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
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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:
Name of Each
Exchange on
Title of Each Class which Registered
----------------------------------------- ------------------
Beneficial Unit Certificates representing American
assigned limited partnership interests in Stock
the Registrant (the "BUCs"). Exchange
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. [X]
The aggregate market value of the BUCs on March 3, 1998 based on the final
sales price per BUC as reported in The Wall Street Journal on March 4, 1998
was $21,365,154.
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 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of Registrant 9
Item 11. Executive Compensation 11
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 26
<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, 1997, the Registrant had 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 projects located in four states (the
"GNMA Certificates"); (ii) various mortgage-backed securities collateralized
by pools of single-family mortgages and guaranteed as to principal and
interest by either GNMA or the Federal National Mortgage Association ("FNMA")
(the "Single-Family Certificates") and; (iii) 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 GNMA
Certificates collateralized by the Villages at Moonraker, Laurel Park
Apartments and Ashwood Apartments. The Partnership withdrew as a limited
partner of the operating partnership which owns the Villages at Moonraker and,
therefore, no longer holds its PREP in this property. In addition, the
Partnership sold its PREP in Ashwood Apartments. The Partnership has retained
its PREP in Laurel Park Apartments. Collectively, the two remaining GNMA
Certificates and the three remaining PREPs are referred to herein as the
"Permanent Investments". A description of the Permanent Investments held by
the Registrant at December 31, 1997, (and the properties financed thereby)
appears in Notes 5 and 6 to the Notes to Financial Statements filed in
response to Item 8 hereof. In addition, the Registrant held various
Single-Family Certificates at December 31, 1997. All Permanent Investments
were made in conjunction with America First PREP Fund 2 Pension Limited
Partnership, an affiliate of the Registrant.
The GNMA Certificates and the Single-Family Certificates provide the
Registrant with monthly payments of principal and interest which are
guaranteed either by GNMA or FNMA. 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.
While principal of and interest on the GNMA Certificates and
Single-Family Certificates is guaranteed by the United States government, the
amount of cash distributions received by the Registrant from the PREPs is a
function of the net rental revenues generated by the properties financed by
the Registrant. 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 properties financed by the Registrant 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 competitive rental rates. Such properties also
compete by emphasizing regular maintenance and property amenities.
<PAGE> - 1 -
The Registrant believes that each of the 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 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 Partnership
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, 1997, are 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>
Broadmoor Court Colorado Springs, CO 47 391 $ 1,832,939
Laurel Park Apartments Riverdale, GA 387 855 7,318,562
Owings Chase Apartments Pikesville, MD 234 960 8,013,858
-------- ---------------
668 $ 17,165,359
======== ===============
</TABLE>
Depreciation is taken on each property on a straight-line basis over the
estimated useful lives of the 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>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BROADMOOR COURT
Average Occupancy Rate 93% 96% 99% 98% 96%
Average Effective Annual Rental Per Unit $21,108 $21,400 $21,289 $20,540 $19,373
LAUREL PARK APARTMENTS
Average Occupancy Rate 96% 97% 95% 85% 74%
Average Effective Annual Rental Per Unit $5,434 $5,293 $4,867 $4,217 $3,503
OWINGS CHASE APARTMENTS
Average Occupancy Rate 94% 96% 95% 91% 83%
Average Effective Annual Rental Per Unit $6,820 $6,792 $6,580 $6,302 $5,933
</TABLE>
<PAGE> - 2 -
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 Registrant's Financial
Statements. A discussion of general competitive conditions to which these
properties 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 1997 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 1997 and 1996.
<TABLE>
<CAPTION>
Sale Prices
1996 High Low
----------- ------- -------
<S> <C> <C>
1st Quarter $12-1/4 $10-3/4
2nd Quarter $12-1/8 $ 9-7/8
3rd Quarter $11-3/4 $ 9-3/4
4th Quarter $12 $10-3/8
1997 High Low
----------- ------- -------
<S> <C> <C>
1st Quarter $11-5/8 $10-7/8
2nd Quarter $12-3/4 $10-1/2
3rd Quarter $13-3/4 $11-1/8
4th Quarter $14-3/4 $12-1/2
</TABLE>
(b) Investors. The approximate number of BUC
Holders on December 31, 1997, was 1,642.
(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, 1997, and December 31, 1996, equaled
$2,096,065 and $2,210,068, respectively. The cash distributions paid per
BUC during the fiscal years ended December 31, 1997, and December 31,
1996, were as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Income $ .3130 $ .9875
Return of Capital 1.0023 .3975
----------------- -----------------
Total $ 1.3153 $ 1.3850
================= =================
</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 1998 and thereafter.
<PAGE> - 3 -
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, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities income $ 1,010,651 $ 1,231,344 $ 1,346,474 $ 1,043,641 $ 1,092,142
Equity in earnings of property partnerships 138,815 53,802 127,736 169,397 101,473
Interest income on temporary cash investments 126,328 24,302 29,476 68,326 165,010
Gain on sale of mortgage-backed securities - 3,157 3,023 - -
Gain on sale of PREP - 598,867 - - -
General and administrative expenses (755,784) (313,422) (287,838) (270,366) (300,018)
------------- ------------- ------------- ------------- -------------
Net income $ 520,010 $ 1,598,050 $ 1,218,871 $ 1,010,998 $ 1,058,607
============= ============= ============= ============= =============
Net income, basic and diluted, per
Beneficial Unit Certificate (BUC) $ .31 $ .99 $ .73 $ .59 $ .61
============= ============= ============= ============= =============
Cash distributions paid or accrued per BUC $ 1.3153 $ 1.3850 $ 1.4546 $ 1.5231 $ 1.5903
============= ============= ============= ============= =============
Investment in mortgage-backed securities $ 13,904,717 $ 16,466,489 $ 17,895,507 $ 19,741,212 $ 19,918,972
============= ============= ============= ============= =============
Investment in preferred real estate participations
(PREPs), net of valuation allowance $ - $ - $ - $ 37,384 $ 229,810
============= ============= ============= ============= =============
Total assets $ 16,311,924 $ 17,557,582 $ 18,633,427 $ 20,853,645 $ 22,233,478
============= ============= ============= ============= =============
</TABLE>
<PAGE> - 4 -
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 (the GNMA Certificates); (ii)
various mortgage-backed securities collateralized by pools of single-family
mortgages and guaranteed as to principal and interest by either GNMA or the
Federal National Mortgage Association (FNMA) (the Single-Family Certificates)
and; (iii) 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 GNMA
Certificates collateralized by the Villages at Moonraker, Laurel Park
Apartments and, during January of 1997, Ashwood Apartments. During 1995, the
Partnership withdrew as a limited partner of the operating partnership which
owns the Villages at Moonraker and, therefore, no longer holds its PREP in
this property. During 1996, the Partnership sold its PREP in Ashwood
Apartments. The Partnership has retained its PREP in Laurel Park Apartments.
Collectively, the two remaining GNMA Certificates and the three remaining
PREPs are referred to as the Permanent Investments. In addition, the
Partnership held various Single-Family Certificates at December 31, 1997.
The following table shows the occupancy levels of the properties financed by
the Partnership in which the Partnership continues to hold an equity interest
at December 31, 1997:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- --------------------------------- ------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Broadmoor Court Colorado Springs, CO 47 47 100%
Laurel Park Apartments Riverdale, GA 387 380 98%
Owings Chase Apartments Pikesville, MD 234 217 93%
---------- ---------- -----------
668 644 96%
========== ========== ===========
</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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .3130 $ .9875 $ .7320
Return of capital 1.0023 .3975 .7226
--------------- --------------- ---------------
$ 1.3153 $ 1.3850 $ 1.4546
=============== =============== ===============
Distributions
Paid out of cash flow (including mortgage principal payments) $ 1.3153 $ 1.3850 $ 1.4546
=============== =============== ===============
</TABLE>
<PAGE> - 5 -
Regular monthly distributions to investors consist primarily of interest and
principal received on GNMA Certificates and Single-Family 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 1997, a net amount of $1,136,451 of undistributed mortgage
principal payments was placed in reserves. The total amount held in reserves
at December 31, 1997, was $7,274,988 of which $5,342,627 was invested in
Single-Family 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. Under the terms of
the Partnership Agreement, the Partnership has the authority to enter into
short-term and long-term debt financing arrangements; however, the Partnership
currently does not anticipate entering into such arrangements. The
Partnership is not authorized to issue additional BUCs to meet short-term and
long-term liquidity requirements.
AFCA 6 has conducted a review of its computer systems to identify those areas
that could be affected by the "Year 2000" issue and has developed a plan to
resolve the issue. AFCA 6 believes the Year 2000 problem can be resolved
without significant operational difficulties. The Partnership does not
maintain its own computer systems and does not reimburse AFCA 6 for any
capital expenses associated with computer systems. Therefore, no material
effect to the Partnership's results of operations, financial position or cash
flows is anticipated from the "Year 2000" issue or its resolution.
Asset Quality
The Partnership continues to receive monthly principal and interest payments
on its GNMA Certificates and Single-Family Certificates which are fully
guaranteed either by GNMA or FNMA. 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, 1997, indicated that the investment in PREPs
recorded on the balance sheet at December 31, 1997, required no adjustments to
the current carrying amounts.
<PAGE> - 6 -
Broadmoor Court
Broadmoor Court, a senior assisted-living center located in Colorado Springs,
Colorado, had an average occupancy rate of 93% during 1997, compared to 96%
during 1996. The mortgage loan on this property is current and the
Partnership anticipates that property cash flow will be sufficient to pay debt
service in 1998. In addition to principal and interest payments received
during 1997 on the GNMA Certificate collateralized by this property, the
Partnership recorded $102,558 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 96% during 1997 compared to 97% during 1996. At December
31, 1997 the Partnership's investment in this property consists only of a PREP
since the Partnership had already been repaid by GNMA on its GNMA
Certificate. Laurel Park Apartments has been current on its mortgage
obligations since a Loan Modification Agreement (LMA) was effected in August
1996. The Partnership did not receive any equity distributions on its PREP
during 1997. It is anticipated that Laurel Park Apartments will continue to
generate cash flow sufficient to meet its mortgage obligations under the terms
of the LMA during 1998.
Owings Chase Apartments
Owings Chase Apartments, located in Pikesville, Maryland, had an average
occupancy rate of 94% during 1997, compared to 96% during 1996. Cash flow
from the operations of the property was sufficient to fully service debt on
the mortgage loan in 1997. The mortgage loan was current (under the modified
terms of the mortgage) at December 31, 1997, and the Partnership anticipates
that the property cash flow will continue to be sufficient to pay debt service
in 1998. In addition to principal and interest payments received during 1997
on the GNMA Certificate collateralized by this property, the Partnership
recorded $36,257 in equity distributions from the partnership which owns the
property.
Results of Operations
The tables below compare the results of operations for each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 1,010,651 $ 1,231,344 $ 1,346,474
Equity in earnings of property partnerships 138,815 53,802 127,736
Interest income on temporary cash investments 126,328 24,302 29,476
Gain on sale of mortgage-backed securities - 3,157 3,023
Gain on sale of PREP - 598,867 -
-------------- --------------- ---------------
1,275,794 1,911,472 1,506,709
General and administrative expenses 755,784 313,422 287,838
-------------- --------------- ---------------
Net income $ 520,010 $ 1,598,050 $ 1,218,871
============== =============== ===============
</TABLE>
<PAGE> - 7 -
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1996 From 1995
--------------- ---------------
<S> <C> <C>
Mortgage-backed securities income $ (220,693) $ (115,130)
Equity in earnings of property partnerships 85,013 (73,934)
Interest income on temporary cash investments 102,026 (5,174)
Gain on sale of mortgage-backed securities (3,157) 134
Gain on sale of PREP (598,867) 598,867
-------------- ---------------
(635,678) 404,763
General and administrative expenses 442,362 25,584
-------------- ---------------
Net income $ (1,078,040) $ 379,179
============== ===============
</TABLE>
Mortgage-backed securities income decreased $220,693 from 1996 to 1997.
Approximately $136,500 of such decrease was due to the redemption of the GNMA
Certificate related to Ashwood Apartments in January 1997. The remaining
decrease of approximately $84,200 was due to the continued amortization of the
principal balances of the Partnership's other mortgage-backed securities.
Mortgage-backed securities income decreased $115,130 from 1995 to 1996, due to
the continued amortization of the principal balances of the mortgage-backed
securities.
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 PREPs
to zero, equity in earnings of property partnerships also reflects the
Partnership's allocable share of earnings generated by each of the properties.
Equity in earnings of property partnerships increased $85,013 from 1996 to
1997 due primarily to recording a loss of approximately $126,900 for Laurel
Park Apartments during 1996. Excluding such loss, equity in earnings of
property partnerships decreased approximately $41,900 from 1996 to 1997.
Approximately $52,600 of such decrease is attributable to the sale of the
Partnership's PREP in Ashwood Apartments in December 1996. The decrease of
$52,600 from Ashwood Apartments together with a decrease of approximately
$25,600 in cash flow received from Broadmoor Court, was partially offset by
approximately $36,300 in cash flow received from Owings Chase Apartments
during 1997. No distributions were received from Owings Chase Apartments
during 1996.
Equity in earnings of property partnerships decreased $73,934 from 1995 to
1996 due primarily to recording a loss of approximately $127,000 for
Laurel Park Apartments during the third quarter of 1996. This loss resulted
from expenses incurred in conjunction with entering into a loan modification
agreement with HUD in August. The loss related to Laurel Park Apartments was
partially offset by an increase in cash flow of approximately $37,000 from
Broadmoor Court and $16,000 from Ashwood Apartments.
The increase in interest income on temporary cash investments of $102,026 from
1996 to 1997 was primarily attributable to the increase in cash reserves as a
result of the redemption of the GNMA Certificate related to Ashwood Apartments
and the sale of the Partnership PREP in Ashwood Apartments.
The decrease in interest income on temporary cash investments of $5,174 from
1995 to 1996 was primarily attributable to the decrease in cash reserves as a
result of the purchase of BUCs during 1995 and 1996.
The Partnership recorded a gain of $598,867 in 1996 due to the sale of the
Partnership's limited partnership interest in the operating partnership which
owns Ashwood Apartments. Due to this sale, the Partnership no longer receives
equity distributions from Ashwood Apartments.
<PAGE> - 8 -
General and administrative expenses increased $442,362 from 1996 to 1997.
This increase was due primarily to transaction costs of approximately $328,700
incurred in conjunction with the proposed merger described in Note 9 to the
financial statements and to an increase in salaries expense. General and
administrative expenses increased $25,584 from 1995 to 1996 primarily due to
increases in: (i) salaries and related expenses of approximately $18,000;
(ii) travel expenses of approximately $5,000; and (iii) other general and
administrative expenses of approximately $3,000.
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The requirements of Item 7A of Form 10-K are not applicable to the Partnership
prior to its Annual Report on Form 10-K for the year ended December 31, 1998.
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, 1997 and 1996.
PART III
Item 10. Directors and Executive Officers of Registrant. The Registrant
has no directors or officers. Management of the Registrant consists of the
general partner of the Registrant, 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 A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
</TABLE>
<PAGE> - 9 -
Michael B. Yanney, 64, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. 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 (now part of U.S. Bank), 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, Lozier Corporation, Freedom Communications, Inc., Magnum
Resources, RCN Corporation, Rio Grande Medical Technologies, Inc. and PKS
Information Services, Inc..
Michael Thesing, 43, 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., 71, 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, 52, is the President and Chief Executive Officer of
Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall
metals 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 and American Business Information, Inc..
Martin A. Massengale, 64, 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. and is a member of the Board
of Trustees of the Great Plains Funds, Inc..
Alan Baer, 75, 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.
Mariann Byerwalter, 37, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("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.
<PAGE> - 10 -
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 limited partnership agreement
during the year ended December 31, 1997, is described in Note 7 of 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) There are no arrangements 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 1997, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $657,395 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.
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 $44,913 in
such administrative fees during 1997, all of which was paid by the
Partnership.
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 did not receive cash distributions from the
property partnership in 1997.
The Registrant has entered into property management agreements with
America First Properties Management Company, L.L.C. (the "Manager") with
respect to the day-to-day operation of Laurel Park Apartments and Owings Chase
Apartments. Such property management agreements provide 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 range from 3.5% to 4% of gross revenues. Because the Manager
is an affiliate of AFCA, 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, 1997, the Registrant paid the Manager
property management fees of $89,721.
<PAGE> - 11 -
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.
Balance Sheets of the Registrant as of December 31, 1997, and
December 31, 1996.
Statements of Income of the Registrant for the years ended
December 31, 1997, December 31, 1996, and December 31, 1995.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1997, December 31, 1996, and December 31, 1995.
Statements of Cash Flows of the Registrant for the years ended
December 31, 1997, December 31, 1996, and December 31, 1995.
Notes to Financial Statements of the 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 Item 601 of Regulation S-K:
2. Agreement and Plan of Merger, dated as of July 29, 1997,
among the Registrant, America First Participating/Preferred Equity
Mortgage Fund Limited Partnership, America First Prep Fund 2
Pension Series Limited Partnership and AF Merger, L.P.
(incorporated herein by reference to Form 10-Q dated June 30, 1997
filed pursuant to Section 13 or 15(d) of the Securities Act of 1934
by America First PREP Fund 2 Limited Partnership (Commission File
No. 1-10022)).
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).
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> - 12 -
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, 1997 and 1996, and the related
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1998 /s/Coopers & Lybrand L.L.P.
<PAGE> - 13 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 2,277,552 $ 914,518
Investment in mortgage-backed securities (Note 5) 13,904,717 16,466,489
Investment in preferred real estate participations (PREPs),
net of valuation allowance (Note 6) - -
Interest receivable 90,684 100,198
Other assets 38,971 76,377
--------------- ---------------
$ 16,311,924 $ 17,557,582
=============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 279,666 $ 77,744
Distribution payable (Note 4) 172,077 181,574
--------------- ---------------
451,743 259,318
--------------- ---------------
Partners' Capital
General Partner 100 100
Beneficial Unit Certificate Holders
($9.95 per BUC in 1997 and $10.85 in 1996) 15,860,081 17,298,164
--------------- ---------------
15,860,181 17,298,264
--------------- ---------------
$ 16,311,924 $ 17,557,582
=============== ===============
</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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Income
Mortgage-backed securities income (Note 5) $ 1,010,651 $ 1,231,344 $ 1,346,474
Equity in earnings of property partnerships (Note 6) 138,815 53,802 127,736
Interest income on temporary cash investments 126,328 24,302 29,476
Gain on sale of mortgage-backed securities - 3,157 3,023
Gain on sale of PREP - 598,867 -
--------------- --------------- ---------------
1,275,794 1,911,472 1,506,709
Expenses
General and administrative expenses (Note 7) 755,784 313,422 287,838
--------------- --------------- ---------------
Net income $ 520,010 $ 1,598,050 $ 1,218,871
=============== =============== ===============
Net income allocated to:
General Partner $ 21,172 $ 22,324 $ 23,988
BUC Holders 498,838 1,575,726 1,194,883
--------------- --------------- ---------------
$ 520,010 $ 1,598,050 $ 1,218,871
=============== =============== ===============
Net income, basic and diluted, per BUC $ .31 $ .99 $ .73
=============== =============== ===============
Weighted average number of BUCs outstanding 1,593,604 1,595,687 1,632,412
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 14 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1994 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding net unrealized
holding losses)
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)
--------------- --------------- --------------- ---------------
Balance at December31 1995 100 1,600,104 18,202,686 18,202,786
Net income 22,324 - 1,575,726 1,598,050
Cash distributions paid or accrued (Note 4) (22,324) - (2,210,068) (2,232,392)
Purchase of units - (6,500) (69,692) (69,692)
--------------- --------------- --------------- ---------------
Balance at December 31, 1996 100 1,593,604 17,498,652 17,498,752
Net income 21,172 - 498,838 520,010
Cash distributions paid or accrued (Note 4) (21,172) - (2,096,065) (2,117,237)
--------------- --------------- --------------- ---------------
100 1,593,604 15,901,425 15,901,525
--------------- --------------- --------------- ---------------
Net unrealized holding losses
Balance at December 31, 1994 - - - -
Net Change - - (30,271) (30,271)
--------------- --------------- --------------- ---------------
Balance at December 31, 1995 - - (30,271) (30,271)
Net change - - (170,217) (170,217)
--------------- --------------- --------------- ---------------
Balance at December 31, 1996 - - (200,488) (200,488)
Net change - - 159,144 159,144
--------------- --------------- --------------- ---------------
- - (41,344) (41,344)
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 $ 100 1,593,604 $ 15,860,081 $ 15,860,181
=============== =============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 15 -
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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 520,010 $ 1,598,050 $ 1,218,871
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in earnings of property partnerships (138,815) (53,802) (127,736)
Gain on sale of mortgage-backed securities - (3,157) (3,023)
Gain on sale of PREP - (598,867) -
Amortization of discount on mortgage-backed securities (12,762) (14,493) (19,928)
Decrease in interest receivable 9,514 7,722 11,514
(Increase) decrease in other assets 37,406 (14,717) 8,928
Increase in accounts payable 201,922 243 5,586
--------------- --------------- ---------------
Net cash provided by operating activities 617,275 920,979 1,094,212
--------------- --------------- ---------------
Cash flows from investing activities
Mortgage principal payments received 2,733,678 957,603 1,256,247
Distributions received from PREPs 138,815 180,720 165,120
Sale of mortgage-backed securities - 318,848 582,138
Sale of PREP - 598,867 -
Investments in PREPs - (126,918) -
--------------- --------------- ---------------
Net cash provided by investing activities 2,872,493 1,929,120 2,003,505
--------------- --------------- ---------------
Cash flows from financing activities
Distributions paid (2,126,734) (2,434,229) (2,437,148)
Purchase of units - (69,692) (977,256)
--------------- --------------- ---------------
Net cash used in financing activities (2,126,734) (2,503,921) (3,414,404)
--------------- --------------- ---------------
Net increase (decrease) in cash and temporary cash investments 1,363,034 346,178 (316,687)
Cash and temporary cash investments at beginning of year 914,518 568,340 885,027
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 2,277,552 $ 914,518 $ 568,340
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 16 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
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.
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. When an investment in a PREP has
been reduced to zero, earnings are recorded to the extent that
distributions are received. PREPs are not insured or guaranteed. The
value of these investments is a function of the value of the real estate
underlying the PREPs.
D) Allowance for Losses on Investment in PREPs
The allowance for losses on investment 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.
<PAGE> - 17 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 $2,686,450 and $3,141,010 at December 31, 1997, and December
31, 1996 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.
H) 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, did not have an
impact on the Partnership's computation, presentation or disclosure of
earnings per BUC as no dilutive common share equivalents existed at
December 31, 1997.
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at December 31, 1997:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 1,932,361
GNMA Certificates 2,544,176
FNMA Certificates 2,798,451
---------------
$ 7,274,988
===============
The reserve account was established to maintain working capital for the
Partnership and is available to supplement distributions to investors and for
any contingencies related to the ownership of the investments and the
operation of the Partnership. See Note 5 regarding the investment in
mortgage-backed securities.
The General Partner previously announced the Partnership's intent to utilize a
portion of the reserve account to purchase up to a total of 125,000 BUCs of
the Partnership in open-market transactions. On June 17, 1997, the General
Partner decided the Partnership should cease acquiring BUCs. Through June 17,
1997, 90,300 BUCs had been acquired at a total cost of $1,046,948 (none during
1997, 6,500 BUCs at a cost of $69,692 for the year ended December 31, 1996,
and 83,800 BUCs at a cost of $977,256 for the year ended December 31, 1995).
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 bases based on the number of BUCs held by each
Holder as of the last day of the month for which such allocation is be to be
made.
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.
<PAGE> - 18 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. 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.
At December 31, 1997, the total amortized cost, gross unrealized holding
losses, and aggregate fair value of available-for-sale securities are
$5,383,971, $41,344, $5,342,627, respectively. The total amortized cost,
gross unrealized holding gains, gross unrealized holding losses, and aggregate
fair value of held-to-maturity securities are $8,562,090, $225,215, $488,739
and $8,298,566, respectively.
At December 31, 1996, the total amortized cost, gross unrealized holding
losses, and aggregate fair value of available-for-sale securities are
$6,234,606, $200,488, $6,034,118, respectively. The total amortized cost,
gross unrealized holding gains, gross unrealized holding losses, and aggregate
fair value of held-to-maturity securities are $10,432,371, $256,213, $495,150
and $10,193,434, respectively.
Prior to June 30, 1995, the Partnership classified all investments in
mortgage-backed securities as held-to-maturity. 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 (see Note 3). 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,
gross unrealized holding losses and aggregate fair value of the securities
transferred were $7,684,875, $10,152, $176,267 and $7,518,760, respectively.
<PAGE> - 19 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Descriptions of the Partnership's mortgage-backed securities held during the
year ended December 31, 1997, are as follows:
</TABLE>
<TABLE>
<CAPTION>
Income
Number Interest Maturity Carrying Earned
Type of Security and Name Location of Units Rate Date Amount in 1997
- ------------------------------- ------------------- ---------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
Broadmoor Court Colorado Springs, CO 47 9.25% 10/15/29 $ 1,529,361 $ 141,774
Owings Chase Apartments Pikesville, MD 234 6.75% 12/15/23 5,430,434 368,786
Ashwood Apartments Tulsa, OK 144 9.25% 07/15/23 - (1) -
Pools of single-family mortgages 8.74%(2) 2016 to 2018 1,602,295 163,880
-------------- ------------
8,562,090 674,440
-------------- ------------
Available-for-Sale
GNMA Certificates:
Pools of single-family mortgages 6.03%(2) 2008 2,544,176(3) 168,872
FNMA Certificates:
Pools of single-family mortgages 5.52%(2) 2000 2,798,451(3) 167,339
-------------- ------------
5,342,627 336,211
-------------- ------------
Balance at December 31, 1997 $ 13,904,717 $ 1,010,651
============== ============
</TABLE>
(1) GNMA Certificate was redeemed in January 1997.
(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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 16,466,489 $ 17,895,507 $ 19,741,212
Additions
Amortization of discount on mortgage-backed securities 12,762 14,493 19,928
Change in net unrealized holding losses on
available-for-sale securities 159,144 (170,217) (30,271)
Deductions
Mortgage principal payments received(1) (2,733,678) (957,603) (1,256,247)
Sale of mortgage-backed securities - (315,691) (579,115)
--------------- --------------- ---------------
Balance at end of year $ 13,904,717 $ 16,466,489 $ 17,895,507
=============== =============== ===============
</TABLE>
(1) Includes proceeds of $1,470,685 received from GNMA in January 1997, due to
the redemption of the GNMA Certificate related to Ashwood Apartments.
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> - 20 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Descriptions of the PREPs held at December 31, 1997, 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 $ 102,558
Owings Chase Apartments Pikesville, MD Owings Chase Limited Partnership 200,000 36,257
Laurel Park Apartments Riverdale, GA Gold Key Venture - -
------------ ------------
341,523 $ 138,815
Less valuation allowance (341,523) ============
------------
Balance at December 31, 1997 $ -
============
</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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 341,523 $ 341,523 $ 707,544
Additions
Equity in earnings of property partnerships 138,815 53,802 127,736
Investment in PREPs - 126,918 -
Deductions
Distributions received from PREPs (138,815) (180,720) (165,120)
Write-off(1) - - (328,637)
--------------- --------------- ---------------
Balance at end of year $ 341,523 $ 341,523 $ 341,523
=============== =============== ===============
</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, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 341,523 $ 341,523 $ 670,160
Write-off(1) - - (328,637)
--------------- --------------- ---------------
Balance at end of year $ 341,523 $ 341,523 $ 341,523
=============== =============== ===============
</TABLE>
(1) During 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> - 21 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Combined condensed financial information for the PREPs is as follows:
Assets
Real estate $ 17,098,929 $ 17,830,781 $ 20,381,335
Restricted deposits and funded reserves 932,486 977,821 484,879
Other assets 1,132,493 1,191,345 1,378,718
--------------- --------------- ---------------
$ 19,163,908 $ 19,999,947 $ 22,244,932
=============== =============== ===============
Liabilities and Partners' Capital
Liabilities
Mortgage notes payable $ 20,225,761 $ 20,459,706 $ 22,313,737
Other liabilities 1,223,695 1,653,940 1,846,124
Partners' Capital (Deficit)
General Partners (2,717,154) (2,545,305) (2,346,535)
Limited Partners
America First PREP Fund 2 Limited Partnership 341,523 341,523 341,523
America First PREP Fund 2 Pension Series Limited Partnership 203,547 203,547 203,547
Other (113,464) (113,464) (113,464)
--------------- --------------- ---------------
$ 19,163,908 $ 19,999,947 $ 22,244,932
=============== =============== ===============
Rental income $ 5,090,195 $ 5,550,385 $ 6,423,813
=============== =============== ===============
Combined results of operations $ (462,217) $ (469,952) $ (1,163,422)
=============== =============== ===============
Equity in earnings of property partnerships
(as calculated pursuant to the Limited Partnership Agreements) $ 138,815 $ 53,802 $ 127,736
=============== =============== ===============
</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
reimbursed expenses are presented on a cash basis and do not reflect
accruals made at each year end.
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Proposed merger transaction costs $ 328,716 $ - $ -
Reimbursable salaries and benefits 231,383 166,088 144,920
Professional fees and expenses 19,575 16,539 20,320
Investor services and custodial fees 17,804 20,234 22,368
Other expenses 15,095 12,334 7,509
Report preparation and distribution 13,037 10,658 10,879
Registration fees 11,534 8,911 12,786
Consulting and travel expense 10,185 6,794 993
Insurance 6,314 7,505 6,727
Telephone 3,752 2,841 2,908
--------------- --------------- ---------------
$ 657,395 $ 251,904 $ 229,410
=============== =============== ===============
</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 $44,913 in 1997, $51,364 in 1996, and $52,901 in 1995. Of these
amounts, $44,913 in 1997, $45,238 in 1996, and $46,737 in 1995 was paid by the
Partnership and the remainder was paid by property owners.
<PAGE> - 22 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
did not receive cash distributions from the property partnership in 1997, 1996
or 1995.
An affiliate of AFCA 6 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 $89,721, $84,328 and $75,795
in 1997, 1996 and 1995, 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, 1997 At December 31, 1996
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 2,277,552 $ 2,277,552 $ 914,518 $ 914,518
Investment in mortgage-backed securities 13,904,717 13,641,193 $ 16,466,489 $ 16,227,552
</TABLE>
9. Proposed Merger
On July 29, 1997, the Partnership announced that it had signed an Agreement
and Plan of Merger, dated as of July 29, 1997 (the Merger Agreement), among
the Partnership, America First Participating Preferred Equity Mortgage Fund
Limited Partnership, a Delaware limited partnership (Prep Fund 1), America
First PREP Fund 2 Pension Series Limited Partnership, a Delaware limited
partnership (Pension Fund and together with the Partnership and Prep Fund 1,
the Funds), America First Mortgage Investments, Inc., a newly formed Maryland
corporation (AFM), and AF Merger, L.P., a newly formed Delaware limited
partnership and a subsidiary of AFM (AFM L.P.), which contemplates a business
combination transaction (the Merger) pursuant to which the Partnership and
Prep Fund 1 will merge with AFM, with AFM surviving such merger, and Pension
Fund will merge with AFM L.P., with the Pension Fund surviving such merger.
The Merger, which is expected to be accomplished on a tax-deferred basis for
investors in the Funds, will not be consummated unless both the Partnership
and Prep Fund 1 participate in the Merger. The participation of Pension Fund
is not a condition to the closing of the Merger with respect to the
Partnership and Prep Fund 1. On February 17, 1998, the Registration Statement
on Form S-4 relating to the Merger was declared effective by the Securities
and Exchange Commission.
<PAGE> - 23 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
As a result of the Merger, (i) the outstanding BUCs of the Partnership (Prep
Fund 2 BUCs) will be converted, at the rate of approximately 1.26 shares of
common stock, par value $0.01 per share, of AFM (the Common Stock), for each
Prep Fund 2 BUC, into 2,012,336 shares of Common Stock, (ii) the outstanding
Exchangeable Units of Prep Fund 1 will be converted, at the rate of 1.00 share
for each Exchangeable Unit, into 5,775,797 shares of Common Stock and (iii)
the outstanding BUCs of Pension Fund (Pension BUCs) will be converted, at the
rate of approximately 1.31 shares for each Pension BUC, into a maximum of
1,183,373 shares of Common Stock. If Pension Fund participates in the Merger,
holders of Pension BUCs will be given the option, in lieu of receiving shares
of Common Stock, to remain as investors in Pension Fund (the Retention
Option). To the extent that holders of Pension BUCs elect the Retention
Option, the aggregate number of shares of Common Stock otherwise issuable to
the such holders in the Merger will be accordingly reduced. In connection
with the organization of AFM, the general partners of the Funds (the General
Partners) were issued 90,621 shares of Common Stock and will not be issued any
additional shares as a result of the Merger.
Upon consummation of the Merger, AFM will become an externally advised
mortgage real estate investment trust owning, directly and indirectly, the
mortgage-backed securities, mortgage loans and other assets, subject to
liabilities, held by the Funds. AFM's business strategy will be to build on
and extend the business plans and investment methods and policies of the Funds
by employing leverage, investing primarily in adjustable-rate mortgage-backed
securities and mortgage loans and varying its investments over time.
Consequently, following the Merger, AFM intends to replace a substantial
portion of the Funds' current portfolio with a portfolio of adjustable-rate
mortgage-backed securities, mortgage loans and other related assets.
Pursuant to the Merger Agreement, each of the Funds shall generally bear their
own expenses in connection with the Merger. However, if the Merger Agreement
is terminated because a Fund (the Terminating Fund) has triggered certain of
the events of termination specified therein and such Terminating Fund has, on
or prior to the date of such termination, received a proposal constituting a
superior Competing Transaction (as such term is defined in the Merger
Agreement) that has not been offered on substantially equivalent terms to any
of the other Funds (each, an Excluded Fund), then each Terminating Fund agrees
to reimburse each Excluded Fund for its share of the out-of-pocket expenses
incurred in connection with the Merger Agreement, plus any expenses incurred
in enforcing the provisions of the obligations thereunder. Furthermore, if
Pension Fund is the Terminating Fund, the Partnership and Prep Fund 1 shall
have the right (i) to continue with the Merger, (ii) to terminate Pension
Fund's obligations under the Merger Agreement and (iii) to be reimbursed by
Pension Fund for its share of such expenses.
10. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION> First Second Third Fourth
From January 1, 1997, to December 31, 1997 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 356,723 $ 324,492 $ 316,974 $ 277,605
Total expenses (87,041) (100,490) (241,803)(1) (326,450)(1)
--------------- --------------- --------------- ---------------
Net income $ 269,682 $ 224,002 $ 75,171 $ (48,845)
=============== =============== =============== ===============
Net income, basic and diluted, per BUC $ .17 $ .13 $ .05 $ (.04)
=============== =============== =============== ===============
Market Price per BUC
High sale 11-5/8 12-3/4 13-3/4 14-3/4
Low sale 10-7/8 10-1/2 11-1/8 12-1/2
=============== =============== =============== ===============
</TABLE>
(1) The Partnership incurred transaction costs in connection with the proposed
merger described in Note 9 of approximately $130,400 and $187,200 during the
third and fourth quarters of 1997, respectively.
<PAGE> - 24 -
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
<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 $ 427,763 $ 331,300 $ 243,507 $ 908,902(1)
Total expenses (80,905) (82,291) (78,599) (71,627)
--------------- --------------- --------------- ---------------
Net income $ 346,858 $ 249,009 $ 164,908 $ 837,275
=============== =============== =============== ===============
Net income per BUC $ .21 $ .16 $ .10 $ .52
=============== =============== =============== ===============
Market Price per BUC
High sale 12-1/4 12-1/8 11-3/4 12
Low sale 10-3/4 9-7/8 9-3/4 10-3/8
=============== =============== =============== ===============
</TABLE>
(1) During the fourth quarter of 1996, the Partnership recorded a gain of
$598,867 on the sale of its limited partnership interest in the operating
partnership which owns Ashwood Apartments.
<PAGE> - 25 -
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 of the Registrant
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 26, 1998
<PAGE> - 26 -
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 26, 1998 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
(Principal Executive Officer)
Date: March 26, 1998 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer and
Manager (Principal Financial Officer)
Date: March 26, 1998 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager
Date: March 26, 1998 By /s/ George Kubat*
George Kubat
Manager
Date: March 26, 1998 By /s/ Martin A. Massengale*
Martin A. Massengale
Manager
Date: March 26, 1998 By /s/ Alan Baer*
Alan Baer
Manager
Date: March 26, 1998 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: March 26, 1998 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> - 27 -
EXHIBIT 24
POWER OF ATTORNEY
<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, 1997, 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 1st day of February, 1998.
/s/ Michael B. Yanney
Michael B. 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, 1997, 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 1st day of February, 1998.
/s/ Gail Walling Yanney
Gail Walling Yanney
<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, 1997, 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 1st day of February, 1998.
/s/ George Kubat
George Kubat
<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, 1997, 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 1st day of February, 1998.
/s/ Martin A. Massengale
Martin A. Massengale
<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, 1997, 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 1st day of February, 1998.
/s/ Alan Baer
Alan Baer
<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, 1997, 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 1st day of February, 1998.
/s/ Mariann Byerwalter
Mariann Byerwalter
<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, 1997, 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 1st day of February, 1998.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
<PAGE> - 35 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,277,552
<SECURITIES> 13,904,717
<RECEIVABLES> 90,684
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,368,236
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,311,924
<CURRENT-LIABILITIES> 451,743
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,860,181
<TOTAL-LIABILITY-AND-EQUITY> 16,311,924
<SALES> 0
<TOTAL-REVENUES> 1,275,794
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 755,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 520,010
<INCOME-TAX> 0
<INCOME-CONTINUING> 520,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520,010
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
