1 EXHIBIT 99.2 FONTENELLE HILLS APARTMENTS STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES YEAR ENDED DECEMBER 31, 1997 19 2 Independent Auditors' Report To the Board of Trustees Continental Mortgage and Equity Trust We have audited the accompanying statement of revenues and direct operating expenses of Fontenelle Hills Apartments for the year ended December 31, 1997. This statement of revenues and direct operating expenses is the responsibility of the Property's management. Our responsibility is to express an opinion on this statement of revenues and direct operating expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and direct operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and direct operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of revenues and direct operating expenses presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statement is prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as described in Note 1, is not intended to be a complete presentation of the results of operations. In our opinion, the statement of revenues and direct operating expenses referred to above presents fairly, in all material respects, the revenues and direct operating expenses of Fontenelle Hills Apartments for the year ended December 31, 1997, in conformity with generally accepted accounting principles. FARMER, FUQUA, HUNT & MUNSELLE, P.C. Dallas, Texas April 15, 1998 20 3 FONTENELLE HILLS APARTMENTS STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES Year Ended December 31, 1997 REVENUES Net rental revenues $ 2,245,327 Other revenues 155,183 ------------ Total revenues 2,400,510 DIRECT OPERATING EXPENSES Salaries and benefits 417,589 Property taxes 253,598 Repairs and maintenance 202,190 Utilities 144,245 Insurance 47,552 ------------ Total direct operating expenses 1,065,174 ------------ REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 1,335,336 ============ The accompanying notes are an integral part of this statement. 21 4 FONTENELLE HILLS APARTMENTS NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES December 31, 1997 NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION Fontenelle Hills Apartments is a 337-unit apartment complex located in Bellevue, Nebraska. During 1997, the property was owned by Fontenelle Hills Associates. The accompanying financial statement does not include a provision for depreciation and amortization, bad debt expense, interest expense, or income taxes. Accordingly, this statement is not intended to be a complete presentation of the results of operations. NOTE 2: ACCOUNTING ESTIMATES 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: OTHER REVENUES Other revenues consist of the following: Parking fees $ 70,032 Laundry and vending income 23,732 Damages and cleaning 23,526 Corporate unit rental 21,095 Miscellaneous 16,798 ------------ $ 155,183 ============ NOTE 4: SUBSEQUENT EVENT The property was sold to Continental Mortgage and Equity Trust, a California business trust, on April 3, 1998. 22