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, 1996, 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 two GNMA Certificates. The Partnership no longer holds its PREP in one of the properties financed by one of the repaid GNMA Certificates and has sold its PREP in another property. Collectively, the three 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, 1996, (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 four Single-Family Certificates at December 31, 1996. 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.
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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.
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, 1996, are described in the following 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:
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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.
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.
Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of 1996 to a vote of the Registrant's security holders.
PART II
	 Item 5.
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 1996 and 1995.
		 (b)	Investors. The approximate number of BUC Holders on December 31, 1996, was 1,702.
		 (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, 1996, and December 31, 1995, equaled $2,210,068 and $2,374,826, respectively. The cash distributions paid per BUC during the fiscal years ended December 31, 1996, and December 31, 1995, were as follows:
	 See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for information regarding the sources of funds used for cash distributions and for a discussion of factors, if any, which may adversely affect the Registrant's ability to make cash distributions at the same levels in 1997 and thereafter.
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Item 6.
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.										
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Item 7.
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 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, but has retained its PREP in Laurel Park Apartments. During the fourth quarter of 1996, the Partnership sold its PREP in Ashwood Apartments, but retains its GNMA Certificate on this property. Collectively, the three remaining GNMA Certificates and the three remaining PREPs are referred to as the Permanent Investments. In addition, the Partnership held four Single-Family Certificates at December 31, 1996.
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, 1996:
Distributions
Cash distributions paid or accrued per Beneficial Unit Certificate (BUC) were as follows:
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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 1996, a net amount of $450,179 of undistributed mortgage principal payments was placed in reserves. In addition, the Partnership withdrew $69,692 from reserves to purchase 6,500 BUCs during 1996. The total amount held in reserves at December 31, 1996, was $6,803,542 of which $6,034,118 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.
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, 1996, indicated that the investment in PREPs recorded on the balance sheet at December 31, 1996, required no adjustments to the current carrying amounts.
Ashwood Apartments
Ashwood Apartments, located in Tulsa, Oklahoma, had an average occupancy rate of 97% during 1996, compared to 95% during 1995. During the fourth quarter of 1996, the Partnership sold its limited partnership interest in the operating partnership which owns Ashwood Apartments. The Partnership received proceeds of $598,867 from the sale. Since the Partnership had previously written off its entire equity interest in Ashwood Apartments, the Partnership realized a gain of $598,867 on the sale. In addition to sale proceeds received from the sale of its limited partnership interest, the Partnership received approximately $53,000 in equity distributions from the partnership which owns the property; however, due to the sale of its limited partnership interest, the Partnership will no longer receive equity distributions from Ashwood Apartments. The Partnership also received principal and interest payments on the GNMA Certificate collateralized by this property in 1996.
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In conjunction with the Partnership's sale of its limited partnership interest discussed above, the operating partnership which owns Ashwood Apartments refinanced its mortgage loan. As a result, in January 1997, GNMA redeemed the GNMA Certificate related to this property by paying the Partnership the full principal amount of $1,470,685 plus accrued interest through the redemption date. As such, the Partnership will no longer receive payments on the GNMA Certificate.
Broadmoor Court
Broadmoor Court, a senior assisted-living center located in Colorado Springs, Colorado, had an average occupancy rate of 96% during 1996, compared to 99% during 1995. The mortgage loan on this property is current and the Partnership anticipates that property cash flow will be sufficient to pay debt service in 1997. In addition to principal and interest payments received during 1996 on the GNMA Certificate collateralized by this property, the Partnership recorded approximately $128,000 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 97% during 1996 compared to 95% during 1995. At December 31, 1996 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. As previously reported, Laurel Park Apartments had not been current on its mortgage obligations since December 1994. The General Partner of the Partnership and the general partner of the operating partnership which owns Laurel Park Apartments negotiated a Loan Modification Agreement (LMA) with HUD in August 1996. Among other things, the LMA reduced the interest rate on the mortgage from 9.25% to 7.25% as well as satisfied all delinquent principal and interest. The Partnership made an additional equity investment of $126,918 to effect the LMA. Laurel Park Apartments has been current on its mortgage obligations since the LMA was effected; however, the Partnership did not receive any equity distributions on its PREP during 1996. The General Partner feels the LMA will better position the property to remain current on its mortgage obligation as well as provide the Partnership with future equity distributions. 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 1997.
Owings Chase Apartments
Owings Chase Apartments, located in Pikesville, Maryland, had an average occupancy rate of 96% during 1996, compared to 95% during 1995. Cash flow from the operations of the property was sufficient to fully service debt on the mortgage loan in 1996. The mortgage loan was current (under the modified terms of the mortgage) at December 31, 1996, and the Partnership anticipates that the property cash flow will continue to be sufficient to pay debt service in 1997. The Partnership received principal and interest payments on the GNMA Certificate collateralized by this property in 1996; however, the Partnership did not receive any equity distributions on its PREP during 1996.
Results of Operations
The table below compares the results of operations for each year shown.
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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.
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.
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 decreased $73,934 from 1995 to 1996 due primarily to the 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.
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.
Interest on temporary cash investments decreased $5,174 from 1995 to 1996 and $38,850 from 1994 to 1995. These decreases were 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 will no longer receive equity distributions from Ashwood Apartments.
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. 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.
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	 Item 8.
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.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. There were no disagreements with the Registrant's independent accountants on accounting principles and practices or financial disclosure during the fiscal years ended December 31, 1996 and 1995.
	 PART III
	 Item 10.
Item 10. Directors and Executive Officers of Registrant. The Registrant has no managers 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.
	 Michael B. Yanney, 63, is the Chairman and President of America First Companies L.L.C. From 1977 until the organization of the first such fund in 1984, Mr. Yanney was principally engaged in the ownership and management of commercial banks. Mr. Yanney also has investments in private corporations engaged in a variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha National Bank and Omaha National Corporation (subsequently merged into FirsTier Financial, Inc.), where he held various positions, including the position of Executive Vice President and Treasurer of the holding company. Mr. Yanney also serves as a member of the boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil Corporation, MFS Communications Company, Inc., C-Tec Corporation, Mid-America Apartment Communities, Inc. and PKS Information Services, Inc..
	 Michael Thesing, 42, has been Vice President and Chief Financial Officer of affiliates of America First Companies L.L.C. since July 1984. From January 1984 until July 1984 he was employed by various companies controlled by Mr. Yanney. He was a certified public accountant with Coopers & Lybrand from 1977 through 1983.
	 William S. Carter, M.D., 70, is a retired physician. Dr. Carter practiced medicine for 30 years in Omaha, Nebraska, specializing in otolaryngology (disorders of the ears, nose and throat).
	 George Kubat, 51, is the President and Chief Executive Officer of Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall and construction materials. Prior to assuming that position in November 1992, Mr. Kubat was a certified public accountant with Coopers & Lybrand in Omaha, Nebraska, from 1969. He was the tax partner in charge of the Omaha office from 1981 to 1992. Mr. Kubat currently serves on the board of directors of Sitel Corporation, American Business Information, Inc., and G.B. Foods Corporation.
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	 Martin A. Massengale, 63, is President Emeritus of the University of Nebraska, Director of the Center for Grassland Studies and Foundation Distinguished Professor. Prior to becoming President in 1991, he served as Interim President from 1989, as Chancellor of the University of Nebraska Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and Natural Resources from 1976 to 1981. Prior to that time, he was a professor and associate dean of the College of Agriculture at the University of Arizona. Dr. Massengale currently serves on the board of directors of Woodmen Accident & Life Insurance Company and IBP, Inc..
	 Alan Baer, 74, is presently Chairman of Alan Baer & Associates, Inc., a management company located in Omaha, Nebraska. He is also Chairman of Lancer Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security Systems, Inc. and several other businesses. Mr. Baer is the former Chairman and Chief Executive Officer of the Brandeis Department Store chain which, before its acquisition, was one of the larger retailers in the Midwest. Mr. Baer has also owned and served on the board of directors of several banks in Nebraska and Illinois.
	 Gail Walling Yanney, 61, is a retired physician. Dr. Walling practiced anesthesia and was most recently the Executive Director of the Clarkson Foundation until October of 1995. In addition, she was a director of FirsTier Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is the wife of Michael B. Yanney.
	 Mariann Byerwalter, 36, is Vice President of Business Affairs and Chief Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice President of AFEH and EurekaBank from 1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993 to January 1996. She was an officer of BankAmerica Corporation and its venture capital subsidiary from 1984 to 1987. She served as Vice President and Executive Assistant to the President of Bank of America and was a Vice President in the bank's Corporate Planning and Development Department, managing several acquisitions and divestitures. During 1986, Ms. Byerwalter managed five divestitures, representing a total purchase price of over $100 million with assets aggregating more than $5.0 billion.
	 Item 11.
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, 1996, is described in Note 7 of the Notes to the Financial Statements filed in response to Item 8 hereof.
	 Item 12.
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.
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	 Item 13.
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 1996, the Registrant paid or reimbursed AFCA or America First Companies L.L.C. $251,904 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 $51,364 in such administrative fees during 1996, and of such amount, the Partnership paid $45,238.
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 1996.
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 5% 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, 1996, the Registrant paid the Manager property management fees of $84,328.
	 PART IV
	 Item 14.
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, 1996, and December 31, 1995.
		 Statements of Income of the Registrant for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.
		 Statements of Partners' Capital of the Registrant for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.
		 Statements of Cash Flows of the Registrant for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.
		 Notes to Financial Statements of the Registrant.
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		 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:
			 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).
			 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.
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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, 1996 and 1995, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
Omaha, Nebraska March 26, 1997							 /s/Coopers & Lybrand L.L.P.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP BALANCE SHEETS
AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP STATEMENTS OF INCOME
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CAPITAL FROM DECEMBER 31, 1993 TO DECEMBER 31, 1996
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
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 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.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
	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 $3,141,010 and $3,373,303 at December 31, 1996, and December 31, 1995, 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, is not expected to have an impact on the Partnership's computation, presentation or disclosure of earnings per BUC.
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following at December 31, 1996:
(1) Represents yield to the Partnership. (2) Reserve account asset - see Note 3.
Reconciliation of the carrying amount of the mortgage-backed securities is as follows:
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.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
Descriptions of the PREPs held during the year ended December 31, 1996, are as follows:
(1) During the fourth quarter of 1996, the Partnership sold its limited partnership interest in 129th Street Limited Partnership. Therefore, the Partnership no longer has an equity interest in this property.
Reconciliation of the carrying amount of the PREPs is as follows:
The following summarizes the activity in the valuation allowance:
(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.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
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.
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 $51,364 in 1996, $52,901 in 1995, and $54,644 in 1994. Of these amounts, $45,238 in 1996, $46,737 in 1995, and $47,272 in 1994 was paid by the Partnership and the remainder was paid by property owners.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
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 1996, 1995 or 1994.
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 $84,328, $75,795 and $50,381 in 1996, 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.
9.	Summary of Unaudited Quarterly Results of Operations
(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.
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AMERICA FIRST PREP FUND 2 LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
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.
10. Subsequent Event
During the fourth quarter of 1996, the operating partnership which owns Ashwood Apartments refinanced its mortgage loan. As a result, in January 1997, GNMA redeemed the GNMA Certificate related to Ashwood Apartments by paying the Partnership the full principal amount of $1,470,685 plus accrued interest through the redemption date.
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	 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, 1997
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	 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, 1997	 By	/s/ Michael B. Yanney*	 		 Michael B. Yanney 		 Chairman of the Board, President, Chief Executive Officer and Manager (Principal Executive Officer)
Date: March 26, 1997	 By	/s/ Michael Thesing	 		 Michael Thesing 				 Vice President, Secretary, Treasurer and Manager (Principal Financial Officer)
Date: March 26, 1997	 By 		 William S. Carter, M.D. 		 Manager
Date: March 26, 1997	 By /s/ George Kubat* 		 George Kubat 		 Manager
Date: March 26, 1997	 By	/s/ Martin A. Massengale*	 		 Martin A. Massengale 		 Manager
Date: March 26, 1997	 By	/s/ Alan Baer*	 		 Alan Baer 		 Manager
Date: March 26, 1997	 By	/s/ Gail Walling Yanney*	 		 Gail Walling Yanney 		 Manager
Date: March 26, 1997	 By	/s/ Mariann Byerwalter*	 		 Mariann Byerwalter 		 Manager
	 *By Michael Thesing Attorney in Fact
/s/ Michael Thesing		 Michael Thesing
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EXHIBIT 24
POWER OF ATTORNEY
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
							 /s/ Michael B. Yanney 							Michael B. Yanney
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
		 America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
					 /s/ Gail Walling Yanney 							Gail Walling Yanney
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
		 America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
					 /s/ George Kubat 							George Kubat
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
				 /s/ Martin A. Massengale 				Martin A. Massengale
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
		 America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
							 /s/ Alan Baer 							Alan Baer
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POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and attorney-in-fact for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 1996, and any amendments thereto, required to be filed with the Securities and Exchange Commission by the following persons:
		 America First Tax-Exempt Mortgage Fund Limited Partnership America First Apartment Investors, L.P. America First Participating/Preferred Equity Mortgage Fund and America First Participating/Preferred Equity Mortgage Fund Limited Partnership America First PREP Fund 2 Limited Partnership America First PREP Fund 2 Pension Series Limited Partnership Capital Source L.P. Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the 25th day of March, 1997.
			/s/ Mariann Byerwalter Mariann Byerwalter
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