FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number: 0-16862
CAPITAL SOURCE II L.P.-A
(Exact name of registrant as specified in its Agreement of Limited Partnership)
Delaware 38-2684691
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Assignment Certificates ("BACs") representing the beneficial
assignment of limited partnership interests.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of the chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
BACs are not currently traded in any market. Therefore, there is no
market price or average bid and asked price for BACs within the 60 days prior
to the date of this filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> -i-
TABLE OF CONTENTS
Page
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 2
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . 3
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 3
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 4
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 9
Item 9. Changes in and Disagreements With Accountants on Accounting and
Finacial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 9
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 9
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 10
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 11
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
<PAGE> -ii-
PART I
Item 1. Business. Capital Source II L.P.-A (the "Registrant" or the
"Partnership") was formed in August 1986 under the Delaware Revised Uniform
Limited Partnership Act to invest principally in federally-insured mortgages
on multifamily housing properties and to acquire, hold, sell, dispose of and
otherwise deal with limited partnership interests (the "Partnership Equity
Investments") in the limited partnerships (the "Operating Partnerships") which
construct and operate these properties. The Registrant's investment
objectives generally are to (i) preserve and protect the Registrant's capital;
(ii) provide quarterly cash distributions to investors; and (iii) achieve
increasing current income and long-term capital appreciation through increases
in income from the Partnership Equity Investments.
A total of 4,011,101 beneficial assignment certificates representing
beneficial assignment of limited partnership interests in the Registrant
("BACs") were sold at $20 per BAC for total capital contributions of
$80,222,020 prior to the payment of certain organization and offering costs.
The Registrant originally acquired (i) four mortgage-backed securities
(the "GNMA Certificates") guaranteed as to principal and interest by the
Government National Mortgage Association ("GNMA") collateralized by first
mortgage loans on multifamily housing properties located in three states, (ii)
a first mortgage loan insured by the Federal Housing Administration (the "FHA
Loan") on a multifamily housing property located in Charlotte, North Carolina,
and (iii) Partnership Equity Investments in five limited partnerships which
own the multifamily housing properties financed by the GNMA Certificates and
the FHA Loan. The Partnership has been repaid by GNMA on one of the GNMA
Certificates and the related property has been deeded to GNMA in lieu of
foreclosure, thus eliminating the Partnership Equity Investment in this
property. Collectively, the remaining GNMA Certificates, the FHA Loan and the
Partnership Equity Investments are referred to as the "Permanent
Investments." A description of the properties financed by the Registrant
through December 31, 1996, appears in Item 7 hereof. The Partnership has also
invested amounts held in its reserve account in certain GNMA securities backed
by pools of single-family mortgages ("Reserve Investments").
While principal of and interest on the GNMA Certificates and the FHA Loan
are ultimately guaranteed by the United States government, the amount of cash
distributions received by the Registrant from the Partnership Equity
Investments is a function of the net rental revenues generated by the
properties owned by the Operating Partnerships. Net rental revenues from a
multifamily apartment complex depend 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 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 (such as zoning
laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property.
In each city in which the Registrant's properties are located, such
properties compete with a substantial number of other apartment complexes.
Apartment complexes also compete with single-family housing that is either
owned or leased by potential tenants. The principal method of competition is
to offer competive rental rates. The Registrant's properties also compete by
emphasizing regular maintenance and property amenities.
The Registrant believes that each of its properties is in compliance in
all material respects with federal, state and local regulations regarding
hazardous waste and other environmental matters and the Registrant is not
aware of any environmental contamination at any of such properties that would
require any material capital expenditure by the Registrant for the remediation
thereof.
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of multifamily real estate. Accordingly,
the presentation of information about industry segments is not applicable and
would not be material to an understanding of the Registrant's business taken
as a whole.
<PAGE> -1-
The Registrant has no employees. Certain services are provided to the
Registrant by employees of an affiliate of the managing general partner of the
Registrant, and the Registrant reimburses such affiliate for such services at
cost. The Registrant is not charged and does not reimburse for the services
performed by managers and officers of the managing general partner of the
general partner of the Registrant.
Item 2. Properties. The Registrant does not directly own or lease any
physical properties. However, by virtue of Partnership Equity Investments in
the Operating Partnerships, the Registrant indirectly owns the four
multifamily apartment projects described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet Federal
Property Name Location of Units Per Unit Tax Basis
- -------------------------- ------------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL 252 751 $ 8,921,467
Delta Crossing Charlotte, NC 178 880 5,189,382
Monticello Apartments Southfield, MI 106 1,027 4,262,805
The Ponds at Georgetown Ann Arbor, MI 134 1,002 5,725,082
-------- ---------------
670 $ 24,098,736
======== ===============
</TABLE>
Depreciation is taken on each property on a straight-line basis over the
estimated useful lives of the various components of the properties ranging
from five to 40 years.
The average annual occupancy rate and average effective rental rate per
unit for each of the properties for each of the last five years are listed in
the following table:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRANE'S LANDING
Average Occupancy Rate 94% 89% 90% 96% 95%
Average Effective Annual Rental Per Unit $6,954 $6,327 $6,322 $6,718 $6,609
DELTA CROSSING
Average Occupancy Rate 92% 94% 95% 92% 87%
Average Effective Annual Rental Per Unit $7,097 $6,866 $6,380 $5,691 $5,328
MONTICELLO APARTMENTS
Average Occupancy Rate 96% 99% 97% 95% 88%
Average Effective Annual Rental Per Unit $8,804 $8,630 $8,287 $8,000 $7,363
THE PONDS AT GEORGETOWN
Average Occupancy Rate 95% 95% 95% 90% 88%
Average Effective Annual Rental Per Unit $9,515 $9,174 $8,955 $8,398 $7,970
</TABLE>
In the opinion of the Partnership's management, each of the properties is
adequately covered by insurance. For additional information concerning the
properties, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 6 to the Partnership's Financial
Statements. A discussion of general competitive conditions to which these
properties are subject is included in Item 1 hereof.
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Registrant is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of 1996 to a vote of the Registrant's
security holders.
<PAGE> 2
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The BACs are subject to various transfer
restrictions imposed to prevent the Registrant from being treated as a
publicly traded partnership for federal income tax purposes and, accordingly,
there is no public trading market for the BACs.
(b) Investors. The approximate number of BAC Holders on December 31,
1996, was 5,772.
(c) Distributions. Cash distributions are being distributed on a monthly
basis to the record holders of BACs as of the last day of each month. Total
cash distributions paid or accrued to BAC Holders during the fiscal years
ended December 31, 1996, and December 31, 1995, equaled $3,248,992 and
$3,248,992, respectively. The cash distributions paid per BAC during the
fiscal years ended December 31, 1996, and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Per BAC
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Income $ .3947 $ .4266
Return of Capital .4153 .3834
----------------- -----------------
Total $ .8100 $ .8100
================= =================
</TABLE>
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds
used for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions at the
same levels in 1997 and thereafter.
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Registrant. The information set forth below should be read in
conjunction with the Financial Statements and Notes thereto filed in response
to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental income $ 4,854,898 $ 4,656,371 $ 4,529,975 $ 4,442,657 $ 5,674,854
Interest income on temporary cash investments
and U.S. government securities 168,311 218,077 195,309 372,655 154,918
Mortgage-backed securities income 91,982 123,033 78,153 259,294 389,217
Other income 161,805 144,967 161,039 254,238 131,853
Gain on sale of mortgage-backed securities - 15,670 - - -
Unusual item - gain on disposition of
Brookridge assets and related liabilities - - - - 3,953,659
Expenses (including depreciation) (3,678,376) (3,432,024) (3,526,029) (3,674,507) (4,687,491)
Minority interest in losses of
operating partnerships 608 2,220 3,582 6,243 13,306
------------- ------------- ------------- ------------- -------------
Net income $ 1,599,228 $ 1,728,314 $ 1,442,029 $ 1,660,580 $ 5,630,316
============= ============= ============= ============= =============
Net income per BAC $ .39 $ .43 $ .36 $ .41 $ 1.39
============= ============= ============= ============= =============
Cash distributions per BAC $ .8100 $ .8100 $ .8100 $ 4.0702 $ 1.0429
============= ============= ============= ============= =============
Total assets $ 28,106,422 $ 29,795,170 $ 31,262,819 $ 33,356,335 $ 48,954,681
============= ============= ============= ============= =============
</TABLE>
<PAGE> -3-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Partnership originally acquired: (i) four GNMA Certificates which are
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in three states; (ii) an FHA Loan which is insured
as to principal and interest by the Federal Housing Administration (FHA) on a
multifamily housing property; and (iii) Partnership Equity Investments in five
Operating Partnerships which own the multifamily properties financed by the
GNMA Certificates and the FHA Loan. During 1992, one of the properties was
deeded to GNMA in lieu of foreclosure, thus eliminating the Partnership Equity
Investment in this property. In March 1993, the GNMA Certificate related to
this property was paid in full. Collectively, the remaining GNMA
Certificates, the FHA Loan, and the Partnership Equity Investments are
referred to as the "Permanent Investments". The Partnership has also invested
amounts held in its reserve account in certain GNMA securities backed by pools
of single-family mortgages (Reserve Investments). The obligations of GNMA
and FHA are backed by the full faith and credit of the United States
government.
The FHA Loan, GNMA Certificates and Partnership Equity Investments in
Operating Partnerships represent the Partnership's principal assets as shown
in the Parent Company Only Financial Information in Note 6 to the financial
statements. The parent company information is presented using the equity
method of accounting for the investment in Operating Partnerships. Generally
accepted accounting principles, however, require that the Partnership's
financial statements consolidate the Operating Partnerships, since the
Partnership holds a majority ownership interest in each Operating Partnership,
and can influence decisions of the general partners in certain circumstances.
The following FHA Loan and GNMA Certificates were owned by the Partnership at
December 31, 1996. Interest income from the FHA Loan and GNMA Certificates
is the primary source of cash available for distribution to investors.
<TABLE>
<CAPTION>
Guaranteed Interest Maturity Carrying
Property Name or Insured by Rate Date Value
- ---------------------------------- --------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Crane's Landing GNMA 8.75% 12-15-2030 $ 10,277,303
Delta Crossing FHA 9.10% 10-01-2030 6,568,139
Monticello Apartments GNMA 8.75% 11-15-2029 5,356,138
The Ponds at Georgetown GNMA 9.00% 12-15-2029 5,091,155
Pools of single-family properties GNMA 7.58% (1) 2008 to 2009 1,171,079
------------
$ 28,463,814
============
</TABLE>
(1)Represents yield to the Partnership.
<PAGE> -4-
DISTRIBUTIONS
Cash distributions paid or accrued per BAC were as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .3947 $ .4266 $ .3559
Return of capital .4153 .3834 .4541
-------------- -------------- --------------
$ .8100 $ .8100 $ .8100
============== ============== ==============
Distributions
Paid out of cash flow $ .6019 $ .6497 $ .6055
Paid out of reserves .2081 .1603 .2045
-------------- -------------- --------------
$ .8100 $ .8100 $ .8100
============== ============== ==============
</TABLE>
Regular monthly distributions to BAC Holders consist primarily of interest
received on the FHA Loan, GNMA Certificates and the Reserve Investments.
Additional cash for distributions is received from other investments. The
Partnership may draw on reserves to pay operating expenses or to supplement
cash distributions to investors. The Partnership is permitted to replenish
reserves with cash flows in excess of distributions paid. During 1996,
$843,139 was withdrawn from reserves to supplement regular monthly cash
distributions. The total amount held in reserves at December 31, 1996, was
$2,856,608 of which $1,171,079 was invested in mortgaged-backed
securities.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BAC Holders. The Partnership has no other
internal or external sources of liquidity. Under the terms of its Partnership
Agreement, the Partnership is not authorized to enter into short- or long-term
debt financing arrangements or issue additional BACs to meet short-term and
long-term liquidity requirements.
Asset Quality
The FHA Loan and GNMA Certificates owned by the Partnership are guaranteed as
to principal and interest by FHA and GNMA, respectively. The obligations of
FHA and GNMA are backed by the full faith and credit of the United States
government. The Partnership Equity Investments, however, are not insured or
guaranteed. The value of these investments is a function of the value of the
real estate owned by the Operating Partnerships.
<PAGE> -5-
The following table shows the occupancy levels of the properties financed by
the Partnership as of December 31, 1996:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
------------------------------------ ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL 252 240 95%
Delta Crossing Charlotte, NC 178 160 90%
Monticello Apartments Southfield, MI 106 104 98%
The Ponds at Georgetown Ann Arbor, MI 134 130 97%
--------- ---------- -----------
670 634 95%
========= ========== ===========
</TABLE>
Crane's Landing
Crane's Landing, located in Winter Park, Florida, is a 252-unit complex with
one-, two- and three-bedroom apartments on fourteen acres of land. Average
occupancy was 94% during 1996, compared to 89% during 1995. As a result,
rental income increased approximately 10% in 1996, compared to 1995. The
increase in rental income was partially offset by increases of approximately
40% in repairs and maintenance expenses and property improvements, 31% in
management fees and 15% in administrative expenses. As a result, net cash
flow generated by this property, before debt service, increased approximately
6.9% in 1996, compared to 1995. The property generated cash flow in excess of
debt service and was current on its mortgage obligations during 1996.
Delta Crossing
Delta Crossing is a 178-unit apartment complex located in Charlotte, North
Carolina. Average occupancy was 92% in 1996, compared to 94% in 1995.
Despite the slightly lower average occupancy rate, rental income increased
approximately 3% in 1996, compared to 1995. This increase is due primarily to
rental rate increases. The increase in rental income was offset by increases
of approximately 39% in administrative expenses, 19% in repairs and
maintenance expenses and 13% in salary expenses. As a result, net cash flow
generated by this property, before debt service, decreased approximately 2.5%
in 1996, compared to 1995. However, the property generated cash flow in
excess of debt service and was current on its mortgage obligations during 1996.
Monticello Apartments
Monticello Apartments, located in Southfield, Michigan, contains 106 rental
units. Average occupancy was 96% in 1996, compared to 99% in 1995. Despite
the slightly lower average occupancy rate, rental income increased
approximately 2% in 1996, compared to 1995. This increase is due primarily to
rental rate increases. The increase in rental income, was offset by increases
of approximately 32% in utility expenses and 14% in repairs and maintenance
expenses and property improvements. As a result, net cash flow
generated by this property, before debt service, decreased approximately 2.9%
in 1996, compared to 1995. However, the property generated cash flow in
excess of debt service and was current on its mortgage obligations during 1996.
<PAGE> -6-
The Ponds at Georgetown
The Ponds at Georgetown consists of 134 apartments located in Ann Arbor,
Michigan. Average occupancy was 95% in 1996 and 1995. In the past, the
property has relied heavily on university students, who are generally
short-term tenants. Recently, aggressive marketing strategies have been
implemented which target more long-term tenants, resulting in a stabilization
in the property's occupancy. However, the persistent sluggishness of the Ann
Arbor rental market is preventing the property from generating sufficient cash
flow from operations to fully pay its mortgage obligations, and the mortgage
on the property remains in default. Despite the default, the Partnership has
continued to receive full payments with respect to the GNMA Certificate, due
to the co-insurer's (a private mortgage lender's) funding of the deficits.
The co-insurer has the option to suspend its funding of the property's
deficits and assign its mortgage to GNMA, which would result in a return to
the Partnership of the outstanding principal balance of the GNMA Certificate
and the possible loss of the Partnership Equity Investment in the property.
To date, the co-insurer has not indicated plans to suspend funding of the
property's deficits. There can be no assurance, however, that the co-insurer
will not make such an election in the future if the property remains in
default. In addition to the mortgage being in default, the property is
approximately $566,000 delinquent on its property taxes. A tax sale of the
property is scheduled for May, 1997; however, the Partnership is exploring a
number of alternatives with the mortgage holder to determine the best course
of action to take. Excluding interest, net cash flow generated by the
property in 1996 approximated that of 1995.
Results of Operations
The table below compares the results of operations for each year
shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Rental income $ 4,854,898 $ 4,656,371 $ 4,529,975
Interest income on temporary cash investments
and U.S. government securities 168,311 218,077 195,309
Mortgage-backed securities income 91,982 123,033 78,153
Other income 161,805 144,967 161,039
Gain on sale of mortgage-backed securities - 15,670 -
-------------- -------------- --------------
5,276,996 5,158,118 4,964,476
-------------- -------------- --------------
Real estate operating expenses 2,384,690 2,134,277 2,173,229
Depreciation 692,383 704,155 780,143
Property development and management fees 314 28,769 35,780
General and administrative expenses
Investor servicing 265,836 221,174 209,689
Professional fees 38,224 40,234 32,142
Other expenses 19,734 10,119 9,181
Asset management and partnership administration fees 166,000 166,000 166,000
Amortization 111,195 127,296 119,865
-------------- -------------- --------------
3,678,376 3,432,024 3,526,029
-------------- -------------- --------------
Minority interest in losses of operating partnerships 608 2,220 3,582
-------------- -------------- --------------
Net income $ 1,599,228 $ 1,728,314 $ 1,442,029
============== ============== ==============
</TABLE>
<PAGE> -7-
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1995 From 1994
-------------- --------------
<S> <C> <C>
Rental income $ 198,527 $ 126,396
Interest income on temporary cash investments
and U.S. government securities (49,766) 22,768
Mortgage-backed securities income (31,051) 44,880
Other income 16,838 (16,072)
Gain on sale of mortgage-backed securities (15,670) 15,670
-------------- --------------
118,878 193,642
-------------- --------------
Real estate operating expenses 250,413 (38,952)
Depreciation (11,772) (75,988)
Property development and management fees (28,455) (7,011)
General and administrative expenses
Investor servicing 44,662 11,485
Professional fees (2,010) 8,092
Other expenses 9,615 938
Asset management and partnership administration fees - -
Amortization (16,101) 7,431
-------------- --------------
246,352 (94,005)
-------------- --------------
Minority interest in losses of operating partnerships (1,612) (1,362)
-------------- --------------
Net income $ (129,086) $ 286,285
============== ==============
</TABLE>
Rental income is recognized net of any vacancy losses and rental concessions
offered. Rental income, net of real estate operating expenses, depreciation,
and amortization, decreased $24,013 from 1995 to 1996. The decrease was due
to an increase in real estate operating expenses resulting from higher repairs
and maintenance expenses and property improvements and administrative
expenses. The increase in real estate operating expenses was partially offset
by an increase in rental income due primarily to an increase in the average
occupancy of Crane's Landing and rental rate increases in certain markets.
Also contributing to the partial offsetting of the increase in real estate
operating expenses was a decrease in depreciation due to certain personal
property becoming fully depreciated and a decrease in amortization due to
certain costs becoming fully depreciated. See the discussion of each property
in the Asset Quality section for additional information.
Rental income, net of real estate operating expenses, depreciation, and
amortization, increased $233,905 from 1994 to 1995. The increase was due to
an increase in rental rates in certain markets, a decrease in operating
expenses due primarily to a decrease in capital improvement and administrative
expenses and a decrease in depreciation due to certain personal property
becoming fully depreciated.
Interest income on temporary cash investments and U.S. government securities
decreased $49,766 from 1995 to 1996, due to withdrawals made from the
Partnership's reserves to supplement distributions to BAC Holders. Interest
income on temporary cash investments and U.S. government securities increased
$22,768 from 1994 to 1995, due to the acquisition of additional U.S.
government securities in March 1995. The effect of the additional
acquisitions was partially offset by the elimination of interest earned on
other temporary cash investments which were liquidated in order to purchase
the additional U.S. government securities and to supplement cash distributions
to investors.
Mortgage-backed securities income decreased $31,051 from 1995 to 1996, due to
the continued amortization of the principal balances of the Partnership's
mortgage-backed securities. Mortgage-backed securities income increased
$44,880 from 1994 to 1995, due to the acquisition of additional
mortgage-backed securities during the second quarter of 1994.
Other income consists of income such as corporate unit rentals, garage
rentals, washer/dryer and vending income earned by the properties. Other
income increased $16,838 from 1995 to 1996 and decreased $16,072 from 1994 to
1995 due to fluctuations in the rentals and/or usage of such items.
<PAGE> -8-
During 1995, the Partnership sold a portion of its mortgage-backed securities
and realized a gain of $15,670 on the sale.
Property development and management fees decreased $28,455, from 1995 to 1996,
and $7,011, from 1994 to 1995, due to a decrease in the amount of such income
earned by the general partners of the Operating Partnerships in accordance with
their respective partnership agreement.
Investor servicing expenses, increased $44,662 from 1995 to 1996 and $11,485
from 1994 to 1995, due primarily to an increase in salaries and related
expenses. Professional fees decreased $2,010 from 1995 to 1996 and increased
$8,092 from 1994 to 1995, as a result of a variations in the amount of legal
and accounting fees associated with the Operating Partnerships. Other
expenses increased $9,615 from 1995 to 1996 due to increases in travel and
other miscellaneous expenses.
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1996 and 1995.
PART III
Item 10. Directors and Executive Officers of Registrant. The Registrant
has no directors or officers. The general partners of the Registrant are
America First Capital Source II, L.L.C., (the "America First General Partner")
which is controlled by America First Companies L.L.C. ("America First"), and
Insured Mortgage Equities II L.P., (the "IME II General Partner")
(collectively, the America First General Partner and the IME II General
Partner are referred to as the "General Partners").
The following individuals are the officers of the America First General
Partner and the officers and managers of America First, and each serves for a
term of one year.
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ----------------------- ---------------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, President, 1984
Chief Executive Officer and
Manager of America First
Chairman and Chief Executive 1991
Officer of the America First
General Partner
Stewart Zimmerman President of the America First 1991
General Partner
Michael Thesing Vice President, Secretary and 1984
Treasurer of America First
Vice President, Secretary and 1991
Treasurer of the America First
General Partner
William S. Carter, M.D. Manager of America First 1994
George Kubat Manager of America First 1994
Martin A. Massengale Manager of America First 1994
Alan Baer Manager of America First 1994
Gail Walling Yanney Manager of America First 1996
Mariann Byerwalter Manager of America First 1997
</TABLE>
<PAGE> -9-
Michael B. Yanney, 63, is the Chairman and President of America First
Companies L.L.C. From 1977 until the organization of the first such fund in
1984, Mr. Yanney was principally engaged in the ownership and management of
commercial banks. Mr. Yanney also has investments in private corporations
engaged in a variety of businesses. From 1961 to 1977, Mr. Yanney was
employed by Omaha National Bank and Omaha National Corporation (subsequently
merged into FirsTier Financial, Inc.), where he held various positions,
including the position of Executive Vice President and Treasurer of the
holding company. Mr. Yanney also serves as a member of the boards of
directors of Burlington Northern Santa Fe Corporation, Forest Oil Corporation,
MFS Communications Company, Inc., C-Tec Corporation, Mid-America Apartment
Communities, Inc. and PKS Information Services, Inc..
Stewart Zimmerman, 52, has been Executive Vice President of affiliates of
the America First General Partner since January 1989. In addition, Mr.
Zimmerman has served as a consultant to affiliates of the America First
General Partner beginning in September 1985. From September 1986 though
September 1988, he served as a director and managing director of Security
Pacific Merchant Bank and was responsible for ongoing sales, trading and
finance group activities. Prior thereto, he served in various capacities with
E.F. Hutton & Company Inc. and with Lehman Brothers, where he was responsible
for sales and trading of mortgage-backed securities. From 1968 to 1972, Mr.
Zimmerman was an officer with Zenith Mortgage Company and Zenith East, a
national mortgage banking and brokerage firm engaged in the servicing of
single-family and multifamily residential mortgages as well as the financing
of real estate properties throughout the United States.
Michael Thesing, 42, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. From January
1984 until July 1984 he was employed by various companies controlled by Mr.
Yanney. He was a certified public accountant with Coopers & Lybrand from 1977
through 1983.
William S. Carter, M.D., 70, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
George Kubat, 51, is the President and Chief Executive Officer of
Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall
and construction materials. Prior to assuming that position in November 1992,
Mr. Kubat was a certified public accountant with Coopers & Lybrand in Omaha,
Nebraska, from 1969. He was the tax partner in charge of the Omaha office
from 1981 to 1992. Mr. Kubat currently serves on the board of directors of
Sitel Corporation, American Business Information, Inc., and G.B. Foods
Corporation.
Martin A. Massengale, 63, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc..
Alan Baer, 74, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
Gail Walling Yanney, 61, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney.
<PAGE> -10-
Mariann Byerwalter, 36, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of AFEH and EurekaBank from 1988 to January 1996. Ms. Byerwalter
was Chief Financial Officer and Chief Operating Officer of AFEH, and Chief
Financial Officer of EurekaBank from 1993 to January 1996. She was an officer
of BankAmerica Corporation and its venture capital subsidiary from 1984 to
1987. She served as Vice President and Executive Assistant to the President
of Bank of America and was a Vice President in the bank's Corporate Planning
and Development Department, managing several acquisitions and divestitures.
During 1986, Ms. Byerwalter managed five divestitures, representing a total
purchase price of over $100 million with assets aggregating more than $5.0
billion.
The following individuals are the director and officers of CSII Housing,
Inc. ("CSII"), the corporate general partner of the IME II General Partner,
and each serves for a term of one year.
Director
Name Position Held Position Held Since
- ---------------- ------------------------ -------------------
Paul Abbott Director 1989
Officers
Name Position Held Position Held Since
- ---------------- ------------------------ -------------------
Paul Abbott President, Chief 1989
Operating Officer,
Chief Financial Officer
Donald E. Petrow Vice President 1992
Elizabeth I. Rubin Vice President 1992
Paul L. Abbott, 51, is a Managing Director of Lehman Brothers Inc.
("Lehman"), which he joined in 1988. At Lehman, Mr. Abbott is responsible for
the investment management of residential, commercial and retail real estate.
Prior to joining Lehman, Mr. Abbott was a real estate consultant and, from
1983 to 1987, was a senior officer of The Daseke Group, Inc., a privately held
company specializing in the syndication of private real estate limited
partnerships. From 1974 to 1983, Mr. Abbott was an officer of two life
insurance companies and a director of an insurance agency subsidiary.
Donald E. Petrow, 40, is a First Vice President of Lehman. Since March
1989, he has been responsible for the investment management and restructuring
of various investment portfolios, including but not limited to, federally
insured mortgages, tax exempt bonds, residential real estate, cable and
energy. From November 1981 to February 1989, Mr. Petrow, as Vice President of
Lehman, was involved in investment banking activities relating to partnership
finance and acquisition. Prior to joining Lehman, Mr. Petrow was employed in
accounting and equipment leasing firms. Mr. Petrow holds a B.S. Degree in
accounting from Saint Peters College and an M.B.A. in Finance from Pace
University.
Elizabeth I. Rubin is a Vice President of Lehman in the Diversified Asset
Group. Ms. Rubin joined Lehman in April 1992. Prior to joining Lehman, she
was employed, from September 1988 to April 1992, by the accounting firm of
Kenneth Leventhal and Co. Ms. Rubin is a Certified Public Accountant and
received a B.S. degree from the State University of New York at Binghamton in
1988.
Certain officers and directors of the corporate general partner of the
IME II General Partner are now serving (or in the past have served) as officers
or directors of entities which act as general partners of a number of real
estate limited partnerships which have sought protection under the provisions
of the Federal Bankruptcy Code. The partnerships which have filed bankruptcy
petitions own real estate which has been adversely affected by the economic
conditions in the market in which the real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
<PAGE> -11-
Item 11. Executive Compensation. The Registrant does not have any
directors or officers. None of the directors or officers of the General
Partners or the managers or officers of America First receive compensation
from the Registrant and neither General Partner receives reimbursement from
the Registrant for any portion of their salaries. Remuneration paid by the
Registrant to the General Partners pursuant to the terms of its agreement of
limited partnership during the period ending December 31, 1996, is described
in Note 4 to the Notes to the Financial Statements filed in response to Item 8
hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by Registrant to own beneficially more than 5% of
the BACs.
(b) No director or officers of the General Partners or managers or
officers of America First own any BACs.
(c) The IME II General Partner shall assume all authority and
responsibility for the management of the Registrant in the event Mr. Yanney
ceases to be a member or the chief executive officer of the America First
General Partner. There exists no other arrangement known to the Registrant
the operation of which may at any subsequent date result in a change in
control of the Registrant.
Item 13. Certain Relationships and Related Transactions. The members of
the America First General Partner are America First Companies L.L.C and Mr.
Yanney. The general partner of the IME II General Partner is CSII, which is
an affiliate of IME II. Except as described herein, the Registrant is not a
party to any transaction or proposed transaction with either General Partner
or with any person who is (i) a member, director or executive officer of the
America First General Partner or manager or officer of America First or CSII,
(ii) a nominee for election as a director or manager of the America First
General Partner or a manager of America First or CSII, (iii) an owner of more
than 5% of the BACs or (iv) a member of the immediate family of any of the
foregoing persons.
During 1996, the Registrant paid or reimbursed the General Partners
$313,049 for certain costs and expenses incurred in connection with the
operation of the Registrant, including legal and accounting fees and investor
communication costs, such as printing and mailing charges. See Note 4 to
Notes to Consolidated Financial Statements filed in response to Item 8 hereof
for a description of these costs and expenses.
The Operating Partnership's general partners provide various on-site
property development and management services. Property development and
management fees were $314 for 1996.
The General Partners are entitled to receive an asset management and
partnership administrative fee equal to 0.5% of invested assets per annum, the
first $50,000 of which shall be paid each year with the balance payable only
during such years that a 6.5% annual return has been paid to investors on a
noncumulative basis. An additional fee of 0.5% of invested assets will be
paid in those years that an 11.5% annual return has been paid to investors on
a cumulative basis. Any unpaid amounts will accrue and be payable only after
a 11.5% annual return to investors has been paid on a cumulative basis and the
investors have received the return of their capital contributions. During
1996, the General Partners earned, and the Registrant incurred $166,000 in
such asset management and partnership administration fees.
The Registrant has entered into a property management agreement with
America First Properties Management, L.L.C. (the "Manager") with respect to
the day-to-day operation of The Ponds at Georgetown, effective in November,
1996. Such property management agreement provides that the Manager is entitled
to receive a management fee equal to a stated percentage of the gross revenues
generated by the property under management. Management fees payable to the
Manager are 3% of gross revenues. Because the Manager is an affiliate of the
General Partner the management fees payable by the Registrant to the Manager
may not exceed the lesser of (i) the rates that the Registrant would pay an
unaffiliated manager for similar services in the same geographic location or
(ii) the Manager's actual cost for providing such services. During the year
ended December 31, 1996, the Registrant paid the Manager property management
fees of $4,933.
<PAGE> -12-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8 K.
(a) The following documents are filed as part of this report:
1. Financial Statements. The following financial statements are included
in response to Item 8 of this report:
Independent Accountants' Report
Consolidated Balance Sheets of the Registrant as of December 31, 1996,
and December 31, 1995.
Consolidated Statements of Income of the Registrant for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Consolidated Statements of Partners' Capital of the Registrant for the
years ended December 31, 1996, December 31, 1995, and December 31, 1994.
Consolidated Statements of Cash Flows of the Registrant for the years
ended December 31, 1996, December 31, 1995, and December 31, 1994.
Notes to Consolidated Financial Statements of the Registrant.
Schedule III Real Estate and Accumulated Depreciation for the years ended
December 31, 1996, and December 31, 1995.
2. Financial Statement Schedules. The information required to be set
forth in the financial statement schedules is included in the Financial
Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits were filed as required by Item 14(c)
of this report. Exhibit numbers refer to the paragraph numbers under Item 601
of Regulation S-K:
4(a). Agreement of Limited Partnership of Capital Source II L.P.-A
(incorporated herein by reference from Exhibit A of the Prospectus
contained in the Registrant's Post Effective Amendment No. 4 dated
February 5, 1987, to the Registration Statement on Form S-11 (Commission
File No. 0-16862)).
4(b). Beneficial Assignment Certificate (incorporated by reference
from Exhibit 10(a) to the Registrant's Amendment No. 2 dated January 27,
1987, to the Registration Statement on Form S-11 (Commission File No. 0-
16862)).
24. Power of Attorney.
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE> -13-
Independent Accountants' Report
To the Partners
Capital Source II L.P.-A:
We have audited the accompanying consolidated balance sheets of Capital Source
II L.P.-A and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, partners' capital and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Capital
Source II L.P.-A and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Omaha, Nebraska
March 26, 1997 /s/Coopers & Lybrand L.L.P.
To the Partners
Capital Source II L.P.-A:
Our report on the consolidated financial statements of Capital Source II
L.P.-A and subsidiaries is included in this Form 10-K. In connection with our
audit of such consolidated financial statements, we have also audited the
related consolidated financial statement schedule listed in Item 14.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material aspects, the information required to
be included therein.
Omaha, Nebraska
March 26, 1997 /s/Coopers & Lybrand L.L.P.
<PAGE> -14-
CAPITAL SOURCE II L.P.-A
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Assets
Investment in real estate:
Land $ 2,800,750 $ 2,800,750
Buildings 23,055,361 22,994,698
Personal property 1,597,666 1,495,374
-------------- --------------
27,453,777 27,290,822
Less accumulated depreciation (5,664,440) (4,989,699)
-------------- --------------
Net investment in real estate 21,789,337 22,301,123
Cash and temporary cash investments, at cost
which approximates market value (Note 5) 2,430,937 757,381
Escrow deposits and property reserves 771,061 828,470
Investment in U.S. government securities (Note 5) - 2,512,500
Investment in mortgage-backed securities (Note 5) 1,171,079 1,326,114
Interest and other receivables 23,125 59,367
Deferred mortgage issuance costs net of accumulated
amortization of $681,197 in 1996 and $570,002 in 1995 1,700,654 1,811,849
Other assets 220,229 198,366
-------------- --------------
$ 28,106,422 $ 29,795,170
============== ==============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 874,562 $ 852,710
Distribution payable (Note 3) 546,968 546,968
Due to general partners and their affiliates (Note 4) 1,099,709 1,084,619
-------------- --------------
2,521,239 2,484,297
-------------- --------------
Minority interest 206,460 207,068
-------------- --------------
Partners' Capital (Deficit)
General Partners (312,671) (295,420)
Limited Partners ($6.41 per BAC in 1996 and $6.83 in 1995) 25,691,394 27,399,225
-------------- --------------
25,378,723 27,103,805
-------------- --------------
$ 28,106,422 $ 29,795,170
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> -15-
CAPITAL SOURCE II L.P.-A
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Rental income $ 4,854,898 $ 4,656,371 $ 4,529,975
Interest income on temporary cash investments
and U.S. government securities 168,311 218,077 195,309
Mortgage-backed securities income 91,982 123,033 78,153
Other income 161,805 144,967 161,039
Gain on sale of mortgage-backed securities - 15,670 -
-------------- -------------- --------------
5,276,996 5,158,118 4,964,476
-------------- -------------- --------------
Expenses
Real estate operating expenses 2,384,690 2,134,277 2,173,229
Depreciation 692,383 704,155 780,143
Property development and management fees (Note 4) 314 28,769 35,780
General and administrative expenses (Note 4)
Investor servicing 265,836 221,174 209,689
Professional fees 38,224 40,234 32,142
Other expenses 19,734 10,119 9,181
Asset management and partnership administration fees (Note 4) 166,000 166,000 166,000
Amortization 111,195 127,296 119,865
-------------- -------------- --------------
3,678,376 3,432,024 3,526,029
-------------- -------------- --------------
Minority interest in losses of operating partnerships 608 2,220 3,582
-------------- -------------- --------------
Net income $ 1,599,228 $ 1,728,314 $ 1,442,029
============== ============== ==============
Net income allocated to:
General Partners $ 15,992 $ 17,283 $ 14,420
Limited Holders 1,583,236 1,711,031 1,427,609
-------------- -------------- --------------
$ 1,599,228 $ 1,728,314 $ 1,442,029
============== ============== ==============
Net income per BAC $ .39 $ .43 $ .36
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> -16-
CAPITAL SOURCE II L.P.-A
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------------- -------------- --------------
<S> <C> <C> <C>
Partners' Capital (Deficit) (excluding net unrealized holding gains)
Balance at December 31, 1993 $ (262,274) $ 30,680,614 $ 30,418,340
Net income 14,420 1,427,609 1,442,029
Cash distributions paid or accrued (Note 3) (32,818) (3,248,992) (3,281,810)
-------------- -------------- --------------
Balance at December 31, 1994 (280,672) 28,859,231 28,578,559
Net income 17,283 1,711,031 1,728,314
Cash distributions paid or accrued (Note 3) (32,818) (3,248,992) (3,281,810)
-------------- -------------- --------------
Balance at December 31, 1995 (296,207) 27,321,270 27,025,063
Net income 15,992 1,583,236 1,599,228
Cash distributions paid or accrued (Note 3) (32,818) (3,248,992) (3,281,810)
-------------- -------------- --------------
(313,033) 25,655,514 25,342,481
-------------- -------------- --------------
Net unrealized holding gains
Balance at December 31, 1994 - - -
Net change 787 77,955 78,742
-------------- -------------- --------------
Balance at December 31, 1995 787 77,955 78,742
Net change (425) (42,075) (42,500)
-------------- -------------- --------------
362 35,880 36,242
-------------- -------------- --------------
Balance at December 31, 1996 $ (312,671) $ 25,691,394 $ 25,378,723
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> -17-
CAPITAL SOURCE II L.P.-A
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,599,228 $ 1,728,314 $ 1,442,029
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 803,578 831,451 900,008
Amortization of discount on government securities (9,400) (25,076) (664)
Loss on disposition of assets 282 - -
Property development and management fees 314 28,769 35,780
Minority interest in losses of operating partnerships (608) (2,220) (3,582)
Gain on sale of mortgage-backed securities - (15,670) -
Decrease (increase) in interest and other receivables 36,242 (27,405) (2,012)
Decrease (increase) in escrow deposits and property reserves 57,409 (12,887) 136,576
Decrease (increase) in other assets (21,863) (79,536) 19,396
Increase in accounts payable and accrued expenses 21,852 119,621 122,916
Increase (decrease) in due to operating partnerships'
general partners and their affiliates 14,776 (139,065) (408,849)
-------------- -------------- --------------
Net cash provided by operating activities 2,501,810 2,406,296 2,241,598
-------------- -------------- --------------
Cash flows from investing activities
Disposition (acquisition) of U.S. government securities 2,500,000 (2,468,945) -
Principal payments on mortgage-backed securities 134,435 178,420 60,676
Acquisition of buildings and construction in progress (78,587) (34,527) (15,811)
Acquisition of personal property (102,292) (100,757) (74,596)
Disposition (acquisition) of mortgage-backed securities - 470,667 (1,959,280)
Increase in deferred costs - - (13,559)
-------------- -------------- --------------
Net cash provided by (used in) investing activities 2,453,556 (1,955,142) (2,002,570)
-------------- -------------- --------------
Cash flow used in financing activity
Distributions (3,281,810) (3,281,810) (3,281,810)
-------------- -------------- --------------
Net increase (decrease) in cash and temporary cash investments 1,673,556 (2,830,656) (3,042,782)
Cash and temporary cash investments at beginning of year 757,381 3,588,037 6,630,819
-------------- -------------- --------------
Cash and temporary cash investments at end of year $ 2,430,937 $ 757,381 $ 3,588,037
============== ============== ==============
Supplemental disclosure of noncash investing activities:
Disposition of buildings $ 17,924 $ - $ -
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> -18-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Organization
Capital Source II L.P.-A (the Partnership) was formed on August 22, 1986,
under the Delaware Revised Uniform Limited Partnership Act. The General
Partners of the Partnership are Insured Mortgage Equities II L.P. and America
First Capital Source II, L.L.C. (the General Partners).
The Partnership provided virtually 100% of the debt and equity financing for
five multifamily rental housing properties. The Partnership's investment in
the properties consisted of: (i) approximately 85% in the form of permanent
mortgages and/or loans to fund construction, and (ii) the balance to purchase
up to a 99% limited partnership interest in the Operating Partnerships which
developed, own and operate the properties. Each loan is insured or
guaranteed, in an amount substantially equal to the face amount of the
mortgage, by the Federal Housing Administration (FHA) or the Government
National Mortgage Association (GNMA). The Partnership has been repaid by GNMA
on one of its GNMA Certificates and the related property has been deeded to
GNMA in lieu of foreclosure thus eliminating the Partnership's Equity
Investment. The four remaining Operating Partnerships are geographically
located as follows: (i) two in Michigan; and, (ii) one each in Florida and
North Carolina.
CS Properties II, Inc. which is owned by affiliates of the General Partners,
serves as the Special Limited Partner for the Operating Partnerships. The
Special Limited Partner has the power, among other things, to remove the
general partners of the Operating Partnerships under certain circumstances and
to consent to the sale of the operating partnerships' assets.
The Partnership will terminate subsequent to the sale of all properties but in
no event will the Partnership continue beyond December 31, 2035.
2. Summary of Significant Accounting Policies
A)Method of Accounting
The consolidated financial statements include the accounts of the
Partnership and four subsidiary Operating Partnerships. The Partnership
is a limited partner with an ownership interest in three of the subsidiary
Operating Partnerships of up to 99%. The Partnership's ownership interest
in The Ponds at Georgetown L.P. is 68.70%. The remaining limited partner
interest of 30.29% is owned by Capital Source L.P., an affiliate of the
General Partners. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
B)Investment in Real Estate
Prior to January 1, 1996, the Partnership's investment in real estate was
carried at cost less accumulated depreciation. On January 1, 1996, the
Partnership adopted Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Among other things, FAS 121 requires
that long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of FAS 121 did not have a material impact on the
consolidated financial statements as the carrying value of each property
does not exceed net realizable value.
<PAGE> -19-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
C)Investments in U.S. Government Securities and Mortgage-Backed Securities
Investment securities are classified as held-to-maturity,
available-for-sale or trading. Investments classified as held-to-maturity
are carried at amortized cost. Investments classified as
available-for-sale are reported at fair value with any unrealized gains or
losses excluded from earnings and reflected as a separate component of
partners' capital. Subsequent increases and decreases in the net
unrealized gain/loss on the available-for-sale securities are reflected as
adjustments to the carrying value of the portfolio and adjustments to the
component of partners' capital. The Partnership does not have investment
securities classified as trading.
D)Depreciation and Amortization
Depreciation of real estate is based on the estimated useful life of the
properties using the straight-line method. Deferred mortgage issuance
costs are being amortized using the effective yield method over the
40 year term of the respective loan.
E)Revenue Recognition
The Operating Partnerships lease multifamily rental units under operating
leases with terms of one year or less. Rental revenue is recognized net
of any vacancy losses and rental concessions offered.
F)Income Taxes
No provision has been made for income taxes since BAC Holders are required
to report their share of the Partnership's income for federal and state
income tax purposes. The tax basis of the Partnership's assets and
liabilities exceeded the reported amounts by $7,345,644 and $7,549,032 at
December 31, 1996, and December 31, 1995, respectively.
G)Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
H)Net Income per Beneficial Assignment Certificate (BAC)
Net income per BAC was calculated based on the number of BACs outstanding
(4,011,101) for all periods presented.
I)New Accounting Pronouncement
The Financial Accounting Standards Board has issued Financial Accounting
Standards No. 128 "Earnings Per Share" (FAS 128). FAS 128, which is
effective for periods ending after December 15, 1997, is not expected to
have an impact on the Partnership's computation, presentation or
disclosure of earnings per BAC.
3. Partnership Income, Expenses and Cash Distributions
Profits and losses from normal operations and cash available for distribution
will be allocated 99% to the investors and 1% to the General Partners.
Certain fees payable to the General Partners will not become due until
investors have received certain priority returns. Cash distributions included
in the consolidated financial statements represent the actual cash
distributions made during each year and the cash distributions accrued at
the end of each year.
The General Partners will receive 1% of the net proceeds from any sale of
Partnership assets. The General Partners will receive a termination fee equal
to 3% of all sales proceeds less actual costs incurred in connection with all
sales transactions, payable only after the investors have received a return of
their capital contributions and an 11.5% annual return on a cumulative basis.
The General Partners will also receive a fee equal to 9.1% of all cash
available for distribution and sales proceeds (after deducting from cash
available or sales proceeds any termination fee paid therefrom) after
investors have received a return of their capital contributions and an 11.5%
annual return on a cumulative basis.
<PAGE> -20-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. Transactions with Related Parties
The General Partners, certain of their affiliates and the operating
partnerships' general partners have received or may receive fees,
compensation, income, distributions and payments from the Partnership in
connection with the offering and the investment, management and sale of the
Partnership's assets (other than disclosed elsewhere) as follows.
The Operating Partnerships' general partners provide various on-site property
development and management services. Property development and management fees
for the years ended December 31, 1996, 1995 and 1994 amounted to $314, $28,769
and $35,780, respectively. Unpaid fees, which are non-interest bearing, are
included in amounts due to Operating Partnerships' general partners and their
affiliates on the accompanying consolidated balance sheets and will be paid as
the Operating Partnerships reach specified performance standards, or upon sale
of the related property.
The General Partners are entitled to receive an asset management and
partnership administrative fee equal to 0.5% of invested assets per annum, the
first $50,000 of which will be paid each year with the balance payable only
during such years that a 6.5% annual return has been paid to investors on a
noncumulative basis. An additional fee equal to 0.5% of invested assets per
annum will be payable only during those years that an 11.5% annual return has
been paid to investors on a noncumulative basis. Any unpaid amounts will
accrue and be payable only after an 11.5% annual return to investors has been
paid on a cumulative basis and the investors have received the return of their
capital contributions. Asset management and partnership administration fees
for the years ended December 31, 1996, 1995 and 1994 amounted to $166,000
for each year.
Amounts due to Operating Partnerships' general partners and their affiliates
on December 31, 1996 and 1995, is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Unpaid property development and management fees $ 97,015 $ 81,925
Operating deficit and construction loans 874,194 874,194
Unpaid asset management and partnership administrative fees 128,500 128,500
-------------- --------------
$ 1,099,709 $ 1,084,619
============== ==============
</TABLE>
Substantially all of the Partnership's general and administrative expenses are
paid by a General Partner or an affiliate and reimbursed by the Partnership.
The amount of such expenses reimbursed to the General Partner for the years
ended December 31, 1996, 1995 and 1994 amounted to $313,049, $281,606 and
$250,222, respectively. These amounts are presented on a cash basis and do
not reflect accruals made at each year end.
An affiliate of America First Capital Source II, L.L.C. has been retained to
provide property management services for The Ponds at Georgetown beginning in
November 1996. The fees for services provided were $4,933 for 1996 and
represented the lower of costs incurred in providing management of the
property or customary fees for such services determined on a competitive basis.
<PAGE> -21-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at December 31, 1996:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 1,685,529
GNMA Certificates 1,171,079
--------------
Balance at end of year $ 2,856,608
==============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available to supplement distributions to investors or for
other contingencies related to the ownership of investments and the operation
of the Partnership. The GNMA Certificates mature between 2008 and 2009.
At December 31, 1996, the total amortized cost, gross unrealized holding gains
and aggregate fair value of available-for-sale securities were $1,134,837,
$36,242 and $1,171,079, respectively. At December 31, 1995, the total
amortized cost, gross unrealized holding losses and aggregate fair value of
available-for-sale securities were $3,759,872, $78,742 and $3,838,614,
respectively.
Prior to June 30, 1995, the Partnership classified all investment securities
as held-to-maturity. However, during the quarter ending June 30, 1995, the
Partnership reassessed the appropriateness of the classification of securities
held in the reserve account. The Partnership concluded, given the nature of
the reserve account, it would be more appropriate to classify securities held
in the reserve account as available-for-sale rather than as held-to-maturity.
Accordingly, on June 30, 1995, the Partnership transferred all securities held
in the reserve account from the held-to-maturity classification to the
available-for-sale classification. The total amortized cost, gross unrealized
holding gains and aggregate fair value of the securities transferred were
$4,283,759, $67,199 and $4,350,958, respectively.
During 1995, the Partnership sold a portion of the securities in the
available-for-sale portfolio. The total amortized cost and realized gain for
sales of securities classified as available-for-sale were $454,997 and
$15,670, respectively.
6. Parent Company Financial Information Only
Generally accepted accounting principles require that the Partnership`s
financial statements consolidate the Operating Partnerships since the
Partnership holds a majority ownership interest and, through CS Properties II,
Inc., it can influence decisions of the general partners in certain
circumstances. In the consolidated financial statements, the Partnership`s
investment in FHA Loans and GNMA Certificates is eliminated against the
related mortgage payable recorded by the operating partnership. If a mortgage
loan goes into default and is foreclosed upon by FHA or GNMA, the respective
agency may, at their discretion, repay the FHA Loan or the GNMA Certificate.
If this occurs, the Partnership`s investment in the operating partnership
would be eliminated, resulting in the recognition of a gain on the
Partnership`s financial statements. This arises because consolidation
accounting does not allow the Partnership to stop recording losses from the
Operating Partnerships when the net investment is reduced to zero.
The parent company only financial information below represents the condensed
financial information of the Partnership using the equity method of accounting
for the investment in Operating Partnerships, rather than the consolidation of
those partnerships. Under the equity method of accounting, the Partnership`s
capital contributions are adjusted to reflect its share of operating
partnership profits or losses and distributions. The investment in operating
partnerships represents the Partnership`s limited partnership interest in the
accumulated deficits of those Operating Partnerships. The parent company only
information is provided to more clearly present the Partnership`s investment
in the Operating Partnerships. Since the Partnership is not a general
partner, it is not obligated to fund the negative balances. If the
investments in all Operating Partnerships were eliminated at December 31,
1996, Partnership capital would increase by $5,198,166 ($1.28 per BAC).
<PAGE> -22-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The FHA Loans and the GNMA Certificates are collateralized by first mortgage
loans on the properties owned by the Operating Partnerships and are guaranteed
or insured as to principal and interest by FHA or GNMA. The FHA insured
mortgage loans are subject to a 1% assignment fee. The obligations of FHA and
GNMA are backed by the full faith and credit of the United States government.
Parent Company Only
Condensed Balance Sheets
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments $ 2,430,937 $ 757,381
Investment in U.S. government securities - 2,512,500
Investment in FHA Loan 6,568,139 6,595,251
Investment in GNMA Certificate 21,895,675 22,142,421
Investment in operating partnerships (5,198,166) (4,674,357)
Interest receivable 219,661 246,315
Other assets 225,743 287,899
-------------- --------------
$ 26,141,989 $ 27,867,410
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 216,298 $ 216,637
Distribution payable 546,968 546,968
-------------- --------------
763,266 763,605
-------------- --------------
Partners' Capital 25,378,723 27,103,805
-------------- --------------
$ 26,141,989 $ 27,867,410
============== ==============
</TABLE>
Parent Company Only
Condensed Statements of Income
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Income
Mortgage and mortgage-backed securities interest $ 2,520,727 $ 2,561,901
Interest income on temporary cash investments
and U.S. government securities 147,530 200,678
Equity in losses of operating partnerships (523,809) (554,682)
Other income 6,950 4,650
Gain on sale of mortgage-backed securities - 15,670
--------------- ---------------
2,151,398 2,228,217
Expenses
Operating and administrative 552,170 499,903
--------------- ---------------
Net income $ 1,599,228 $ 1,728,314
=============== ===============
</TABLE>
<PAGE> -23-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Parent Company Only
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,599,228 $ 1,728,314
Adjustments to reconcile net income to net cash
from operating activities
Equity in losses of operating partnerships 523,809 554,682
Amortization 62,376 62,376
Gain on sale of mortgage-backed securities - (15,670)
Other non-cash adjustments 16,695 (57,322)
-------------- --------------
Net cash provided by operating activities 2,202,108 2,272,380
-------------- --------------
Cash flows from investing activities
FHA Loan and GNMA Certificate principal payments 253,258 286,952
Disposition (acquisition) of U.S. government securities 2,500,000 (2,468,945)
Sale of mortgage-backed securities - 470,667
Investment in operating partnerships - (109,900)
-------------- --------------
Net cash provided by (used in) investing activities 2,753,258 (1,821,226)
-------------- --------------
Cash flow used in financing activity
Distributions (3,281,810) (3,281,810)
-------------- --------------
Net increase (decrease) in cash and temporary cash investments 1,673,556 (2,830,656)
Cash and temporary cash investments at beginning of year 757,381 3,588,037
-------------- --------------
Cash and temporary cash investments at end of year $ 2,430,937 $ 757,381
============== ==============
</TABLE>
7. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments: Fair value approximates the carrying
value of such assets.
Investment in U.S. government securities and mortgage-backed securities:
Fair values are based on amounts obtained from an independent pricing source.
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
---------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 2,430,937 $ 2,430,937 $ 757,381 $ 757,381
Investment in mortgage-backed securities 1,171,079 1,171,079 1,326,114 1,326,114
Investment in U.S. government securities - - 2,512,500 2,512,500
</TABLE>
<PAGE> -24-
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
8. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1996, to December 31, 1996 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total income $ 1,314,149 $ 1,302,210 $ 1,306,100 $ 1,354,537
Total expenses (794,837) (798,182) (903,409) (1,181,948) (1)
Minority interest in losses of
operating partnerships 353 144 228 (117)
-------------- -------------- -------------- --------------
Net income $ 519,665 $ 504,172 $ 402,919 $ 172,472
============== ============== ============== ==============
Net income per BAC $ .13 .12 $ .10 $ .04
============== ============== ============== ==============
</TABLE>
(1)Real estate operating expenses were higher during the fourth quarter due to
adjustments made to certain real estate operating expenses.
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1995, to December 31, 1995 Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total income $ 1,202,464 $ 1,242,623 $ 1,300,739 $ 1,412,292
Total expenses (809,277) (796,965) (858,907) (966,875)
Minority interest in losses of
operating partnerships 750 842 908 (280)
-------------- -------------- -------------- --------------
Net income $ 393,937 $ 446,500 $ 442,740 $ 445,137
============== ============== ============== ==============
Net income per BAC $ .10 .11 $ .11 $ .11
============== ============== ============== ==============
</TABLE>
<PAGE> -25-
SCHEDULE III
CAPITAL SOURCE II L.P.-A
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Life on
Which
Number Date of Date Depreciation
Property Location of Units Encumbrances Construction Acquired is Computed
- -------------------- ---------------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ponds at Georgetown Ann Arbor, MI 134 (a) 1989 N/A 5 - 40 years
Monticello Southfield, MI 106 (a) 1989 N/A 5 - 40 years
Delta Crossing Charlotte, NC 178 (a) 1989 N/A 5 - 40 years
Crane's Landing Winter Park, FL 252 (a) 1990 N/A 5 - 40 years
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized
Intial Cost Subsequent Gross Amount at December 31, 1995
to Partnership to Acquisition
-------------------------- ----------------------- ----------------------------------------
Buildings,
Improvements
Carrying and Personal Accumulated
Costs Land Property Total Depreciation
Property Land Property Improvements (b) (c) (d) (c) and (d) (e)
- ------------------- ------------ ------------ ------------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ponds at Georgetown $ 261,440 $ 269,094 $ 4,246,230 $ 55,523 $ 396,621 $ 4,435,666 $ 4,832,287 $ (965,318)
Monticello 402,933 363,117 4,683,322 88,306 411,566 5,126,112 5,537,678 (1,308,186)
Delta Crossing 700,000 461,011 5,580,985 69,565 960,861 5,850,700 6,811,561 (1,222,608)
Crane's Landing 978,902 206,060 8,851,394 72,940 1,031,702 9,077,594 10,109,296 (1,493,587)
------------ ------------ ------------ --------- ------------ ------------ ------------ ------------
$ 2,343,275 $ 1,299,282 $ 23,361,931 $ 286,334 $ 2,800,750 $ 24,490,072 $ 27,290,822 $(4,989,699)
============ ============ ============ ========= ============ ============ ============ ============
</TABLE>
<PAGE> -26-
CAPITAL SOURCE II L.P.-A
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Life on
Which
Number Date of Date Depreciation
Property Location of Units Encumbrances Construction Acquired is Computed
- -------------------- ---------------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ponds at Georgetown Ann Arbor, MI 134 (a) 1989 N/A 5 - 40 years
Monticello Southfield, MI 106 (a) 1989 N/A 5 - 40 years
Delta Crossing Charlotte, NC 178 (a) 1989 N/A 5 - 40 years
Crane's Landing Winter Park, FL 252 (a) 1990 N/A 5 - 40 years
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized
Intial Cost Subsequent Gross Amount at December 31, 1996
to Partnership to Acquisition
-------------------------- ----------------------- ----------------------------------------
Buildings,
Improvements
Carrying and Personal Accumulated
Costs Land Property Total Depreciation
Property Land Property Improvements (b) (c) (d) (c) and (d) (e)
- ------------------- ------------ ------------ ------------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ponds at Georgetown $ 261,440 $ 269,094 $ 4,246,230 $ 55,523 $ 396,621 $ 4,435,666 $ 4,832,287 $(1,069,482)
Monticello 402,933 363,117 4,683,322 88,306 411,566 5,126,112 5,537,678 (1,451,691)
Delta Crossing 700,000 461,011 5,687,375 69,565 960,861 5,957,090 6,917,951 (1,418,851)
Crane's Landing 978,902 206,060 8,907,959 72,940 1,031,702 9,134,159 10,165,861 (1,724,416)
------------ ------------ ------------ --------- ------------ ------------ ------------ ------------
$ 2,343,275 $ 1,299,282 $ 23,524,886 $ 286,334 $ 2,800,750 $ 24,653,027 $ 27,453,777 $(5,664,440)
============ ============ ============ ========= ============ ============ ============ ============
</TABLE>
<PAGE> -27-
SCHEDULE III
CAPITAL SOURCE II L.P.-A
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 and 1995
(a) The Partnership has no encumbrances against this property. Encumbrances
recorded by the Operating Partnerships are eliminated in the consolidated
financial statements of the Partnership.
(b) Carrying costs include legal fees, appraisal fees, title costs and other
related professional fees.
(c) The aggregate cost for Federal income tax purposes is the same as for
financial reporting purposes.
(d) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Balance - beginning of year $ 27,290,822 $ 27,155,538
Acquisitions 180,879 135,284
Disposition of assets (17,924) -
-------------- --------------
Balance - end of year $ 27,453,777 $ 27,290,822
============== ==============
</TABLE>
(e) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Balance - beginning of year $ 4,989,699 $ 4,285,544
Depreciation expense 692,383 704,155
Disposition of assets (17,642) -
-------------- --------------
Balance - end of year $ 5,664,440 $ 4,989,699
============== ==============
</TABLE>
<PAGE> -28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOURCE II L.P. A
By America First Capital
Source II, L.L.C., General
Partner of the Registrant
By /s/ Michael Thesing
Michael Thesing,
Vice President
Date: March 27, 1997
<PAGE> -29-
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1997 By /s/ Michael B. Yanney*
Michael B. Yanney,
Chairman and Chief Executive Officer of
the America First General Partner
(Principal Executive Officer)
Chairman of the Board, President,
Chief Executive Officer and Manager of
America First Companies L.L.C.
Date: March 27, 1997 By /s/ Michael Thesing
Michael Thesing, Vice
President, Secretary and
Treasurer (Principal Financial Officer)
of the America First General Partner
Vice President, Secretary and Treasurer
of America First Companies L.L.C.
Date: March 27, 1997 By
William S. Carter, M.D.
Manager of America First Companies L.L.C.
Date: March 27, 1997 By /s/ George Kubat
George Kubat
Manager of America First Companies L.L.C.
Date: March 27, 1997 By /s/ Martin A. Massengale
Martin A. Massengale
Manager of America First Companies L.L.C.
Date: March 27, 1997 By /s/ Alan Baer
Alan Baer
Manager of America First Companies L.L.C.
Date: March 27, 1997 By /s/ Gail Walling Yanney
Gail Walling Yanney
Manager of America First Companies L.L.C.
Date: March 27, 1997 By /s/ Mariann Byerwalter
Mariann Byerwalter
Manager of America First Companies L.L.C.
*By Michael Thesing,
Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> -30-
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> -31-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> -32-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> -33-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ George Kubat
George Kubat
<PAGE> -34-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> -35-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Alan Baer
Alan Baer
<PAGE> -36-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1996, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1997.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> -37-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994 DEC-31-1993 DEC-31-1992
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994 DEC-31-1993 DEC-31-1992
<CASH> 2,430,937 757,381 3,588,037 6,630,819 3,040,096
<SECURITIES> 1,171,079 3,838,614 1,899,268 0 17,787,781
<RECEIVABLES> 23,125 59,367 31,962 29,950 21,230
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 3,225,123 4,157,718 4,435,582 7,614,428 4,440,109
<PP&E> 27,453,777 27,290,822 27,155,538 27,065,131 27,044,392
<DEPRECIATION> (5,664,440) (4,989,699) (4,285,544) (3,505,401) (2,666,981)
<TOTAL-ASSETS> 28,106,422 29,795,170 31,262,819 33,356,335 48,954,681
<CURRENT-LIABILITIES> 1,421,530 1,399,678 1,280,057 1,157,141 1,154,478
<BONDS> 0 0 0 0 0
<COMMON> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<OTHER-SE> 25,378,723 27,103,805 28,578,559 30,418,340 45,248,656
<TOTAL-LIABILITY-AND-EQUITY> 28,106,422 29,795,170 31,262,819 33,356,335 48,954,681
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 5,276,996 5,158,118 4,964,476 5,328,844 6,350,842
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 0 0 0 0 0
<OTHER-EXPENSES> 3,678,376 3,432,024 3,526,029 3,674,507 4,687,491
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 0
<INCOME-PRETAX> 1,599,228 1,728,314 1,442,029 1,660,580 1,676,657
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 3,953,659
<CHANGES> 0 0 0 0 0
<NET-INCOME> 1,599,228 1,728,314 1,442,029 1,660,580 5,630,316
<EPS-PRIMARY> 0 0 0 0 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
