FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998 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: 0-17582
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0719051
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
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
<PAGE> - i -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Mar. 31, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 2,569,390 $ 2,577,493
Investment in mortgage-backed securities (Note 5) 7,150,899 7,359,399
Investment in preferred real estate participations (PREPs),
net of valuation allowance (Note 6) - -
Interest receivable 54,587 55,977
Other assets 29,355 32,016
-------------- --------------
$ 9,804,231 $ 10,024,885
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 243,836 $ 142,959
Distribution payable (Note 4) 95,722 97,003
-------------- --------------
339,558 239,962
-------------- --------------
Partners' Capital
General Partner 100 100
Beneficial Unit Certificate Holders
($10.45 per BUC in 1998 and $10.80 in 1997) 9,464,573 9,784,823
-------------- --------------
9,464,673 9,784,923
-------------- --------------
$ 9,804,231 $ 10,024,885
============== ==============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
-------------- --------------
<S> <C> <C>
Income
Mortgage-backed securities income $ 132,500 $ 143,973
Equity in earnings of property partnerships 15,508 26,012
Interest income on temporary cash investments 34,800 32,613
-------------- --------------
182,808 202,598
Expenses
General and administrative expenses (Note 7) 188,973 45,790
-------------- --------------
Net income (loss) $ (6,165) $ 156,808
============== ==============
Net income (loss) allocated to:
General Partner $ 2,885 $ 3,033
BUC Holders (9,050) 153,775
-------------- --------------
$ (6,165) $ 156,808
============== ==============
Net income (loss), basic and diluted, per BUC $ (.01) $ .17
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE QUARTER ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Partner's Capital (excluding net unrealized holding gains (losses))
Balance at December 31, 1997 $ 100 $ 9,772,081 $ 9,772,181
Net income (loss) 2,885 (9,050) (6,165)
Cash distributions paid or accrued (Note 4) (2,885) (285,563) (288,448)
-------------- ---------------- ---------------
100 9,477,468 9,477,568
Net unrealized holding gains (losses) -------------- ---------------- ---------------
Balance at December 31, 1997 - 12,742 12,742
Net change - (25,637) (25,637)
-------------- ---------------- ---------------
- (12,895) (12,895)
-------------- ---------------- ---------------
Balance at March 31, 1998 $ 100 $ 9,464,573 $ 9,464,673
============== ================ ===============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (6,165) $ 156,808
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Equity in earnings of property partnerships (15,508) (26,012)
Amortization of discount on mortgage-backed securities (3,363) (1,858)
Decrease in interest receivable 1,390 1,839
Decrease in other assets 2,661 10,072
Increase (decrease) in accounts payable 100,877 (1,704)
--------------- ---------------
Net cash provided by operating activities 79,892 139,145
--------------- ---------------
Cash flows from investing activities
Mortgage principal payments received 186,226 667,342
Distributions received from PREPs 15,508 26,012
--------------- ---------------
Net cash provided by investing activities 201,734 693,354
--------------- ---------------
Cash flow used in financing activity
Distributions paid (289,729) (304,554)
--------------- ---------------
Net increase (decrease) in cash and temporary cash investments (8,103) 527,945
Cash and temporary cash investments at beginning of period 2,577,493 2,072,577
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,569,390 $ 2,600,522
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. Organization
America First PREP Fund 2 Pension Series Limited Partnership (the Partnership)
was formed on February 2, 1988, 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 May
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). On April 10, 1998, the General Partnership interest
in AFCA 6 was acquired by America First Mortgage Investments, Inc. (See Note
9).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The financial statements of the Partnership are prepared without audit on
the accrual basis of accounting in accordance with generally accepted
accounting principles. The financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended December
31, 1997. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at March
31, 1998, and results of operations for all periods presented have been
made.
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 the fair value of the properties underlying the PREPs. The allowance
is periodically reviewed and adjustments are made to the allowance when
there are significant changes in the fair value of the properties
underlying the PREPs.
<PAGE> - 3 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
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.
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 number of BUCs
outstanding (905,974) for all periods presented.
H) Comprehensive Income
In the first quarter of 1998, the Partnership adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires the display and reporting of comprehensive
income, which includes all changes in Partners' Capital with the exception
of additional investments by partners or distributions to partners.
Comprehensive income for the Partnership includes net income and the
change in net unrealized holding losses on investments charged or credited
to Partners' Capital. Comprehensive income for the quarters ended March
31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
--------------- ---------------
<S> <C> <C>
Net income (loss) $ (6,165) $ 156,808
Change in net unrealized holding gains (losses) (25,637) (11,519)
--------------- ---------------
Comprehensive income (loss) $ (31,802) $ 145,289
=============== ===============
</TABLE>
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at March 31, 1998:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 2,288,000
GNMA Certificates 1,246,775
FNMA Certificates 919,077
---------------
$ 4,453,852
===============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available for distribution to BUC Holders and for any
contingencies related to Permanent Investments and the operation of the
Partnership. See Note 5 regarding the investment in mortgage-backed
securities.
4. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for distributing the cash
available for distribution and for the allocation of income and expenses for
tax purposes among AFCA 6 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
<PAGE> - 4 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
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 March 31, 1998, the total amortized cost, gross unrealized holding
gains, gross unrealized holding losses, and aggregate fair value of
available-for-sale securities are $2,178,747, $20,407, $33,302 and $2,165,852,
respectively. The total amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and aggregate fair value of held-to-maturity
securities are $4,985,047, $100,123, $282,755 and $4,802,415, respectively.
Descriptions of the Partnership's mortgage-backed securities at March 31,
1998, are as follows:
<TABLE>
<CAPTION>
Number Interest Maturity Carrying
Type of Security and Name Location of Units Rate Date Amount
---------------------------------- -------------------- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
Broadmoor Court Colorado Springs, CO 47 9.25% 10/15/29 $ 577,932
Owings Chase Apartments Pikesville, MD 234 6.75% 12/15/23 3,141,721
Pools of single-family mortgages 8.74%(1) 2016 to 2018 1,265,394
--------------
4,985,047
--------------
Available-for-Sale
GNMA Certificates:
Pools of single-family mortgages 6.03%(1) 2008 644,232(2)
Pools of single-family mortgages 7.58%(1) 2008 602,543(2)
FNMA Certificates:
Pools of single-family mortgages 5.52%(1) 2000 919,077(2)
---------------
2,165,852
---------------
Balance at March 31, 1998 $ 7,150,899
===============
</TABLE>
(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:
<TABLE>
<S> <C>
Balance at December 31, 1997 $ 7,359,399
Addition
Amortization of discount on mortgage-backed securities 3,363
Deductions
Mortgage principal payments received (186,226)
Change in net unrealized holding gains (losses) on
available-for-sale securities (25,637)
---------------
Balance at March 31, 1998 $ 7,150,899
===============
</TABLE>
<PAGE> - 5 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
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.
Descriptions of the PREPs held at March 31, 1998, are as follows:
<TABLE>
<CAPTION>
Carrying
Name Location Partnership Name Amount
-------------------------- -------------------- ----------------------------- -----------------
<S> <C> <C> <C>
Broadmoor Court Colorado Springs, CO Stazier Associates Colorado Springs, Ltd. $ 53,547
Owings Chase Apartments Pikesville, MD Owings Chase Limited Partnership 150,000
Laurel Park Apartments Riverdale, GA Gold Key Venture -
-----------------
203,547
Less valuation allowance (203,547)
-----------------
Balance at March 31, 1998 $ -
=================
</TABLE>
Reconciliation of the carrying amount of the PREPs is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1997 $ -
Addition
Equity in earnings of property partnerships 15,508
Deduction
Distributions received from PREPs (15,508)
---------------
Balance at March 31, 1998 $ -
===============
</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 during 1998 was
$88,454. The reimbursed expenses are presented on a cash basis and do not
reflect accruals made at quarter 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. During 1998, AFCA 6 earned
administrative fees of $5,952, 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 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 1998.
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 $11,891 in 1998.
<PAGE> - 6 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
9. Subsequent Event
On April 10, 1998, the Partnership consummated a merger with AF Merger, L.P.,
a Delaware limited partnership (Merger L.P.), pursuant to an Agreement and
Plan of Merger, dated as of July 29, 1997 (the Merger Agreement), among the
Partnership, Merger L.P., America First Participating/Preferred Equity
Mortgage Fund Limited Partnership, a Delaware limited partnership, America
First PREP Fund 2 Limited Partnership, a Delaware limited partnership, and
America First Mortgage Investments, Inc., a Maryland corporation (AFM). The
Partnership was the surviving limited partnership of the merger with Merger
L.P., but as a result of the merger, (i) the general partner interest in AFCA 6
was acquired by AFM, (ii) the limited partner interest in AFCA 6 was acquired
by a wholly-owned subsidiary of AFM, (iii) a total 883,422 BUCs of the
Partnership were exchanged, at the rate of approximately 1.31 shares per BUC,
for 1,153,552 shares of the common stock of AFM and (iv) AFM became the holder
of such BUCs. Accordingly, the Partnership has become a partnership
subsidiary of AFM. The holders of 23,219 BUCs elected to continue their
current investment in the Partnership through the retention of their BUCs.
<PAGE> - 7 -
Item 2. 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 March 31, 1998.
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 March 31, 1998:
<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 45 96%
Laurel Park Apartments Riverdale, GA 387 379 98%
Owings Chase Apartments Pikesville, MD 234 220 94%
--------- ---------- -----------
668 644 96%
========= ========== ===========
</TABLE>
Distributions
Cash distributions paid or accrued per Beneficial Unit Certificate (BUC) were
as follows:
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
Mar. 31, 1998 Mar. 31, 1997
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ - $ .1697
Return of capital .3152 .1617
-------------- --------------
$ .3152 $ .3314
============== ==============
Distributions
Paid out of cash flow (including mortgage principal payments) $ .3152 $ .3314
============== ==============
</TABLE>
<PAGE> - 8 -
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 1998, a net amount of $108,387 of undistributed mortgage
principal payments was withdrawn from reserves. The total amount held in
reserves at March 31, 1998, was $4,453,852 of which $2,165,852 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 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. Internal property valuations and reviews performed
during the quarter ended March 31, 1998, indicated that the PREPs recorded on
the balance sheet at March 31, 1998, required no adjustments to their current
carrying amounts.
The overall status of the Partnership's Permanent Investments has remained
relatively constant since December 31, 1997.
Results of Operations
The table below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Mar. 31, 1998 Mar. 31, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 132,500 $ 143,973 $ (11,473)
Equity in earnings of property partnerships 15,508 26,012 (10,504)
Interest income on temporary cash investments 34,800 32,613 2,187
--------------- --------------- ---------------
182,808 202,598 (19,790)
General and administrative expenses 188,973 45,790 143,183
--------------- --------------- ---------------
Net income (loss) $ (6,165) $ 156,808 $ (162,973)
=============== =============== ===============
</TABLE>
Mortgage-backed securities income decreased $11,473 for the quarter ended
March 31, 1998, compared to the same period in 1997 due to the continued
amortization of the principal balances of the Partnership's mortgage-backed
securities.
<PAGE> - 9 -
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 $10,504 for the quarter
ended March 31, 1998, compared to the same period in 1997 due to a decrease
in cash flow received from Broadmoor Court.
General and administrative expenses increased $143,183 for the quarter ended
March 31, 1998, compared to the same period in 1997. This increase was due
primarily to transaction costs of approximately $121,600 incurred in
conjunction with the merger described in Note 9 to the financial statements
and an increase in salaries and related expenses.
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 3. Quantitative and Qualitative Disclosures About Market Risk.
The requirements of Item 3 of Form 10-Q are not applicable to the Partnership
prior to its Annual Report on Form 10-K for the year ending December 31, 1998.
<PAGE> - 10 -
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
On or about February 17, 1998, AFCA 6 began the solicitation of
consents from the holders of the Partnership's Beneficial Unit
Certificates (BUCs) to approve a merger of AF Merger, L.P., a
Delaware limited partnership, with and into the Partnership
with the result being the Partnership becoming a partnership
subsidiary of America First Mortgage Investments, Inc., a
Maryland corporation. On April 10, 1998, the BUC holders took
action by written consent in lieu of a meeting to approve the
proposed merger which was consummated on that date. See Note 9
to the Financial Statements.
The results of the solicitation of BUC holder consent for the
merger were as follows:
FOR AGAINST ABSTAIN/BROKER NONVOTE
604,388 2,160 299,426
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated May 25, 1988
(incorporated herein by reference to Form 10-Q dated
June 30, 1988 filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First PREP
Fund 2 Pension Series Limited Partnership (Commission File
No. 0-17582)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form 10-Q dated
June 30, 1988 filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First PREP
Fund 2 Pension Series Limited Partnership (Commission File
No. 0-17582)).
4(c) 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 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 Exchange Act of 1934 by
America First PREP Fund 2 Pension Series Limited
Partnership (Commission File No. 0-17582)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE> - 11 -
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 PENSION
SERIES LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Six, General
Partner of the Registrant
By America First Mortgage Investments, Inc.,
General Partner of America First
Capital Associates Limited
Partnership Six
By /s/ Stewart Zimmerman
Stewart Zimmerman,
President and Chief Executive Officer
By /s/ Gary Thompson
Gary Thompson
Chief Financial Officer
Date: May 13, 1998
<PAGE> - 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
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