Mfa Financial, Inc. – ‘10-K405’ for 12/31/99

As of:  Tuesday, 3/21/00   ·   For:  12/31/99   ·   Accession #:  775629-0-3   ·   File #:  1-13991

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Annual Report — Reg. S-K – Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- Reg. S-K - Item 405                  65    355K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     1      5K 

10-K405   —   Annual Report — Reg. S-K – Item 405
Document Table of Contents

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FORM 10-K               

SECURITIES AND EXCHANGE COMMISSION                
WASHINGTON, D.C.  20549               

X   Annual report pursuant to Section 13 or 15(d) of the Securities           
Exchange Act of 1934                                                            

For the year ended December 31, 1999 or                                         

Transition report pursuant to Section 13 or 15(d) of the Securities   
Exchange Act of 1934                                                            

For the transition period from            to                                    

Commission File Number:  1-13991                                                

AMERICA FIRST MORTGAGE INVESTMENTS, INC.        
(Exact name of registrant as specified in its charter)      

Maryland                               13-3974868           
(State or other jurisdiction                   (IRS Employer                    
of incorporation or organization)           Identification No.)                 

399 Park Avenue, 36th Floor, New York, New York                10022            
(Address of principal executive offices)                      (Zip Code)        

(212) 935-8760                              
(Registrant's telephone number, including area code)                            

Securities Registered Pursuant to Section 12(b) of the Act:                     

       Title of Each Class              Name of Exchange on which Registered
   ----------------------------         ------------------------------------
Common Stock, $.01 par value              New York Stock Exchange     

Securities Registered Pursuant to Section 12(g) of the Act:                     

None                                                                  

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 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports) and (2) has been subject to       
such filing requirements for the past 90 days. Yes  X  No ___                   

Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K (229.405 of the chapter) is not contained herein,    
and will not be contained, to the best of the registrant's knowledge, in        
definitive proxy or information statements incorporated by reference in         
Part III of this Form 10-K or any amendment to this Form 10-K.  [X]             

The aggregate market value of the common stock held by non-affiliates of the    
Registrant on March 10, 2000, based on the final sales price per share as       
reported in The Wall Street Journal on March 13, 2000, was $42,576,956.         

The number of shares of the Registrant's common stock outstanding on            
March 10, 2000, was 8,917,842.                                                  

DOCUMENTS INCORPORATED BY REFERENCE   

Definitive proxy statement relating to the Company's 2000 Annual Meeting of     
Stockholders to be filed hereafter (incorporated into Part III hereof).         

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TABLE OF CONTENTS   

                                                                          Page

PART I  
Item  1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
Item  2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
Item  3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .  10
Item  4. Submission of Matters to a Vote of Security Holders . . . . . . . .  10

PART II   

Item  5. Market for Registrant's Common Equity and                              
         Related Stockholder Matters . . . . . . . . . . . . . . . . . . . .  12
Item  6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . .  12
Item  7. Management's Discussion and Analysis of Financial Condition and        
         Results of Operations . . . . . . . . . . . . . . . . . . . . . . .  14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . .  17
Item  8. Financial Statements and Supplementary Data . . . . . . . . . . . .  20
Item  9. Changes in and Disagreements With Accountants on Accounting and        
         Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . .  38

PART III  

Item 10. Directors and Executive Officers of the Registrant . . . . . . . .   38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . .   38
Item 12. Security Ownership of Certain Beneficial Owners and Management . .   38
Item 13. Certain Relationships and Related Transactions . . . . . . . . . .   38

PART IV   

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K. .  38

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40

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PART I                                                                          

Item 1.  Business.                                                              

THE COMPANY 

America First Mortgage Investments, Inc. (the "Company") is primarily engaged   
in the business of investing in mortgage-backed securities and mortgages.  Its  
principal business objective is to generate net income for distribution to its  
stockholders resulting from the spread between the interest income it earns on  
its investments and the costs of capital to finance its investments. The        
Company's business and investment strategy is discussed in more detail below.   

The Company has elected to be taxed as a real estate investment trust (a        
"REIT").  One of the requirements of maintaining its status as a REIT is that   
the Company distribute at least 95% of its annual taxable net income to its     
stockholders, subject to certain adjustments.  For additional information, one  
should refer to the information under "Certain Federal Income Tax               
Considerations," below.                                                         

The Company was incorporated in Maryland on July 24, 1997, and began business   
operations on April 10, 1998, when the Company consummated a merger             
transaction (the "Merger") with America First Participating/Preferred Equity    
Mortgage Fund Limited Partnership ("PREP Fund 1" or the "Predecessor"),         
America First PREP Fund 2 Limited Partnership ("PREP Fund 2") and America       
First PREP Fund 2 Pension Series Limited Partnership ("Pension Fund")           
(collectively referred to as the "PREP Funds").  As a result of the Merger,     
PREP Fund 1 and PREP Fund 2 were merged into the Company and Pension Fund       
became a partnership subsidiary of the Company.  Pension Fund was liquidated    
and dissolved in December, 1999, and, as a result, the Company acquired         
approximately 99% of the assets of Pension Fund.  The remaining assets,         
consisting solely of cash, were distributed to the remaining holders of         
Pension Fund BUCs. The Company issued a total of 9,035,084 shares of its        
common stock to former partners of PREP Fund 1, PREP Fund 2 and Pension Fund.   
Upon completion of the Merger, the Company began implementing the investment    
strategy described below.  The Company's investment strategy differs from that  
of the PREP Funds.                                                              

The Company is an externally managed REIT.  As such it has no employees of its  
own.  The Company has entered into an Advisory Agreement with America First     
Mortgage Advisory Corporation (the "Advisor"), which is a subsidiary of         
America First Companies L.L.C. ("America First").  Under the Advisory           
Agreement, the Advisor provides day-to-day management of the Company's          
operations.  The executive officers of the Company are employees of America     
First and are officers of the Advisor.  More information relating to the        
Company's management is discussed under "Executive Officers of the Company" in  
Item 4 below and in the Company's Proxy Statement relating to its 2000 Annual   
Meeting of Stockholders.                                                        

    BUSINESS AND INVESTMENT STRATEGY

The Company is engaged in the business of investing in mortgages and            
mortgage-backed securities acquired in the secondary market from investment     
banks, savings and loans, banks and other mortgage banking institutions.  The   
Company is not in the business of originating mortgage loans or providing       
other types of financing to the owners of real estate.  While the Company has   
the authority to hold other types of investments, including those it inherited  
from the PREP Funds, its principal investment strategy is to acquire mortgages  
and mortgage-backed securities financed through the use of leverage.  See       
"Financing Strategy," below.  During the period from the consummation of the    
Merger through December 31, 1999, the Company purchased mortgage securities     
with a face value at the time of purchase of approximately $571.2 million       
(mortgage securities with a face value of approximately $338.7 million were     
purchased during the twelve months ended December 31, 1999).                    

The Company's investment policy requires that at least 70% of its investment    
portfolio consist of mortgage securities or mortgage loans that are either (i)  
insured or guaranteed as to principal and interest by an agency of the U.S.     
government, such as the Government National Mortgage Association ("GNMA"), the  
Federal National Mortgage Association ("FNMA") or the Federal Home Loan         
Mortgage Corporation ("FHLMC"), (ii) rated in one of the two highest rating     
categories by either Standard & Poor's or Moody's, or (iii) considered to be    
of equivalent credit quality as determined by the Advisor and approved by the   
Company's investment committee.  The remainder of the Company's assets may be   
either: (i) mortgage assets rated at least investment grade or considered to    

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be of equivalent credit quality by the Advisor with approval from the           
Company's investment committee; (ii) direct investment (mezzanine or equity)    
in multifamily apartment properties; (iii) investments in limited               
partnerships, equities, real estate investment trusts or closed-end funds       
owning a portfolio of mortgage and/or real estate assets; or (iv) other         
corporate debt or equity securities or government fixed-income instruments      
that provide increased call protection relative to the Company's mortgage       
securities.                                                                     

At December 31, 1999, approximately 79% of the Company's assets consisted of    
mortgage-backed securities insured or guaranteed by GNMA, FNMA or FHLMC         
("Agency Certificates") backed by single-family mortgage loans.  Remaining      
assets at that date consisted of equity interests in limited partnerships       
owning apartment properties, non-voting preferred stock in a corporation        
owning an interest in a retirement living facility and certain corporate debt   
and equity securities.  The corporation which owns a retirement living          
facility is in the process of divesting itself of such facility and plans to    
structure a like-kind-exchange transaction in order to defer recognition of a   
gain on the sale.  In addition, the Company is considering divesting itself of  
certain of these other assets and will use net proceeds from the sale of these  
assets to acquire additional assets which are consistent with its investment    
strategy.                                                                       

The Company intends that at least 66% of its mortgage assets be                 
adjustable-rate mortgages or mortgage-backed securities ("ARMs").  At December  
31, 1999, approximately 93% of the Company's mortgage assets were ARMs.         
Included within the Company's ARMs portfolio are hybrid ARMs which have an      
interest rate that is fixed for an initial period of time, generally three to   
five years, which then converts to an adjustable rate for the balance of the    
term of the loan.  Many ARMs are indexed to the one-year constant maturity      
treasury ("CMT") rate with interest rates that are reset annually.  Other ARMs  
are indexed to the London Interbank Offered Rate ("LIBOR"), the six-month       
certificate of deposit rate, the six-month CMT rate or the 11th District Cost   
of Funds Index.  ARMs that are indexed to the CMT are generally subject to a    
limitation on the amount of the annual interest rate change.  This limit is     
usually 1% or 2% per year.  Generally, all ARMS have lifetime limits on         
interest rate increases over the initial interest rate.  In general, such       
lifetime interest rate caps do not exceed 600 basis points over the initial     
interest rate.                                                                  

While the Company's principal investment strategy, as described above, is to    
acquire mortgages and mortgage-backed securities financed through the use of    
leverage, upon consummation of the Merger, the Company acquired all of the      
assets of the PREP Funds.  The PREP Funds were in a different business from     
that of the Company.  The PREP Funds were formed to provide construction and    
permanent financing for apartment complexes and retirement living facilities.   
The PREP Funds provided this financing by making equity investments as a        
limited partner in the limited partnerships that owned these apartment          
complexes and retirement living facilities and by making loans to such limited  
partnerships that were secured by first mortgages on these apartment            
complexes.  In order to reduce the risk of these investments, each of the       
loans originated by the PREP Funds was made in the form of a mortgage-backed    
security that was insured or guaranteed as to principal and interest by an      
agency of the U.S. government, such as FHA or GNMA.  In addition, the PREP      
Funds acquired mortgage-backed securities backed by pools of single-family      
mortgages that were insured or guaranteed by GNMA, FNMA or FHLMC.               

FINANCING STRATEGY

The Company intends to finance the acquisition of additional mortgages and      
mortgage-backed securities by borrowing against its portfolio of mortgage       
assets and investing the proceeds of the borrowings in additional mortgage      
assets.  The Company does not currently intend to publicly offer additional     
shares of its common stock or other debt or equity securities.  When fully      
invested, the Company plans to maintain an equity-to-assets ratio of            
approximately 8% to 10%.  The equity-to-assets ratio was approximately 13% as   
of December 31, 1999.                                                           

The Company's borrowings are financed primarily at short-term borrowing         
rates through the utilization of repurchase agreements.  A repurchase           
agreement, although structured as a sale and repurchase obligation, operates    
as a financing under which the Company effectively pledges its                  
mortgage assets as collateral to secure a short-term loan which is equal in     
value to a specified percentage of the market value of the pledged collateral.  

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Repurchase agreements take the form of a sale of the pledged collateral to a    
lender at an agreed upon price in return for such lender's simultaneous         
agreement to resell the same securities back to the borrower at a future date   
(the maturity of the borrowing) at a higher price.  The price difference is     
the cost of borrowing under these agreements.  The Company will retain          
beneficial ownership of the pledged collateral, including the right to          
distributions.  At the maturity of a repurchase agreement, the Company will be  
required to repay the loan and concurrently will receive back its pledged       
collateral from the lender or will rollover such agreement at the then          
prevailing financing rate.  The repurchase agreements may require the Company   
to pledge additional assets to the lender in the event the market value of any  
existing pledged collateral declines.  To date, the Company has not had any     
significant margin calls on its repurchase agreements that were related to a    
decrease in the market value of its collateral.                                 

Repurchase agreements tend to be short-term in nature.  Should the providers    
of the repurchase agreements decide not to renew, the Company must either       
refinance these obligations prior to maturity or be in a position to retire     
the obligations.  If, during the term of a repurchase agreement, a lender       
should file for bankruptcy, the Company might experience difficulty recovering  
its pledged assets and may have an unsecured claim against the lender's assets. 

To reduce its exposure, the Company enters into repurchase agreements only      
with financially sound institutions whose holding or parent company's           
long-term debt rating is single A or better as determined by both Standard and  
Poor's and Moody's, where applicable.  If this minimum criterion is not met,    
then the Company will not enter into repurchase agreements with such            
counterparty without the specific approval of its Board of Directors.  In the   
event an existing counterparty is downgraded below single A, the Company will   
seek Board approval before entering into additional repurchase agreements with  
such counterparty.  In addition, once the Company is fully invested, it         
intends to enter into repurchase agreements with at least four lenders with a   
maximum exposure to each lender of three times the Company's shareholders'      
equity.  As of December 31, 1999, the Company had repurchase agreements with    
nine lenders with a maximum exposure to any one lender of not more than 1.8     
times the Company's shareholders' equity.                                       

RISK FACTORS  

The results of the Company's operations are affected by various factors, many   
of which are beyond the control of the Company.  The results of the Company's   
operations depend on, among other things, the level of net interest income      
generated by the Company's mortgage assets, the market value of its assets and  
the supply of and demand for such assets.  The Company's net interest income    
varies primarily as a result of changes in short-term interest rates,           
borrowing costs and prepayment rates, the behavior of which involves various    
risks and uncertainties as set forth below.  Prepayment rates, interest rates   
and borrowing costs depend on the specific type of asset, conditions in         
financial markets, competition and other factors, none of which can be          
predicted with any certainty.  Since changes in interest rates may              
significantly affect the Company's activities, the operating results of the     
Company depend, in large part, upon the ability of the Company to effectively   
manage its interest rate and prepayment risks while maintaining its status as   
a REIT.                                                                         

INTEREST RATE RISKS                                                             

The Company has financed the acquisition of additional mortgage assets through  
borrowings under numerous repurchase agreements.  As a result, the Company is   
exposed to the following principal interest rate risks:                         

         The cost of the Company's borrowings under its repurchase agreements is
        based on the prevailing short-term market rates that adjust over periods
           of one to 12 months. However, a substantial majority of the Company's
         mortgage assets have either fixed interest rates or interest rates that
          reset only every six to 12 months. At December 31, 1999, the repricing
gap between the Company's assets and obligations was approximately 11 
months.                                                               

         There is no limitation on the interest rate that the Company could have
        to pay in order to borrow money to finance its mortgage assets. However,
            the ability to raise interest rates on its assets is limited, either
       because such rates are fixed for the life of the asset or, in the case of
          ARMs, the ability to raise interest rates is limited on both an annual

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           basis and over the term of the ARM. Generally, interest rates on ARMs
        can change a maximum of 100 or 200 basis points per annum and only up to
       600 basis points from the initial interest rate over the term of the ARM.

          The cost of the Company's borrowings is generally based on LIBOR while
         interest rates on its ARM portfolio are primarily based on one-year CMT
           rates. Therefore, any increase in the LIBOR relative to the CMT rates
          will result in an increase in the Company's borrowing cost that is not
         matched by a corresponding increase in the interest earnings on its ARM
portfolio.    

In any of these cases, increasing short-term interest rates may cause the       
Company's financing costs to increase faster than it is able to increase        
interest rates on its ARMs.  As a result, the net interest margin earned by     
the Company will be reduced or eliminated during such periods.  Accordingly,    
in a period of increasing interest rates, the Company could experience a        
decrease in net interest income or a net loss because the interest rates on     
borrowings could adjust faster than the interest rates on the Company's ARMs.   
Such a decrease in the Company's net interest income could negatively impact    
the level of dividend distributions made by the Company and reduce the market   
price of its common stock.                                                      

In order to mitigate its interest rate risks, the Company intends to have a     
substantial majority of its mortgage assets consist of ARMs rather than fixed   
rate mortgages.  This allows the Company to increase its interest income        
during periods of rising interest rates.  While the lag in its ability to reset 
interest rates on its ARMs portfolio relative to changes in the interest rates  
it pays on its liabilities and the annual and lifetime limitations on           
adjustments to interest rates on ARMs can negatively affect earnings over the   
short term, the ability to make interest rate adjustments on the ARMs does      
help mitigate this risk over a longer time period.                              

The Company's policy is to maintain an asset/borrowings repricing gap (as       
measured by the average time period to assets repricing, less the average time  
period to liability repricing) at less than 24 months when its leverage ratio   
is less than 5 to 1 and at less than 18 months when its leverage ratio is       
greater than 5 to 1.  At December 31, 1999, the Company's leverage ratio        
equaled 7.76 to 1 and the repricing gap stood at approximately 11 months.  For  
purposes of this analysis, equity assets and zero coupon Treasury securities    
and assets of comparable duration purchased as a hedge against prepayments are  
excluded from the calculation.                                                  

As discussed above, the relationship between LIBOR and the CMT can change over  
time. At December 31, 1999, the one-year LIBOR was 6.5% and the one-year CMT    
was 5.96%. However, as of December 31, 1999, the average interest rate on the   
Company's CMT based ARMs was 195 basis points over the CMT.  Therefore, the     
LIBOR index would have to increase by approximately 65 basis points relative    
to the CMT in order to eliminate the positive spread between the yield on       
these ARMs and the Company's cost of borrowing.   During 1999, the largest      
differential between the one-year LIBOR and one-year CMT was 90 basis points    
and the average differential was 64 basis points.                               

Lifetime interest rate caps on ARMs could impact the earnings on the Company's  
assets.  However, based on the assets available in the current market, such an  
impact should only occur if the one-month LIBOR rate increased to               
approximately 10%.  This rate was 5.83% at December 31, 1999.  Periodic caps    
could also have an impact on the earnings of the Company's assets.  At          
December 31, 1999, approximately 44% of the Company's adjustable rate           
mortgages and 37% of the total assets had a 1% periodic cap.  The impact of     
periodic caps, if any, would be slight since the weighted average coupon of     
these assets equals 7.51% (175 basis points greater than the one-year CMT.)     
The Company may attempt to partially offset the potential negative effect of    
lifetime and periodic maximum interest rates on its ARMs through the purchase   
of interest rate caps on its liabilities.  An interest rate cap agreement is a  
contractual agreement whereby the Company pays a fee in exchange for the right  
to receive payments equal to the difference between a contractually specified   
interest rate and a periodically determined future interest rate times a        
specified principal, or notional amount.  Such interest rate cap agreements     
are subject to the risk that the other party to the agreement will not be able  
to perform its obligations.  Although the Company would seek to enter interest  
rate agreements only with financially sound institutions and to monitor the     
financial strength of such institutions on a periodic basis, no assurance can   
be given that the Company can avoid such third party risks.  As of December     
31, 1999, the Company had not utilized this hedging strategy.                   

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As a part of its hedging strategy, the Company may engage in limited amounts    
of the buying and selling of mortgage derivative securities or other            
derivative products including interest rate swap agreements, financial futures  
contracts and options.  Although the Company and its Predecessor have not       
historically used such instruments, it is not precluded from doing so.  In the  
future, management anticipates using such instruments only as hedges to manage  
interest rate risk.  Management does not anticipate entering into derivatives   
for speculative or trading purposes.  Any such strategies will be selected by   
the Advisor and approved by the Company's investment committee.  While the      
Company may hedge certain risks associated with interest rate increases, no     
hedging strategy can insulate the Company completely from interest rate         
risks.  In addition, there can be no assurance that any such hedging            
activities will have the desired impact on the Company's results of operations  
or financial condition.  Hedging typically involves costs, including            
transaction costs, which increase dramatically as the period covered by the     
hedge increases and which also increase during periods of rising or volatile    
interest rates.  Such hedging costs may cause the Company to conclude that a    
particular hedging transaction is not appropriate for the Company, thereby      
affecting the Company's ability to mitigate interest rate risk.  As of          
December 31, 1999, the Company had not entered into any interest rate hedging   
agreements.                                                                     

PREPAYMENT RISKS                                                                

In general, the borrower under a mortgage loan may prepay the loan at any time  
without penalty or premium.  Prepayments result when a homeowner sells his      
home or decides to either retire or refinance his existing mortgage loan.  In   
addition, defaults and foreclosures have the same effect as a prepayment in     
that no future interest payments are earned on the mortgage.  Prepayments       
usually can be expected to increase when mortgage interest rates decrease       
significantly and decrease when mortgage interest rates increase, although      
such effects are not entirely predictable.  Prepayment experience also may be   
affected by the conditions in the housing and financial markets, general        
economic conditions and the relative interest rates on fixed-rate and           
adjustable-rate mortgage loans.  During 1999, prepayments generally slowed due  
to an increase in mortgage interest rates and a widening of the short-term and  
long-term interest rate spread.                                                 

Prepayments are the primary feature of mortgage-backed securities that          
distinguishes them from other types of bonds.  While a certain percentage of    
the pool of mortgage loans underlying a mortgage-backed security are expected   
to prepay during a given period of time, the actual rate of prepayment can,     
and often does, vary significantly from the anticipated rate of prepayment.     
Accordingly, the Company incurs a risk that its mortgage assets will prepay at  
a more rapid pace than anticipated.  The potential negative impact on the       
Company of prepayments is twofold.  In the first instance, prepayments reduce   
the amount of the Company's interest earning assets.  In addition, if the       
Company has paid more than par for a mortgage-backed security, the premium is   
amortized against earnings over the life of the security.  Higher than          
expected prepayments lead to an increase in premium amortization, which         
reduces the Company's earnings.                                                 

One way the Company seeks to reduce its exposure to prepayment risk is to       
purchase mortgage assets trading closer to par and thus reduce the Company's    
earnings exposure resulting from amortization of premiums.  In the current      
marketplace, ARM securities are trading at 96% to 104% of par depending on      
seasoning and the interest rate.  The Company's current policy is to maintain   
the average purchase price of the Company's mortgage portfolio at less than     
103.5% of par.  The Company's weighted average purchase price for the mortgage  
assets it acquired in 1999 and 1998 were approximately 101.7%  and 101.5% of    
par, respectively.  Another way the Company seeks to address this risk is to    
use less leverage in less advantageous market environments.  While this         
strategy may not maximize earnings potential in the short term, it should lead  
to more predictable earnings with less potential risk to capital.               

The Company seeks to minimize prepayment risk through a number of other means,  
including structuring a diversified portfolio with a variety of prepayment      
characteristics.  An additional natural hedge to prepayment risk is for the     
Company to maintain a position in direct investments (mezzanine or equity) in   
multifamily properties collateralizing mortgage loans owned by the Company.     
These assets do not face prepayment risk and should increase in value in a      
declining interest rate environment where prepayments would have the largest    
negative impact.  Another potential hedge for the Company is to hold zero       
coupon Treasury securities or other assets of long duration which increase in   

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value when interest rates decline.  As of December 31, 1999, the Company did    
not own any zero coupon Treasury securities.  No strategy, however, can         
completely insulate the Company from prepayment risks arising from the effects  
of interest rate changes.                                                       

RISKS ASSOCIATED WITH LEVERAGE                                                  

The Company's financing strategy is designed to increase the size of its        
mortgage investment portfolio by borrowing a substantial portion of the market  
value of its mortgage assets.  If the interest income on the mortgage assets    
purchased with borrowed funds fails to cover the cost of the borrowings, the    
Company will experience net interest losses and may experience net losses.      
Such losses could be increased substantially as a result of the Company's       
substantial leverage.                                                           

The ability of the Company to achieve its investment objectives depends on its  
ability to borrow money in sufficient amounts and on favorable terms.           
Currently, all of the Company's borrowings are collateralized borrowings in     
the form of repurchase agreements.  The ability of the Company to enter into    
repurchase agreements in the future will depend on the market value of the      
mortgage assets pledged to secure the specific borrowings, the availability of  
financing, and other conditions then applicable in the lending market.  The     
Company may effect additional borrowings through the use of other types of      
collateralized borrowings, loan agreements, lines of credit, dollar-roll        
agreements and other credit facilities with institutional lenders or through    
the issuance of debt securities.  The cost of borrowings under repurchase       
agreements generally corresponds to LIBOR plus or minus a margin, although      
such agreements may not expressly incorporate a LIBOR index.  The cost of       
borrowings under other sources of funding which the Company may use may refer   
or correspond to other short-term indices, plus or minus a margin.  Through     
increases in haircuts (i.e., the over-collateralization amount required by a    
lender), decreases in the market value of the Company's mortgage assets,        
increases in interest rate volatility, and changes in the availability of       
financing in the market, the Company may not be able to achieve the degree of   
leverage it believes to be optimal.  As a result, the Company may be less       
profitable than it would be otherwise.                                          

RISKS OF DECLINE IN MARKET VALUE                                                

The value of interest-bearing obligations such as mortgages and                 
mortgage-backed securities may move inversely with interest rates.              
Accordingly, in a rising interest rate environment, the value of such           
instruments may decline.  Because the interest earned on ARMs may increase as   
interest rates increase subject to a delay until each such security's next      
reset date, the values of these assets are generally less sensitive to changes  
in interest rates than are fixed-rate instruments.  Therefore, in order to      
mitigate this risk, the Company intends to maintain a substantial majority of   
its mortgage assets as ARMs.  At December 31, 1999, ARMs constituted            
approximately 93% of the Company's total mortgage assets.                       

A decline in the market value of the Company's mortgage assets may limit the    
Company's ability to borrow or result in lenders initiating margin calls        
(i.e., requiring a pledge of cash or additional mortgage assets to              
re-establish the ratio of the amount of the borrowing to the value of the       
collateral).  The Company could be required to sell mortgage assets under       
adverse market conditions in order to maintain liquidity.  If these sales were  
made at prices lower than the amortized cost of the mortgage assets, the        
Company would experience losses.  A default by the Company under its            
collateralized borrowings could also result in a liquidation of the             
collateral, and a resulting loss of the difference between the value of the     
collateral and the amount borrowed.                                             

Additionally, in the event of a bankruptcy of the Company, certain repurchase   
agreements may qualify for special treatment under the Bankruptcy Code, the     
effect of which is, among other things, to allow the creditors under such       
agreements to avoid the automatic stay provisions of the Bankruptcy Code and    
to liquidate the collateral under such agreements without delay.   To the       
extent the Company is compelled to liquidate mortgage assets qualifying as      
Qualified REIT Real Estate Assets to repay borrowings, the Company may be       
unable to comply with the REIT provisions of the Internal Revenue Code          
regarding assets and sources of income requirements, ultimately jeopardizing    
the Company's status as a REIT.                                                 

The value of the Company's other investments, such as corporate debt and        

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equity securities, is also subject to fluctuation due to changes in interest    
rates and many other factors.                                                   

CREDIT RISKS ASSOCIATED WITH INVESTMENTS                                        

The holder of a mortgage or mortgage-backed security assumes a risk that the    
borrowers may default on their obligations to make full and timely payments of  
principal and interest.  The Company seeks to mitigate this risk of credit      
loss by requiring that at least 70% of its investment portfolio consist of      
mortgage or mortgage securities that are either (i) insured or guaranteed as    
to principal and interest by an agency of the U.S. government, such as GNMA,    
FNMA or FHLMC, (ii) rated in one of the two highest rating categories by        
either Standard and Poor's or Moody's, or (iii) considered to be of equivalent  
credit quality as determined by the Advisor and approved by the Company's       
investment committee.  The remainder of the Company's assets may be either (i)  
mortgage assets rated at least investment grade or considered to be of          
equivalent credit quality by the Advisor with approval from the Company's       
investment committee; (ii) direct investment (mezzanine or equity) in           
multifamily projects collateralizing mortgage loans owned by the Company;       
(iii) investments in limited partnerships, real estate investment trusts or     
closed-end funds owning a portfolio of mortgage assets; or (iv) other           
fixed-income instruments (corporate or government) that provide increased call  
protection relative to the Company's mortgage assets.  Currently, these other   
fixed-income instruments are below investment grade in quality.  These other    
below investment grade fixed-income instruments constituted less than 3% of     
the Company's total assets as of December 31, 1999.  As of December 31, 1999,   
approximately 79% of the Company's assets consisted of mortgage-backed          
securities insured or guaranteed by the U.S. government or an agency thereof.   

RISKS OF ASSET CONCENTRATION                                                    

Although the Company seeks geographic diversification of the properties         
underlying its mortgage assets, it does not set specific limitations on the     
aggregate percentage of underlying properties which may be located in any one   
area.  Consequently, properties underlying such mortgage assets may be located  
in the same or a limited number of geographical regions. Adverse changes in     
the economic conditions of the geographic regions in which the properties       
securing mortgage assets are concentrated likely would have an adverse effect   
on real estate values, interest rates and prepayment rates and increase the     
risk of default by the obligors on the underlying mortgage loans.               
Accordingly, the Company's results of operations could be adversely affected.   

INVESTMENT COMPANY ACT                                                          

The Company at all times intends to conduct its business so as to not become    
regulated as an investment company under the Investment Company Act of 1940.    
If the Company were to become regulated as an investment company, then, among   
other things, the Company's ability to use leverage would be substantially      
reduced.  The Investment Company Act exempts entities that are "primarily       
engaged in the business of purchasing or otherwise acquiring mortgages and      
other liens on and interests in real estate" (i.e. "Qualifying Interests").     
Under the current interpretation of the staff of the SEC, in order to qualify   
for this exemption, the Company must maintain at least 55% of its assets        
directly in Qualifying Interests.  In addition, unless certain mortgage         
securities represent an undivided interest in the entire pool backing such      
mortgage securities (i.e. "whole pool" mortgage securities), such mortgage      
securities may be treated as securities separate from the underlying mortgage   
loan, thus, may not be considered Qualifying Interests for purposes of the 55%  
exemption requirement.  Accordingly, the Company monitors its compliance with   
this requirement in order to maintain its exempt status.  As of December 31,    
1999, the Company determined that it is in and has maintained compliance with   
this requirement.                                                               

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS   

The following discussion summarizes certain federal income tax considerations   
to the Company and its stockholders.  This discussion is based on existing      
federal income tax law, which is subject to change, possibly retroactively.     
This discussion does not address all aspects of federal income taxation that    
may be relevant to a particular stockholder in light of its personal            
investment circumstances or to certain types of investors subject to special    
treatment under the federal income tax laws (including financial institutions,  
insurance companies, broker-dealers and, except to the extent discussed below,  
tax-exempt entities and foreign taxpayers) and it does not discuss any aspects  

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of state, local or foreign tax law. This discussion assumes that stockholders   
will hold their common stock as a "capital asset" (generally, property held     
for investment) under the Internal Revenue Code of 1986, as amended (the        
"Code").  Stockholders are advised to consult their tax advisors as to the      
specific tax consequences to them of purchasing, holding and disposing of the   
common stock, including the application and effect of federal, state, local     
and foreign income and other tax laws.                                          

GENERAL                                                                         

The Company has elected to become subject to tax as a REIT, for federal income  
tax purposes, commencing with the taxable year ending December 31, 1998.        
Management currently expects that the Company will continue to operate in a     
manner that will permit the Company to maintain its qualifications as a REIT.   
This treatment will permit the Company to deduct dividend distributions to its  
stockholders for federal income tax purposes, thus effectively eliminating the  
"double taxation" that generally results when a corporation earns income and    
distributes that income to its stockholders.  There can be no assurance that    
the Company will continue to qualify as a REIT in any particular taxable year,  
given the highly complex nature of the rules governing REITs, the ongoing       
importance of factual determinations and the possibility of future changes in   
the circumstances of the Company.  If the Company failed to qualify as a REIT   
in any particular year, it would be subject to federal income tax as a          
regular, domestic corporation, and its stockholders would be subject to tax in  
the same manner as stockholders of such corporation.  In this event, the        
Company could be subject to potentially substantial income tax liability in     
respect of each taxable year that it fails to qualify as a REIT, and the        
amount of earnings and cash available for distribution to its stockholders      
could be significantly reduced or eliminated.  The following is a brief         
summary of certain technical requirements that the Company must meet on an      
ongoing basis in order to qualify, and remain qualified, as a REIT under the    
Code.                                                                           

STOCK OWNERSHIP TESTS                                                           

The capital stock of the Company must be held by at least 100 persons and no    
more than 50% of the value of such capital stock may be owned, directly or      
indirectly, by five or fewer individuals at all times during the last half of   
the taxable year.  Under the Code, most tax-exempt entities including employee  
benefit trusts and charitable trusts (but excluding trusts described in 401(a)  
and exempt under 501(a)) are generally treated as individuals for these         
purposes.  These stock ownership requirements must be satisfied by the Company  
each taxable year.  The Company must solicit information from certain of its    
shareholders to verify ownership levels and its Articles of Incorporation       
provide restrictions regarding the transfer of the Company's shares in order    
to aid in meeting the stock ownership requirements. If the Company were to      
fail either of the stock ownership tests, it would generally be disqualified    
from REIT status, unless, in the case of the "five or fewer" requirement, the   
recently enacted "good faith" exemption is available.                           

ASSET TESTS                                                                     

The Company must generally meet the following asset tests (the "REIT Asset      
Tests") at the close of each quarter of each taxable year: (a) at least 75% of  
the value of the Company's total assets must consist of Qualified REIT Real     
Estate Assets, government securities, cash, and cash items (the "75% Asset      
Test"); and (b) the value of securities held by the Company, but not taken into 
account for purposes of the 75% Asset Test, must not exceed (i) 5% of the value 
of the Company's total assets in the case of securities of any one              
non-government issuer, and (ii) 10% of the outstanding voting securities of     
any such issuer.                                                                

The Company does not expect that the value of any non-qualifying security of    
any one entity would ever exceed 5% of the Company's total assets, and the      
Company does not expect to own more than 10% of any one issuer's voting         
securities.  The Company intends to monitor closely the purchase, holding and   
disposition of its assets in order to comply with the REIT Asset Tests.  In     
particular, the Company intends to limit and diversify its ownership of any     
assets not qualifying as Qualified REIT Real Estate Assets to less than 25% of  
the value of the Company's assets and to less than 5%, by value, of any single  
issuer.  If it is anticipated that these limits would be exceeded, the Company  
intends to take appropriate measures, including the disposition of              
non-qualifying assets, to avoid exceeding such limits.                          

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GROSS INCOME TESTS                                                              

The Company must generally meet the following gross income tests (the "REIT     
Gross Income Tests") for each taxable year: (a) at least 75% of the Company's   
gross income must be derived from certain specified real estate sources         
including interest income and gain from the disposition of Qualified REIT Real  
Estate Assets or "qualified temporary investment income" (i.e., income derived  
from "new capital" within one year of the receipt of such capital) (the "75%    
Gross Income Test") and; (b) at least 95% of the Company's gross income for     
each taxable year must be derived from sources of income qualifying for the     
75% Gross Income Test, or from dividends, interest, and gains from the sale of  
stock or other securities (including certain interest rate swap and cap         
agreements, options, futures and forward contracts entered into to hedge        
variable rate debt incurred to acquire Qualified REIT Real Estate Assets) not   
held for sale in the ordinary course of business (the "95% Gross Income Test"). 

The Company intends to maintain its REIT status by carefully monitoring its     
income, including income from liability hedging transactions and sales of       
mortgage assets, to comply with the REIT Gross Income Tests.  In particular,    
the Company will treat income generated by its interest rate caps and other     
liability hedging instruments, if any, as non-qualifying income for purposes    
of the 95% Gross Income Tests unless it receives advice from counsel that such  
income constitutes qualifying income for purposes of such test. Under certain   
circumstances, for example, (i) the sale of a substantial amount of mortgage    
assets to repay borrowings in the event that other credit is unavailable or     
(ii) unanticipated decrease in the qualifying income of the Company which may   
result in the non-qualifying income exceeding 5% of gross income, the Company   
may be unable to comply with certain of the REIT Gross Income Tests. See        
"Taxation of the Company" below for a discussion of the tax consequences of     
failure to comply with the REIT Provisions of the Code.                         

DISTRIBUTION REQUIREMENT                                                        

The Company must generally distribute to its stockholders an amount equal to    
at least 95% of the Company's REIT taxable income before deductions of          
dividends paid and excluding net capital gain.                                  

TAXATION OF THE COMPANY                                                         

In any year in which the Company qualifies as a REIT, the Company will          
generally not be subject to federal income tax on that portion of its REIT      
taxable income or capital gain which is distributed to its stockholders.  The   
Company will, however, be subject to federal income tax at normal corporate     
income tax rates upon any undistributed taxable income or capital gain.         
Notwithstanding its qualification as a REIT, the Company may also be subject    
to tax in certain other circumstances.  If the Company fails to satisfy either  
the 75% or the 95% Gross Income Test, but nonetheless maintains its             
qualification as a REIT because certain other requirements are met, it will     
generally be subject to a 100% tax on the greater of the amount by which the    
Company fails either the 75% or the 95% Gross Income Test multiplied by net     
income and divided by gross income.  The Company will also be subject to a tax  
of 100% on net income derived from any "prohibited transaction," and if the     
Company has (i) net income from the sale or other disposition of "foreclosure   
property" which is held primarily for sale to customers in the ordinary course  
of business or (ii) other non-qualifying income from foreclosure property, it   
will be subject to federal income tax on such income at the highest corporate   
income tax rate.  In addition, if the Company fails to distribute during each   
calendar year at least the sum of (i) 85% of its REIT ordinary income for such  
year and (ii) 95% of its REIT capital gain net income for such year, the        
Company would be subject to a 4% federal excise tax on the excess of such       
required distribution over the amounts actually distributed during the taxable  
year, plus any undistributed amount of ordinary and capital gain net income     
from the preceding taxable year.  The Company may also be subject to the        
corporate alternative minimum tax, as well as other taxes in certain            
situations not presently contemplated.  If the Company fails to qualify as a    
REIT in any taxable year, and certain relief provisions of the Code do not      
apply, the Company would be subject to federal income tax (including any        
applicable alternative minimum tax) on its taxable income at the regular        
corporate income tax rates.  Distributions to stockholders in any year in       
which the Company fails to qualify as a REIT would not be deductible by the     
Company, nor would they generally be required to be made under the Code.        
Further, unless entitled to relief under certain other provisions of the Code,  
the Company would also be disqualified from re-electing REIT status for the     
four taxable years following the year in which it became disqualified.          

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The Company intends to monitor on an ongoing basis its compliance with the      
REIT requirements described above. In order to maintain its REIT status, the    
Company will be required to limit the types of assets that the Company might    
otherwise acquire, or hold certain assets at times when the Company might       
otherwise have determined that the sale or other disposition of such assets     
would have been more prudent.                                                   

TAXATION OF STOCKHOLDERS                                                        

Distributions (including constructive distributions) made to holders of common  
stock other than tax-exempt entities (and not designated as capital gain        
dividends) will generally be subject to tax as ordinary income to the extent    
of the Company's current and accumulated earnings and profits as determined     
for federal income tax purposes.  If the amount distributed exceeds a           
stockholder's allocable share of such earnings and profits, the excess will be  
treated as a return of capital to the extent of the stockholder's adjusted      
basis in the common stock, which will not be subject to tax, and thereafter as  
a taxable gain from the sale or exchange of a capital asset.                    

Distributions designated by the Company as capital gain dividends will          
generally be subject to tax as long-term capital gain to stockholders, to the   
extent that the distribution does not exceed the Company's actual net capital   
gain for the taxable year.  Distributions by the Company, whether               
characterized as ordinary income or as capital gain, are not eligible for the   
corporate dividends received deduction. In the event that the Company realizes  
a loss for the taxable year, stockholders will not be permitted to deduct any   
share of that loss.                                                             

STATE AND LOCAL TAXES                                                           

The Company and its stockholders may be subject to state or local taxation in   
various jurisdictions, including those in which it or they transact business    
or reside.  The state and local tax treatment of the Company and its            
stockholders may not conform to the federal income tax consequences discussed   
above.  Consequently, prospective stockholders should consult their own tax     
advisors regarding the effect of state and local tax laws on an investment in   
the common stock.                                                               

COMPETITION   

The Company believes that its principal competitors in the business of          
acquiring and holding mortgage assets of the type in which it invests are       
financial institutions such as banks and savings and loans, life insurance      
companies, institutional investors such as mutual funds and pension funds, and  
certain mortgage REITs.  Such investors may not be subject to similar           
regulatory constraints (i.e. REIT tax compliance or maintaining 1940 Act        
exemption). In addition, many of the other entities purchasing mortgages and    
mortgage-backed securities have greater financial resources and better access   
to capital than the Company.  The existence of these competitive entities, as   
well as the possibility of additional entities forming in the future, may       
increase the competition for the acquisition of mortgages and mortgage-backed   
securities resulting in higher prices and lower yields on such assets.          

Item 2.  Properties.  The Company does not directly own or lease any physical   
properties.                                                                     

Item 3.  Legal Proceedings.  There are no material pending legal proceedings    
to which the Company or any of its assets are subject.                          

Item 4.  Submission of Matters to a Vote of Security Holders.  No matter was    
submitted during the fourth quarter of the fiscal year ending December 31,      
1999, to a vote of the Company's security holders.                              

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Executive Officers of the Company.                                              
The Company's executive officers are as follows:                                

                                                        [Enlarge/Download Table]


    Name                   Position Held             Position Held Since                                                                            
-----------------------  --------------------------  -------------------                                                                            
                                                                                                                                                    
Stewart Zimmerman        President and Chief                  1998                                                                                  
                         Executive Officer                                                                                                          
Gary Thompson                                                                                              Chief Financial Officer              1998
                         and Treasurer                                                                                                              
William S. Gorin                                                                           Executive Vice President                       1998      
                         and Secretary                                                                                                              
Ronald A. Freydberg                                                 Senior Vice President                                           1998            


Stewart Zimmerman, 55, serves as president and chief executive officer of the   
Company.  He served as executive vice president of America First Companies      
L.L.C. since January 1989, during which time he has served in a number of       
positions: president and chief operating officer of America First REIT, Inc.;   
president of several America First Mortgage funds including America First       
Participating/Preferred Equity Mortgage Fund, 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, America First Tax   
Exempt Mortgage Fund Limited Partnership and America First Tax Exempt Fund 2    
Limited Partnership.  From September 1986 to September 1988, he served as a     
managing director and director of Security Pacific Merchant Bank responsible    
for Mortgage Trading and Finance.  Prior to that time, he served as first vice  
president of E.F. Hutton & Company, Inc., where he was responsible for          
mortgage-backed securities trading and sales distribution, and vice president   
of Lehman Brothers, where he was responsible for the distribution of mortgage   
products.  From 1968 to 1972, Mr. Zimmerman was vice president of Zenith        
Mortgage Company and Zenith East Inc., a national mortgage banking and          
brokerage company specializing in the structuring and sales of mortgage assets  
to the institutional financial community.                                       

Gary Thompson, 57, serves as chief financial officer and treasurer of the       
Company.  He serves as financial vice president of America First Companies      
L.L.C. and is responsible for financial accounting and tax reporting for all    
America First funds.  Prior to 1989, Mr. Thompson was an audit partner at KPMG  
Peat Marwick.  He is a certified public accountant.                             

William S. Gorin, 41, serves as executive vice president and secretary of the   
Company.  From 1989 to 1997, Mr. Gorin held various positions with PaineWebber  
Incorporated/Kidder, Peabody & Co. Incorporated, New York, New York, most       
recently serving as a first vice president in the Research Department.  Prior   
to that position, Mr. Gorin was senior vice president in the Special Products   
Group.  From 1982 to 1988, Mr. Gorin was employed by Shearson Lehman Hutton,    
Inc./E.F. Hutton & Company, Inc., New York, New York, in various positions in   
corporate finance and direct investments.                                       

Ronald A. Freydberg, 39, serves as senior vice president of the Company.  From  
1995 to 1997, Mr. Freydberg served as a vice president of Pentalpha Capital,    
in Greenwich, Connecticut, where he was a fixed-income quantitative analysis    
and structuring specialist.  In that capacity he designed a variety of          
interactive pricing and forecasting models, including a customized subordinate  
residential and commercial mortgage-backed analytical program and an ARM REIT   
five-year forecasting model.  In addition, he worked with various financial     
institutions on the acquisition and sale of residential, commercial and         
asset-backed securities.  From 1988 to 1995, Mr. Freydberg held various         
positions with J.P. Morgan & Co. in New York, New York.  From 1994 to 1995, he  
was with the Global Markets Group.  In that position he was involved in all     
aspects of commercial mortgage-backed securitization and sale of distressed     
commercial real estate, including structuring, due diligence and marketing.     
From 1985 to 1988, Mr. Freydberg was employed by Citicorp in New York, New      
York.                                                                           

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PART II       

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.  

(a)  Market Information.  The Company's common stock began trading on the New   
York Stock Exchange on April 10, 1998, under the symbol "MFA."  The following   
table sets forth the high and low sale prices for the Company's shares of       
common stock for the twelve months ending December 31, 1999, and from April 10, 
1998, through December 31, 1998.                                                

                                                                [Download Table]

                    1999                       1998                                
                 Sale Prices                Sale Prices                            
             -----------------------   ----------------------                      
                                                                                   
             High           Low        High           Low                          

1st Quarter  $ 5-26/32      $ 4-1/4     N/A           N/A                          
2nd Quarter  $ 5-3/8        $ 4        $ 9-3/4        $ 7-1/4 (from April 10, 1998)
3rd Quarter  $ 5-1/8        $ 4-10/32  $ 7-7/8        $ 5-11/16                    
4th Quarter  $ 5-3/8        $ 4-1/4    $ 5-3/4        $   4-5/16                   


(b) Investors.  The approximate number of common stockholders as of March 10,   
2000, was 6,300.                                                                

(c) Dividends.  The Company currently pays cash dividends on a quarterly        
basis. Total cash dividends declared by the Company to common stockholders      
during the fiscal years ended December 31, 1999 and 1998, were $6,174,870       
($0.67 per share) and $7,234,050 ($0.795 per share).  For tax purposes, a       
portion of the dividend declared on December 16, 1999, and paid on February     
18, 2000, will be treated as a 2000 dividend for shareholders.  Similarly, for  
tax purposes, the dividend declared on December 15, 1998, and paid on February  
19, 1999, was treated as a 1999 dividend for shareholders.  As part of the      
Merger transaction, the Company made quarterly distributions of $.265 per       
common share ($1.06 per common share per year) in the first year following the  
Merger (i.e. through the first quarter of 1999.)  A portion of the              
distributions received by shareholders in 1998 consisted in part of a dividend  
and in part of a cash merger payment.  There is no commitment by the Company    
to distribute amounts in excess of taxable income beyond the first year of      
operations.  The Company intends to continue to distribute to its shareholders  
an amount equal to at least 95% of the Company's taxable income before          
deductions of dividends paid and excluding net capital gains in order to        
maintain its REIT status.                                                       

See Item 7, Management's Discussion and Analysis of Financial Conditions and    
Results of Operations, for information regarding the sources of funds used for  
dividends and for a discussion of factors, if any, which may adversely affect   
the Company's ability to pay dividends at the same levels in 2000 and           
thereafter.                                                                     

Item 6.  Selected Financial Data.                                               

Set forth below is selected financial data for the Company (for periods after   
April 9, 1998) and the Predecessor (for periods up to April 9, 1998).  The      
information set forth below should be read in conjunction with the              
consolidated and combined financial statements and notes to the consolidated    
and combined financial statements filed in response to Item 8 hereof.           

For financial accounting purposes, PREP Fund 1 was considered the sole          
predecessor to the Company and, accordingly, the historical operating results   
presented in this report as those of the "Predecessor" are those of PREP Fund   
1.  Under generally accepted accounting principles, the Merger was accounted    
for as a purchase by PREP Fund 1 of 100% of the assigned limited partnership    
interests (known as "BUCs") of PREP Fund 2 and approximately 99% of the BUCs    
of Pension Fund.  As a result of this treatment, the Company, as the successor  
to PREP Fund 1, recorded all of the assets and liabilities of PREP Fund 1 at    
their book value, but was required to record the assets of PREP Fund 2 and      
Pension Fund at their fair value as of the date of the Merger.  The amount by   
which the fair value of the Company's stock issued to the BUC holders of PREP   
Fund 2 and Pension Fund exceeded the fair value of the total net assets of      
PREP Fund 2 and Pension Fund was recorded as goodwill by the Company.           

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                                                        [Enlarge/Download Table]


                                                                       Company and Predecessor                   Company and  
                                             Company        As of or for the Year Ended December 31, 1998        Predecessor  
                                                            ---------------------------------------------                     
                                               As of or                         Company and                          As of or 
                                                for the           Company       Predecessor                           for the 
                                             Year Ended   From April 10 to          Through                        Year Ended 
                                          Dec. 31, 1999  December 31, 1998    April 9, 1998             Total   Dec. 31, 1997 
                                          --------------    ----------------  --------------    -------------   ------------- 
                                                                                                                              
Operating Data:                                                                                                               

Mortgage securities income                $  24,302,401       $   7,626,742   $     613,793     $  8,240,535   $    2,654,975 
Corporate securities income                     674,747             164,738            -             164,738             -    
Dividend income                                 331,233                -               -                -                -    
Interest income on temporary cash                                                                                             
 investments                                    365,897             439,889         148,799          588,688          569,624 
Income from other investments                 3,012,688  (1)        581,716         145,167          726,883          606,582 
Gain on sale of investments                      54,994             414,951            -             414,951             -    
General and administrative expenses          (2,672,333) (2)     (1,674,114)       (421,293)      (2,095,407)      (1,405,514)
Interest expense on borrowed funds          (18,465,529)         (4,619,500)           -          (4,619,500)            -    
Minority interest                                (4,218)             (3,353)           -              (3,353)            -    
                                          --------------      --------------  --------------    -------------   --------------
Net income                                $   7,599,880       $   2,931,069   $     486,466     $  3,417,535    $   2,425,667 
                                          ==============      ==============  ==============    =============   ==============

Net income, basic and diluted,                                                                                                
  per share                               $         .84       $        0.32   $         N/A     $       0.32    $         N/A 
                                          ==============      ==============  ==============    =============   ==============
Net income, basic and diluted,                                                                                                
  per exchangeable unit                   $         N/A       $         N/A   $        0.08     $        N/A    $        0.42 
                                          ==============      ==============  ==============    =============   ==============
Dividends declared per common share or                                                                                        
 cash distributions paid or accrued                                                                                           
 per exchangeable unit                    $      0.6700       $      0.7950   $      0.2649     $     1.0599    $      1.0596 
                                          ==============      ==============  ==============    =============   ==============
Balance Sheet Data:                                                                                                           

Investment in mortgage securities         $ 475,719,711       $ 241,895,462                                     $  33,506,388 
                                          ==============      ==============                                     =============
Investment in corporate securities        $   8,020,026       $   4,673,127                                     $        -    
                                          ==============      ==============                                     =============
Investment in preferred stock             $   3,130,823       $   1,153,800                                     $        -    
                                          ==============      ==============                                     =============
Total assets - Company                    $ 524,384,473       $ 264,668,902                                     $       1,000 
                                          ==============      ==============                                     =============
Total assets - Predecessor                $         N/A       $         N/A                                     $  54,439,993 
                                          ==============      ==============                                     =============
Repurchase agreements                     $ 452,101,803       $ 190,250,084                                     $        -    
                                          ==============      ==============                                     =============
Total stockholders' equity                $  67,614,613       $  70,932,757                                     $       1,000 
                                          ==============      ==============                                     =============
Total partners' capital                   $         N/A       $         N/A                                     $  46,252,826 
                                          ==============      ==============                                     =============

(1)  Includes income of approximately $2,163,000 resulting from the sale of                                                   
     undivided interests in the net assets of four assisted living centers                                                    
                   as described in Note 5 to the consolidated and combined financial statements.                              
(2)  Includes an incentive fee of approximately $433,000 earned by the                                                        
     Advisor in connection with the sale described in (1) above.                                                              


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                                                                [Download Table]

                                                    Predecessor     Predecessor 

                                                       As of or        As of or 
                                                        for the         for the 
                                                     Year Ended      Year Ended 
                                                  Dec. 31, 1996   Dec. 31, 1995 
                                                  -------------   ------------- 
                                                                                
Mortgage securities income                        $   3,011,347   $   3,398,068 
Interest income on temporary cash investments                                   
  and U.S. government securities                        442,931         408,645 
Income from other investments                           504,611         399,746 
General and administrative expenses                    (895,961)       (834,594)
                                                  -------------   ------------- 
Net income                                        $   3,062,928   $   3,371,865 
                                                  =============   ============= 
Net income, basic and diluted,                                                  
  per exchangeable unit                           $        0.52   $        0.57 
                                                  =============   ============= 
Net income per passthrough certificate            $    1,201.57   $    1,426.95 
                                                  =============   ============= 
Cash distributions paid or accrued per                                          
  exchangeable unit                               $      1.0596   $      1.0596 
                                                  =============   ============= 
Cash distributions paid or accrued per                                          
  passthrough certificate                         $    2,428.25   $    2,649.00 
                                                  =============   ============= 
Investment in U.S. government securities          $       -       $   5,025,000 
                                                  =============   ============= 
Investment in mortgage securities                 $  37,322,028   $  43,103,240 
                                                  =============   ============= 
Total assets                                      $  60,144,705   $  64,566,103 
                                                  =============   ============= 
Total partners' capital                           $  49,702,829   $  53,605,422 
                                                  =============   ============= 

Item 7.  Management's Discussion and Analysis of Financial Condition and        
Results of Operations.                                                          

General                                                                         

The Company was incorporated in Maryland on July 24, 1997, and began            
operations on April 10, 1998.                                                   

On April 10, 1998, the Company and three partnerships: America First            
Participating/Preferred Equity Mortgage Fund Limited Partnership ("Prep Fund    
1"), America First Prep Fund 2 Limited Partnership ("Prep Fund 2"), America     
First Prep Fund 2 Pension Series Limited Partnership ("Pension Fund"),          
consummated a merger transaction whereby their pre-existing net assets and      
operations or majority interest in the pre-existing partnership were            
contributed to the Company in exchange for 9,035,084 shares of the Company's    
common stock.  For financial accounting purposes, Prep Fund 1, the largest of   
the three Partnerships, was considered the Predecessor entity (the              
"Predecessor") and its historical operating results are presented in the        
financial statements contained herein.  The Merger was accounted for using the  
purchase method of accounting in accordance with generally accepted accounting  
principles.  Prep Fund 1 was deemed to be the acquirer of the other             
Partnerships under the purchase method.  Accordingly, the Merger resulted, for  
financial accounting purposes, in the effective purchase by Prep Fund 1 of all  
the Beneficial Unit Certificates ("BUCs") of Prep Fund 2 and approximately 99%  
of the BUCs of Pension Fund.  (Pension Fund was liquidated and dissolved        
during December, 1999.)  As the surviving entity for financial accounting       
purposes, the assets and liabilities of Prep Fund 1 were recorded by the        
Company at their historical cost and the assets and liabilities of Prep Fund 2  
and Pension Fund were adjusted to fair value.  The excess of the fair value of  
stock issued over the fair value of net assets acquired has been recorded as    
goodwill in the accompanying balance sheet of the Company.                      

Concurrent with the Merger, the Company entered into an Advisory Agreement      
with America First Mortgage Advisory Corporation (the "Advisor") and adopted    
an investment policy which significantly differed from that pursued by the      

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predecessor partnerships.  This strategy includes leveraged investing in        
adjustable rate mortgage securities and mortgage loans.  The Company began      
implementing this investment strategy in the second quarter of 1998.  During    
the period from the consummation of the Merger through December 31, 1999, the   
Company purchased mortgage securities with a face value at the time of          
purchase of approximately $571.2 million (mortgage securities with a face       
value of approximately $338.7 million were purchased during the year ended      
December 31, 1999).                                                             

The Company has elected to become subject to tax as a real estate investment    
trust ("REIT") under the Code beginning with its 1998 taxable year and, as      
such, anticipates distributing annually at least 95% of its taxable income,     
subject to certain adjustments.  Generally, cash for such distributions is      
expected to be largely generated from the Company's operations, although the    
Company may borrow funds to make distributions.  Further, as part of the        
Merger transaction, the Company made quarterly distributions through the first  
quarter of 1999 totaling $1.06 per common share.  These distributions were      
paid in four equal quarterly installments.  A portion of distributions          
received by shareholders in 1998 consisted in part of a dividend and in part    
of a cash merger payment.  There is no commitment by the Company to distribute  
amounts in excess of taxable income beyond the first year of operations.  For   
tax purposes, a portion of the dividend declared on December 16, 1999, and      
paid on February 18, 2000, will be treated as a 2000 tax event for              
shareholders.  Similarly, for tax purposes, the dividend declared on December   
15, 1998, and paid on February 19, 1999, was treated as a 1999 tax event for    
shareholders.                                                                   

The Company's operations for any period may be affected by a number of factors  
including the investment assets held, general economic conditions affecting     
underlying borrowers and, most significantly, factors which affect the          
interest rate market.  Interest rates are highly sensitive to many factors,     
including governmental monetary and tax policies, domestic and international    
economic and political considerations, and other factors beyond the control of  
the Company.                                                                    

The Merger, other related transactions and on-going implementation of the       
change in investment strategy will materially impact the Company's future       
operations as compared to those of the Predecessor.  Accordingly, the           
currently reported financial information is not necessarily indicative of the   
Company's future operating results or financial condition.                      

Liquidity and Capital Resources                                                 

The Company's principal sources of capital consist of borrowings under          
repurchase agreements, principal payments received on its portfolio of          
mortgage securities and cash provided by operations.  Principal uses of cash    
include the acquisition of investment securities, the payment of operating      
expenses and the payment of dividends to shareholders.                          

During the year ended December 31, 1999, the Company acquired $359 million of   
mortgage securities, corporate securities and preferred stock.  Financing       
for these acquisitions was provided primarily through the utilization of        
repurchase agreements, supplemented by cash flow from operations of $10.3       
million.  Net borrowings under such repurchase agreements totaled $262 during   
1999.  The Company also received principal payments of $113 million on its      
mortgage securities during 1999 and had proceeds of $1.1 million from the sale  
of preferred stock.  Other uses of funds in 1999 consisted of dividend          
payments of  $7.3 million and $0.4 million for the acquisition of 84,600        
shares of its own common stock pursuant to a stock repurchase program           
implemented in the fourth quarter.                                              

The Company's borrowings under repurchase agreements totaled $452.1 million at  
December 31, 1999, and had a weighted average borrowing rate of 5.72% as of     
such date.  At December 31, 1999, the repurchase agreements had balances of     
between $3.2 million and $71.3 million.  These arrangements have original       
terms to maturity ranging from two months to twelve months and annual interest  
rates based on LIBOR.  To date, the Company has not had any significant margin  
calls on its repurchase agreements that were related to a decrease in the       
value of its collateral.                                                        

The Company believes it has adequate financial resources to meet its            
obligations as they come due and fund dividends as well as to actively pursue   
its investment policy.                                                          

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Results of Operations                                                           

Year Ended December 31, 1999, Compared to 1998                                  

During the year ended December 31, 1999, total interest income earned by the    
Company increased $16.7 million compared to total interest income earned by the 
Company and its Predecessor in 1998.  This increase is attributable to the      
growth in the Company's interest-earning assets pursuant to its investment      
strategy.  The yield on the Company's interest earning assets was 6.72% in      
1999 compared to 6.04% in 1998.                                                 

The Company's interest expense increased $13.8 million for the year ended       
December 31, 1999 compared to 1998 primarily due to an increase in funds        
borrowed to finance the Company's asset growth.  The Company had outstanding    
borrowings of $452 million at December 31, 1999 compared to $190 million at     
December 31, 1998.  The Company's interest cost averaged 5.75% in 1999          
compared to 4.86% in 1998.                                                      

Income from other investments increased $2,285,805 during the year ended        
December 31, 1999, compared to the year ended December 31, 1998.                
Approximately $2,163,000 of such increase is attributable to Retirement         
Centers Corporation's (RCC's) sale of its undivided interests in the net        
assets of four assisted living centers as described in Note 5 to the Company's  
consolidated and combined financial statements.  The remaining decrease of      
approximately $123,000 is due to a reduction in the amount of income generated  
on the Company's investments in real estate limited partnerships.               

During the year ended December 31, 1999, the Company realized a gain of         
$54,994 on the sale of investments whereas the Company realized a gain of       
$414,951 during the comparable period in 1998.  Approximately $385,000 of such  
gain realized in 1998 was due to the payoff of a participating loan acquired    
by the Company in the Merger.                                                   

General and administrative expenses of the Company in 1999 increased $576,926   
as compared to that of the Company and the Predecessor in 1998.  Approximately  
$433,000 of such increase is attributable to non-recurring incentive            
compensation earned by the Company's Advisor as a result of RCC's sale of its   
undivided interests in the net assets of four assisted living centers as        
described in Note 5 to the Company's consolidated and combined financial        
statements.  The remaining increase of approximately $144,000 is due to: (i)    
an increase of $305,000 in incentive compensation earned by the Advisor due to  
the improved financial results of the Company, and (ii) an increase of          
$171,000 in base management fees earned by the Advisor primarily due to the     
Company operating a full year in 1999 compared to operating approximately nine  
months in 1998 offset by (iii) a decrease of $332,000 in other general and      
administrative expenses primarily attributable to the difference in scope of    
the Company in 1999 compared to that of the Company and Predecessor in 1998.    

Year Ended December 31, 1998, Compared to 1997                                  

During the year ended December 31, 1998, total interest income for the Company  
and the Predecessor increased $5.8 million as compared to total interest        
income of the Predecessor for the year ended December 31, 1997.  This increase  
is a result of the interest generated by mortgage investments acquired in the   
Merger from Prep Fund 2 and Pension Fund in the Merger as well as the           
acquisition of additional mortgage investments during 1998.                     

The increase in the Company's interest expense on borrowed funds during the     
year ended December 31, 1998, compared to that of the Predecessor for           
the year ended December 31, 1997, relates to interest expense on                
repurchase arrangements used to fund additional investments.                    

Income from other investments increased as a result of income generated by      
other investments acquired from Prep Fund 2 and Pension Fund.                   

The gain on sale of investments of $414,951 during the year ended December 31,  
1998, was due primarily to the payoff of a participating loan acquired by the   
Company in the Merger in the amount of $385,000.  No such gain was recorded in  
1997.                                                                           

General and administrative expenses for the Company and Predecessor in 1998     
increased $689,893 as compared to that of the Predecessor in 1997 as a result   
of (i) the management fee payable to the Advisor and (ii) the increased scope   
of operations resulting from the Merger.                                        

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Year 2000                                                                       

The Company does not own or operate its own computer system and owns no         
business or other equipment.  However, the operation of the Company's business  
relies on the computer system and other equipment maintained by America First   
Companies L.L.C., the principal shareholder of the Company's Advisor ("America  
First").  In addition, the Company has business relationships with a number of  
third parties whose ability to perform their obligations to the Company depend  
on such systems and equipment.  To date, the Company has not experienced any    
significant problems with such systems and equipment arising from the           
inability of computer programs and embedded circuitry to correctly recognize    
dates occurring after December 31, 1999.  Although the Company does not         
anticipate that so-called "Year 2000 problems" will surface, there can be no    
assurance that such problems will not arise.  The Company has not incurred any  
significant costs in rectifying Year 2000 problems.                             

Forward Looking Statements                                                      

When used in this Form 10-K, in future SEC filings or in press releases or      
other written or oral communications, the words or phrases "will likely         
result", "are expected to", "will continue", "is anticipated", "estimate",      
"project" or similar expressions are intended to identify "forward looking      
statements" within the meaning of the Private Securities Litigation Reform      
Act of 1995.  The Company cautions that such forward looking statements         
speak only as of the date made and that various factors including regional      
and national economic conditions, changes in levels of market interest          
rates, credit and other risks of lending and investment activities, and         
competitive and regulatory factors could affect the Company's financial         
performance and could cause actual results for future periods to differ         
materially from those anticipated or projected.                                 

The Company does not undertake and specifically disclaims any obligation to     
update any forward-looking statements to reflect events or circumstances after  
the date of such statements.                                                    

Item 7A.        Quantitative and Qualitative Disclosures About Market Risk.     

The Company seeks to manage the interest rate, market value, liquidity,         
prepayment and credit risks inherent in all financial institutions in a         
prudent manner designed to insure the longevity of the Company while, at the    
same time, seeking to provide an opportunity to shareholders to realize         
attractive total rates of return through stock ownership of the Company.        
While the Company does not seek to avoid risk, it does seek, to the best of its 
ability, to assume risk that can be quantified from historical experience, to   
actively manage such risk, to earn sufficient compensation to justify the       
taking of such risks and to maintain capital levels consistent with the risks   
it does undertake.                                                              

Interest Rate Risk                                                              

The Company primarily invests in fixed-rate, hybrid and variable-rate mortgage  
investments.  The hybrid investments represent fixed-rate coupons for a given   
period and variable rate coupons thereafter.  The Company's debt obligations    
are generally repurchase agreements of limited duration which are periodically  
refinanced at new market rates.                                                 

Most of the Company's variable-rate assets are dependent on the one-year CMT    
rate and debt obligations are generally dependent on LIBOR.  These indexes      
generally move in parallel, but there can be no assurance that this will        
continue to occur.                                                              

The Company's variable-rate investment assets and debt obligations reset at     
various different dates for the specific asset or obligation.  In general, the  
repricing of the Company's debt obligations occurs more quickly than on the     
Company's assets.  Therefore, on average, the Company's cost of funds may rise  
or fall more quickly than does its earnings rate on the assets.  Further, the   
Company's net income may vary somewhat as the yield curve between one-month     
interest rates and six and twelve month interest rates varies.                  

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As of December 31, 1999, the Company's investment assets and debt obligations   
will prospectively reprice based on the following time frames:                  

                                                        [Enlarge/Download Table]


                                                                                             Assets  Debt Obligations
                                         ------------------------  ------------------------                          
                                         Amount        Percent of  Amount        Percent of                          
                                                            Total                     Total                          
                                                      Investments               Investments                          
                                         --------     -----------  -------      -----------                          
                                                                                                                     
Investment type/rate reset dates                                                                                     

Fixed-Rate Investments                  $  31.6                7%  $    -                -                           

 Variable Investment/Obligation Rates:                                                                               
  Less than 3 months                       73.5               15%    452.1             100%                          
  > 3 months and < 1 year                 279.2               59%       -                -                           
  > 1 year and < 2 years                   19.5                4%       -                -                           
  > 2 years and < 3 years                    -                 -        -                -                           
  > 3 years and < 4 years                  71.9               15%       -                -                           
  > 4 years and < 5 years                    -                 -        -                -                           
                                        --------           ------  --------          ------                          
                                          444.1               93%    452.1             100%                          
                                        --------           ------  --------          ------                          
                           Total        $ 475.7              100%  $ 452.1             100%                          
                                        ========           ======  ========          ======                          

Weighted average roll date                                                                                           
of variable-rate                                                                                                     
investments/obligations                 12 months                  1 month                                           

Market Value Risk                                                               

Substantially all of the Company's investments are "available-for-sale"         
assets.  As such, they are reflected at fair value (i.e. market value) with     
the adjustment to fair value reflected as part of accumulated other             
comprehensive income which is included in the equity section of the Company's   
balance sheet.  (See Note 2 to the Company's consolidated financial             
statements.)  The market value of the Company's assets can fluctuate due to     
changes in interest rates and other factors.                                    

Liquidity Risk                                                                  

The primary liquidity risk of the Company arises from financing long-maturity   
mortgage assets with short-term debt.  The Company had no long-term debt at     
December 31, 1999.  Although the interest rate adjustments of these assets and  
liabilities are matched within the Company's operating policies, maturities     
are not matched.                                                                

The Company's assets which are pledged to secure short-term borrowings are      
high-quality, liquid assets.  As a result, the Company has not had difficulty   
rolling over its short-term debt as it matures.  Still, the Company cannot      
give assurances that it will always be able to roll over its short-term debt.   

At December 31, 1999, the Company had unrestricted cash of $19.9 million.  In   
addition, the Company had unpledged AAA rated mortgage securities with a        
market value of $5.1 million available to secure additional borrowings or       
serve as additional collateral for existing borrowings.  The resources the      
Company had available to meet margin calls on short-term debt that could be     
caused by asset value declines or changes in lender over-collateralization      
requirements thus equaled $25 million, or 5.5% of short-term debt.  As the      
Company becomes more fully invested, it is anticipated that the                 
over-collaterization amount will decline.                                       

Prepayment Risk                                                                 

As the Company receives repayments of mortgage principal, it amortizes into     
income its mortgage premium balances as a reduction to income and its mortgage  
discount balances as an increase to income. Mortgage premium balances arise     

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when the Company acquires mortgage assets at a price in excess of the           
principal value of the mortgages, or when an asset appreciates and is           
marked-to-market at a price above par.  Mortgage discount balances arise when   
the Company acquires mortgage assets at a price below the principal value of    
the mortgages, or when an asset depreciates and is marked-to-market at a price  
below par.  For financial accounting purposes, the premium is amortized based   
on the effective yield of the asset at each financial reporting date.  For tax  
accounting purposes, the premium is amortized based on the asset yield at the   
purchase date.  Therefore, if prepayments are higher than anticipated, it is    
anticipated that the yield for financial accounting purposes will decline and   
there will be greater premium amortization under tax accounting requirements    
than for financial accounting purposes.  At December 31, 1999, unamortized      
mortgage premium balances of adjustable rate assets for financial accounting    
purposes was $6.7 million (1.3% of total assets) and $8.0 million for federal   
tax purposes (1.6% of total assets).                                            

In general, the Company believes it will be able to reinvest prepayments at     
acceptable yields; however, no assurances can be given that, should             
significant prepayments occur, market conditions would be such that acceptable  
investments could be identified and the proceeds reinvested.                    

Tabular Presentation                                                            

The information presented in the table below, projects the impact on 2000 net   
income and net assets based on investments in place on December 31, 1999, and   
includes all the Company's interest-rate sensitive assets and liabilities.      
The Company acquires interest-rate sensitive assets and funds them with         
interest-rate sensitive liabilities. The Company generally plans to retain      
such assets and the associated interest rate risk to maturity.                  

The table below includes information about the possible future repayments and   
interest rates of the Company's assets and liabilities and constitutes a        
"forward-looking statement."  There are many assumptions used to generate this  
information and there can be no assurance that assumed events will occur as     
assumed or that other events will occur that would affect the outcomes.         
Furthermore, future sales, acquisitions, calls, and restructuring could         
materially change the Company's interest rate risk profile.  The table          
quantifies the potential changes in net income should interest rates go up or   
down (shocked) by 100 and 200 basis points, assuming the yield curves of the    
rate shocks will be parallel to each other.  The cash flows associated with     
the adjustable rate securities for each rate shock are calculated based on a    
variety of assumptions, including prepayment vectors, repurchase rates,         
repurchase haircuts, yield on reinvestment of prepayment, and growth in the     
portfolio.                                                                      

When interest rates are shocked, these prepayment assumptions are further       
adjusted based on management's best estimate of the effects of changes on       
interest rates or prepayment speeds. For example, under current market          
conditions, a 100 basis point decline in interest rates is estimated to result  
in a 275% increase in the prepayment rate of the ARM portfolio.  The base       
interest rate scenario assumes interest rates at December 31, 1999.  Actual     
results could differ significantly from those estimated in the table.           

As of December 31, 1999, all interest-rate sensitive liabilities were scheduled 
to mature in 2000.                                                              

                                                        [Enlarge/Download Table]

                                          Change in       Percentage Change  Percentage Change
Interest Rates      in Net Income          in Net Assets                                      
--------------  -----------------      -----------------                                      
                                                                                              
           -2%                    +63.4%                   +5.1%                              
           -1%                    +39.9%                  +2.7%                               
            0                0.0                     0.0                                      
            1%                    -19.6%                  -1.3%                               
            2%                    -36.4%                  -3.7%                               

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Item 8.  Financial Statements and Supplementary Data.                           

Index to Financial Statements                   

                Financial Statements:                                       Page

     Report of Independent Accountants........................................21

         Consolidated Balance Sheets of the Company as of December 31, 1999, and
     December 31, 1998........................................................22

                   Consolidated Statements of Income of the Company for the year
ended December 31, 1999 and for the period from April 10, 1998 through  
         December 31, 1998, and Combined Statements of Income of the Predecessor
               from January 1, 1998 through April 9, 1998 and for the year ended
     December 31, 1997........................................................23

          Consolidated Statements of Stockholders' Equity of the Company for the
        years ended December 31, 1999 and 1998, and for the period from November
         11, 1997 through December 31, 1997 and Combined Statements of Partners'
           Capital of the Predecessor from January 1, 1998 through April 9, 1998
     and for the year ended December 31, 1997.................................24

         Consolidated Statements of Cash Flows of the Company for the year ended
December 31, 1999, and for the period from April 10, 1998 through       
December 31,        1998, and Combined Statements of Cash Flows of the  
    Predecessor from January 1, 1998 through    April 9, 1998   and for the year
     ended December 31, 1997..................................................26

          Notes to Consolidated and Combined Financial Statements of Company and
     the Predecessor..........................................................28

          All other schedules are omitted because they are not applicable or the
        required information is shown in the consolidated or combined statements
 or notes thereto.

Financial statements of one 95%-owned company, a 99% limited partnership
     interest in two real estate limited partnerships, a 50% limited partnership
       interest in one real estate limited partnership and a 49% interest in one
         real estate limited partnership have been omitted because the Company's
      proportionate share of the income from continuing operations before income
           taxes is less than 20% of the respective consolidated amount, and the
                 investment in, and advances to, each entity is less than 20% of
consolidated total assets.    

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REPORT OF INDEPENDENT ACCOUNTANTS                                               

To the Board of Directors of                                                    
America First Mortgage Investments, Inc.                                        

In our opinion, the accompanying consolidated balance sheets and the related    
consolidated statements of income, shareholders' equity and cash flows present  
fairly, in all material respects, the financial position of America First       
Mortgage Investments, Inc. and its subsidiaries (the "Company") at December     
31, 1999 and 1998, and the results of their operations and their cash flows     
for the year ended December 31, 1999 and for the period from April 10, 1998 to  
December 31, 1998, and the results of operations and cash flows of America      
First Participating/Preferred Equity Mortgage Fund Limited Partnership and      
America First Participating/Preferred Equity Mortgage Fund (the "Fund") for     
the period from January 1, 1998 to April 9, 1998, and for the year ended        
December 31, 1997, in conformity with accounting principles generally accepted  
in the United States. These financial statements are the responsibility of the  
Company's management; our responsibility is to express an opinion on these      
financial statements based on our audits. We conducted our audits of these      
statements in accordance with auditing standards generally accepted in the      
United States, which require that we plan and perform the audit to obtain       
reasonable assurance about whether the financial statements are free of         
material misstatement.  An audit includes examining, on a test basis, evidence  
supporting the amounts and disclosures in the financial statements, assessing   
the accounting principles used and significant estimates made by management,    
and evaluating the overall financial statement presentation.  We believe that   
our audits provide a reasonable basis for the opinion expressed above.          

/s/ PricewaterhouseCoopers LLP                                                  
New York, New York                                                              
February 25, 2000                                                               

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
CONSOLIDATED BALANCE SHEETS                                                     

                                                        [Enlarge/Download Table]


                                                                                                                               As of           As of
                                                                                             Dec. 31, 1999        Dec. 31, 1998                     
                                                                                            ---------------     ---------------                     
                                                                                                                                                    
Assets                                                                                                                                              
 Investment in mortgage securities (Note 3)                                                 $  475,719,711      $  241,895,462                      
 Investment in corporate securities (Note 4)                                                     8,020,026           4,673,127                      
 Investment in preferred stock                                                                   3,130,823           1,153,800                      
 Cash and cash equivalents                                                                                                                          
  Unrestricted                                                                                  19,895,833           6,045,956                      
  Restricted                                                                                     3,709,577                -                         
 Accrued interest receivable                                                                     2,855,321           1,540,576                      
 Other investments      (Note 5)                                                                      3,220,346           1,197,341                 
 Goodwill, net                                                                                   7,587,948           7,361,338                      
 Other assets                                                                                               244,888             801,302             
                                                                                            ---------------     ---------------                     
                                                                                            $  524,384,473      $  264,668,902                      
                                                                                                          ===============     ===============       
Liabilities                                                                                                                                         
 Repurchase agreements (Note 6)                                                             $  452,101,803      $  190,250,084                      
 Accrued interest payable                                                                                     2,778,842             795,785         
 Accounts payable                                                                                               595,805             212,085         
 Dividends or distributions payable                                                                         1,293,410           2,413,803           
                                                                                                         ---------------     ---------------        
                                                                                               456,769,860         193,671,757                      
                                                                                                   ---------------     ---------------              
Minority interest in consolidated partnership (Note 1)                                                -                 64,388                      

Stockholders' Equity                                                                                                                                
 Common stock, $.01 par value; 10,000,000 shares authorized                                                                                         
 8,978,642 and 9,055,142 issued and outstanding in 1999 and 1998, respectively                      89,786              90,551                      
 Additional paid-in capital                                                                     75,831,560          76,203,009                      
 Retained earnings                                                                              (2,877,971)         (4,302,981)                     
 Accumulated other comprehensive income                                                         (5,428,762)         (1,057,822)                     
                                                                                            ---------------     ---------------                     
                                                                                                67,614,613          70,932,757                      
                                                                                            ---------------     ---------------                     
                                                                                            $  524,384,473      $  264,668,902                      
                                                                                            ===============     ===============                     

The accompanying notes are an integral part of the consolidated and combined financial statements.                                                  

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME                                  

ƒ WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

                                                        [Enlarge/Download Table]


                                                                      For the Year Ended December 31, 1998                                                                          
                                                                -----------------------------------------------                                                                     
                                                                                                                   Company and                                                      
                                                       Company          Company      Company and                   Predecessor                                                      
                                                       For the                       Predecessor                       For the                                                      
                                                    Year Ended    From April 10          Through                    Year Ended                                                      
                                                 Dec. 31, 1999 to Dec. 31, 1998    April 9, 1998          Total  Dec. 31, 1997                                                      
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
                                                                                                                                                                                    
Mortgage securities income                     $   24,302,401   $     7,626,742  $       613,793  $   8,240,535  $   2,654,975                                                      
Corporate securities income                           674,747           164,738             -           164,738           -                                                         
Dividend income                                       331,233              -                -              -              -                                                         
Interest income on temporary cash investments         365,897           439,889          148,799        588,688        569,624                                                      
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
Total interest income                              25,674,278         8,231,369          762,592      8,993,961      3,224,599                                                      
Interest expense on borrowed funds                 18,465,529         4,619,500             -         4,619,500           -                                                         
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
Net interest income                                 7,208,749         3,611,869          762,592      4,374,461      3,224,599                                                      
                                                                    ---------------  ---------------  ---------------  ------------- --------------                                 
Income from other investments                       3,012,688           581,716          145,167        726,883        606,582                                                      
Gain on sale of investments                            54,994           414,951             -           414,951           -                                                         
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
                                                    3,067,682           996,667          145,167      1,141,834        606,582                                                      
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
General and administrative expenses                 2,672,333         1,674,114          421,293      2,095,407      1,405,514                                                      
Minority interest in consolidated                                                                                                                                                   
 partnership (Note 1)                                   4,218             3,353             -             3,353           -                                                         
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
                                                    2,676,551         1,677,467          421,293      2,098,760      1,405,514                                                      
                                               ---------------  ---------------  ---------------  ------------- --------------                                                      
Net income                                     $    7,599,880    $    2,931,069  $       486,466  $   3,417,535  $   2,425,667                                                      
                                                                    ===============  ===============  ===============  ============= ==============                                 
Net income, basic and fully diluted, per share $          .84    $         0.32              N/A                           N/A                                                      
                                                                    ===============  ===============  ===============                 =============                                 
Net income, basic and fully diluted, per unit                               N/A  $          0.08                 $        0.42                                                      
                                                                ===============  ===============                 =============                                                      
Net income allocated to:                                                                                                                                                            
 General Partner                                                                                                                               $     3,931                 $  21,920
 BUC Holders                                                                                                                               482,535                 2,403,747        
                                                                                                                               ---------------             -------------            
                                                                                                                               $       486,466             $   2,425,667            
                                                                                                                               ===============             =============            

Weighted average number of shares outstanding       9,046,467         9,043,172              N/A                           N/A                                                      
Weighted average number of units outstanding              N/A               N/A        5,775,797                     5,775,797                                                      

The accompanying notes are an integral part of the consolidated and combined financial statements.                                                                                  

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 

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                                                                       Stockholders' Equity - Company                                            
                                          ---------------------------------------------------------------------------------                      
                                                                                                          Accumulated                            
                                                                                  Treasury                      Other                            
                                              Common Stock                                Paid-in       Stock     Retained Comprehensive         
                                       # of Shares             Amount         Capital       At Cost     Earnings               Income       Total
                                       ------------  ------------  ------------  ---------- -----------  ------------  --------                  
                                                                                                                                                 

Balance at November 11, 1997 (date of                                                                                                            
 capitalization) and                                                                                                                             
 December 31, 1997                       90,621          $       906     $        94            $      -      $     -   $      -     $     1,000 
Effects of Merger:                                                                                                                               
 Issuance of stock of the Company                                                                                                                
  in exchange for Units of                                                                                                                       
  the Predecessor                     5,775,797        57,758    45,126,359         -            -          -       45,184,117                   
 Issuance of stock of the Company in                                                                                                             
  exchange for Units of Prep Fund 2                                                                                                              
  and Pension Fund                    3,168,666        31,687    29,949,413         -            -          -       29,981,100                   
Issuance of stock options                 -             -           942,390         -            -          -          942,390                   
Comprehensive income:                                                                                                                            
 Net income                               -             -             -             -       2,931,069       -        2,931,069                   
 Other comprehensive income:                                                                                                                     
  Change in classification of mortgage                                                                                                           
   securities from held-to-maturity to                                                                                                           
   available-for-sale                     -             -             -             -            -                      (704,828)    (704,828)   
                Net unrealized holding losses                                                                                                    
   arising during the period              -             -             -                          -       (352,994)    (352,994)                  
                                   ------------  ------------  ------------ ----------- ------------- ------------ ------------                  
Comprehensive income                      -             -             -             -       2,931,069  (1,057,822)   1,873,247                   
Dividends paid or accrued                 -             -             -             -      (7,234,050)              (7,234,050)                  
Common stock issued                     20,058           200       184,753          -           -            -         184,953                   
                                   ------------  ------------  ------------ ------------ ------------- ------------ -----------                  
Balance at December 31, 1998            9,055,142             90,551             76,203,009          -      (4,302,981) (1,057,822)  70,932,757  

Comprehensive income:                                                                                                                            
 Net income                               -             -             -             -       7,599,880         -      7,599,880                   
 Other comprehensive income:                                                                                                                     
                Net unrealized holding losses                                                                                                    
   arising during the period              -             -             -             -            -     (4,370,940)  (4,370,940)                  
                                   ------------  ------------  ------------ ------------- ------------ ------------ -----------                  
Comprehensive income                      -             -             -             -       7,599,880  (4,370,940)   3,228,940                   
Dividends paid or accrued                 -             -             -             -      (6,174,870)              (6,174,870)                  
Common stock issued                      8,100            81        39,913          -            -           -          39,994                   
Purchase of shares for treasury           -                                     (412,208)        -           -        (412,208)                  
Retirement of treasury stock           (84,600)         (846)     (411,362)      412,208         -           -            -                      
                                   ------------  ------------  ------------ ------------- ------------ ------------ -----------                  
Balance at December 31, 1999         8,978,642   $    89,786   $75,831,560  $       -     $(2,877,971)$(5,428,762) $67,614,613                   
                                   ============  ============  ============ ============= ============ ============ ===========                  

The accompanying notes are an integral part of the consolidated and combined financial statements.                                               

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
COMBINED STATEMENTS OF PARTNERS' CAPITAL                                        

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                                                    Partners' Capital - Predecessor                
                                         ---------------------------------------------------       
                                                       Exchangeable Unit                           
                                                             Holders                               
                                                   -------------------------                       
                                         General                                                   
                                         Partner    # of Units         Amount          Total       
                                        --------    ----------   ------------   ------------       
                                                                                                   
 Balance at December 31, 1996            $   100     5,775,797    $49,399,062    $49,399,162       
 Net income                               21,920                    2,403,747      2,425,667       
 Cash distributions paid or accrued      (21,920)         -        (6,120,035)    (6,141,955)      
                                         --------   ----------   ------------   ------------       
 Balance at December 31, 1997                100     5,775,797     45,682,774     45,682,874       
 Net income                                3,931          -           482,535        486,466       
 Cash distributions paid or accrued       (3,931)         -        (1,530,009)    (1,533,940)      
                                         --------   ------------  ------------   -----------       
 Balance at April 10, 1998                   100     5,775,797     44,635,300     44,635,400       
                                         --------   ------------  ------------   -----------       

Accumulated other comprehensive income                                                             
  Balance at December 31, 1996              -              -          303,667        303,667       
         Other comprehensive income                -              -          266,285        266,285
                                        --------    ------------  ------------   ------------      
  Balance at December 31, 1997              -              -          569,952        569,952       
  Other comprehensive income                -              -          (21,235)       (21,235)      
                                        --------    ------------  ------------   ------------      
  Balance at April 10, 1998                 -              -          548,717        548,717       
                                        --------    ------------  ------------   ------------      
Issuance of stock of the Company in                                                                
 exchange for Units of the Predecessor      (100)    (5,775,797)   (45,184,017)  (45,184,117)      
                                        --------    ------------  ------------   -------------     
Total Partners' Capital-Predecessor                                                                
 at April 10, 1998                      $   -              -       $      -      $       -         
                                        ========   ============  ============   ==============     


The accompanying notes are an integral part of the consolidated and combined    
financial statements.                                                           

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS                              

                                                        [Enlarge/Download Table]

                                                                      For the Year Ended December 31, 1998                                         
                                                              ----------------------------------------------------                                 
                                                    Company             Company      Company and                    Company and                    
                                                                                     Predecessor                    Predecessor                    
                                                    For the                                                             For the                    
                                                 Year Ended       From April 10          Through                     Year Ended                    
                                              Dec. 31, 1999    to Dec. 31, 1998    April 9, 1998            Total Dec. 31, 1997                    
                                             ---------------  -----------------   ---------------  ---------------  -----------                    
                                                                                                                                                   
Cash flows from operating activities                                                                                                               
 Net income                                  $   7,599,880    $     2,931,069     $     486,466    $    3,417,535  $ 2,425,667                     
 Adjustments to reconcile net income to                                                                                                            
  net cash provided by                                                                                                                             
  operating activities:                                                                                                                            
   Gain on sale of investments                     (54,994)          (414,951)             -             (414,951)       -                         
   Minority interest in consolidated partnership     4,218              3,353              -                3,353        -                         
   Other                                            44,701               -                 -                 -           -                         
   Amortization                                  1,424,635            308,384            (1,959)          306,425     (11,860)                     
   Decrease (increase) in interest receivable   (1,301,925)        (1,134,069)            8,302        (1,125,767)     33,342                      
   Decrease (increase) in other assets             329,448           (252,473)            6,241          (246,232)        325                      
   Increase (decrease) in accounts payable         233,719         (1,860,513)          565,608        (1,294,905)    623,186                      
   Increase in accrued interest payable          1,983,057            795,785              -              795,785        -                         
                                              -------------     --------------   ---------------   --------------  -----------                     
 Net cash provided by operating activities      10,262,739            376,585         1,064,658         1,441,243   3,070,660                      
                                              -------------     --------------   ---------------   --------------  -----------                     
Cash flows from investing activities                                                                                                               
 Principal payments on mortgage securities     113,346,110         46,682,908           867,630        47,550,538   4,116,822                      
0 Sale of preferred stock                         1,127,500               -                 -                 -           -                        
 Proceeds from sale of other investments              -             1,290,000              -            1,290,000   2,100,000                      
 Net cash from Merger                                 -             4,820,481              -            4,820,481        -                         
 Increase in restricted cash                    (3,709,577)              -                 -                 -           -                         
 Purchases of mortgage securities             (352,732,908)      (236,107,915)             -         (236,107,915)       -                         
 Purchases of corporate securities              (3,307,750)        (4,662,500)             -           (4,662,500)       -                         
 Purchases of preferred stock                   (3,091,997)        (1,081,773)             -           (1,081,773)       -                         
 Decrease (increase) in other investments       (2,149,060)           (58,567)           42,869           (15,698)   (675,643)                     
 Merger transaction costs paid                        -                  -             (729,509)         (729,509)   (859,642)                     
                                              -------------     --------------   ---------------    -------------  -----------                     
 Net cash provided by (used in)                                                                                                                    
   investing activities                       (250,517,682)      (189,117,366)          180,990      (188,936,376)  4,681,537                      
                                              -------------     --------------   ---------------    -------------- -----------                     
Cash flows from financing activities                                                                                                               
 Net borrowings from repurchase agreements     261,851,719        190,250,084             -           190,250,084        -                         
 Stock purchased for treasury                     (412,208)              -                -                  -           -                         
 Dividends and distributions paid               (7,334,691)        (5,600,169)      (1,535,007)        (7,135,176) (6,143,343)                     
 Issuance of stock                                    -                  -                -                  -          1,000                      
                                              -------------     --------------   ---------------    -------------- -----------                     
 Net cash provided by (used in)                                                                                                                    
   financing activities                        254,104,820        184,649,915       (1,535,007)       183,114,908  (6,142,343)                     
                                              -------------     --------------   ---------------    -------------- -----------                     
Net increase (decrease) in cash                                                                                                                    
   and cash equivalents                         13,849,877         (4,090,866)        (289,359)        (4,380,225)  1,609,854                      
Cash and temporary cash investments at                                                                                                             
   beginning of period                             6,045,956         10,136,822       10,426,181         10,426,181   8,817,327                    
                                              -------------    ---------------  ---------------    --------------  -----------                     
Cash and temporary cash investments                                                                                                                
   at end of period                           $ 19,895,833     $    6,045,956   $   10,136,822     $    6,045,956 $10,427,181                      
                                                                   =============    ===============  ===============    ==============  ===========

Supplemental disclosure of cash flow information:                                                                                                  

 Cash paid during the period for interest     $ 16,482,472     $    3,823,715   $        -         $    3,823,715 $      -                         

The accompanying notes are an integral part of the consolidated and combined financial statements.                                                 


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Supplemental disclosure on non-cash investing activities:                       

The following assets and liabilities were assumed by the Company in         
          conjunction with the Merger and issuance of common stock (see Note 1):

                                                        [Enlarge/Download Table]

                                 From April 10          Through                                                                          
                              to Dec. 31, 1998    April 9, 1998         Total                                                            
                             -----------------  ---------------  ------------                                                            
                                                                                                                                         
Mortgage securities                                                                        $   20,420,336  $         -      $  20,420,336
Accrued interest receivable                                                    142,545         -            142,545                      
Other investments                                                                     175,369         -            175,369               
Accounts payable                                                                      712,888         -            712,888               
Distributions payable                                                                 265,545         -            265,545               

The Company recorded goodwill of $7,507,902 in 1998 as a result of the      
     Merger. The Company recorded $413,615 of additional goodwill in 1999 due to
           the resolution of contingencies associated with the Merger.

During 1999 and 1998, the Company issued 8,100 and 7,440 shares,            
respectively, of common stock to its non-employee directors in payment of a 
 portion of such directors' compensation for the respective year.  The Company
also issued 12,618 shares of common stock in 1998 to unit holders of Pension
        Fund who exchanged their units of Pension Fund for shares of the Company
          subsequent to April 10, 1998. The aggregate value of such common stock
issued was $39,994 in 1999 and $184,953 in 1998.

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.                                        
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS                         
DECEMBER 31, 1999                                                               

1.  Organization                                                                

America First Mortgage Investments, Inc. (the Company) was incorporated in      
Maryland on July 24, 1997, and began operations on April 10, 1998.              

On April 10, 1998, (the Merger Date) the Company and three partnerships:        
America First Participating/Preferred Equity Mortgage Fund Limited Partnership  
(Prep Fund 1), America First Prep Fund 2 Limited Partnership (Prep Fund 2),     
America First Prep Fund 2 Pension Series Limited Partnership (Pension Fund),    
consummated a merger transaction whereby their pre-existing net assets and      
operations or majority interest in the pre-existing partnership were            
contributed to the Company in exchange for 9,035,084 shares of the Company's    
common stock.  For financial accounting purposes, Prep Fund 1, the largest of   
the three partnerships, was considered the Predecessor entity (the              
Predecessor) and its historical operating results are presented in the          
financial statements contained herein.  The Merger was accounted for using the  
purchase method of accounting in accordance with generally accepted accounting  
principles.  Prep Fund 1 was deemed to be the acquirer of the other             
partnerships under the purchase method.  Accordingly, the Merger resulted, for  
financial accounting purposes, in the effective purchase by Prep Fund 1 of all  
the Beneficial Unit Certificates (BUCs) of Prep Fund 2 and approximately 99%    
of the BUCs of Pension Fund.  Pension Fund was liquidated and dissolved during  
December, 1999, and, as a result, the Company acquired approximately 99% of     
the assets of Pension Fund.  The remaining assets, consisting solely of cash,   
were distributed to the remaining holders of Pension Fund BUCs.  As the         
surviving entity for financial accounting purposes, the assets and liabilities  
of Prep Fund 1 were recorded by the Company at their historical cost and the    
assets and liabilities of Prep Fund 2 and Pension Fund were adjusted to fair    
value.  The excess of the fair value of stock issued over the fair value of     
net assets acquired has been recorded as goodwill in the accompanying balance   
sheet.                                                                          

The Company has entered into an advisory agreement with America First Mortgage  
Advisory Corporation (the Advisor) which provides advisor services in           
connection with the conduct of the Company's business activities.               

2.  Summary of Significant Accounting Policies                                  

A)  Method of Accounting                                                        
The accompanying 1999 consolidated and combined financial statements    
            include the consolidated accounts of the Company from April 10, 1998
            through December 31, 1999, and the combined accounts of the Company,
           Prep Fund 1 and America First Participating/Preferred Equity Mortgage
           Fund (the managing general partner of Prep Fund 1) (together referred
           to as the Predecessor) for periods prior to the Merger. The financial
        statements are prepared on the accrual basis of accounting in accordance
                with generally accepted accounting principles.

The consolidated financial statements include the accounts of the       
           Company and its subsidiaries, Pension Fund and Pension Fund's general
   partner, America First Capital Associates Limited Partnership Six (AFCA 6).
                All significant intercompany transactions and accounts have been
        eliminated in consolidation. Pension Fund and AFCA 6 were liquidated and
            dissolved under the terms of their respective partnership agreements
           during December, 1999. As more fully discussed in Note 5, the Company
                 also has an investment in a corporation and investments in four
           real estate limited partnerships, none of which are controlled by the
           Company. These investments are accounted for under the equity method.
            Neither the corporation nor the real estate limited partnerships are
       consolidated for income tax purposes.

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.                                                              

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B)  Cash and Cash Equivalents                                                   
Cash and cash equivalents include cash on hand and highly liquid        
investments with original maturities of three months or less.  The      
carrying amount of cash equivalents approximates their fair value.      
  Restricted cash represents amounts held with certain lending
institutions with which the Company has repurchase agreements.          
Such amounts may be used to make principal and interest payments        
on the related repurchase agreements.                                   

C)  Mortgage Securities, Corporate Securities and Preferred Stock               
          Statement of Financial Accounting Standards No. 115, "Accounting for
         Certain Investments in Debt and Equity Securities" (SFAS 115), requires
                 the Company to classify its investments in mortgage securities,
           corporate securities and preferred stock (collectively referred to as
investment securities) as either held-to-maturity, available-for-sale   
or trading.     

             Although the Company generally intends to hold most of its mortgage
securities until maturity, it may, from time to time, sell any of its   
          mortgage securities as part of its overall management of its business.
         In order to be prepared to respond to potential future opportunities in
                the market, to sell mortgage securities in order to optimize the
       portfolio's total return and to retain its ability to respond to economic
      conditions that require the Company to sell assets in order to maintain an
     appropriate level of liquidity, the Company has classified all its mortgage
      securities as available-for-sale. Likewise, the Company has classified all
      its preferred stock investments as available-for-sale. Mortgage securities
       and preferred stock classified as available-for-sale are reported at fair
     value, with unrealized gains and losses excluded from earnings and reported
           in other comprehensive income. Corporate securities are classified as
                             held-to-maturity and are carried at amortized cost.

Unrealized losses on investment securities that are considered          
other-than-temporary, as measured by the amount of decline in fair value
  attributable to factors other than temporary, are recognized in income and
the cost basis of the investment security is adjusted.                  
     Other-than-temporary unrealized losses are based on management's assessment
         of various factors affecting the expected cash flow from the investment
       securities, including an other-than-temporary deterioration of the credit
      quality of the underlying mortgages and/or the credit protection available
to the related mortgage pool. 

Gains or losses on the sale of investment securities are based on the   
specific identification method.                                         

Interest income is accrued based on the outstanding principal amount of 
the investment securities and their contractual terms.  Premiums and    
discounts associated with the purchase of the investment securities are 
 amortized into interest income over the lives of the securities using the
  effective yield method based on, among other things, anticipated estimated
prepayments.  Such calculations are periodically adjusted for actual    
prepayment activity.                                                    

D) Credit Risk                                                                  
      The Company limits its exposure to credit losses on its investment
            portfolio by requiring that at least 70% of its investment portfolio
                consist of mortgage securities or mortgage loans that are either
          (i) insured or guaranteed as to principal and interest by an agency of
       the U.S. government, such as the Government National Mortgage Association
        (GNMA), the Federal National Mortgage Association (FNMA), or the Federal
    Home Loan Mortgage Corporation (FHLMC), (ii) rated in one of the two highest
              rating categories by either Standard & Poor's or Moody's, or (iii)
      considered to be of equivalent credit quality as determined by the Advisor
        and approved by the Company's investment committee. The remainder of the
              Company's assets may be either: (i) mortgage assets rated at least
        investment grade or considered to be of equivalent credit quality by the
      Advisor with approval from the Company's investment committee; (ii) direct
        investment (mezzanine or equity) in multifamily projects collateralizing
               mortgage loans owned by the Company; (iii) investments in limited
             partnerships, equities, real estate investment trusts or closed-end
         funds owning a portfolio of mortgage and/or real estate assets; or (iv)
            other corporate debt or equity securities or government fixed-income
    instruments that provide increased call protection relative to the Company's
        mortgage securities. Corporate debt that is rated below investment grade

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            will be limited to less than 5% of the Company's total assets. As of
     December 31, 1999 and 1998, approximately 79% and 91%, respectively, of the
      Company's assets consisted of mortgage securities insured or guaranteed by
    the U.S. government or an agency thereof. Management determined no allowance
               for credit losses was necessary at December 31, 1999 or 1998.

E) Other Investments                                                            
Other investments consist of: (i) non-voting preferred stock of a         
      corporation owning interests in real estate limited partnerships, and (ii)
investments in limited partnerships owning real estate.                   

F) Net Income per Share                                                         
Net income per share is based on the weighted average number of common    
shares and common equivalent shares (e.g., stock options), if dilutive,   
outstanding during the period.  Basic net income per share is computed by 
dividing net income available to shareholders by the weighted average     
number of common shares outstanding during the period.  Diluted net       
income per share is computed by dividing the diluted net income available 
to common shareholders by the weighted average number of common shares and
common equivalent shares outstanding during the period.  The common       
equivalent shares are calculated using the treasury stock method which    
assumes that all dilutive common stock equivalents are exercised and the  
funds generated by the exercise are used to buy back outstanding common   
stock at the average market price during the reported period.             

As more fully discussed in Note 7, options to purchase 520,000 and 300,000
       shares of common stock were issued on April 6, 1998, and August 13, 1999,
         respectively. Because the average stock price during the quarter during
       which such options were issued was less than the exercise price, exercise
         of such options under the treasury stock method would be anti-dilutive.
       Accordingly, these potentially dilutive securities were not considered in
              fully diluted earnings per share and, as a result, basic and fully
       diluted net income per share are the same for all periods presented. With
regard to the Predecessor, no options were issued.  As such, basic and    
            diluted net income per Unit of the Predecessor were the same for all
                      periods presented as no dilutive equivalent units existed.

G) Comprehensive Income                                                         
Statement of Financial Accounting Standards No. 130, "Reporting           
Comprehensive Income" requires the Company and the Predecessor to display 
and report comprehensive income, which includes all changes in            
Stockholders' Equity or Partners' Capital with the exception of additional
investments by or dividends to shareholders of the Company or additional  
investments by or distributions to partners of the Predecessor.           
Comprehensive income for the Company and the Predecessor includes net     
               income and the change in net unrealized holding gains (losses) on
        investments. Comprehensive income for the years ended December 31, 1999,
1998 and 1997 was as follows:   

                                                        [Enlarge/Download Table]

                                                           For the Year Ended December 31, 1998                                   
                                                       ------------------------------------------------                           

                                         Company for            Company    Company and                       Company and          
                                      the Year Ended   From April 10 to           Predecessor                   Predecessor for   
                                                                               through                    the Year Ended          
                                       Dec. 31, 1999      Dec. 31, 1998  April 9, 1998          Total       Dec. 31,1997          
                                      --------------   ----------------  ---------------   ------------   --------------          
                                                                                                                                  
Net income                            $  7,599,880    $    2,931,069  $       486,466    $    3,417,535   $    2,425,667          
 Change in classification of mortgage                                                                                             
  securities from held-to-maturity to                                                                                             
  available-for-sale                                      -               (704,828)               -             (704,828)        -
 Change in net unrealized                                                                                                         
  holding gains (losses)                (4,370,940)         (352,994)         (21,235)         (374,229)         266,285          
                                      --------------  ---------------  ---------------   ---------------   --------------         
Comprehensive income                  $  3,228,940    $    1,873,247  $       465,231    $    2,338,478   $    2,691,952          
                                      ==============  ===============  ===============   ===============   ==============         

H) Federal Income Taxes                                                         
The Company has elected to be taxed as a real estate investment trust     
(REIT) under the provisions of the Internal Revenue Code and the          

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corresponding provisions of state law. As such, no provision for income   
      taxes has been made in the accompanying consolidated financial statements.

      Since the Predecessor was a partnership and generally not subject to taxes
       directly, it did not make a provision for income taxes. The Predecessor's
         Beneficial Unit Certificate (BUC) holders were required to report their
share of the Predecessor's income for federal and state income tax        
purposes.                       

I) New Accounting Pronouncement                                                 
        In June, 1998, the Financial Accounting Standards Board issued Financial
        Accounting Standards No. 133, "Accounting for Derivative Instruments and
          Hedging Activities " (FAS 133). This statement provides new accounting
         and reporting standards for the use of derivative instruments. Adoption
             of this statement, as amended, is required by the Company effective
          January 1, 2001. Management intends to adopt the statement as required
       in fiscal 2001. Management believes that the impact of such adoption will
       not be material to the financial statements. Although the Company and its
              Predecessor have not historically used such instruments, it is not
       precluded from doing so. In the future, management anticipates using such
             derivative instruments only as hedges to manage interest rate risk.
        Management does not anticipate entering into derivatives for speculative
or trading purposes.                          

3. Mortgage Securities                                                          

The following table presents the Company's mortgage securities as of December   
31, 1999 and 1998.                                                              

                                                                [Download Table]
                                                   As of              As of
                                       December 31, 1999  December 31, 1998
                                       -----------------  ---------------- 
                                                                           
FNMA Certificates                      $     359,891,164  $     159,686,597
GNMA Certificates                             43,678,897         59,452,502
FHLMC Certificates                            13,220,884         22,756,363
Commercial mortgage-backed securities         16,650,544              -    
Private label CMOs                            42,278,222              -    
                                       -----------------  -----------------
                                       $     475,719,711  $     241,895,462
                                       =================  =================

At December 31, 1999, and 1998 mortgage securities consisted of pools of        
adjustable-rate mortgage securities with carrying values of $444,140,267 and    
$194,542,316, respectively and fixed-rate mortgage securities with carrying     
values of $31,579,444 and $47,353,146, respectively.                            

The Federal National Mortgage Association (FNMA) Certificates are backed by     
first mortgage loans on pools of single-family properties. The FNMA             
Certificates are debt securities issued by FNMA and are guaranteed by FNMA as   
to the full and timely payment of principal and interest on the underlying      
loans.                                                                          

The Government National Mortgage Association (GNMA) Certificates are backed by  
first mortgage loans on multifamily residential properties and 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.               

Federal Home Loan Mortgage Corporation (FHLMC) Certificates are backed by       
first mortgage loans on pools of single-family properties.  The FHLMC           
Certificates are debt securities issued by FHLMC and are guaranteed by FHLMC    
as to the full and timely payment of principal and interest on the underlying   
loans.                                                                          

The commercial mortgage-backed securities are rated AA or A by Standard and     
Poor's.                                                                         

The private label CMOs (collateralized mortgage obligations) are rated AAA by   
Standard and Poor's.                                                            

As of December 31, 1999 and 1998, all the mortgage securities were classified   
as available-for-sale and as such are carried at their fair value.              

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The following table presents the amortized cost, gross unrealized gains, gross  
unrealized losses and fair value of mortgage securities as of December 31,      
1999 and 1998:                                                                  

                                                                [Download Table]

                                      As of                As of               
                          December 31, 1999    December 31, 1998               
                         ------------------   ------------------               
                                                                               
Amortized cost           $    481,176,498     $      242,142,861               
Gross unrealized gains            461,675              1,177,638               
Gross unrealized losses        (5,918,462)            (1,425,037)              
                         ------------------    ------------------              
Fair value                                  $    475,719,711     $  241,895,462
                         ==================    ==================              

As of December 31, 1999, the Company had a commitment to purchase one mortgage  
security with a remaining principal balance of approximately $34.9 million.     
See Note 12 - Subsequent Events.                                                

4.  Corporate Securities                                                        

Corporate securities are classified as held-to-maturity.  The following table   
presents the amortized cost, gross unrealized gains, gross unrealized losses    
and fair value of the corporate securities as of December 31,                   
1999 and 1998:                                                                  

                                                                [Download Table]


                                        As of                      As of
                            December 31, 1999          December 31, 1998
                           ------------------         ------------------
                                                                        
Amortized cost             $       8,020,026           $       4,673,127
Gross unrealized gains                92,211                     273,123
Gross unrealized losses             (174,487)                       -   
                           ------------------         ------------------
Fair value                 $       7,937,750           $       4,946,250
                           ==================         ==================

5.  Other Investments                                                           
Other investments consisted of the following as of December 31, 1999 and 1998:  

                                                        [Enlarge/Download Table]

                                                                        As of             As of                                       
                                                                                                          Dec. 31, 1999  Dec. 31, 1998
                                                                -------------     -------------                                       
                                                                                                                                      
Investment in Retirement Centers Corporation                              $  2,389,980      $    349,076                              
Investment in and advances to real estate limited partnerships               830,366           848,265                                
                                                                -------------     -------------                                       
Total                                                           $  3,220,346      $  1,197,341                                        
                                                                =============     =============                                       

The Company's investment in Retirement Centers Corporation (RCC) represents a   
95% ownership interest in such corporation.  The Company owns 100% of the       
non-voting preferred stock of RCC and a third party owns 100% of the common     
stock. The Company accounts for its investment in RCC on the equity method. As  
of December 31, 1998, RCC owned limited partnership interests in five real      
estate limited partnerships which operate assisted living centers.  However,    
during 1999, four of the real estate limited partnerships were liquidated with  
RCC receiving an undivided interest in the net assets of each such limited      
partnership.  RCC then sold its undivided interests in the net assets of each   
such assisted living center.  On a consolidated basis, such sale contributed    
approximately $1,730,000, ($2,163,000 less an incentive fee of approximately    
$433,000 (see Note 8)), to the Company's net income for 1999.  Also see Note    
12 - Subsequent Events.                                                         

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Investments in and advances to real estate limited partnerships consist of      
investments in or advances made to four limited partnerships which own the      
properties underlying certain mortgage securities owned by the Company or its   
Predecessor.  These investments are not insured or guaranteed but rather are    
collateralized by the value of the real estate underlying the real estate       
owned by such limited partnerships.  They are accounted for under the equity    
method of accounting.  Certain of the investments have a zero carrying value    
and, as such, earnings are recorded only to the extent distributions are        
received.  Such investments have not been reduced below zero through            
recognition of allocated investment losses since neither the Company nor its    
Predecessor have any legal obligation to provide additional cash support to     
the underlying property partnerships as they are not the general partner, nor   
have they indicated any commitment to provide this support.                     

6.  Repurchase Agreements                                                       

As of December 31, 1999, the Company had outstanding balances of $452,101,803   
under 38 repurchase agreements with a weighted average borrowing rate of 5.72%  
and a weighted average remaining maturity of one month.  As of December 31,     
1999, all of the Company's borrowings were fixed-rate term repurchase           
agreements with original maturities that range from two to twelve months.  As   
of December 31, 1998, the Company had outstanding balances of $190,250,084      
under 13 repurchase agreements with a weighted average borrowing rate of 5.04%  

As of December 31, 1999 and 1998, the repurchase agreements had the following   
remaining maturities:                                                           

                                                                [Download Table]

                                      As of                 As of         
                          December 31, 1999     December 31, 1998         
                          -----------------     -----------------         
                                                                          
Within 30 days                        $ 287,416,803         $  40,641,585 
30 to 90 days                            164,685,000            57,296,499
90 days to one year                   -                92,312,000         
                              -------------         -------------         
                              $ 452,101,803         $ 190,250,084         
                              =============         =============         

The repurchase agreements are collateralized by the Company's mortgage          
securities with a principal balance of $468,466,921 and bear                    
interest at rates that are LIBOR-based.                                         

7.  Stockholders' Equity                                                        

1997 Stock Option Plan                                                          
---------------------                                                           
The Company has a 1997 Stock Option Plan (the Plan) which authorizes the        
granting of options to purchase an aggregate of up to 1,000,000 shares of the   
Company's common stock, but not more than 10% of the total outstanding shares   
of the Company's common stock.  The Plan authorizes the Board of Directors, or  
a committee of the Board of Directors, to grant Incentive Stock Options (ISOs)  
as defined under section 422 of the Internal Revenue Code, Non-Qualified Stock  
Options (NQSOs) and Dividend Equivalent Rights (DERs) to eligible persons,      
other than non-employee directors.  Non-employee directors are eligible to      
receive grants of NQSOs with DERs pursuant to the provisions of the Plan.  The  
exercise price for any options granted to eligible persons under the Plan       
shall not be less than the fair market value of the common stock on the day of  
the grant. The options expire if not exercised ten years after the date         
granted.                                                                        

On April 6, 1998, 500,000 ISOs were granted to buy common shares at an          
exercise price of $9.375 per share (the 1998 Grant).  In addition, 20,000       
NQSOs were issued at an exercise price of $9.375 per share.  On August 13,      
1999, 300,000 ISOs were granted to buy common shares at an exercise price of    
$4.875 per share (the 1999 Grant). Prior to the 1998 Grant, no other options    
were outstanding.  As of December 31, 1999 and 1998, respectively,              
325,000 and 125,000 ISOs were vested and exercisable. As of December 31, 1999   
and 1998, respectively, 10,000 and 5,000 NQSOs were vested and                  
exercisable.  As of December 31, 1999, no options had been exercised.           

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In addition to the options granted on April 6, 1998, 500,000 and 20,000 DERs    
were also granted on the ISOs and NQSOs, respectively, based on the provisions  
of the Plan.  No DERs were granted on the ISOs granted on August 13, 1999.      
DERs vest on the same basis as the options and payments are made on vested      
DERs only.  Vested DERs are paid only to the extent of ordinary income and not  
on returns of capital.  Dividends paid on ISOs are charged to stockholders'     
equity when declared and dividends paid on NQSOs are charged to earnings when   
declared.  For the years ended December 31, 1999 and 1998, the Company          
recorded charges of $117,500 and $42,500, respectively, to stockholders'        
equity (included in dividends paid or accrued) associated with the DERs on      
ISOs and charges of $4,700 and $1,700, respectively, to earnings associated     
with DERs on NQSOs.                                                             

The options and related DERs issued were accounted for under the provisions of  
SFAS 123, "Accounting for Stock Based Compensation".  Because the ISOs were     
not issued to officers who are direct employees of the Company, ISOs granted    
were accounted for under the option value method as variable grants and a       
periodic charge will be recognized based on the vesting schedule.  The charge   
for options which vested immediately with the 1998 Grant was included as        
capitalized transaction costs in connection with the Merger.  Until fixed and   
determinable, management estimates the value of the ISOs granted as of each     
balance sheet date using a Black-Scholes valuation model, as adjusted for the   
discounted value of dividends not to be received under the unvested DERs.  In   
the absence of comparable historical market information for the Company,        
management originally utilized assumptions consistent with activity of a        
comparable peer group of companies including an estimated option life, a        
volatility rate, a risk-free rate and a current dividend yield (or 0% if the    
related DERs are issued).  For the years ended December 31, 1999 and 1998, as   
part of operations, the Company reflected earnings charges of $42,707 and       
$170,154, respectively, representing the value of ISOs/DERs granted over their  
vesting period.  NQSOs granted were accounted for using the intrinsic method    
and, accordingly, no earnings charge was reflected since the exercise price     
was equal to the fair market value of the common stock at the date of the       
grant.                                                                          

Dividends/Distributions                                                         
-----------------------                                                         
The Company declared the following distributions during 1999 and 1998:          

                                                        [Enlarge/Download Table]


Declaration Date     Record Date         Payment Date      Amount per Share                                        
----------------     -----------         ------------      ----------------                                        
                                                                                                                   

During 1999:                                                                                                       

March 24, 1999      April 5, 1999       May 17, 1999       $       .265                                            
June 14, 1999       June 30, 1999       August 17, 1999    $       .125                                            
September 21, 1999  September 30, 1999  November 17, 1999  $       .140                                            
December 16, 1999   January 3, 2000     February 18, 2000  $       .140                                            

During 1998:                                                                                                       

June 18, 1998                                                               June 30, 1998  August 14, 1998  $  .265
September 9, 1998   September 30, 1998  November 16, 1998  $       .265                                            
December 15, 1998   December 31, 1998   February 19, 1999  $       .265                                            


For tax purposes, a portion of the dividend declared on December 16, 1999, and  
paid on February 18, 2000, will be treated as a 2000 event for shareholders.    
Similarly, the dividend declared on December 15, 1998, and paid February 19,    
1999, was treated as a 1999 event for shareholders.  As part of the Merger      
transaction, the Company made quarterly distributions of $.265 per common       
share ($1.06 per common share per year) in the first year following the Merger  
(i.e. through the first quarter of 1999.)  Accordingly, cash distributions      
paid by the Company in 1998 consisted in part of a dividend and in part of a    
cash merger payment. Cash distributions paid or accrued by the Predecessor      
were $.2649 per Unit prior to the Merger in 1998 and $1.0596 per Unit in        
1997.                                                                           

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Stock Repurchases                                                               
-----------------                                                               
On September 21, 1999, the Company's Board of Directors approved the            
repurchase of up to 200,000 shares of its common stock.  Pursuant to this       
repurchase program, the Company repurchased 84,600 shares of its common stock   
for $412,208 during 1999.  The repurchased shares were then legally retired     
and, as such, are no longer issued or outstanding.  See Note 12 - Subsequent    
Events.                                                                         

8.  Related Party Transactions                                                  

The Advisor manages the operations and investments of the Company and performs  
administrative services for the Company.  In turn, the Advisor receives a       
management fee payable monthly in arrears in an amount equal to 1.10% per       
annum of the first $300 million of Stockholders' Equity of the Company, plus    
.80% per annum of the portion of Stockholders' Equity of the Company above    
$300 million.  The Company also pays the Advisor, as incentive compensation     
for each fiscal quarter, an amount equal to 20% of the dollar amount by which   
the annualized Return on Equity for such fiscal quarter exceeds the amount      
necessary to provide an annualized Return on Equity equal to the Ten-Year U.S.  
Treasury Rate plus 1%.  For the year ended December 31, 1999 and the period     
from April 10, 1998, (Merger Date) to December 31, 1998, the Advisor earned a   
base management fee of $761,646 and $590,875, respectively.  The Advisor        
earned incentive compensation of $741,233 in 1999 and $2,807 in                 
1998.  Approximately $433,000 of the incentive fee earned in 1999 was           
attributable to the sale of undivided interests in the net assets of four       
assisted living centers held by RCC as described in Note 5.                     

America First Properties Management Company L.L.C., (the Manager), provides     
property management services for certain of the multifamily properties in       
which the Company has an interest.  The Manager also provided property          
management services to certain properties previously associated with the        
Predecessor which were acquired in the Merger.  The Manager receives a          
management fee equal to a stated percentage of the gross revenues generated by  
the properties under management, ranging from 3.5% to 4% of gross revenues.     
Such fees paid by the Company for the year ended December 31, 1999, and in 1998 
for periods after the Merger Date amounted to $325,213 and $250,912,            
respectively.  Such fees paid by the three Partnerships which merged amounted   
to $83,017 (including $45,527 paid by the Predecessor) for the period in 1998   
prior to the Merger Date and $355,077 in 1997 (including $222,682 paid by the   
Predecessor).                                                                   

Prior to the Merger Date, the general partner of the Predecessor (AFCA 3) was   
entitled to an administrative fee of .35% per annum of the outstanding amount   
of investments of the Predecessor to be paid by the Predecessor to the extent   
such amount is not paid by property owners.  AFCA 3 earned administrative fees  
of $53,617 and $225,813 in 1998 and 1997, respectively.  Of such amounts,       
$38,659 and $195,816 in 1998 and 1997, respectively, were paid by the           
Predecessor and the remainder was paid by owners of real properties financed    
by the Predecessor.  During 1997, AFCA 3 also received administrative fees of   
$88,780 in conjunction with the payoff of one of the Predecessor's investments  
in participating loans.                                                         

Prior to the Merger Date, substantially all of Predecessor's general and        
administrative expenses and certain costs capitalized by the Predecessor were   
paid by AFCA 3 or an affiliate and reimbursed by the Predecessor.  The amounts  
of such expenses reimbursed to AFCA 3 or an affiliate were $165,439 in 1998     
and $1,935,423 in 1997.  The capitalized costs consist of transaction costs     
incurred in conjunction with the merger described in Note 1.                    

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9.  Fair Value of Financial Instruments                                         

The following methods and assumptions were used by the Company in estimating    
the fair value of its financial instruments:                                    

Investments in mortgage securities, corporate securities and preferred      
stock:  Fair values are based on broker quotes or amounts obtained from     
independent pricing sources.                                  

        Cash and cash equivalents: Fair value approximates the carrying value of
such assets.                                    

       Repurchase agreements: Fair value approximates the carrying value of such
liabilities.                                                                

                                                        [Enlarge/Download Table]

                                                                                                             As of December 31, 1999  As of December 31, 1998
                                    -------------------------------------  --------------------------------                                                  
                                      Carrying               Estimated        Carrying          Estimated                                                    
                                        Amount              Fair Value          Amount         Fair Value                                                    
                                    ------------          ---------------  -------------     --------------                                                  
                                                                                                                                                             
Investment in mortgage securities   $  475,719,711        $  475,719,711   $ 241,895,462     $ 241,895,462                                                   
Investment in corporate securities       8,020,026             7,937,750       4,673,127         4,946,250                                                   
Investment in preferred stock            3,130,823             3,130,823       1,153,800         1,153,800                                                   
Cash and cash equivalents                                                                                                                                    
  Unrestricted                          19,895,833            19,895,833       6,045,956         6,045,956                                                   
  Restricted                             3,709,577             3,709,577            -                 -                                                      
Repurchase agreements                  452,101,803           452,101,803     190,250,084       190,250,084                                                   

10.  Pro Forma Financial Statements (Unaudited)                                 

The following summary pro forma information includes the effects of the         
Merger as if the Merger had been completed on January 1, 1998:                  

Pro Forma                                                                       
Statement of Operations                                                         

                                                        [Enlarge/Download Table]
CAPTION>                                                                                                                       
                                                           For the                                                             
                                                        Year Ended                                                             
                                                     Dec. 31, 1998                                                             
                                                    ---------------                                                            
                                                                                                                               
Mortgage securities income                          $    8,982,060                                                             
Corporate securities income                                164,738                                                             
Interest income on temporary cash investments              727,889                                                             
                                                    ---------------                                                            
Total interest income                                    9,874,687                                                             
Interest expense on borrowed funds                       4,619,500                                                             
                                                    ---------------                                                            
Net interest income                                      5,255,187                                                             
                                                    ---------------                                                            
Income from other investments                              801,076                                                             
Gain on sale of investments                                426,607                                                             
                                                    ---------------                                                            
                                                         1,227,683                                                             
                                                    ---------------                                                            
General and administrative expenses (1)                  2,655,216                                                             
Minority interest                                            3,353                                                             
                                                    ---------------                                                            
                                                         2,658,569                                                             
                                                    ---------------                                                            
Net income                                          $    3,824,301                                                             
                                                                         ===============                                       
Net income, basic and fully diluted, per share      $         0.42                                                             
                                                    ===============                                                            
Weighted average number of shares outstanding            9,043,172                                                             

(1) Excludes transaction costs of $364,924 incurred by Prep Fund 2 and Pension Fund.                                           

The pro forma financial information is not necessarily indicative of what the consolidated results of operations of the Company
would have been for the periods indicated, nor does it purport to represent the results of operations for future periods.      

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11.  Summary of Quarterly Results of Operations (Unaudited)                     

                                                        [Enlarge/Download Table]

                                                             First              Second             Third            Fourth 
From January 1, 1999, to December 31, 1999                 Quarter             Quarter           Quarter           Quarter 
                                                    --------------      --------------    --------------     --------------
                                                                                                                           
Total income                                        $   1,869,081       $   2,146,590     $   4,223,361      $   2,037,399 
Total expenses                                           (616,193)           (628,400)       (1,052,855)          (374,885)
Minority interest                                            (490)             (4,230)              327                175 
                                                    --------------      --------------    --------------     --------------
Net income                                          $   1,252,398       $   1,513,960     $   3,170,833 (1)  $   1,662,689 
                                                    ==============      ==============    ==============     ==============
Net income, basic and diluted,                                                                                             
  per share                                         $        0.14       $        0.17     $        0.35 (1)  $        0.18 
                                                    ==============      ==============    ==============     ==============
(1) Includes income of approximately $1.7 million (net of the incentive fee of $433,000)                                   
or approximately $0.19 per share related to the sale described in Note 5.                                                  


                                                        [Enlarge/Download Table]

                                    Predecessor      Predecessor        Company          Company         Company 
                                          First           Second         Second            Third          Fourth 
From January 1, 1998, to                Quarter          Quarter        Quarter          Quarter         Quarter 
December 31, 1998                                Through April 9  From April 10                                  
(Company and Predecessor)        --------------   --------------  --------------   --------------   ------------ 
                                                                                                                 
Total income                     $     907,759    $        -      $    1,773,422   $    1,409,413   $  1,425,701 
Total expenses                        (421,293)            -            (540,392)        (532,741)      (600,982)
Minority interest                         -                -               7,977          (10,124)        (1,206)
                                 --------------   --------------  --------------   --------------   ------------ 
Net income                       $      486,466   $        -      $    1,241,007   $      866,548   $    823,513 
                                 ==============   ==============  ==============   ==============   ============ 
Net income, basic and diluted,                                                                                   
 per share or exchangeable unit  $         0.08   $        -      $         0.13   $         0.10   $       0.09 
                                 ==============   ==============  ==============   ==============   ============ 

12.  Subsequent Events                                                          

On January 12, 2000, Retirement Centers Corporation (RCC) acquired a 127-unit   
multifamily apartment property located in Omaha, Nebraska for approximately     
$8.7 million.  This acquisition was financed with net loan proceeds of          
approximately $6.2 million and cash of approximately $2.5 million.              

On January 26, 2000, the Company acquired a FNMA whole-pool mortgage-backed     
certificate with a remaining principal balance of approximately $34.9 million   
(FNMA Certificate).  The FNMA Certificate bears interest at a rate of 7.292%    
per annum.  The total purchase price paid for the FNMA Certificate, including   
accrued interest, was approximately $35.9 million.  The acquisition was         
financed in part with the proceeds of a LIBOR-based repurchase agreement of     
approximately $34.3 million and the remainder from cash reserves of the         
Company.                                                                        

Pursuant to the Company's stock repurchase program described in Note 7, the     
Company purchased 60,800 shares of its common stock at an aggregate cost of     
$298,342 from January 1, 2000 through March 10, 2000.  Such shares are          
currently held as treasury stock pending expected retirement on or about March  
31, 2000.                                                                       

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Item 9.  Changes in and Disagreements With Accountants on Accounting and        
Financial Disclosure.  There were no disagreements with the Company's or its    
Predecessor's independent accountants on accounting principles and practices    
or financial disclosure during the fiscal years ended December 31, 1999 and     
1998.                                                                           

PART III      

Item 10.  Directors and Executive Officers of Registrant. The information       
about directors required to be furnished pursuant to this Item 10 is            
incorporated by reference to the Company's definitive proxy statement for its   
2000 Annual Meeting of Stockholders to be filed with the Securities and         
Exchange Commission pursuant to Regulation 14A within 120 days after December   
31, 1999 (the "Proxy Statement") under the heading "Election of Directors."     
Information about the executive officers of the Company is shown under Item 4   
of this filing.                                                                 

Section 16(a) Beneficial Ownership Reporting Compliance.                        
Section 16(a) of the Securities and Exchange Act of 1934 requires the           
Company's directors and executive officers, and certain persons who own more    
than ten percent of the Company's common stock, to file with the Securities     
and Exchange Commission (the "SEC") reports of their ownership of Company       
common stock.  Officers, directors and greater-than-ten-percent beneficial      
owners are required by SEC regulation to furnish the Company with copies of     
all Section 16(a) reports they file.  Based solely upon review of the copies    
of such reports received by the Company and written representations from each   
such person who did not file an annual report with the SEC (Form 5) that no     
other reports were required, the Company believes that there was compliance     
for the year ended December 31, 1999, with all Section 16(a) filing             
requirements applicable to the Company's officers, directors and                
greater-than-ten-percent beneficial owners.                                     

Item 11.  Executive Compensation.  The information required to be furnished     
pursuant to this Item 11 is incorporated by reference to the Proxy Statement.   

Item 12.  Security Ownership of Certain Beneficial Owners and Management.       
The information required to be furnished pursuant to this Item 12 is            
incorporated by reference to the Proxy Statement under the heading "Voting      
Securities and Beneficial Ownership Thereof by Principal Stockholders,          
Directors and Officers" and "Long-Term Incentive Plans and Other Matters."      

Item 13.  Certain Relationships and Related Transactions.        The information
required to be furnished pursuant to this Item 13 is incorporated by reference  
to the Proxy Statement under the heading "Certain Relationships and Related     
Transactions."                                                                  

PART IV       

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.     

(a)  The following documents are filed as part of this report:                  

1.  Consolidated and Combined Financial Statements.  The consolidated and       
combined financial statements of the Company and the Predecessor, together      
with the Independent Accountants' Report thereon, are set forth on pages 21     
through 37 of this Form 10-K and are incorporated herein by                     
reference.                                                                      

2.    Financial Statement Schedules. The information required to be set forth in
the financial statement schedules is shown in the Notes to Consolidated and     
Combined Financial Statements filed in response to Item 8 hereof.               

3.  Exhibits.                                                                   

         2.1  Agreement and Plan of Merger by and among the Company,
                  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 and certain other parties, dated as of
                  July 29, 1997 (incorporated herein by reference to Exhibit
           2.1 of the Registration Statement on Form S-4 dated
               February 12, 1998, filed by the Company pursuant to the
                Securities Act of 1933 (Commission File No. 333-46179)).

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        3.1  Amended and Restated Articles of Incorporation of the
               Company (incorporated herein by reference from Form 8-K
              dated April 10, 1998, filed by the Company pursuant to
                the Securities Exchange Act of 1934 (Commission File No.
1-13991)).                              

           3.2  Amended and Restated Bylaws of the Company (incorporated
               herein by reference from Form 8-K dated April 10, 1998,
                filed by the Company pursuant to the Securities Exchange
   Act of 1934 (Commission File No. 1-13991)).

           3.3  Agreement of Limited Partnership, dated May 25, 1988, of
        America First Prep Fund 2 Pension Series Limited
             Partnership (incorporated herein by reference to Form
     10-K, dated December 31, 1988, filed with the
                Securities and Exchange Commission (File No. 33-13407)).

       4.1  Specimen of Common Stock Certificate of the Company.
               (incorporated herein by reference to Exhibit 4.1 of the
                   Registration Statement on Form S-4 dated February 12, 1998,
       filed by the Company pursuant to the Securities
                                   Act of 1933 (Commission File No. 333-46179)).

         10.1  Advisory Agreement, dated April 9, 1998, by and between
                             the Company and the Advisor (incorporated herein by
                           reference from Form 8-K dated April 10, 1998 filed by
              the Company pursuant to the Securities Exchange Act of
                                            1934 (Commission File No. 1-13991)).

         10.2  Employment Agreement of Stewart Zimmerman (incorporated
               herein by reference to Exhibit 10.2 of the Registration
               Statement on Form S-4 dated February 12, 1998, filed by
          the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).       

        10.3  Employment Agreement of William S. Gorin (incorporated
               herein by reference to Exhibit 10.3 of the Registration
               Statement on Form S-4 dated February 12, 1998, filed by
          the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).       

           10.4  Employment Agreement of Ronald A. Freydberg (incorporated
               herein by reference to Exhibit 10.4 of the Registration
               Statement on Form S-4 dated February 12, 1998, filed by
          the Company pursuant to the Securities Act of 1933
(Commission File No. 333-46179)).       

             10.5  Amended and Restated 1997 Stock Option Plan of the Company.

            10.6  Form of Dividend Reinvestment Plan (incorporated herein by
                reference to Appendix C of the Registration Statement on
              Form S-4 dated February 12, 1998, filed by the Company
                   pursuant to the Securities Act of 1933 (Commission File No.
333-46179)).                            

                                                           24. Power of Attorney

27.   Financial Data Schedule                       

(b) Reports on Form 8-K                                                         

            The Registrant did not file any reports on Form 8-K during the
                      fourth quarter of the year for which this report is filed.

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SIGNATURES      

          Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on   
its behalf by the undersigned, thereunto duly authorized.                       

Date: March 16, 2000                    America First Mortgage Investments, Inc.

By /s/ Stewart Zimmerman    
Stewart Zimmerman     
                                                         Chief Executive Officer

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Pursuant to the requirements of the Securities Act of 1934, this report has     
been signed below by the following persons on behalf of the Company and in      
the capacities and on the dates indicated.                                      

Date:   March 16, 2000                           By /s/ Michael B. Yanney*      
Michael B. Yanney     
                                                           Chairman of the Board

Date:   March 16, 2000                           By /s/ Stewart Zimmerman       
Stewart Zimmerman     
                                            Chief Executive Officer and Director

Date:   March 16, 2000                           By /s/ Gary Thompson           
Gary Thompson         
                                                         Chief Financial Officer

Date:   March 16, 2000                           By /s/ Michael L. Dahir*       
Michael L. Dahir      
                                                                        Director

Date:   March 16, 2000                           By /s/ George V. Janzen*       
George V. Janzen      
                                                                        Director

Date:   March 16, 2000                           By /s/ George H. Krauss*       
George H. Krauss      
                                                                        Director

Date:   March 16, 2000                           By /s/ Gregor Medinger*        
Gregor Medinger       
                                                                        Director

Date:   March 16, 2000                           By /s/ W. David Scott*         
W. David Scott        
                                                                        Director

* By Stewart Zimmerman, Attorney-in-fact                                        

/s/ Stewart Zimmerman                                                           
Stewart Zimmerman                                                               

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EXHIBIT 10.5

      AMENDED AND RESTATED 1997 STOCK OPTION PLAN OF THE COMPANY

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AMERICA FIRST MORTGAGE INVESTMENTS, INC.  

AMENDED AND RESTATED    
1997 STOCK OPTION PLAN    

         1. PURPOSE. The Plan is intended to provide incentive to key employees,
officers, directors and others expected to provide significant services to the  
Company, including the employees, officers and directors of the Participating   
Companies, to encourage proprietary interest in the Company, to encourage such  
key employees to remain in the employ of the Company and the other              
Participating Companies, to attract new employees with outstanding              
qualifications, and to afford additional incentive to others to increase their  
efforts in providing significant services to the Company and the other          
Participating Companies. In furtherance thereof, the Plan permits awards of     
equity-based incentives to key employees, officers and directors of, and        
certain other providers of services to, the Participating Companies.            

2. DEFINITIONS.                                                       

a.  "Act" shall mean the Securities Act of 1933, as amended.          

 b.  "Advisor" shall mean American First Mortgage Advisor Corporation, a
Maryland Corporation.                                                           

 c.  "Agreement" shall mean a written agreement entered into between the
Company and the recipient of a Grant pursuant to section 7(b)(i) hereof.        

d.  "Board" shall mean the Board of Directors of the Company.         

e.  "Cause" shall mean, unless otherwise provided in the Optionee's   
Agreement, (i) engaging in (A) willful or gross misconduct or (B) willful or    
gross neglect, (ii) repeatedly failing to adhere to the directions of           
superiors or the Board or the written policies and practices of the Company,    
(iii) the commission of a felony or a crime of moral turpitude, or any crime    
involving the Company, (iv) fraud, misappropriation, embezzlement or material   
or repeated insubordination, (v) a material breach of the Optionee's            
employment agreement (if any) with the Company (other than a termination of     
employment by the Optionee), or (vi) any illegal act detrimental to the         
Company; all as determined by the Committee.                                    

f.  "Code" shall mean the Internal Revenue Code of 1986, as amended.  

 g.  "Committee" shall mean the Compensation Committee of the Company as
appointed by the Board in accordance with Section 4 of the Plan; provided that  
the Committee shall at all times consist solely of persons who, at the time of  
their appointment, each qualified as a "Non-Employee Director" under Rule       
16b-3(b)(3)(i) promulgated under the Exchange Act and, to the extent that       
relief from the limitation of Section 162(m) of the Code is sought, as an       
"Outside Director" under Section 1.162-27(e)(3)(i) of the Treasury Regulations. 

    h.  "Common Stock" shall mean the Company's Common Stock, par value $0.01,
either currently existing or authorized hereafter.                              

i.  "Company" shall mean America First Mortgage Investments, Inc., a  
Maryland corporation.                                                           

  j.  "DER" shall mean a dividend equivalent right consisting of the right
to receive, as specified by the Committee or the Board at the time of Grant,    
cash in an amount equal to the dividend distributions paid on a share of        
Common Stock subject to an option.                                              

k.  "Disability" shall mean the occurrence of an event which would    
entitle an employee of the Company to the payment of disability income under    
one of the Company's approved long-term disability income plans or a long-term  
disability as determined by the Committee in its absolute discretion pursuant   
to any other standard as may be adopted by the Committee.                       

l.  "Eligible Persons" shall mean officers, directors and employees of
the Participating Companies and other persons expected to provide significant   
services (of a type expressly approved by the Committee as covered services     
for these purposes) to the Company.  For purposes of the Plan, a director, in   
his or her capacity as such, or a consultant, vendor, customer, or other        
provider of significant services to the Company shall be deemed to be an        
Eligible Person, but will be eligible to receive Non-qualified Stock Options,   

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or DERs, only after a finding by the Committee or Board in its discretion that  
the value of the services rendered or to be rendered to the Participating       
Company is at least equal to the value of the Grants being awarded.             

m.  "Employee" shall mean an individual, including an officer of a    
Participating Company, who is employed (within the meaning of Code Section      
3401and the regulations thereunder) by the Participating Company.               

n.  "Exchange Act" shall mean the Securities Exchange Act of 1934,    
as amended.                                                                     

o.  "Exercise Price" shall mean the price per Share of Common Stock,  
determined by the Board or the Committee, at which an Option may be exercised.  

    p.  "Fair Market Value" shall mean the value of one share of Common Stock,
determined as follows:                                                          

         i.    If the Shares are then listed on a national stock exchange, the
          closing sales price per Share on the exchange for the last
                      preceding date on which there was a sale of Shares on such
                                       exchange, as determined by the Committee.

       ii.  If the Shares are not then listed on a national stock exchange
            but are then traded on an over-the-counter market, the average
                      of the closing bid and asked prices for the Shares in such
                    over-the-counter market for the last preceding date on which
                   there was a sale of such Shares in such market, as determined
                                                               by the Committee.

     iii. If neither (i) nor (ii) applies, such value as the Committee
                  in its discretion may in good faith determine. Notwithstanding
                       the foregoing, where the Shares are listed or traded, the
                   Committee may make discretionary determinations in good faith
                      where the Shares have not been traded for 10 trading days.

q.  "Grant" shall mean the issuance of an Incentive Stock Option,     
Non-qualified Stock Option, DER or any combination thereof to an Eligible       
Person.     The Committee will determine the eligibility of employees, officers,
directors and others expected to provide significant services to the            
Participating Companies based on, among other factors, the position and         
responsibilities of such individuals, the nature and value to the               
Participating Company of such individuals' accomplishments and potential        
contribution to the success of the Participating Company whether directly or    
through its subsidiaries.                                                       

    r.  "Incentive Stock Option" shall mean an Option of the type described in
Section 422(b) of the Code issued to an Employee.                               

s.  "Non-qualified Stock Option" shall mean an Option not described in
Section 422(b) of the Code.                                                     

  t.  "Option" shall mean any option, whether an Incentive Stock Option or
a Non-qualified Stock Option, to purchase, at a price and for the term fixed    
by the Committee in accordance with the Plan, and subject to such other         
limitations and restrictions in the Plan and the applicable Agreement, a        
number of Shares determined by the Committee.                                   

u.  "Optionee" shall mean any Eligible Person to whom an Option is    
granted, or the Successors of the Optionee, as the context so requires.         

v.  "Participating Companies" shall mean the Company, Advisor and any 
subsidiary of any of them which with the consent of the Board participates in   
the Plan.                                                                       

  w.  "Plan" shall mean the Company's 1997 Stock Option Plan, as set forth
herein, and as the same may from time to time be amended.                       

x.  "Purchase Price" shall mean the Exercise Price times the number of
Shares with respect to which an Option is exercised.                            

 y.  "Retirement" shall mean, unless otherwise provided by the Committee
in the Optionee's Agreement,                                                    

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 (i)   the Termination (other than for Cause) of Service of an
         Optionee on or after the Optionee's attainment of age 65;

   (ii)  on or after the Optionee's attainment of age 55 with five
             consecutive years of service with the Participating Companies
                                                                              or

   (iii) as determined by the Committee in its absolute discretion
        pursuant to such other standard as may be adopted by the
                                                                      Committee.

    z.  "Shares" shall mean shares of Common Stock of the Company, adjusted in
accordance with Section 10 of the Plan (if applicable).                         

    aa.  "Subsidiary" shall mean any corporation, partnership, or other entity
at least 50% of the economic interest in the equity of which is owned by the    
Company or by another Subsidiary.                                               

  bb.  "Successors of the Optionee" shall mean the legal representative of
the estate of a deceased Optionee or the person or persons who shall acquire    
the right to exercise an Option by bequest or inheritance or by reason of the   
death of the Optionee.                                                          

cc.  "Termination of Service" shall mean the time when the            
employee-employer relationship or directorship, or other service relationship   
(sufficient to constitute service as an Eligible Person) between the Optionee   
and the Participating Companies is terminated for any reason, with or without   
Cause, including but not limited to any termination by resignation, discharge,  
death or Retirement; provided, however, Termination of Service shall not        
include a termination where there is a simultaneous reemployment of the         
Optionee by a Participating Company or other continuation of service            
(sufficient to constitute service as an Eligible Person) for a Participating    
Company. The Committee, in its absolute discretion, shall determine the         
effects of all matters and questions relating to Termination of Service,        
including but not limited to the question of whether any Termination of         
Service was for Cause and all questions of whether particular leaves of         
absence constitute Terminations of Employment.                                  

3. EFFECTIVE DATE.  Unless already approved by shareholders, the Plan 
will be submitted to shareholders for their approval within twelve months       
after receipt of Board approval. Any Grants awarded before approval of the      
Plan by the Company's shareholders shall be accrued for the benefit of the      
participant until the Plan has been approved by the shareholders.               

4. ADMINISTRATION.                                                    

a. Membership on Committee.  The Plan shall be administered by the    
Committee appointed by the Board.  If no Committee is designated by the Board   
to act for those purposes, the full Board shall have the rights and             
responsibilities of the Committee hereunder.                                    

  b. Committee Meetings.  The acts of a majority of the members present at
any meeting of the Committee at which a quorum is present, or acts approved in  
writing by a majority of the entire Committee, shall be the acts of the         
Committee for purposes of the Plan. If and to the extent applicable, no member  
of the Committee may act as to matters under the Plan specifically relating to  
such member.                                                                    

c. Grant Awards.  (i)  The Committee shall from time to time at its   
discretion select the Eligible Persons who are to be issued Grants, determine   
the number of Shares to be optioned or with respect to which the Grant is to    
be issued to each Eligible Person and designate any Options granted as          
Incentive Stock Options or Non-qualified Stock Options, or both, except that    
no Incentive Stock Options may be granted to an Eligible Person who is not an   
Employee of the Company.  The Committee shall (A) determine the terms and       
conditions, not inconsistent with the terms of the Plan, of any Grants awarded  
hereunder, (including, but not limited to the performance goals and periods     
applicable to the award of Grants); (B) determine the time or times when and    
the manner and condition in which each Option shall be exercisable and the      
duration of the exercise period; and (C) determine or impose other conditions   
to the Grant or exercise of Options under the Plan as it may deem               
appropriate.  The Committee shall cause each Option to be designated as an      
Incentive Stock Option or a Non-qualified Stock Option.  The Optionee shall     
take whatever additional actions and execute whatever additional documents the  

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Committee may in its reasonable judgment deem necessary or advisable in order   
to carry or effect one or more of the obligations or restrictions imposed on    
the Optionee pursuant to the express provisions of the Plan and the             
Agreement.  DERs will be exercisable separately or together with Options, and   
paid in cash or other consideration at such times and in accordance with such   
rules, as the Committee shall determine in its discretion.  Unless expressly    
provided hereunder, the Committee, with respect to any Grant, may exercise its  
discretion hereunder at the time of the award or thereafter.  The               
interpretation and construction by the Committee of any provision of the Plan   
or of any Option granted thereunder shall be final.  Without limiting the       
generality of Section 18, no member of the Committee shall be liable for any    
action or determination made in good faith with respect to the Plan or any      
Grant hereunder.                                                                

     (ii)    Notwithstanding paragraph (i) of this Section 4(c), any award under
the Plan to an Eligible Person who is a member of the Committee, shall be made  
by a majority of the directors of the Corporation who are not on the Committee. 

5. PARTICIPATION.                                                     

a. Eligibility.  Only Eligible Persons shall be eligible to receive   
Grants under the Plan.                                                          

 b. Limitation of Ownership.  No Options shall be granted under the Plan
to any person who after such Grant would beneficially own more than 9.8% of     
the outstanding shares of Common Stock of the Company, unless expressly and     
specifically waived by action of the independent Directors of the Board.        

c. Stock Ownership.  For purposes of (b) above, in determining        
stock ownership an Optionee shall be considered as owning the stock owned,      
directly or indirectly, by or for his brothers, sisters, spouses, ancestors     
and lineal descendants.  Stock owned, directly or indirectly, by or for a       
corporation, partnership, estate or trust shall be considered as being owned    
proportionately by or for its shareholders, partners or beneficiaries.  Stock   
with respect to which any person holds an Option shall be considered to be      
owned by such person.                                                           

d. Outstanding Stock.  For purposes of (b) above, "outstanding shares"
shall include all stock actually issued and outstanding immediately after the   
grant of the Option to the Optionee. With respect to the Stock Ownership of     
any Optionee, "outstanding shares" shall include shares authorized for issue    
under outstanding Options held by such Optionee, but not options held by any    
other person.                                                                   

6. STOCK.  Subject to adjustments pursuant to Section 10, Options with
respect to an aggregate of no more than 1,000,000 Shares may be granted under   
the Plan, nor may the number of Shares subject to Options outstanding at any    
time exceed 10% of the total outstanding shares of the Company's Common         
Stock.  In no event may any Optionee receive Options for more than 100,000      
Shares of Common Stock over the life of the Plan; provided, however, that this  
sentence shall not apply to Options granted prior to the first meeting of the   
Company's shareholders at which directors are to be elected that occurs after   
December 31, 1999, and such Options shall not be taken into account in          
determining whether the limitation of this sentence has been satisfied.         
Notwithstanding the foregoing provisions of this Section 6, Shares as to which  
an Option is granted under the Plan that remains unexercised at the             
expiration, forfeiture or other termination of such Option may be the subject   
of the grant of further Options.  Shares of Common Stock issued hereunder may   
consist, in whole or in part, of authorized and unissued shares or treasury     
shares.  The certificates for Shares issued hereunder may include any legend    
which the Committee deems appropriate to reflect any restrictions on transfer   
hereunder or under the Agreement, or as the Committee may otherwise deem        
appropriate.                                                                    

7. TERMS AND CONDITIONS OF OPTIONS.                                   

  a. Initial Awards to Compensation Committee Members.  Each member of the
Committee shall automatically be granted a Non-qualified Stock Option to        
purchase 5,000 shares of Common Stock and 1,250 DERs upon the date such person  
is initially appointed to the Committee.  Each Option granted to a Committee    
member under this Section 7(a) shall become exercisable commencing one year     
after the date of Grant (unless otherwise provided in the applicable            
Agreement) and shall expire 10 years thereafter.  Such Options shall be         
subject to adjustment as provided in Section 10 provided that such adjustment   

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and any action by the Board or the Committee with respect to the Plan and such  
Options satisfies the requirements for exemption under Rule 16b-3 and does not  
cause any member of the Committee to be disqualified as a Non-Employee          
Director under such Rule.  Notwithstanding the foregoing, the Board may         
prospectively, from time to time, discontinue, reduce or increase the amount    
of any or all of the Grants otherwise to be made under this Section 7(a).       

b. Awards.                                                            

     (i) Agreements.  Grants to Eligible Persons shall be evidenced by
       written Agreements in such form as the Committee shall from time to
        time determine.  Such Agreements shall comply with and be subject to
the terms and conditions set forth below.                   

    (ii) Number of Shares.  Each Option or other Grant granted to an
         Eligible Person shall state the number of Shares to which it pertains
       and shall provide for the adjustment thereof in accordance with the
provisions of Section 10  hereof.                           

      (iii) Grants.  Subject to the terms and conditions of the Plan and
           consistent with the Company's intention for the Committee to exercise
               the greatest permissible flexibility under Rule 16b-3 in awarding
                                     Grants, the Committee shall have the power:

  (1) to determine from time to time the Grants to be granted to
          Eligible Persons under the Plan and to prescribe the terms and
            provisions (which need not be identical) of Grants granted under
                                                       the Plan to such persons;

             (2) to construe and interpret the Plan and Grants thereunder and to
                          establish, amend, and revoke rules and regulations for
                   administration of the Plan. In this connection, the Committee
                 may correct any defect or supply any omission, or reconcile any
                  inconsistency in the Plan, in any Agreement, or in any related
                       agreements, in the manner and to the extent it shall deem
                    necessary or expedient to make the Plan fully effective. All
                   decisions and determinations by the Committee in the exercise
                 of this power shall be final and binding upon the Participating
                                       Companies and the Optionees and Grantees;

               (3) to amend any outstanding Grant, subject to Section 12, and to
                       accelerate or extend the vesting or exercisability of any
                 Grant and to waive conditions or restrictions on any Grants, to
                                       the extent it shall deem appropriate; and

           (4) generally to exercise such powers and to perform such acts as are
                  deemed necessary or expedient to promote the best interests of
                                           the Company with respect to the Plan.

   c. Each Agreement with an Eligible Person shall state the Exercise Price.
The Exercise Price for any Option shall not be less than the Fair Market Value  
on the date of Grant.                                                           

d.  Medium and Time of Payment.  Except as may otherwise be provided  
below, the Purchase Price for each Option granted to an Eligible Person shall   
be payable in full in United States dollars upon the exercise of the Option.    
In the event the Company determines that it is required to withhold taxes as a  
result of the exercise of an Option, as a condition to the exercise thereof,    
an Employee may be required to make arrangements satisfactory to the Company    
to enable it to satisfy such withholding requirements in accordance with        
Section 15.  If the applicable Agreement so provides, and the Committee         
otherwise so permits, the Purchase Price may be paid in one or a combination    
of the following:                                                               

(i)   by a certified or bank cashier's check;               

        (ii)  by the surrender of Shares in good form for transfer, owned by
               the person exercising the Option and having a Fair Market Value
                  on the date of exercise equal to the Purchase Price, or in any
                  combination of cash and Shares, as long as the sum of the cash
                  so paid and the Fair Market Value of the Shares so surrendered
equals the Purchase Price;                      

   (iii)  by cancellation of indebtedness owed by the Company to the

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                                                                       Optionee;

       (iv)   by a loan or extension of credit from the Company evidenced by
             a full recourse promissory note executed by the Optionee. The
               interest rate and other terms and conditions of such note shall
                 be determined by the Committee (in which case the Committee may
                       require that the Optionee pledge his or her Shares to the
                   Company for the purpose of securing the payment of such note,
                     and in no event shall the stock certificate(s) representing
                   such Shares be released to the Optionee until such note shall
have been paid in full); or                     

   (v)    by any combination of such methods of payment or any other
                           method acceptable to the Committee in its discretion.

                    Except in the case of Options exercised by certified or bank
                       cashier's check, the Committee may impose limitations and
                             prohibitions on the exercise of Options as it deems
                   appropriate, including, without limitation, any limitation or
                     prohibition designed to avoid accounting consequences which
                         may result from the use of Common Stock as payment upon
                     exercise of an Option. Any fractional Shares resulting from
                   an Optionee's election that are accepted by the Company shall
                             in the discretion of the Committee be paid in cash.

e. Term and Nontransferability of Grants and Options.                 

   (i)    Each Grant shall state the time or times which all or part
     thereof becomes exercisable, subject to the following
restrictions.                                   

  (ii)   No Grant shall be exercisable except by the Optionee or a
transferee permitted hereunder.                 

      (iii)  No Option shall be assignable or transferable, except by will
                    or the laws of descent and distribution of the state wherein
                   the Optionee is domiciled at the time of his death; provided,
                     however, that the Committee may (but need not) permit other
                              transfers, where the Committee concludes that such
                    transferability (i) does not result in accelerated taxation,
                      (ii) does not cause any Option intended to be an Incentive
                   Stock Option to fail to be described in Section 422(b) of the
                          Code and (iii) is otherwise appropriate and desirable.

       (iv)   No Option shall be exercisable until such time as set forth in
              the applicable Agreement (but in no event after the expiration
                                                                 of such Grant).

     (v)    Unless otherwise provided in the Agreement, no DERs shall be
                  exercisable (i) until such time as set forth in the applicable
agreement or (ii) the expiration of such Grant. 

 (vi)   The Committee may not modify, extend or renew any Option
                        granted to any Eligible Person unless such modification,
                       extension or renewal shall satisfy any and all applicable
                      requirements of Rule 16b-3. The foregoing notwithstanding,
                      no modification of an Option shall, without the consent of
                   the Optionee, alter or impair any rights or obligations under
                                                  any Option previously granted.

f. Termination of Service, Except by Death, Retirement or Disability. 
Unless otherwise provided in the applicable Agreement, upon any Termination of  
Service for any reason other than his or her death, Retirement or Disability,   
an Optionee shall have the right, subject to the restrictions of subsection     
(c) above, to exercise his or her Grant at any time within three months after   
Termination of Service, but only to the extent that, at the date of             
Termination of Service, the Optionee's right to exercise such Grant had         
accrued pursuant to the terms of the Agreement and had not previously been      
exercised; provided, however, that, unless otherwise provided in the            
Agreement, if there occurs a Termination of Service by a Participating Company  
for Cause or a termination of Service by the Optionee (other than on account    
of death, Retirement or Disability), any Grant not exercised in full prior to   
such termination shall be canceled.  For this purpose, the service              
relationship shall be treated as continuing intact while the Optionee is on     

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military leave, sick leave or other bona fide leave of absence (to be           
determined in the discretion of the Committee).                                 

g. Death of Optionee.  Unless otherwise provided in the applicable    
Agreement, if the Optionee dies while an Eligible Person or within three        
months after any Termination of Service other than for Cause or a termination   
of Service by the Optionee (other than on account of death, Retirement or       
Disability), and has not fully exercised the Grant, then the Grant may be       
exercised in full, subject to the restrictions of subsection (c) above, at      
anytime within 12 months after the Optionee's death, by the Successor of the    
Optionee, but only to the extent that, at the date of death, the Optionee's     
right to exercise such Grant had accrued and had not been forfeited pursuant    
to the terms of the Agreement and had not previously been exercised.            

h. Disability or Retirement of Grant Recipient.  Unless otherwise     
provided in the Agreement, upon Termination of Service for reason of            
Disability or Retirement, such Grant recipient shall have the right, subject    
to the restrictions of subsection (c) above, to exercise the Grant at any time  
within24 months after Termination of Service, but only to the extent that, at   
the date of Termination of Service, the Grant recipient's right to exercise     
such Grant had accrued pursuant to the terms of the applicable Agreement and    
had not previously been exercised.                                              

 i. Rights as a Shareholder.  An Optionee, a Successor of the Optionee, or
the holder of a DER shall have no rights as a shareholder with respect to any   
Shares covered by his or her Grant until, in the case of an Optionee, the date  
of the issuance of a stock certificate for such Shares.  No adjustment shall    
be made for dividends (ordinary or extraordinary, whether in cash, securities   
or other property), distributions or other rights for which the record date is  
prior to the date such stock certificate is issued, except as provided in       
Section 10.                                                                     

 j. Modification, Extension and Renewal of Option.  Within the limitations
of the Plan, and only with respect to Options granted to Eligible Persons, the  
Committee may modify, extend or renew outstanding Options or accept the         
cancellation of outstanding Options (to the extent not previously exercised)    
for the granting of new Options in substitution therefor.  The Committee may    
modify, extend or renew any Option granted to any Eligible Person, unless such  
modification, extension or renewal would not satisfy any applicable             
requirements of Rule 16b-3.  The foregoing notwithstanding, no modification of  
an Option shall, without the consent of the Optionee, alter or impair any       
rights or obligations under any Option previously granted.                      

   k. Other Provisions.  The Agreement authorized under the Plan may contain
such other provisions not inconsistent with the terms of the Plan (including,   
without limitation, restrictions upon the exercise of the Option) as the        
Committee shall deem advisable.                                                 

8. SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.                         

a. In the case of Incentive Stock Options granted hereunder, the      
aggregate Fair Market Value (determined as of the date of the Grant thereof)    
of the Shares with respect to which Incentive Stock Options become exercisable  
by any Optionee for the first time during any calendar year (under the Plan     
and all other plans maintained by the Participating Companies, their parent or  
Subsidiaries) shall not exceed $100,000.                                        

b. In the case of an individual described in Section 422(b)(6) of the 
Code (relating to certain 10% owners), the Exercise Price with respect to an    
Incentive Stock Option shall not be less than 110% of the Fair Market Value of  
a Share on the day the Option is granted and the term of an Incentive Stock     
Option shall be no more than five years from the date of grant.                 

c. If Shares acquired upon exercise of an Incentive Stock Option are  
disposed of in a disqualifying disposition within the meaning of Section 422    
of the Code by an Optionee prior to the expiration of either two years from     
the date of grant of such Option or one year from the transfer of Shares to     
the Optionee pursuant to the exercise of such Option, or in any other           
disqualifying disposition within the meaning of Section 422 of the Code, such   
Optionee shall notify the Company in writing as soon as practicable thereafter  
of the date and terms of such disposition and, if the Company thereupon has a   
tax-withholding obligation, shall pay to the Company an amount equal to any     
withholding tax the Company is required to pay as a result of the               
disqualifying disposition.                                                      

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 9. TERM OF PLAN.  Options may be granted pursuant to the Plan until the
expiration of 10 years from the effective date of the Plan.                     

10.        RECAPITALIZATION AND CHANGES OF CONTROL.                   

a. Subject to any required action by shareholders, if (i) the Company 
shall at any time be involved in a merger, consolidation, dissolution,          
liquidation, reorganization, exchange of shares, sale of all or substantially   
all of the assets or stock of the Company or a transaction similar thereto,     
(ii) any stock dividend, stock split, reverse stock split, stock combination,   
reclassification, recapitalization or other similar change in the capital       
structure of the Company, or any distribution to holders of Common Stock other  
than cash dividends, shall occur or (iii) any other event shall occur which in  
the judgment of the Committee necessitates action by way of adjusting the       
terms of the outstanding Options or rights under the Grant of a DER, then the   
Committee shall forthwith take any such action as in its judgment shall be      
necessary to preserve to the Optionees rights substantially proportionate to    
the rights existing prior to such event, and to maintain the continuing         
availability of Shares under Section 6 (if Shares are otherwise then            
available) in a manner consistent with the intent hereof, including, without    
limitation, adjustments in (x) the number and kind of shares subject to         
Options, (y) the Option Price, and (z) the number and kind of shares available  
under Section 6; provided that this provision shall not be effective to the     
extent that the Company or the Committee determines that the accelerated        
vesting of the Options upon the occurrence of a Change of Control as            
contemplated hereby would adversely affect the ability of the Company or        
acquiror (in the case of a Change of Control in connection with which the       
Company is not the surviving corporation) to use the pooling method of          
accounting in connection with a Change of Control transaction, if such method   
of accounting would otherwise be available and desired by the Company or        
acquiror.  To the extent that such action shall include an increase or          
decrease in the number of shares subject to outstanding Options, the number of  
shares available under Section 6 above shall be increased or decreased, as the  
case may be, proportionately.                                                   

  b. Subject to any required action by shareholders, if the Company is the
surviving corporation in any merger or consolidation, each outstanding Option   
and the rights under the Grant of a DER shall pertain and apply to the          
securities to which a holder of the number of Shares subject to the Option      
would have been entitled.  In the event of a merger or consolidation in which   
the Company is not the surviving corporation, the date of exercisability of     
each outstanding Grant shall be accelerated to a date prior to such merger or   
consolidation, unless the agreement of merger or consolidation provides for     
the assumption of the Grant by the successor to the Company.                    

 c. To the extent that the foregoing adjustment related to securities of
the Company, such adjustments shall be made by the Committee, whose             
determination shall be conclusive and binding on all persons.                   

  d. Except as expressly provided in this Section 10, the recipient of the
Grant shall have no rights by reason of subdivision or consolidation of shares  
of stock of any class, the payment of any stock dividend or any other increase  
or decrease in the number of shares of stock of any class or by reason of any   
dissolution, liquidation, merger or consolidation or spin-off of assets or      
stock of another corporation, and any issue by the Company of shares of stock   
of any class, or securities convertible into shares of stock of any class,      
shall not affect, and no adjustment by reason thereof shall be made with        
respect to, the number or Exercise Price of Shares subject to an Option.        

   e. Grants made pursuant to the Plan shall not affect in any way the right
or power to the Company to make adjustments, reclassifications,                 
reorganizations or changes of its capital or business structure, to merge or    
consolidate or to dissolve, liquidate, sell or transfer all or any part of its  
business assets.                                                                

f. Upon the occurrence of a Change of Control:                        

       (i)   The Committee as constituted immediately before the Change of
           Control may make such adjustments as it, in its discretion,
              determines are necessary or appropriate in light of the Change
                  of Control (including, without limitation, the substitution of
                     stock other than stock of the Company as the stock optioned
                    hereunder, and the acceleration of the exercisability of the
          Options), provided that the Committee determines that such

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                   adjustments do not have a substantial adverse economic impact
                   on the Optionee as determined at the time of the adjustments.
         (ii)  All restrictions and conditions on each DER shall automatically
                       lapse and all Grants under the Plan shall be deemed fully
                                                                         vested.

g. "Change of Control" shall mean the occurrence of any one of the    
following events:                                                               

        (i)   any "person," as such term is used in Sections 13(d) and 14(d)
                    of the Act (other than the Company, any of its Affiliates or
                        any trustee, fiduciary or other person or entity holding
                      securities under any employee benefit plan or trust of the
                             Company or any of its Affiliates) together with all
                     "affiliates" and "associates" (as such terms are defined in
                      Rule 12b-2 under the Act) of such person, shall become the
                 "beneficial owner" (as such term is defined in Rule 13d-3 under
                  the Act), directly or indirectly, of securities of the Company
                      representing 30% or more of either (A) the combined voting
                   power of the Company's then outstanding securities having the
                 right to vote in an election of the Board of Directors ("voting
                 securities") or (B) the then outstanding Shares (in either such
                     case other than as a result of an acquisition of securities
                                                  directly from the Company); or

       (ii)  persons who, as of the effective date of the Plan, constitute
                    the Company's Board of Directors (the "Incumbent Directors")
                       cease for any reason, including, without limitation, as a
                      result of a tender offer, proxy contest, merger or similar
                    transaction, to constitute at least a majority of the Board,
                     provided that any person becoming a Director of the Company
                   subsequent to the effective date whose election or nomination
                   for election was approved by a vote of at least a majority of
                     the Incumbent Directors shall, for purposes of the Plan, be
                                            considered an Incumbent Director; or

                  (iii) there shall occur (A) any consolidation or merger of the
                         Company or any Subsidiary where the shareholders of the
                      Company, immediately prior to the consolidation or merger,
                       would not, immediately after the consolidation or merger,
                   beneficially own (as such term is defined in Rule 13d-3 under
                    the Act), directly or indirectly, shares representing in the
                           aggregate 50% or more of the voting securities of the
                  corporation issuing cash or securities in the consolidation or
                     merger (or of its ultimate parent corporation, if any), (B)
                 any sale, lease, exchange or other transfer (in one transaction
                     or a series of transactions contemplated or arranged by any
                      party as a single plan) of all or substantially all of the
                       assets of the Company or (C) any plan or proposal for the
                                      liquidation or dissolution of the Company.

  Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the result  
of an acquisition of securities by the Company which, by reducing the number    
of Shares or other voting securities outstanding, increases (x) the             
proportionate number of Shares beneficially owned by any person to 30% or more  
of the Shares then outstanding or (y) the proportionate voting power            
represented by the voting securities beneficially owned by any person to 30%    
or more of the combined voting power of all then outstanding voting             
securities; provided, however, that, if any person referred to in clause (x)    
or (y) of this sentence shall thereafter become the beneficial owner of any     
additional Shares or other voting securities (other than pursuant to a stock    
split, stock dividend, or similar transaction), then a "Change of Control"      
shall be deemed to have occurred for purposes of this subsection (g).           

     11.   EFFECT OF CERTAIN TRANSACTIONS. In the case of (i) the dissolution or
liquidation of the Company, (ii) a merger, consolidation, reorganization or     
other business combination in which the Company is acquired by another entity   
or in which the Company is not the surviving entity, or (iii) any sale, lease,  
exchange or other transfer (in one transaction or a series of transactions      
contemplated or arranged by any party as a single plan) of all or               
substantially all of the assets of the Company, the Plan and the Grants issued  
hereunder shall terminate upon the effectiveness of any such transaction or     
event, unless provision is made in connection with such transaction for the     

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assumption of Grants theretofore granted, or the substitution for such Grants   
of new Grants, by the successor entity or parent thereof, with appropriate      
adjustment as to the number and kind of shares and the per share exercise       
prices, as provided in Section 10.  In the event of such termination, all       
outstanding Options and Grants shall be exercisable in full for at least        
fifteen days prior to the date of such termination whether or not otherwise     
exercisable during such period.                                                 

12.        SECURITIES LAW REQUIREMENTS.                               

   a. Legality of Issuance.  The issuance of any Shares upon the exercise of
any Option and the grant of any Option shall be contingent upon the following:  

       (i)    the obligation of the Company to sell Shares with respect to
                          Options granted under the Plan shall be subject to all
                           applicable laws, rules and regulations, including all
                           applicable federal and state securities laws, and the
                     obtaining of all such approvals by governmental agencies as
                        may be deemed necessary or appropriate by the Committee;

    (ii)   the Committee may make such changes to the Plan as may be
                           necessary or appropriate to comply with the rules and
                        regulations of any government authority or to obtain tax
                                       benefits applicable to stock options; and

    (iii)  each Option is subject to the requirement that, if at any
                      time the Committee determines, in its discretion, that the
                       listing, registration or qualification of Shares issuable
                     pursuant to the Plan is required by any securities exchange
                   or under any state or federal law, or the consent or approval
                   of any governmental regulatory body is necessary or desirable
                       as a condition of, or in connection with, the grant of an
                   Option or the issuance of Shares, no Options shall be granted
                   or payment made or Shares issued, in whole or in part, unless
                       listing, registration, qualification, consent or approval
           has been effected or obtained free of any conditions in a
                                             manner acceptable to the Committee.

   b. Restrictions on Transfer.  Regardless of whether the offering and sale
of Shares under the Plan has been registered under the Act or has been          
registered or qualified under the securities laws of any state, the Company     
may impose restrictions on the sale, pledge or other transfer of such           
Shares (including the placement of appropriate legends on stock certificates)   
if, in the judgment of the Company and its counsel, such restrictions are       
necessary or desirable in order to achieve compliance with the provisions of    
the Act, the securities laws of any state or any other law.  In the event that  
the sale of Shares under the Plan is not registered under the Act but an        
exemption is available which requires an investment representation or other     
representation, each Optionee shall be required to represent that such Shares   
are being acquired for investment, and not with a view to the sale or           
distribution thereof, and to make such other representations as are deemed      
necessary or appropriate by the Company and its counsel.  Any determination by  
the Company and its counsel in connection with any of the matters set forth in  
this Section 11 shall be conclusive and binding on all persons.  Without        
limiting the generality of the last sentence of Section 6, stock certificates   
evidencing Shares acquired under the Plan pursuant to an unregistered           
transaction shall bear the following restrictive legend and such other          
restrictive legends as are required or deemed advisable under the provisions    
of any applicable law. "THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT   
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF   
SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT   
IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER    
SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE  
ACT."                                                                           

c. Registration or Qualification of Securities.  The Company may, but 
shall not be obligated to, register or qualify the issuance of Options and/or   
the sale of Shares under the Act or any other applicable law.  The Company      
shall not be obligated to take any affirmative action in order to cause the     
issuance of Options or the sale of Shares under the Plan to comply with any     
law.                                                                            

 d. Exchange of Certificates.  If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold      

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under the Plan is no longer required, the holder of such certificate shall be   
entitled to exchange such certificate for a certificate representing the same   
number of Shares but lacking such legend.                                       

   13. AMENDMENT OF THE PLAN.  The Board may from time to time, with respect
to any Shares at the time not subject to Options, suspend or discontinue the    
Plan or revise or amend it in any respect whatsoever.  The Board may amend the  
Plan as it shall deem advisable, except that no amendment may adversely affect  
an Optionee with respect to Options previously granted unless such amendments   
are in connection with compliance with applicable laws; provided that the       
Board may not make any amendment in the Plan that would, if such amendment      
were not approved by the holders of the Common Stock, cause the Plan to fail    
to comply with any requirement or applicable law or regulation, unless and      
until the approval of the holders of such Common Stock is obtained.             

  14. APPLICATION OF FUNDS.  The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of an Option will be used for     
general corporate purposes.                                                     

  15. TAX WITHHOLDING.  Each recipient of a Grant shall, no later than the
date as of which the value of any Grant first becomes includable in the gross   
income of the recipient for federal income tax purposes, pay to the Company,    
or make arrangements satisfactory to the Company regarding payment of any       
federal, state or local taxes of any kind that are required by law to be        
withheld with respect to such income.  An Optionee may elect to have such tax   
withholding satisfied, in whole or in part, by (i) authorizing the Company to   
withhold a number of Shares to be issued pursuant to a Grant equal to the Fair  
Market Value as of the date withholding is effected that would satisfy the      
withholding amount due, (ii) transferring to the Company Shares owned by the    
Optionee with a Fair Market Value equal to the amount of the required           
withholding tax, or (iii) in the case of an Optionee who is an Employee of the  
Company at the time such withholding is effected, by withholding from the       
Optionee's cash compensation.  Notwithstanding anything contained in the Plan   
to the contrary, the Optionee's satisfaction of any tax-withholding             
requirements imposed by the Committee shall be a condition precedent to the     
Company's obligation as may otherwise by provided hereunder to provide Shares   
to the Optionee, and the failure of the Optionee to satisfy such requirements   
with respect to the exercise of an Option shall cause such Option to be         
forfeited.                                                                      

 16. NOTICES.  All notices under the Plan shall be in writing, and if to
the Company, shall be delivered to the Board or mailed to its principal         
office, addressed to the attention of the Board; and if to the Optionee or      
recipient of a Grant, shall be delivered personally or mailed to the Optionee   
or recipient of a Grant at the address appearing in the records of the          
Participating Company. Such addresses may be changed at any time by written     
notice to the other party given in accordance with this Section 16.             

   17. RIGHTS TO EMPLOYMENT OR OTHER SERVICE.  Nothing in the Plan or in any
Option or Grant granted pursuant to the Plan shall confer on any individual     
any right to continue in the employ or other service of the Company (if         
applicable) or interfere in any way with the right of the Company and its       
shareholders to terminate the individual's employment or other service at any   
time.                                                                           

18. EXCULPATION AND INDEMNIFICATION.  To the maximum extent permitted 
by law, the Company shall indemnify and hold harmless the members of the Board  
and the members of the Committee from and against any and all liabilities,      
costs and expenses incurred by such persons as a result of any act or omission  
to act in connection with the performance of such person's duties,              
responsibilities and obligations under the Plan, other than such liabilities,   
costs and expenses as may result from the gross negligence, bad faith, willful  
misconduct or criminal acts of such persons.                                    

19. NO FUND CREATED.  Any and all payments hereunder to recipients of 
Grants hereunder shall be made from the general funds of the Company (or, if    
applicable, a Participating Company), and no special or separate fund shall be  
established or other segregation of assets made to assure such payments;        
provided that bookkeeping reserves may be established in connection with the    
satisfaction of payment obligations hereunder. The obligations of the Company   
under the Plan are unsecured and constitute a mere promise by the Company to    
make benefit payments in the future, and, to the extent that any person         
acquires a right to receive payments under the Plan from the Company (or, if    
applicable, a Participating Company), such right shall be no greater than the   

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right of a general unsecured creditor of the Company (or, if applicable, a      
Participating Company).                                                         

 20. CAPTIONS.  The use of captions in the Plan is for convenience.  The
captions are not intended to provide substantive rights.                        

 21. GOVERNING LAW.  THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND,
WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.                            

22. EXECUTION.  The Company has caused the Plan to be executed in the 
name and on behalf of the Company by an officer of the Company thereunto duly   
authorized.                                                                     

                           AMERICA FIRST MORTGAGE INVESTMENTS, INC.,
        a Maryland corporation

            By:  /s/ Stewart Zimmerman
         Name: Stewart Zimmerman
                               Title:  President and Chief Executive Officer

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EXHIBIT 24  

POWER OF ATTORNEY   

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 POWER OF ATTORNEY

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                           /s/ Michael B. Yanney
                                                               Michael B. Yanney

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POWER OF ATTORNEY 

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                            /s/ Michael L. Dahir
                                                                Michael L. Dahir

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POWER OF ATTORNEY 

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                            /s/ George V. Janzen
                                                                George V. Janzen

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POWER OF ATTORNEY 

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                            /s/ George H. Krauss
                                                                George H. Krauss

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POWER OF ATTORNEY 

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                             /s/ Gregor Medinger
                                                                 Gregor Medinger

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POWER OF ATTORNEY 

The undersigned hereby appoints Stewart Zimmerman 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, 1999, and any amendments          
thereto, required to be filed with the Securities and Exchange Commission by    
America First Mortgage Investments, Inc.                                        

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of   
the 1st day of February 2000.                                                   

                                                          /s/ W. David Scott
                                                                  W. David Scott

10-K405
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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		1/1/01		34
		3/31/00		40					10-Q,  DEF 14A
Filed on:		3/21/00
		3/16/00		43		44
		3/13/00		2
		3/10/00		2		40
		2/25/00		24
		2/18/00		15		37
		1/26/00		40
		1/12/00		40
		1/3/00		37
		1/1/00		40
For Period End:		12/31/99		1		64
		12/16/99		15		37
		11/17/99		37
		9/30/99		37					10-Q
		9/21/99		37		38
		8/17/99		37
		8/13/99		33		37			10-Q
		6/30/99		37					10-Q,  8-K
		6/14/99		37
		5/17/99		37					10-Q
		4/5/99		37
		3/24/99		37
		2/19/99		15		37
		1/1/99		40
		12/31/98		11		41			10-K
		12/15/98		15		37
		11/16/98		37					10-Q
		9/30/98		37					10-Q
		9/9/98		37
		8/14/98		37					10-Q
		6/30/98		37					10-Q
		6/18/98		37
		4/10/98		4		42			8-K,  8-K/A
		4/9/98		15		42
		4/6/98		33		37
		2/12/98		41		42			S-4
		1/1/98		23		40
		12/31/97		16		33
		11/11/97		23		27
		7/29/97		41
		7/24/97		4		31
		12/31/96		17		28
		12/31/95		17
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