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, 1995
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: 1-10022
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
(Exact name of registrant as specified
in its Agreement of Limited Partnership)
Delaware 47-0717849
(State or other jurisdiction of (I.R.S. Employer
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:
Beneficial Unit Certificates representing assigned limited partnership
interests in the Registrant (the "BUCs").
Securities Registered Pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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 (Section 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. [ ]
The aggregate market value of the BUCs on March 18, 1996 based on the final
sales price per BUC as reported in The Wall Street Journal
on March 19, 1996 was $19,401,261.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> i
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 1
Item 3. Legal Proceedings 1
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 2
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 8
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of Registrant 8
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10
SIGNATURES 24
<PAGE> ii
PART I
Item 1. Business. America First PREP Fund 2 Limited Partnership (the
"Registrant" or the "Partnership") was formed on May 28, 1987, under the
Delaware Revised Uniform Limited Partnership Act to invest principally in
federally insured first mortgages on multifamily residential properties,
including retirement living centers, and in securities collateralized by first
mortgages on multifamily residential properties. The Registrant also invests
in Preferred Real Estate Participations ("PREPs") in the form of limited
partnership interests in the limited partnerships which own the financed
properties. The Registrant's business objectives are to provide investors: (i)
safety and preservation of capital; (ii) regular cash distributions; and, (iii)
a potential for an enhanced yield from participations in the net cash flow and
net capital appreciation from the financed properties received under the terms
of the PREPs.
A total of 1,683,904 BUCs were sold at $20 per BUC for total capital
contributions of $31,034,350 after the payment of certain organization and
offering costs.
Through December 31, 1995, the Registrant had acquired: (i) five
mortgage-backed securities guaranteed as to principal and interest by the
Government National Mortgage Association (the "GNMA Certificates")
collateralized by first mortgage loans on multifamily housing properties
located in four states and GNMA Certificates backed by pools of single-family
mortgages (the "GNMA Certificates"); and, (ii) PREPs in five limited
partnerships which own the multifamily housing properties financed by the GNMA
Certificates. The Partnership has been repaid by GNMA on two mortgage-backed
securities collateralized by properties in which the Partnership originally
held an equity investment. The Partnership continues to hold an equity
investment in one of these properties. Collectively, the remaining GNMA
Certificates and PREPs are referred to herein as the "Permanent Investments."
All Permanent Investments were made in conjunction with America First PREP
Fund 2 Pension Series Limited Partnership, an affiliate of the Registrant, and
one was also made in conjunction with America First Participating/Preferred
Equity Mortgage Fund, another affiliate of the Registrant.
The GNMA Certificates provide the Registrant with monthly payments of
principal and interest which are guaranteed by the Government National
Mortgage Association. The PREPs are intended to provide the Registrant with a
base return plus a participation in the net cash flow and net capital
appreciation of the underlying real estate properties. Therefore, the return
to the Registrant depends, in part, on the economic performance of the real
estate financed by the PREPs, which may be considered to be in competition
with other income-producing real estate of the same type in the same
geographic area. A description of the Permanent Investments held by the
Registrant at December 31, 1995, (and the properties financed thereby)
appears in Notes 5 and 6 to the Notes to Financial Statements filed in
response to Item 8 hereof.
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of 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.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Registrant. The Registrant reimburses
America First Companies L.L.C. for such services at cost. The Registrant is
not charged and does not reimburse for the services performed by managers and
officers of America First Companies L.L.C..
Item 2. Properties. The Registrant does not directly own or lease any
physical properties. The Registrant has invested in the Permanent Investments
described in Item 1. By virtue of its interest in the PREPs, the Fund
indirectly owns the properties it has financed through the Permanent
Investments. Descriptions of the multifamily housing properties
collateralizing the Permanent Investments held by the Registrant as of
December 31, 1995, appear in Note 5 to the Notes to Financial Statements filed
in response to Item 8 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.
<PAGE> 1
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of 1995 to a vote of the Registrant's
security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The BUCs became freely transferable on
December 1, 1988, and are listed on the American Stock Exchange under the
trading symbol "PF." The following table sets forth the high and low
final sale prices for the BUCs for each quarter in 1995 and 1994.
<TABLE>
<CAPTION>
Sale Prices
1994 High Low
----------- ------- -------
<S> <C> <C>
1st Quarter $14-1/4 $11-7/8
2nd Quarter $12-1/8 $ 9-7/8
3rd Quarter $12-3/8 $ 9-7/8
4th Quarter $12-3/8 $10-1/8
1995
-----------
1st Quarter $12-5/8 $11-5/8
2nd Quarter $12-1/8 $11
3rd Quarter $12-1/4 $11-1/4
4th Quarter $12-1/2 $10-1/2
</TABLE>
(b) Investors. The approximate number of BUC Holders on December
31, 1995, was 1,842.
(c) Distributions. Cash distributions are being made on a monthly
basis. Total cash distributions paid or accrued to BUC Holders during
the fiscal years ended December 31, 1995, and December 31, 1994, equaled
$2,374,826 and $2,564,754, respectively. The cash distributions paid per
BUC during the fiscal years ended December 31, 1995, and December 31,
1994, were as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Income $ .7320 $ .5850
Return of Capital .7226 .9381
----------------- -----------------
Total $ 1.4546 $ 1.5231
================= =================
</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 1996 and thereafter.
<PAGE> 2
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership. 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, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities income $ 1,346,474 $ 1,043,641 $ 1,092,142 $ 1,098,831 $ 1,233,615
Equity in earnings of property partnerships 127,736 169,397 101,473 344,320 262,533
Interest income on temporary cash investments 29,476 68,326 165,010 114,254 188,715
Gain on sale of mortgage-backed securities 3,023 - - - -
General and administrative expenses (287,838) (270,366) (300,018) (307,923) (305,647)
Provision for losses on investment in PREPs - - - (200,000) -
------------- ------------- ------------- ------------- -------------
Net income $ 1,218,871 $ 1,010,998 $ 1,058,607 $ 1,049,482 $ 1,379,216
============= ============= ============= ============= =============
Net income per Beneficial Unit Certificate (BUC) $ .73 $ .59 $ .61 $ .61 $ .81
============= ============= ============= ============= =============
Cash distributions paid or accrued per BUC $ 1.4546 $ 1.5231 $ 1.5903 $ 1.6376 $ 1.6580
============= ============= ============= ============= =============
Investment in mortgage-backed securities $ 17,895,507 $ 19,741,212 $ 19,918,972 $ 20,307,027 $ 20,846,255
============= ============= ============= ============= =============
Investment in preferred real estate participations
(PREPs), net of valuation allowance $ - $ 37,384 $ 229,810 $ 638,805 $ 1,339,741
============= ============= ============= ============= =============
Total assets $ 18,633,427 $ 20,853,645 $ 22,233,478 $ 23,868,232 $ 25,616,216
============= ============= ============= ============= =============
</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) five mortgage-backed securities
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in four states, GNMA Certificates backed by pools
of single-family mortgages (the GNMA Certificates); and (ii) limited
partnership interests (PREPs) in five limited partnerships which own the
multifamily housing properties financed by the GNMA Certificates. The
Partnership has been repaid by GNMA on the mortgage-backed securities
collateralized by the Villages at Moonraker and Laurel Park Apartments.
During the second quarter of 1995, the Partnership withdrew as a limited
partner of the operating partnership which owns the Villages at Moonraker.
Therefore, the Partnership no longer has an equity interest in this property.
The Partnership continues to hold its equity interest in Laurel Park
Apartments. Collectively, the remaining GNMA Certificates and the PREPs are
referred to as the Permanent Investments.
The following table shows the occupancy levels of the properties financed by
the Partnership at December 31, 1995:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- --------------------------------- ------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ashwood Apartments Tulsa, OK 144 141 98%
Broadmoor Court Colorado Springs, CO 46 46 100%
Laurel Park Apartments Riverdale, GA 387 381 98%
Owings Chase Apartments Pikesville, MD 234 226 97%
---------- ---------- -----------
811 794 98%
========== ========== ===========
</TABLE>
Distributions
Cash distributions paid or accrued per Beneficial Unit Certificate (BUC) were
as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .7320 $ .5850 $ .6126
Return of capital .7226 .9381 .9777
--------------- --------------- ---------------
$ 1.4546 $ 1.5231 $ 1.5903
=============== =============== ===============
Distributions
Paid out of cash flow (including mortgage principal payments) $ 1.4546 $ 1.5004 $ 1.5903
Paid out of reserves - .0227 -
--------------- --------------- ---------------
$ 1.4546 $ 1.5231 $ 1.5903
=============== =============== ===============
</TABLE>
<PAGE> 4
Regular monthly distributions to investors consist primarily of interest and
principal received on GNMA and Federal National Mortgage Association (FNMA)
Certificates. Additional cash for distributions is received from PREPs and
temporary cash investments. The Partnership may draw on reserves to pay
operating expenses or to supplement cash distributions to BUC Holders. The
Partnership is permitted to replenish its reserves through the sale or
refinancing of assets. During the year ended December 31, 1995, the
Partnership added a net amount of $113,688 to reserves. In addition, the
Partnership withdrew $977,256 from reserves to purchase 83,800 BUCs during the
year ended December 31, 1995. The total amount held in reserves at
December 31, 1995, was $7,309,851 of which $7,083,200 was invested in GNMA
and FNMA Certificates.
The Partnership believes that cash provided by operating and investing
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 BUC Holders. The Partnership has
no other internal or external sources of liquidity. Under the terms of the
Partnership agreement, the Partnership is not authorized to enter into
short-term or long-term debt financing arrangements or issue additional BUCs
to meet short-term and long-term liquidity requirements.
Asset Quality
The Partnership continues to receive the full amount of monthly principal and
interest payments on its GNMA and FNMA Certificates. The GNMA and FNMA
Certificates are fully guaranteed as to principal and interest by GNMA and
FNMA, respectively. The obligations of GNMA are backed by the full faith and
credit of the United States government.
PREPs, however, are not insured or guaranteed. The value of these investments
is a function of the value of the real estate underlying the PREPs. It is the
policy of the Partnership to make a periodic review of the real estate
underlying the PREPs in order to establish, when necessary, a valuation
reserve on the investment in PREPs. The allowance for losses on investment in
PREPs is based on the fair value of the properties underlying the PREPs.
The fair value of the properties underlying the PREPs is based on management's
best estimate of the net realizable value of such properties, however; the
ultimate realized values may vary from these estimates. The net realizable
value of the properties is determined based on the discounted estimated future
cash flows from the properties, including estimated sales proceeds. The
calculation of discounted estimated future cash flows includes certain
variables such as the assumed inflation rates for rents and expenses,
capitalization rates and discount rates. These variables are supplied to
management by an independent real estate firm and are based on local market
conditions for each property. In certain cases, additional factors such as
the replacement value of the property or comparable sales of similar
properties are also taken into consideration. The allowance is periodically
reviewed and adjustments are made to the allowance when there are significant
changes in the estimated net realizable value of the properties underlying the
PREPs.
Based on the foregoing methodology, valuations and reviews performed during
the year ended December 31, 1995, indicated that the investment in PREPs
recorded on the balance sheet at December 31, 1995, required no adjustments to
the current carrying amounts.
Ashwood Apartments
Ashwood Apartments, located in Tulsa, Oklahoma, had an average occupancy rate
of 95% during 1995, compared to 96% during 1994. Cash flow from the
operations of the property was sufficient to pay principal and interest
payments on the mortgage loan during 1995. In addition to the GNMA payments
during 1995, the Partnership received approximately $53,000 in equity
distributions from the partnership which owns the property. Cash flow from
the operation of this property is expected to be sufficient to pay debt
service on the mortgage loan during 1996.
<PAGE> 5
Broadmoor Court
Broadmoor Court, a senior assisted-living center located in Colorado Springs,
Colorado, had an average occupancy rate of 99% during 1995, compared to 98%
during 1994. The mortgage loan on this property is current and the
Partnership anticipates that property cash flow will be sufficient to pay debt
service in 1996. In addition to the GNMA payments during 1995, the
Partnership recorded approximately $113,000 in equity distributions from the
partnership which owns the property.
Laurel Park Apartments
Laurel Park Apartments, located in Riverdale, Georgia, had an average occupancy
rate of 95% during 1995 compared to 85% during 1994. Despite the increase in
occupancy, cash flow from the operations of the property was not sufficient to
fully service debt on the mortgage loan in 1995. It is anticipated that the
property will not generate sufficient cash flow to pay the debt service in
1996.
Owings Chase Apartments
Owings Chase Apartments, located in Pikesville, Maryland, had an average
occupancy rate of 95% during 1995 compared to 91% during 1994. Cash flow from
the operations of the property was sufficient to fully service debt on the
restructured mortgage loan in 1995. The mortgage loan was current (under the
modified terms of the mortgage) at December 31, 1995, and the Partnership
anticipates that the property cash flow will continue to be sufficient to pay
debt service in 1996.
Results of Operations
The tables 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, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 1,346,474 $ 1,043,641 $ 1,092,142
Equity in earnings of property partnerships 127,736 169,397 101,473
Interest income on temporary cash investments 29,476 68,326 165,010
Gain on sale of mortgage-backed securities 3,023 - -
-------------- --------------- ---------------
1,506,709 1,281,364 1,358,625
General and administrative expenses (287,838) (270,366) (300,018)
--------------- --------------- ---------------
Net income $ 1,218,871 $ 1,010,998 $ 1,058,607
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1994 From 1993
--------------- ---------------
<S> <C> <C>
Mortgage-backed securities income $ 302,833 $ (48,501)
Equity in earnings of property partnerships (41,661) 67,924
Interest income on temporary cash investments (38,850) (96,684)
Gain on sale of mortgage-backed securities 3,023 -
-------------- ---------------
225,345 (77,261)
General and administrative expenses 17,472 (29,652)
-------------- ---------------
Net income $ 207,873 $ (47,609)
============== ===============
</TABLE>
<PAGE> 6
Mortgage-backed securities income increased $302,833 from 1994 to 1995,
primarily as a result of an increase of approximately $375,000 in interest
received from Owings Chase Apartments due to the Partnership no longer
eliminating self-charged interest, since the Partnership's equity in the
property has been reduced to zero. This increase was partially offset by a
decrease of approximately $72,000 in mortgage investment income due to the
continued amortization of the principal balances of the Partnership's other
mortgage-backed securities.
Mortgage-backed securities income decreased $48,501 from 1993 to 1994 due
primarily to: (i) a decrease of approximately $254,000 relating both to the
restructuring of the GNMA Certificate collateralized by the Owings Chase
Apartments and elimination of self-charged interest during 1994; (ii) a
decrease of approximately $186,000 relating to the payoff of the GNMA
Certificate collateralized by the Laurel Park Apartments during 1993;
partially offset by; (iii) an increase of approximately $340,000 relating to
interest earned on GNMA and FNMA Certificates acquired during 1993 and 1994;
and, (iv) an increase of approximately $51,000 on Ashwood Apartments due to a
reduction in self-charged interest eliminated in 1994.
Equity in earnings of property partnerships is a function of the cash flow
received by the Partnership from its interest in the operating partnerships
which own the properties. Prior to the write-down of each investment in PREP
to zero, (the last of which occurred in the first quarter of 1995) equity in
earnings also reflected the Partnership's allocable share of earnings
generated by each of these properties.
Equity in earnings decreased $41,661 from 1994 to 1995 due primarily to the
write-down of the investment in Owings Chase Apartments to zero in the first
quarter of 1995 and due to the Partnership no longer eliminating self-charged
interest on Owings Chase Apartments as discussed above. A decrease of
approximately $119,000 related to Owings Chase Apartments was partially offset
by increases in cash flow of approximately $65,000 from Broadmoor Court and
$12,000 from Ashwood Apartments.
Equity in earnings of property partnerships increased $67,924 from 1993 to
1994, due primarily to: (i) an increase of approximately $68,000 in the
earnings of Owings Chase Apartments relating to the restructuring of the
Owings Chase partnership and additional self-charged interest recorded in 1994
and; (ii) an increase of $27,000 in the earnings of Broadmoor Court primarily
related to equity distributions received during 1994; offset by (iii) a
decrease of approximately $18,000 in earnings of Laurel Park Apartments due to
a reduction in self-charged interest eliminated in 1994; and (iv) a decrease
of approximately $9,000 in earnings of Ashwood Apartments due to a reduction
in self-charged interest eliminated in 1994.
Interest on temporary cash investments decreased $38,850 from 1994 to 1995 and
$96,684 from 1993 to 1994. These decreases were primarily attributable to the
decrease in cash reserves as a result of the purchase of GNMA and FNMA
Certificates during 1993 and 1994 and to the purchase of BUCs during 1995.
General and administrative expenses increased $17,472 from 1994 to 1995,
primarily due to increases in: (i) salaries and related expenses; and (ii)
insurance expenses. These increases were partially offset by decreases in
investor servicing expenses and professional fees. General and administrative
expenses decreased $29,652 from 1993 to 1994, due primarily to: (i) a
decrease in administrative fees paid to the Partnership's general partner as a
result of the payoff of the GNMA Certificate on Laurel Park Apartments; and,
(ii) a decrease in printing costs. These decreases were partially offset by
increases in certain other expenses.
<PAGE> 7
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, 1995 and 1994.
PART III
Item 10. Directors and Executive Officers of Registrant. The Registrant
has no directors or officers. Management of the Registrant consists of its
general partner, America First Capital Associates Limited Partnership Six
("AFCA"), and its general partner, America First Companies L.L.C. The
following individuals are the managers and officers of America First Companies
L.L.C., 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, 1987
President, Chief Executive
Officer and Manager
Michael Thesing Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D. Manager 1994
George Kubat Manager 1994
Martin Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
</TABLE>
Michael B. Yanney, 62, 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., Lozier Corporation, Mid-America Apartment
Communities, Inc. and PKS Information Services, Inc..
Michael Thesing, 41, 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., 69, 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, 50, 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.
Martin Massengale, 62, is the President Emeritus of the University of
Nebraska. Prior to becoming President in 1991, he served as Interim President
from August 1989, as Chancellor of the University of Nebraska Lincoln from
June 1981 through December 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.
<PAGE> 8
Alan Baer, 73, 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 was,
until its acquisition, 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, 60, 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 is a former director of
FirsTier Bank, N.A., Omaha. Ms. Yanney is the wife of Michael Yanney.
During 1995, William S. Carter, M.D. acquired 2,500 BUCs but failed to
file a report on Form 4 as required by Section 16(a) of the Exchange Act. Dr.
Carter has filed a report on Form 5 regarding this acquisition.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any directors or officers. None of the managers or executive officers of
America First Companies L.L.C. (the general partner of AFCA) receive
compensation from the Registrant and AFCA receives no reimbursement from the
Registrant for any portion of their salaries. Remuneration paid by the
Registrant to AFCA pursuant to the terms of its agreement of limited
partnership during the period ending December 31, 1995, is described in Note 7
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 BUCs.
(b) William S. Carter owns 11,000 BUCs. No other manager or officer of
America First Companies L.L.C. and no partner of AFCA owns any BUCs.
(c) LB I Group, Inc. is the special limited partner of AFCA, with the
right to become the managing general partner of AFCA, or to designate another
corporation or other entity as the managing general partner, upon the
happening of any of the following events: (1) the commission of any act
which, in the opinion of LB I Group, Inc., constitutes negligence, misfeasance
or breach of fiduciary duty on the part of the managing general partner, (2)
the dissolution, insolvency or bankruptcy of the managing general partner or
the occurrence of such other events which cause the managing general partner
to cease to be a general partner under Delaware law, or (3) the happening of
an event which results in the change in control of the managing general
partner whether by operation of law or otherwise.
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 general
partner of the Registrant is AFCA and the sole general partner of AFCA is
America First Companies L.L.C.
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA, America First Companies L.L.C.
or with any person who is (i) a manager or executive officer of America First
Companies L.L.C., or any general partner of AFCA, (ii) a nominee for election
as a manager of America First Companies L.L.C., (iii) an owner of more than 5%
of the BUCs or (iv) a member of the immediate family of any of the foregoing
persons.
During 1995, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $229,410 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 7 to Notes to Financial Statements filed in response to
Item 8 hereof for a description of these costs and expenses.
<PAGE> 9
AFCA is entitled to an annual administrative fee equal to .35% of the
Partnership's outstanding investments which is paid by the Partnership to the
extent such amounts are not paid by property owners. AFCA earned $52,901 in
such administrative fees during 1995, and of such amount, the Partnership paid
$46,737.
The general partner of the property partnership which owns Owings Chase
Apartments is principally owned by an employee of America First Companies
L.L.C.. Such employee has a nominal interest in America First Companies
L.L.C.. Affiliates of AFCA also own small interests in the general partner.
The general partner has a nominal interest in the property partnership's
profits, losses and cash flow which is subordinate to the interest of the
Partnership. The general partner received no cash distributions from the
property partnership in 1995.
An affiliate of AFCA has been retained to provide property management
services for Laurel Park Apartments and Owings Chase Apartments. The fees for
services provided represent the lower of (i) costs incurred in providing
management of the property, or (ii) customary fees for such services
determined on a competitive basis and amounted to $75,795 in 1995.
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 dated March 26, 1996.
Balance Sheets of Registrant as of December 31, 1995, and December
31, 1994.
Statements of Income of Registrant for the years ended December
31, 1995, December 31, 1994, and December 31, 1993.
Statements of Partners' Capital of Registrant for the years ended
December 31, 1995, December 31, 1994, and December 31, 1993.
Statements of Cash Flows of Registrant for the years ended
December 31, 1995, December 31, 1994, and December 31, 1993.
Notes to Financial Statements of Registrant.
2. Financial Statement Schedules. The information required to be
set forth in the financial statement schedules is shown in the Notes to
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 Rule 601 of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Fourteen (incorporated herein by
reference to Form S-11 Registration Statement filed April 13, 1987,
with the Securities and Exchange Commission by America First
Investment Funds (Commission File No. 33-13407)).
4(a). Agreement of Limited Partnership dated March 25, 1988
(incorporated herein by reference to Form 10-K dated December 31,
1988, filed Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First PREP Fund 2 Limited
Partnership (Commission File No. 1-10022)).
4(b). Form of Certificate of Exchangeable Unit (incorporated by
reference to Form S-11 Registration Statement filed April 13, 1987,
with the Securities and Exchange Commission by America First
Investment Funds (Commission File No. 33-13407).
<PAGE> 10
10(a). Securities Purchase Agreement, dated September 14, 1988,
between America First PREP Fund 2 Limited Partnership and American
Mortgages, Inc. (incorporated herein by reference to Form 10-K
dated December 31, 1988, filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First PREP Fund 2
Limited Partnership (Commission File No. 1-10022)).
10(b). Securities Purchase Agreement, dated November 29, 1988,
between America First PREP Fund 2 Limited Partnership and TRI
Financial Corp. (incorporated herein by reference to Form 10-K
dated December 31, 1988, filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First PREP Fund 2
Limited Partnership (Commission File No. 1-10022)).
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> 11
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
America First PREP Fund 2 Limited Partnership:
We have audited the accompanying balance sheets of America First Prep Fund 2
Limited Partnership as of December 31, 1995 and 1994, and the related
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these 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 financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Prep Fund 2
Limited Partnership as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1996 Coopers & Lybrand L.L.P.
<PAGE> 12
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 568,340 $ 885,027
Investment in mortgage-backed securities (Note 5) 17,895,507 19,741,212
Investment in preferred real estate participations (PREPs),
net of valuation allowance (Note 6) - 37,384
Interest receivable 107,920 119,434
Other assets 61,660 70,588
--------------- ---------------
$ 18,633,427 $ 20,853,645
=============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 77,501 $ 71,915
Distribution payable (Note 4) 383,411 421,745
--------------- ---------------
460,912 493,660
--------------- ---------------
Partners' Capital
General Partner 100 100
Beneficial Unit Certificate Holders
($11.36 per BUC in 1995 and $12.09 in 1994) 18,172,415 20,359,885
--------------- ---------------
18,172,515 20,359,985
--------------- ---------------
$ 18,633,427 $ 20,853,645
=============== ===============
</TABLE>
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Income
Mortgage-backed securities income (Note 5) $ 1,346,474 $ 1,043,641 $ 1,092,142
Equity in earnings of property partnerships (Note 6) 127,736 169,397 101,473
Interest income on temporary cash investments 29,476 68,326 165,010
Gain on sale of mortgage-backed securities 3,023 - -
--------------- --------------- ---------------
1,506,709 1,281,364 1,358,625
Expenses
General and administrative expenses (Note 7) 287,838 270,366 300,018
--------------- --------------- ---------------
Net income $ 1,218,871 $ 1,010,998 $ 1,058,607
=============== =============== ===============
Net income allocated to:
General Partner $ 23,988 $ 25,907 $ 27,050
BUC Holders 1,194,883 985,091 1,031,557
--------------- --------------- ---------------
$ 1,218,871 $ 1,010,998 $ 1,058,607
=============== =============== ===============
Net income per BUC $ .73 $ .59 $ .61
=============== =============== ===============
Weighted average number of BUCs outstanding 1,632,412 1,683,904 1,683,904
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 13
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1992, TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partner's Capital (excluding net unrealized
holding losses)
Balance at December 31, 1992 $ 100 1,683,904 $ 23,585,903 $ 23,586,003
Net income 27,050 - 1,031,557 1,058,607
Cash distributions paid or accrued (Note 4) (27,050) - (2,677,912) (2,704,962)
-------------- --------------- ---------------- ---------------
Balance at December 31, 1993 100 1,683,904 21,939,548 21,939,648
Net income 25,907 - 985,091 1,010,998
Cash distributions paid or accrued (Note 4) (25,907) - (2,564,754) (2,590,661)
-------------- --------------- ---------------- ---------------
Balance at December 31, 1994 100 1,683,904 20,359,885 20,359,985
Net income 23,988 - 1,194,883 1,218,871
Cash distributions paid or accrued (Note 4) (23,988) - (2,374,826) (2,398,814)
Purchase of units - (83,800) (977,256) (977,256)
--------------- --------------- --------------- ---------------
100 1,600,104 18,202,686 18,202,786
--------------- --------------- --------------- ---------------
Net unrealized holding losses
Balance at December 31, 1994 - - - -
Net change - - (30,271) (30,271)
--------------- --------------- --------------- ---------------
- - (30,271) (30,271)
--------------- --------------- --------------- ---------------
Balance at December 31, 1995 $ 100 1,600,104 $ 18,172,415 $ 18,172,515
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 14
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,218,871 $ 1,010,998 $ 1,058,607
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in earnings of property partnerships (127,736) (169,397) (101,473)
Gain on sale of mortgage-backed securities (3,023) - -
Amortization of discount on mortgage-backed securities (19,928) (24,331) (40,042)
Decrease in interest receivable 11,514 25,761 17,702
Decrease in other assets 8,928 9,163 8,315
Increase (decrease) in accounts payable 5,586 (2,837) 23,016
--------------- --------------- ---------------
Net cash provided by operating activities 1,094,212 849,357 966,125
--------------- --------------- ---------------
Cash flows from investing activities
Mortgage principal payments received 1,256,247 1,304,650 1,523,231
Sale of mortgage-backed securities 582,138 - -
Distributions received from PREPs 165,120 406,112 557,921
Acquisition of mortgage-backed securities - (6,652,575) (7,969,350)
Mortgage-backed securities prepayments - 5,550,016 6,874,216
Investments in PREPs - (44,289) (47,453)
--------------- --------------- ---------------
Net cash provided by investing activities 2,003,505 563,914 938,565
--------------- --------------- ---------------
Cash flows from financing activities
Distributions paid (2,437,148) (2,387,994) (2,716,377)
Purchase of units (977,256) - -
--------------- --------------- ---------------
Net cash used in financing activities (3,414,404) (2,387,994) (2,716,377)
--------------- --------------- ---------------
Net decrease in cash and temporary cash investments (316,687) (974,723) (811,687)
Cash and temporary cash investments at beginning of year 885,027 1,859,750 2,671,437
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 568,340 $ 885,027 $ 1,859,750
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 15
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization
America First PREP Fund 2 Limited Partnership (the Partnership) was formed on
May 28, 1987, under the Delaware Revised Uniform Limited Partnership Act for
the purpose of acquiring a portfolio of federally-insured multifamily
mortgages and other investments including preferred real estate participations
(PREPs). PREPs consist of equity interests which are intended to provide the
Partnership with a participation in the net cash flow and net sale or
refinancing proceeds of the properties collateralizing the mortgage loans.
The Partnership began operations with the first escrow closing on March 25,
1988, and will continue in existence until December 31, 2017, unless
terminated earlier under the provisions of the Partnership Agreement. The
General Partner of the Partnership is America First Capital Associates Limited
Partnership Six (AFCA 6).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The financial statements of the Partnership are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
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 Mortgage-Backed Securities
On January 1, 1994, the Partnership adopted Statement of Financial
Accounting Standard No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, 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. FAS 115 had no impact to partners' capital or
earnings prior to June 30, 1995, since all investment securities were
classified as held-to-maturity. As described in Note 5, on June 30, 1995,
the Partnership reclassified certain investment securities from the
held-to-maturity category to the available-for-sale category.
C) Investment in PREPs
The investment in PREPs consists of interests in limited partnerships
which own properties underlying the mortgage-backed securities and are
accounted for using the equity method. PREPs are not insured or
guaranteed. The value of these investments is a function of the value of
the real estate underlying the PREPs. The investments have been reduced
to zero and earnings are recorded to the extent that distributions are
received.
<PAGE> 16
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
D) Allowance for Losses on Investments in PREPs
The allowance for losses on investments in PREPs is a valuation reserve
which has been established at a level that management feels is adequate to
absorb potential losses on investments in PREPs. The allowance is based
on management's best estimate of the net realizable value of such
properties; however, the ultimate realized values may vary from these
estimates. The net realizable value of the properties is determined based
on the discounted estimated future cash flows from the properties,
including estimated sales proceeds. The calculation of estimated future
cash flows includes certain variables such as the assumed inflation rates
for rents and expenses, capitalization rates and discount rates. These
variables are supplied to management by an independent real estate firm and
are based on local market conditions for each property. In certain cases,
additional factors such as the replacement value of the property or
comparable sales of similar properties are also taken into consideration.
The allowance is periodically reviewed and adjustments are made to the
allowance when there are significant changes in the estimated net
realizable value of the properties underlying the PREPs.
E) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) 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 $3,373,303 and $3,317,576 at December 31, 1995, and December 31,
1994, respectively.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
G) Net Income Per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each year presented.
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at December 31, 1995:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 226,651
GNMA Certificates 3,606,335
FNMA Certificates 3,476,865
---------------
Balance at December 31, 1995 $ 7,309,851
===============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available to supplement distributions to BUC Holders and
for any contingencies related to Permanent Investments and the operation of
the Partnership. On December 12, 1994, and February 6, 1995, management
announced its intent to utilize a portion of the reserve account to purchase
up to a total of 100,000 BUCs of the Partnership in open-market transactions.
As of December 31, 1995, 83,800 BUCs had been acquired at a total cost of
$977,256. See Note 5 regarding the investment in mortgage-backed securities.
4. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for distributing the cash
available for distribution and for the allocation of income and expenses for
tax purposes among AFCA 6 and BUC Holders. Income and expenses are allocated
to each BUC Holder on a monthly basis based on the number of BUCs held by each
Holder as of the last day of the month for which such allocation is to be
made.
<PAGE> 17
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Net Operating Income during each distribution period will be distributed 99%
to the BUC Holders and 1% to AFCA 6 until the BUC Holders, as a class, receive
distributions of Net Operating Income equal to a cumulative noncompounded
annual return of 9% on their Adjusted Capital Contributions. Thereafter,
remaining Net Operating Income during such distribution period will be
distributed 90% to the BUC Holders and 10% to AFCA 6 until BUC Holders, as a
class, receive distributions of Net Operating Income equal to a cumulative
noncompounded annual return of 11% on their Adjusted Capital Contributions.
Thereafter, remaining Net Operating Income during such distribution period
will be distributed 95% to BUC Holders and 5% to AFCA 6.
Net Capital Transaction Proceeds will be distributed 100% to the BUC Holders
until the BUC Holders, as a class, have received distributions from all
sources in an amount equal to $20 per BUC. Thereafter, Net Capital
Transaction Proceeds will be distributed 99% to the BUC Holders and 1% to
AFCA 6 until BUC Holders, as a class, have received distributions from all
sources in an amount equal to $20 per BUC plus an amount equal to a cumulative
noncompounded annual return of 9% on their Adjusted Capital Contributions.
Thereafter, any remaining Net Capital Transaction Proceeds will be distributed
90% to BUC Holders and 10% to AFCA 6 until BUC Holders, as a class, have
received distributions from all sources in an amount equal to $20 per BUC plus
an amount equal to a cumulative noncompounded annual return of 11% on their
Adjusted Capital Contributions. Thereafter any remaining Net Capital
Transactions Proceeds will be distributed 95% to BUC Holders and 5% to AFCA 6.
Proceeds from a Capital Transaction which result in the liquidation of the
Partnership for federal income tax purposes will be distributed in the same
manner as distributions from nonliquidating Capital Transactions, subject to
the requirement that the distributions be initially made to the BUC Holders
and AFCA 6 in accordance with their positive capital account balances.
Cash distributions are presently made on a monthly basis but may be made
quarterly or semiannually if AFCA 6 so elects. The cash distributions
included in the financial statements represent the actual cash distributions
made during each year and the cash distributions accrued at the end of each
year.
5. Investment in Mortgage-Backed Securities
The mortgage-backed securities held by the Partnership represent Government
National Mortgage Association (GNMA) Certificates and Federal National
Mortgage Association (FNMA) Certificates. The GNMA Certificates are backed by
first mortgage loans on multifamily housing properties and pools of
single-family properties. The FNMA Certificates are backed by pools of
single-family properties. The GNMA Certificates are debt securities issued by
a private mortgage lender and are guaranteed by GNMA as to the full and timely
payment of principal and interest on the underlying loans. The FNMA
Certificates are debt securities issued by FNMA and are guaranteed as to the
full and timely payment of principal and interest on the underlying loans.
During the quarter ended June 30, 1995, the Partnership sold a portion of the
securities in the held-to-maturity portfolio. The total amortized cost,
realized gain and realized loss for sales of securities classified as
held-to-maturity were $579,115, $3,411 and $388, respectively. In addition,
during the quarter ended 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
gains, gross unrealized losses and aggregate fair value of the securities
transferred were $7,684,875, $10,152, $176,267 and $7,518,760, respectively.
At December 31, 1995, the total amortized cost, gross unrealized holding
gains, gross unrealized holding losses, and aggregate fair value of
available-for-sale securities are $7,113,470, $15,139, $45,410, $7,083,199,
respectively. The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value of held-to-maturity
securities are $10,812,308, $251,137, $501,129 and $10,562,316, respectively.
<PAGE> 18
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
At December 31, 1994, the total amortized cost, gross unrealized gains, gross
unrealized losses and aggregate fair value of held-to-maturity securities were
$19,741,212, $46,806, $1,234,371 and $18,553,647, respectively.
Descriptions of the Partnership's mortgage-backed securities at December 31,
1995, are as follows:
<TABLE>
<CAPTION>
Income
Number Interest Maturity Carrying Earned
Type of Security and Name Location of Units Rate Date Amount in 1995
- ------------------------------- ------------------- ---------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
Ashwood Apartments Tulsa, OK 144 9.25% 07/15/23 $ 1,482,361 $ 137,576
Broadmoor Court Colorado Springs, CO 46 9.25% 10/15/29 1,543,001 142,982
Owings Chase Apartments Pikesville, MD 234 6.75%(1) 12/15/23 5,568,102 377,788
Pools of single-family properties 8.74%(2) 2016 to 2018 2,218,844 219,553
------------ ------------
10,812,308 877,899
------------ ------------
Available-for-Sale
GNMA Certificates:
Pools of single-family properties 6.03%(2) 2008 3,259,029(3) 215,331
Pools of single-family properties 7.58%(2) 2007 to 2009 347,306(3) 48,801
FNMA Certificates:
Pools of single-family properties 5.52%(2) 2000 3,476,864(3) 204,443
------------ ------------
7,083,199 468,575
------------ ------------
Balance at December 31, 1995 $ 17,895,507 $ 1,346,474
============ ============
</TABLE>
(1) The Partnership restructured the security during the first quarter of 1994
which lowered the interest rate from 9.25%.
(2) Represents yield to the Partnership.
(3) Reserve account asset - see Note 3.
Reconciliation of the carrying amount of the mortgage-backed securities is as
follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 19,741,212 $ 19,918,972 $ 20,307,027
Additions
Acquisition of mortgage-backed securities - 6,652,575 7,969,350
Amortization of discount on mortgage-backed securities 19,928 24,331 40,042
Deductions
Mortgage principal payments received (1,256,247) (1,304,650) (1,523,231)
Sale of mortgage-backed securities (579,115) - -
Mortgage-backed securities prepayments - (5,550,016) (6,874,216)
Net unrealized holding losses on available-for-sale securities (30,271) - -
--------------- --------------- ---------------
Balance at end of year $ 17,895,507 $ 19,741,212 $ 19,918,972
=============== =============== ===============
</TABLE>
6. Investment in PREPs
The Partnership's PREPs consist of interests in limited partnerships which own
multifamily properties financed by the Partnership. The limited partnership
agreements originally provided for the payment of a base return on the equity
provided to the limited partnerships and for the payment of additional amounts
out of a portion of the net cash flow or net sale or refinancing proceeds of
the properties subject to various priority payments. Certain of the
agreements have been amended to defer payment of the base return.
<PAGE> 19
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Descriptions of the PREPs at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Equity
in Earnings
Carrying of Property
Name Location Partnership Name Amount Partnerships
- ------------------------ --------------------- ----------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Broadmoor Court Colorado Springs, CO Stazier Associates Colorado Springs, Ltd. $ 141,523 $ 112,521
Owings Chase Apartments Pikesville, MD Owings Chase Limited Partnership 200,000 (37,384)
Ashwood Apartments Tulsa, OK 129th Street Limited Partnership - 52,599
Laurel Park Apartments Riverdale, GA Gold Key Venture - -
------------ ------------
341,523 $ 127,736
Less valuation allowance (341,523) ============
------------
Balance at December 31, 1995 $ -
============
</TABLE>
Reconciliation of the carrying amount of the PREPs is as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 707,544 $ 899,970 $ 1,308,965
Additions
Investments in PREPs - 44,289 47,453
Equity in earnings of property partnerships 127,736 169,397 101,473
Deductions
Distributions received from PREPs (165,120) (406,112) (557,921)
Write-off(1) (328,637) - -
-------------- --------------- ---------------
Balance at end of year $ 341,523 $ 707,544 $ 899,970
============== =============== ===============
</TABLE>
The following summarizes the activity in the valuation allowance:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 670,160 $ 670,160 $ 670,160
Write-off(1) (328,637) - -
--------------- --------------- ---------------
Balance at end of year $ 341,523 $ 670,160 $ 670,160
=============== =============== ===============
</TABLE>
(1) During the second quarter of 1995, the Partnership withdrew as a limited
partner of the operating partnership which owns the Villages at Moonraker.
Therefore, the valuation allowance which had previously been established for
the full amount of this equity investment was written off.
<PAGE> 20
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Combined condensed financial information for the PREPs is as follows:
Assets
Real estate $ 20,381,335 $ 32,725,035 $ 32,665,082
Restricted deposits and funded reserves 484,879 384,196 355,838
Other assets 1,378,718 1,901,395 3,699,548
--------------- --------------- ---------------
$ 22,244,932 $ 35,010,626 $ 36,720,468
=============== =============== ===============
Liabilities and Partners' Capital
Liabilities
Mortgage notes payable $ 22,313,737 $ 34,181,180 $ 34,399,218
Other liabilities 1,846,124 7,286,837 7,166,430
Partners' Capital (Deficit)
General Partners (2,346,535) (7,379,538) (6,059,252)
Limited Partners
America First PREP Fund 2 Limited Partnership 341,523 707,544 899,970
America First PREP Fund 2 Pension Series Limited Partnership 203,547 328,067 427,566
Other (113,464) (113,464) (113,464)
--------------- --------------- ---------------
$ 22,244,932 $ 35,010,626 $ 36,720,468
=============== =============== ===============
Rental income $ 6,423,813 $ 7,019,554 $ 6,854,814
=============== =============== ===============
Combined results of operations $ (1,163,422) $ (2,344,145) $ (3,057,101)
=============== =============== ===============
Equity in earnings of property partnerships
(as calculated pursuant to the Limited Partnership Agreements) $ 127,736 $ 169,397 $ 101,473
=============== =============== ===============
</TABLE>
7. Transactions With Related Parties
Substantially all the Partnership's general and administrative expenses are
paid by AFCA 6 or an affiliate and reimbursed by the Partnership. The amount
of such expenses reimbursed to AFCA 6 or an affiliate are shown below. The
amounts are presented on a cash basis and do not reflect accruals made at each
year end.
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Reimbursable salaries and benefits $ 144,920 $ 121,036 $ 101,149
Professional fees and expenses 20,320 27,313 26,305
Investor services and custodial fees 22,368 26,593 27,262
Report preparation and distribution 10,879 13,648 23,948
Registration fees 12,786 7,918 7,955
Other expenses 7,509 6,076 2,967
Insurance 6,727 5,130 1,368
Telephone 2,908 2,515 3,355
Consulting and travel expense 993 2,045 8,401
Stock certificates - - 480
--------------- --------------- ---------------
$ 229,410 $ 212,274 $ 203,190
=============== =============== ===============
</TABLE>
AFCA 6 is entitled to an administrative fee of .35% per annum of the
outstanding principal amounts invested in mortgage-backed securities, PREPs
and temporary cash investments to be paid by the Partnership to the extent
such amount is not paid by property owners. The administrative fees earned by
AFCA 6 was $52,901 in 1995, $54,644 in 1994, and $74,373 in 1993. Of these
amounts, $46,737 in 1995, $47,272 in 1994, and $68,142 in 1993 was paid by the
Partnership and the remainder was paid by property owners.
<PAGE> 21
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The general partner of the property partnership which owns Owings Chase
Apartments is principally owned by an employee of an affiliate of AFCA 6.
Such employee has a nominal interest in the affiliate. Affiliates of AFCA 6
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership. The general partner
received no cash distributions from the property partnership in 1995, 1994 or
1993.
An affiliate of AFCA 6 has been retained since 1994 to provide property
management services for Laurel Park Apartments and Owings Chase Apartments.
The fees for services provided represent the lower of (i) costs incurred in
providing management of the property, or (ii) customary fees for such services
determined on a competitive basis and amounted to $75,795 and $50,381 in 1995
and 1994, respectively.
8. 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 mortgage-backed securities: Fair values are based on amounts
obtained from an independent pricing source.
<TABLE>
<CAPTION>
At December 31, 1995
-----------------------------------
Carrying Estimated
Amount Fair Value
--------------- ---------------
<S> <C> <C>
Cash and temporary cash investments $ 568,340 $ 568,340
Investment in mortgage-backed securities $ 17,895,507 $ 17,645,515
</TABLE>
9. Summary of Unaudited Quarterly Results of Operations
<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 $ 413,733 $ 359,159 $ 393,823 $ 339,994
Total expenses (75,565) (66,271) (72,444) (73,558)
--------------- --------------- --------------- ---------------
Net income $ 338,168 $ 292,888 $ 321,379 $ 266,436
=============== =============== =============== ===============
Net income per BUC $ .20 $ .18 $ .19 $ .16
=============== =============== =============== ===============
Market Price per BUC
High sale 12-5/8 12-1/8 12-1/4 12-1/2
Low sale 11-5/8 11 11-1/4 10-1/2
=============== =============== =============== ===============
</TABLE>
<PAGE> 22
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1994, to December 31, 1994 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 364,163 $ 332,618 $ 351,597 $ 232,986
Total expenses (67,123) (74,595) (67,528) (61,120)
--------------- --------------- --------------- ---------------
Net income $ 297,040 $ 258,023 $ 284,069 $ 171,866
=============== =============== =============== ===============
Net income per BUC $ .17 $ .15 $ .17 $ .10
=============== =============== =============== ===============
Market Price per BUC
High sale 14-1/4 12-1/8 12-3/8 12-3/8
Low sale 11-7/8 9-7/8 9-7/8 10-1/8
=============== =============== =============== ===============
The Partnership's BUCs are quoted on the American Stock Exchange under the
symbol PF. The high and low quarterly prices of the BUCs shown were compiled
from the Monthly Market Statistics Reports provided to the Partnership by the
American Stock Exchange and represent final sale prices.
<PAGE> 23
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.
AMERICA FIRST PREP FUND 2
LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Six, general
partner
By America First Companies L.L.C.,
general partner of America First
Capital Associates Limited
Partnership Six
By /s/ Michael Thesing
Michael Thesing,
Vice President
Date: March 27, 1996
<PAGE> 24
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, 1996 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
(Principal Executive Officer)
Date: March 27, 1996 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer and
Manager (Principal Financial Officer)
Date: March 27, 1996 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager
Date: March 27, 1996 By
George Kubat
Manager
Date: March 27, 1996 By /s/ Martin Massengale*
Martin Massengale
Manager
Date: March 27, 1996 By /s/ Alan Baer*
Alan Baer
Manager
Date: March 27, 1996 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> 25
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> 26
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, 1995, 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 Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
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.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 10th day of March, 1996.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> 27
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, 1995, 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 Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 2nd day of March, 1996.
/s/ William S. Carter
William S. Carter, M.D.
<PAGE> 28
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, 1995, 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 Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 25th day of March, 1996.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> 29
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, 1995, 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 Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 2nd day of March, 1996.
/s/ Martin Massingale
Martin Massingale
<PAGE> 30
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, 1995, 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 Tax-Exempt Mortgage Fund 2 Limited Partnership
America First Participating/Preferred Equity Mortgage Fund
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 3rd day of March, 1996.
/s/ Alan Baer
Alan Baer
<PAGE> 31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 568,340
<SECURITIES> 17,895,507
<RECEIVABLES> 107,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 676,260
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,633,427
<CURRENT-LIABILITIES> 460,912
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,172,515
<TOTAL-LIABILITY-AND-EQUITY> 18,633,427
<SALES> 0
<TOTAL-REVENUES> 1,506,709
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 287,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,218,871
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,218,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,218,871
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
