Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 7, 2001

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on November 7, 2001

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


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

For the quarterly period ended September 30, 2001 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)


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

The number of shares of the Registrant's common stock outstanding on November
7, 2001, was 27,034,850.
































-i-
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
BALANCE SHEETS



September 30, 2001
(Unaudited) December 31, 2000
------------------ -----------------

Assets
Investment in mortgage securities (Note 3) $ 1,369,019,391 $ 470,575,671
Investment in corporate debt securities (Note 4) 9,187,159 15,665,727
Investment in corporate equity securities (Note 5) 5,444,507 9,010,538
Cash and cash equivalents
Unrestricted 22,438,662 8,400,539
Restricted 11,001,639 498,875
Accrued interest and dividends receivable 8,620,317 3,433,256
Other investments (Note 6) 9,512,480 6,540,570
Goodwill, net 7,238,471 7,388,247
Other assets 852,806 976,889
------------------ ---------------
$ 1,443,315,432 $ 522,490,312
================== ===============
Liabilities
Repurchase agreements (Note 7) $ 1,280,934,852 $ 448,583,432
Accrued interest payable 6,337,640 2,038,887
Accounts payable 1,143,063 550,209
Dividends payable 4,396,185 1,406,288
------------------ ---------------
1,292,811,740 452,578,816
------------------ ---------------

Stockholders' Equity
Common stock, $.01 par value; 375,000,000 shares authorized
19,034,850 and 8,692,825 issued and outstanding in 2001
and 2000, respectively (Note 8) 190,348 86,928
Additional paid-in capital 141,426,031 74,362,801
Retained earnings (accumulated deficit) 1,607,378 (440,084)
Accumulated other comprehensive income (loss) 7,279,935 (4,098,149)
------------------ ---------------
150,503,692 69,911,496
------------------ ---------------
$ 1,443,315,432 $ 522,490,312
================== ===============

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





























- 1 -

AMERICA FIRST MORTGAGE INVESTMENTS, INC.
STATEMENTS OF INCOME
(UNAUDITED)





For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------

Mortgage securities income $ 15,936,927 $ 8,311,213 $ 32,112,855 $ 24,923,364
Corporate debt securities income 361,066 400,671 1,261,464 897,031
Dividend income 128,898 263,266 568,974 722,316
Interest income on cash and cash equivalents 261,530 180,957 597,699 473,965
------------------ ------------------ ------------------ ------------------
Total interest and dividend income 16,688,421 9,156,107 34,540,992 27,016,676
Interest expense on borrowed funds 10,276,012 7,827,807 22,625,910 22,421,158
------------------ ------------------ ------------------ ------------------
Net interest and dividend income 6,412,409 1,328,300 11,915,082 4,595,518
------------------ ------------------ ------------------ ------------------
Income from other investments 228,819 2,911,658 3,173,940 3,414,020
Net gain (loss) on investments (123,669) 52,692 (374,588) 172,311
------------------ ------------------ ------------------ ------------------
105,150 2,964,350 2,799,352 3,586,331
------------------ ------------------ ------------------ ------------------
General and administrative expenses 1,430,233 994,723 3,335,995 1,968,683
------------------ ------------------ ------------------ ------------------
Net income $ 5,087,326 $ 3,297,927 $ 11,378,439 $ 6,213,166
================== ================== ================== ==================
Net income, basic, per share $ 0.27 $ 0.37 $ 0.92 $ 0.70
================== ================== ================== ==================

Net income, diluted, per share $ 0.27 $ 0.37 $ 0.92 $ 0.70
================== ================== ================== ==================



Weighted average number of shares outstanding,
basic 19,034,850 8,870,431 12,330,554 8,894,425
Weighted average number of shares outstanding,
diluted 19,148,345 8,895,033 12,424,211 8,910,290

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





























- 2 -

AMERICA FIRST MORTGAGE INVESTMENTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)



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


Balance at December 31, 2000 8,692,825 $ 86,928 $ 74,362,801 $ (440,084) $ (4,098,149) $ 69,911,496

Comprehensive income:
Net income - - - 11,378,439 - 11,378,439
Other comprehensive income - - - - 11,378,084 11,378,084
------------ ------------ ------------- ------------ ------------- -------------
Comprehensive income - - - 11,378,439 11,378,084 22,756,523
Dividends declared - - - (9,330,977) - (9,330,977)
Stock options
revaluation adjustment - - 28,739 - - 28,739
Issuance of common stock
to directors (Note 8) 6,811 68 49,935 - - 50,003
Issuance of common stock,
net of offering expenses (Note 8) 10,335,214 103,352 66,984,556 - - 67,087,908
------------ ------------ ------------- ------------ ------------- -------------
Balance at September 30, 2001 19,034,850 $ 190,348 $141,426,031 $ 1,607,378 $ 7,279,935 $ 150,503,692
============ ============ ============= ============ ============= =============

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








































- 3 -

AMERICA FIRST MORTGAGE INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)






For the Nine For the Nine
Months Ended Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------

Cash flows from operating activities
Net income $ 11,378,439 $ 6,213,166
Adjustments to reconcile net income to net cash
from operating activities:
Net gain on investments (2,382,936) (2,767,744)
Amortization of premiums on investments 2,352,744 1,138,154
Amortization of goodwill 149,776 149,776
Changes in assets and liabilities:
Increase in interest and dividends receivable (5,187,061) (1,099,695)
(Decrease) increase in other assets 205,371 (2,525,524)
Increase in accounts payable 592,854 387,538
Increase (decrease) in accrued interest payable 4,298,753 (380,138)
------------------- ------------------
Net cash provided by operating activities 11,407,940 1,115,533
------------------- ------------------
Cash flows from investing activities
Principal payments on mortgage securities 147,873,621 72,836,203
Proceeds from sale of mortgage securities 5,543,828 5,018,677
Proceeds from sale of corporate debt securities 2,516,275 372,500
Proceeds from sale of corporate equity securities 5,142,955 1,149,644
Proceeds from sale of other investments - 2,595,433
Purchases of mortgage securities (1,040,451,999) (95,081,513)
Purchases of corporate debt securities - (6,708,750)
Purchases of corporate equity securities (392,053) (6,835,392)
Increase in other investments (195,384) (115,488)
------------------- ------------------
Net cash used in investing activities (879,962,757) (26,768,686)
------------------- ------------------
Cash flows from financing activities
Net borrowings from repurchase agreements 832,351,420 21,288,459
Net proceeds from stock offering 67,087,908 -
(Increase) decrease in restricted cash
and cash equivalents (10,502,764) 2,936,732
Stock purchased for retirement - (599,637)
Dividends paid (6,343,624) (3,886,964)
------------------- ------------------
Net cash provided by financing activities 882,592,940 19,738,590
------------------- ------------------
Net increase (decrease) in unrestricted cash
and cash equivalents 14,038,123 (5,914,563)
Unrestricted cash and cash equivalents at
beginning of period 8,400,539 19,895,833
------------------- ------------------
Unrestricted cash and cash equivalents at
end of period $ 22,438,662 $ 13,981,270
=================== =================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 18,327,157 $ 22,801,296



During the nine months ended September 30, 2001 and 2000, the Company issued
6,811 and 7,804 shares of common stock, respectively, to its non-employee
directors in partial payment of the annual retainer paid by the Company to
such directors. The aggregate value of such common stock issued during the
nine months ended September 30, 2001 and 2000 was $50,003 and $39,996,
respectively.

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


- 4 -

AMERICA FIRST MORTGAGE INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001
(UNAUDITED)

1. Organization

America First Mortgage Investments, Inc. (the Company) was incorporated in
Maryland on July 24, 1997. The Company began operations on April 10, 1998
when it merged with three partnerships: America First Participating/Preferred
Equity Mortgage Fund Limited Partnership (Prep Fund 1), America First Prep
Fund 2 Limited Partnership (Prep Fund 2) and America First Prep Fund 2 Pension
Series Limited Partnership (Pension Fund).

The Company has entered into an advisory agreement with America First Mortgage
Advisory Corporation (the Manager) which provides advisory services in
connection with the conduct of the Company's business activities. Also see
Note 9 - Related Party Transactions for terms of the advisory agreement and
discussion of the proposed acquisition of the Manager by the Company.

2. Summary of Significant Accounting Policies

A) Basis of Presentation
The accompanying interim unaudited financial statements have been prepared
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted according to such
rules and regulations, although management believes that the disclosures
are adequate to make the information presented not misleading. The
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000. In the opinion of
management, all normal and recurring adjustments necessary to present
fairly the financial position at September 30, 2001 and results of
operations for all periods presented have been made. The results of
operations for the nine-month period ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full year.

As more fully discussed in Note 6, the Company has an investment in a
corporation and investments in five real estate limited partnerships, none
of which are controlled by the Company. These investments are accounted
for under the equity method.

The financial statements are prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

B) 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 Debt Securities and Corporate Equity
Securities
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 debt securities and corporate equity securities (collectively
referred to as investment securities) as either held-to-maturity,



- 5 -

available-for-sale or trading at the time of acquisition.

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
corporate equity securities as available-for-sale. Corporate debt
securities are classified as either held-to-maturity or available-for-sale
depending on management's current intentions and ability to hold such
securities to maturity. Mortgage securities, corporate equity securities
and corporate debt securities 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 debt securities
classified as held-to-maturity 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. Such calculations are adjusted for actual
prepayment activity.

Dividend income is recognized based on the ex-dividend date.

D) Credit Risk
The Company limits its exposure to credit losses on its investment
portfolio by requiring that at least 50% of its investment portfolio
consist of adjustable-rate mortgage securities that are 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). The remainder of the Company's assets
may be either: (i) investments in multifamily apartment properties; (ii)
investments in limited partnerships, real estate investment trusts or
closed-end funds owning a portfolio of mortgage assets; or (iii) other
fixed-income instruments (corporate debt or equity securities or mortgage
backed securities) that provide increased call protection relative to the
Company's mortgage assets. Corporate debt that is rated below
investment-grade will be limited to less than 5% of the Company's total
assets. As of September 30, 2001, and December 31, 2000, approximately 83%
and 75%, respectively, of the Company's total assets consisted of
adjustable-rate mortgage securities insured or guaranteed by the U.S.
government or an agency thereof. At September 30, 2001, management
determined no allowance for credit losses was necessary.

E) Other Investments
Other investments consist of certain non-consolidated investments accounted
for under the equity method, including: (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) Repurchase Agreements
Borrowings under repurchase agreements (see Note 7) are carried at their
unpaid principal balances, net of unamortized discount or premium. Any
discount or premium is recognized as an adjustment to interest expense


- 6 -

utilizing the interest method over the expected term of the related
borrowings.

G) 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 8, options to purchase 520,000 and
300,000 shares of common stock were granted on April 6, 1998, and August
13, 1999, respectively. During the three months ended September 30, 2001
and 2000, the average price of the Company's stock was greater than the
exercise price of the options granted on August 13, 1999. As such,
exercise of such options under the treasury stock method is dilutive.
Accordingly, these dilutive securities were considered in diluted earnings
per share. With regard to the options granted on April 6, 1998, the
exercise price is greater than the average stock price during the three
months ended September 30, 2001, and September 30, 2000; therefore,
exercise of such options under the treasury stock method would be
anti-dilutive. Accordingly, these potentially dilutive securities were
not considered in diluted earnings per share.

The following table sets forth the reconciliation of the weighted average
shares outstanding for the calculation of basic earnings per share to the
weighted average shares outstanding for the calculation of diluted
earnings per share for each period presented:


For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------ ------------------- ------------------ -------------------

Weighted average shares outstanding for
basic earnings per share 19,034,850 8,870,431 12,330,554 8,894,425
Add effect of assumed shares issued under
treasury stock method for stock options 113,495 24,602 93,657 15,865
Weighted average shares outstanding for ------------------ ------------------- ------------------- -------------------
diluted earnings per share 19,148,345 8,895,033 12,424,211 8,910,290
================== =================== =================== ===================


H) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the Company to display and report
comprehensive income, which includes all changes in Stockholders' Equity
with the exception of additional investments by or dividends to
shareholders. Comprehensive income for the Company includes net income and
the change in net unrealized holding gains (losses) on investments.

















- 7 -

Comprehensive income for the three and nine months ended September 30,
2001, and September 30, 2000 was as follows:



For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------ ------------------ ------------------ -------------------

Net income $ 5,087,326 $ 3,297,927 $ 11,378,439 $ 6,213,166
Other comprehensive income
Unrealized holding gains (losses)
Net unrealized holding gains
arising during the period 10,882,881 3,044,098 14,244,547 747,207

Change in classification of
corporate debt securities from
held-to-maturity to available-for-sale (3,012,937) - (3,012,937) -

Reclassification adjustment for
realized gains included in net income 185,923 - 146,474 -
------------------ ------------------- ------------------ ------------------
Other comprehensive income 8,055,867 3,044,098 11,378,084 747,207
------------------ ------------------- ------------------ ------------------
Comprehensive income $ 13,143,193 $ 6,342,025 $ 22,756,523 $ 6,960,373
================== =================== ================== ==================


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

J) New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities " ("FAS 133"). Certain provisions of FAS
133 were amended by Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" ("FAS 138")
in June, 2000. These statements provide new accounting and reporting
standards for the use of derivative instruments. Although the Company has
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.
As of January 1, 2001, the Company had no outstanding derivative hedging
instruments nor any imbedded derivatives requiring bifurcation and
separate accounting under FAS 133, as amended. Accordingly, there was no
cumulative effect upon adoption of FAS 133, as amended, on January 1, 2001.

In September, 2000, the FASB issued Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 140"). This statement is applicable
for transfers of assets and extinguishments of liabilities occurring after
March 31, 2001. The Company adopted the provisions of this statement as
required for all transactions entered into on or after April 1, 2001.
The adoption of FAS 140 did not have a significant impact on the Company.

In July, 2001, the FASB issued Financial Accounting Standards (FAS) No.
141, "Business Combinations" and FAS No. 142, "Goodwill and Other
Intangible Assets" which provide guidance on how entities are to account
for business combinations and for the goodwill and other intangible assets
that arise from those combinations or are acquired otherwise. These
standards are effective for the Company on January 1, 2002.

FAS 142 will require that goodwill no longer by amortized, but instead be
tested for impairment at least annually. As of the date of adoption, the
Company expects to have unamortized goodwill in the amount of approximately
$7,189,000. Amortization expense related to such goodwill was
approximately $150,000 for the nine month period ended September 30, 2001
and is expected to be approximately $200,000 for the year ended December

- 8 -

31, 2001. Management expects to adopt such statement effective January 1,
2002, as required but has not yet completed its evaluation as to the
potential implications to the financial statements.

In October, 2001, the FASB issued Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("FAS 144"). FAS 144 provides new guidance on the recognition of
impairment losses on long-lived assets to be held and used or to be
disposed of and also broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are
to be measured and presented. The provisions of FAS 144 are effective for
the Company on January 1, 2002. The adoption of FAS 144 is not expected to
have a significant impact on the Company.

K) Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.

3. Mortgage Securities

The following table presents the Company's mortgage securities as of September
30, 2001 and December 31, 2000.



September 30, 2001
(Unaudited) December 31, 2000
------------------ -----------------

FNMA Certificates $ 929,974,143 $ 377,668,990
GNMA Certificates 13,461,932 24,529,046
FHLMC Certificates 265,211,640 8,981,226
Commercial mortgage securities 11,631,000 17,135,031
Non-agency AAA assets 148,740,676 42,261,378
------------------ -----------------
$ 1,369,019,391 $ 470,575,671
================== =================


At September 30, 2001, and December 31, 2000, mortgage securities consisted of
pools of adjustable-rate mortgage securities with carrying values of
$1,357,044,781 and $450,992,165, respectively, and fixed-rate mortgage
securities with carrying values of $11,974,610 and $19,583,506, 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.

The 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 securities are rated AA or A by Standard and
Poor's.

The non-agency assets are generally rated AAA by Standard and Poor's.

At September 30, 2001, and December 31, 2000, all mortgage securities were
classified as available-for-sale and as such are carried at their fair value.
The following table presents the amortized cost, gross unrealized gains, gross





- 9 -

unrealized losses and fair value of the mortgage securities at September 30,
2001, and December 31, 2000, respectively:



As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------

Amortized cost $ 1,359,167,703 $ 474,638,436
Gross unrealized gains 11,194,592 351,662
Gross unrealized losses (1,342,904) (4,414,427)
------------------ ------------------
Fair value $ 1,369,019,391 470,575,671
================== ==================


4. Corporate Debt Securities

Corporate debt securities are classified as either held-to-maturity or
available-for-sale. Prior to September 30, 2001, all corporate debt
securities were classified as held-to-maturity. However, on September 30,
2001, because the continued deterioration of the issuer's credit worthiness
has resulted in a change in management's long term plans to hold certain
corporate debt securities, these investments were reclassified from the
held-to-maturity classification to the available-for-sale classification and
as such are now carried at their fair value. The total amortized cost, gross
unrealized losses and aggregate fair value of the securities transferred were
$4,587,937, $3,012,937 and $1,575,000 respectively. As a result of the change
in classification, other comprehensive income decreased by $3,012,937.

The following tables presents the amortized cost, gross unrealized gains, gross
unrealized losses and fair value of the corporate debt securities as of
September 30, 2001, and December 31, 2000:




Held-to-maturity securities:
As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------

Amortized cost $ 7,612,159 $ 15,665,727
Gross unrealized gains - 24,900
Gross unrealized losses (4,087,159) (3,795,002)
------------------ ------------------
Fair value $ 3,525,000 $ 11,895,625
================== ==================





Available-for-sale securities:

As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------

Amortized cost $ 4,587,937 $ -
Gross unrealized gains - -
Gross unrealized losses (3,012,937) -
------------------ ------------------
Fair value $ 1,575,000 $ -
================== ==================






- 10 -

The following table presents the carrying value of corporate debt securities
at September 30, 2001 and December 31, 2000:




As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------

Held-to-maturity securities $ 7,612,159 $ 15,665,727
Available-for-sale securities 1,575,000 -
------------------ ------------------
Carrying value $ 9,187,159 $ 15,665,727
================== ==================



The Company recognized a permanent impairment loss of $273,890 during the
three months ended June 30, 2001, on one of its investments in
corporate debt securities. The amortized cost basis of such security was
adjusted accordingly. During the three months ended September 30, 2001, the
Company sold its entire remaining investment in such security and realized an
additional loss of approximately $332,000 on such sale.

5. Corporate Equity Securities

Corporate equity securities are classified as available-for-sale. The
following table presents the cost, gross unrealized gains, gross unrealized
losses and fair value of the corporate equity securities as of September 30,
2001, and December 31, 2000:



As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ ------------------

Cost $ 5,003,324 $ 9,045,923
Gross unrealized gains 784,648 613,843
Gross unrealized losses (343,465) (649,228)
------------------ -------------------
Fair value $ 5,444,507 $ 9,010,538
================== ===================


The Company recognized a permanent impairment loss of $124,000 during the three
months ended March 31, 2001, on one of its investments in corporate equity
securities. The cost basis of such security was adjusted accordingly. During
the three months ended September 30, 2001, the Company sold its entire
investment in such equity security and realized an additional loss of
approximately $77,000 on such sale.

6. Other Investments

Other investments consisted of the following as of September 30, 2001 and
December 31, 2000:



As of
September 30, 2001 As of
(Unaudited) December 31, 2000
------------------ -----------------

Investment in Retirement Centers Corporation $ 5,166,794 $ 2,540,180
Investment in and advances to real estate limited partnerships 4,345,686 4,000,390
------------------ -----------------
Total $ 9,512,480 $ 6,540,570
================== ==================



- 11 -

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 September 30, 2001, RCC owned (i) a 128-unit apartment property located
in Omaha, Nebraska, which was acquired on January 12, 2000 and (ii) an 88.3%
undivided interest in a 192-unit apartment property located in Lawrenceville,
Georgia, which was acquired on January 18, 2001.

At December 31, 2000, RCC owned (i) the 128-unit apartment property referenced
above and (ii) a limited partnership interest in a real estate limited
partnership which operates an assisted living center located in Salt Lake
City, Utah. On January 2, 2001, the limited partnership which owned the
assisted living center was liquidated with RCC receiving an undivided interest
in the net assets of such partnership. RCC then sold its undivided interest
in the net assets of the assisted living center. Such sale contributed
approximately $2,100,000 ($2,600,000 less an incentive fee of approximately
$511,000) (see Note 9) to the Company's net income for the nine months ended
September 30, 2001. The proceeds of such sale were utilized to acquire the
192-unit apartment property on January 18, 2001 as discussed above.

Investments in and advances to unconsolidated real estate limited partnerships
consist of investments in or advances made to limited partnerships which own
properties. These investments are not insured or guaranteed by any government
agency or third party. The value of these investments is a function of the
underlying value of 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
the Company has no legal obligation to provide additional cash support to the
underlying property partnerships as it is not the general partner, nor has it
indicated any commitment to provide this support. As of September 30, 2001,
and December 31, 2000, the Company had investments in five (including the
acquisition discussed below) such limited partnerships. On January 18, 2001,
the Company and one of its real estate limited partnerships acquired the
remaining 11.7% undivided interest in the 192-unit apartment property
discussed above.

7. Repurchase Agreements

The Company finances the acquisition of its mortgage securities at
short-term borrowing rates through the use of repurchase agreements. Under a
repurchase agreement, the Company sells securities to a lender and agrees to
repurchase those securities in the future for a price that is higher than the
original sales price. The difference between the sale price the Company
receives and the repurchase price the Company pays represents interest paid to
the lender. Although structured as a sale and repurchase obligation, a
repurchase agreement operates as a financing under which the Company
effectively pledges its securities 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. The Company retains beneficial ownership of the pledged
collateral, including the right to distributions. At the maturity of a
repurchase agreement, the Company is required to repay the loan and
concurrently receives back its pledged collateral from the lender or, with the
consent of the lender, the Company renews 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 the
existing pledged collateral declines. Through September 30, 2001, the Company
has not had margin calls on its repurchase agreements that it was not able to
satisfy with either cash or additional pledged collateral.

The Company's repurchase agreements generally range from one month to one year
in duration. Should the providers of the repurchase agreements decide not to
renew them at maturity, the Company must either refinance these obligations or
be in a position to satisfy 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 "A" or better as
determined by both Standard and Poor's Corporation and Moody's Investors
Services, where applicable. If this minimum criterion is not met, then the
Company will not enter into repurchase agreements with that lender without the

- 12 -

specific approval of its board of directors. In the event an existing lender
is downgraded below "A," the Company will seek board approval before entering
into additional repurchase agreements with that lender. The Company generally
seeks to diversify its exposure by entering into repurchase agreements with at
least four lenders with a maximum exposure to any lender of no more than three
times the Company's stockholders' equity. As of September 30, 2001, the
Company had repurchase agreements with nine lenders with a maximum exposure to
any one lender of not more than 2.2 times its stockholders' equity.

As of September 30, 2001, the Company had outstanding balances of
$1,280,934,852 under 96 repurchase agreements with a weighted average
borrowing rate of 3.62% and a weighted average remaining maturity of 4.6
months. As of September 30, 2001, all of the Company's borrowings were
fixed-rate term repurchase agreements with original maturities that range from
one to twelve months. As of December 31, 2000, the Company had outstanding
balances of $448,583,432 under 55 repurchase agreements with a weighted
average borrowing rate of 6.60%.

At September 30, 2001, the repurchase agreements had the following remaining
maturities:




Within 30 days $ 195,409,010
30 to 90 days 130,218,102
90 days to one year 955,307,740
---------------
$ 1,280,934,852
===============


The repurchase agreements are collateralized by the Company's mortgage
securities and corporate debt securities with an aggregate current face value
of approximately $1.338 billion and corporate equity securities with a current
market value of approximately $5.4 million. The repurchase agreements
generally bear interest at rates that are London Interbank Offered Rate
("LIBOR") based.

8. Stockholders' Equity

Common Stock Offerings
------------------------
The Company filed a registration statement with respect to a public offering
and sale of 9,000,000 shares of its common stock that became effective June
21, 2001. In addition, the Company granted the underwriters an option to
purchase up to 1,335,214 additional shares to cover over-allotments which the
underwriters exercised in full. The public offering closed on June 27, 2001.
The shares were priced at $7 per share with the Company receiving net proceeds
of approximately $67.1 million after deducting total offering costs of
approximately $5.2 million, including underwriting discounts.

On September 25, 2001, the Company filed a registration statement with the
Securities and Exchange Commission relating to the future offerings of up to
$300,000,000 of its common stock, preferred stock or any combination thereof.
The Company may offer any or all of these shares for cash at any time or from
time to time, in a variety of transactions, including underwritten public
offerings. To the extent the Company raises additional capital from the
offering of its common or preferred stock, the Company would anticipate that
the net proceeds of any such offering would be used to acquire additional
mortgage securities, interests in multifamily apartment properties and
other investments consistent with its investment criteria, and for general
corporate purposes. There can be no assurance, however, that the Company will
be able to raise additional equity capital at any time or on any particular
terms. See Note 10 - Subsequent Events for a discussion of the underwritten
public offering of 8,000,000 shares of common stock under this registration
statement that closed on November 7, 2001.

Also see Note 9 - Related Party Transactions, for a discussion of the
1,287,501 shares of common stock to be issued in conjunction with the proposed
merger between the Company and the Manager.




- 13 -

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 1,400,000 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 within ten years after the date
granted or upon certain other conditions.

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 September 30, 2001 and December 31, 2000, 725,000 and
525,000, respectively, ISOs were vested and exercisable. During the three and
nine months ended September 30, 2001, 5,000 NQSQs expired. As of September
30, 2001 and December 31, 2000, 15,000 and 20,000, respectively, NQSOs were
vested and exercisable. As of September 30, 2001, no options had been
exercised.

In addition to the options granted on April 6, 1998, 500,000 and 5,000 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 on ISOs vest on the same basis as the options. DERs on NQSOs became
fully vested in April, 1999. 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 three and nine months ended September 30, 2001, the Company recorded
charges of $112,500 and $282,500, respectively, to stockholders' equity
(included in dividends paid or accrued) associated with the DERs on ISOs and
charges of $844 and $2,544, respectively, to earnings associated with DERs on
NQSOs. For the three and nine months ended September 30, 2000, the Company
recorded charges of $58,125 and $163,125, respectively, to stockholders'
equity (included in dividends paid or accrued) associated with DERs on ISOs
and charges of $775 and $2,875, 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 is 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 three and nine months ended September 30,
2001, as part of operations, the Company reflected earnings charges of $9,802
and $145,945, respectively, representing the value of ISOs/DERs granted over
their vesting period. For the three and nine months ended September 30, 2000,
as part of operations, the Company reflected earnings charges of $14,344 and
$167,019, respectively, representing the value of the 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.

The Company pays its non-employee directors a portion of their annual retainer
in common stock of the Company. During the nine months ended September 30,
2001, and 2000, the Company issued 6,811 and 7,804 shares of its common stock

- 14 -

with an aggregate value of $50,003 and $39,996, respectively, to such
directors (none during the three months ended September 30, 2001, and 2000,
respectively).

Dividends
---------
The Company declared the following dividends during 2001 and 2000:




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

During 2001:

February 12, 2001 April 16, 2001 April 30, 2001 $ 0.165
April 9, 2001 June 30, 2001 July 16, 2001 $ 0.175
September 19, 2001 October 2, 2001 October 18, 2001 $ 0.225

During 2000:

March 17, 2000 April 14, 2000 May 17, 2000 $ 0.140
June 14, 2000 June 30, 2000 August 17, 2000 $ 0.140
September 8, 2000 October 16, 2000 November 17, 2000 $ 0.155
December 14, 2000 January 15, 2001 January 30, 2001 $ 0.155




Stock Repurchase Plan
---------------------

During the fourth quarter of 1999, the Company implemented a 600,000 share
repurchase program. Pursuant to this program, through September 30, 2001, the
Company has purchased and retired 378,221 shares at an aggregate cost of
$1,923,821 (none during the three or nine months ended September 30, 2001).

9. Related Party Transactions

The Manager manages the operations and investments of the Company and performs
administrative services for the Company. In turn, the Manager 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 Manager, on a quarterly basis, an
incentive compensation fee of 20% of the amount by which its Return on Equity
for each quarter exceeds a return based on the Ten-Year U.S. Treasury Rate
plus 1%. For the three and nine months ended September 30, 2001, the Manager
earned a base management fee of $395,229 and $875,279, respectively, and
incentive compensation of $743,189 and $1,753,112, respectively. For the
three and nine months ended September 30, 2000, the Manager earned a base
management fee of $183,572 and $545,919, respectively, and incentive
compensation of $544,985 and $670,214, respectively.

America First Properties Management Company L.L.C., (the Property Manager),
provides property management services for multifamily properties in which the
Company has an interest. The Property 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
entities which own the multifamily properties in which the Company has an
interest for the three and nine months ended September 30, 2001, amounted to
$107,758 and $327,334, respectively, and such fees paid for the three and nine
months ended September 30, 2000, amounted to $96,774 and $288,340,
respectively.

The Company entered into an Agreement and Plan of Merger, dated as of
September 24, 2001 (the "Merger Agreement") with the Manager, America First
Companies L.L.C., the principal stockholder of the Manager ("AFC"), and
Stewart Zimmerman, William S. Gorin, and Ronald A. Freydberg, the other
stockholders of the Manager (the "Manager Stockholders"). Pursuant to the
Merger Agreement, the Manager will merge with and into the Company, and the
Company will become a self-advised real estate investment trust. Under the

- 15 -

Merger Agreement, the Company will issue 1,287,501 shares of its common stock
to the owners of the Manager. The issuance of shares of the Company's common
stock pursuant to, and the other transactions contemplated by the Merger
Agreement are conditioned upon, among other things, the affirmative vote of a
majority of the shares of the Company's common stock voting at a
special meeting of stockholders which is expected to take place in the fourth
quarter of 2001. On October 9, 2001, the Company filed a preliminary proxy
statement with the Securities and Exchange Commission with respect to
this special meeting of stockholders.

10. Subsequent Events

On October 16, 2001, in order to reduce interest rate risk exposure on its
LIBOR-based repurchase agreements, the Company entered into a LIBOR interest
rate cap agreement struck at 5.75% for a notional amount of $50 million
covering the monthly periods from October 25, 2002 to October 25, 2004.

On November 7, 2001, the Company closed an underwritten public offering of
8,000,000 shares of its common stock. As of that date, the underwriters had
not exercised their option to purchase up to 1,200,000 additional shares to
cover over-allotments. The shares were priced at $8.00 per share with the
Company receiving net proceeds of approximately $59.7 million after payment of
offering expenses of $4,300,000, including underwriting discounts. Net
proceeds of the offering will be utilized to acquire additional
adjustable-rate mortgage securities.


















































- 16 -

Item 2.
AMERICA FIRST MORTGAGE INVESTMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with all of the
financial statements and notes included in Item 1 of this report as well as
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

General

The Company was incorporated in Maryland on July 24, 1997. The Company began
operations on April 10, 1998 when it merged with three partnerships: America
First Participating/Preferred Equity Mortgage Fund Limited Partnership ("Prep
Fund 1"), America First Prep Fund 2 Limited Partnership ("Prep Fund 2") and
America First Prep Fund 2 Pension Series Limited Partnership ("Pension Fund").

America First Mortgage Advisory Corporation (the "Manager") provides advisory
services to the Company in connection with the conduct of the Company's
business activities. The Company's principal investment strategy includes
leveraged investing in adjustable-rate mortgage securities. The Company's
investment strategy also provides for the acquisition of multifamily housing
properties, REIT securities and high-yield corporate securities.

The Company has elected to become subject to tax as a real estate investment
trust ("REIT") for federal income tax purposes beginning with its 1998 taxable
year and, as such, anticipates distributing annually at least 90% (95% prior
to January 1, 2001) 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. The Company declared the following dividends during 2001 and
2000:




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

During 2001:

February 12, 2001 April 16, 2001 April 30, 2001 $ 0.165
April 9, 2001 June 30, 2001 July 16, 2001 $ 0.175
September 19, 2001 October 2, 2001 October 18, 2001 $ 0.225

During 2000:

March 17, 2000 April 14, 2000 May 17, 2000 $ 0.140
June 14, 2000 June 30, 2000 August 17, 2000 $ 0.140
September 8, 2000 October 16, 2000 November 17, 2000 $ 0.155
December 14, 2000 January 15, 2001 January 30, 2001 $ 0.155




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.

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, cash provided by operations and proceeds from public
equity offerings. Principal uses of cash include the acquisition of
investment securities, the payment of operating expenses and the payment of
dividends to shareholders.

During the nine months ended September 30, 2001, the Company acquired $1.041

- 17 -

billion of mortgage securities and corporate equity securities. Financing for
these acquisitions was provided primarily through the utilization of
repurchase agreements, supplemented by cash flow from operations and net
proceeds from the public offering of common stock described below. Net
borrowings under repurchase agreements totaled $832.4 million during the nine
months ended September 30, 2001. The Company also received principal payments
of $147.9 million on its mortgage securities and proceeds of $13.2 million
from the sale of mortgage securities, corporate debt securities and corporate
equity securities during the nine months ended September 30, 2001. Other uses
of funds during the nine months ended September 30, 2001, included $3.3
million primarily for the acquisition of an interest in a multifamily housing
property and $6.3 million for dividend payments.

The Company's borrowings under repurchase agreements totaled $1.281 billion at
September 30, 2001, and had a weighted average borrowing rate of 3.62% as of
such date. At September 30, 2001, the repurchase agreements had balances of
between $0.2 million and $68.0 million. These arrangements generally have
original terms to maturity ranging from one month to twelve months and annual
interest rates that are generally based on LIBOR. To date, the Company has
not had margin calls on its repurchase agreements that it was not able to
satisfy with either cash or additional pledged collateral.

On June 27, 2001, the Company closed a public offering of 10,335,214 shares of
its common stock. The offering included the full exercise of the
underwriters' option to purchase up to 1,335,214 additional shares to cover
over-allotments. The shares were priced at $7 per share with the Company
receiving net proceeds of approximately $67.1 million net of offering expenses
of $5.2 million, including underwriting discounts. Net proceeds of this
offering were fully utilized to acquire additional adjustable-rate mortgage
securities during the three months ended September 30, 2001.

On September 25, 2001, the Company filed a registration statement with the
Securities and Exchange Commission relating to $300,000,000 of its common
stock and preferred stock that the Company may offer from time to time for
cash in a variety of transactions, including underwritten public offerings.
On November 7, 2001, the Company closed an underwritten public offering of
8,000,000 shares of its common stock pursuant to this registration statement.
As of that date, the underwriters had not exercised their option to purchase
up to 1,200,000 additional shares to cover over-allotments. The shares were
sold at a public offering price of $8.00 per share, less commissions and
discounts of $0.48 per share. Net offering proceeds after commissions,
discounts and other offering expenses totaled approximately $59.7 million.
The Company anticipates using the net proceeds of the offering to acquire
additional adjustable-rate mortgage securities on a leveraged basis during the
fourth quarter of 2001. To the extent the Company raises additional equity
capital from future sales of common and/or preferred stock under this
registration statement, it anticipates using the net proceeds to acquire
additional mortgage securities, interests in multifamily apartment properties
and other investments consistent with its investment policies. There can be
no assurance, however, that the Company will be able to raise additional
equity capital at any particular time or on any particular terms.

The primary component of the Company's general and administrative expenses are
the base advisory and incentive compensation fees paid to the Manager. See
Note 9 to the Financial Statements - Related Party Transactions for a
description of these fees. Due to the increase in the Company's assets and
stockholders' equity during 2001, its Board of Directors determined that the
Company should become a "self-advised" REIT. Accordingly, on September 24,
2001, the Company entered into a merger agreement with the Manager and the
stockholders of the Manager (the "Merger Agreement") under which the Manager
will be merged with and into the Company. If the merger is completed, the
employees of the Manager will become employees of the Company and the Company
will assume all of the costs of operating its business, some of which are
currently paid by the Manager. In addition, the Company's obligation to pay
the base advisory and incentive compensation fees to the Manager will
terminate upon the closing of the merger. Management of the Company believes
that, under current market conditions, the additional costs incurred in
operating the Company on a self-advised basis will be less than the amount of
the fees that would be payable to the Manager had the Company remained an
"externally-advised" REIT. However, there can be no assurance that the
Company will incur lower expenses as a self-advised REIT. In addition, under
the Merger Agreement, the Company will issue 1,287,501 shares of its common
stock to the stockholders of the Manager. These shares will represent
approximately 4.5% of the total outstanding shares of common stock after the

- 18 -

merger. As a result, earnings per share could decrease as a result of the
merger even though the Company's costs decline as a result of becoming
self-advised. The closing of the merger is subject to a number of conditions,
including the approval of a majority of the shares of the Company's common
stock voting at a special meeting of the stockholders that is expected to be
held in the fourth quarter of 2001.

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

The terrorist attacks which occurred in New York City and Washington, D.C. on
September 11, 2001, and the subsequent military actions taken by the United
States and its allies in response, have caused significant uncertainty in the
global financial markets. While the short-term and long-term affects of these
events and their potential consequences are uncertain, they could have a
material adverse effect on general economic conditions, consumer confidence
and market liquidity. Among other things, it is possible that short-term
interest rates may be affected by these events. If short-term interest rates
increase rapidly, it would cause the Company's borrowing costs to increase
faster than increases in the interest rates the Company earns on its
adjustable-rate mortgage securities. If that were to happen, the Company's
earnings would be negatively affected. In addition, the rate of prepayment on
the mortgages underlying the Company's mortgage securities could increase as a
result of adverse economic conditions, changes in interest rates and other
factors, all of which could be affected by the events of September 11, 2001
and their aftermath.

Results of Operations

Three Month Period Ended September 30, 2001 Compared to 2000

During the three months ended September 30, 2001, total interest and dividend
income increased $7.53 million (82.3%) compared to the same period in the
prior year. Mortgage securities income increased $7.63 million (91.8%) from
$8.31 million to $15.94 million; income recognized on short-term investments
in cash and cash equivalents increased $0.1 million. Increases in income
from mortgage securities and income on cash and cash equivalents were
partially offset by decreases in income from corporate debt securities and
dividends of $0.2 million (26.2%). The increase in mortgage securities
income was primarily the result of an increase in the Company's mortgage
securities portfolio of $877.4 million (178.5%) from $491.6 million as of
September 30, 2000 to $1.369 billion as of September 30, 2001. The decrease
in corporate debt securities and dividend income is primarily attributable to
a reduction in the average amount invested in such securities as a result of
sales of the underlying investments.

The Company's interest expense increased $2.4 million (31.3%) for the three
months ended September 30, 2001, compared to the same period in 2000. Such
increase is primarily due to an increase of $807.5 million (170.6%) in
repurchase agreements balances from $473.4 million as of September 30, 2000 to
$1.281 billion as of September 30, 2001 partially offset by a decrease in the
Company's average interest cost from 6.62% to 3.87% for the three months ended
September 30, 2000 and 2001, respectively.

As a result of the increase in the Company's mortgage securities portfolio and
the widening of the Company's interest rate margin (calculated by dividing
annualized net interest and dividend income by average interest earning
assets), net interest and dividend income increased $5.1 million (382.8%) from
$1.3 million to $6.4 million for the three months ended September 30, 2000 and
2001, respectively.

Income from other investments decreased $2.7 million for the three months
ended September 30, 2001, compared to the same period in 2000. Included in
such income for the three months ended September 30, 2000 is a gain of
approximately $2.6 million which resulted from the sale of the underlying real
estate of an unconsolidated real estate limited partnership. The remaining
decrease of $0.1 million is the result of a reduction in income generated by
the Company's investments in unconsolidated real estate limited partnerships.

The Company recognized a net loss of approximately $124,000 resulting from the
sales of certain corporate debt and equity investments during the three months
ended September 30, 2001 compared to a net gain of approximately $53,000
resulting from the sales of certain corporate equity securities during the

- 19 -

three months ended September 30, 2000. Such 2001 losses resulted from the
sales of certain corporate debt and equity securities of approximately
$409,000 offset by gains from the sales of certain corporate debt and equity
securities of approximately $285,000.

General and administrative expenses for the Company for the three months ended
September 30, 2001, increased $0.4 million as compared to the three months
ended September 30, 2000. Such increase is primarily attributable to higher
base management and incentive compensation fees earned by the Manager due to
an increase in income generated by the Company.

Nine Month Period Ended September 30, 2001 Compared to 2000

During the nine months ended September 30, 2001, total interest and dividend
income increased $7.52 million (27.9%) compared to the same period in the
prior year. Mortgage securities income increased $7.19 million (28.9%) from
$24.92 million to $32.11 million. Income recognized on short-term investments
in cash and cash equivalents increased $0.12 million and income from corporate
debt securities increased $0.36 million. Increases in income from mortgage
securities, income on cash and cash equivalents and interest on corporate debt
securities were partially offset by a decrease in dividend income of $0.15
million. The increase in mortgage securities income was primarily the result
of an increase in the Company's mortgage securities portfolio of $877.4
million (178.5%) from $491.6 million as of September 30, 2000 to $1.369
billion as of September 30, 2001. The increase in income from corporate debt
securities and income on short-term investments in cash and cash equivalents
was primarily the result of an increase in the average balances of such
investments during the period. The decrease in dividend income is primarily
attributable to a reduction in the average amount invested in such securities
as a result of sales of the underlying investments.

The Company's interest expense increased $0.2 million for the nine months
ended September 30, 2001, compared to the same period in 2000. Although
repurchase agreements balances increased $807.5 million from $473.4 million as
of September 30, 2000 to $1.281 billion as of September 30, 2001, the average
interest cost decreased from 6.46% to 4.55% for the nine months ended
September 30, 2000 and 2001, respectively.

As a result of the widening of the Company's interest rate margin, net
interest and dividend income increased $7.32 million (159.3%) from $4.60
million to $11.92 million for the nine months ended September 30, 2000 and
2001, respectively.

Income from other investments decreased approximately $0.2 million for the
nine months ended September 30, 2001, compared to the same period in 2000 as a
result of a reduction in income generated by the Company's investments in
unconsolidated real estate limited partnerships. Included in such income for
the nine months ended September 30, 2001, is a gain of approximately $2.6
million which resulted from the sale by a non-consolidated subsidiary of its
undivided interest in the net assets of an assisted living center. Included in
such income for the nine months ended September 30, 2000 is a gain of
approximately $2.6 million which resulted from the sale of the underlying real
estate of an unconsolidated real estate limited partnership.

The Company recognized a net loss of approximately $0.38 million on its
investments during the nine months ended September 30, 2001. Such net loss
resulted from permanent impairment losses recognized on one of each of its
investments in corporate debt and equity securities totaling approximately
$0.4 million (See Notes 4 and 5). In addition, the Company recognized losses
of approximately $1.01 million on sales of certain corporate debt and equity
securities. Such losses were partially offset by gains on sales of commercial
mortgage securities and corporate debt and equity securities of approximately
$1.03 million. This compares to a net gain of $0.17 million recognized during
the nine months ended September 30, 2000 resulting from the sale of corporate
debt securities and corporate equity securities for a gain of $0.36 million
which was partially offset by a loss of approximately $0.19 million on the
sale of numerous small pools of fixed-rate mortgage securities.

General and administrative expenses for the Company for the nine months ended
September 30, 2001, increased $1.4 million as compared to the nine months
ended September 30, 2000. Such increase is primarily attributable to higher
base management and incentive compensation fees earned by the Manager of which
$0.5 million resulted from the sale described in Note 6 and $0.6 million
resulted from an increase in income generated by the Company.

- 20 -

New Accounting Pronouncements

In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities " ("FAS 133"). Certain provisions of FAS 133 were
amended by Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" ("FAS 138") in June,
2000. These statements provide new accounting and reporting standards for the
use of derivative instruments. Although the Company has 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. As of January 1, 2001, the Company had no
outstanding derivative hedging instruments nor any imbedded derivatives
requiring bifurcation and separate accounting under FAS 133, as amended.
Accordingly, there was no cumulative effect upon adoption of FAS 133, as
amended, on January 1, 2001.

In September, 2000, the FASB issued Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 140"). This statement is applicable for
transfers of assets and extinguishments of liabilities occurring after March
31, 2001. The Company adopted the provisions of this statement as required
for all transactions entered into on or after April 1, 2001. The adoption of
FAS 140 did not have a significant impact on the Company.

In July, 2001, the FASB issued Financial Accounting Standards (FAS) No. 141,
"Business Combinations" and FAS No. 142, "Goodwill and Other Intangible
Assets" which provide guidance on how entities are to account for business
combinations and for the goodwill and other intangible assets that arise from
those combinations or are acquired otherwise. These standards are effective
for the Company on January 1, 2002.

FAS 142 will require that goodwill no longer by amortized, but instead be
tested for impairment at least annually. As of the date of adoption, the
Company expects to have unamortized goodwill in the amount of approximately
$7,189,000. Amortization expense related to such goodwill was approximately
$150,000 for the nine month period ended September 30, 2001 and is expected to
be approximately $200,000 for the year ended December 31, 2001. Management
expects to adopt such statement effective January 1, 2002, as required but has
not yet completed its evaluation as to the potential implications to the
financial statements.

In October, 2001, the FASB issued Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 provides new guidance on the recognition of impairment losses on
long-lived assets to be held and used or to be disposed of and also broadens
the definition of what constitutes a discontinued operation and how the
results of a discontinued operation are to be measured and presented. The
provisions of FAS 144 are effective for the Company on January 1, 2002. The
adoption of FAS 144 is not expected to have a significant impact on the
Company.

Other Matters

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 September 30,
2001, the Company determined that it is in and has maintained compliance with
this requirement.


- 21 -

Forward Looking Statements

When used in this Form 10-Q, 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.

These forward-looking statements are subject to various risks and
uncertainties, including those relating to:

- increases in the prepayment rates on the mortgage loans securing the
Company's mortgage securities;
- changes in short-term interest rates;
- the Company's ability to use borrowings to finance its assets;
- whether the Company becomes a self-advised company or continues to be
externally-advised;
- increases in the Company's advisory fees if it does not become
self-advised;
- expenses associated with the process of becoming self-advised;
- risks associated with investing in real estate, including changes in
business conditions and the general economy;
- changes in government regulations affecting the Company's business; and
- the Company's ability to maintain its qualification as a real estate
investment trust for federal income tax purposes.

These risks, uncertainties and factors could cause the Company's actual
results to differ materially from those projected in any forward-looking
statements it makes.

All forward looking statements speak only as the date they are made and the
Company does not undertake, and specifically disclaims, any obligation to
update any forward-looking statement to reflect events or circumstances after
the date of such statements.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company's market risk since
December 31, 2000.


































- 22 -

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

The Company sold 10,335,214 shares of its common stock in an underwritten
public offering on June 27, 2001 (SEC Registration No. 333-59800). Net
proceeds of the offering, after deduction of underwriting discounts and
expenses, were approximately $67.1 million. During the three months ended
September 30, 2001, all remaining net proceeds of this public offering
were utilized by the Company to acquire adjustable-rate mortgage
securities.
































































- 23 -

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

2.1 Agreement and Plan of Merger by and among the Registrant,
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 Registrant pursuant to the
Securities Act of 1933 (Commission File No. 333-46179)).

2.2 Agreement and Plan of Merger by and among the Registrant,
America First Mortgage Advisory Corporation ("AFMAC") and
the shareholders of AFMAC dated September 24, 2001
(incorporated herein by reference to Exhibit A of the
Preliminary Proxy Statement dated October 9, 2001, filed
by the Company pursuant to the Securities Exchange Act of
1934 (Commission File No. 1-13991)).

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

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

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 Registrant 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 Manager (incorporated herein by
reference to 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 Addendum to Employment Agreement of Stewart Zimmerman
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).

10.6 Addendum to Employment Agreement of William S. Gorin
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).

- 24 -

10.7 Addendum to Employment Agreement of Ronald A. Freydberg
(incorporated herein by reference to Form 10-Q dated
March 31, 2000, filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 1-13991)).

10.8 Second Amended and Restated 1997 Stock Option Plan of the
Company (incorporated herein by reference to Form 10-Q
dated August 10, 2001, filed with the Securities and
Exchange Commission pursuant to the Securities Exchange
Act of 1934 (Commission File No. 1-13991)).


(b) Reports on Form 8-K

The Registrant filed the following reports on Form 8-K during
the quarter for which this report is filed:

Item Reported Financial Statements Filed Date of Report

5. Other Events No September 24, 2001






















































- 25 -


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: November 7, 2001 AMERICA FIRST MORTGAGE INVESTMENTS, INC.

By /s/ Stewart Zimmerman
Stewart Zimmerman
President and Chief Executive Officer

By /s/ William S. Gorin
William S. Gorin
Authorized Officer and Chief Financial Officer



























































- 26 -