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 June 30, 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 -
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 2,441,803 $ 2,577,493
Investment in mortgage-backed securities (Note 5) 6,918,490 7,359,399
Investment in preferred real estate participations (PREPs),
net of valuation allowance (Note 6) - -
Interest receivable 52,015 55,977
Other assets 34,078 32,016
-------------- --------------
$ 9,446,386 $ 10,024,885
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 7) $ 60,001 $ 142,959
Distribution payable (Note 4) 95,482 97,003
-------------- --------------
155,483 239,962
-------------- --------------
Partners' Capital
General Partner 100 100
Beneficial Unit Certificate Holders
($10.26 per BUC in 1998 and $10.80 in 1997) 9,290,803 9,784,823
-------------- --------------
9,290,903 9,784,923
-------------- --------------
$ 9,446,386 $ 10,024,885
============== ==============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage-backed securities income $ 129,308 $ 141,564 $ 261,808 $ 285,537
Equity in earnings of property partnerships - 21,049 15,508 47,061
Interest income on temporary cash investments 33,451 35,128 68,251 67,741
--------------- --------------- --------------- ---------------
162,759 197,741 345,567 400,339
Expenses
General and administrative expenses (Note 7) 57,717 52,626 246,690 98,416
--------------- --------------- --------------- ---------------
Net income $ 105,042 $ 145,115 $ 98,877 $ 301,923
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 2,886 $ 2,996 $ 5,771 $ 6,029
BUC Holders 102,156 142,119 93,106 295,894
--------------- --------------- --------------- ---------------
$ 105,042 $ 145,115 $ 98,877 $ 301,923
=============== =============== =============== ===============
Net income, basic and diluted, per BUC $ .11 $ .16 $ .10 $ .33
=============== =============== =============== ===============
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 SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding gains(losses))
Balance at December 31, 1997 $ 100 $ 9,772,081 $ 9,772,181
Net income 5,771 93,106 98,877
Cash distributions paid or accrued (Note 4) (5,771) (570,813) (576,584)
-------------- ---------------- ---------------
100 9,294,374 9,294,474
-------------- ---------------- ---------------
Net unrealized holding gains (losses)
Balance at December 31, 1997 - 12,742 12,742
Net change - (16,313) (16,313)
-------------- ---------------- ---------------
- (3,571) (3,571)
-------------- ---------------- ---------------
Balance at June 30, 1998 $ 100 $ 9,290,803 $ 9,290,903
============== ================ ===============
</TABLE>
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 98,877 $ 301,923
Adjustments to reconcile net income to net cash
from operating activities
Equity in earnings of property partnerships (15,508) (47,061)
Amortization of discount on mortgage-backed securities (7,358) (3,808)
Decrease in interest receivable 3,962 2,636
Decrease (increase) in other assets (2,062) 12,977
Decrease in accounts payable (82,958) (15,252)
--------------- ---------------
Net cash provided by (used in) operating activities (5,047) 251,415
--------------- ---------------
Cash flows from investing activities
Mortgage principal payments received 431,954 797,663
Distributions received from PREPs 15,508 47,061
--------------- ---------------
Net cash provided by investing activities 447,462 844,724
--------------- ---------------
Cash flow used in financing activity
Distributions paid (578,105) (605,358)
--------------- ---------------
Net increase (decrease) in cash and temporary cash investments (135,690) 490,781
Cash and temporary cash investments at beginning of period 2,577,493 2,072,577
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,441,803 $ 2,563,358
=============== ===============
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
JUNE 30, 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 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 11,060 BUCs elected to continue their
current investment in the Partnership through the retention of their BUCs.
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
June 30, 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.
<PAGE> - 3 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
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.
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 quarter and six months
ended June 30, 1998, compared to the same periods in 1997 was as follows:
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 105,042 $ 145,115 $ 98,877 $ 301,923
Change in net unrealized holding gains (losses) (9,324) 32,892 (16,313) 21,373
--------------- --------------- --------------- ---------------
Comprehensive income $ 95,718 $ 178,007 $ 82,564 $ 323,296
=============== =============== =============== ===============
</TABLE>
3. Partnership Reserve Account
The Partnership maintains a reserve account which consisted of the following
at June 30, 1998:
<TABLE>
<S> <C>
Cash and temporary cash investments $ 2,350,633
GNMA Certificates 1,156,597
FNMA Certificates 812,765
---------------
$ 4,319,995
===============
</TABLE>
<PAGE> - 4 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
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.
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.
As a result of the merger described in Note 1, on April 10, 1998, the
Partnership reclassified its securities from held-to-maturity to
available-for-sale. The total amortized cost, gross unrealized holding gains,
gross unrealized holding losses and aggregate fair value of securities
transferred were $4,985,047, $100,123, $282,755 and $4,802,415, respectively.
At June 30, 1998, the total amortized cost, gross unrealized holding gains,
gross unrealized holding losses, and aggregate fair value of mortgage-backed
securities are $6,922,161, $115,262, $118,933 and $6,918,490, respectively.
Descriptions of the Partnership's mortgage-backed securities at June 30,
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>
GNMA Certificates:
Broadmoor Court Colorado Springs, CO 47 9.25% 10/15/29 $ 587,300
Owings Chase Apartments Pikesville, MD 234 6.75% 12/15/23 3,036,811
Pools of single-family mortgages 8.74%(1) 2016 to 2018 1,325,017
Pools of single-family mortgages 6.03%(1) 2008 599,399(2)
Pools of single-family mortgages 7.58%(1) 2008 557,198(2)
FNMA Certificates:
Pools of single-family mortgages 5.52%(1) 2000 812,765(2)
---------------
Balance at June 30, 1998 $ 6,918,490
===============
</TABLE>
(1) Represents yield to the Partnership.
(2) Reserve account asset - see Note 3.
<PAGE> - 5 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
Reconciliation of the carrying amount of the mortgage-backed securities is as
follows:
<TABLE>
<S> <C>
Balance at December 31, 1997 $ 7,359,399
Additions
Amortization of discount on mortgage-backed securities 7,358
Change in net unrealized holding gains 166,319
Deduction
Mortgage principal payments received (431,954)
Net unrealized loss on securities transferred from held-to-maturity to
available-for-sale (182,632)
---------------
Balance at June 30, 1998 $ 6,918,490
===============
</TABLE>
6. Investment in PREPs
The Partnership's PREPs consist of interests in limited partnerships which own
multifamily properties financed by the Partnership. The limited partnership
agreements originally provided for the payment of a base return on the equity
provided to the limited partnerships and for the payment of additional amounts
out of a portion of the net cash flow or net sale or refinancing proceeds of
the properties subject to various priority payments. Certain of the
agreements have been amended to defer payment of the base return.
Descriptions of the PREPs at June 30, 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 June 30, 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 June 30, 1998 $ -
===============
</TABLE>
7. Transactions with Related Parties
Prior to merger, substantially all the Partnership's general and
administrative expenses were 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 $101,658 ($13,204 for the quarter ended
June 30, 1998). The reimbursed expenses are presented on a cash basis and do
not reflect accruals made at quarter end.
<PAGE> - 6 -
AMERICA FIRST PREP FUND 2 PENSION SERIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
Prior to the Merger AFCA 6 was 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 (none for the quarter ended
June 30, 1998), all of which was paid by the Partnership.
A property management subsidiary of America First Companies L.L.C. (America
First) has been retained by the property partnerships which own Laurel Park
Apartments and Owing Chase Apartments to provide management services for these
properties. A director of the general partner of AFCA 6 is a principal owner
of America First. 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 $23,755 in
1998 ($11,864 for the quarter ended June 30, 1998).
The general partner of the property partnership that owns Owings Chase
Apartments is principally owned by an employee of America First. Other
affiliates of America First also own nominal interest in such 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.
<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. At June 30, 1998, the Partnership continued to hold two GNMA
Certificates and three PREPs (referred to as the Permanent Investments) in
addition to various Single-Family Certificates.
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 June 30, 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 43 91%
Laurel Park Apartments Riverdale, GA 387 375 97%
Owings Chase Apartments Pikesville, MD 234 225 96%
--------- ---------- -----------
668 643 96%
========= ========== ===========
</TABLE>
Distributions
Cash distributions paid or accrued per Beneficial Unit Certificate (BUC) were
as follows:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ .1028 $ .3266
Return of Capital .5273 .3322
-------------- --------------
$ .6301 $ .6588
============== ==============
Distributions
Paid out of cash flow (including mortgage principal payments) $ .6301 $ .6588
============== ==============
</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 $45,753 of undistributed mortgage
principal payments was withdrawn from reserves (a net amount of $62,634 was
placed in reserves for the quarter ended June 30, 1998). The total
amount held in reserves at June 30, 1998, was $4,319,995 of which $1,969,362
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 six months ended June 30, 1998, indicated that the PREPs recorded
on the balance sheet at June 30, 1998, required no adjustments to their
current carrying amounts.
The overall status of the Partnership's Permanent Investments has remained
relatively constant since March 31, 1998.
Results of Operations
The tables below compare the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 129,308 $ 141,564 $ (12,256)
Equity in earnings of property partnerships - 21,049 (21,049)
Interest income on temporary cash investments 33,451 35,128 (1,677)
--------------- --------------- ---------------
162,759 197,741 (34,982)
General and administrative expenses 57,717 52,626 5,091
--------------- --------------- ---------------
Net income $ 105,042 $ 145,115 $ (40,073)
=============== =============== ===============
</TABLE>
<PAGE> - 9 -
<TABLE>
<CAPTION>
For the Six For the Six Increase
Months Ended Months Ended (Decrease)
June 30, 1998 June 30, 1997 From 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 261,808 $ 285,537 $ (23,729)
Equity in earnings of property partnerships 15,508 47,061 (31,553)
Interest income on temporary cash investments 68,251 67,741 510
--------------- --------------- ---------------
345,567 400,339 (54,772)
General and administrative expenses 246,690 98,416 148,274
--------------- --------------- ---------------
Net income $ 98,877 $ 301,923 $ (203,046)
=============== =============== ===============
</TABLE>
Mortgage-backed securities income decreased for the quarter and six months
ended June 30, 1998, compared to the same periods in 1997 due to the continued
amortization of the principal balances of the Partnership's mortgage-backed
securities.
The decrease in equity in earnings of property partnerships for the quarter
and six months ended June 30, 1998 compared to the same periods in 1997 is due
to the Partnership receiving a distribution of approximately $21,000 from
Owings Chase Apartments during the quarter ended June 30, 1997, whereas no
such distribution was received during the same period in 1998. Also
contributing to the decrease for the six months ended June 30, 1998, compared
to the same period in 1997 was a decrease in cash flow received from Broadmoor
Court.
General and administrative expenses increased for the quarter ended June 30,
1998, compared to the same period in 1997 due to an increase in salaries and
related expenses which were partially offset by a decrease in transaction
costs incurred in conjunction with the merger described in Note 1 to the
financial statements and an overall decrease in other general and
administrative expenses. General and administrative expenses increased for the
six months ended June 30, 1998, compared to the same period in 1997 due
primarily to an increase of approximately $116,000 in transaction costs
incurred in conjunction with the merger described in Note 1 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 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 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 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 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.
Dated: August 13, 1998 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
<PAGE> - 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,441,803
<SECURITIES> 6,918,490
<RECEIVABLES> 52,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,493,818
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,446,386
<CURRENT-LIABILITIES> 155,483
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 9,290,903
<TOTAL-LIABILITY-AND-EQUITY> 9,446,386
<SALES> 0
<TOTAL-REVENUES> 345,567
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 246,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 98,877
<INCOME-TAX> 0
<INCOME-CONTINUING> 98,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,877
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
