Edwards Gray

Harvey

Reno

Stafford

88

23

Sedgwick

Pratt

Kingman

35

Greenwood

Butler 24

30

Clark

Comanche

Harper

Barber

Sumner

Cowley 12

12

32

Types of Housing per County

Single Family

Senior

Special Needs

Location of Properties

Multifamily Housing

40%

Operational

Senior Living

38%

Pre-Stabilized

5%

Suburban Urban

90%

Single Family Homes

8%

In Lease-Up

3%

Special Needs Housing

14%

Construction

2%

Transitional Housing

0%

Information current as of 12/31/2009.

Douglas

Johnson

Franklin

Miami

144

Anderson

Woodson

Allen

Wilson

Neosho

Linn

Bourbon

Crawford 4

Chautauqua

Multifamily

Status of Types of Housing Development

121

Elk

16

Meade

Wyandotte 38

Coffey

Pawnee Hamilton

Leavenworth

Lyon

McPherson

Rice

Jackson

12

Dickinson

Saline

Barton

Rush

8

Jefferson

Geary

Ellsworth Greeley

Brown Doniphan

126

12

6

Pottawatomie

Riley

Ottawa

Lincoln

Russell

48

Nemaha

Marshall

Washington

Atchinson

Osborne

Rooks

Republic

Rural

79%

Labette Montgomery 8 12 Cherokee 28

24

4

16

4

Transitional

Types of Construction New Construction

86%

2%

Rehab

10%

19%

Historic Rehab

4%

Number of Developments

58

Number of Housing Units

1,401

Number of Counties Represented

32

Number of Cities Represented

38

19

Golf and Tax Credits

I would assume most people do not see many similarities between the game of golf and the tax credit industry. However, for me, 2009 was a year that I saw a number of parallels between the two professions. Below are a few of my observations regarding this perspective and I offer them with the hope they may help you with your golf game as well as your work in the tax credit industry.

Nebraska

You may have noticed before professional golfers take their stance over the ball they face their target and visualize the shot they want to hit. This process requires the player to focus on the target and not the trouble that surrounds it. In 2009, many of us in the tax credit program faced stiff challenges (i.e., decreased pricing and limited capital) resulting from a slowing national economy. Rather than placing your emphasis on the troubles in the market place, set your mind on reaching the target. In other words, strategize and develop a plan of how best to reach your target using all available resources and avoiding the troubles. A confident swing is not one that focuses on the trouble, but one that focuses on the target.

Swing easy. A good golf shot is a result of making proper contact with the club head and the ball.

This means hitting down on the ball with the club head square at impact. Your swing should be fluid, easy and under control. Golf is not about how far you can hit the ball, but rather keeping the ball in play. The same principle can be true in our professional lives. Whether you are performing a compliance audit, underwriting a project or meeting with a prospective investor, being in control will enable you to think clearly and maximize your skills, talents and knowledge. Control allows you to be comfortable and perform at your best. Remember, a well hit ball is one that is struck solid.

Patience is critical to the game of golf. Quite frankly, I would say it is a prerequisite. My wife told me recently that is the reason she doesn’t play the game. The degree of patience you exercise during your round has a significant impact on your score and game. I believe the word “patience� also applies to the tax credit market for 2009. In my opinion, the industry was in a state of debacle. Uncertainty of the market created concern and panic. Patience is crucial during this time. We all must continue to work hard to find opportunities so when the economy changes we are prepared and ready. Do what you can to make the most of the situation and understand sometimes it just takes time to turn things around.

I hope you find the tips helpful as you serve your role in the market place and on the links. Golf is a wonderful game that teaches various character traits to be successful in life and business. In closing, be sure to always replace your divot.

I look forward to 2010 and sharing the experience with all of you.

Thomas Judds Executive Vice President Nebraska

20

Boyd

Keya Paha Dawes

Knox Cherry

Sheridan

Sioux

Brown

Box Butte

Rock

Dixon Dakota

11

Scotts Bluff 15

Banner

50

Grant

Hooker

Arthur

Mc Pherson

Thomas

Loup

Blaine

Morrill 6

Garden

Garfield

Greeley

Cheyenne

Keith Deuel

Sherman

32

Lincoln

Perkins

54

Dawson

Dundy

Types of Housing per County

Buffalo

15

Hayes

Frontier

Hitchcock

8

Red Willow

Gosper

16

Phelps 16

Furnas

Polk

Merrick

Harlan 6

Kearney

Franklin

Hall 64

112

Adams 16

York Hamilton

Clay

5

Nuckolls

Thayer

8

Senior

Special Needs

Location of Properties

Multifamily Housing

39%

Operational

Senior Living

28%

Pre-Stabilized

6%

Suburban

Single Family Homes

24%

In Lease-Up

5%

Urban

Special Needs Housing

7%

Construction

0%

Transitional Housing

2%

Rural

12

Dodge 72

Saunders

Butler

50%

16

Lancaster 105

100 60

Saline

Gage 34

Otoe

16

50

6

Pawnee 4

16

16

9

Richardson

Transitional

Types of Construction New Construction

83%

Rehab

10%

Historic Rehab

7%

1% 49%

Cass

Johnson Nemaha

24

Jefferson

Douglas 749 437 137 292 46

Sarpy

16

Seward

16

Washington

8

Single Family

89%

Colfax

22

Fillmore

10

11

Webster

18

Burt

8

12

Multifamily

Status of Types of Housing Development

Information current as of 12/31/2009.

Platte

28

6

Chase

Howard

12

20

Nancer

Custer Kimball

10

14

8

Boone

Valley

Logan

16

Thurston

Madison Stanton Cuming

Wheeler

9

36

Wayne

Pierce

Antelope

18

30

Cedar

Holt

Number of Developments

127

Number of Housing Units

2,963

Number of Counties Represented

40

Number of Cities Represented

51

21

I’d first like to take a moment to introduce myself to those I have not had the pleasure to meet in person. I am a native Oklahoman and grew up near Lake Thunderbird. I graduated from Norman High School, then attended Radford University in Virginia and graduated with a degree in Finance.

I have been back in Oklahoma since late 2002. As many of you know, I joined MHEG during the 4th quarter of 2009 and bring over ten years experience in the mortgage and real estate industry with me. I am very happy to be a part of the MHEG staff.

Oklahoma

Many thanks to the Oklahoma Operations and Investment Committee members Roger Beverage, Dennis Brand, Brad Krieger, Kenyon Morgan and Bob Spinks for their assistance throughout the year. Also, a special thank you to Jeff Hairston and Terry Wright with the Federal Home Loan Bank for their continued support. We value these partnerships and are very appreciative of the guidance they provide MHEG. I’d also like to thank the MHEG staff for bringing me up to full speed during this transition, especially Sammy Ehtisham for his help in continuing to move Oklahoma forward. We are also very grateful to those investors, developers and other associates who have kept with us during this transition period and appreciate their continued partnerships.

2009 brought many changes within the industry and our organization. We realized the challenges ahead of us and made the necessary adjustments. Due to the economic fallout, quite a bit of time was devoted to rebuilding previous relationships. In November, we found out that 74% of Oklahoma banks are Sub S. As a result, we have realigned our focus to include growth with corporations while maintaining a baseline of eligible banking institutions. Lower credit pricing and higher yields have made our Fund III more desirable to corporations who were unwilling to review our offerings in the past.

Looking at the year ahead, I see heavy involvement with government officials at the local, state and national levels to increase the awareness and support of the affordable housing program. Plans for 2010 also include active participation within the banking trade associations, as well as continued education for key groups within our state on the benefits of the LIHTC program.

I’m excited for the upcoming year; even with the continued challenges we may encounter, MHEG remains committed to our mission of creating quality housing. We look forward to continuing Building Tomorrows as an organization and within the affordable housing community.

Andrea Frymire Executive Vice President Oklahoma

22

Texas

Beaver

Woods

Harper

Woodward

Alfalfa

Osage

Blaine

Dewey

Custer

Kingfisher

Kiowa

Cotton

Seminole 46

Pontotoc

Garvin

Jefferson

Marshall

Multifamily

Single Family

Senior

Special Needs

Status of Types of Housing Development

Adair

Sequoyah

Hughes

24

Haskell

Pittsburg

Latimer 24

32

Le Flore

Coal Coal

Pushmataha Johnston

Love

Types of Housing per County

Charokee

McIntosh

Murray Carter

Delaware

Muskogee

40

McClain

Stephens Tillman

Wagoner

Okfuskee

140

Grady

Comanche

Jackson

Mayes

Okmulgee

48

Cleveland

47

Rogers

Creek

Pottawatomie

Caddo

Greer Harmon

273

Craig

Tulsa

Lincoln

Washita

Ottawa

Nowata

30

Logan

Canadian Oklahoma 52

Beckham

Pawnee

Payne

40

Roger Mills

Noble

Garfield

Major

Ellis

Washington

Cimarron

Kay

Grant

Location of Properties

Atoka

Bryan

McCurtain Choctaw

42

26

Transitional

Types of Construction

Multifamily Housing

45%

Operational

55%

Rural

65%

New Construction

60%

Senior Living

45%

Pre-Stabilized

20%

Suburban

15%

Rehab

40%

25%

Urban

20%

Historic Rehab

0%

Single Family Homes

2%

In Lease-Up

Special Needs Housing

0%

Construction

Transitional Housing

0%

Information current as of 12/31/2009.

Number of Developments

20

Number of Housing Units

864

Number of Counties Represented

11

Number of Cities Represented

16

0%

23

Board of Directo rs

MHEG is a privately owned non-profit corporation with a nine-member Board of Directors.

The Board of Directors presides over MHEG with the President of MHEG overseeing the daily activities of each state. In addition, each state has an Operations & Investment Committee to help advise the Executive Vice President on developments and investors.

Sister Marilyn Ross

Dick Schenck

Holy Name Housing Corp.

Wells Fargo

Chairperson

Vice Chairperson

Rick Jackson

Brad Krieger

Capitol Federal Savings Bank

Arvest Bank

Steve Bodner

David Fisher

U.S. Bank

FHLBank Topeka

James Laphen

Barry Sandstrom

TierOne Bank

Committees

Audit & Investment Committee

Steve Bodner - U.S. Bank Dick Hoiekvam - retired Deloitte Partner James Laphen - TierOne Bank Dick Schenck - Wells Fargo

Budget/Compensation Committee

Rick Jackson - Capitol Federal Savings Bank Brad Krieger - Arvest Bank Sister Marilyn Ross - Holy Name Housing Corp.

Barry Sandstrom - Home Federal Savings & Loan

Iowa Operations & Investment Committee Mayor Tom Hanafan - Mayor of Council Bluffs, Iowa Chris Hensley - Bank of the West Jeff Plagge - Northwest Financial Corp.

Jim Rieker - Midwest Housing Equity Group, Inc. Dick Schenck - Wells Fargo John Sorensen - Iowa Bankers Association Bryan Vander Lee - Fidelity Bank & Trust

24

Home Federal Savings & Loan

Dick Hoiekvam Retired Deloitte Partner

Jim Rieker MHEG

Kansas Operations & Investment Committee Bob Arthur - Commerce Bank, N.A. Mark Dennett - INTRUST Bank David Fisher - FHLBank Topeka Rick Jackson - Capitol Federal Savings Bank Randy Kancel - UMB Bank, n.a.

Jim Rieker - Midwest Housing Equity Group, Inc. Dick Schenck - Wells Fargo Michael Scheopner - Landmark National Bank Chuck Stones - Kansas Bankers Association

Oklahoma Operations & Investment Committee Roger Beverage - Oklahoma Bankers Association Dennis Brand - BancFirst Brad Krieger - Arvest Bank Kenyon Morgan - Prime Time Environments, LLC Jim Rieker - Midwest Housing Equity Group, Inc. Bob Spinks - United Way of Oklahoma City

Jim Rieker

President / Chief Executive Officer

Dan Garrett

Executive Vice President Iowa

Pat Michaelis

Executive Vice President Kansas

Cindy Koster

Underwriting Manager

Development Manager

Shannon Johnson

Keely McAleer

Senior Asset Manager

Jennie Lattimer Asset Manager

Becky Christoffersen

Director of Investor Relations / Director of Development & Underwriting

Thomas Judds

Executive Vice President Nebraska

Sammy Ehtisham

Ted Witt

Chief Operating Officer / Director of Asset Management

Andrea Frymire

Gary Wasserman

Director of Information Management

Chris Pangkerego

Executive Vice President Oklahoma

Director of Information Technology

Development Coordinator

Paralegal & Due Diligence Administrator

Deb Swanson

Shannon Foster Accounting Manager

Public Relations Specialist

Investor Relations Coordinator

Peggy Levine

Laurie Stephenson

Shellie Vandeman

Chuck Kane

Ryan Harris

Kristina Tolander

Rachel Wiesner

Asset Manager

Asset Manager

Compliance Manager

Asset Manager

Staff

Tom Stratman

Jason Main

Chief Financial Officer

Compliance Specialist

Asset Analyst

Not Pictured: Tenley Chickinelli

Administrative Assistant

Becca Swanson

Administrative Assistant

Jordan Bottorff Asset Manager

Jennifer Baldwin Support Specialist

Lacey Powers

Administrative Assistant Iowa

Lisa Bryan

Administrative Assistant Kansas

Dana Swanson

Administrative Assistant

25

Nebraska Office / Corporate Headquarters 13520 California Street, Suite 250 Omaha, NE 68154 Phone: 402.334.8899 Fax: 402.334.5599

Iowa Office

1312 Locust Street, Suite 300B Des Moines, IA 50309 Phone: 515.280.6000 Fax: 515.280.6655

Kansas Office

701 S. Kansas Avenue Topeka, KS 66603 Phone: 785.267.1901 Fax: 785.267.1903

Oklahoma Office

10342 Greenbriar Parkway Oklahoma City, OK 73159 Phone: 405.278.7909 Fax: 405.735.5617

www.mheginc.com